Telecom Italia Board of Directors examines and approves Group Annual Report on Operations at 31 December 2011

03/29/2012 - 05:27 PM

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  • Proposed dividend distribution of 4.3 euro cents per ordinary share and 5.4 euro cents per savings share for total of around €900 million
  • Group goodwill write-down on domestic business of total €7.3 billion
  • Bernabe’: “The goodwill write-down caused by the Olivetti/Telecom Italia deals and the purchase of the TIM minorities was made necessary by the deterioration of the macroeconomic outlook and of the financial markets condition. the writedown has no financial consequences and no impact on the group's debt reduction plans. The group's financial position, with available reserves in Telecom Italia s.p.a. of over €7 billion net of the loss in 2011, enables us to pursue the dividend policy announced in the 2012-2014 plan.”
  • Consolidated net result: -€4,726 million; excluding the goodwill write-down and the other non-recurring items net income stands at €2.6 billion, substantially in line with previous year calculated in comparable terms
  • Consolidated EBIT: -€603 million; excluding goodwill write-down ebit is positive at €6,761 million (+15.3%). organic variation is +5.1% compared with 2010
  • Shareholders' meeting convened for 15 May 2012

                                                            ***

Telecom Italia Group:
 

Revenues: €29,957 million, +8.7% compared with 2010; +2.7% organic variation

EBITDA: €12,246 million, +7.3% compared with 2010

Organic EBITDA: €12,339 million (in line with 2010)

Organic EBITDA margin: 41.2% (-1.1 pp compared with 2010)

Capex: €6,095 million (+33% compared with 2010, mainly due to the  acquisition of the rights of use for the lte frequencies)

Free cash-flow from operations: €5,767 million

Adjusted net financial position: €30,414 million, down €1,054 million from 31 December 2010

 

 

The financial results of Telecom Italia Group for FY 2011 and the previous year provided for comparison were drafted in accordance with the international accounting principles issued by the International Accounting Standards Board and approved by the European Union (“IFRS”).

In addition to the conventional financial performance indicators contemplated under IFRS, Telecom Italia Group uses certain alternative performance measures in order to give a clearer picture of the trend of operations and the company's financial position. These are: EBITDA; EBIT; organic difference in revenues, EBITDA and EBIT; Net Financial Debt and Adjusted Net Financial Debt. These terms are defined in the Appendix.

Note that this release contains forward-looking statements about the Group’s intentions, beliefs and current expectations with regard to its financial results and other aspects of operations and strategies. Readers should not place undue reliance on such forward-looking statements, as final results may differ significantly from those contained in the statements owing to a number of factors, the majority of which are beyond the Group’s control.

 

Finally we should point out that the auditing of the consolidated and separate statements of Telecom Italia at 31 December 2011 is still in progress.

The main variations to the consolidation area

Additions to the consolidation area:

  • TIM Fiber – Brazil: On 31 October 2011, acquisition of 100% of Eletropaulo Telecomunicações Ltda and 98.3% of AES Communications Rio de Janeiro S.A., telecommunications infrastructure operators in the states of San Paolo and Rio de Janeiro, now renamed TIM Fiber SP and TIM Fiber RJ respectively. The operation was carried out through the subsidiary TIM Celular S.A. – Brazil Business Unit.
  • 4GH Group - Domestic: On 27 July 2011 the 4G Holding group (belonging to the Domestic Business Unit) entered the consolidation area following the purchase of 71% of the ordinary shares of 4G Holding S.p.A. which in turn holds 100% of 4G Retail S.r.l.. The acquisition of 4G Holding, with its 200 sales points in the major Italian shopping malls, will enable Telecom Italia to reinforce its positioning among specialist retailers of telephone devices and broaden its countrywide presence.
  • Sofora Group – Argentina: On 13 October 2010 Sofora – Telecom Argentina entered the consolidation area following the increase from 50% to 58% of Telecom Italia Group's stake in Sofora Telecomunicaciones S.A., the Telecom Argentina holding company. In 2011 further equity purchases were made raising the Group's economic interest in Telecom Argentina from 16.2% on 31 December 2010 to 22.7% on 31 December 2011.

Losses to the consolidation area:

  • Loquendo – Domestic: On 30 September 2011 Loquendo S.p.A. was sold and consequently excluded from the consolidation perimeter.

The Telecom Italia Board of Directors, chaired by Franco Bernabè, today examined and approved the Group’s Annual Report on Operations at 31 December 2011.

Franco Bernabè, Chairman and CEO of Telecom Italia, said: “2011 was a tough year for the global economy and even more so for Italy which was hit by the sovereign debt crisis. The increase cost of capital caused by higher interest rates led to a reduction of the domestic goodwill value.”

“As a consequence, we have had to write down the goodwill created following the Olivetti/Telecom Italia deals of 1999 and 2003 and the purchase of TIM minorities in 2005. This has no financial impact and, given the available reserves of over €7 billion, we are fully able to pursue the dividend policy announced in the 2012 – 2014 Plan.”

“Group operating results have improved. Meanwhile, deleveraging has continued, enabling us to reduce our consolidated debt by a billion euro YoY and by 5.5 billion since the end of 2007.

Sustained by the Group’s strong cash flow generation, debt reduction continued despite investments of nearly 2 billion euro for the purchase of LTE frequencies in Italy and the acquisition of AES Atimus in Brazil."

                                                   ***

We should point out that the FY 2011 financial data for the Group, individual Business Units and Telecom Italia S.p.A. contained in this press release, are the same as those reported in the preliminary press releases of 24 February 2012. Analysis of operations and business performance made in those communications is therefore confirmed in full.

Telecom Italia Groups Results

Revenues in FY 2011 were up 8.7% at €29,957 million from €27,571 million in 2010 (+€2,386 million). In terms of organic variation, consolidated revenues grew by 2.7% (+€785 million).

In detail, the organic variation in revenues is calculated by excluding:

  • the effect of changes to the consolidation area (+€1,703 million, mainly due to the entry of the Argentina BU, from 13 October 2010;
  • the effect of foreign exchange rate fluctuations (-€74 million, due to forex variations affecting the Brazil and Argentina Business Units, of +€15 million and -€77 million respectively and other Group companies for -€12 million);
  • other non organic revenues in FY 2010 of €28 million from the termination in Q2 2010 of the loyalty program “1001TIM” which had resulted in a posting of €35 million in revenues from bonus-points not used by the customer and previously deferred.

Revenues, broken down by business unit, are as follows:

 

(millions of euros)

2011

2010

Change

 

 

%

 

%

absolute

%

% organic

 

 

 

 

 

 

 

 

Domestic

 19,032

 63.5

20,068

72.8

(1,036)

(5.2)

(4.8)

Core Domestic

 18,123

 60.5

19,065

69.1

(942)

(4.9)

(4.8)

International Wholesale

 1,393

 4.6

1,569

5.7

(176)

(11.2)

(8.8)

Brazil

 7,343

 24.5

6,199

22.5

1,144

18.5

18.2

Argentina (*)

 3,220

 10.7

798

2.9

2,422

 

26.5

Media, Olivetti and Other Operations

 583

 1.9

713

2.6

(130)

 

 

Adjustments and eliminations

(221)

(0.6)

(207)

(0.8)

(14)

 

 

Total Consolidated

 29,957

 100.0

27,571

100.0

2,386

8.7

2.7

(*)    Entered the consolidation area on 13 October 2010.

EBITDA came to €12,246 million, up €834 million (+7.3%) on 2010, with EBITDA margin of 40.9% of revenues (41.4% in FY 2010). Although, in absolute terms, organic EBITDA remains in line the previous year (€12,339 million in 2011 and €12,335 million in 2010), consolidated organic EBITDA margin fell 1.1 percentage points in FY 2011 to 41.2% (42.3% in FY 2010). This was due to the greater weight of South American revenues, where margins are lower than for Domestic Business, and to higher mobile handset sales, aimed at a greater penetration of data services.

The following table shows a breakdown of EBITDA and EBITDA margin by business unit:

 

(millions of euros)

2011

2010

Change

 

 

%

 

%

absolute

%

% organic

 

 

 

 

 

 

 

 

Domestic

9,243

75.4

9,393

82.3

(150)

(1.6)

(3.9)

% of Revenues

48.6

 

46.8

 

1.8 pp

 

0.5 pp

Brazil

1,990

16.3

1,801

15.8

189

10.5

10.7

% of Revenues

27.1

 

29.1

 

(2.0) pp

 

(1.9) pp

Argentina (*)

1,035

8.5

245

2.1

790

 

24.1

% of Revenues

32.2

 

30.6

 

1.6 pp

 

(0.7) pp

Media, Olivetti and Other Operations

(22)

(0.2)

(27)

(0.2)

5

 

 

Adjustments and eliminations

-

-

-

-

-

 

 

Total Consolidated

12,246

100.0

11,412

100.0

834

7.3

-

% of Revenues

40.9

 

41.4

 

(0.5) pp

 

(1.1) pp

(*)   Entered the consolidation area on 13 October 2010.

EBIT came to -€603 million (€5,818 million in FY 2010), including goodwill write-downs for a total €7,364 million affecting Domestic (€7,307 million) and Media (€57 million, €46 million in 2010). Organic EBIT, excluding the aforementioned goodwill write-downs, came to €6,808 million, up €333 million (+5.1%) from FY 2010, while EBIT margin rose 0.5 percentage points (22.2% in FY 2010 and 22.7% in 2011).

Regarding the goodwill write-down, we should point out that Telecom Italia Group repeated, for the annual statement, the impairment test performed in first half 2011, which already led to the posting of a €3,182 million impairment for the Cash Generating Unit Core Domestic in the half-yearly consolidated accounts at 30 June 2011.

The macroeconomic and market picture in 2011 saw a slowing of the faster growing economies and signs of recession in mature ones. This was even more marked in the domestic market, made worse in the second half by growing tensions in the financial markets surrounding interest rates. The valuation therefore took into account the overall deterioration in financial markets due to interest rate concerns, as well as the weaker market outlook for the Business Unit in question.

Financial income and expenses showed an overall improvement on the previous year of €76 million, mainly due to the reduction in net indebtedness. Meanwhile, management of shareholdings and equity valuation of associate companies slipped by €411 million. The variation is essentially due to the positive impact in 2010 of the fair value valuation of the stake in Sofora Group prior to the acquisition of control (€266 million) and the negative effect of the equity valuation of associate companies (-€39 million in 2011, +€99 million the previous year).

The consolidated net result came to -€4,726 million, mainly due to the goodwill write-down. Excluding the write-down and other non-recurring items, net income in comparable terms would have been €2,604 million, in line with 2010 (€2,608 million), calculated excluding the positive impact of the acquisition of control of Sofora, plus over €600 million from the recognition of deferred tax gains in Brazil and other non-recurring items.

Capex amounted to €6,095 million, an increase of €1,512 million compared with FY 2010 (+33%), due to the acquisition by the Domestic BU of the rights to use 800 - 1800 - 2600 MHz LTE frequencies (Long Term Evolution) for mobile broadband services, for a total €1,223 million, and consolidation of the Argentina Business Unit for the full FY (+€368 million, including a negative forex effect of €18 million) and investments by the Brazil Business Unit (+€74 million, including a positive forex effect of €3 million).

Operating free cash flow amounted to €5,767 million, down €446 million compared with 2010, mainly due to the acquisition of the LTE frequencies (€1,223 million). Excluding the above acquisition in 2011 and the payment in 2010 to the Revenue Agency for the Telecom Italia Sparkle case operating free cash flow would show an improvement of €388 million, confirming the Group's strong and growing cash generation capability, thanks to the positive contribution of the Domestic and Brazil markets and to entry of the Argentina Business Unit into the consolidation area.

Adjusted net financial position at 31 December 2011 amounts to €30,414 million, down €1,054 million compared with 31 December 2010 (€31,468 million).

This reduction is even more significant bearing in mind the investment in Q4 2011 for the acquisition of the LTE frequencies. Excluding this outlay, net indebtedness would be down by more than €2 billion. Operating free cash flow, together with receipts of €464 million following the sale of stakes in EtecSA Cuba and Loquendo, and the effects of the Tim Participações S.A. capital increase (around €240 million, net of ancillary costs) amply covered the payment of dividends (€1,326 million, of which €1,183 million distributed to the market by the parent), taxes (€1,381 million), the purchase of controlling stakes in two AES Atimus group companies in Brazil (around €686 million) and the purchases of shares that raised the Telecom Italia Group's stake in Telecom Argentina group in 2011 from 16.2% to 22.7%.

In Q4 2011 adjusted net financial position increased by €466 million (€29,948 million at 30 September 2011). Positive operating free cash flow was absorbed by tax payments, the acquisition of AES Atimus group in Brazil and the LTE frequencies in Italy.

Accounting net financial debt stood at €30,819 million, down €1,268 million from 31 December 2010 (€32,087 million).

The liquidity margin at 31 December 2011 stood at €14.7 billion, made up of €7.7 billion cash plus a further €7 billion from long term non-revocable credit lines (€6 billion maturing in 2014 and €1 billion in 2013), with no limits on their utilization. Given the difficult situation in the financial markets Telecom Italia Group decided to take a more prudent approach and – at the end of FY 2011 – the Group's liquidity margin alone is enough to more than cover its debt repayments for the next 24 months.

At 31 December 2011 Group headcount stood at 84,154 employees, of whom 56,878 in Italy (84,200 at the end of 2010, of which 58,045 in Italy).

                                                     ***

Business Unit Results

Figures for Telecom Italia Group included in this press release refer to the following business units:

  • Domestic Business Unit: includes domestic fixed-line and mobile-line voice and data services provided to end users (retail) and other carriers (wholesale), Telecom Italia Sparkle Group business (International Wholesale) as well as associated support operations;
  • Brazil Business Unit: refers to mobile (Tim Celular) and fixed-line (Intelig, TIM Fiber SP and TIM Fiber RJ) telecommunications operations in Brazil;
  • Argentina Business Unit: includes fixed-line (Telecom Argentina) and mobile telecommunications (Telecom Personal in Argentina, and Núcleo in Paraguay);
  • Media Business Unit: includes TV network-related activities and operations;
  • Olivetti Business Unit: focuses on the development and manufacturing of digital printing systems and office products and IT services;
  • Other Operations: includes financial firms and other smaller operations not strictly related to Telecom Italia Group's core business.

The FY 2011 figures for Telecom Italia Media can be found in the press release issued on 20 March 2012, following the Board Meeting's approval.

Domestic

Domestic revenues amounted to €19,032 million, down 5.2% (-€1,036 million) compared with 2010. The organic change was -4.8%.

EBITDA for the Domestic Business Unit amounted to €9,243 million, down €150 million from 2010        (-1.6%). The EBITDA margin was 48.6%, up 1.8 percentage points from 2010 due to a selective control of fixed costs which has led to significant cost containment that was higher than the revenue contraction.

Organic EBITDA came to €9,351 million, (-€376 million, -3.9% compared with 2010), with EBITDA margin at 49.1% of revenues, higher than 2010 (+0.5 percentage points).

EBIT amounted to -€1,945 million, down €7,107 million, mainly due to the goodwill write-down of €7,307 million. Organic EBIT amounted to €5,410 million, slipping €74 million compared with 2010 (-1.3%), while EBIT margin rose from 27.4% in 2010 to 28.4% in 2011.

In the first half of 2011, Domestic BU goodwill write down was valued at €3,182 million. The valuation performed for the annual financial statements, taking into account the deterioration in the financial markets and the macroeconomic picture for the BU, led to an overall impairment for the year of €7,307 million.

Capex came to €4,200 million, an increase of €1,094 million compared with FY 2010. This was attributable to the aforementioned acquisition of the rights of use for the LTE frequencies (€1,223 million), following the Ministry of Economic Development competitive bidding procedure in the second half of the year. The licenses, formally awarded on 3 October 2011, were assigned in February 2012.

The headcount came to 55,389 employees, 1,141 fewer than on 31 December 2010.

Brazil (average real/euro exchange rate 2.32669)

Revenues of Tim Brasil group in FY 2011 came to 17,086 million reais, 2,629 million higher (+18.2%) than in 2010. Revenues from services grew to reach 15,353 million reais, up from 13,571 million reais in 2010 (+13.1%). Revenues from product sales rose from 886 million reais in 2010 to 1,733 million reais in 2011 (+95.6%), reflecting the company's strategy of market penetration with high-end smartphones/webphones as a lever to grow mobile data services.

ARPU (Average Revenue Per User) stood at 21.4 reais in FY 2011 compared with 23.7 reais in FY 2010. The total number of lines at 31 December 2011 was 64.1 million, 25.6% higher than on 31 December 2010, representing a 26.5% market share.

EBITDA amounted to 4,631 million reais, up 430 million reais from FY 2010 (+10.2%); the growth in operating margin together with higher revenues was also flanked by operational efficiencies in costs, personnel and the management of commercial borrowing.

EBITDA margin was 27.1%, 2 percentage points lower than 2010. This was achieved through the aforementioned smartphone/webphone penetration strategy, and balanced by operational efficiencies in production and personnel costs.

Compared to FY2010, the organic change in EBITDA amounted to +448 million reais, with the EBITDA margin standing at 27.2% (29.1% in 2010).

EBIT amounted to 2,294 million reais, an improvement of 697 million on 2010. This result reflected the higher contribution of EBITDA and lower amortisations by 259 million reais.

Compared with 2010, the organic change in EBIT was positive by 715 million reais, with EBIT margin standing at 13.5% (11% in 2010).

Capex in 2011 came to 3,002 million reais, up 166 million reais compared with 2010. The new commercial strategy has led to the lower capitalization of the costs of client acquisition and increased network infrastructure investments to support the growth of voice and data traffic.

The headcount at 31 December 2011 stood at 10,539 employees (10,114 at 31 December 2010).

We note finally that on October 2011 TIM Brasil completed a major acquisition of controlling stakes in two AES Atimus companies currently renamed as TIM Fiber RJ and TIM Fiber SP, which will operate as providers of residential broadband services.

Argentina (average real/euro exchange rate 5.74419)

The figures for Argentina BU are consolidated within Telecom Italia Group from the date of purchase of control (13 October 2010). In order to give a clearer picture of the BU's performance, we have provided key figures for FY 2011 together with reclassified figures for the whole of FY 2010, for purely information (illustrative and comparative) purposes.

2011 revenues came to 18,496 million pesos, an increase of 3,869 million pesos (+26.5%) compared with 2010 (14,627 million pesos) thanks to growth of the Broadband and Mobile client base, as well as ARPU.

The main revenue source for the Argentina Business Unit is mobile telephony which grew by more than 32% on the previous year and delivers 71% of the BU's consolidated revenues.

EBITDA rose by 1,154 million pesos to reach 5,947 million pesos, +24.1% compared with 2010. The EBITDA margin was 32.2%, 0.6 percentage points less than in FY 2010, mainly due to the higher incidence of purchases of materials and services and labour costs.

EBIT grew by 57 million pesos to reach 2,925 million pesos (+2.0%), despite the adoption of the purchase price method resulting in total costs of 907 million pesos, mainly due to higher amortisations. Excluding such charges EBIT would have shown an increase of 683 million pesos (+21.7% on FY 2010).

EBIT margin came to 15.8%.

Capex came to 3,192 million pesos, up 24.8% on the previous year. This includes 746 million pesos in customer acquisition costs through tied subscription contracts of 18 months for mobile customers and 12 months for BroadBand customers (551 million pesos in FY 2010).

The headcount at 31 December 2011 stood at 16,350 employees (15,650 at 31 December 2010).

Olivetti

The market conditions in which Olivetti operates were particularly negative for the third year running and the worsening of the macroeconomic picture in Italy and Europe led to a sharp fall in Italian ICT spending in 2011.

2011 revenues amounted to €343 million (-€48 million compared with 2010, partly due to a negative forex effect of €3 million).

EBITDA was a negative €35 million, €16 million lower than 2010 (-€19 million in organic terms).

EBIT was a negative €41 million, down €17 million compared to end of 2010.

Capex in 2011 came to €5 million, unchanged on the previous year.

The headcount at 31 December 2011 stood at 1,075 employees (984 in Italy and 91 overseas), 1,090 at the end of 2010.

                                                              ***

Telecom Italia s.p.a. results

Revenues amounted to €18,045 million, down €940 million (-5.0%) from FY 2010. The organic variation in revenues is -5.1%.

This is due to the physiological decline in revenues from traditional business in the Consumer (-5.4%), Business (-6.9%) and Top (-5.4%) segment. However, positive trends were seen in product sales and revenues from new services such as Broadband (mobile) in the Consumer segment.

The National Wholesale segment recorded an increase in revenues of 1.3% driven by growth in OLO (Other Licensed Operators) Local Loop Unbundling, Wholesale Line Rental and Bitstream customers.

EBITDA amounted to €9,000 million, down €89 million (-1%) from FY 2010. The organic change in EBITDA was a negative 3.3% (-€315 million). The EBITDA margin was 49.9% (compared to 47.9% in 2010); in organic terms the margin stood at 50.5% of revenues (49.5% in 2010).

EBIT amounted to -€182 million, down €5,151 million from FY 2010, mainly due to the impact of the goodwill write-down of €5,376 million. The organic change in EBIT was -0.3% (-€16 million); in organic terms the margin stood at 29.3% of revenues (27.9% in 2010).

Net result came to -€3,571 million. Excluding the goodwill write-down and other non-recurring items net income would be a positive €1,765 million. The goodwill write-down has no financial consequences, therefore the shareholders will be asked to approve a dividend distribution from the company's reserves, which stand at over €7 billion as of 31 December 2011 after the loss has been covered.

The headcount at 31 December 2011 stood at 47,801 employees (49,636 at end of 2010).

                                                          ***

Events subsequent to 31 December 2011

There are no significant events subsequent to 31 December 2011 to be reported as of 29 March 2012.

                                                          ***

Outlook for the 2012 financial year

As announced on 24 February 2012, regarding Telecom Italia Group's outlook for the current financial year, the targets linked to the main economic indicators, as described in the 2012-2014 Industrial Plan, foresee the following outcomes:

  • Revenues and EBITDA essentially unchanged from 2011;
  • Adjusted net financial position at around €27.5 billion.

                                                               ***

Shareholders’ meeting called

The Board of Directors has convened a Shareholders' Meeting for 15 May 2012 (single call) to take place on 15 May 2012 at the Rozzano auditorium (Milan), Viale Toscana 3.

Financial Statements/Dividend

Besides approval of the annual financial statements at 31 December 2011, the Board will submit a proposal to Shareholders to replenish the loss for the year from retained earnings, as well as the distribution of a dividend of 0.043 euro per ordinary share and 0.054 euro per savings share, drawn from FY 2010 earnings. The dividend shall be paid out from 24 May 2012, ex-coupon on 21 May 2010.

Regarding the recent incorporation in Telecom Italia of Telecom Italia Audit & Compliance Services S.c.a.r.l. (with effect from 1 January 2012), together with approval of the financial statements of the resulting company, Shareholders will be asked to approve the financial statements of the absorbed company, already wholly owned.

Remuneration report

The Shareholders’ Meeting will for the first time be called to approve, by non binding vote, company remuneration policy for directors and management with strategic responsibilities. The remuneration policy is discussed in section one of the remuneration report, approved today by the Board of Directors on the basis of the inquiry by the Committee for Appointments and Remuneration. The report will be made public together with the Annual Report (as well as the customary report on corporate governance and ownership, again approved today by the Board of Directors).

Appointment of two Directors

Following the departure of Ferdinando Beccalli Falco and Francesco Profumo, the Board proposes to appoint Lucia Calvosa and Massimo Egidi, as independent directors, previously co-opted by the Board. The nominations will have the same expiry as the current directors (approval of financial statements at 31 December 2013).

The curricula vitae of Lucia Calvosa and Massimo Egidi can be found on the website www.telecomitalia.com - GovernanceBoard of Directors.

Appointment of the Board of Statutory Auditors

The Shareholders' Meeting will be called to renew the Board of Statutory Auditors, with a mandate until the approval of the 2011 financial statements. Presentation of candidates and salary proposals (as well as proposals for Chairman of the Board) shall be left to the shareholders.

In particular, lists may be put forward by 20 April 2012 by shareholders who, individually or jointly, hold at least 1% of ordinary share capital.

Long Term Incentive Plan 2012

The Shareholders’ Meeting is called to approve the 2012 Long Term Incentives Plan for top management and selected managers. The plan (essentially a new cycle of the incentive scheme in effect last year) foresees bonuses based on fixed annual salary, linked to the achievement of predetermined performance targets over the 2012-2014 period.

To service the plan, an Extraordinary Shareholders' Meeting will be called to grant the Board specific powers to increase share capital by a maximum €15,000,000, part paid and part without charge, via the assignment of profits or profit reserves.
Specific details of the plan will be published together with the report illustrating the proposal to shareholders.

Amendment to articles 9 and 17 of the Company Bylaws (female quotas)

Changes to the rules on appointments to the Board of Directors and Statutory Board of Auditors will be proposed to ensure greater balance between the sexes, as required by law.

The legislation is obligatory for three mandates from the first renewal subsequent to the law coming into effect (and hence from next August). It requires organisations to reserve a fifth of places for the under-represented sex in the first mandate and a third for the two successive mandates, rounding up to the nearest whole number where necessary. However, the Board takes the view that, among senior officers of the company, diversity of gender as well as professional background and managerial experience represents an opportunity and a value to be defended. The Board will therefore propose a permanent change to the criteria for composition of the Board of Directors and Statutory Board of Auditors, not limited to just three mandates.

Shareholders who do not approve all the changes proposed in extraordinary session do not have a right of withdrawal.

                                                              ***

Corporate governance issues

The Board of Directors has ascertained that it fully meets the requisites for the composition of the board and the criteria of independence in the persons of Lucia Calvosa, Elio Cosimo Catania, Massimo Egidi, Jean Paul Fitoussi, Mauro Sentinelli and Luigi Zingales.

                                                              ***

The Manager designate for the preparation of accounting and corporate documents, Andrea Mangoni, hereby declares, pursuant to paragraph 2, Art.154-bis of Italy’s Financial Law, that the accounting information contained herein corresponds to the company’s documentation, accounting books and records.

Milan, 29 March 2012