Telecom Italia: Board of Directors examines and approves the Interim Report on Operations as of 31 March 2015

05/07/2015 - 07:08 PM

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  • Revenues: 5.1 billion euros, -2.6% compared with q1 2014
  • EBITDA: over 2 billion euros, -7.7% compared with q1 2014 with an ebitda margin of 40.2%
  • EBIT: 979 million euros, -188 million euros compared with q1 2014 with an ebit margin of 19.4%
  • Net profit attributable  to parent company shareholders: 80 million euros.  this figure is negatively affected by the effects of the bond buyback transaction, as well as by the valuation dynamics of the mandatory convertible bond. without these impacts the profit figure for the first quarter 2015  would have been over 300 million euros. in the first quarter of 2014 profits were 222 million euros
  • Liquidity margin as of  31 march 2015: 14.1 billion euros, allows maturities to be covered for a period exceeding the next 24 months
  • Investments during the quarter totalled approximately one billion euros. the higher investments, both in italy and in brazil, were in line with the guidelines in the industrial plan. to date the fibre optic network in italy covers 32% of the population (over 140 municipalities), and the  4g mobile network covers over 80% of the population

                                                                  ***

The results of the first quarter of 2015 will be illustrated to the financial community during a conference call scheduled for tomorrow 8 May at 12 pm (Italian time). Journalists may listen to the conference call, without asking questions, by calling: +39 0633168.

 

Those unable to connect live may follow the presentation until 15 May by calling: +39 06334843 (access code 780868#).

The presentation Slides, with an opportunity to follow the event in audio streaming, will be available at: www.telecomitalia.com.

 

The Interim Report on Operations of the Telecom Italia Group as of 31 March 2015 has been drawn up in accordance with article 154–ter (Financial Reports) of Legislative Decree No. 58/1998 (Consolidated Finance Law [Testo Unico della Finanza]- TUF), as subsequently amended and supplemented. This document also includes the Abbreviated Consolidated Financial Statements as of 31 March 2015 prepared in accordance with IFRS accounting principles issued by IASB and endorsed by the EU and, in particular, with IAS 34 Interim Financial Reporting.  The Abbreviated Financial Statements as of 31 March 2015 are not audited.

The accounting policies and consolidation principles adopted in preparing the Abbreviated Consolidated Financial Statements as of 31 March 2015 are consistent with those adopted in the Telecom Italia Group Consolidated Financial Statements as of 31 December 2014, to which reference can be made, except for the application of new Standards/Interpretations adopted by the Group from 1 January 2014. Moreover, as illustrated in the notes to the Group Abbreviated Consolidated Financial Statements as of 31 March 2015, the new Standards/Interpretations have not had any effect on the Group's Abbreviated Consolidated Financial Statements.

In addition to the conventional financial performance indicators contemplated under IFRS, the Telecom Italia Group uses certain alternative performance indicators in order to give a clearer picture of the trend of operations and the company's financial position. Specifically, the alternative performance measures refer to: EBITDA; EBIT; organic change in revenues, EBITDA and EBIT; net financial debt carrying amount and adjusted net financial debt.

Note that the section "Business Outlook for the 2015 financial year", contains forward-looking statements about the Group’s intentions, beliefs and current expectations with regard to its financial results and other aspects of Group's operations and strategies. Readers of the present press release should not place undue reliance on such forward-looking statements, as final results may differ significantly from those contained in the above-mentioned forecasts owing to a number of factors, the majority of which are beyond the Group’s control.

The Telecom Italia Board of Directors, chaired today by Giuseppe Recchi, examined and approved the Group’s Interim Report on Operations as of 31 March 2015.

The first quarter of 2015 confirmed the trend to progressive recovery in domestic turnover, with a lower sequential decline than in previous quarters, thanks to the attenuation of the dynamic of contraction of traditional services and the development of innovative ones. In particular, there was a continuous strengthening of competitive positioning in the Mobile segment, where market shares were maintained and limited erosion of average revenues per user (ARPU), supported in particular by higher penetration of mobile internet. In the Fixed segment, the recovery in revenue trend was supported by improvement in broadband ARPU, progressive growth in ADSL customers, with premium bundle/flat offers, and the development of ICT services.

The investments made in the quarter, equal to approximately one billion euros, confirm the acceleration programme set out in the industrial plan for the three year period 2015-17. In Italy, the strong push in new generation infrastructure enabled the Company, to date, to cover 32% of the population with fibre optic (NGN), with around 8 million homes reached, and to reach over 80% of the population with the 4G (LTE) mobile network. With around 9 million kilometres of fibre already laid in the country, more than half that provided for in the Strategic Plan for the end of 2017 (16 million kms), and 40,000 cabinets connected in fibre, Telecom Italia confirms itself as the engine for the infrastructure development of the Country.

Net consolidated profit attributable to Parent Company shareholders for the first quarter of 2015 stood at 80 million euros, affected by negative impact of the bond buyback transactions and some items of a purely accounting and valuation nature that do not generate any financial adjustment, connected in particular to the fair value valuation of the implicit option embedded in the Mandatory Convertible Bond (a three year obligatory convertible bond issued in November 2013). In the absence of these impacts the profits of the first quarter of 2015 would have been over 300 million euros.

In Brazil, the market has been affected by a deterioration in the macroeconomic scenario, which caused a lower internal demand, an increase in inflation now at levels exceeding 8% and a sharp devaluation of the reais against other currencies. These elements contributed to a general slowdown of growth in the mobile market compared to the previous quarters.

In such a context, TIM Brasil stabilised its market share in the Mobile segment, significantly expanded its postpaid customer base, but, at the same time, registered a worsening revenue trend due to the acceleration in substitution process from traditional voice/SMS services to mobile data apps, and a further reduction in mobile termination rates (MTR) in force since the end of February 2015. The negative dynamics in mobile revenues was partly mitigated by growth in the turnover of the Fixed segment, in particular in the wholesale business of Intelig and Broadband segment of TIM Live.

 

MAIN VARIATIONS TO THE TELECOM ITALIA GROUP CONSOLIDATION AREA

During the course of the first quarter of 2015, the perimeter changed as follows:

  • INWIT S.p.A. (Domestic Business Unit): was established in January 2015.

The following changes to the consolidation scope occurred during 2014:

  • Telecom Italia Ventures S.r.l. (Domestic Business Unit): was established in July 2014;
  • Rete A S.p.A. (Media Business Unit): on 30 June 2014 Persidera S.p.A. acquired 100% of the company, and as a consequence, Rete A became part of the consolidation scope of the Group and was fully consolidated; on 1 December 2014 the merger by incorporation of Rete A into Persidera was completed;
  • TIMB2 S.r.l. (Media Business Unit): was established in May 2014;
  • Trentino NGN S.r.l. (Domestic Business Unit): on 28 February 2014, the Telecom Italia Group acquired a controlling stake in the company, that therefore entered the Group's consolidation scope.

 

TELECOM ITALIA GROUP

 

Revenues in Q1 2015 amounted to 5,053 million euros, down 2.6% from the 5,188 million euros recorded in Q1 2014 (-135 million euros). In terms of organic change, calculated by excluding the effect of changes in exchange rates and consolidation area, consolidated revenues were down 3.1% (-163 million euros).

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

(million euros)

Q1 2015

Q1 2014

Changes

 

 

% of total

 

% of total

absolute

%

% organic

Domestic

3,631

71.9

3,728

71.9

(97)

(2.6)

(3.0)

Core Domestic

3,355

66.4

3,469

66.9

(114)

(3.3)

(3.3)

International Wholesale

310

6.1

301

5.8

9

3.0

(1.6)

Olivetti

51

1.0

49

0.9

2

4.1

4.1

Brazil

1,411

27.9

1,451

28.0

(40)

(2.8)

(3.3)

Media and Other Assets

21

0.4

15

0.3

6

 

 

Adjustments and eliminations

(10)

(0.2)

(6)

(0.2)

(4)

 

 

Consolidated Total

5,053

100.0

5,188

100.0

(135)

(2.6)

(3.1)

EBITDA for the first three months of 2015 amounted to 2,031 million euros down by 169 million euros (-7.7%) compared to the same period of the previous year, with an EBITDA margin of 40.2% (42.4% in the first three months of 2014). In organic terms, the EBITDA is down 179 million euros (-8.1%) compared with the same period of the previous year.

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

(million euros)

Q1 2015

Q1 2014

Changes

 

 

% of total

 

% of total

absolute

%

% organic

Domestic

1,610

79.3

1,792

81.5

(182)

(10.2)

(10.4)

% of Revenues

44.3

 

48.1

 

 

(3.8) pp

(3.7) pp

Brazil

415

20.4

406

18.5

9

2.2

1.6

% of Revenues

29.4

 

28.0

 

 

1.4 pp

1.4 pp

Media and Other Assets

7

0.4

3

0.1

4

 

 

Adjustments and eliminations

(1)

(0.1)

(1)

(0.1)

 

 

Consolidated Total

2,031

100.0

2,200

100.0

(169)

(7.7)

(8.1)

% of Revenues

40.2

 

42.4

 

 

(2.2) pp

(2.2) pp

EBIT in Q1 2015 is 979 million euros, down by 188 million euros compared with Q1 2014, and an EBIT margin of 19.4% (22.5% in Q1 2014).

Organic EBIT was down 193 million euros compared to the first quarter of 2014, with an EBIT margin of 19.4% (22.5% in Q1 2014).

Consolidated net profit attributable to Parent Company Shareholders amounted to 80 million euros  (222 million euros in the same period of 2014).

Capex in Q1 2015 was 964 million euros, up 280 million euros on Q1 2014, and breaks down as follows by operational sector: 

(million euros)

Q1 2015

Q1 2014

Change

 

 

% of total

 

% of total

 

Domestic

676

70.1

493

72.1

183

Brazil

287

29.8

189

27.6

98

Media and Other Assets

1

0.1

2

0.3

(1)

Adjustments and eliminations

Consolidated Total

964

100.0

684

100.0

280

% of Revenues

19.1

 

13.2

 

5.9 pp

Capital expenditure for the Domestic Business Unit recorded an increase of 183 million euros compared to Q1 2014. Much of this is due to the expenditure of 117 million euros for the renewal for 3 years of the GSM licence, and the innovative investments dedicated to developing new generation networks and services (+83 million euros), which represented 33% of total domestic investment (28% in the corresponding period of 2014).

Capital expenditure in the Brazil Business Unit shows an increase of 98 million euros compared to the first quarter of 2014, in the substantial absence of the exchange rate effect; these investments were primarily directed to the evolution of the industrial infrastructure.

The cash flow from operations is negative by 455 million euros  (negative by 14 million euros in Q1 2014) and is affected by the seasonal dynamics of disbursements related to liabilities accrued in the last quarter of the previous financial year, the payment of telecommunications business operating contributions of over 224 million euros by the Brazil Business Unit, and lower recourse to factoring of commercial payables, due to a cash situation temporarily higher than the optimum levels in a context of low returns; the impact of less income from factoring will be recovered during the year.

Adjusted net financial debt as of 31 March 2015 was 27,430 million euros, down by 99 million euros compared to 31 March 2014 (27,529 million euros), an increase of 779 million euros compared to 31 December 2014 (26,651 million euros), affected by the aforementioned negative generation of cash from operations in the quarter.

Net financial book debt was equal to 29,003 million euros as of 31 March 2015 (compared to 28,021 million euros as of 31 December 2014).

The liquidity margin as of 31 March 2015 is 14.1 billion euros, (13.1 billion euros as of 31 December 2014) net of 0.2 billion euros relating to Discontinued Operations and consists of 7.1 billion euros in cash (6.1 billion euros as of 31 December 2014) and undrawn committed credit lines totalling 7 billion euros (equal to those existing as of 31 December 2014). This margin covers the financial liabilities of the Group falling due over a period exceeding the next 24 months.

Group headcount for the Group as of 31 March 2015, excluding the 16,362 units related to Discontinued Operations, was 65,837, including 52,806 in Italy (66,025 as of 31 December 2014, including 52,882 in Italy).

                                                              ***

BUSINESS UNIT RESULTS

Figures for Telecom Italia Media as of 31 March 2015 are reported in the press release issued on 5 May, following the meeting of the Board of Directors of the Company.

 

DOMESTIC

Domestic revenues fell by 2.6% in reported terms and 3.0% in organic terms to 3,631 million euros (3,728 million euros in Q1 2014).

Performance in the first quarter of 2015 in terms of the change compared to the same quarter of 2014 shows a further reduction (-2.6%, -97 million euros), but confirms the trend to progressive recovery that started in the second half of the previous year (fourth quarter of 2014:  -5.0%; third quarter: -5.0%; second quarter: -8.2%; first quarter: -8.3%).

This recovery in performance can be attributed to a progressive stabilisation of the customer base and ARPU on traditional services, combined with the defence of market shares - particularly in the Mobile segment - and acceleration of the development of broadband and ultrabroadband services.

Highlights:

Core Domestic Revenues

Core Domestic revenues amount to 3,355 million euros and fell by 3.3% YoY (3,469 million euros in the first three months of 2014).

The performance of the various market segments as compared with the same period of 2014 is as follows:

  • Consumer: the revenues of Q1 for the Consumer segment amounted to 1,723 million euros, with a reduction of 26 million euros compared to the same period of 2014 (-1.5%). This performance, although slightly negative, confirms the recovery trend observed from the second half of 2014 onwards (-5.1% in the fourth quarter; -5.2% in the third quarter; -9.2% in the second quarter; -11.7% in the first quarter). In particular, Mobile service revenues registered a reduction of 32 million euros (-4.3%) compared to the same period of the previous year, improving from the -7.2% registered in the last quarter of 2014 (-6.6% in the third quarter, -13.7% in the second quarter and -16.9% in the first quarter) thanks to a structural improvement in competitive positioning, a progressive stabilisation of the market share and a constant growth in mobile Internet service. The Wireline service revenues trend (-1.4%  YoY, -13 million euros) also confirmed the improving trend already seen from the second half of 2014 onwards (-3.4% in the fourth quarter; -6.1% in the third quarter; -7.9% in the second quarter; -6.2% in the first quarter), following the Broadband ARPU stabilisation, as a result of higher penetration of flat offers in our customer base and the constant upselling to Fibre; as a consequence, ARPU has also started to show a steady improvement, after upgrading services to Fibre.  
  • Business: in Q1 2015 revenues stood at 1,138 million euros, declining by 64 million euros (-5.3%) compared to Q1 2014 (including -72 million euros, equal to -6.4%, on services).  Within the Mobile services revenues (-16 million euros, -5.3% lower than the same period in 2014), traditional voice and messaging services are still declining (-22 million euros) mainly due to customers repositioning on bundle offers, which are characterised by  lower ARPU levels. The negative macro-economic context continues to affect fixed service revenues (-56 million euros, -6.6% in the first quarter of 2015 compared to the same period in the previous year), due to price declines both in traditional voice and data services, partially offset by constant growth in ICT revenues, particularly on Cloud services (+37% compared to the first quarter of 2014);
  • National Wholesale: revenues for Q1 2015 amount to 448 million euros, down by 13 million euros (-2.8%) on 2014. The downturn is primarily attributable to the start of migration to IP and Ethernet infrastructure solutions and the reduction of revenues from mobile traffic on domestic roaming.

 

Telecom Italia Sparkle Group (International Wholesale) Revenues

The Q1 2015 Telecom Italia Sparkle Group (International Wholesale) revenues amounted to 310 million euros, an increase compared to the corresponding period of 2014 (+9 million euros, +3.0%). In particular, the increase is related to revenues contribution from IP/Data services (+9 million euros, +14%) and from phone services (+3 million euros, +1%). The other business segments remain substantially stable (- 2 million euros, -1%).

Olivetti Revenues

The revenues of the Olivetti group in the first three months of 2015 amounted to 51 million euros, up by 2 million euros compared with the same period of 2014 (+4.1%). This performance is due primarily to the supply of multifunctional products on long term rental contracts (+8 million euros compared to the first quarter of 2014) which compensate for the fall in sales from channels in the Italian market (-5 million euros compared to the same period in 2014) and foreign markets (-1 million euros compared to the same quarter of 2014). At product level, there was a fall in sales of devices (PCs and tablets) for 9 million euros, linked to a redimensioning of sales activity on these types of products.

The EBITDA  of the Domestic Business Unit in Q1 2015 amounted to 1,610 million euros, with a reduction of 182 million euros compared to the same period of 2014 (-10.2%), with an EBITDA margin of 44.3% (-3.8 percentage points compared to the same period of 2014). The results are affected both by the contraction in service revenues (-119 million euros compared to the same period of the 2014 financial year) and by the increase in operating costs, particularly personnel costs.

The EBIT of the Domestic Business Unit in the first quarter of 2015 is 814 million euros (990 million euros in the same period of 2014); the EBIT margin fell from the 26.6% of the first quarter of 2014 to the 22.4% of the first quarter of 2015. The trend in EBIT reflects the contraction in EBITDA described earlier, partially offset by the reduction in depreciation and amortisation (-43 million euros), due partly, among other things, to the revision of the useful life of the passive infrastructure of the Mobile telephony Base Radio Stations, which reduced depreciation by a total of 33 million euros.

It should be recalled that the EBIT of the first quarter of 2014 was affected by the effects of the measurement of capital gains of some 38 million euros deriving from the sale of a property in Milan by Telecom Italia S.p.A..

The headcount, of 52,965 employees, fell by 111 units compared to 31 December 2014.

BRAZIL

(average real/euro exchange rate 3.22251)

The revenues of the Tim Brasil group in Q1 2015 amounted to 4,547 million reais, down by 155 million reais compared to the same period of 2014 (-3.3%). Revenues from services reached 3,940 million reais, with a reduction of 159 million reais compared to 4,099 million reais in the same period of 2014 (-3.9%). The lower turnover is attributable primarily to the revenue component from incoming mobile traffic, above all because of the further reduction in the mobile termination rates (MTR) introduced in February 2015 (-286 million reais, -38.9%), the impact of which was partially offset by the increase recorded in turnover from mobile VAS devices (+228 million reais, +21.3%); revenues from product sales amounted to 607 million reais in the first quarter of 2015 (+0.7%, 603 million reais in the first quarter of 2014), due principally to the different product mix, with growth in the smartphone component and a higher average sale price.

Mobile ARPU in Q1 2015 was 16.7 reais compared to 18.0 reais in the same period of 2014 (-7,2%). The trend in ARPU reflects the reduction in mobile termination rate  mentioned earlier.

The total number of lines as of 31 March 2015 was estimated at 75.7 million, substantially unchanged compare with the figure of 31 December 2014, corresponding to a market share on lines of approximately 26.8%.

EBITDA of 1,337 million reais was 21 million reais higher than in the same period of 2014 (+1.6%). The EBITDA increase was essentially sustained by lower costs for purchasing materials and services, mainly attributable to the lower fees payable to other operators and the reduction in other operating costs, despite the higher personnel costs. The EBITDA margin was 29.4%, up 1.4 percentage points on Q1 2014.

EBIT amounted to 527 million reais a worsening of 61 million reais on Q1 2014. This result, despite the improvement in EBITDA, is partly attributable to the increased depreciation and amortisation of 83 million reais (811 million reais in the first three months of 2015 compared with 728 million reais in the same period of 2014).

Headcount stood at 12,765 employees (12,841 as of 31 December 2014).

                                                          ***

EVENTS SUBSEQUENT TO 31 March 2015

 

Bond buyback

 

See the Press Release on the same subject issued on 22 April 2015 by Telecom Italia S.p.A..

Sale of Telecommunications Towers by the Tim Brasil group

 

On 21 November 2014, the Tim Brasil group signed an agreement with American Tower do Brasil to sell a maximum of 6,481 telecommunications towers, for a total price of approximately 3 billion reais, and an agreement to lease part of these towers (Master Lease Agreement - "MLA") with a total duration of 20 years.

The first transfer of transmission towers to American Tower do Brasil took place on 29 April 2015. The latter thus acquired 4,176 sites, in exchange for payment of approximately 1.9 billion reais. 

Completion of the sale of the remaining maximum 2,305 telecommunications towers is expected to take place in the coming months.

Transfer of the Tower branch to INWIT S.p.A.

 

The transfer from Telecom Italia S.op.A. to subsidiary Infrastructure Wireless Italiane S.p.A. (“INWIT”), of the branch of the business  that comprises approximately 11,500 sites ("Towers") hosting radio transmission equipment for the mobile telephony networks of Telecom Italia itself, and other operators, was completed on 1 April 2015.

Plan for merger by incorporation of Telecom Italia Media S.p.A. into Telecom Italia S.p.A. approved by the Telecom Italia Media S.p.A. Shareholders' Meeting

 

See the Press Release on the same subject issued on 30 April 2015 by Telecom Italia Media S.p.A..

                                                           ***

OUTLOOK FOR THE 2015 FINANCIAL YEAR

 

2015 will see the telecommunications market continue to show a fall in traditional services (access and voice), partly offset by the development of revenues from innovative services due to the increasing demand for connectivity and digital services; it is expected that the combined effect of these phenomena will determine a further overall fall in the domestic market, but considerably less so than that seen in previous years, particularly on Mobile. In Brazil growth is forecast, albeit at lower rates than those recorded in previous years, due to the progressive penetration and saturation of the Mobile market, the migration away from traditional voice-SMS services towards internet services and the impact of the reduction in mobile termination rates (MTR) .

In this context, the Telecom Italia Group – as announced in the 2015-2017 Plan – will continue to defend its market shares and invest in the development of infrastructures, with a heavy increase in innovative investments. More specifically, the five areas of technological development will regard fixed ultrabroadband with optic fibre, mobile ultrabroadband, the development of new data centres to support cloud services, international fibre connections and the transformation of industrial processes aimed at ensuring a structural reduction of the operating costs by simplifying and modernising the infrastructures.

The aim of this acceleration of investments is to create the foundations for stabilisation and recovery of turnover based increasingly on the spread of innovative services with digital content.

Overall investments in the Domestic area in the plan horizon will total more than 10 billion euros, around 5 billion euros of which solely for innovative developments (NGN, LTE, Cloud Computing , Data Centres, Sparkle and Transformation), which by 2017 will enable 75% of the population to access optic fibre, and over 95% to access 4G. In Brazil the investments will total over 14 billion reias, with the aim to extend 4G coverage to over 15,000 sites, and 3G coverage to over 14,000 sites by 2017.

In this context, for the current year and in line with the trends described in the 2015 - 2017 three-year plan, a progressive improvement is expected in operating performance on both the domestic market (with EBITDA stabilisation target in 2016) and in Brazil.

                                                            ***

The Executive responsible for preparing the corporate accounting documents, Piergiorgio Peluso, hereby declares, pursuant to subsection 2, Art.154-bis of the Italian Consolidated Law on Financial Intermediation, that the accounting information contained herein corresponds to the company’s documentation, accounting books and records.

Milan, 7 May 2015