Telecom Italia Media: Board adopts First Half 2004 Report and recommends capital increase

07/27/2004 - 00:00 PM

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To foster greater clarity in the presentation of Telecom Italia Media SpA and Group performance figures for the first half of 2004, principal earnings and operations data down to operating are provided in comparison with figures for the corresponding period in 2003, having taken into account the Seat Pagine Gialle SpA demerger (which took effect on August 1, 2003) and changes affecting the consolidation area during the periods under comparison.


Results and margins significantly improved on equivalent terms

Consolidated revenues up 18.8% over the period

Gross operating profit positive for 17.1 million euros
(against a 1.8 million euro loss for the first half of 2003)

Operating income up 26.2% to -38.7 million euros (against
-52.5 million euros for the first half of 2003)

Net financial position negative for 270.2 million euros (available funds 58.7 million euros cash as of December 31, 2003), impacted by 325 million euros greater debt as a result of the settlement with the De Agostini Group

Internet Unit posts strong growth compared with the first half of 2003

Tin.it: first half 2004 revenues up 27.9%, gross operating result up 44%, operating income tripled; 488 hotspots (of which 357 active) on one of Italy’s most extensive Wi-Fi networks

Virgilio: Italy’s number one portal with 3.8 billion pageviews (+16.9% compared to the first half of 2003) and 13.9 million unique visitors (an increase of 21.9% compared with the first half of 2003)

Television Unit: first half 2004 revenues up 30.5%, profitability improved

LA7: rise to 2.3% of audience share; gross advertising income up by 24.6%, all results on an upwards trend

MTV: 18% more advertisers, overall gross advertising income up 24.6%, income from Italian advertisers up 30%; positive net income as against a loss for the same period in 2003

Buffetti: sales growth continues during the first half of 2004 (1.2% up on 2003), along with improved results (gross operating result up 12.7%, operating income up 13.3%)

Resolution for capital increase of approximately 120 million euros, to be put to the Shareholders’ Meeting

 

Today Telecom Italia Media (Telecom Italia Group) Board of Directors, chaired by Riccardo Perissich, examined and adopted the First Half 2004 Report.

Introduction
In order to foster greater clarity in the presentation of Telecom Italia Media SpA and Group performance figures for the first half of 2004, the principal results and operations data down to operating profit are provided in comparison with figures for the corresponding period in 2003, having taken into account the Seat Pagine Gialle SpA demerger (which took effect on August 1, 2003) and changes affecting the consolidation area. Consolidation changes in 2003 were essentially the divestment of a number of office product companies from the Buffetti Group, the acquisition of TM News (owner of APCom), and in 2004 the disposal of Cipi and the GPP Group. Telecom Italia Media SpA and Group first half 2004 performance was also impacted by the settlement with the De Agostini Group (see June 28, 2004 press release). Information is provided below on the impact this deal on the Group’s assets, economics and the Group’s financial position.

Telecom Italia Media Group results for the first half of 2004

Revenues grew by 18.8% on equivalent terms to 305.9 million euros, compared with 257.5 million euros for the same period in 2003. Organic growth at the Group was driven by the Internet Unit, which posted 28.9% higher revenues, and the Television Unit, where revenue growth was equal to 30.5%.

The Group posted a gross operating profit of 17.1 million euros, up 18.9 million euros on equivalent terms compared with the first half of 2003 (-1.8 million euros). Growth was driven by higher turnover in all areas of business, and by improved operating efficiency.

The 38.7 million euro operating loss was a 26.2% improvement on equivalent terms compared with the first half of 2003, when a 52.5 million euro loss was recorded.

Consolidated net financial borrowings at June 30, 2004 were equal to 270.2 million euros (compared with available funds of 58.7 million euros at December 31, 2003). The De Agostini Group settlement, which entailed an aggregate 325 million euro disbursement, is the main reason for the difference. Consolidated shareholders’ equity at June 30, 2004 was equal to 240.1 million euros (474.2 million euros at December 31, 2003). The June 30, 2004 headcount was 1,778.

Results by Business Unit

INTERNET

First half 2004 Internet Unit (Tin.it division and Matrix SpA-Virgilio) revenues increased 28.9% to 152.2 million euros compared with the same period in 2003 (118 million euros). The gross operating profit was 31.8 million euros, up 53.2% compared with the first half of 2003 (20.7 million euros). As a whole, the unit posted an operating profit of 5.9 million euros, as against a 2.4 million euro loss for the first half of 2003.
In greater detail:
In the first half of 2004 Tin.it revenues grew 27.9% to 136.3 million euros (106.6 million euros for the same period in 2003). The gross operating result grew 44% to 31.5 million euros (21.9 million euros for the same period in 2003). Operating profit improved notably compared with the first half of 2003: 10.1 million euros as against 3.2 million euros for the corresponding period in 2003. At June 30, 2004 the company had 2.9 million active customers, a 24% increase with respect to June 30, 2003 (this includes Telecom Italia Alice ADSL customers, to whom Tin.it supplies a number of services). Work continued during the period on extending the Wi-Fi network. At June 30, 2004 the network consisted of 488 hotspots, of which 357 are active and 131 currently being activated, making the Tin.it’s hot spot network one of Italy’s largest in location number terms. In March the entire ADSL customer base was migrated from a 256 Kb to 640 Kb service.

Matrix, responsible for the Virgilio Portal and search engine, posted revenue growth of 25.4% to 18.4 million euros, compared with 14.7 million euros for the first half of 2003. Results improved significantly across the board compared with last year, as the company recorded a 0.3 million euro operating profit, as against a first half 2003 gross operating loss of 1.1 million euros. Operating income improved 29.3% to a 3.2 million euro loss, compared with a 4.5 million euro loss last year. At June 30, 2004 Virgilio confirmed its status as Italy’s number one portal with approximately 13.9 million unique browsers (up 21.9% with respect to June 30, 2003); pageviews totalled 3.8 billion over the period (up 16.9% with respect to June 30, 2003).
 
TELEVISION

In the first half 2004 gross advertising revenues rose by 24.6% to 77.5 million euros compared with the corresponding period in 2003. Overall revenues were up by a strong 30.5% to 66.1 million euros, compared with 50.6 million euros for the first half of last year. The gross operating result improved 39.2% to -10.7 million euros (-17.6 million euros for the first half of 2003). Operating income, equal to -33.5 million euros, posted a 7.1% increase compared with the same period during the preceding year (-36.0 million euros), impacted by amortization of digital terrestrial television.
In greater detail:
LA7 continued successfully to strengthen its brand and positioning. In the first six months of 2004 it registered an audience share of 2.3% (source: Auditel), up on the corresponding period in 2003 (2.1%). Audience figures rose significantly during the recent European soccer championships, when the average was 8.5%, and the audience peaked at 16.9%. In the first half of 2004 gross advertising income rose 24.6% to 41 million euros compared with the first half of 2003 (32.9 million euros), and all results improved. The new autumn schedule, presented in early July, introduces significant new programming alongside the broadcaster’s flagship shows.

MTV reported significant rises in turnover, other economic results and advertising income. Overall gross advertising income (36.5 million euros), inclusive of domestic and international advertising, grew 24.6% compared with the first half of 2003, while revenues from Italian advertising alone recorded 30% growth.  Indeed on the Italian advertising market MTV scored a strong improvement and consolidated its leadership in the youth television market: results were mainly driven by the rise in the number of companies advertising on MTV +18%, and new advertisers. MTV posted a first half 2004 net profit of 2.4 million euros, as against a 0.4 million euro loss for the first half of 2003. According to Audistar (Eurisko monitoring), MTV audience figures are on a markedly upward trend (terrestrial broadcasting): weekly audience increased 10.2% to 13.6 million contacts compared with the first half of 2003. Specific channel MTV-brand multimedia expansion is continuing on all technology platforms, especially satellite and the Internet, via the www.mtv.it website.

OFFICE PRODUCTS & SERVICES

The Unit’s first-half 2004 revenues increased 1.2% on equivalent terms to 71.5 million euros, compared with 70.7 million euros for the first half of 2003. Increased sales of innovative products drove the inversion in turnaround in the turnover trend compared with previous years. Gross operating profit grew 12.7% on equivalent terms to 8.3 million euros, compared with 7.3 million euros for the corresponding period last year. Operating income posted 13.3% growth on equivalent terms to 3.4 million euros, compared with 3 million euros for the first six months of 2003.
 
Telecom Italia Media SpA first-half 2004 results

Telecom Italia Media SpA revenues increased 26.9% to 136.3 million euros on equivalent terms compared with the first half of 2003 (107.4 million euros). Significant growth was reported for the gross operating result, equal to 21.3 million euros (11.3 million euros for the same period in 2003) and for net income, where losses were cut dramatically to 0.1 million euros, from 8.7 million euros in the first half of 2003.

De Agostini settlement and related transactions

As announced to the market on June 28 2004, Telecom Italia Media reached a final settlement with the De Agostini Group. The dispute concerned the purchase price of a 40% equity stake in Webfin (which holds a 66% stake in Matrix, owner of the Virgilio portal). Under the terms of this settlement, TI Media paid out 287 million euros (instead of the originally agreed 700 million euros), plus 38 million euros to reimburse De Agostini for sums already spent for Webfin’s recapitalization.
In financial terms the settlement has prompted a payment of 325 million euros by Telecom Italia Media, partially resulting from an intergroup loan granted at market rates by Telecom Italia (280 million euros). In order to improve its financial standing, on July 9, 2004, TI Media sold for 42.6 million euros its stake in Vertico S.p.A. (Telecom Italia Group), a company that previously held a 33.3% stake in Matrix. The price of the sale was resulted from external assessments corresponding to current market values. Net of fiscal impacts, these transactions resulted in a 130.3 million euro loss for Telecom Italia Media S.p.A. and a 189.2 million euro loss for the Group.


Management outlook

Internet business operations continue with a special focus on ADSL, rollout of innovative services, and search engine portal development. The Television Unit is consolidating its market share and audience through new programming coherent with its editorial line and target audience. The Office Products Unit is continuing to strengthen its sales organization and rationalize and innovate product offerings. Altogether, these performances lead us to believe that operating profit shall continue to grow compared with last year. Moreover, the sale to Vertico of the 40% stake in Webfin acquired from De Agostini Invest and the planned capital increase have been put into place in order to balance the Group’s financial position, which had become more onerous in the wake of the De Agostini settlement, and will enable the Group to optimize its financial charges.

Comparisons between Telecom Italia Media first-half 2004 figures and Seat Pagine Gialle first-half 2003 figures

Owing to the company’s split and changes to the consolidation area, there is insufficient equivalence for comparisons to be drawn between Telecom Italia Media consolidated and company results for the first half of 2004 and the corresponding Seat Pagine Gialle Group figures for the same period in 2003. These figures are, however, presented in the tables in appendix to the First Half 2004 Report, which will be published on the Telecom Italia Media web site.

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Proposed capital increase

The Board of Directors has mandated the Chairman to convene a Shareholders’ Meeting in extraordinary session. Shareholders will be presented with a proposal to increase paid-up company share capital through the issue of ordinary and savings shares to be offered respectively to ordinary and savings shareholders for an overall value of approximately 120 million euros, inclusive of the share premium. The issue proceeds will be used to rebalance the company’s financial and balance sheet position, which has become more onerous following the De Agostini Group settlement. As afore mentioned, it was for this purpose that, on July 9, 2004, the 40% equity interest in Webfin was disposed of to Vertico for 42.6 million euros.

Due to the length of time that will pass until the capital increase is implemented, the Board will seek the approval from the Shareholders’ Meeting a subscription price for new rights issued of:

• between 0.25 euros and 0.20 euros per ordinary share (of which 0.03 euros nominal value)
• between 0.20 euros and 0.17 euros per savings share (of which 0.03 euros nominal value)

These prices, which have been set with the support of advisors JP Morgan Chase Bank, represent a discount of between 20% and 35% (homogeneous among different types of share) on the official price for each class of share as of July 23, 2004, the last day of open trading in the week prior to adoption of the proposal by the Board of Directors.

On the basis of the price ranges stated above and the objective of reaching through this recapitalization the aggregate value of approximately 120 million euros, the number of new shares to be issued is expected between:

• a minimum of 473,566,962 ordinary shares and 7,940,702 savings shares,
• a maximum of 591,958,700 ordinary shares and 9,925,875 savings shares
respectively equal to 15.38% and 19.23% of shares currently outstanding

The Shareholders’ Meeting will be called upon to pass a resolution on the proposed capital increase and empower the Board to subsequently set the actual issue prices of ordinary and savings shares in order to take into account the stock market performance of company shares in the period immediately prior to the capital increase. Consequently, the Board will determine the number of shares to be issued, and the share subscription ratio, identical for the two classes of shares. As soon as these values are established by the Board of Directors, they will be published in a special notice in at least one national daily newspaper.

Newly-issued shares shall be cum-coupon, and will entitle shareholders to the same rights as those allocated to holders of shares previously issued by the company.

Telecom Italia, which controls TI Media through a direct and indirect 62.49% equity interest, has pledged to subscribe its portion of the capital increase, in addition to any residual unsubscribed portion.

Subsequent to the receipt of necessary authorization and applicable legal requirements, and at such time as market conditions allow, the increase will take place after the approval by the Shareholders’ Meeting, and in any event whithin the end of 2004.
In addition, the Board of Directors has decided to request the delisting of the shares listed on the Euronext in Paris, in right of the almost inexistent volume of said shares exchanged on that market.


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Corporate Governance

The Telecom Italia Group Board of Directors has adopted a new Code of Ethics and Conduct to replace the previous version. The revised Code is more closely coordinated with the Company’s other tools of governance. Great emphasis has been placed on the central role played by the internal auditing system with regard to the proper and profitable conducting of operations at the company, including operations with affiliated parties. As with all Company corporate governance documentation, the new Code of Ethics is published on the www.telecomitaliamedia.it site, under Corporate Governance.


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The first half 2004 results will be presented to the financial community during a conference call today, July 27, starting at 3:30 p.m. Italian time. Journalists may follow the presentation by calling: +39 06 33485042. Journalists who are unable to listen live may access a recording of the presentation by calling +39 06 334843, access code 49740#).
 

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The information contained herein does not constitute an offer of securities for sale in the United States. The securities that may be offered or sold as part of any capital increase referred to herein have not been and will not be registered under the U.S. Securities Act of 1933, as amended, and may not be offered or sold, directly or indirectly, in the United States except pursuant to an exemption from registration.