Consolidated
EBITDA
for
Q3 2013
amounted to
2,697 million euros
, down by 304 million euros (-10.1%) compared with the corresponding quarter of 2012. In organic terms, the reduction corresponds to 7.1%, essentially attributable to the Domestic Business Unit. The reported EBITDA margin was 40.7%, down by 0.6 percentage points compared to the same period of 2012 (41.3%). In organic terms too, the margin was 40.7%, down by 2.6 percentage points on the same period of 2012 (43.3%).
Consolidated
EBIT for the first nine months of 2013
was
1,834 million euros
(4,890 million euros in the first nine months of 2012) and stems from the Goodwill write-down of 2,187 million euros attributed to the domestic business in H1 2013. Net of this write-down, EBIT stood at 4,021 million euros.
Organic EBIT
amounted to 4,238 million euros, down by 623 million euros (-12.8%) compared with the first nine months of 2012, with a margin of 20.8% (23.3% in the first nine months of 2012).
Consolidated EBIT for
Q3 2013
amounted to
1,481 million euros
, down by 210 million euros compared with the corresponding period of the previous year (-12.4%). In organic terms, the reduction is 12.5%. The reported EBIT margin was 22.3%, down by 1 percentage point on the same period of the previous year. The organic EBIT margin of 22.3% was down by 2.9 percentage points on Q3 2012.
Net profit
for the period attributable to Parent Company Shareholders
was
negative
by
902 million euros
(+1,938 million euros in the first nine months of 2012), and reflects the aforementioned write-down of around 2.2 billion euros in the goodwill allocated to the domestic business made in the first six months of 2013; net of this write-down, the result was positive by 1.3 billion euros.
Profit for
Q3 2013
attributable to Parent Company Shareholders amounted to
505 million euros
, down by 191 million euros (-27.4%) compared with the same period of 2012.
Capital expenditure
amounted to
3,453 million euros
, up by 73 million euros (+2.2%)
compared with the first nine months of 2012, and was distributed as follows:
|
|
|
|
|
|
|
(million euros)
|
1.1 - 30.9.2013
|
1.1 - 30.9.2012
|
Changes
|
|
|
|
% of total
|
|
% of total
|
|
|
|
|
|
|
|
|
|
Domestic
|
2,022
|
58.6
|
1,982
|
58.6
|
40
|
|
Brazil
|
992
|
28.7
|
966
|
28.6
|
26
|
|
Argentina
|
417
|
12.1
|
383
|
11.3
|
34
|
|
Media, Olivetti and Other Assets
|
22
|
0.6
|
49
|
1.5
|
(27)
|
|
Adjustments and deletions
|
−
|
−
|
−
|
−
|
−
|
|
Consolidated total
|
3,453
|
100.0
|
3,380
|
100.0
|
73
|
|
% of Revenues
|
16.9
|
|
15.3
|
|
1.6 pp
|
Specifically:
•
Capital expenditure by the
Domestic Business Unit
remained largely in line with the same period of the previous year: the increase for the advancement of plans to build out new generation networks (LTE and fibre network) was offset by the reduced requirement for delivery of new plants, due to the commercial slowdown in Fixed-line access;
•
the
Brazil Business Unit
recorded an increase of 26 million euros compared with the same period of 2012 (including a negative exchange effect of 116 million euros); the increase was primarily attributable to the performance of new network investments;
•
the
Argentina Business Unit
recorded an increase in capital expenditure of 34 million euros compared with the first nine months of 2012, inclusive of a negative exchange difference of 68 million euros. Besides the costs of client acquisition, expenditure was aimed at enlarging and upgrading fixed-line broadband services and backhauling to support mobile access development. Moreover, Telecom Personal invested primarily in increased capacity and enlargement of the 3G network to support Mobile Internet growth.
Cash flow from operations
stood at
2,777 million euros
, down by 1,364 million euros compared with
the first nine months of 2012. This result helped offset the requirements resulting from the payment of dividends and taxes in the first nine months of 2013, which amounted to 1.1 billion euros in total.
Adjusted net financial debt
as of 30 September 2013 was
28,229 million euros
, down by 1.26 billion euros on the figure for 30 September 2012, including 584 million euros in the third quarter alone, and was substantially in line with the figure as of 31 December 2012 (-45 million euros).
Net financial book debt
was 29,187 million euros, down by 599 million euros compared with 30 June 2013 (29,786 million euros).
Group
headcount
was
82,181
, including 53,397 in Italy (83,184 as of 31 December 2012, including 54,419 in Italy).
***
DOMESTIC
Domestic revenues
, amounting to
12,069 million euros
(13,413 million euros in the first nine month of 2012) fell by 10% in reported and organic terms.
With a negative economic scenario - which has worsened despite expectations of a recovery during the financial year - and in a market which, particularly during the first few months of the year, was characterised by fierce competition and accelerated downward pressure on prices (especially in Mobile and traditional services), the fall in revenues was also significantly influenced by discontinuity of a regulatory nature.
Revenues were particularly affected by the entry into force of the new mobile termination rates (MTR), which provide for a further reduction in tariffs of 35% compared with H1 2013 and 61% compared with the same period of 2012. Furthermore, recent AGCom decisions regarding copper network access prices have had a further negative impact of 85 million euros compared with the first nine months of 2012. In its financial statements for the first nine months of 2013, with retroactive effect from 1 January 2013, Telecom Italia applied the values contained in the two draft price measures for 2013 (published in July 2013), relating to wholesale copper network access prices (local loop Unbundling, naked bitstream, shared bitstream services). Excluding the aforesaid impacts of the reduction in the new mobile termination rates and the change in wholesale network access prices, the performance would be -7.1% compared with the first nine months of 2012, with a virtually stable trend in Q3 (-7.2% compared with -7.3 % in H1 2013).
Highlights:
►
Core Domestic Revenues
Core Domestic revenues amount to
11,403 million euros
and fell by 10.2% (12,701 million euros in the first nine months of 2012). The fall in organic terms is 10.3%.
The performance of the individual market segments as compared with the same period of 2012 is as follows:
•
Consumer
: revenues in the Consumer segment in the first nine months of 2013 amounted to 5,960 million euros in total, down by 625 million euros compared with the same period of 2012 (-9.5%). In Q3 there was however a slowdown in the rate of decline compared to previous periods (-8.9% in Q1 2013, -10.1% in Q2 2013), mainly because of the reduced impact of the reduction in revenues from mobile termination rates (MTR) and - more marginally – the improvement in commercial and competitive
performance, also in the Mobile segment. The latter did however record a significant fall in revenues due to stiffer competition and the resulting pressure on prices and churn rates which were a particular feature of Q1 2013. The fall in revenue in the first nine months of the year is in fact mainly attributable to Mobile service revenues (-546 million euros, equal to -16.8%), particularly traditional voice services (-503 million euros, including 266 million euros also attributable to the reduction in MTRs) and Messaging (-67 million euros), only partially offset by the growth in Mobile Internet revenues (+43 million euros). Fixed revenues also fell compared with the first nine months of 2012 by 123 million euros (-3.9%), also attributable to traditional voice services (-147 million euros ), following the contraction in accesses and the reduction in traffic usage, only a small part of which was offset by the growth in Broadband services (+25 million euros).
•
Business
: Revenues for the Business segment in the first nine months of 2013 amounted to 3,885 million euros, down by 536 million euros (-12.1%) on the same period of 2012. The fall was primarily seen in revenues from services (-517 million euros, -12.3%), including -266 million euros on Mobile (-20.4%) and -273 million euros on Fixed-line (-9.2%). On Mobile in particular this contraction is attributable to the fall in voice traffic revenues, following a dilution of average revenues per unit (ARPU), the aforesaid reduction in mobile termination rates (-93 million euros) and marginally to the loss of human customer base (-0.2% compared with the same period of 2012). On Fixed-line, cooling demand due to the negative economic situation and to the fall in the prices of traditional voice and data services continues to have a dampening effect. These dynamics both in the Mobile and Fixed-line sectors showed the first signs of easing in this last quarter when there was a recovering trend (-10.7% compared with –12.8% in H1 2013).
•
National Wholesale:
Total revenues in the Wholesale segment in the first nine months of 2013 were
1,430 million euros, down on the same period of 2012 by 126
million euros (-8.1%), a fall entirely attributable to the regulations reducing
ULL, Bitstream, Wholesale Line Rental and termination access rates.
►
International Wholesale Revenues
International Wholesale revenues in the first nine months of 2013 amounted to
935 million euros
, down by 115 million euros (-11%) compared with the same period of 2012. The contraction was seen particularly in Voice services (-84 million euros, equal to -11%) following the annual review of bilateral contracts and the transit component, with a consequent focus on renewing higher margin agreements. Revenues were down for IP/Data services (-18 million euros, equal to -8%) primarily in the captive market component. Despite the overall increase in the total bandwidth sold, the market also suffered from the increasingly competitive scenario and the resulting fall in prices. Also down, particularly in the Domestic component, was the multinational companies business segment (-16 million euros, -26 %). Compared with the previous periods, a significant recovery in revenues was however recorded in Q3 2013 compared with the same period of 2012 (-0.6% compared with -13.5% in Q2 2013 and -18.4% in Q1 2013).
Constant attention paid to profit margins on traffic, combined with cost cutting action, therefore resulted in an EBITDA figure of 151 million euros in the first nine months of 2013 which, despite being down in absolute terms (-10 million euros), led to an increase in profits for the first nine months of 2012 of 0.8 percentage points.
EBITDA
for the Domestic Business Unit in the first nine months of 2013 amounted to
5,861 million euros
, down by 835 million euros on the first nine months of 2012 (-12.5%). EBITDA margin was 48.6%, slightly down on the same period of 2012 (-1.3 percentage points). This result was affected by the decrease in revenues from services (-1,315 million euros, -394 million euros in Q3) and the impact of the Antitrust penalty relating to the A428 proceedings (84 million euros), which were only partly offset by the reduction in quotas payable to OLOs (resulting primarily from the reduction in termination rates) and the efficiency achieved through selective monitoring and containment of operating costs.
Organic EBITDA
in the first nine months of 2013 was
5,982 million euros
(-729 million euros, -10.9% compared with the first nine months of 2012), with an EBITDA margin of 49.6%, essentially in line with the same period of the previous year (-0.4 percentage points). The percentage fall in EBITDA, net of the aforesaid reduction in wholesale network access prices, would have been 9.6% (-9.7% in Q3).
EBITDA in Q3 2013
was
2,037 million euros
, down by 253 million euros compared with the corresponding period of 2012 (-11%). In organic terms, the reduction was 249 million euros (-10.9%).
EBIT
for the Domestic Business Unit in the first nine months of 2013 was
1,032 million euros
, down by 2,980 million euros compared with the same period of 2012 (4,012 million euros). This performance stems in particular from a 2,187 million euros write-down of the goodwill of the Domestic Cash Generating Unit recorded in the First Half Financial Report as of 30 June 2013, based on the results of the impairment test process.
Organic EBIT
in the first nine months of 2013, excluding in particular the aforesaid goodwill write-down, amounted to
3,340 million euros
, down by 667 million euros (-16.6%) compared to the same period of 2012 (4,007 million euros). The margin fell from 29.9% in the first nine months of 2012 to 27.7% in the first nine months of 2013.
EBIT in Q3 2013
was
1,179 million euros
, down by 228 million euros compared with the corresponding period of 2012 (-16.2%). In organic terms, the reduction was 224 million euros (-15.9%).
Headcount
stood at
52,903 employees
(53,224 as of 31 December 2012).
***
BRAZIL
(average real/euro exchange rate 2.79132)
The
revenues
of the Tim Brasil Group were
14,738 million reais
, 1,000 million reais higher than in the corresponding period of 2012 (+7.3%).
Revenues from services reached 12,359 million reais, up by 2.1% compared to 12,100 million reais in the first nine months of 2012. Revenues from product sales increased from 1,638 million reais in the first nine months of 2012 to 2,379 million reais in the first nine months of 2013 (+45.2%), thanks to the greater penetration of customer bases with high-end handsets (smartphones, webphones and tablets), which is an important lever for developing Data Service revenues.
The ARPU stood at 18.4 reais compared to 18.8 reais in the corresponding period of 2012 (-2.1%). ARPU and service revenue performance were affected both by competitive pressures, which led to a fall in business voice unit prices, and by the reduction in the network interconnection rate for mobile operators.
The total number of
lines
as of 30 September 2013 was
72.9 million
,
up by 3.6%
compared with 31 December 2012.
Revenues in Q3 2013
were
5,083 million reais
, 361 million reais higher than in the same period of the previous year (+7.6%). The growth in services was 107 million reais (+2.6%) and the growth in revenues from the sale of handsets was 254 million reais (+40.8%) compared with Q3 2012.
EBITDA
of
3,701 million reais
was 115 million reais higher than in the first nine months of 2012 (+3.2%). The EBITDA increase is sustained by the increase in revenues, mainly VAS, partly offset by the higher costs of materials, services and personnel. EBITDA margin was 25.1%, down 1 percentage point on the same period of 2012. In the first nine months of 2012, there were non-organic charges of 42 million reais. In organic terms, in the first nine months of 2013, EBITDA was 73 million reais up on the same period of 2012 (+2.0%); the organic EBITDA margin was 25.1% and 1.3 percentage points down on the same period of 2012.
EBITDA in Q3 2013
was
1,249 million reais
, up by 48 million reais compared with the corresponding period of 2012 (+4.0%). In organic terms, the increase was 6 million reais (+0.5%).
EBIT
amounted to
1,682 million reais
improving by 12 million reais
on the first nine months of 2012. This is explained by the higher contribution of EBITDA, partially offset by increased depreciation and amortisation of 104 million reais (2,017 million reais in the first nine months of 2013 compared with 1,913 million reais in the same period of 2012). In organic terms, in the first nine months of 2013, EBIT was 1,682 million reais, 30 million reais down on the same period of 2012 (-1.8%).
EBIT in Q3 2013
was
561 million reais
, up by 1 million reais compared with the same period of 2012 (+0.2%). In organic terms, the reduction is 6.8%.
Headcount
stood at
11,796 employees
(11,622 as of 31 December 2012).
ARGENTINA
(average peso/euro exchange rate 6.95181)
Revenues
were
19,826 million pesos
, up by 3,802 million pesos (+23.7%) compared to the same period of 2012 (16,024 million pesos). The main source of revenues for the Business Unit was mobile telephony, which contributed around 74% of consolidated revenues and grew by 26.7% compared with the same period of 2012, thanks to growth in the mobile customer base and to the increase in the ARPU.
The number of
fixed lines
as of 30 September 2013
was
4,124 thousand
, down slightly on the end of 2012 (4,128 thousand lines). Despite the fact that fixed telephone services in Argentina continue to be affected by the freeze on tariffs imposed by the Economic Emergency Law of January 2002, the
ARBU
(
Average Revenue Billed per User
)
grew by 8.6%
compared with the first nine months of 2012, thanks to the increase in additional services and the widespread adoption of new price plans.
Revenues in Q3 2013
were
7,114 million pesos
, up by 1,469 million pesos compared with the corresponding period of 2012 (5,645 million pesos).
The total
broadband customers
portfolio of Telecom Argentina as of 30 September 2013 was
1,669 thousand accesses,
up by 40,000 units compared with the end of 2012.
The
Personal
client base in Argentina grew by 880,000 units from the end of 2012 to reach a total of
19,855 thousand lines
,
32% of them with post-paid contracts. Meanwhile, thanks to an increase in the number of high value customers and leadership in the smartphones segment, the
ARPU grew by 18.5%
to
reach 66.1 pesos (55.8 pesos in the first nine months of 2012). Much of this growth is attributable to value added services (including text messages and Internet), which together represent 58% of mobile telephony revenues in the first nine months of 2013.
In Paraguay, the
Núcleo
client base
grew by 4.6%
compared to 31 December 2012,
to reach
2,407 thousand lines
, 20% of them on postpaid contracts.
EBITDA
reached
5,537 million pesos
up by 823 million pesos (+17.5% compared with the corresponding period of 2012). The EBITDA margin was 27.9%, down by 1.5 percentage points on the same period of 2012, mainly due to the higher incidence of labour and other operating costs, particularly as a result of the higher tax on gross revenues and the higher cost of provisions for regulatory risks.
EBITDA in Q3 2013
was
1,922 million pesos
, up by 339 million pesos compared with the corresponding period of 2012 (1,583 million pesos).
EBIT
was
2,452 million pesos
, up by 290 million pesos (+13.4%) compared to the first nine months of 2012, essentially as a result of the improved EBITDA, partly offset by higher amortisations and write-downs of non-current assets. EBIT margin was 12.4% of revenues (-1.1 percentage points compared the same period of the previous year).
EBIT in Q3 2013
was
928 million pesos
, up by 218 million pesos compared with the same period of 2012.
Headcount
stood at
16,654 employees
(16,803 as of 31 December 2012).
OLIVETTI
On 13 June 2012, the shareholders' meeting of the subsidiary Olivetti I-Jet S.p.A. resolved to wind up the company. Furthermore, on 2 July 2013, a resolution was passed to start winding up the Swiss subsidiary Olivetti Engineering S.A..
Revenues
in the first nine months of 2013 amounted to
174 million euros
, down by 11 million euros on the corresponding period of 2012.
The fall in revenues is due primarily to lower sales of copying and printing, which were down by 11 million euros, including 10 million euros in the Italian market, where customers in small and medium sized companies and professionals are the most exposed to the current crisis in the market, with a fall being recorded in both sales of photocopiers and associated products and in machine rental activities. A 3 million euros fall in the value of supplies to Telecom Italia was also recorded. This fall was offset by an increase of around 2 million euros in revenues from cloud services and solutions (particularly in the Italian market) while the performance of specialised systems and applications held up well in the period in question.
In Q3 2013, revenues
were
50 million euros
(down 9.1% from the 55 million euros recorded in Q3 2012).
The
EBITDA
was a
negative
28 million euros
,
up by 30 million euros compared to the first nine months of 2012. In particular, during the first nine months of 2012, the EBITDA was affected by the provision for restructuring costs of 30
million euros made following the launch of Olivetti I-Jet S.p.A. winding-up process. Excluding this provision, the organic variation is equal to zero. The result for the first nine months of 2013 is affected by charges totalling 9 million euros, following the fire on 19 March 2013 which completely destroyed the spare parts warehouse. The total damage incurred by the group following the fire was covered by appropriate insurance policies and on 31 October 2013 the Olivetti group and the pool of
insurance companies agreed on a settlement of 19 million euros for the claim as a whole; the associated economic and financial effects will be felt in Q4 2013.
Excluding the charges arising from the destruction of the warehouse, the variation in EBITDA would have been positive by 9 million euros (+32.1%), thanks to steady margins on sales and the reduction in fixed costs. These two phenomena more than matched the lower profits from declining sales.
The reported EBITDA in Q3 2013
was
negative by 5 million euros
(negative by 20 million euros in the same period of 2012).
The
EBIT
was a
negative
32 million euros
, up by 32 million euros compared to the same period of 2012. The organic variation in EBIT, excluding the provision for restructuring costs in the first nine months of 2012, was zero. Excluding the losses due to the destruction of the spare parts warehouse in the first nine months of 2013, EBIT grew by 9 million euros (+28.1%).
The reported EBIT in Q3 2013
was
negative by 7 million euros
(negative by 23 million euros in the same period of 2012).
The
headcount
of
724 employees
fell by 54 units compared to 31 December 2012.
***
OUTLOOK FOR THE 2013 FINANCIAL YEAR
As for the general performance of the Telecom Italia Group for the current year, the goals associated with the main economic and financial indicators for the whole of 2013 are as follows:
·
Essentially stable revenues compared with 2012;
·
"Mid-single digit" percentage reduction in EBITDA;
·
Adjusted net financial debt of less than 27 billion euros.
Please note that actual results may differ, even significantly, from those forecasted for the whole of 2013. Forward-looking information is in fact based on a number of assumptions, believed to be reasonable, with particular reference to competitive performance in the telecommunications market, continuous development of the competition, which is a feature of the TLC business as a consequence of the potential entry of new competitors and the introduction of new and innovative technologies, prospects for growth in the economy and the TLC market, in Italy and in the other markets in which the Group operates, the potential legislative and regulatory developments, the performance of financial markets. By their nature, these assessments involve risks and uncertainties arising from multiple factors, most of which are beyond the Group's control.
The main factors include:
•
Changes in the general macroeconomic situation in the Italian, European and South American markets, and the volatility of financial markets in the "Euro zone":
The global economic crisis and the continuing weakness of the Italian economy over the past few years have negatively affected the telecommunication business. The continuation of this crisis may reduce
purchases of products and services and adversely affect the Group's results, cash flows and financial situation.
Operations and investments may be adversely affected by developments in the overall, as well as economic, situation of the countries where the Group is present.
Fluctuations in exchange rates and interest rates could adversely affect Telecom Italia Group's results.
•
Changes in business conditions:
Intense competition in Italy and other Countries could reduce the market share for the Group's telecommunication services and may result in falling prices and margins, with a resulting adverse effect on operating results and financial position. In particular, mobile communication markets are mature markets and the competitive pressure has further increased.
A general slowdown is taking place in the Brazilian economy. This has had an effect on the mobile phone market, which is also affected by an increasing amount of competition and competitive pressure on prices. The continuation of these effects may have negative consequences on the development prospects of the Company and/or the Group in Brazil.
Business performance and cash flow could be adversely affected if new services to encourage greater use of our fixed and wireless networks could not be implemented. Continuing rapid changes in technology could increase the level of competition, reducing the use of traditional services and requiring us to make further substantial investments.
•
Changes in legislation and regulations:
As the Group operates in a highly regulated industry, decisions take by supervisory and regulatory Authorities, including those regarding regulated tariffs, as well as changes in the regulatory framework could adversely affect business performance.
•
Outcome of disputes and litigation with regulatory authorities, competitors and other entities:
The Group has to deal with disputes and litigation with tax authorities, regulators, competition and market authorities, other TLC operators and other entities. The potential impacts of these proceedings are generally uncertain. In the event of an unfavourable outcome for the Group, these issues could, individually or collectively, have a negative impact on operating results, financial position and cash flows.
•
Financial risks:
The aforementioned unfavourable macroeconomic and market environment requires us to consider a lowering of the credit rating by rating agencies as one of the potential risks faced by the Group.
The Group's bond issues do not contain financial covenants (such as Debt/EDITDA, EBITDA/Interest or similar ratios) or clauses forcing the early repayment of loans in circumstances other than insolvency.
The risks and/or impacts of a potential lowering of the credit rating on future refinancing, on the costs associated with it and on the process of evaluating goodwill cannot currently be estimated. The increased risk for our financial counterparts that would result from a potential lowering of Telecom Italia's credit rating could result in an increase in the costs associated with managing the Group hedging derivatives portfolio, costs which cannot currently be estimated either.
***
The Manager in charge of preparing the corporate accounting documents, Piergiorgio Peluso, hereby declares, pursuant to subsection 2, Art.154-bis of Italy’s Consolidated Finance Law, that the accounting information contained herein corresponds to the company’s documentation, accounting books and records.
ATTACHMENTS TO THE PRESS RELEASE
ALTERNATIVE PERFORMANCE MEASURES
In this press release in addition to the conventional financial performance measures established by IFRS, certain alternative performance measures are presented for purposes of a better understanding of the trend of operations and the financial condition related to the Telecom Italia Group. Such measures, which are also presented in other periodical financial reports (annual and interim), should, however, not be considered as a substitute for those required by IFRS.
The non-IFRS alternative performance measures used are described below:
·
EBITDA
:
this financial measure is used by Telecom Italia as the financial target in internal presentations (business plans) and in external presentations (to analysts and investors). It represents a useful unit of measurement for the evaluation of the operating performance of the Group (as a whole and at the Business Unit level) in addition to
EBIT
. These measures are calculated as follows:
We remind that on May 24, 2012 Telecom Italia signed a contract in order to extend half of the Revolving Credit Facility (RCF) of 8 billion euros maturing on August 2014 through a Forward Start Facility for the amount of 4 billion euros which will come into effect on August 2014 (or previously in case Telecom Italia should cancel in advance the commitments under the current RCF 2014) and will mature on May 2017.
On March 25, 2013 Telecom Italia signed a new contract in order to extend further 3 billion euros of the Revolving Credit Facility maturing on August 2014, already partially extended in 2012. The extension has been obtained through a Forward Start Facility for the amount of 3 billion euros which will come into effect on August 2014 (or previously in case Telecom Italia should cancel in advance the commitments under the current RCF 2014) and will mature on March 2018.
Furthermore, Telecom Italia has a bilateral standby credit facility expiring August 3, 2016 for the amount of 100 million euros with Banca Regionale Europea, totally utilized.
Bonds
With reference to the evolution of the bonds during the first nine months of 2013, we point out as follows:
|
|
|
|
|
(millions of original currency)
|
Currency
|
Amount
|
Issue date
|
|
|
|
|
|
|
New issues
|
|
|
|
|
Telecom Italia S.p.A. hybrid bond 750 million euros 7.750% due 3/20/2073
(1)
|
Euro
|
750
|
3/20/2013
|
|
Telecom Italia S.p.A. 1,000 million euros 4.875% due 9/25/2020
|
Euro
|
1,000
|
9/25/2013
|
(1)
It’s the first subordinated bond (“hybrid bond”) in the Euro market. The bond has a tenor of 60 years and final maturity in 2073 with a first call date for the issuer in 2018. The call schedule is at par on March 20, 2018 and every 5 years after. Coupon step up 25 bps in 2023 plus an additional 75 bps in 2038. The effective yield to the first call date is 7.875%. The notes are listed on the Luxembourg Stock Exchange.
|
|
|
|
|
|
(millions of original currency)
|
Currency
|
Amount
|
Repayment date
|
|
|
|
|
|
|
Repayments
|
|
|
|
|
Telecom Italia Finance S.A. 678 million euros 6.875%
(1)
|
Euro
|
678
|
1/24/2013
|
|
Telecom Italia S.p.A. 432 million euros 6.750%
2)
|
Euro
|
432
|
3/21/2013
|
|
Telecom Italia S.p.A. 268 million euros floating rate
(3)
|
Euro
|
268
|
7/19/2013
|
(1)
Net of 172 million euros repurchased by the company during the years 2011 and 2012.
(2)
Net of 218 million euros repurchased by the company during the years 2011 and 2012.
(3)
Net of 232 million euros repurchased by the company during the year 2012.
On June 3, 2013 Telecom Italia S.p.A. successfully closed the tender offer for the buyback of three Telecom Italia Capital S.A. USD notes maturing on June 2014, September 2014 and October 2015, repurchasing a total nominal amount of 1,577 million of USD (about 1,2 billion euros). The repurchased notes have been recorded in the accounts of the buyer Telecom Italia S.p.A., while, with regard of the Group financial reporting, those figures have been cancelled from the financial liabilities.
The details of the Telecom Italia Capital S.A. notes repurchased by Telecom Italia S.p.A. are the following:
|
|
|
|
|
Bond Title
|
Principal amount outstanding prior to the Tender Offer
|
Principal amount repurchased
|
Buyback price
|
|
|
|
|
|
|
Telecom Italia Capital S.A. 1,000 USD millions 6.175%
|
USD 1,000,000,000
|
USD 220,528,000
|
105.382%
|
|
Telecom Italia Capital S.A. 1,250 USD millions 4.950%
|
USD 1,250,000,000
|
USD 721,695,000
|
105.462%
|
|
Telecom Italia Capital S.A. 1,400 USD millions 5.250%
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USD 1,400,000,000
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USD 634,797,000
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108.523%
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The
Telecom Italia S.p.A. 2002-2022 bonds,
reserved for subscription by employees of the Group, amounted 206 million euros (nominal value) as of September 30, 2013 and decreased by 24 million euros in comparison with December 31, 2012 (230 million euros).
The nominal amount of repayment, net of the Group’s bonds buyback, related to the bonds expiring in the following 18 months as of September 30, 2013 issued by Telecom Italia S.p.A., Telecom Italia Finance S.A. and Telecom Italia Capital S.A. (fully and unconditionally guaranteed by Telecom Italia S.p.A.) totals 3,290 million euros with the following detail:
·
1,481 million euros, due November 15, 2013;
·
284 million euros, due January 22, 2014;
·
557 million euros, due May 19, 2014;
·
577 million euros, due June 18, 2014;
·
391 million euros, due September 30, 2014.
The bonds issued by the Telecom Italia Group do not contain any financial covenants (e.g. ratios such as Debt/EBITDA, EBITDA/Interest, etc.) or clauses that would force the early redemption of the bonds in relation to events other than the insolvency of the Telecom Italia Group; furthermore, the repayment of the bonds and the payment of interests are not covered by specific guarantees nor are there commitments provided relative to the assumption of future guarantees, except for the full and unconditional guarantees provided by Telecom Italia S.p.A. for the bonds issued by Telecom Italia Finance S.A. and Telecom Italia Capital S.A..
Since these bonds have been placed principally with institutional investors in major world capital markets (Euromarket and USA), the terms which regulate the bonds are in line with the market practice for similar transactions effected on these same markets; consequently, for example, there are commitments not to use the company’s assets as collateral for loans (negative pledges).
With reference to the loans received by Telecom Italia S.p.A. (“Telecom Italia”) from the European Investment Bank (“EIB”), we remind that following the downgrade to Baa3 undergone by Telecom Italia from Moody’s last February 11, 2013, the
EIB had performed a review of all the outstanding contracts (at that time for a total nominal amount of 3,350 million euros). The parties agreed to lightly modify the contracts with reference to the clauses of assets disposal, negative pledge and event of default cases. Furthermore additional costs (in terms of greater interest rate paid on each loan) have been defined at the expense of Telecom Italia from a minimum of 1 bp p.a. to a maximum of 56 bps p.a., according to the loan maturity. Finally, a clause has been inserted according to which should one or more medium/long term non subordinated debt and not guaranteed Telecom Italia credit rating of of be less than BBB- for Standard & Poor’s, Baa3 for Moody’s and BBB- for Fitch Ratings, the company shall communicate it immediately to the EIB, which will have the right to require the constitution of additional guarantees liking to the EIB itself, or Telecom Italia shall provide other kind of guarantee offering protection in manner, form and content adequate to the Bank, specifying a term for that establishment; in case of non-fulfilment by Telecom Italia to the EIB possible requirements, the EIB could demand the immediate repayment of the loan. We underline that following the Moody’s downgrade occurred on October 8, 2013, Telecom Italia has informed the Bank, as stated by the contract, and started a discussion with the Bank (in order to explore possible solutions).
With reference to the EIB loans not secured by bank guarantees for an amount of 1,458 million euros (out of a total of 2,970 million euros at September 30, 2013), the following covenants are applied:
·
in the event the company becomes the target of a merger, demerger or contribution of a business segment outside the Group, or sells, disposes or transfers assets or business segments (except in certain cases, expressly provided for), it shall immediately inform the EIB which shall have the right to ask for guarantees to be provided or changes to be made to the loan contract, or, only for certain loan contract, the EIB has the option to demand the immediate repayment of the loan (should the
merger, demerger or contribution of a business segment outside the Group compromise the Project execution or cause a prejudice to EIB in its quality of creditor);
·
“Clause by inclusion” contemplated in the loan contracted on August 5, 2011 for the amount of 100 million euros and in the loan contracted on February 7, 2013 for the amount of 300 million euros: against more restrictive clauses (i.e. cross default clauses, financial covenants, commitments restricting the sale of goods) granted by the company in new financing agreements, the EIB will have the right to demand the constitution of guarantees or the amendment of the loan contract in order to have an equivalent treatment in favor of the EIB. This provision is not applied till the outstanding capital related to the subsidized loans does not exceed the amount of 500 million euros;
·
“Network Event” contemplated in the 300 million euros financing and in the 100 million euros financing guaranteed by SACE dated both February 7, 2013: against the disposal of the entire fixed network or of a substantial part of it (in any case more than half of quantitative terms) in favor of third parties or in case of disposal of the controlling stake of the company in which the network or a substantial part of it has previously been transferred, Telecom Italia shall immediately inform EIB which has the option of requiring the provision of guarantees or amendment of the loan contract or an alternative solution.
The syndicated bank credit lines of Telecom Italia S.p.A. do not contain financial covenants (e.g. ratios such as Debt/EBITDA, EBITDA/Interests, etc.) which would oblige the Company to repay the outstanding loan if the covenants are not observed. Mechanisms are provided for adjusting the cost of funding in relation to Telecom Italia’s credit rating.
The syndicated bank credit lines contain the usual other types of covenants, including the commitment not to use the company’s assets as collateral for loans (negative pledges), the commitment not to change the business purpose or sell assets of the company unless specific conditions exist (e.g. the sale at the fair market value). Covenants with basically the same content can be found in the export credit loan agreement.
In a series of agreements in which Telecom Italia is a party, communication must be provided in case of a change in control:
·
Multi currency revolving credit facility
(8,000,000,000 euros)
.
The agreement was signed between Telecom Italia and a syndicate of banks on August 1, 2005 and subsequently modified. In the event of a change in control, Telecom Italia shall inform the agent within 5 business days and the agent, on behalf of the lending banks, shall negotiate in good faith how to continue the relationship. None of the parties shall be obliged to continue such negotiations beyond the term of 30 days, at the end of which, in the absence of an agreement, the credit facility shall cease to be effective and Telecom Italia shall be held to repay any sum eventually disbursed (currently equal to 1,500,000,000 euros) to the same. Conventionally, no change in control is held to exist in the event control, pursuant to art. 2359 of the Italian Civil Code, is acquired (i) by shareholders who, at the date of signing the agreement held, directly or indirectly, more than 13% of the
voting rights in shareholders’ meetings or (ii) by the investors (Telefónica S.A., Assicurazioni Generali S.p.A., Intesa Sanpaolo S.p.A. and Mediobanca S.p.A.) which had signed a shareholder’s agreement on April 28, 2007 regarding the Telecom Italia shares, or (iii) by a combination of parties belonging to the above two categories. Similar conditions in case of change of control are considered in Forward Start Facilities signed on May 24, 2012 and on March 25, 2013 for a total amount of 7,000,000,000 euros and that will enter into force on August 2014, at the maturity of the Multi currency revolving credit facility;
·
Revolving credit facility
(200,000,000 euros). The agreement was signed between Telecom Italia and Unicredit S.p.A. on December 20, 2010 and envisages a discipline similar to that provided in the facility of August 1, 2005, although updated in order to consider the change in the shareholder’s agreement signed on April 28, 2007 and occurred on October 28, 2009. Therefore, there is not change of control in the event control, pursuant to art. 2359 of the Italian Civil Code, is acquired directly or indirectly (through subsidiaries) by the investors Telefónica S.A., Assicurazioni Generali S.p.A., Intesa Sanpaolo S.p.A. and Mediobanca S.p.A., keeping unchanged the above mentioned provisions. Currently the facility is unused;
·
Bonds
. The regulations covering the bonds issued under the EMTN Programs, by both Olivetti and Telecom Italia, and the loans denominated in US dollars, typically provide that, in the event of mergers or transfer of all or substantially all of the assets of the issuing company or the guarantor, the incorporating or transferee company shall assume all of the obligations of the merged or transferor company. Non-fulfillment of the obligation, for which a solution is not found, is an event of default;
·
Contracts with the European Investment Bank (EIB.)
for a total nominal amount of 2.95 billion euros:
-
the contracts signed by Telecom Italia with the EIB, for the amount of 2.25 billion euros, carry the obligation of promptly informing the Bank about changes regarding the Bylaws or the allocation of capital among the shareholders which can bring about a change in control. Failure to communicate this information to the Bank shall result in the termination of the contract. Furthermore, when a shareholder, who at the date of signing the contract does not hold at least 2% of the share capital, comes to hold more than 50% of the voting rights in ordinary shareholders’ meetings or, in any case, a number of shares such that it represents more than 50% of the share capital and, in the bank’s reasonable opinion, this fact could cause a detriment to the Bank or could compromise the execution of the loan project, the Bank has the right to ask Telecom Italia to provide guarantees or modify the contract or find an alternative solution. Should Telecom Italia not comply with the requests of EIB, the Bank has the right to terminate the contract;
-
the contracts signed by Telecom Italia with the EIB in 2011 and in 2013, for a total amount of 600 million euros, carry the obligation of promptly informing the Bank about any significant changes regarding the Bylaws or the shareholders. Failure to communicate this information to the Bank shall result in the termination of the contract. According to these contracts, there is change in control if a subject or a group of subjects acting in concert acquire the control of Telecom Italia, or of the entity controlling it directly or indirectly. There isn’t change in control in case the control is acquired directly or indirectly by (i) any shareholder of Telecom Italia that at the date of the contract holds directly or indirectly at least 13% of the voting rights in the ordinary shareholders’ meeting or (ii) by the investors Telefónica S.A., Assicurazioni Generali S.p.A., Intesa Sanpaolo S.p.A. and Mediobanca S.p.A. or by their subsidiaries. In case of change in control, the EIB has the right to demand the repayment in advance of the loan;
-
the three contracts guaranteed and dated September 26, 2011 for a total amount of 200 million euros, as well as the loan contract dated February 7, 2013 guaranteed by SACE for the amount of 100 million euros, consider the “clause by inclusion” according to which in case Telecom Italia commits herself to maintain in other financing agreements financial covenants not present or more restrictive than those granted to the EIB, the Bank will have the right to demand the constitution of guarantees or the amendment of the loan contract in order to have an equivalent provision in favor of the EIB. This provision is not applied till the outstanding capital related to the subsidized loans does not exceed the amount of 500 million euros.
·
Senior Secured Syndicated Facility
. The contract was signed in October 2011 between BBVA Banco Francés and Tierra Argentea S.A. (company fully-controlled by the Telecom Italia Group) for the amount of 312,464,000 Argentinean pesos and provides the repayment of the loan in 2016. Following a Waiver & Prepayment Agreement of March 6, 2013, the residual amount is equal to 55,164,000 Argentinean pesos (about 7 million euros). The loan is assisted by a bank guarantee at first call for its residual amount, while the two pledges set up on (i) 15,533,834 Telecom Argentina’s shares
and (ii) 2,351,752 American Depositary Shares (ADS) representing of 117,588 preferred B shares of Nortel Inversora S.A. had been relieved. The covenants contractually provided, as negative covenants or financial covenants, are coherent with those of the syndicated credit facilities and with the local market practice; furthermore, there is a clause of change of control that comply the total repayment in advance of the loan in case the Telecom Group holds less than the 100% of Tierra Argentea S.A. or loses the control of the other Argentinean subsidiaries.
Furthermore, in the documentation of the loans granted to certain companies of the Tim Brasil group, the companies must generally respect certain financial ratios (e.g. capitalization ratios, ratios for servicing debt and debt ratios), as well as customary negative pledges clauses, worth the request for the repayment in advance of the loan.
Finally, as of September 30, 2013, no covenants, negative pledge clauses or other clauses regarding the above described debt position have been breached or violated in any way.
TELECOM ITALIA GROUP –
EFFECTS OF NON-RECURRING EVENTS AND TRANSACTIONS ON EACH ITEM OF THE SEPARATE CONSOLIDATED INCOME STATEMENTS
The effects of non-recurring events and transactions on the separate consolidated income statements are set out below in accordance with Consob communication
DME/RM/9081707
dated September 16, 2009:
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(millions of euros)
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9 months to
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9 months to
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|
|
9/30/2013
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9/30/2012
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|
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Acquisition of goods and services, other operating expenses, change in inventories:
|
|
|
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Restructuring expenses
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−
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(13)
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|
Sundry expenses
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(85)
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(11)
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Employee benefits expenses:
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|
|
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Restructuring expenses
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(21)
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(17)
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Impact on EBITDA
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(106)
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(41)
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Gain (losses) on disposals of non-current assets:
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|
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Gains on disposals of non-current assets
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4
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21
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Losses on disposals of non-current assets
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(100)
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−
|
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Impairment reversals (losses) on non-current assets:
|
|
|
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Impairment loss on Core Domestic goodwill
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(2,187)
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−
|
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Writedowns of tangible assets for restructuring
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−
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(2)
|
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Impact on EBIT
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(2,389)
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(22)
|
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Other income (expenses) from investments:
|
|
|
|
Net losses on disposal of other investments
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−
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(2)
|
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Finance expenses:
|
|
|
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Miscellaneous finance expenses
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−
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(4)
|
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Impact on profit (loss) before tax from continuing operations
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(2,389)
|
(28)
|
|
Income taxes on non-recurring items
|
6
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1
|
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Income/(Expenses) relating to Discontinued operations
|
(6)
|
−
|
|
Impact on profit (loss) for the period
|
(2,389)
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(27)
|
TELECOM ITALIA GROUP
–
EFFECTS ON KEY FINANCIAL AND OPERATING DATA ARISING FROM THE PROSPECTIVE ADOPTION OF IFRS 13 (
FAIR VALUE MEASUREMENT
)
On December 11, 2012, EC issued the Regulation EC n. 1255-2012 that endorsed in the EU the IFRS 13, which
aims to improve consistency and comparability in fair value measurement through the so called “fair value hierarchy”. IFRS 13 should be adopted prospectively and does not extend the use of fair value accounting but provides guidance on how it should be applied.
In particular, the IFRS 13:
•
defines the concept of fair value;
•
establishes a single set of principles for all fair value measurements;
•
introduces specific disclosure requirements to be provided about the measurement of fair value.
Although many of the concepts set forth in IFRS 13 are consistent with current practice, some aspects of the new standard result in impacts on Telecom Italia Group, foremost among which is the effect due to the clarification introduced regarding the measurement of the non-performance risk in determining the fair value of derivative contracts. This risk includes both changes in the creditworthiness of the counterparty and of the Telecom Italia Group itself.
The application of IFRS 13 has resulted for the first nine months 2013 in a positive effect on the net result and equity attributable to owners of the Parent of 32 million euros.