- the Domestic Business Unit reported expenditures equal to 5,634 million euros (4,551 million euros in 2017). Excluding the acquisition in late 2018 of user rights to 5G frequencies (2,399 million euros) and the renewal of the GSM license in 2017 (630 million euros), capital expenditures were down by 686 million euros, mainly considering the coverage levels already reached by the fixed and mobile networks;
- the Brazil Business Unit posted 924 million euros of capex in 2018, 226 million euros less than for 2017. Without the impact of fluctuations in exchange rates (-187 million euros), the change was a negative 39 million euros. Capital expenditures of the Business Unit were targeted primarily at strengthening mobile ultra-broadband network infrastructure and developing the fixed broadband business of TIM Live.
Group cash flow from operations was a positive 2,077 million euros (positive 2,496 million euros in 2017). The cash flow generated from operations was absorbed by financial management, as well as the funds required to pay 739 million euros of income taxes, 256 million euros of dividends and 477 million euros relative to the portion of the award amount due for 2018 for rights to use 5G frequencies in Italy. The remaining tranches of which, as decided by the Italian Government in the 2017 Budget, will be paid on the basis of pre-established quotas between 2019 and 2022.
Adjusted net financial debt amounted to 25,270 million euros at December 31, 2018, down by 38 million euros compared to December 31, 2017 (25,308 million euros).
Net financial debt at December 31, 2018 totaled 25,995 million euros (26,091 million euros at December 31, 2017).
In the fourth quarter of 2018, adjusted net financial debt increased by 80 million euros compared to September 30, 2018 (25,190 million euros): income tax payments and the payment of 477 million euros relative to the portion of the award amount due for 2018 for rights to use the 5G frequencies in Italy basically offset positive cash generation from operations and financing activities.
The available liquidity margin amounted to 8,043 million euros, equal to the sum of:
- “Cash and cash equivalents” and “Current securities other than investments” totaling 3,043 million euros (4,568 million euros at December 31, 2017), also including 545 million euros of repurchase agreements, of which 450 million euros maturing in January 2019 and the remaining portion maturing in March 2019;
- the new Revolving Credit Facility opened in January 2018 for 5,000 million euros.
This margin is sufficient to cover Group financial liabilities falling due over the next 24–36 months.
BUSINESS UNIT RESULTS
Revenues for 2018 amounted to 15,031 million euros. Comparable revenues on the same accounting basis amounted to 15,185 million euros for 2018, down by 169 million euros on the previous year (-1.1%).
In the fourth quarter, revenues recorded a drop of 168 million euros (-4.2% compared to the fourth quarter of the 2017).
Revenues from services totaled 13,834 million euros (-166 million euros compared to 2017, -1.2%), impacted by the effects of a changed regulatory and competitive scenario (30-day pricing restored, entry of a fourth mobile operator and a reduction in the prices of some wholesale services).
- revenues from services for the fixed-line market amounted to 9,951 million euros, remaining stable with respect to 2017 despite stronger market competition. This stabilization was due to higher retail ARPU and higher revenues from ICT solutions (+99 million euros compared to 2017, +14.8%) and innovative services for data connectivity (+306 million euros, +14.4%), also driven by growth in Ultrabroadband customers (+1.0 million on 2017) that reached 3.2 million at the end of 2018 (5.4 million including wholesale lines). These dynamics offset the natural decline in revenues from traditional voice services (-334 million euros), due to the decrease in traditional accesses and lower regulated prices on some wholesale services (-65 million euros);
- Revenues from services for the Mobile market, equal to 4,513 million euros (-142 million euros, -3.1% on 2017), were affected to a greater extent by the changed regulatory and competitive scenario, with a downturn in calling and broadband ARPU.
Revenues from product sales, including the change in work in progress, amounted to 1,351 million euros in 2018 (-3 million euros on the previous year).
► Core Domestic Revenues
Core Domestic revenues amounted to 14,161 million euros, a decrease of 0.6% on 14,249 million euros in 2017.
The performance of the market segments compared to 2017 was as follows:
- Consumer: revenues for 2018 in the Consumer segment were equal to 7,573 million euros, down on the performance of the previous year (-164 million euros, -2.1%), in contrast to the growth registered in 2017, due to the changed competitive and regulatory scenario (entry of a fourth operator, 30-day pricing restored). The same trend seen in total revenues also applied to revenues from services, which amounted to 6,834 million euros, down by 1.6% compared to the previous year (-114 million euros). In particular:
- Mobile revenues amounted to 3,835 million euros (-1.5% on the previous year); revenues from services fell by 122 million euros (-3.7% over 2017), with a more marked slowdown in the fourth quarter compared to the trend observed the previous year, attributable to the changed regulatory and competitive scenario;
- Fixed revenues totaled 3,696 million euros, down over the previous year (-3.0%), but with revenues from services in line with 2017; this trend reflected a decrease in accesses, offset by higher ARPU levels.
- Business: revenues for the Business segment amounted to 4,721 million euros, up by 65 million euros on 2017 (+1.4%) attributable to revenues from services (+1.4%). In particular:
- Mobile revenues showed an improved performance compared to 2017 (+1.8%), driven mainly by higher revenues from services (+1.2%) and, in particular, growth in new digital services (+2.7% on 2017);
- Fixed Revenues rose by 41 million euros (+1.1% over 2017), thanks to the performance of services (+1.4%); lower prices and revenues from traditional services (connected with the technological shift towards VoIP systems and solutions) were more than offset by steady growth in revenues from ICT services (+14.7%).
Wholesale: revenues for the Wholesale segment in 2018 came to 1,787 million euros, up by 97 million euros compared to 2017 (+5.8%). Cuts to regulated prices, which lowered revenues by 65 million euros, were mainly offset by growth in access, driven by the Ultra-Broadband segment.
► International Wholesale Revenues
The Cash generating Unit International Wholesale consists of the companies of the Telecom Italia Sparkle group. Revenues of the Cash Generating Unit International Wholesale for 2018 totaled 1,272 million euros, showing a drop of 77 million euros on the 2017 figure (-5.7%). This trend is mainly related to the downturn in revenues from traditional telephone services and to the expiry of long-term contracts relative to the Mediterranean Basin area (IP/Data services).
EBITDA for the Domestic Business Unit for 2018 amounted to 5,955 million euros.
Comparable EBITDA for 2018 totaled 6,221 million euros, up by 50 million euros compared to 2017 (+0.8%), with an EBITDA margin of 41.0% (+0.8 percentage points compared to the previous year).
Organic EBITDA, net of the non-recurring component, amounted to 6,629 million euros (7,050 million euros in 2017). In detail, EBITDA for 2018 was reduced by 408 million euros due to non-recurring net expenses (882 million euros in 2017)
In the fourth quarter of 2018, organic EBITDA amounted to 1,263 million euros, showing an increase of 146 million euros (+13.1%) compared to the fourth quarter of 2017, with the EBITDA margin posting an increase of 5.0 percentage points, rising from 27.6% in the fourth quarter of 2017 to 32.6% for 2018.
EBIT for the Domestic Business Unit for 2018 amounted to 16 million euros.
Comparable EBIT for 2018 totaled 177 million euros (2,772 million euros in 2017), showing a drop of 2,595 million euros, with the EBIT margin at 1.2% (18.1% in 2017).
Organic EBIT, net of the non-recurring component, amounted to 3,175 million euros (3,683 million euros in 2017), with an EBIT margin of 20.8% (24.0% in 2017).
EBIT for 2018 reflected the negative impact of non-recurring net expenses, totaling 2,998 million euros (912 million euros in 2017, at constant exchange rates) including the aforesaid impairment loss on goodwill of the Core Domestic (-2,450 million euros) and International Wholesale (-140 million euros).
EBIT for the fourth quarter 2018 amounted to -235 million euros; comparable EBIT amounted to -216 million euros(265 million euros in 4Q 2017).
Headcount of 48,200 was down 1,651 compared to December 31, 2017.
BRAZIL (average real/euro exchange rate 4.30628)
Revenues for the TIM Brasil group in 2018 amounted to 16,981 million reais.
Comparable revenues for 2018, amounting to 17,050 million reais, were up by 816 million reais (+5.0%) on the previous year.
Revenues from services, on the same accounting basis, amounted to 16,205 million reais, rising by 731 million reais on the 15,474 million reais posted for 2017 (+4.7%).
Revenues from product sales, on the same accounting basis, came to 845 million reais (760 million reais for 2017, +11.2%). The increase reflects the change in the sales policy, which is now focused more on value than on increasing sales volumes. The main goals of the new strategy are to increase purchases of new connected devices giving TIM customers access to broadband services on 3G/4G networks and to support new retention offerings for higher-value postpaid customers.
On the same accounting basis, Mobile Average Revenue Per User (ARPU) for 2018 was equal to 22.4 reais, up by +11% on the figure for 2017 (20.2 reais), due to a general repositioning towards the postpaid segment and new commercial initiatives aimed at increasing data usage and the average spend per customer.
Total lines in place at December 31, 2018 amounted to 55.9 million, a decline of 2.7 million compared to December 31, 2017 (58.6 million). The lower figure was driven entirely by the prepaid segment (-5.1 million), only partially offset by growth in the post-paid segment (+2.4 million), in part due to the consolidation underway in the market for second SIM cards. Postpaid customers accounted for 36.2% of the customer base at December 31, 2018, an increase of 5.8 percentage points on December 2017 (30.4%).
Revenues for the fourth quarter of 2018 amounted to 4,457 million reais. Comparable revenues were equal to 4,479 million reais, an increase of 5.2% compared to the same period of the previous year (4,257 million reais).
EBITDA for 2018 amounted to 6,316 million reais.
Comparable EBITDA for 2018 amounted to 6,508 million reais, up by 614 million reais on the previous year (+10.4%). Growth in EBITDA was attributable to both the positive performance of revenues and the benefits delivered by projects to enhance the efficiency of the operating expenses structure.
The EBITDA margin, on the same accounting basis, rose by 1.9 percentage points on 2017 to reach 38.2%.
The Brazil Business Unit reported net non-recurring income in 2018 of 2 million reais, mainly relative to the positive effect of the favorable outcome of the tax dispute concerning the unconstitutional nature of the law including the ICMS indirect tax in the base for calculating taxes on PIS and COFINS revenues (159 million reais at an EBITDA level), which was mainly offset by the recognition of expenses related to the forecast revision of labor litigation arising in previous years.
EBITDA, net of the non-recurring component, was equal to 6,506 million reais.
EBITDA for the fourth quarter of 2018 amounted to 1,807 million reais. On the same accounting basis, the figure came to 1,856 million reais, showing growth of 98 million reais on the fourth quarter of 2017. The EBITDA margin for the fourth quarter of 2018 stood at 41.4%, up by 0.1 percentage points on the same period of the previous year (41.3%).
EBIT for 2018 amounted to 2,428 million reais.
Comparable EBIT for 2018 rose to 2,449 million reais, up by 518 million reais (+26.8%) on the same period of the previous year (1,931 million reais). Growth was mainly driven by higher EBITDA (+614 million reais) and slightly higher depreciation and amortization (96 million reais).
EBIT – net of the non-recurring component included in EBITDA – was equal to 2,447 million reais.
EBIT for the fourth quarter of 2018 amounted to 807 million reais. On the same accounting basis, the figure came to 813 million reais, showing growth of 84 million reais on the fourth quarter of 2017 (+11.5%). The EBIT margin for the fourth quarter of 2018 stood at 18.2%, up by 1.1 percentage points on the same period of the previous year (17.1%).
Headcount at December 31, 2017 was 9,658 (9,508 at December 31, 2017).
RESULTS OF TIM S.p.A.
Revenues amounted to 13,902 million euros.
The application of the new accounting standards resulted in the recognition of lower revenues by 153 million euros.
Excluding such impact, revenues for 2018 amounted to 14,055 million euros, down by 44 million euros (-0.3%) on 2017.
This result is impacted by the effects of the changed regulatory and competitive scenario (30-day pricing restored, entry of a fourth mobile operator), particularly in the Consumer segment.
EBITDA amounted to 5,608 million euros for 2018.
The application of the new accounting standards had a negative impact on EBITDA of 268 million euros. Excluding this effect, comparable EBITDA for 2018 totaled 5,876 million euros (5,801 million euros in 2017), increasing by 75 million euros (equal to +1.3%); the EBITDA margin stood at 41.8% (41.1% in 2017, up by 0.7 percentage points).
EBITDA for 2018, net of the non-recurring component, amounted to 6,280 million euros (6,677 million euros in 2017). In detail, EBITDA for 2018 was reduced by 404 million euros due to non-recurring net expenses (876 million euros in 2017)
EBIT was a negative at 241 million euros.
The application of the new accounting standards had a negative impact on EBIT of 164 million euros. Excluding that effect, EBIT for 2018 amounted to 77 million euros (2,567 million euros in 2017), showing a drop of 2,644 million euros. The EBIT margin fell from 18.2% in 2017 to -0.5% in 2018.
EBIT for 2018 was pulled down by non-recurring net expenses totaling 3,090 million euros (906 million euros in 2017), including the aforesaid goodwill impairment loss attributable to TIM S.p.A. for 2,686 million euros.
The loss for the year amounted to 1,854 million euros (profit of 1,087 million euros in 2017). The figure was adversely affected by the adoption of IFRS 9 and IFRS 15 for 105 million euros, as well as by non-recurring net expenses for 3,024 million euros.
On comparable basis, profit for the year would have amounted to around 1.3 billion euros, a drop of approximately 0.4 billion euros over 2017.
EVENTS SUBSEQUENT TO DECEMBER 31, 2018
TIM: BOND ISSUE AT 5 YEARS AND 3 MONTHS FOR 1 BILLION 250 MILLION EUROS
Please refer to the press release on this subject issued on January 8, 2019.
OUTLOOK FOR THE 2019 FINANCIAL YEAR
Please refer to the press release on the 2019-2021 Strategic Plan, issued on today's date.
IFRS 16 (Leasing) – APPLICABLE FROM JANUARY 1, 2019
As of January 1, 2019, TIM Group will apply IFRS 16 (Leasing). The new accounting standard provides for a different representation of passive location contracts in the Financial Statement.
The Annexes to this press release show an estimate of the impacts expected on the Group’s main financial indicators.
CONSOLIDATED NON-FINANCIAL STATEMENT - SUSTAINABILITY REPORT
The Board of Directors has also approved the Consolidated Non-Financial Statement/Sustainability Report 2018, prepared in accordance with the obligations set forth in Legislative Decree 254/2016 on the disclosure of non-financial information and on diversity.
The TIM Group has provided disclosure on the legally required topics since 1997, the year in which the Group published its first “Social Report”, which has subsequently been extended to cover environmental issues.
The current Sustainability Report follows a multi-stakeholder approach involving the joint analysis of actions taken in respect of the main stakeholders with whom the Company interacts. It is based on the main reference standard for sustainability – the Global Reporting Initiative Standards – and on the principles of the AA1000 AccountAbility Principles Standard (APS 2008), adopted by the Group as of the 2009 Financial Statements (inclusivity, materiality, responsiveness).
The non-financial report is tied to the company’s inclusion in the main sustainability indices. In 2018, the TIM Group was included – for the fifteenth consecutive year – in the Dow Jones Sustainability Indices World (DJSI World) and Europe (DJSI Europe), and in the Euronext Vigeo World 120, Eurozona 120 and Europa 120.
CORPORATE GOVERNANCE ISSUES
ADDITION TO THE AGENDA OF THE SHAREHOLDERS' MEETING
The Board of Directors has supplemented the agenda of the Ordinary Shareholders' Meeting called to meet on 29 March 2019 (single call) at the Rozzano auditorium (Milan), viale Toscana 3, with the following two items:
- payment of a preference dividend for savings shares (0.0275 euro per savings share), via the distribution of reserves;
- updating of the performance conditions of the share based incentives scheme approved by the Shareholders' Meeting of 24 April 2018 (see the LTI Plan 2018).
The dividend amounts will be paid to the entitled parties, based on the custody accounts at the end of the accounting day on June 25,2019 (the record date), starting from June 26, 2019, while the coupon date will be June 24,2019.
The amendment to the proposal for the LTI 2018 Plan (in regard to which please refer to the information document which can be viewed on the company website www.telecomitalia.com consists of the update to the performance parameter which consists of the equity free cash flow accumulated in the period from 2018-2020, using for the financial years 2019 and 2020 the reference targets set out in the new 2019-2021 plan, rather than the objectives set forth in the 2018-2020 business plan. Given the significant difference between the two planning documents, insofar as the cash generation prospects in the remaining vesting period, we considered that a condition for securing the incentive and retention capacity of the bonus would be to forsake the now obsolete “internal” parameters of the last two years, in order to connect the accrual of 30% of the performance shares to the Group’s current strategic objectives. Conversely, the “external” indicator of relative share performance compared to the median of the market performances of the peer baskets (weight: 70%) shall remain in place: in respect of which the need to align the interests of the shareholders with the interests of key management for TIM business purposes, in terms of increasing the value of the share over the medium-long term, cannot change.
The amendment refers to an incentive scheme which the Board of Directors has already implemented (as per the report on remuneration), which includes the assignment of performance shares to the Chief Executive Officer and the remaining key management personnel of TIM S.p.A., (to date Mario Di Mauro, Lorenzo Forina, Carlo Nardello, Agostino Nuzzolo, Piergiorgio Peluso, Elisabetta Romano, Luciano Sale, Stefano Siragusa, Anna Spinelli). As far as is applicable, it is hereby specified that the transaction is a transaction with related parties of lesser significance; no publication of an information document is required pursuant to Consob Regulation 17221/2010 (Regulation on Related Party Transactions), but a supplement to the information document on the LTI 2018 Plan published last year pursuant to Regulation 11971/2010 (Issuers’ Regulation), as defined below, is required. The approval of the presentation of the amendment to the Shareholders' Meeting was resolved by the Board of Directors upon the proposal and with the opinion in favor of the Committee for nominations and remuneration, which has competence pursuant to the applicable company procedures.
The reports on the proposals for resolutions on the various agenda items (other than those requested with shareholder Vivendi S.A.’s request to call a meeting), and the supplement to the LTI 2018 Plan information document will be published within the deadline set by the law on the website www.telecomitalia.com and the storage mechanism “1INFO” (www.1info.it).
The Board of Directors has resolved to overcome the exclusion of vesting upon the Chief Executive Officer, Luigi Gubitosi, the powers already attributed to the Security Manager, who is the Safety Delegate pursuant to Golden Power rules. Therefore, he too will report to the Chief Executive Officer, who in turn holds all the executive powers for management of the Company.
With its approval of the periodic non-financial reports (sustainability report, report on remuneration, corporate governance and assets report), the Board also ascertained that the following Directors continue to fulfill the requirements of independence pursuant to the law and the Borsa Italiana Code: Alfredo Altavilla, Paola Bonomo, Giuseppina Capaldo, Maria Elena Cappello, Massimo Ferrari, Paola Giannotti, Marella Moretti, Lucia Morselli, Dante Roscini, Rocco Sabelli, Michele Valensise, and the Chairman Fulvio Conti. In assessing the adequacy of the organizational and control structure, the Board confirmed the perimeter of the strategic managerial positions which had previously been identified and include the Chief Strategic Development & Transformation Office, which has been assigned to Carlo Nardello (see CV available at www.telecomitalia.com). On this day, Mr. Nardello owns 120,000 ordinary shares issued by the Company.
Finally, the process of integrating the wholly owned subsidiary Noverca s.r.l. into TIM was initiated. Noverca s.r.l. operates under the name KENA, which is TIM Group’s second mobile brand.
The manager responsible for preparing the corporate financial reports, Piergiorgio Peluso, declares, pursuant to paragraph 2, article 154-bis of the Consolidated Law on Finance, that the accounting disclosures contained in this press release correspond to the Company’s documents, accounting records and entries.
Rome, 21 February 2019