Telecom Italia Group FY 2013 Results - Marco Patuano

MARCO PATUANO

TELECOM ITALIA GROUP

FY 2013 ResultsMilan, March 7th 2014

Telecom Italia Group FY 2013 Results

1MARCO PATUANO

TELECOM ITALIA GROUPFY 2013 Results

Safe HarbourThese presentations contain 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 presentation and include statements regarding the intent, belief or current expectations of developments and changes in 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 activities and situation relating to the Company and the Group. Such forward looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those projected or implied in the forward looking statements as a result of various factors. Consequently, Telecom Italia S.p.A. makes no representation, whether expressed or implied, as to the conformity of the actual results with those projected in the forward looking statements. Forward-looking information is based on certain key assumptions which we believe to be reasonable as of the date hereof, but forward looking information by its nature involves risks and uncertainties, which are outside our control, and could significantly affect expected results. Analysts and investors are cautioned not to place undue reliance on those forward looking statements, which speak only as of the date of this presentation. Telecom Italia S.p.A. 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 presentation, including, without limitation, changes in Telecom Italia S.p.A. business or acquisition strategy or planned capital expenditures or to reflect the occurrence of unanticipated events. Analysts and investors should 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 may identify factors that affect the forward looking statements included herein. The accounting policies adopted in the preparation of the Separate and Consolidated Financial Statements as of, and for the full year ended, 31 December 2013 have been applied on a basis consistent with those adopted in the Annual Separate and Consolidated Financial Statements at 31 December 2012, to which reference can be made, except for the new standards and interpretations adopted by Telecom Italia, which, other than for the prospective adoption of IFRS 13 (Fair Value measurement), didn’t impact on the Separate and Consolidated Financial Statements as of, and for the full year ended, 31 December 2013. Please note that the audit of the Telecom Italia Separate and Consolidated Financial Statements at 31 December 2013 has not yet been completed.Some data for the first quarter 2012, used in comparisons, included in this presentation have been restated as a result of the early adoption, starting from the first half 2012, of the revised version of IAS 19 (Employee Benefits) and the reclassification of Matrix (company that was disposed of on October 31, 2012) from the Business Unit Domestic–Core Domestic to the Business Unit Other Activities. Furthermore, on November 13, 2013, the Telecom Italia Group accepted an offer to sell its entire controlling stake in Sofora Group – Telecom Argentina (Business Unit Argentina). Consequently , the latter was accounted for as Discontinued Operations (Assets held for sale) starting from the current Annual Report as of December 31, 2013.

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Agenda

TI FY13 Results

Appendix

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Group Revenues

Group Ebitda

Group Net Income

Net Debt

4Q13 FY13

6.76 €blnOrganic: -2.0% - YoY

Reported: -9.5% - YoY

2.73 €blnOrganic: -3.0% YoYReported: -5.4% YoY

0.23 €bln




Targets

-0.67 €blnwritedown -2.2 €bln in 1H

Telecom Italia Group results (including Telecom Argentina line-by-line)

«Stable YoY»:Revenues below

guidance, as previouslyanticipated

«Less than 27 €bln»:Guidance met

«Mid-single digit decline YoY»:Guidance met

-1.5 €bln YoY

including 1.3 €bln mandatory bond conversion

26.8 €bln

25.5 €bln

Organic data,€mln, %YoY

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4Q13




0.23 €bln

-1.5 €bln YoY


FY13




-0.67 €blnwritedown -2.2 €bln (occurred in 1H)

Telecom Italia Group results (excluding Telecom Argentina)(1)

(1) accounted as discontinued operations in accordance with IFRS 5

including 1.3 €bln mandatory bond conversion

26.8 €bln

25.5 €bln

Group Revenues

Group Ebitda

Group Net Income

Net Debt

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Telecom Italia performance by markets

Group

23.44 €bln-5.2% YoY

9.75 €bln-7.6% YoY

5.35 €bln

RevenuesWeight(1)

EbitdaWeight(1)

Ebitda-CapexWeight(1)

Domestic

16.21 €bln-9.4% YoY

7.96 €bln-9.8% YoY

4.93 €bln

69%

82%

92%

Brazil

6.95 €bln+6.2% YoY

1.81 €bln+2.7% YoY

0.46 €bln

30%

19%

9%

FY13


(1) Including TI Media, Olivetti, other&elim.

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13,416 12,069

4,481 4,138

FY'12 FY'13

6,711 5,982

2,115 1,979

FY'12 FY'13

Domestic performance dashboard

-7.7%

-10.0%

17,89716,207-9.4%

4Q

9M

Total Revenues Service Revenues trend

Ebitda Ebitda trend

8,826 7,961-9.8%

-6.4%

-10.9%

on revenues 49.3% 49.1%

4Q

9M

-10.4%-10.9%

-9.2%

-8.7%

1Q 2Q 3Q 4Q

-9.8%

-11.9%-10.9%

-6.4%

1Q 2Q 3Q 4Q

FY -9.8%

FY -9.8%

Below«Mid-single digit

decline YoY»guidance

In line with «High-single digit

decline YoY»guidance


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-35

-27

+1 +12

1Q'13 vs 1Q'12 2Q'13 vs 2Q'12 3Q'13 vs 3Q'12 4Q'13 vs 4Q'12

1,299 1,135

166 120

191 215

4Q'12 4Q'13

Domestic Mobile Revenues

4Q Total Revenues Service Revenues Trend

Innovative vs Traditional VAS

business generated

businessreceived

service 1,4651,255

handsetstotal 1,656

1,470+12.7%

-12.6%

-11.2%

-14.3%-27.9%

€mlnΔ YoY Browsing Revenues plus Messaging Revenues

-17.9% -18.3%

-14.8% -14.3%

-50.9% -47.7%

-28.1% -27.9%

-12.0%-12.8% -13.1% -12.6%

serv

ice

busi

ness

gene

rate

dbu

sine

ss

rece

ived

YoY


Service Revenues Trend – Italian Market

3Q'13 4Q'13

TIM Op.2 Op.3 Op.4

stabledecresing

growing

decreasing

YoY

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Steep decline in MNP volume implies lower churn level, reduced pressure on ARPU, less commercial/advertising costs

Paving the way for mobile UBB

• High differentiation on UBB mobile coverage for healthy technological competition

End of the MTR Dislocation

• No more MTR cuts on which to build new discounted offers• Stable premium price between tier-one and tier-two players• Less F-M substitution effect driven by higher prices in the market

Recent mobile pricing evolution in Italy

3Q’13 4Q’13

high competitionin the market

2014

moving towards more sustainable entry-level

prices for the wholemarket

8-10€/month

12-15€/month

MNP stepping down

1Q'13 2Q'13 3Q'13 4Q'13 1Q'14

+40% +40% +40%

-20%

YoY

Opening to ARPU accretion

1Q'13 2Q'13 3Q'13 4Q'13 1Q'14

ARPU outgoing entry price bundle ARPU outgoing

New portfolio offer on entry level price is not anymore ARPU dilutive

pricingposition lowest + ++

A better Mobile Outlook is already perceivable

bundlessize reduction

among allcompetitors

€/month

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3,064 2,842

130 125

4Q'12 4Q'13

Domestic Fixed Revenues4Q Total Revenues Service Revenues Trend

Retail Service Revenues Breakdown Highlights

-3.2%

-7.2%

3,1942,967

-7.1%equipment

service

Core

Spar

kle

• Stable fixed service revenues trend on quartely basis, due to improving performance in Core business via:

• consistent internet revenues results, with a positive YoYgrowth on BB ARPU @ 19.2€/month

• positive figures in business data driven by a sound growth in ICT services (+2.5% YoY in FY13)

• better performance in domestic wholesale trend

• Sparkle performance: 2H13 Third Parties revenues turnaround thanks to a more efficient and effective commercial approach

-6.3%

-7.8% -8.3% -7.9%

-7.5% -8.1% -7.2% -7.2%

1Q'13 2Q'13 3Q'13 4Q'13

Tota

l

-4.4%

-2.7%

-4.7%-5.5%

-8.7%-9.4% -9.4%

-8.5%

1Q'13 2Q'13 3Q'13 4Q'13

consumer business

-4.6% YoYnet FTR(1)

(1) FTR=F-F termination rates, revised from July 1st 2013 from 0.272 €cent/min to 0.104 €cent/min

-7.9% YoYnet of FTR(1)


-18.4%-13.1%

+0.6% -3.5%-10.7%+6.6% +3.6%

total vs third parties

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1Q'13 2Q'13 3Q'13 4Q'13

Building a better Outlook also for FixedBusinessConsumer

• Technological efficiency in the business segment: enterprises are progressively adopting Unified Communication Solutions, optimizing the number of lines per site while increasing their spending on a more diversified ICT Solution

+9.4%

-5.7%

+2.0%+5.0%

1Q'13 2Q'13 3Q'13 4Q'13

Lines with BB

Lines w/o BB

• BB lines show less exposure to CB erosion than «pure voice» clients

-19 -32 -36

+16

1Q'13 2Q'13 3Q'13 4Q'13

• Leveraging on «Tutto» proposition and convergent concepts to reduce CB erosion and stimulate traffic from fixed

BB N

et a

dds

F-M

vol

ume

-YoY

-20%-22% -22%

-14%

-3%+6%

1Q'13 2Q'13 3Q'13 Oct Nov Dec

«Tutto» launch

Fixe

dNe

t add

s

1Q'13 2Q'13 3Q'13 4Q'13

ICT

reve

nues

-YoY

%YoY reduction

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Domestic 4Q checklistCo

nsum

erBu

sine

ss

Fixed

Mobile

Fixed

Mobile

Drivers Highlights

• Positive signs from “Tutto” proposition with constant progression in F-M flat traffic volume

• Competitive arena rationalization• Better gross adds mix and significant weight increase

of convergent offer on total activations

• Improving trend in Business Data driven by healthier performance in ICT, including double-digit growth on Cloud services (weight ~20% of ICT services)

• Positive set of KPIs: ~8mln mobile clients at the end of 2013 (+8.0% YoY), with positive YoY trend in human lines after 15 month decrease

7% 5% 11%

36% 39% 41%

Jul Aug Sep Oct Nov Dec

% convergent offers on total activations

acqu

isiti

onm

ix

Mar Jun Sep Dec

2012

2013hum

an C

B

-2%-2%

+1%

Busi

ness

Dat

aRe

venu

es

YoY

-4.6% -8.7% -3.4%+1.0%

1Q'13 2Q'13 3Q'13 4Q'13

4%

15%

27% 28%

3Q'13 Oct Nov Dec% F

-M fl

attr

affic

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849

992

332357

FY'12 FY'13

1,300 1,326

465 486

FY'12 FY'13

4,922 5,280

1,6201,665

FY'12 FY'13

TIM Brasil performance dashboard

+3.1%

+7.3%

6,542 6,945+6.2%

4Q

9M

Revenues Ebitda

4Q

9M

+4.5%

+2.0%

+2.7%1,765 1,812

on revenues 27.0% 26.1%

Capex

1,1811,349+14.3%

+8.6%

+16.8%

Highlights• Total Revenues +6.2% YoY in FY13 backed by mobile handset sales

(+37% YoY) and VAS revenues (above +20% YoY), offsetting fixed business performance, MTR cuts, macroeconomic slowdown and worse competitive landscape

• Healthy EBITDA Margin at 26.1% in FY13, with a solid rebound in 4Q13 at 28.9% (+0.4pp YoY) confirming the to company’s efficient cost control model

• High commitment to Quality improvement: total Capex+14.3% YoY in FY13 (19.4% of revenues) with more than 90% allocated to infrastructure

• Growing top and bottom line, increasing dividend payout

4Q

9M


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TIM Brasil: 4Q Check List

Key Drivers Takeaways

• Improvements on all Anatel Quality metrics, delivering on quality

• Least complained mobile operator at National Consumer Protection agency

• Preparing network for data evolution: 39 main cities in the country covered with Fiber to the Site / MBB ready

• Focused Capex and Opex allocation

Network Quality& Infrastructure

• Customer base growing above market: TIM lines at 73.4mln lines with 27.1% market share (#1 Pre-Paid, #2 Post Paid) with >3 mln net adds in 2013 (of which 1.6mln in postpaid)

• Managed customer base with segmented offers

• Evolved offers toward data and internet services: increased 3G and 4G Market Share positions (close to 31%), leader in Internet on Smartphones

Commercial Strategy &

Offer Evolution

• Participating actively in industry discussions

• Recovered institutional image and dialogue

• “Open Doors” transparency initiative generated excellent results for customer interactions (>400k collaborations/month)

• Took corporate governance to the next level and implemented a Statutory Audit Committee

InstitutionalRelation

• M&A rumors did not affect in any way our best-in-class workforce

• Driving sense of belonging and employee pride

• Seeking “Best Company to Work For” status

People &Organization

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TI FY13 Results

Appendix

Agenda

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Domestic Mobile KPIsTotal SIM cards Net adds‘000, QoQ mln, QoQ

31.9 31.7 31.6 31.2

1Q'13 2Q'13 3Q'13 4Q'13

-301-152 -152

-333

1Q'13 2Q'13 3Q'13 4Q'13

TIM MNP Balance

-97 -88

-164 -157-127

-74

+78

-12 -12

-53-21

-50

Jan Feb Mar April May June July Ago Sept Oct Nov Dec

Op.2 Op.3 Op.4 Cum.

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Domestic Fixed KPIsFixed Access

21,016 20,788 20,536

OLO

TI re

tail

M/S 63.5% 63.4% 63.0%64.0%

13,777 13,555 13,372 13,210

7,238 7,233 7,164 7,169

1Q'13 2Q'13 3Q'13 4Q'13

20,378

Line Losses Trend

-201 -222 -183 -162

+63

-5 -69

+5

1Q'13 2Q'13 3Q'13 4Q'13

TI OLO

BB Access‘000

6,984 6,933 6,892 6,915

6,828 6,872 6,861 6,919

1Q'13 2Q'13 3Q'13 4Q'13

13,812 13,805 13,753

OLO

TI re

tail

M/S 50.2% 50.1% 50.0%50.6%

13,834

‘000

BB net adds

+90+44

-11

+58

-36 -51 -41

+23

1Q'13 2Q'13 3Q'13 4Q'13

OLO

TI re

tail

ARPU€/month

19.1 19.2 19.218.9

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+26%

+8%

FY '1

3FY

'13

-19%

-10%

Customer Care: operating KPI’s 2013m

arke

t dyn

amic

sca

ring

prod

uctio

nca

paci

tycr

edit

prod

uctio

n ca

paci

ty

Front End (call)

Back Office (items)

Front End (call)

Back Office (items)

Head

coun

t- 2%

FY 12 FY13

61,5

60,4

-0,5%

15,5 14,4

-536

«make» growth«buy» reduction «in-house» incidence

Contribution CS on selling activities

Cons

umer

Ente

rpris

e

Annual managed issue

Consumer: 12 mln

Enterprise: 3,9 mln

Sollecit75% qu

ality

(CSI

cus

tom

erca

re)

fixed

mob

ile

FTE

10840 10304

FY 2012 FY 2013

47% 52%

FY 2012 FY 2013

41% 52%

FY 2012 FY 201359%

10%

48%21%

75%87%

Access MNP BB ULL SI Content

34% 8%46% 15%

Access MNP BB ULL

7.187.32 7.56

6.57 6.67 6,93

1Q'12 4Q'12 4Q'13

Consumer Enterprise

7.84 7.89 8.01

6.7 6.9 7.17

1Q'12 4Q'12 4Q'13

Consumer Enterprise

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Domestic Mobile Revenues Breakdown

total

4Q’12 4Q’13 YoYOrganic data,€mln, %YoY

wholesale(1)

Consumer+Business

services

outgoing voice

VAS

business received

handsets

FY YoY

1,656 1,470 -11.2% -14.8%

64 75 +17.2% +3.9%

1,592 1,395 -12.4% -15.6%

1,401 1,181 -15.7% -17.3%1,310 1,136 -13.2 % -12.8%

798 615 -22.9% -18.8%

511 521 +1.9% -3.2%

92 45 -51.1% -62.1%

191 215 +12.7% +5.9%

business generated(2)

(1) Including Visitors (2) Total Retail Service Revenues net of Incoming

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Domestic Fixed Revenues Breakdown

total

4Q’12 4Q’13 YoY

Sparkle group

Core service

voice & access

internet

business data

national wholesale

other & subs

products

eliminations

FY YoY

3,194 2,967 -7.1% -7.6%

340 328 -3.5% -8.7%

2,785 2,566 -7.9% -7.6%

1,307 1,173 -10.2% -9.2%

403 400 -0.8% +0.8%

285 286 +0.3% -2.3%

731 653 -10.7% -10.8%

59 54 n.m. n.m.

130 125 -3.2% -10.9%

(61) (52) n.m. n.m.


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New Generation VAS: the content start-upMusic

«Serie A TIM» Football League

Television

Sochi Olympic Games

• Monthly music streaming offer (4€/month)• CB: 1,7 million, mainly mobile users - triple digit

growth YoY• Portfolio of over 5 million songs• Streams/month : 14,3 million• Strong endorsement on Young target• Ready to surf streaming service massification

from a leading position

• Reinforcement of sports offering in partnership with Sky

• Enhancement of the super fast LTE network «from Super G to super 4G!»

• Willingness to pay for mobile only (9€ for live broadcasts and special content on Smartphone and Tablet)

• 30k activations

The best of “SerieA TIM” Italian Football League: Live matches, Videogoal, Highlights, Videonews in streaming on Smartphone and Tablet. • Leveraging on TIM long-term Sponsorship of Italian

Football Championship • Users: 350k, App Download: 1,6 million,#

videostreams/month: 10 million• Future evolution

• Enrich LTE / 4G Value proposition • Focus on usage Push (M-adv, Try&Buy, ..)• Enlarge Customer Base

• Affordable and valuable monthly video offer (from 4.9€/month to 14.9€/month)

• CB: > 250k users, double digit growth YoY• OTT approach, Multi-vision on Fixed and Mobile• Valuable content: more than 30 premium

channels in partnership with Studios • More than 2,000 VOD events base

offer

Valu

e Ad

don

x x