Telecom Italia, report on operations to 30 September 2000 approved

11/10/2000 - 00:00 PM

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THIRD QUARTER 2000
- Consolidated revenues: 7,251 million euros (+9.5%)
- Group ebitda: 3,384 million euros (+10.3%)
- Consolidated operating income: 1,894 million euros (+14.9%)
- Parent company extraordinary expense for personnel reduction: 379 million euros

FIRST NINE MONTHS 2000
- Group revenues: 21,468 million euros (+8.8%)
- Group ebitda: 9,838 million euros (+6.8%)
- Group operating income: 5,285 million euros (+7.7%)
- Group net income
- Before minority interests: 1,934 million euros (-2.9%)
- After minority interests: 1,253 million euros (-16.2%)

YEAR-END OUTLOOK FOR 2000
- Operating targets to be fully met
- Divestment surplus to benefit net income
- Net debt target confirmed

The Telecom Italia Board Directors met today, under the chairmanship of Roberto Colaninno, and examined the consolidated and Parent company report on operations to 30 September 2000.

Highlights of Group operations
Group results remain in line with the budget and with forecasts issued to the market at the beginning of the year.

Specifically:
- Overall Group performance is positive, with EBITDA up 6.8% during the first nine months of the year, and up 10.3% in the third quarter. Group profitability is also sharply up, with the EBITDA margin rising from 45.4%, registered for the half-year, to 46.7% in the third quarter.
- Consolidated operating income registered strong growth in the third quarter (+14.9%) and over the first nine months of the year (+7.7%), thanks to the performance of TIM, Telecom Italia S.p.A. and consolidation of Telecom Argentina.
- Fixed telephony operations in the third quarter demonstrated a significant improvement over the first half of the year, in a highly competitive market scenario. Revenues were held primarily in line, sustained particularly due to growth in data transmission, which over the first nine months of the year registered a 24% increase. This was accompanied by significant cost-cutting (-8% in the third quarter), principally due to an inversion of the trend of net costs of goods and services (-11% in the third quarter). The launch of innovative offers for residential voice customers led to a limited market share loss. Profitability is up over half-yearly figures: by more than two points in terms of the EBITDA margin; by almost four points for ROS (Return on Sales).
- Parent company net results were held back by provisions amounting to more than 494 million euros, 379 million euros in the third quarter, for one-off restructuring expense associated with implementation of agreements made with Labor Unions with regard to personnel reduction, job mobility and redundancies. These provisions are targeted at bringing down staff numbers at the parent company by around 10,000, in addition to 2,200 who qualify for government assisted redundancy, and principally affect the fixed telephony sector.
- Group international activities continue to register strong growth, up by over 50% in terms of proportional customers when compared to 1999, and up by more than 20% in turnover terms. The contribution of consolidated foreign companies to Group EBITDA rose by 21% in the third quarter, and by 36% over the first nine months of the year.
- In the mobile telephony business, TIM´s results confirm an extremely positive operating performance (EBITDA up 11% in the third quarter). Revenues from traffic, not taking into account the effects of the tariff realignment undertaken in the first quarter, continue to register high levels of growth. Unit revenues (ARPU) are also up, while operating costs are being contained.
- Growth of Internet activities continues apace, with a 306% increase in Tin.it subscriber numbers with respect to the first nine months of 1999, and page view/months figures up 64% as compared year-end 1999.

Telecom Italia Group
During the first nine months of this year, Group revenues were equal to 21,468 million euros, an increase of 8.8% with respect to the same period in 1999. In the third quarter, revenues totaled 7,251 million euros, up 9.5% with respect to the same period last year. This growth was determined by the positive performance of mobile telephony services, along with extension of the consolidation perimeter to include Nortel Inversora Group, the holding company that controls Telecom Argentina. On a like for like perimeter basis, revenues rose by 2.3%.

During the first nine months of the current year, EBITDA was equal to 9,838 million euros, having registered an increase of 629 million euros, + 6.8%, compared to the same period in 1999. For the same period, the EBITDA margin equaled 45.8%, while for the third quarter the margin stood at 46.7%, significantly above that recorded in the first half of the year (45.4%).

Operating income stood at 5,285 million euros, a 7.7% improvement with respect to the first nine months of 1999 (+1.8% on the same consolidation perimeter basis), and was equivalent to 24.6% of revenues. In the third quarter, operating income rose by 14.9%, principally owing to the performance of TIM, lower Parent company depreciation, and consolidation of Telecom Argentina.

Consolidated net income for the first nine months of the year was 1,934 million euros (-2.9%); net of minority interests, the figure was 1,253 million euros, down 243 million euros (-16.2%) with respect to the first nine months of 1999.

This result was affected by net extraordinary expense equal to 613 million euros sustained by the Parent company. This includes 494 million euros in one-off expense for restructuring, set aside for implementing agreements with Labor Unions regarding personnel reduction, job mobility and redundancy (379 million euros in the third quarter). These provisions are targeted at sharply bringing down staff numbers at the parent company by around 10,000, in addition to 2,200 who qualify for government assisted redundancy, and principally affect the fixed telephony sector.

Net financial indebtedness at 30 September amounted to 18,616 million euros. The 9,260 million euros increase with respect to 30 June 2000 may almost entirely be ascribed to acquisition of holdings in Seat Pagine Gialle, which entailed expenditure of 6,104 million euros, and to dividend payments (2,327 million euros).

Group employees at the end of September numbered 127,455, up 4,793 compared to the end of 1999. This increase is due to the inclusion of the Telecom Argentina Group in the area of consolidation (7,358 employees). On a like perimeter basis, payroll is down by more than 2,500 people, principally owing to a reduction of staff numbers at the Parent company (-2,174), and at installations sector concerns (-929). By the end of the year, the overall number of Group employees will have fallen by around 26,000, as a result of cuts in staff at the Parent company, and of the deconsolidation of businesses currently undergoing divestment, notably Sirti (12,000 people) and Italtel (4,500).

Telecom Italia S.p.A.
Parent company revenues in the first nine months of 2000, gross of amounts owing to other telecommunications operators, amounted to 13,031 million euros (-4.8%). This figure benefited from a considerable recovery effected in the third quarter (-2.1% with respect to the same quarter of 1999). The fall in revenues may be ascribed principally to traffic: despite a 25.2% gain in minute terms, traffic generated 13.7% lower revenues. This factor was partially offset by strong growth in data traffic, up 24% over the first nine months of the year.

Parent company EBITDA in the first nine months of the year reached 5,746 million euros (-6.7% with respect to the corresponding period last year). A significant recovery however, was registered in the third quarter of 2000, with a fall relative to the third quarter of 1999 of just 25 million euros (-1.3%). EBITDA margin was up to 45.9% in the third quarter, compared to 43.2% in the first half of the year.

Operating income during the first nine months of 2000 stood at 2,879 million euros, down 1.3% (37 million euros). Over the quarter, operating income grew by 138 million euros, up 14.9% with respect to the year before. This pushed sales profitability to 24.8%, compared to 20.8% over the first half of the year.

Telecom Italia Spa operations for the first nine months of the year closed with net income of 989 million euros, 251 million euros lower than for the same period in 1999 (-20.2%). This result was conditioned by net extraordinary expense equal to 613 million euros sustained by the Parent company over the period: 494 million euros for one-off restructuring expense, relating to agreements with Labor Unions in respect of personnel reduction, job mobility and redundancy. These provisions are targeted at sharply bringing down staff numbers at the parent company by around 10,000, in addition to 2,200 who qualify for government assisted redundancy, and principally affect the fixed telephony sector.

Net financial indebtedness at 30 September 2000 amounted to 15,566 million euros. The 9,057 million euros increase with respect to 30 June 2000 may be ascribed essentially to acquisition of Seat Pagine Gialle holdings.

At the end of September, the Parent company employed 73,939 people, down 5.1% compared to the corresponding period of 1999.

Telecom Italia Mobile
In the mobile telephony sector, TIM continued to post higher figures for all principal indicators. In the first nine months of 2000, revenues have been increasing rapidly (+8.5%) to 5,804 million euros, before taking into account the tariff realignment implemented during the first quarter. EBITDA, at 2,839 million euros, continues to make substantial gains (+13.2%), while profitability remains at very high levels (the EBITDA/revenues ratio stands at 49%). Average revenues per unit (ARPU) underline the growth trend, and have now reached 30.78 euros/line/month. In the first nine months of the year, revenues from value added services, equivalent to 232 million euros, grew by 147.9%, and in the third quarter accounted for 5.3% of overall revenues. Cost containment initiatives are ongoing, and during the third quarter, costs were kept in line with last year´s figures. Customer numbers now exceed 20.7 million (+2.2 million since the start of the year).

Outlook for the fourth quarter
Operating performance is expected to continue improving, permitting attainment of all budget objectives regarding revenues and margins issued to the market. The economic benefits from divestment of non-core activities, particularly Italtel, Sirti and real-estate holdings, will fully offset the impact of the extraordinary restructuring expense - earmarked for personnel reduction - which appeared on the books in the third quarter of this year.

Once the merger through incorporation between Seat Pagine Gialle and Tin.it is complete and becomes effective, the Telecom Italia Group will consolidate the new company on its own balance sheet, and hold up to around 61% of its capital, in the event that full conversion takes place of Seat PG savings shares into ordinary shares.

By the end of the year, consolidated net borrowings will reflect the effects of purchase of a UMTS license, as well as international acquisitions that are currently underway. Compared to the September level, this will be counterbalanced by the benefits of the conversion of TIM savings shares into ordinary shares, and by the cash generated through divestment of non-core assets. Overall, net financial consolidated borrowings will fall within the targets announced to the market.