Board of Directors approves third-quarter accounts

11/13/2001 - 00:00 PM

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Telecom Italia Group
- Revenues: 23,550 million euros (+9.7%)
- Ebitda: 10,748 million euros (+9.3%)
- Ebitda domestic wireline & mobile telephony + 423 million euros, despite tariff reductions equal to 1,507 million euros
- Operating income: 5,389 million euros (+2%)
- Acceleration of new strategy: extraordinary write-downs of 1,607 million euros, no impact on cash flow 
- Attributable net income: from pro forma profit of 603 million euros excluding write-downs to 328 million euro loss
- Debt stabilized at june levels of 24,507 million euros

Telecom Italia SpA
- Revenues: 12,755 million euros (-2.6%)
- Ebitda: 5,555 million euro (-4.3%)
- Operating income: 3,006 million euros (+4.4%)
- Net income: pre write-down profit 909 million euros, post write-down loss of 308 million euros

Forecast for end of year 2001:
- Dividend distribution policy unchanged
- Group revenues and ebitda: double-digit growth
- Debt stable, below 25 billion euros


During today´s meeting in Milan the Telecom Italia Board of Directors examined and approved the consolidated and parent company third-quarter financial statements at 30 September 2001.

Operations posted positive results, in line with expectations. Revenues rose by 9.7%, EBITDA increased by 9.3% and operating income, corresponding to 5,389 million euros, was up by 2%.

The Group is accelerating implementation of the new strategic orientations under the 2002-2003 industrial plan, and has decided to effect portfolio write-downs entailing extraordinary charges equal to 1,607 million euros, following value adjustments to participations in companies outside Italy and to goodwill.

These write-downs have been carried out for the purpose of realigning the values of portfolio holdings and, being extraordinary in nature, are non-recurring. Though having a significant accounting impact on attributable net income, causing pro forma profit of 603 million euros to become a loss of 328 million euros, this operation has had a beneficial effect on cash flow, thanks to a reduction of fiscal charges of 676 million euros at consolidated level.

The write-downs of certain participation interests and of goodwill, which was brought forward in provisions made at the end of September, may result in a net consolidated loss at year-end 2001. Despite the write-downs undertaken, Telecom Italia SpA net income is expected to record a profit, partly as a result of dividends from subsidiary companies which, as per standard practice, will be accounted for at the end of the year.

The extensive nature of available reserves should permit the dividend distribution policy to remain unchanged compared to the previous year.

Throughout the 2001 financial year the Group´s strong commitment to industrial operations will bring about robust growth in both revenues and EBITDA and yield high levels of profitability. Turnover is forecast to grow by 11%, essentially through the consolidation of new acquisitions (Seat Group, Entel Chile Group, Maxitel in Brazil), and as a result of positive performance by mobile telephony services and domestic data/Internet services. EBITDA is expected to rise by 10%. Group net financial borrowings are expected to remain stable, below 25 billion euros.

The first nine months of 2001 for the Telecom Italia Group
Group revenues in the first nine months of 2001, gross of amounts due to other telecommunications operators, amounted to 23,550 million euros, up by 9.7% compared to the figure of 21,468 million euros for the same period in 2000. Net of amounts due to other carriers, revenues amounted to 20,909 million euros (+7.7%).
Revenues grew as a result of the good performance of mobile telephony services, and as a result of changes to the area of consolidation. In the third quarter of 2001 revenues were equal to 7,961 million euros, an increase of 9.8% compared to the third quarter of 2000.

EBITDA, at 10,748 million euros, was up by 9.3% (+910 million euros) compared to the first nine months of 2000, remaining at a very high ratio of revenues (45.6%). This growth was substantially attributable to the good performance of the TIM Group (+11.2%), and to the recent consolidation of the Seat Pagine Gialle and Entel Chile Groups.

There was a particularly strong rise in the EBITDA from wireline and mobile domestic telephony, amounting to 423 million euros. The Group´s commitment to improve traffic volumes and to raise efficiency through the reduction of operating costs has offset reductions in tariffs, which overall amounted to 1,507 million euros.

Operating income amounted to 5,389 million euros, up around 2% compared to the first nine months of 2000 (5,285 million euros), despite increased amortization of goodwill (617 million euros). This increase is attributable principally to improved results from Telecom Italia (127 million euros), in particular as a result of lower write-downs, and to the good performance recorded by the TIM Group (283 million euros).

Consolidated net income after minority interests, which was affected by extraordinary charges equal to 1,607 million euros, posted a loss of 328 million euros (for the first nine months of 2000 net income equaled 1,253 million euros). Pro forma consolidated net income, before extraordinary items, registered a profit of 603 million euros.

Net income was particularly penalized by the following factors:
- Provisions of an extraordinary nature of 1,607 million euros, with a net impact of 931 million euros as a result of fiscal charges being reduced by 676 million euros. These write-downs regard goodwill and value adjustments to participations and reflect an acceleration of the implementation of the new strategic guidelines;
- increased net financial charges, which rose by 770 million euros (to 1,246 million euros compared to 476 million euros for the first nine months of 2000) and a rise in goodwill amortization of 620 million euros owing predominantly to the acquisition of Seat Pagine Gialle;
- greater value adjustments regarding investment activities and participations in related companies, for a total of 1,051 million euros, compared to 675 million euros for the first nine months of 2000.

Operating cash flow (profit+depreciation+write-downs) amounted to 6,238 million euros, against 5,908 million euros for the first nine months of 2000. Investments amounted to a total of 8,803 million euros (against 12,539 million euros for the first nine months of 2000). Of this figure, 4,957 million euros was capital expenditure and 2,808 million euros in financial investments, in addition to 1,038 million in goodwill principally for acquisition of control of the Entel Chile Group.

Net financial indebtedness, which remained substantially unchanged with respect to the figure registered at the end of June, amounted to 24,507 million euros. Compared to 31 December 2000 the increase of 5,478 million euros was essentially due to investments in foreign holdings, both in the mobile and wireline markets, and for the distribution of dividends. It should be noted that debt structure has improved substantially, with short-term exposure down from 56.6% to 33.3% of the total.

Group headcount at 30 September 2001 was 120,288, an increase of 5,619 on 31 December 2000. It should be noted that offsetting a significant reduction in the number of people employed by the Parent company was the increase brought about by enlargement of the area of consolidation.

Telecom Italia SpA
Parent company revenues in the first nine months of 2001 amounted to 12,755 million euros, down 2.6% compared to the same period in 2000 (13,096 million euros). After amounts owing to other telecommunications carriers, revenues amounted to 10,190 million euros, a reduction of 5% compared to the same period in 2000. Specifically, revenues from traffic were down by 8.6%, this despite a 25.6% increase in traffic volume. This reduction was partially offset by increases in subscription charges and by the development of data business, especially in the innovative areas of broadband access and web services, which were up by 70%.

EBITDA was reported at 5,555 million euros, which as a proportion of revenues equaled 43.6%.

Operating income equaled 3,006 million euros, up 4.4% compared to the first nine months of 2000. As a proportion of revenues, operating income stood at 23.6%, against 22.0% for the same period in 2000. This improvement was essentially the result of a more efficient use of invested capital.

Parent company net income over the period, taking into account extraordinary charges of 1,893 million euros, posted a loss of 308 million euros (with a loss of 962 million euros registered for the third quarter alone). Pro forma net income before write-downs equaled 909 million euros.

Investments amounted to a total of 3,233 million euros (841 million in the third quarter alone). Of this sum, 1,721 million euros was for capital expenditures (658 million euros in the third quarter) and 1,512 million euros was of a financial nature (183 million euros in the third quarter), almost entirely associated with the acquisition of participating interests.

Net financial indebtedness amounted to 18,140 million euros, against 16,839 million at the end of 2000. The 1,301 million euros increase was the result principally of increased debt exposure following investments in participating interests during the period.

Individual business units

Telecom Italia Domestic Wireline
Telecom Italia Domestic Wireline, the Telecom Italia business unit for the fixed-line network, closed the first nine months of 2001 with EBITDA up by 1% (5,682 million euros), and improved operating margins too, as the EBITDA margin rose from 42.9% to 44.7%.

The loss of revenues from traditional voice services, which were down by around 8% in the first nine months of 2001 (around -9% in the first half of the year), slowed as average prices fell more slowly, by around 17% compared to 20% in the first half of 2001. The Unit´s share of the voice services market stood at around 81%, boosted by the commercial success of the Teleconomy offer, which by the beginning of November had garnered almost 3.8 million customers.

The overall volume of retail traffic continued to rise, reaching around 97 billion minutes (+4.3% compared to the first nine months of 2000). This was chiefly determined by significant growth in online traffic (33.2 billion minutes, up 32% compared to the first nine months of 2000), and to the continuing growth of fixed-mobile (+6.7%) and international (+10.2%) traffic.

The success of the data transmission and Internet services for business market strategy (in excess of 97,000 Broadband accesses using xDSL and Fibre Optics technology by early November) through the Full Business Company offering brought about 70% growth in revenues during the first nine months of 2001 for new broadband connectivity and Web services business.

The take-up of broadband in Italy continues to accelerate, with more than 490 cities now covered by ADSL technology both through the BB.B "Try and Buy" offer for the consumer and SOHO market (more than 143,000 accesses at the beginning of September), and through the wholesale offer targeted at Internet Service Providers and other telecommunications carriers (around 136,000 accesses at the beginning of November).

The total number of Broadband accesses supplied to date to the business and consumer markets exceeds 376,000.

The trend toward cost reduction continues to yield results. Operating net costs have been brought down by almost 650 million euros (over 13%) compared to the first nine months of 2000, in particular thanks to the rationalization processes launched last year, and as a result of ongoing improvements to network efficiency.

TIM 
TIM Group revenues in the first nine months of 2001 were equal to 7,532 million euros, an increase of 8.9% compared to the same period in 2000. Of note were service revenues, which at 7,183 million euros registered an increase of 12.2%.

EBITDA, at 3,633 million euros, was up by 11.2%. As a proportion of revenues, EBITDA stood at 48.2% (47.2% in the first nine months of 2000), reflecting the ongoing improvements in TIM Group profitability. Operating income was equal to 2,521 million euros, up by 12.6%.

Consolidated profit for the period, after deducting minority interests, equaled 1,075 million euros, up 3.1% compared to the same period last year. Net financial indebtedness at 30 September 2001 equaled 1,304 million euros.

At 30 September 2001, the TIM Group supplied 52.8 million lines - including mobile lines supplied by the Telecom Italia Group - an increase of more than 7.8 million compared to 31 December 2000.

TIM Group employees numbered 16,355 at the end of September, an increase of 1,098 compared to 31 December 2000.

Overall revenues for TIM SpA in the first nine months of 2001 amounted to 6,164 million euros, an increase of 6.2% compared to the same period during the previous year. Revenues from services amounted to 5,906 million euros (+9.1%); revenues from Value Added Services (VAS) reached 382 million euros, posting a growth of more than 60% compared to the first nine months of 2000, and accounting for 6.8% of revenues, compared to 5.9%.

Overall traffic equaled 25 billion minutes, up by 14.5%. TIM has confirmed its position as market leader in Italy with 23.3 million lines at 30 September 2001, up by 12% compared to the same period in 2000.

EBITDA reached 3,212 million euros, an increase of 13.1%. The EBITDA margin equaled 52.1% (48.9% in the first nine months of 2000). Operating income equaled 2,539 million euros, an improvement of 16.8%.

Net income for the period equaled 1,745 million euros, up around 28.5% with respect to the same period in 2000 (1,358 million euros).

The net financial position was positive, equaling 624 million euros (2,363 million euros at 31 December 2000).

At 30 September 2001 TIM employees numbered 9,790.

Seat Pagine Gialle
In the first nine months of 2001 the Seat PG Group registered total revenues of 1,344 million euros, against 902 million during the same period in the previous year, an increase of almost 50%, partially as a result of a revised area of consolidation. On equivalent terms, turnover during the first nine months of the year grew by 2.4%. The third quarter of 2001 closed with consolidated revenues of 519 million euros, a sharp rise compared to the 2000 3rd-quarter figure of 343 million euros (+51%).

During the first nine months of the year EBITDA reached 301 million euros (256 million in the first nine months of 2000, +17.7%). The improvement was determined by the performance of the directories business in Italy and from the significant containment of the losses of the Internet area as well as the reduction in costs connected to corporate operations.

In the first nine months of 2001 operating income equaled 10 million euros, after the amortization of goodwill amounting to 139 million euros.

During the first nine months of the year the consolidated net result after minority interests registered a loss of 110 million euros.

International Operations 
This business unit includes all the companies operating outside Italy in fixed and integrated fixed/mobile telephony. Revenues reached 2,730 million euros, principally as a result of expansion of the consolidation area. EBITDA for the Business Unit amounted to 987 million euros. On equivalent consolidation terms, revenues were up by 11.5% and EBITDA increased by 5.7%.

Other Business Units 
Information Technology Services registered improved EBITDA, up by 4.7% to 243 million euros, despite a 3.8% fall in revenues to 1,383 million euros.
Satellite Services, in the first nine months of 2001, posted revenues of 204 million euros, down slightly (-4.2%) compared to the same period in 2000. EBITDA of 28 million euros was penalized by lower earnings due to the slowdown in work relating to the Astrolink contract. Operating income, on the other hand, showed a significant improvement, rising to 10 million euros from the 26 million euro loss recorded during the first nine months of 2000, which was affected by non-recurring charges. Telecom Italia Lab, the Group´s innovation and research business unit, registered revenues of 90 million euros (+7.1%), with EBITDA in the red by 12 million euros.


The Telecom Italia Group third-quarter 2001 results will be illustrated to the financial community by Chairman Marco Tronchetti Provera, CEOs Enrico Bondi and Carlo Buora, and by Business Unit Heads Riccardo Ruggiero (TI Domestic Wireline), Marco De Benedetti (TIM) and Paolo Dal Pino (Seat) during a conference call at 5pm on Wednesday 14 November. Journalists may follow the presentation by calling +44 8700 559 363, or by connecting to the web address: www.telecomitalia.it/thirdquarter2001.