Telecom Italia Group preliminary results
- Consolidated revenues: 21.573 billion euros (-5.4% in organic terms compared with 2013)
- Consolidated EBITDA: 8.786 billion euros (-6.8% in organic terms compared with 2013)
- Investments: 4.984 billion euros (including the purchase of the 700mhz license in Brazil), an increase of 584 million euros compared to 2013 (4.4 billion euros)
- Adjusted net financial debt: 26.651 billion euros, down by 156 million euros compared to the same period of the previous year, including the impact of 0.9 billion euros for the purchasing of the spectrum in Brazil and Argentina. Excluding these items, the adjusted net financial debt would come to around 25.8 billion euros compared to 26.807 billion euros at 31 december 2013. Before the impact of the new frequencies, the net financial debt reduction therefore reached around 1 billion euros
- Liquidity margin as of 31 december 2014: it remained high, reaching 13.1 billion euros (13.6 billion euros at the end of 2013) covering the financial deadlines over the next 24 months
- The recovery of the domestic revenue performance continued during the year thanks to the constant improvement of both the fixed and mobile components.
- These results confirm the winning strategy undertaken by the group, focused on strong investments for the creation of ultrabroadband networks and on renewed commercial strategies to meet the growing demand for innovative and converging services.
The preliminary results of the 2014 financial year will be illustrated to the financial community during a conference call scheduled for today at 12.00 p.m. (Italian time). Journalists may listen to the conference call, without asking questions, by calling: +39 06 33168.
Those unable to connect live may follow the presentation until 27 February by calling: +39 06 334843 (access code 741222#).
The presentation Slides, with an opportunity to follow the event in audio streaming, will be available at: www.telecomitalia.com/FY2014/ita.
The preliminary economic and financial results of the Telecom Italia Group and Telecom Italia S.p.A. for the 2014 financial year as well as the previous year's results to which they are compared have been prepared according to the International Accounting Standards issued by the International Accounting Standards Board and homologated by the European Union (defined as "IFRS"). In the 2014 financial year, Telecom Italia applied the same accounting principles as used for the previous year, apart from the new Principles/Interpretations adopted from 1 January 2014, which had no impact on the preliminary results of the 2014 financial year.
In addition to the conventional financial performance indicators contemplated under IFRS, Telecom uses certain alternative performance indicators in order to give a clearer picture of the trend of operations and the company's financial position. Specifically, the alternative performance measures refer to: EBITDA; organic change in revenues and EBITDA; adjusted net financial debt. It should be noted that, as of 2014, Telecom Italia has revised the method for determining the Organic Change in Revenues and EBITDA, no longer considering non-organic proceeds/expenses, including non-recurrent ones, in this calculation. The organic changes therefore only include the effects of changes - if any - in the consolidation area and foreign exchange rate differences. The previous year's data for comparison has therefore been restated accordingly. The meaning and content of these measures are explained in the attachments.
The preliminary results of the 2014 financial year have not been audited by the Independent Auditors.
The Board of Directors of Telecom Italia met yesterday, chaired by Giuseppe Recchi, to approve the Group preliminary results at 31 December 2014. The approval of the consolidated Financial Statements of the Telecom Italia Group and the separate Financial Statements of Telecom Italia S.p.A. at 31 December 2014, by the Board of Directors, is scheduled for 19 March 2015.
The preliminary results of the 2014 financial year show the continuous recovery of the domestic performance during the year on both the mobile and fixed segments.
In this scenario, the revenues from domestic services in the last quarter of 2014 recorded a year-on-year change of -4.4%, a recovery of 4.7 percentage points compared to the same period of 2013. This performance therefore confirms the constant improvement recorded in 2014. -4.4% YoY in the last quarter, -6.2% YoY in the third quarter, -8.9% YoY in the second quarter and -8.8% YoY in the first quarter.
The performance of the revenues from mobile services showed marked recovery, with an year-on-year reduction that went from -14.3% in the last quarter of 2013 to -5.7% in the last quarter of 2014 (+8.6 p.p. YoY).
The fixed segment also showed a similar trend, with revenues from services that recorded a year-on-year change of -5.3% in the last quarter, in recovery from the -7.2% of the third quarter and from the -8.6% of the second quarter. This dynamic was partly supported by the improvement of the broadband component, which benefited from the gradual increase of the ARPU (average revenues per user), which reached 20.1 euros/month in the last quarter of 2014 compared to 19.2 euros/month in December 2013, thanks to the continued increase in premium customers (fibre and fast ADSL).
At the end of 2014, Telecom Italia covered around 80% of the population with LTE technology reaching the year-end target of the 2014-2016 Plan (80%) well in advance and reaffirming its 4G leadership in Italy. Telecom Italia also confirms the primacy for fibre coverage, with the service available in 131 cities at the end of 2014 (equal to 28% of the population), an increase of 93 units compared to 2013.
The impetus to develop the ultrabroadband networks enabled the Group to reach a customer base of over 1.3 million with LTE and 231,000 fibre optic customers at the end of 2014.
The acceleration in investments is combined with a commercial strategy based on the quality of the services and – for the domestic market – on distinct positioning focused on the combined fixed-mobile offers. This strategy is accompanied by a process of rebranding and simplifying the fixed, mobile and Internet offer.
Having achieved 104% of the objective of domestic cost efficiency for the year 2014 Telecom Italia is confirmed as top of the class among its European peers in terms of margins, thanks to efficiency dynamics obtained through the selective control and containment of costs.
MAIN VARIATIONS TO THE TELECOM ITALIA GROUP CONSOLIDATION AREA
The following changes occurred in 2014:
- Rete A (Business Unit Media): on 30 June 2014 Persidera S.p.A. (former Telecom Italia Media Broadcasting) acquired 100% of the company, and as a consequence, Rete A became part of the consolidation area of the Group and is fully consolidated from 30 June 2014; on 1 December 2014 the merger by incorporation of Rete A into Persidera was completed;
- Trentino NGN S.r.l.(Domestic Business Unit): on 28 February 2014, the Telecom Italia Group acquired a controlling stake in the company, that therefore entered the Group's consolidation area.
The following changes to the consolidation area occurred during 2013:
- MTV Group(Media business Unit): on 12 September 2013 Telecom Italia Media completed the sale of 51% of MTV Italia S.r.l. and its wholly owned subsidiary MTV Pubblicità S.r.l.. As a result, these companies have been excluded from the consolidation area;
- La7 S.r.l. (Media Business Unit): on 30 April 2013 Telecom Italia Media completed the sale of La7 S.r.l., consequently the company left the consolidation area.
Sofora - Telecom Argentina group: on 13 November 2013 the Telecom Italia Group accepted the offer to purchase its entire controlling shareholding of the Sofora - Telecom Argentina Group. As a result the shareholding has been classified under Discontinued Operations, pursuant to IFRS 5 (Non-current assets held for sale and Discontinued operations).
TELECOM ITALIA GROUP PRELIMINARY RESULTS
Revenues in 2014 amounted to 21,573 million euros, down 7.8% on the 2013 financial year (23,407 million euros). In terms of organic change, calculated by excluding the effect of changes in exchange rates and consolidation area, consolidated revenues were down 5.4% (-1,230 million euros).
Revenues, broken down by business unit, are as follows:
(*) As of 2014, in addition to Core Domestic and International Wholesale, the Domestic Business Unit also includes the Olivetti group; the comparative period has been amended accordingly.
The Business Unit Domestic recorded investments down by 248 million euros compared to the 2013 financial year. This reduction is entirely attributable to the more traditional investment components and led to certain platforms being abandoned and a number of industrial processes being simplified. These savings were partly redirected to developing next-generation networks (LTE and Fibre network: +156 million euros of investment compared to the same period of 2013) which accounted for 36% of network investments (28% in 2013). Furthermore, in the 2014 financial year, as a result of Telecom Italia's new market strategy for bundle mobile telephony plans, the costs for subsidising the purchase of handsets by customers were no longer recorded under intangible investments. In the corresponding period of 2013, 188 million euros were capitalised and amortised over the term of the contract (24 - 30 months).
The Brazil Business Unit reported an increase in investments of 846 million euros from the 2013 figure, due to a 110 million euros negative exchange rate effect; net of this exchange rate effect, without which the increase would have amounted to 956 million euros. The same can essentially be attributed to the awarding, at the end of 2014, of the right to use the 700MHz frequency for the development of the fourth generation network on LTE technology, the relative additional charges as well as the clean up costs (freeing of the spectrum under license), for a total amount of 936 million euros.
Cash flow from Group operations is positive by 3,174 million euros (positive by 4,803 million euros in the 2013 financial year).
Adjusted net financial debt as of 31 December 2014 was 26,651 million euros, down by 156 million euros compared with 31 December 2013 (26,807 million euros).
In the last quarter of 2014 the adjusted net financial debt increased by 79 million euros compared to 30 September 2014; in particular it should be noted that the cash flow from operations was offset not only by the tax disbursements of the last quarter but also by the greater needs, amounting to 0.9 billion euros, deriving from the payments already made for the purchasing of licenses in Brazil and Argentina.
The liquidity margin as of 31 December 2014 is 13.1 billion euros (13.6 billion euros as of 31 December 2013), net of 0.1 billion euros relating to Discontinued Operations and consists of 6.1 billion euros in cash (7.1 billion euros as of 31 December 2013) and unused committed credit lines totalling 7 billion euros (6.5 billion euros as of 31 December 2013). This margin covers the financial liabilities of the Group falling due over a period exceeding the next 24 months.
Group headcount as of 31 December 2014, excluding the 16,420 units related to Discontinued Operations, was 66,025, including 52,882 in Italy (65,623 as of 31 December 2013, including 53,155 in Italy).
BUSINESS UNIT RESULTS
Figures for Telecom Italia Media as of 31 December 2014 can be found in the press release issued on 19 February 2015.
As of 2014, in addition to Core Domestic and International Wholesale, the Domestic Business Unit also includes the Olivetti group. This different representation reflects the commercial and business position of the Olivetti group and the process of integrating its products and services with those offered by Telecom Italia in the domestic market. The data relating to the corresponding period of the previous year was therefore restated accordingly.
Domestic revenues, totalling 15,303 million euros (16,388 million euros in 2013), fell by 6.6% both in reported and organic terms.
In an economic scenario that still presents structural weakness the performance of the year 2014 was down by 6.6% (-1,085 million euros) compared to 2013, with a recovery trend in the last quarter compared to the first two quarters of the year (-8.2% second quarter, -8.3% first quarter) and to the full year 2013 (-9.5%) equal to -5.0%. The change was reduced to -3.9% due to the negative impact arising from the Authority's retroactive revision of the wholesale copper network access prices for the period 2010-2012, which meant that in the last quarter of the year lower revenues were recorded for the previous years for 45 million euros.
These dynamics of revenues is specifically attributable to a progressive stabilisation of the market share, primarily on Mobile services, and growth in revenues from Fixed Broadband, ICT and Mobile Internet
Core Domestic Revenues
Core Domestic revenues amount to 14,205 million euros and fell by 7.0% (15,269 million euros in 2013).
The performance of the individual market segments as compared with 2013 is as follows:
- Consumer: The 2014 revenues of the Consumer segment totalled 7,349 million euros, 621 million euros compared to 2013 (-7.8%). The performance, though still negative, confirms the recovery trend observed from the second part of 2014. Compared to the corresponding periods of 2013 the following trends were recorded in 2014: -5.1% in the fourth quarter; -5.2% in the third quarter; -9.2% in the second quarter; -11.7% in the first quarter. In particular the revenues from Mobile services recorded a reduction of -398 million euros (-11.1%) compared to the year 2013 and -7.2% in the last quarter of 2014 (with respect to -6.6% in the third quarter, -13.7% in the second quarter and -16.9% in the first quarter), positively affected by the dynamic of the structural improvement of the competitive performance, the gradual stabilisation of the customer base and the ARPU on voice services and the constant growth of mobile Internet. Fixed service revenues also showed signs of recovery with respect to the deteriorating trend observed in the first part of the year, with a reduction of -238 million euros (-5.9%) compared to the year 2013 and -3.4% in the last quarter of 2014 (-6.1% in the third quarter, -7.9% in the second quarter and -6.2% in the first quarter), thanks to the good performance of the market share and the positive trend of the Broadband ARPU, supported by the higher proportion of customers with flat rate plans and service upgrades (Fibre);
- Business: in 2014 the revenues of the Business segment totalled 4,824 million euros, with a reduction of 387 million euros compared to 2013 (-7.4%), but with an improving trend during the year, in particular on the revenues from services (4,436 million euros, -425 million euros compared to 2013, equal to -8.7%; -6.6% in the last quarter of 2014, -7.9% in the third quarter, -10.6% in the second quarter and -9.8% in the first quarter). On Mobile (-159 million euros in 2014 compared to 2013; -11.7%), despite the efficiency of the defence actions and the development of the customer base, which in fact grew by 3.7%, a drop in traditional voice and messaging services was confirmed (-183 million euros compared to 2013), attributable to a dynamic of redirecting customers on formulas with a lower overall level of ARPU. The negative economic context and fall in prices on traditional voice and data services continued to influence Fixed-line business (-271 million euros compared to 2013; -7.6%), but there were some signs of recovery in the last six months, also thanks to the constant growth of the ICT revenues (+3.5% compared to 2013, of which +22.0% in Cloud services);
- National Wholesale: the Wholesale segment records revenues for 2014 amounting to 1,793 million euros, down by 104 million euros (-5.5%) on 2013. The reduction can mainly be attributed to the reduction of prices for mobile and fixed termination, the aforementioned retroactive revision by the Authority of wholesale access prices for the period 2010-2012, the launch of the migration towards IP infrastructural solutions and the drop in prices on national roaming.
International Wholesale Revenues
The International Wholesale revenues for 2014 amounted to 1,244 million euros, down on 2013 (-19 million euros, 1.5 %). Revenues for Voice services (-6 million euros, -0.6%) and IP/Data services (-8 million euros, -3.1%) were down due to the effect of the development of competitive dynamics with a drop in prices. The business segment dedicated to multinationals also fell slightly (-2 million euros, -3.1%) while revenues for Mobile services rose slightly (+3 million euros, +12.2%).
The revenues of the Olivetti group totalled 227 million euros, down 38 million euros compared to 2013 (-14.3%). The reduction in revenues was affected both by the slowdown in foreign sales (-20 million euros), specifically due to the competition on bank printers in the Chinese market, and the ongoing poor economic context on the Italian market (-18 million euros).
EBITDA for the Domestic Business Unit amounted to 6,998 million euros in 2014, down 743 million euros on 2013 (-9.6%). EBITDA margin was 45.7%, slightly down on 2013 (-1.5 percentage points). The result was affected by the reduction in revenues from services (-1,093 million euros compared to 2013), only partially offset by the efficiency actions obtained.
The headcount, of 53,076 employees, fell by 301 units compared to 31 December 2013.
BRAZIL (average real/euro exchange rate 3.12280)
The 2014 revenues of the TIM Brasil group amounted to 19,498 million reais, recording a fall of 2.1% compared with the 2013 financial year (-423 million reais). Revenues from services reached 16,325 million reais, with a reduction of 376 million reais compared to 16,701 million reais in 2013 (-2.3%), mainly due to lower revenues from incoming traffic. Revenues from product sales reduced from 3,220 million reais in 2013 to 3,173 million reais in 2014 (-1.5%); this decrease can be attributed to a reduction in the volumes sold, only partially offset by an increase in prices.
Mobile ARPU in 2014 was 17.7 reais, compared to 18.6 reais in 2013 (-4,8%). The ARPU, like the revenues from services, was affected by a further reduction, starting from February 2014, of the mobile termination rate.
The total number of lines as of 31 December 2014 was 75,721 thousand, up by 3.1% compared to 31 December 2013, corresponding to a market share for the lines of approximately 27%.
EBITDA for the 2014 financial year was 5,541 million reais, 343 million reais higher than 2013 (+6,6%). The EBITDA increase was essentially sustained by the lower costs for purchasing materials and services, mainly attributable to the lower quotas payable to other operators, despite the higher personnel costs and the slight increase in other operating costs. The EBITDA margin was 28.4%, and was up 2.3 percentage points on 2013.
Headcount stood at 12,841 employees (12,140 as of 31 December 2013).
TELECOM ITALIA S.P.A. PRELIMINARY RESULTS
Revenues reached 14,153 million euros, down by 1,151 million euros (-7.5%) compared to 2013.
As well as the worsening of the macroeconomic context and the increased competition, particularly on Mobile services, this performance was affected by the negative impact arising from AGCom's retroactive revision of the wholesale copper network access prices for the period 2010-2012, which meant that in the last quarter of the year lower revenues were recorded for the previous years for 45 million euros. In the commercial segments, the result was affected by the physiological reduction in revenues from traditional businesses in the Consumer (-8.7%), Business (-7.5%) and National Wholesale segments (-5,9%).
EBITDA was 6.739 million euros, down 798 million euros (-10.6%) compared to 2013 (7,537 million euros).
The EBIT margin fell from the 49.2% of 2013 to 47.6% of 2014.
The Manager in charge of preparing the accounting and corporate documents, Piergiorgio Peluso, hereby declares, pursuant to subsection 2, Art.154 bis of Italy’s Consolidated Finance Law, that the accounting information contained herein corresponds to the company’s documentation, accounting books and records.