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Company Board Meeting: 2000 pre-closing results examined

12/15/2000 - 12:00 PM

2000 pre-closing results examined (with respect to 1999)
 - Consolidated revenues: over 29 bn euros (+8%)
 - Consolidated Ebitda: over 13 bn euros (+7%)
 - Group net income pre minorities 2.6 bn euros (+8%)

Budget 2001, strategic plan 2001-2003 approved
 - 2001 group Ebitda and revenues: double digit growth
 - Profitability maintained and significant productivity growth
 - Integration of wireline, wireless and media-internet activities on an international scale
 - Continued cost reduction plan in Italy and abroad
 - Upgrading/ enhancement of human resources

The Board of Directors of Telecom Italia met today under the chairmanship of Roberto Colaninno to examine the first estimates of consolidated results for 2000 and approved the Strategic Plan for 2001-2003 and the Group budget for 2001.

The Board of Directors in addition resolved to convert Telecom Italia´s entire packet of Seat Pagine Gialle saving shares, equal to 22.57% of Seat PG´s saving share capital, mandating the Chairman and Chief Executive Officer to execute all the necessary acts.

2000 pre-closing data
The year 2000 was an important year of growth for the Telecom Italia Group, which, globally speaking, achieved results above the targets set in December 1999.

In particular, consolidated Gross Revenues are expected to amount to over 29 billion euros (over 56,500 billion lire), representing a growth of about 8% with respect to 1999 and exceeding budget objectives by 4%.

Consolidated EBITDA is expected to be above 13 billion euros (circa 25,400 billion lire), up 7% compared to 1999, exceeding budget objectives by 2%.

Consolidated net income before minority interests is expected to be circa 2.6 billion euros (circa 5,000 billion lire), up 8% compared to 1999. The result, before accounting for the depreciation of goodwill, is expected to amount to circa 3.2 billion euros (+20% with respect to 1999).

Year-end consolidated net indebtedness is expected to be under 20 billion euros, in line with the objectives communicated to the market.

The year 2000 represented a turning point for the Telecom Italia Group, during which the Company has undertaken a complex transformation of the operating structures and re-focusing of the portfolio of businesses.

The integration of Seat and Tin.it represents one of the most important industrial transactions in the new economy sector on an international level. The operation has generated value for the Group and its shareholders and lays the basis for a significant development of the internet both on a national and European level.

The Group operational profile has been fully re-designed through the creation of seven Business Units. Each unit boasts separate operations, assets, focused strategies, and accounting, and an empowered and incentivized management.

Following a Group strategic re-positioning to focus on the telecommunications sector, an ambitious disposal plan has been completed within the times and terms announced to the market. The plan generated over 4.3 billion euros in cash (circa 8,300 billion lire) and a capital gain for about 800 million euros (over 1,500 billion lire. As a result of the plan´s execution, Italtel, Sirti, Meie, Teleleasing and a large part of non-instrumental real estate portfolio are no longer consolidated in the Group´s accounts.

The programme to rationalize the Group´s international holding company structure in the fixed and mobile telephony has been implemented. The programme will permit TIM to exercise direct control over international mobile activities, which is a premise to becoming a leading worldwide operator.

During the second half of 2000 a restructuring process was implemented to reduce Telecom Italia´s personnel by about 8,000 employees in the wireline sector only; in addition to this figure, around 2,200 employees were placed in government assisted redundancy. Added to these figures, the disposal plan of non-core activities will lead to a total personnel reduction of 27,000 employees.

Major Elements of the Strategic Plan
The objective of the strategic plan is to transform the Telecom Italia Group into a global operator in the principal areas of wireline, wireless and internet activities. These business units, organized on an international level with an integrated management, will have a strong operational focus on South America, Southern Europe and the Mediterranean basin.

In particular, the Group´s target is to fully develop the international dimension of TIM which, from next year, will have direct control of the Group´s international mobile operations.

Concerning fixed telephony, the objective is to develop both in Italy and abroad the incumbents´ data/internet business and to accelerate the selective growth of the alternative carriers.

Having achieved important results in 2000, the Telecom Italia Group intends to continue pursuing synergies aimed at reducing operational costs and industrial investments. In particular, a project for a Group on-line procurement centre is being realized.

While the year 2000 has been characterized by the implementation of the re-organization plan, the years to come will be dedicated to further improve organizational structures, attract and incentivize the best human resources on the market. Through these actions the Telecom Italia Group aims at becoming a company known for the quality of its workplace.

Budget for 2001
The main objective for the budget, which was approved today, is to increase considerably the value of Telecom Italia shares through three main actions:
 - increase significantly revenues and EBITDA growth (double digit growth in 2001), also due to the consolidation of some international subsidiaries;
 - preserve high levels of profitability, as EBITDA and Operating income as a percentage of sales will be maintained;
 - significantly improve productivity (estimated at over 5%), mainly within domestic wireline business, thanks to personnel and G&A cost cuts stemming from the restructuring plan completed in 2000;
 - maintain net financial indebtedness substantially in line with year-end 2000 levels, both in absolute terms and relative to EBITDA, as well as continue to generate a dividend flow consistent with the commitments assumed by the Company.

Following is a synthesis of the main budget objectives and strategic plan for the different business units.

Telecom Italia Wireline Services
Within the Wireline Business, Telecom Italia will strengthen its business segmentation, dedicating to the data business a specific unit with the aim of maximizing the development of broadband over IP standard, together with a wide range of applications and advanced services for businesses. A significant growth is foreseen in this area especially for broadband and web services.

Concerning voice telephony, efficiency, productivity and retention will be priorities, with the aim to defend market share and enhance profitability.

Regarding network activities, the main drivers will be: improving efficiency levels based on economy of scale; the re-engineering of procurement processes; a sharp improvement in the capex mix by increasing those directed at the innovative businesses of data and broadband, while reducing those directed at traditional services.

In 2001 the combined effect of data revenues growth and cost reduction on voice services and network will reverse the negative trend of TIWS´s EBITDA, and permit the related margin to grow with respect to 2000.

TIM´s principal goal is to expand its operations internationally, in particular in Europe, the Mediterranean basin and Latin America, achieving double digit growth rates in revenues and EBITDA.

In the domestic business, which is characterized by a saturated market in terms of new clients, TIM will reposition its voice offering, by focusing on the most profitable clients, and plan a significant growth of VAS (Value Added Services) and data traffic.

On the operational level TIM aims to significantly improve productivity through a policy of cutting variable costs.

International Operations
International priorities are represented by growth opportunities in internet and data business, in those areas where the Group currently operates.

The strategic aims are to strengthen the Group´s presence in current subsidiaries following specific strategies: on the one hand, to restructure and increase EBITDA of the incumbents both through the development of new services and drastic cost cutting; on the other hand, to widen the customer base and increase revenues growth of alternative carriers.

Concerning cross border wholesale business, the presence developed in specific geographical areas through the Nautilus projects, will be enhanced by establishing dedicated companies.

Seat Pagine Gialle
With the full integration of Seat in the Group, it will be possible to seize all the opportunities proffered by the convergence of internet/media and communication both on the business segment and the consumer market.

Seat´s unique positioning, especially in the B2B, will make it possible to organize the market by taking traditional business operators onto the web; moreover, the Group will achieve significant synergies and cost savings through the "market place".

Regarding financial goals, the growth of revenues and EBITDA represents a priority, with a substantial improvement of margins within the principal operating areas, as well as the internet activities thanks to the contribution of B2B and B2C portals and Internet access and the development of contents for the business and consumer markets.

Finally, synergies stemming from the integration of the acquired companies in the different business sectors will be maximized.

The satellite business will evolve in two directions: on the one hand satellite broadband activities will be developed through the Astrolink and Galileo projects, which will generate significant margins; on the other hand, in the media segment, a dedicated distribution structure will be created which, together with the consolidated presence in the European satellite consortiums, will make it possible to defend the acquired positions and build a solid competitive advantage.

In financial terms a double digit increase in EBITDA is forecast.

IT Services
The deep reorganization of the Group´s Information Technology sector will make it possible to significantly reduce costs due to the development and the implementation of systems for telecommunications as well as enable the development of revenues within the non-captive market.

The remarkable skills acquired on specific business segments will lead to high growth rates within the sector of Web Professional Services, financial services and applications for Local Public Administrations.

The combined effect of the cost reduction actions and the development of the non-captive market will enable the IT unit to improve its financial performance and increase profitability.

Venture Capital and TI Lab
The principal objective will be to transform CSELT, world leader in technological innovation and development of TLC products, from a cost centre into a profit centre.

The fundamental actions are aimed at the convergence of CSELT´s competencies on specific projects, capable of generating interesting returns and providing a competitive advantage in terms of technological innovation for the Group´s operational business units.

The budget for 2001 and the Group strategic plan will be illustrated during a meeting with the Financial Community to be held in Florence on February 5 and 6, 2001.