TELECOM ITALIA GROUP STRATEGIES AND OBJECTIVES FOR THE THREE-YEAR PERIOD 2007-2009 ILLUSTRATED TO THE FINANCIAL COMMUNITY
Group revenue organic growth forecast between 1% and 2% for 2007 and for the two following years
EBITDA margin expected to decline by between 2.5 and 2 percentage points in 2007 and remain broadly unchanged in the following years
EBIT margin expected to decline by between 3 and 2.5 percentage points in 2007 and remain broadly unchanged in the following years
Planned overall industrial investments for the three years 2007-2009 of around 15 billion euro
Reduction in net debt set to continue, remaining constantly below 3 times annual EBITDA
Group expected to strengthen international operations in Europe and South America.
Telecom Italia Chairman Guido Rossi, Executive Vice-Chairman Carlo Buora and Chief Executive Officer Riccardo Ruggiero, together with General Managers and the Heads of the main business divisions, today present the Group’s strategic guidelines and targets for 2007 and for the three-year period 2007-2009 to the financial community.
Over the last year, the Telecom Italia Group achieved significant results in a rapidly-evolving reference framework:
1) In Italy, the Group maintained its solid market leadership in fixed-line and mobile telephony, notwithstanding a significant change in the marketplace, heightened competition and variations to the regulatory framework;
2) The Group has put in place an organizational model focused on greater efficiency and flexibility, oriented towards exploiting the opportunities that arise in all business segments;
3) The Group achieved cost savings totalling 1.4 billion euro – around 900 million in operating expenses and around 500 million in investment – which were higher than last year’s forecast and were used to meet the changes mentioned above;
4) Outside Italy, the Group achieved significant results on the European broadband market and the Brazilian mobile market, greatly enhancing revenues, margins and financial flows.
EARNINGS AND FINANCIAL TARGETS
TELECOM ITALIA GROUP
Over the next three years (2007-2009), the Group’s strategy is to:
1) Defend the Group’s leadership position on the domestic fixed-line and mobile markets, leveraging the increasing penetration of broadband, fixed-line/mobile convergence, transparent and flexible customer offerings, ongoing innovation and development of value added services;
2) Expand into adjacent market sectors, notably through the rollout of content offerings on innovative platforms (IPTV and Mobile TV), while broadening and strengthening ICT offerings to business customers;
3) Focus more closely on the customer, in part through increased investment in Customer Care and quality of service;
4) Continue broadband network development and launch the Next Generation Network 2 project, building an ultra-broadband network in line with market demand, and consistent with the evolution of the regulatory framework;
5) Develop the Group’s international footprint, confirming its presence in South America (mobile telephony in Brazil, and the possible taking of control of Telecom Argentina in 2009) while consolidating European projects in Germany and France.
Group 2007 targets for main economic indicators in organic terms (equivalent consolidation area and exchange rates, excluding other non-organic variations) compared to 2006 are:
a) Revenues growth between 1% and 2%;
b) EBITDA margin decrease between 2 and 2.5 percentage points;
c) EBIT margin decrease between 2.5 and 3 percentage points.
For the two following years, on an equivalent consolidation area basis, revenues are expected to grow at an annual average of between 1% and 2% compared with 2007 ( which with the consolidation of the equity interest in Argentina would increase to between 1.5% and 2.5%) with the EBITDA and EBIT margins remaining broadly stable.
Overall industrial investments for the three-year period 2007-2009 are expected to total around 15 billion euro.
In line with the goal of maintaining its current rating, the Group expects net financial debt to continue to fall so that at the end of each year the debt/EBITDA ratio remains below 3, also through the disposal of non-strategic equity holdings and assets.
DOMESTIC BUSINESS TARGETS
Domestic Business targets for 2007 in organic terms:
a) A decline in revenues compared with 2006 of between 2.5% and 3.5%. In particular, fixed-line revenues are expected to fall by between 2.5% and 3.5%, while mobile revenues are forecast to fall by between 2% and 3%;
b) EBITDA margin between 1.5 and 2 percentage points lower than 2006.
Overall domestic industrial investments for the three-year period 2007-2009 are expected to total around 11 billion euro.
EUROPEAN PROJECT TARGETS
European Broadband project targets for the three-year period 2007-09, including the recent acquisition of AOL in Germany are:
1) Revenues of around 1.6 billion euro in 2007 and exceeding 2.2 billion euro in 2009;
2) EBITDA margin of over 14% in 2007, with a target of over 22% in 2009;
3) Operating cash flow for the entire project to be positive from 2009.
Total industrial investments over the three-year period 2007-2009 are expected to amount to around 1.2 billion euro.
TIM BRASIL TARGETS
TIM Brasil targets for the three-year period 2007-09, in organic terms:
1) Revenues to increase by over 15% in 2007 compared with 2006, and by an annual average of over 10% between 2006 and 2009;
2) EBITDA margin of approximately 23% in 2007 and expected to exceed 28% in 2009;
3) Operating cash flow to reach break-even (on a yearly basis) in 2007 and to represent around 15% of revenues in 2009.
Total industrial investments over the three-year period 2007-2009 are expected to amount to around 2.4 billion euro.
From 2009, Telecom Italia through the exercise of call option rights has the possibility of taking control of Sofora Telecomunicaciones S.A., the holding company that controls Telecom Argentina and mobile carrier Telecom Personal. These both represent strong growth assets and generate a positive cash flow.
This consolidation would give the Group a presence in Latin America’s two main markets.
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This new scenario would increase the weight of international business within the Group.
1) The customer portfolio for international operations would in 2009 account for around 48% of the entire Group;
2) Revenues from international operations would grow from the current 16% (approx.) of the total revenues to 30% (approx.) in 2009;
3) EBITDA generated by international operations in 2009 would account for some 24% (approx.) of total Ebitda, compared with the current figure of around 9% (approx.).
4) Cash flow from operations generated outside Italy would reach around 22% of the Group total in 2009.
The event may be watched live through audiostreaming and videostreaming, including a slide show, on the internet at:http://www.telecomitalia.it/analystmeeting2007 (ITA) orhttp://www.telecomitalia.com/analystmeeting2007 (ENG)
This press release contains statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements appear in a number of places in this press release and include statements regarding the intent, belief or current expectations of the Company with respect to the customer base, estimates regarding future growth in the different business lines and the global business, market share, financial results and other aspects of the Company's activities and strategies .
Such forward looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those in the forward looking statements as a result of various factors.
Analysts and investors are cautioned not to place undue reliance on those forward looking statements, which speak only as of the date of this release. Telecom Italia SpA undertakes no obligation to release publicly the results of any revisions to these forward looking statements which may be made to reflect events and circumstances after the date of this document, including, without limitation, changes in Telecom Italia SpA business or acquisition strategy or to reflect the occurrence of unanticipated events. Analysts and investors are encouraged to consult the Company's Annual Report on Form 20-F as well as periodic filings made on Form 6-K, which are on file with the United States Securities and Exchange Commission, which set out certain factors that could cause actual results to be materially different from the forward-looking statements contained herein .
Milan, 9 March 2007