Telecom Italia: Board of Directors examines results for the 9 months 2005

11/08/2005 - 04:30 PM

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Telecom Italia: Board of Directors examines results for the 9 months ending 30 September 2005

Telecom Italia Group:  consolidated net profit 2,625 million euro,
+ 56.5% compared with the first 9 months of 2004, in part due to the merger with TIM and consequent full ownership of Mobile activities and capital gains from disposals

Capex increases:
 +200 million euro compared with the first 9 months of 2004

In October, Broadband accesses reached 6,361,000,
with over 1.1 million in the rest of Europe

TIM: +1.1 million lines in Italy since June 2005

One million UMTS handsets sold between the service’s launch and September 2005 (approximately 80% sold in last two quarters)

TIM Brasil confirms its leading position among GSM operators
with 18.3 million lines and a rising market share (approximately 23%)

                                                            *****
 
TELECOM ITALIA GROUP

REVENUES 21,958 MILLION EURO (+ 5.5% COMPARED WITH FIRST 9 MONTHS 2004), ORGANIC GROWTH + 4.3%

EBITDA 9,704 MILLION EURO (+ 1.4% COMPARED WITH FIRST 9 MONTHS 2004), ORGANIC GROWTH + 1.9%

EBIT 5,888 MILLION EURO (+ 2.2% COMPARED WITH FIRST 9 MONTHS 2004); ORGANIC VARIATION – 0.8%

CONSOLIDATED NET PROFIT 2,625 MILLION EURO,
+56.5% COMPARED WITH FIRST 9 MONTHS 2004

NET FINANCIAL DEBT ON 30 SEPTEMBER 2005 AT 42,020 MILLION EURO; REDUCED BY 7.8 BILLION EURO FROM THE LEVEL REACHED FOLLOWING THE TIM TAKEOVER AND DIVIDEND PAYMENTS

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Board approves merger plan for the incorporation TIM Italia SpA

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The Board of Directors of Telecom Italia, chaired by Marco Tronchetti Provera, met today and approved the Group’s results for the nine months ending 30 September 2005.


TELECOM ITALIA GROUP
The Telecom Italia Group’s financial results for the first nine months of 2005 and the relative comparable period have been restated according to IAS/IFRS accounting standards. The data for the two periods being compared have been recalculated taking into account activities which have been sold or are in the process of being sold. They are Entel Chile Group, Finsiel Group, Digitel Venezuela, TIM Hellas, TIM Peru and the Buffetti Group. Further, in the first nine months of 2005, the following groups exited the area of consolidation: Databank, Televoice, Innovis, Cell-Tel, Olivetti Lexikon Nordic AB, Olivetti Servicios Y Soluciones, Olivetti Tecnost Africa and di Med1 IC-1. Further, the Liberty Surf Group entered the area of consolidation. The data displayed below take in account the organizational structure on 30 September 2005, with separate treatment of the Wireline and Mobile components.

Revenues amounted to 21,958 million euro and registered an increase of 5.5% compared with the first nine months of 2004 (20,808 million euro). Excluding the effects of variations in exchange rates, changes to the consolidation area and start-ups, organic growth was 4.3% (+907 million euro). The key factors behind growth in the first nine months of 2005 were:
1) a significant contribution from the Mobile Business Unit (+604 million euro), mainly due to the development of TIM Brasil Group activities (+464 million euro) and the positive performance of the domestic market (+143 million euro) due to the growth of value added services and the sale of 3G handsets;
2) positive results from the Wireline Business Unit (+299 million euro) obtained through the continuing development of the Broadband market both in Italy and Europe; greater revenues from a broader offer of wholesale services and growth in innovative services.

EBITDA (Operating result before depreciation and amortization, capital gains/losses, and revaluations and write-downs of non-current activities) was 9,704 million euro and registers an increase of 1.4% compared with the first nine months of 2004 (+134 million euro). EBITA margin was 44.2% (46% in the first nine months of 2004). Excluding exceptional items, the effect of exchange rate variations and changes to the area of consolidation and start-up costs (sustained by TI Media for its “Digitale terrestre” project and by Olivetti for its new ink-jet products), organic growth was 1.9% (+183 million euro).

EBIT (Operating result) amounted to 5,888 million euro and registers an increase of 2.2% compared with the first nine months of 2004 (+125 million euro). This result was influenced by greater depreciation and amortization (+309 million euro compared with the same period of 2004) due to increased investment both this year and last year. EBIT margin in the first nine months of 2005 was 26.8% (27.7% in the first nine months of 2004). Excluding exceptional items, the effect of exchange rate variations and changes to the consolidation area and start-up costs, the organic variation was negative 48 million euro  (-0.8% compared with the first nine months of 2004).

Consolidated net profit in the first nine months of 2005 was 2,625 million euro (3,056 million euro before payments to minorities) and registered an increase of 56.5% compared with the first nine months of 2004 (1,677 million euro). The growth of the net consolidated result was mainly due to: the better operating result registered in the first nine months and net profits from activities that have been sold or are in the process of being sold for a value of 506 million euro (mainly due to the capital gains from the disposal of TIM Hellas and TIM Perù) and greater profits attributable to the Parent Company as a result of the TIM merger operation.

Capex in the first nine months of 2005 amounted to 3,202 million euro, 200 million euro higher than the same period a year earlier. This was mainly due to greater investments at the Wireline Business Unit.

Net financial debt on 30 September 2005 was 42,020 million euro (32,862 million euro at end 2004). The debt increase compared with end-2004 (16,955 million euro), was due mainly to the effects of the PTO and other acquisitions of TIM shares (13,832 million euro), dividend payments (2,328 million euro) and financial investments (795 million euro) was in part offset by a reduction of 7,797 million euro due mainly to the conversion of part of the 2001-2010 convertible bond loan (approximately 1,700 million euro),  the continuing process of disposals of non-strategic assets (3,182 million euro) and cash flow for the period (2,834 million euro generated by the cash flow from operations, equal to 6,036 million euro, and net of capex of 3,202 million euro).  Further, on 30 September 2005, the group had available net liquidity of 10 billion euro which guarantees, on its own, the coverage of debt maturities up to the beginning of 2007. This liquidity, together with the debt structure which is 70% fixed rate, means that the impact of an eventual increase in interest rates would be marginal.

The Group’s headcount on 30 September 2005 was 82,823 (81,778 excluding activities that were sold or are in the process of being sold). On 30 September 2004, the Group’s headcount was 92,820 (81,504 excluding activities that were sold or are in the process of being sold).

BUSINESS UNIT RESULTS


Telecom Italia Media’s data for the first nine months of 2005 were reported in a press release distributed on 4 November 2005, following its approval by the Board of Directors.

The operational activities of the IT Group are no longer detailed as they have been integrated partly into the Wireline Business Unit and partly into Other Activities, following the merger of IT Telecom into Telecom Italia at the end of 2004.


WIRELINE

Revenues amounted to 13,176 million euro, registering an increase of 2.6% compared with the first nine months of 2004 (+337 million euro); organic growth, applying the same consolidation area and excluding exchange rate effects, equalled 2.3% (+299 million euro). The increase was due to the successful development of the national and European Broadband markets, innovative services and products and the defence of the core voice-telephony market.
 
The core voice-telephony sector posted revenues of 7,617 million euro (-3.5% compared with the same period in 2004). The reduction in traffic revenues was essentially due to a migration to the mobile network. This reduction is partly compensated by constant growth in the innovative VAS (Tutto 4 Star, Chat SMS and Alice Mia) offers and ever greater distribution of Innovative Handsets (Aladino, Videotelefono and Cordless Wi-Fi) which, at the end of September 2005, reached a total of 3,165,000 units.

Revenues for the Internet sector were 883 million euro, with an increase of 18.8% compared with the first nine months of 2004 due to the continuing growth of Adsl revenues (+46.2% compared with the same period in 2004). At the end of October, the Wireline unit’s portfolio of Broadband lines in Italy reached 5,210,000 (+1,200,000 from the end of 2004). Including the 1,151,000 Broadband accesses in France, Germany and Holland (+731,000 compared with end 2004 including the accesses of the Liberty Surf Group in France). Wireline’s total portfolio in Europe equalled 6,361,000 Broadband accesses.

Revenues in the Data Business segment were 1,483 million euro, an increase of 6% compared with the first nine months of 2004 mainly due to strong growth in Data VAS (Web Services and Outsourcing) and innovative data transmission services, predominantly transported via xdsl technology.

Revenues of the European Broadband Project (France, Germany and Holland) saw strong growth and reached 377 million euro, an increase of 101.6% compared with the first nine months of 2004.

Revenues from Wholesale services amounted to 2,603 million euro, representing growth of 10.8% compared with the same period in 2004.

EBITDA (Operating result before depreciation and amortization, capital gains/losses, and revaluations and write-downs of non-current activities) was 5,881 million euro, registering an increase of 1.4% compared with the first nine months of 2004 (+81 million euro). EBITDA margin was 44.6% (45.1% in the first nine months of 2004) while organic growth was 1.0%.

EBIT (Operating result) was 3,689 million euro, an increase of 0.9% compared with the first nine months of 2004 (+34 million euro). This result was impacted by greater depreciation and amortisation due to higher capex this year and last year. EBIT margin was 28.0% (28.5% in the first nine months of 2004). Organic growth was 0.3%.

Capex was 1,945 million euro, an increase of 373 million euro compared with the same period in 2004. This increase was mainly linked to investment in innovative network technology, the development of new services and the European Broadband project.


MOBILE

Revenues amounted to 9,485 million euro, registering an increase of 10.2% compared with the first nine months of 2004. This increase is mainly linked to the strong growth of the Mobile Business Unit’s activities in Brazil and its positive performance on the domestic market. Organic growth was 6.8%.

EBITDA (Operating result before depreciation and amortization, capital gains/losses, and revaluations and write-downs of non-current activities) amounted to 4,212 million euro, an increase of 5.1% compared with the same period in 2004 (+3.8% in organic terms). EBITDA margin was 44.4% (46.6% in the first nine months of 2004).
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EBIT (Operating result) was 2,853 million euro compared with 2,890 million euro in the first nine months of 2004 (-1.3%). The organic variation compared with the first nine months of 2004 was negative 25 million euro (-0.9%). This result was impacted by a structural increase in the level of depreciation and amortisation connected to investment in high technology for the development of network infrastructure. Ebit equalled 30.1% of revenues (33.6% in the first nine months of 2004).

Capex in the first nine months of 2005 was 1,046 million euro (1,165 million euro in the first nine months of 2004). The variation in capex is a consequence of the synergies arising from the process of integration under way, which permits the continuing technological development of the networks at decreased costs.

The client portfolio (Italy and Brazil) counted 45.6 million lines with an increase of 14.4% from the end of 2004 and 20.2% compared with September 2004.

A breakdown of the results of the main areas of business (domestic and Brazil activities) follows:

ITALY

Revenues from domestic activities totalled 7,507 million euro, an increase of 1.9% compared with the first nine months of 2004 (7,364 million euro).

In particular, a significant contribution came from the continuing growth of Value Added Services (VAS) which in the first nine months of 2005 reached 1,079 million euro (+16.4% compared with the same period in 2004) equalled 14.4% of total revenues (12.6% in the first nine months of 2004). Core revenues (voice services and handsets) amounted to 6,428 million euro.  They were negatively impacted by the application of the new termination price cut, while underpinned by the growth in handset revenues supported by the success of summer promotions, in particular 3G.

EBITDA (Operating result before depreciation and amortization, capital gains/losses, and revaluations and write-downs of non-current activities) was 3,942 million euro, an increase of 0.4% compared with the first nine months of 2004. EBITDA margin was 52.5% (53.3% in the first nine months of 2004).

EBIT (Operating result) was 3,037 million euro (-1.5% compared with the first nine months of 2004). This result was impacted by higher depreciation and amortisation linked to the development of infrastructure for 3G network and platforms for new innovative services. EBIT margin was 40.5% (41.9% in the same period of 2004).

Capex in the first nine months of 2005 amounted to 581 million euro (705 million euro in the same period of 2004) and was focused on the development of network infrastructure and IT platforms.

With 27.3 million lines (1.1 million of which added since June 2005), TIM confirms its leading position in the domestic market with a market share of approximately 40%.

TIM’s strong position on the UMTS market is confirmed by the brilliant results so far achieved, with approximately one million UMTS handsets sold since the launch of the service (80% of which in the last two quarters).


BRAZIL (average real/euro exchange rate 0,31759)

TIM Brasil Group, the sole operator with countrywide coverage, on 30 September 2005 counted 18.3 million lines (+35.0% compared with 31 December 2004) and confirms its leadership in GSM with 14.5 million lines (+65.1% compared with 31 December 2004), maintaining significantly higher ARPU than competitors with tight control over acquisition costs.

The group has achieved a market share of 22.9%, confirming its second position at the national level.

The consolidated revenues of TIM Brasil Group amounted to 6,249 million reais, an increase of 37.1% compared with the same period in 2004 due to the strong growth of its client base and the contribution of revenues from VAS (value added services) which reached 4.9% of total revenues in the first nine months of the year, up from 2.9% in the first nine months of 2004.

Consolidated EBITDA (Operating result before depreciation and amortization, capital gains/losses, and revaluations and write-downs of non-current activities) stood at 873 million reais, an increase of 538 million reais compared with the same period in 2004 and EBITDA margin was 14.0%.

Consolidated EBIT was negative 570 million reais, an improvement of 12.6% compared with the first nine months of 2004. The improved result was achieved notwithstanding increased depreciation and amortisation linked to network and IT development.

Capex for the period amounted to 1,465 million reais.

OLIVETTI

Revenues amounted to 310 million euro, a decrease of 116 million euro compared with the first nine months of 2004; excluding the effect of exchange rate variations and changes to the area of consolidation (with particular reference to the termination of activities in the USA and Mexico, and the disposal of Innovis SpA and Cell-Tell SpA) and start-up revenues from new ink-jet products, the organic variation was negative 79 million euro. This figure was impacted by the rationalization of the product portfolio.

EBITDA (Operating result before depreciation and amortization, capital gains/losses, and revaluations and write-downs of non-current activities) was a negative 9 million euro (-26 million euro compared with the first nine months of 2004).

EBIT (operating result) was a negative 21 million euro (-28 million euro compared with the first nine months of 2004).

The organic variations which exclude exchange rates effects, changes to the consolidation area and start-up costs linked to the development of new in-jet products (multi-functional desk top printers and portable photographic printers) were negative 21 million euro for EBITDA and negative 19 million euro for EBIT.

Capex amounted to 13 million euro, an increase of 3 million euro compared with the first nine months of 2004.

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The Board of Directors implemented organizational decisions taken on October 5th, 2005, approving, on the basis of the company’s assets on September 30th, 2005, the plan to merge Tim Italia by incorporation.

Considering that TIM Italia is totally controlled by Telecom Italia, the merger will be deliberated by the respective Boards of Directors and will not involve a share swap.

                                                                §

The Board of Directors today approved the calendar of company events for the year 2006:
• 7 March – Board Meeting to adopt the draft full-year operating accounts and consolidated financial statements to 31 December 2005
• 12 - 13 April (first and second sessions) – Shareholders’ meeting to adopt full-year 2005 financial statements
• 8 May – Board Meeting to examine the 2005 Annual Report (in accordance with US requirements – Form 20F) and adopt the first quarter of 2006 report
• 25 July – Board Meeting to examine preliminary data for the first half of 2006
• 7 September – Board Meeting to adopt first half 2006 report
• 7 November – Board Meeting to adopt third quarter 2006 report

The payment of dividends is expected to take place in the month of April.

Should there be any changes to the above dates, these will be communicated to the market in a timely fashion.

The Company intends to make use of the dispensation from the obligation to publish reports for the fourth quarter of 2005 and the second quarter of 2006, respectively publishing the draft full-year operating accounts and consolidated 2005 financial statements within 90 days of the end of the financial year and the first half report within 75 days of the end of the first half.

The results of the first nine months of 2005 will be illustrated to the financial community at a conference call which will take place at 18:00 today.

Journalists will be able to follow the presentation, without the possibility of asking questions, by calling +39 06 33168.
For those who are unable to follow the event in real time it will be possible to hear a recording  by calling +39 06 334843  (access code  90338#).

Milan, 8 November 2005