Business Outlook for the Year 2013
As for the Telecom Italia Group’s outlook for the current year, the objectives linked to the principal financial and economic indicators are the following for the full year 2013:
•
Revenues basically unchanged compared to 2012;
•
Mid-single digit decline in percentage EBITDA;
•
Adjusted net financial debt under 27 billion euros.
It should be noted that final results may differ, even significantly, from those forecast for the year 2013. The forward-looking information is in fact based on certain assumptions, believed to be reasonable, particularly with regard to the competition dynamics in the telecommunications market, the continuous development of competition in the TLC business as a result of the possible entry of new competitors and the introduction of new and innovative technologies, the growth prospects of the economy and the TLC market, in Italy and in other markets in which the Group operates, possible legislative and regulatory developments, and the performance of financial markets. By their nature these assumptions entail risks and uncertainties caused by a multitude of factors, the majority 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, as well as the volatility of financial markets in the Eurozone:
The global economic crisis and the continuing weakness of the Italian economy over the past few years have adversely affected the telecommunications business. The continuation of this crisis could reduce purchases of products and services and adversely affect the Group’s results, cash flows and financial position.
Operations and investments may be adversely affected by developments in the overall situation, including economic, of the countries where the Group is present.
Fluctuations in exchange rates and interest rates may adversely affect the Telecom Italia Group’s results.
•
Changes in business conditions:
The intense competition in Italy and other countries could reduce the Group’s market share for telecommunications services and may lead to lower prices and margins, resulting in an adverse effect on its operating results and financial position. In particular, the mobile markets are mature markets and competitive pressure has further increased.
The performance of the business and cash flows may be adversely affected if we are unable to deploy new services, in order to promote greater use of our fixed and wireless networks. The continuing rapid changes in technology may increase the level of competition, reduce the use of traditional services and require us to make further substantial investments.
•
Changes to laws and regulations:
As the Group operates in a highly regulated industry, the decisions of the supervisory and regulatory authorities, including those on regulated tariffs, as well as changes in the regulatory environment, could adversely affect the performance of the business.
•
The outcome of disputes and litigation with regulators, competitors and other entities:
The Group has to deal with disputes and litigation with tax authorities, regulators, competition authorities, other telecommunications operators and other entities. The possible impacts of such proceedings are generally uncertain. In the event of settlement unfavorable to the Group, these issues may, individually or as whole, have an adverse effect on its operating results, financial position and cash flows.
•
Financial risks:
The above-mentioned unfavorable macroeconomic and market environment requires us to consider the downgrading of the Group’s credit rating by rating agencies as one of the possible risks it is exposed to.
The Group’s bond issues do not contain financial covenants (such as Debt/EBITDA, EBITDA/Interests ratios or similar), or clauses that force the early repayment of loans due to events other than insolvency.
The risks and/or impacts deriving from a possible downgrade on future refinancings, the costs connected to them and the goodwill evaluation process cannot be estimated at present. The increased risk levels for our financial counterparts which would arise from a possible downgrade of Telecom Italia’s credit rating may involve an increase in the costs connected to the management of the hedging derivatives Group portfolio, costs that also cannot be estimated at present.
Further details are provided in the Notes to the Telecom Italia Group Half-year condensed consolidated financial statements at June 30, 2013, and in particular in the Note “Events Subsequent to June 30, 2013 – Request for information from the Italian Securities Commission (Consob) pursuant to article 114, paragraph 5, of Legislative Decree 58/98”.
Events Subsequent to June 30, 2013
With regard to subsequent events, reference should be made to the specific Note “Events Subsequent to June 30, 2013” in the Telecom Italia Group Half-year condensed consolidated financial statements at June 30, 2013.
Key commercial developments in the Group’s Business Units
Domestic
In relation to its traditional business, Telecom Italia’s strategy in the Fixed-line segment has been to defend access volumes and value. The main drivers in the Mobile segment, on the other hand, have been defending market share and raising usage. Innovation strategy in the Fixed-line and Mobile segments has instead focused on the development of new networks, ultra broadband delivered by fiber, LTE and cloud services.
Consumer
In the Consumer Fixed-line segment, competition stiffened further in the first half of 2013 with the launch of particularly aggressive deals by all mobile operators. In this context, Telecom Italia continued to boost the acquisition of new lines by constantly updating its range of deals offered.
The second quarter of 2013 saw the launch of the new “TIM SCONTA&RADDOPPIA” range, which Telecom Italia used to focus on a distinctive positioning strategy in synergy with Fixed-line assets, in order to enhance the range of deals for Tim and Telecom Italia customers. The deal offers the advantage of doubling the features available to customers that use Telecom Italia fixed lines.
At the approach of summer, typically accompanied by increased activity and operations in the market, to defend its Customer Base, Telecom Italia launched “TIM ti Regala l’Estate” which refunds customers, in August, the amount they spent up to July 31. Concurrently, in order to capture new customers from the competition and increase acquisitions via MNP (Mobile Number Portability), “TIM Special” was launched. This deal is targeted to new customers and offers an all-inclusive package with extremely favorable conditions (400 minutes to all mobile operators, 1000 SMS, 2 Gb, unlimited calls to a TIM number and the Cubomusica service at 10 euros per month).
The high-value segment also saw a gradual increase in competition in the first half of 2013, as all competitors developed Unlimited deals. To defend its high-value customer base, in April, TIM launched the highly successful “TIMxTe” deal, reserved for customers that have been with TIM for more than one year, offering bonus top-ups and a Smartphone.
In the Mobile Broadband services, the first half of 2013 was marked by a significant acceleration in Highspeed and 4G-LTE services. In June, Telecom Italia increased to 139 the number of Italian municipalities where the new internet services on the 4G-LTE network are available, reaching an outdoor coverage of over 25% of the national population. This significant boost to the program to extend the new 4G-LTE network is the result of the significant investments made by Telecom Italia to build increasingly modern infrastructure capable of offering new cutting-edge services that meet the needs of individuals and the growing quantity of traffic generated by mobile phones, internet sticks, smartphones and tablets. The “ULTRA Internet 4G” sales campaign features high service levels and higher data traffic bundles compared to the 3G standard, as well as TIM Cloud services and the range of exclusive content that takes advantage of the higher network performance.
With regard to the range of products and services in the Fixed-line Consumer segment, in the first half of 2013, the Group continued to push its strategy for winbacks, growth in value and customer loyalty, leveraging on service quality, transparency, customer focus and innovative broadband services. Accordingly, promotional and commercial activities continued for the Internet Senza Limiti, Tutto Senza Limiti and Superinternet deals, which were accompanied by the launch of the new TI Cloud per le famiglie, which offers data back up on the Nuvola Italiana (Italian Cloud). To support winbacks, the Chiama TIM was also extended, which includes 200 minutes of calls to all TIM mobile phones, free for 6 months, for all customers returning to Telecom Italia.
In the area of simplification, Telecom Italia continued its approach of offering its customers increasingly clear and transparent pricing for calls from their home fixed lines. On April 1, 2013 a single calling rate was introduced for all national voice calls and fixed-to-mobile calls, offering customers greater freedom in using their home fixed lines. Telecom Italia is the first European operator to overcome the long-standing distinction between fixed-line and mobile calls.
At the same time, the cost of Telecom Italia’s basic telephone line rental charge, which had not risen since July 2011, was adjusted to inflation for the period. As a result, it increased from 16.64 to 17.40 euros per month, still among the lowest in Europe.
During the half-year, the program continued for the development of Ultrabroadband on the fiber optic network both using FTTCab (Fiber to the Cabinet) architecture, increasing from 6 towns covered at the beginning of the year to 27 towns at the end of June, and using FTTH (Fiber to the Home) architecture, with the launch of the service in the city of Milan.
Business
The world of fixed-line telephony has been revolutionized with the launch of Tuttofibra, the new optic fiber deal through which Telecom Italia has opened the doors to ultra broadband technology with its Next Generation Network. For small businesses taking advantage of the deal, Tuttofibra is their key to the world of Impresa Semplice, to technologically advanced and high performance services, and to cloud computing solutions that can boost their competitiveness. Seven major Italian cities (Milan, Rome, Naples, Turin, Bari, Bologna and Genoa) were chosen by Telecom Italia for the launch of the Tuttofibra option for the Impresa Semplice deal, which mirrors the Ultrabroadband Nuvola Italiana services already available to large enterprises.
With a view to further development of broadband usage, the “EVOLUZIONE UFFICIO” service was also launched on fiber: a “Virtual Switchboard” available in 2 different sizes, which provides integrated fixed-mobile VoIP services to small companies.
In parallel, the fiber range was also enhanced for high-end customers, in the “Ethernity” family of products and services, increasing the number of Italian provinces covered, simplifying internal processes and updating pricing to improve competitiveness.
In the range of basic deals for SoHO customers, where competitive pressure is particularly strong, a selective cross-selling initiative was launched in June (Promozione Estate) aimed at winning back customers in ULL or enhancing the density in the Customer Base.
The range of Information Technology services was enhanced with a new series of data security solutions, designed to assist and support customers at every stage of their extended enterprise life cycle. In particular:
•
Nuvola IT SECURITY CONSULTING, is designed to assist customers in making the right investment choices to boost their ICT security.
•
Nuvola IT HOST PROTECTION: a technological platform for customers who want to increase the level of protection of their Business Applications and do not require HW/SW to be installed at their premises;
•
Nuvola IT DATASPACE EASY: Cloud Storage (Remote Folder) also targeted to the SME segment, offering 500 GB of space that can be split up, with the possibility of reselling by Value Added Resellers (VAR);
•
Nuvola IT DIGITAL CLINIC: Medical Records stored in the Cloud, available both for local health authorities, local health program planning units and private hospitals.
The Mobile segment saw the launch of new solutions for LTE networks. The new LTE network range is now accessible from a wide range of devices, including fixed-line and mobile devices, pen drives and wireless routers, tablets and smartphones. The services offer greater productivity and an enhanced user experience for the business applications used by our customers, improving Internet and intranet browsing, real time unified communication and collaboration services, instant messaging, video streaming, video conferencing, and mobile CRM, to name just a few examples.
The range of basic deals has been retained, with a view to providing an effective response to competitor aggression (through selective repositioning of the “price point”) and enhancing the range with VAS solutions – such as Mobile Device Management - and new all-inclusive roaming deals. Accordingly, increasing focus was placed on “Fixed/Mobile convergent” customers – an area of competitive advantage – alongside a focus on the strategic components of the service rather than accessory components such as devices, which are still present within the range of deals, but less central for the purpose of promoting the Company’s mobile network assets.
The coordinated actions concerning the range of solutions as well as the drive on commercial channels, implemented since the start of 2013, resulted in a significant reversal of the trend in the MNP level. This was especially clear in the Small Enterprise segment, which, in the second quarter of 2013, achieved the target of a positive level not only overall, but also in direct comparison with its competitors – individually and in all the local organizations.
Brazil
Recently, at a meeting held in Brasilia, attended by the Minister of Communications and the Chairman of Anatel, among others, the Chairman of TIM Brasil, Rodrigo Abreu presented the “Portas Abertas” initiative, launched at the beginning of 2013 to support quality and transparency. The purpose of the meeting was to emphasize TIM Brasil’s commitment to quality and transparency, strengthening dialog with the regulator and institutions.
As part of the new range of deals, TIM Brazil launch a new international roaming deal for the prepaid market – valid until September – for tourists going on holiday in Brazil, offering a discount of up to 60% on international rates, including voice, data and SMS messaging.
In the post-paid segment, TIM Brasil launched two new internet plans, in addition to the previous Liberty Web Smart (300 Mb at 29.90 reais per month, only when used), named Liberty WEB 300 Mb at 21.90 reais per month and Liberty WEB 600 Mb at 34.90 reais per month, invoicing the customer on a monthly basis irrespective of use.
Following on from the success of the EXPRESS rate plans, which consist in payment for services using credit cards, two new plans were launched in the second quarter. Specifically, Liberty Express (69.90 reais per month) includes unlimited on-net calls, SMS and internet usage up to 200MB, as well as a 30 reais credit per SIM card, to be used for any other voice or data service (equivalent, for example, to 50 minutes of local calling). Customers also have the “Extra Credit” option, which, when activated, automatically tops up the SIM card by 20 reais, when the customer’s remaining credit is less than 5 reais.
Lastly, TIM Brasil launched the first EXPRESS plan for internet sticks and tables, named TIM Liberty Web Express. This new plan has three options: Liberty Web Express Light (500 MB for 35.00 reais per month); Liberty Web Express Tablet (800 MB for 49.90 reais per month) and Liberty Web Express Modem (3 GB for 61.00 reais per month).
In the second quarter, TIM Brasil continued with its strategy of facilitating internet access via handsets, by providing a larger range of products, making available the leading devices present on the market at competitive prices, although without subsidized offers to customers.
In the second quarter of 2013 TIM Brasil increased its range of OTT solutions by launching TIMusic. This application provides access to millions of songs at a competitive price, with an innovative method for using the service: 0.50 reais per day for customers with prepaid rate plans (Infinit Music) and 9.90 reais per month for customers with subscriptions (Liberty Music). The service is only charged for the days or months it is actually used. New users can try the service for free for seven days. This platform does not erode network bandwidth, as users can download music both using the TIM network and Wi-Fi networks, and can also play songs off-line, once the service has been activated. All the songs are legally licensed and there are no limits to how much music users can download and listen to.
After being the first Brazilian company to test handsets equipped with NFC technology for mobile payment solutions, in partnership with Itaú, Gemalto and MasterCard, TIM Brasil has implemented a new pilot project with Bradesco, VISA and Cielo. Within this project, customers selected by Bradesco who are holders of VISA debit cards can use their mobile phones in Rio de Janeiro and San Paolo, after registering on the NFC platform, to make payments at POS terminals on the Cielo network. This partnership also involves LG and Motorola, which will provide the handsets.
For the second year running, TIM Brasil sponsored the “Dream Football” project, developed by the Portuguese former footballer Luis Figo. Dream Football gives aspiring footballers the chance to demonstrate their abilities through videos shown on the website. These videos are analyzed by famous footballers, and the winners selected can then play in a tournament. The initiative was held in Rio de Janeiro and more than 400 boys from 9 to 14 years of age participated. The winners will have the chance to take part in trials with a prestigious Rio de Janeiro football team, as well as a week of training
at the football schools of Barcelona and Rio de Janeiro. This project is part of TIM Brasil’s social and sports initiatives aimed at promoting and supporting the game of football in Brazil.
Argentina
Fixed-line telephony and broadband services
In the fixed-line segment, residential voice revenues showed moderate growth in the first half of 2013, driven primarily by the rise in sales of monthly rate plans and supplementary services, which increased the ARBU, counteracting the negative effects of the decline in MOU (minutes of use) due to the substitution effect of mobile traffic.
In the VAS Voice segment, efforts continued to be focused in 2013 on satisfying customer demand and increasing ARBU on access lines by pushing packages and maintenance services, increasing their weight in the fixed-line business.
As for Internet services, the Arnet brand developed differentiated deals for each segment at competitive prices, and offered a wider range of deals in terms of access speed.
Mobile telephony services
Through the Personal brand, Telecom Personal continued to focus on affordability, with sales campaigns that provide customers with additional top-up credit and with “savings packages” comprising voice, data and SMS deals, to provide a flexible approach with the best price on the market. Personal also expanded its range of smartphones included in the premium service platform (Personal Black), with the addition of the latest models on the international market.
The main Núcleo deals focused on the acquisition of prepaid customers, on developing unlimited packages to encourage consumption and on offering high value services in the post-paid segment. In Mobile Internet, Núcleo launched a product with LTE technology, which allows customers to experience next generation networks.
Olivetti
At the start of the half year, Olivetti launched the first mobile graphometric signature package for Android devices. Using this software, VAR/System Integrators can develop projects for signing documents using tablets, thus favoring the dissemination of this solution abroad.
In the Finance sector, new dematerialization projects were launched using graphometric signatures with several banks and insurance companies. Similar projects were expanded with Intesa Sanpaolo, Poste Italiane and an international insurance company, and negotiations in the area of mobile applications were established with three new banking customers.
In other sectors, following the project for Gaz de France – Suez, the solution for signing contracts using tablets was adopted by a leading energy company and projects were launched for EXPO 2015 (Olisafe) and for a well-known operator in the travel insurance sector (mobile apps).
In the international arena, the contracts for the first project for graphometric signature were finalized in Brazil, involving over two thousand teller counters.
In the Retail segment, during the first half of the year, Olivetti developed “Olivetti Qui! Servizi”, the new platform that integrates the services of the Qui! Group (the leading Italian company in the sector of service benefits for company welfare) for the automated management of lunch vouchers and paper and electronic service benefits into the cutting-edge cash register system Nettuna@ 7000. The infrastructure created is also designed to provide new services to retailers, such as acceptance of payment cards, top-ups of prepaid cards and the management of promotional coupons. Currently, a pilot program is under way in Turin, while the official launch is due in September 2013.
In the Banking sector, a contract has been signed with a leading Austrian bank for the supply of 3,000 MB-2 multifunction bank devices, for a value of approximately 1.2 million euros, reflecting the growing use of dematerialized documents at teller counters in banks and post offices. With Equitalia a contract was signed for an initial delivery of 120 new Oliscan A600 desktop scanners. This contract, which provides for an additional 600 units over the year, is highly significant, as it was concluded immediately following the commercial launch of the product.
In the area of Multiple Service Terminals, in the first half of 2013 Olivetti completed the first delivery of 300 new M-206s in Azerbaijan for use in the lottery segment.
In the area of Smart Asset Management the delivery of 45,000 modules for managing LPG tanks for residential use (turnover of 1.8 million euros), reaching a volume of 105,000 units to date.
In Education, Olivetti was awarded additional tenders from the Sardinia Region for the supply of Interactive Multimedia Boards (IMBs), exceeding 3,100 kits at the end of the first half of 2013.
In the area of Office Solutions, Olivetti was awarded the Ferservizi tender (company of the Ferrovie dello Stato Group) for the supply of a full-service rental (approximately 2,000 multifunctional units, consumables and installation/maintenance services) for 4 years, with a value of approximately 6 million euros, which could prove important in creating further opportunities.
Principal changes in the regulatory framework
Domestic
Process of establishing companies for the access network
On May 30, 2013 the Telecom Italia Board of Directors resolved to proceed with the spin-off of the business unit relating to passive services for access to the fixed network and to the electronics deployed in street cabinets for the creation of new generation broadband services.
The spin-off is also aimed at achieving the Equivalence of Inputs which, in line with the European Recommendation to be issued on costing and non-discrimination, should attenuate the regulatory constraints for the three-year period 2014-2016.
The Company promptly informed AGCom of the voluntary separation project, pursuant to art. 50 ter, paragraph 1 of the Electronic Communications Code, to allow AGCom to assess the effect of the operation by launching a coordinated analysis of the access markets.
In June and July, preliminary information was gathered, from the Company’s offices and those of AGCom, with specific regard to: the area of the network to be separated; the governance of the EOL system; the methods and timing for implementing the EOL model.
On July 26, the Authority notified Telecom Italia that it had assessed the proposed spin-off of the access network with the implementation of the EOL model, and found that the requirements of trustworthiness and reliability envisaged in the BEREC guidelines on functional separation had been met. The Authority also announced that a coordinated analysis of the access markets will be conducted in September (in accordance with the procedure envisaged by art. 50 ter, paragraph 2 of the Electronic Communications Code) and invited the Company to confirm its intention to continue the project and to make available all necessary information for assessment.
The Telecom Italia Board of Directors held on August 1, 2013 noted that AGCom has positively completed the preliminary investigation, and has confirmed its willingness to proceed with the spin-off plan, as already announced on 30 May.
Wholesale fixed markets
Wholesale access services
On September 4, 2012, with regulation 390/12/CONS, AGCom initiated the third cycle of analysis of the retail and wholesale fixed-line access markets, in order to define the new rates for wholesale copper and fiber access services and the new WACC value, valid for the three-year period 2013-2015. However, as a result of the Authority’s highly rigid interpretation of a request from the European Commission to standardize the economic space between wholesale Unbundling (ULL), Wholesale Line Rental (WLR) and bitstream services (consistency of the “economic space between different access products”), in December 2012 and March 2013 AGCom launched the public consultations concerning, respectively, the level of subscription charges for 2013 for WLR services (Resolution 141/12/CIR), bitstream services (642/12/CONS) and ULL services (Resolution 221/13/CONS), effectively announcing the results of the 3rd cycle of analysis of the retail and wholesale fixed-line access markets with said Resolution 390/12/CONS.
On March 21, 2013 the public consultation concerning the analysis of the retail and wholesale fixed-line access markets was published (Resolution 238/13/CONS), which will define the new rates for wholesale copper and fiber access services and the new value of WACC for the three-year period 2014-2016, thus extending the validity of the analysis launched on September 4, 2012 by one year. In particular, for wholesale copper access services, shown below are the rates proposed in the resolutions under consultation for 2013 and the rates proposed up to 2016 as part of the market analysis mentioned above (for 2014 and 2015, the values of the single services are the result of the linear trend between the values approved for 2013 and those proposed for 2016):
| | | |
Monthly fee (euros/month)
| 2012
approved
| 2013
AGCom proposal
| 2016
AGCom proposal
|
| | | |
ULL
| 9.28
| 8.62 – 9.25
| 8.88 - 9.29
|
Subloop-unbundling
| 6.19
| 5.75 - 6.17
| 6.66 - 6.61
|
Bitstream shared
| 7.79
| 7.33
| 3.79 - 3.87
|
Bitstream naked
| 19.50
| 17.50
| 14.16 - 14.79
|
In the meantime (March 25, 2013), the Council of State, in accepting the petitions of Eutelia and Wind, published two rulings concerning WLR and naked bitstream services in the three-year period 2010-2012. The Council of State focused on AGCom’s decision to anchor the network cap mechanism of the two services mentioned above to the rate determined by the retail minus mechanism in force, rather than to a starting value oriented to costs. In accepting the petitions, the Council of State ruled that AGCom had not provided adequate grounds for its decision. AGCom has yet to implement the Council of State rulings. However, the decision which will be published will not necessarily be different than the previous one (for example, the Authority may confirm the previous decision, reinforcing its economic and legal aspects).
Lastly, as regards Article 47, paragraph 2-quater of Law Decree no. 5 of February 9, 2012, converted into Law no. 35 of April 4, 2012, containing “Urgent measures for simplification and development”, which introduced two specific obligations under law for Telecom Italia: the unbundling of costs for accessory services of maintenance for the supply of LLU lines and the acquisition of those accessory services, also by third party companies, following the initiation of an infringement procedure by the European Commission against Italy (July 2012), the Italian government, under the European Community Law 2013, currently being approved, shall introduce a specific provision to eliminate the regulation. The provisions in question were found to have aspects of illegitimacy, relating to the reduction of the powers and autonomy of AGCom and the legal imposition of “atypical” obligations outside the procedures established by EU Directives. For completeness, it is noted that, within the third cycle of analysis of the retail and wholesale fixed-line access markets, the Authority stated that “there are currently no significant benefits, either financial or in terms of process, that could be obtained through the potential “outsourcing” of such activities”.
On May 30, 2013 Telecom Italia formally announced its plan for voluntary separation of the access network. This event, pursuant to art. 50-ter of the Communications Code, was notified to the Authority, which shall conduct a specific coordinated analysis of the markets to assess whether, following the operation, it will be necessary/possible to change the obligations currently in force.
On July 11, 2013, AGCom published a press release in which it announced two decisions on 2013 rates for ULL and Bitstream wholesale access. The reductions are significant: bitstream decreases from 19.50 to 15.14 euros (-22.36%); ULL decreases from 9.28 to 8.68 euros (-6.47%); and WLR decreases from 11.70 to 11.14 euros (-4.79%). These two decisions were notified to the European Commission on July 15, 2013, which has thirty days to make any comments. Therefore, the above values should not be considered definitive.
Telecom Italia believes that these decisions contain aspects that conflict with the European regulatory framework, and reserves the right to submit its observations to the European Commission, which has repeatedly pushed for an approach aimed at guaranteeing the stability of wholesale copper access prices.
If these decisions are confirmed, Telecom Italia will lodge an appeal with the competent legal forums.
In the same press release, AGCom also announced that it had launched a preparatory investigation to verify that the proposal for separation of the access network, submitted by Telecom Italia, complies with the characteristics envisaged by the BEREC to initiate a market analysis. This activity should be concluded by the end of July. Only following this investigation will the Authority establish whether the corresponding coordinated market analysis is to include the results of the analysis of the access markets described above for 2014-2016, or whether the two procedures will be kept separate.
Wholesale origination, termination and call transit
On April 28, 2011, AGCom approved Resolution 229/11/CONS requiring that, as of January 1, 2012, the price of TDM termination services on the fixed networks of Telecom Italia and other licensed operators should be set on a symmetric basis, at a rate equal to Telecom Italia’s charge at the local Urban Group Stage (SGU) telephone exchange. For 2013 it established that only IP termination should be set, with a single symmetric rate for Telecom Italia and other fixed-line operators. Following a public consultation, in January 2013 the Authority notified the European Commission of the glide path of interconnection prices on the IP network for the period 2012-2015, separating the rates for the origination service from those of the termination service. However, on February 7, 2013, the European Commission sent the Authority a series of comments on the proposed provisions concerning interconnection in IP mode, expressing “serious doubts” and consequently opening a “Phase II Investigation”. As a result, the Authority withdrew its proposal in April. In the meantime, due to the delay in defining the technical specifications for interconnection on IP networks, which has slowed the migration to the IP network, the Authority launched proceedings (Resolution 12/13/CONS) to restore the price setting for TDM interconnection services for the year 2013.
Through Resolution 356/13/CONS of May 21, 2013, AGCom thus proposed a new framework for both TDM and IP interconnection. In line with the principle of technological neutrality, this framework includes the proposed application of a single rate, irrespective of the level of TDM network interconnection, for all interconnection services.
| | | |
(eurocents/minute)
| From July 1, 2013
| From July 1, 2014
| From July 1, 2015
|
| | | |
Telecom Italia/other operators: Termination service
| 0.104
| 0.075
| 0.043
|
Telecom Italia: origination service
| 0.258
| 0.205
| 0.140
|
Telecom Italia: call transit service
| 0.126
| 0.111
| 0.093
|
Lastly, following the appeal submitted by Fastweb, on January 25, 2013 the Council of State ruled on the symmetry of termination rates between Telecom Italia and other licensed operators (reverse termination), revoking – for 2012 – the price symmetry at Urban Group Stage (SGU) level introduced with Resolution 229/11/CONS (see above). As a result, on March 28, 2013, the Authority published Resolution 187/13/CONS, which restores the SGT-level reverse termination rate retroactively for the year 2012. As a result, for 2012, Telecom Italia will have to recalculate the traffic terminated on networks of other licensed operators at a price of 0.361 eurocents per minute compared to the previously applied 0.272 eurocents per minute. Telecom Italia has challenged the Council of State ruling before the Court of Cassation.
Next Generation Networks
To complete the regulatory framework for access to next generation networks set forth in its Resolution 1/12/CONS of January 18, 2012, in February 2012 AGCom initiated three procedures concerning:
•
the cost model for the determination of prices for wholesale services received and supplied, and the definition of the areas of competition for the geographic differentiation of bitstream service selling prices;
•
evaluation of possible amendments to the regulation of the copper sub-loop unbundling service in the light of the possible introduction of vectoring technology on FTTCab-VDSL accesses;
•
evaluation of the imposition on all operators of obligations for symmetrical access to vertical fiber cabling and to the sections leading to buildings.
In February 2013, the first two procedures were combined with the procedure concerning the 3rd cycle of analysis of the retail and wholesale fixed-line access markets (see Resolution 238/13/CONS), while on March 28, 2013 a public consultation was launched on the symmetrical access to vertical fiber cabling and to the sections leading to buildings. The results are in the process of publication. In February 2013, the Authority approved, with amendments, the first Telecom Italia Reference Offer for rates for access services to passive infrastructures (cable ducts, inspection pits, and fiber optics), active infrastructures (bitstream NGA and VULA) and the End to End service for 2012, while on May 23, 2013, AGCom launched the public consultations to define the rates for the above services for 2013. Lastly, as part of the public consultation concerning the retail and wholesale fixed-line access markets (Resolution 238/13/CONS), the Authority proposed the rates up to 2016 for access services to passive and active infrastructures and the End to End service (for 2014 and 2015 the values of the single services are the result of the linear trend between the values approved for 2013 and those proposed for 2016). The table below shows the values relating to some of the most important NGAN services for the development of next generation networks:
| | | |
Monthly fee (euros/month)
| 2012
approved
| 2013
AGCom proposal
| 2016
AGCom proposal
|
| | | |
FTTC VULA (shared line)
| 14.38
| 13.97-14.25
| 10.38
|
FTTC VULA (naked line)
| 21.51
| 20.62-21.35
| 16.99-17.04
|
FTTH VULA (100/10)
| 24.90
| 24.90
| 21.12
|
End to End
| 65.10
| 66.91
| 50.67
|
Access to vertical in-building wiring
| 5.96
| 6.08
| 5.98
|
Retail fixed markets
Ultrabroadband deals
Starting from June 20, 2013, Telecom Italia launched the retail offering for ultrabroadband services based on FTTCab (Fiber to the Cabinet) architecture in the following 22 towns: Milan, Monza, Bergamo, Brescia, Como, Varese, Venice, Verona, Vicenza, Padua, Bologna, Reggio Emilia, Genoa, Florence, Pisa, Prato, Ancona, Bari, Taranto, Palermo, Brindisi and Catanzaro, in addition to the 3 cities (Rome, Naples and Turin) already covered by the service. This means that Telecom Italia now offers a connection of 30 Megabits per second in a total of 25 towns. In Milan, 100 Megabit connections are also available thanks to FTTH (Fiber To The Home) architecture, where fiber reaches the customer’s home.
Local, national and fixed-to-mobile calls and telephone line rental
Beginning April 1, 2013, Telecom Italia introduced further price simplifications regarding the General Offer for the Consumer. In particular, the rate amendment adopted can be described as follows:
•
introduction of a single calling rate for all national voice calls (local and long distance) and fixed-to-mobile traffic;
•
change in the call set-up charge;
•
introduction of a 50% discount on national voice calls lasting more than three hours (calls charged in advance by the minute);
•
inflation-indexing of the basic telephone line rental charge, increasing from 16.64 euros per month, VAT included, to 17.40 euros per month, VAT included.
| | | | | |
Consumer General Offer — Prices in eurocents (21% VAT included)
|
National calls
and fixed-to-mobile calls
| Prices in force until
March 31, 2013
| Prices as of
April 1, 2013
|
Set-up charge
| Per minute charge
| Set-up charge
| Per minute charge
|
National calls (local and long distance)
| 7.94
| 1.90
| 5.00
| 5.00
|
Fixed-to-mobile
| | 9.90
| | |
Calls charged in advance per minute
Also as of April 1, 2013, Telecom Italia introduced a single cancellation fee on contracts terminated both before and after 12 months. The fee is applicable to all Consumer and Business customers, where a contract is terminated for reasons not attributable to Telecom Italia. The single cancellation fee of 34.90 euros, including VAT, is lower than both the previous fee of 48.40 euros, including VAT, for the cancellation of either the phone or ADSL line, and the fee of 60.50 euros, including VAT, for the cancellation of both lines.
AGCom fee
On March 5, 2013, Resolution 478/12/CONS was published relating to the annual fee for the contribution towards AGCom’s operating costs for 2013, in which AGCom raised the quota payable to 0.19% of the communications sector’s 2011 revenues. On April 30, 2013 Telecom Italia made a payment with reservations of approximately 20.2 million euros and challenged Resolution 478/12/CONS before the Administrative Court (TAR) of Lazio, the last step in the legal dispute concerning the contribution towards AGCom operating costs initiated in January 2011.
Universal Service
Universal service is a minimum set of services of a set quality, accessible to all customers irrespective of their geographic location and, taking account of specific national conditions, offered at an accessible price. Pending AGCom’s launch of the designation mechanism, Telecom Italia is currently the only operator mandatorily required to provide the Universal Service throughout the country.
The net costs of the Universal Service obligations consist in the difference between the net cost for a company subject to Universal Service obligations and the net cost in the absence of those obligations. For the purposes of this valuation, any indirect benefits connected to the supply of the mandatory service are also considered. AGCom shall be responsible for verifying the net cost. To finance the net cost, a Fund established with the Ministry of Communications is to be used. Each time AGCom verifies that the net cost of the Universal Service has been found to be an unjust burden for Telecom Italia, it launches the cost allocation mechanism, which requires a contribution to the fund from the leading companies in the TLC sector, including Telecom Italia.
The AGCom is currently concluding its preliminary investigation to determine the net cost of the Universal Service for 2006 for Telecom Italia.
As AGCom has relaunched the process of verifying the net cost for the Universal Service obligations, it is noted that, since 2006, Telecom Italia has not recorded any receivables in the financial statements to restore the charges connected to the supply of the activities under said obligations.
Brazil
Reduction of VU-M
On April 4, 2013 Anatel published Act number 2222/2013, which sets the values of mobile interconnection traffic (VU-M) for 2013; these values show an average reduction of 11% compared to the VU-M applied in 2012.
For the coming years, the rules defined in Resolução no. 600/2012 are expected to be applied. This Resolution approved the Plano Geral de Metas de Competição (General Plan for Competition Targets) –
PGMC, based on which, “starting from February 24, 2014 [the VU-M] may be up to 75% of the value of the VU-M in force at December 31, 2013 and, starting from February 24, 2015, the VU-M will be up to 50% of the value of the VU-M in force as at December 31, 2013”.
Quality and the “drop calls infinity” case
In July 2012, as a result of the Anatel decision, which suspended the marketing and activation of new accesses by TIM (19 states), Oi (5 states) and Claro (3 states), TIM submitted its Plan for Improvement of the Quality of Mobile and Personal Services (SMP). The Plan for Improvement establishes TIM’s commitments to improve the Quality of the SMP in all states, capitals and municipalities with more than 300,000 inhabitants, for the next two years (July 2012 - July 2014), and includes: (i) network indicators; (ii) customer service indicators; (iii) service interruption indicators; and (iv) indicators of investment in the network.
In 2013, Anatel disclosed three “waves” (stages) of assessment of the Plans for Improvement (February, May and July), showing a gradual evolution of the results achieved, and ascertaining that, in the last assessment disclosed, TIM’s results fell within the benchmark parameters in most cases, achieving improvements both in access and in calls being dropped, as well as in data connection indices.
Furthermore, in 2010 Anatel began an investigation into Infinity Plan dropped long-duration calls, which culminated in 2012 in the investigation into alleged company irregularities. In May 2013, Anatel reached the conclusion that TIM had not engaged in any fraudulent conduct in its operations. The case was closed with an administrative fine relating to the quality and “call drop” ratios for 2012.
RAN Sharing
The purpose of the RAN Sharing (access network sharing) project between TIM and Oi is to guarantee an efficient service in the 12 cities hosting the 2014 World Cup and, ahead of the event, to fulfill the obligations assumed following the awarding of the 4G licenses for the introduction of new LTE mobile broadband technology.
TIM believes that the Brazilian telecommunications market is mature enough to permit the sharing of infrastructures, mainly antennae, sites and transmission. In this regard, the authorities have recognized that the RAN Sharing project is an effective technological solution to deal with difficulties such as the rational use of land, visual impacts, lower energy consumption and lower electromagnetic radiation.
This innovative solution, both from the technical and regulatory viewpoints, was assessed by Anatel and the Brazilian Antitrust Authority (CADE). Having been approved by both authorities, without restriction, following an in-depth analysis, this solution is already an integral part of the roll out of the 2.5GHz 4G network.
Argentina
Administrative fines for the interruption of Telecom Argentina and Personal services
The regulatory framework that governs the supply of services by Telecom Argentina and Personal envisages the possibility of interruptions in the supply of services and also establishes exemptions from liability for possible service issues, in the event of unforeseen circumstances or force majeure. Specifically, the list of conditions of the Mobile Phone Service (approved with Decree no. 1461/93) and the general regulations of the Personal Communications Service (approved with Resolution SC no. 60/96) provide for a regime of penalties that take account of the duration of the interruption of service, with no penalties for complete interruptions of service of no more than 24 hours and for partial interruptions of service for periods of less than 7 days. The companies in the Telecom Argentina group take all necessary measures to avoid such events and ensure their prompt resolution if they occur.
However, the National Telecommunications Commission (CNC) recently launched several administrative proceedings against Telecom Argentina and Personal relating to various events that occurred on the network, including several cases triggered by unforeseen circumstances or force majeure, imposing fines of varying amounts on the companies in the Telecom Argentina group. Telecom Argentina and Personal have filed their defense petitions against these administrative sanction procedures. At today’s date, the proceedings have not been concluded, and consequently both the administrative rulings and the related penalties are not yet definitive.
Resolution SC no. 1/13
Resolution SC no. 1/13, published on April 8, 2013, requires that all mobile telephony operators guarantee the supply of the service, also in emergency situations or catastrophes. In such cases, the normal supply of the service must be restored within a maximum of one hour. In any event, mobile telephony operators are required to grant priority to emergency services in the areas involved.
In addition, Resolution SC no. 1/13 requires mobile telephony operators to submit an emergency plan within 45 days to guarantee the continuity of the service under such circumstances.
As things stand, Personal has filed an appeal against Resolution SC no. 1/13, setting out the grounds for the revision of the resolution. That notwithstanding, Personal has fulfilled its commitments, submitting an Emergency Plan, drawn up together with other mobile telephony operators within the meetings with the Supervisory Authorities.
Resolution SC no. 5/13
Resolution SC no. 5/13, published on July 2, 2013, approved “Regulations on the quality of telecommunications services”, which, among other things, sets out new quality criteria for telecommunications services provided on public fixed-line and mobile networks, for all operators in Argentina.
Prior to its implementation, the regulation will be subject to audit and technical inspection procedures, which must be conducted by the CNC within 90 days from publication of the Resolution.
Currently, the Management of Telecom Argentina and Personal is analyzing the possible effects of the new Resolution on its operations and financial situation, as well as the measures to be taken.
Media
Digital frequencies
In 2009, AGCom adopted Resolution 181/09/CONS, enacted in article 45 of Law 88/2009, setting forth criteria for the full digital switchover of terrestrial television networks. On the basis of the measure, the Ministry for Economic Development allocated licenses to the digital frequencies. The measure was necessary due to infringement proceeding 2005/5086 brought by the European Commission against Italy, which found that problems in the Italian television sector and the monopolization of frequencies by RAI and Mediaset needed to be redressed.
Telecom Italia Media Broadcasting (TIMB), Telecom Italia Media Group’s digital terrestrial broadcaster, holds licenses to four national networks, two of which are analog (channels LA7 and MTV) and two digital (MBONE and TIMB1), and as such its interests were harmed in 2009 when it was awarded only three DVB-T digital frequencies (UHF CH 47, UHF CH 48 and UHF CH 60).
Following the switch-off process, which lasted four years and was concluded on July 4, 2012, the Ministry for Economic Development definitively assigned the digital frequencies.
Specifically, on June 28, 2012 the definitive assignment of user licenses for digital frequencies was ruled in favor of TIMB, to be broadcast in DBV-T digital technology for a period of twenty years. The same ruling expressly provides for the possibility of submitting a request, by May 26, 2016, for review of the limits to the user licenses pursuant to art. 14, subsections 4 to 7, and art. 14 bis of Legislative Decree 259/03.
As part of the efforts aimed at responding to the European Commission findings, in 2010, AGCom adopted Resolution 497/10/CONS providing for the allocation of licenses to additional “digital dividend” frequencies free of charge, in what came to be known as the “beauty contest”. This was subsequently canceled on April 28, 2012 through Law 44/12 and replaced with a bidding auction according to the new criteria identified by AGCom in Resolution 277/13/CONS, adopted on April 11, 2013.
Resolution 277/13/CONS on the new criteria for assignment of the digital dividend frequencies envisages the auctioning of 3 Lots :
•
L1 (CH 6 VHF and 23 UHF) 89.5% population coverage;
•
L2 (CH 7 and 11 VHF) 91.1% population coverage;
•
L3 (CH 25 and 59 VHF) 96.6% population coverage.
The starting price of the auction indicated by AGCom is determined based on the compensation paid to local broadcasters for freeing up the 800 MHz spectrum frequencies (former channels 61-69) and amounts to approximately 30 million euros per Lot.
New entrants and existing operators with a digital network can participate in the auctions for all three Lots. Rete A can participate in the auctions for Lot L1 and Lot L3 and SKY Italia can participate only in the auction for Lot L2; they are also required to guarantee unencrypted programming for at least three years from the awarding of the tender.
TI Media is again being treated as equivalent to RAI and Mediaset, and cannot participate in the tender.
As a result of these limitations, unlike the other existing network operators, TIMB will not be able to hold 4 DVB-T networks.
The resolution also removes frequencies CH 54, 55 and 58 UHF from the tender, changing the National Frequencies Plan (PNAF), which decreases from 25 to 22 digital networks, and which AGCom has placed under consultation for revision by the end of July 2013. The new Plan reserves channels 57-60 UHF for mobile services starting from 2015. The changes to the PNAFD envisaged by July 2013 will also result in a revision of the current assignments and the resolution of the problems of interference and international coordination, including the substitution of CH 60 UHF assigned to TIMB. Channel 60 UHF has problems of international coordination with Malta and considerable problems due to interference with the adjacent frequencies used for mobile telephony (800 MHz LTE, former TV channels 61-69 UHF).
Lastly, in response to the requests from the European Commission, AGCom shall ensure compliance with the realization of the cap of 5 DVB-T multiplexes in the event of conversion, transfer or acquisition of television frequency user licenses.
Law 44/12 also requires AGCom to set administrative license fees to be applied from January 1, 2013, for the use of television frequencies by broadcasters. Currently, this regulation has not yet been drawn up.
Potential use of frequencies for mobile technology
Based on the 2011 Stability Law, the frequencies 790-862 MHz (former television channels CH 61-69 UHF), in short “the 800 band”, originally assigned to local TV networks, were assigned to broadband mobile communications services.
In this context, various scenarios are possible following 2015, when an advanced version of LTE will be introduced, and new frequencies can be assigned for LTE mobile telephony, possibly also including the 700 MHz band (694-790 MHz frequencies).
In view of this deadline, the Government Authorities are likely to reorganize the frequency spectrum to enable the development of mobile broadband services, with the consequent reduction in resources available for digital terrestrial television (see art. 3, paragraph 1 letter b) of Resolution no. 243/1012/EU of the European Parliament and Council of March 14, which sets out a long-term program for radio spectrum policy, as well as resolution 232 (COM5/10/WRC12). Up to 96 MHz (channels 49-60 UHF), currently used by national television broadcasters, could be freed up for mobile broadband.
It is also noted that the relevant authorities are also examining solutions to ensure the implementation of strategies set at supranational level, with progressive scenarios subsequent to 2015 (for example, 2020), which contemplate the following:
•
in dealing with the convergence of services and technologies, the European Commission has adopted a more flexible approach to managing the radio spectrum, based on the principle of the neutrality of technology and services; as a result, the radio spectrum, which in the past was used by a single service, may be shared by various applications, balancing the underlying public interests;
•
the user licenses assigned to broadcasters have a term of twenty years, with the resulting need to establish alternative solutions for broadcasters to reduce or offset the effects of the described reorganization of the spectrum (i.e.: refarming of underused frequencies or, as an extreme measure, compensation for damages);
•
a verification is under way of the compatibility of television and radio services for the 700 MHz band, which could be part of the next global conference on radio communications to be held in 2015.
Corporate Boards at June 30, 2013
Board of Directors
The shareholders’ meeting held on April 12, 2011 appointed the new Board of Directors of the Company, composed of 15 directors, with a three-year term of office (until the approval of the financial statements for the year ended December 31, 2013). On April 13, 2011, the Board of Directors then appointed Franco Bernabè as Executive Chairman (Chairman of the Board and Chief Executive Officer), Aldo Minucci as Deputy Chairman and Marco Patuano as Managing Director and Chief Operating Officer.
Subsequently, on May 15, 2012, the shareholders’ meeting confirmed the appointment to the end of the three-year term of office of the directors Lucia Calvosa and Massimo Egidi, who were co-opted to replace, respectively, the resigning directors Ferdinando Falco Beccalli and Francesco Profumo.
At June 30, 2013, the Board of Directors was composed of the following members:
Footnotes
(1)
1The average exchange rates used to translate the Brazilian real to euro (expressed in terms of units of local currency per 1 euro), equaled 2.66695 in the first half of 2013 and 2.41520 in the first half of 2012. For the Argentine pesos, the exchange rates used equaled 6.72696 in the first half of 2013 and 5.69209 in first half of 2012. The effect of the change in exchange rates is calculated by applying the foreign currency translation rates used for the current period to the period under comparison.
Sustainability section
Environment
Energy
The work done to reduce energy consumption within Telecom Italia, through specific optimisation initiatives, is equivalent to approximately 150 GWh per year in terms of lower consumption and energy not drawn from the grid. This should be viewed in the context of the inertial increase of the amount of electrical energy drawn resulting from the actual and conceivable development in telephone traffic and services offered.
Work continued on the development of more efficient independent energy generation systems for the Company's own consumption at the generation site. A further boost was also given to the use of renewable energy sources and to targeted experimentation and testing activities.
Energy saving initiatives
Some of the initiatives implemented are aimed at improving energy efficiency through technological modernisation and optimisation of:
•
TLC platforms and servers installed in Data Centres, particularly through the concentration and virtualisation of machines;
•
air conditioning systems, particularly by taking action to optimise average operating temperatures and the physical premises, where possible using Full Free Cooling and other low energy systems with a reduced environmental impact;
•
switching and transmission systems;
•
alternating current to direct current (AC/DC) conversion systems.
With regard to the mostly multiannual initiatives already launched, during the six-month period:
•
an accurate programme was drawn up for energy audits of the group's 100 most energy-intensive buildings, in order to allow 24 efficiency measures to be taken during the year, identifying them according to energy use priorities. In the context of these measures, a set of actions were planned based on an analysis of the data gathered via the network of sensors installed at the main sites;
•
in the common areas, traditional (neon and dichroic) lamps were replaced by around 70,000 low energy LED lamps. The plan launched in 2011 has so far allowed 270,000 lamps to be replaced and the activities are expected to have been completed by the end of 2013, by when 300,000 lamps will have been replaced in total. The expected electricity saved will be more than 9 GWh/year for every 100,000 lamps replaced. Further environmental and other benefits are also expected to be achieved as a result of the longer life of the LED lamps, with a consequent reduction in maintenance activities and in the number of spent fluorescent lamps to be disposed of annually. A first batch of around 15,000 ceiling lights in office premises is also scheduled for replacement by the end of the year. The lighting systems will be fitted with presence detectors and variable lighting controls to adjust the amount of light depending on external lighting;
•
work continued to implement the plan to power public telephone booths remotely from telephone exchanges, providing for lighting by means of low energy LED lamps and the use of proximity sensors. Once the system is fully operational, the total energy saved, will be approximately 10 GWh/year;
•
under the annual programme to modernise technology and streamline systems serving exchanges and Radio Base Stations 1,164 actions were carried out on power stations, 2,134 on battery sets and 569 on air conditioning systems.
Activities aimed at developing alternative energy sources and boosting renewable ones
The following projects were carried out to increase the Company's own energy generation capacity, prioritising efficiency over traditional systems:
•
transformation of 5 cogeneration plants (Asti, Verona, Salerno, Lanciano, Treviso) into trigeneration plants, in order to provide a better response to local electricity, cooling and heating requirements. Completed in June 2013, these plants generate around 5.5 GWh/year;
•
construction and installation of 9 new cogeneration plants, including 2 plug&play (240 KWe) plants and 7 traditional plants (500 KWe). These plants will be tested and able to generate around 70 GWh/year as of 2014;
•
alignment with the best performance parameters of existing cogeneration plants, by increasing the hours of operation (around 8,000 hours/year);
•
installation of photovoltaic panels at 100 sites identified among the Company's own fixed network plants, with an expected energy saving of around 0.8 GWh/year;
•
construction of a solar cooling system in a medium-sized fixed network site for the production of chilled water for air conditioning by absorption of solar thermal energy. This project will result in an estimated annual saving of 0.25 GWh.
Experimentation and testing activity
•
The second phase of the qualification tests for Lithium Polymer batteries was launched. These batteries have virtually no environmental impact (zero emissions and 100% recyclable materials) and the testing is aimed in particular at verifying the operation and performance of a system consisting of two parallel 48 V/70 Ah batteries.
•
Tests continued on renewable energy supply systems, based on the use of photovoltaic panels, with the testing of prototypes installed on the test shelter at the Via Borgaro site in Turin. A system developed by the University of Rome 3 is currently being tested which confirms and improves the already good results of previous solutions in terms of efficiency and functionality. The testing showed how the photovoltaic generation system is particularly sensitive to panel maintenance (a layer of dust or dirt on the surface is in fact enough to reduce energy generation considerably) and strongly influenced by installation site (partial shade impacts heavily on instant generation).
Sustainable mobility initiatives
A project was launched in Florence to improve home-office commuting and promote environmental sustainability in the city, with the aim of extending this initiative to other Company facilities across the country. Employee car parks have been created at the Telecom Italia site on Viale Guidoni for cars/motorbikes/electric bicycles, with twelve recharging stations.
This project was the result of a monitoring programme involving the distribution of internal questionnaires aimed at identifying habits, requirements and expectations of commuters. The resulting data confirmed the willingness of employees to adopt electrically operated vehicles in an environment conducive to eco-mobility.
Human Resources
Headcount and changes
Telecom Italia Group
Headcount as of June 30, 2013 is as follows:
| | | |
(units)
| 6/30/2013
| 12/31/2012
| Changes
|
| | | |
Italy
| 53,610
| 54,380
| (770)
|
Abroad
| 28,539
| 28,761
| (222)
|
Total personnel on payroll
| 82,149
| 83,141
| (992)
|
Agency contract workers
| 14
| 43
| (29)
|
Total personnel
| 82,163
| 83,184
| (1,021)
|
Non-current assets held for sale
| -
| -
| -
|
Total
| 82,163
| 83,184
| (1,021)
|
Excluding agency contract workers, the Group's headcount has decreased by 992 people compared to December 31, 2012.
The changes can be itemised as follows:
•
the departure of the company LA7 Srl (428 people) from the scope of consolidation;
•
net turnover down by 564 people, as detailed below by individual Business Unit:
| | | |
(units)
| Recruited (*)
| Departed (*)
| Net change
|
| | | |
Domestic
| 350
| 577
| (227)
|
Brazil
| 2,145
| 2,273
| (128)
|
Argentina
| 350
| 438
| (88)
|
Olivetti, Media and Others
| 12
| 133
| (121)
|
Turnover
| 2,857
| 3,421
| (564)
|
(*)
The table also includes transfers within the Group.
People Caring
During the first six months of 2013, Telecom Italia continued to implement specific initiatives relating to the following areas:
•
balance between working life and free time and support for the requirements of employees and their families;
•
support for volunteering initiatives by employees;
•
promoting diversity in the workplace.
Balance between working life and free time and support for the requirements of employees and their families
•
17 Nurseries: in addition to the 10 nurseries (in 8 cities), 7 discount agreements were signed with an equal number of external nurseries at the Turin, Rome and Padua offices.
•
Company loans: 228 disbursed for various requirements, 91 for home purchases and renovations and 94 granted to new parents with children up to three years of age.
•
Time saving:
–
handling of official formalities: 39 points at Company offices in 12 cities;
–
laundry/shoe repairs: operational in 5 offices in Milan and Rome;
–
newsagents: available in 3 offices in Rome;
–
wellness areas: two areas in Company offices (Padua and Rome) and a wellness area in Naples;
–
discount agreements: 43 online offers of products and services have been launched as a result of Telecom Italia’s partnership agreements, mostly within Italy (cars and motorbikes, culture and shows, electronic goods, sports goods, financial institutions, health and wellbeing, trips and holidays, miscellaneous).
•
Stays for employees'children:
–
traditional 15-day summer camps for children between the ages of 6 and 12 run by 12 centres (4,489 registered participants);
–
themed 14-day stays for children between the ages of 11 and 17, in Italy, at 17 centres (2,311 registered participants) and abroad (UK, Ireland and United States) at 7 colleges (563 registered participants);
–
scholarships abroad: 20 scholarships were granted to young people between the ages of 15 and 17 for one-year stays abroad (Europe, Argentina, Brazil, USA, Costa Rica, Honduras, Canada, China, Hong Kong, India, Japan) and 100 for four-week stays (in Ireland, Spain, Finland, Latvia, China and Japan).
•
Initiatives regarding sport, art, culture, entertainment and historical events: working with several different Company departments, over 2,500 tickets and invitations to VIP areas allocated since the beginning of 2013. A highly appreciated initiative was "Bimbi in campo", which allowed the children of employees to accompany players of the TIM Serie A soccer teams onto the field at a number of different matches during the 2012/2013 championship.
•
Mobility management: in order to assist colleagues with commuting between home and work, an "Intranet Mobility" has been created in some of the major cities to answer questions from colleagues and provide an opportunity to share cars (car pooling). The initiative has been launched in Genoa, Milan, Florence and Rome and includes a total of 165 crews. 15 Company offices have been provided with a shuttle service, making 315 journeys a day and 32 offices have been equipped with bicycle racks.
•
Counselling service: in order to help employees deal with difficulties of a professional and personal nature, a People Caring Centre telephone counselling service is provided by professional psychologists across the country. Either by telephone or email, 258 colleagues asked for information regarding the operation of the service and 143 made an appointment. 128 of these began a course of counselling sessions and 44 company-related matters were taken over by the Human Resources & Organization area.
The following campaigns have been conducted in Brazil:
•
Favourable terms for opening bank accounts, discount agreements and health insurance.
•
“Happy day”: employees are entitled to take a day off on their birthday or, if on maternity leave, to full pay for the relevant day. Employees are also granted additional paid days in case of marriage (5 days in total) and further paid days to new fathers for the birth or adoption of a child (10 days in total).
•
"TIM open day": this is an annual initiative aimed at introducing the children of employees to the environments where their parents work.
•
“A future without boundaries”: this programme helps the children of employees to choose their career through seminars and meetings with a number of employees in order to understand how the work is done.
•
"Children's food kit": all employees with children between the ages of 6 months and 2 years can request a kit provided free of charge by the Company that includes a number of specific foods. If prescribed by a doctor, the kit can also be requested for children under 6 months of age.
•
"Accident and sickness insurance": employees are guaranteed supplementary insurance cover to maintain their normal standard of remuneration in the event of a prolonged illness or accident at work.
Support for volunteering initiatives by employees
•
"Navigare Insieme (Browsing Together)": activities run in computer training centres in 16 Italian cities to help people over 60 to use the Internet. Colleagues support volunteers from the partner associations involved in the project.
•
Volunteering at the Dynamo Camp: in the summer of 2013, 30 colleagues will be volunteering for two sessions at the Dynamo Camp facility, where children and young people with serious or chronic health conditions can spend time playing and having fun in contact with nature.
•
Child sponsorship: working with CIAI, the Sant'Egidio Foundation and Save the Children, over 941 children have continued to be supported by employees under a child sponsorship scheme.
•
Fair trade shopping: a group has been set up with the Equologica cooperative in the Rome office at Via Pietro de Francisci (the initiative will be extended to other offices).
•
Telecom Blood Donors Group: 37 blood donation days were organised in 5 cities.
In Argentina, the programme involving employees in voluntary activities (Red de Voluntarios) continued. 1,349 volunteers have so far taken part in 142 projects in 12 cities and in 4 different areas of activity:
•
one-off activities lasting 1 or 2 days;
•
fund-raising initiatives within the Company;
•
initiatives in which volunteers join in with programmes run by non-profit organisations;
•
initiatives run by non-profit organisations and presented by employees, which the Company decides to support with financial contributions and the involvement of volunteers, monitoring their progress.
Promoting diversity in the workplace
The activities of the Diversity Committee continued, focusing in particular on age, gender diversity and disability. Blogs regarding the promotion of diversity remain active, allowing discussions and the exchange of documents.
In the context of gender diversity, 15 "Role Model" meetings were set up between female managers and successful women in the fields of art, culture, business and politics. The purpose of the initiative, which involved 1,058 female employees, was to promote greater awareness of the role currently played by women in the world of work.
A corporate video on diversity was created to promote the culture of difference and inclusion in the Company, through training and information activities and dissemination on the intranet. A training event on ageing and disability took place that involved 220 employees from the Telecom Italia Group.
The Comunico-IO project continued with the aim of promoting communication between the hearing impaired and other colleagues, improving their ability to operate fully independently using state-of-the-art technological tools. The 57 employees involved in the project were supplied with a mobile phone and a high definition web cam, which interact with a computer running the internal chat and Internet access services. Recently a new mobile phone has been supplied and a "Comunico-IO" app for Android is currently being delivered which support communication for people with hearing loss.
In Argentina, specific discussions were held on issues related to the “Diversity Programme”, including 2 training courses on disability for HR managers and 2 meetings on gender issues ("Women’s Break"). A number of company representatives also took part in events and working groups on gender-related issues organised by the IAE Business School - Universidad Austral.
Progress achieved by the Programme was monitored by means of specific meetings with various different sections of the Human Resources Department.
Selection and Development
Recruitment
Telecom Italia attends the main Italian Career Days, participating in events organised in Rome, Milan, Trento and Bari. Turnout was high again this year, with over 500 interviews being held between students and employees manning the stands.
As of 2011, in agreement with the trade unions and following agreements signed with the relevant universities, the experimental social responsibility project entitled "The day before" was launched by
Telecom Italia with the aim of allowing university students from across the country to combine the achievement of their academic qualification with work experience. The project provided for young graduates in technical and economic subjects to be recruited by the subsidiary Telecontac Center (TCC) and young graduates in technical subjects to be recruited by the Technology Function and Open Access of Telecom Italia. The young people, all hired under an 18-month apprenticeship contract, will be involved in the training programme run by the Company to acquire knowledge and develop the skills needed to hold managerial posts in the future. At the end of the apprenticeship, Telecom Italia undertook to recruit 100 young people, on permanent contracts, to be assigned to various different parts of the Group.
167 young graduates have so far been placed in the Technology and Open Access departments of the Milan, Turin, Venice, Rome and Bari offices. Additional recruitments are also planned for the Florence, Pisa and Genoa offices. Over 165 people were recruited by TCC offices in Rome, Naples, Catanzaro and Caltanissetta.
As of June 30, 2013, 31 young people have been recruited on permanent contracts.
Alongside "The Day Before" project, another project currently involves Telecom Italia in a major partnership aimed at developing research and launching a more constructive and practical dialogue regarding the needs of companies and universities. Thanks to funding for 15 research doctorate scholarships, in addition to the 95 already awarded to the most prestigious educational establishments in the country, some of our managers are working closely with 91 young doctorate students to develop 38 research themes identified by Telecom Italia. At the end of the three-year period, in addition to having achieved a PhD, the young students will have an opportunity to gain employment with the Company.
Once again this year, international initiatives include Telecom Italia's collaboration with the University of Trento to promote a competition for 6 doctorate scholarships on the subject of "Human behaviour understanding from mobile phones data and web usage patterns", which will be implemented during the second half of the year.
The three Master's courses launched in the previous academic year (Network Innovation and Telecommunication Services with the Polytechnic of Turin, Business Innovation & ICT Management at MIP Polytechnic of Milan and Cloud Computing with the Federico II University of Naples) were completed. 18 of the 58 young people who brilliantly achieved the Master's Diploma between 2012 and 2013 were hired by the Company.
Numerous partnerships continued with prestigious universities through scholarships and internships related to innovation, ICT systems, the world of telecommunication and the media, antitrust, security, general management and labour law issues. During the first half of 2013, around 135 young people from leading Italian universities began an internship within the Group.
Development
The following were launched during the first half of 2013:
•
Individual Performance Feedback, dedicated to providing feedback on the performance of employees, aimed at identifying areas of strength and improvement. By establishing a closer relationship between supervisors and employees, the tool is intended to help improve the performance of individuals.
The process was completed on January 29, 2013 and involved around 48,000 non-managerial staff from the Telecom Italia Group. 81.6% of participants stated in their feedback questionnaire that they were entirely satisfied with the process, which involved the use of dedicated focus groups including evaluators and the evaluated from different Company Functions and was benchmarked against the best practices employed in national and international companies.
The proposals for improvement that emerged will be carefully considered, particularly in terms of their feasibility.
•
Participated Development is the tool that allows people at Telecom Italia to “participate” in their development and that of their colleagues/supervisors. The aim is to bring out talent by measuring the reputation of people, thus complementing the information obtained through "classic" development tools.
It is divided into four sections:
–
Talent Survey: each employee can name a colleague or supervisor (in their own Function or others) whom they consider to be a "talent", specifying characteristics observed in the field. The people identified as Talents are then "certified" and involved in various kinds of activities to recognise their contribution;
–
Succession Survey: all supervisors can name a person, from among non-supervisors, who has the qualities needed to take on a leadership role and who, among people of the same grade, can take on more complex roles based on distinctive behaviour observed in the field. The individuals identified will then be "certified" and put forward for development programmes;
–
Professional Identity: by completing their professional/personal profile on the intranet, individual employees can make their skills visible and available to the internal community;
–
Willingness to Change: individual employees can each state their professional expectations and willingness to change job/workplace if actual opportunities should arise.
The experimentation phase, which was completed in January 2013, involved around 10,000 employees. The Talent Survey and Succession Survey sections were launched in June for all the Group's resources.
The customary assessments were launched during the first half of 2013 and entrusted to the Group company HR Services S.r.l.
A "Motivation Check" experiment was also launched as a new development tool dedicated to people over 50 and aimed at mapping and making the most of the motivational energy of senior employees by identifying the drivers that allow a high level of involvement to be maintained, while improving individual efficiency and well-being at work.
Training
The Telecom Italia Group considers training to be a crucial element for developing people and improving the Company's performance.
During the first six months of 2013, around 764,000 hours of classroom, online and on-the-job training took place, which equates to an average of 17.2 hours per head. 83.1% of personnel participated in at least one training session.
Training by professional category
| | | | | |
| | |
Participations (*) (no.)
|
Participants
(no.)
|
Coverage
(%) (**)
|
| Total hours
(no.)
| Hours per head
(no.)
|
TOTAL
| 764,159
| 17.2
| 113,682
| 36,955
| 83.1%
|
Senior Managers
| 9,590
| 13.9
| 608
| 375
| 54.4%
|
Middle Managers
| 34,422
| 11.3
| 4,133
| 2,235
| 73.4%
|
Office Staff/Workers
| 720,146
| 17.7
| 108,941
| 34,345
| 84.4%
|
(*)
Shows the overall number of participations in the various forms of training (classroom, online, on-the-job training).
(**) Coverage refers to the percentage of participants compared to the total, i.e. the % of human resources who took part in at least one training session compared to the total number of human resources in each individual category (senior managers, middle managers, office staff/workers).
Training in the Company is primarily aimed at:
•
managerial culture, to support the leadership in dealing with the challenges posed by the market, evolution and constant innovation in the business;
•
developing specialised skills to ensure the dissemination and updating of job skills required for professional growth through classroom, e-learning and on-the-job training;
•
empowerment to maintain creative energy through programmes to strengthen self-efficacy, resilience and involvement, such as coaching and mentoring.
As of April 29, 2013, the new Training Policy has been published on the Computerised Documentation System.
Internal communication
Internal events and participation
Multimedia conventions are now the established method for conducting internal events. They involve a small number of people gathering in a physical space (auditorium or large meeting room) and interacting with a vast virtual audience of colleagues connected from their workstations by video streaming. People taking part in these multimedia conventions submit their questions to speakers before and during the convention, interact on the subjects and provide constructive feedback through blogs, forums and virtual networks. This way of holding meetings is in keeping with the interaction and involvement experiences with which the Company has been experimenting through an increasingly widespread social media presence. The online mode also allows the content to be used at a later date and contributes to minimising greenhouse gas emissions by avoiding the need for people to travel.
In particular, a network spin-off plan was presented in June that was broadcast in video streaming mode to the whole Company, allowing comments to be posted in real time.
During the first half of 2013, kick-offs were held of the new Business and Consumer organisations, as well as the Telecom Italia Information Technology Management Meeting and the “Sicuri, Adesso” (Safe, Now) conference, the final stage of a multimedia training and communication campaign related to safety at work, which involved the creation of an information brochure, both on paper and online, entitled “La sicurezza in tasca” (Safety in your pocket), filled with video testimonies and specific training activities.
In order to support the Compliance culture, the first Compliance Day was organised, involving summit meetings in the presence of Company managers.
At the end of the Agenda 2013 project, a meeting was held at the offices of Libera between Father Luigi Ciotti and the employees who had contributed actively to implementing the agenda.
Two editions were held of the “Conversazioni” (Conversations) planned as part of the School of Industrial Relations programme, which involves significant networking activities with social partners, the academic world, the media and Group managers, with a presentation of the Censis Report by Chairman Giuseppe De Rita and a debate on labour issues with the general secretary of CGIL Susanna Camusso.
Information and Company media
•
Intranet: around 250 items of news published, a considerable increase on 2012. This channel is once again one of the most popular due to the versatility, comprehensiveness and speed of communication.
Initial experiments were held of the new intranet "social" platform, which will allow greater exchange and interaction among colleagues, leading to the establishment of a form of active participation in the life of the Company.
•
Sincronizzando: one edition of the Company magazine was published and distributed after having undergone a radical graphic and editorial restyling aimed at improving its visual impact, legibility and general attractiveness. An option was introduced to access multimedia off-magazine content using the Augmented Reality app. A social writing initiative was launched during the first half of the year, involving 200 employees, aimed at putting together stories to be published in the journal.
The magazine is printed on FSC mixed certified paper, which reduces CO2 emissions to zero. In May, the Android and IOS version of the Editoria (Publishing) app was launched, which allows Sincronizzando, the Technical Newsletter and Code of Ethics to be read online.
•
Multimedia Channel: 43 editions of VideoNews, 23 Special Reports and 45 editions of a video magazine dedicated to ICT were created.
Listening and involvement activities and projects
Systematic feedback activities were carried out at the end of each event to determine the reaction of participants to the content presented.
Specific internal communication activities were launched to support the corporate “We have a dream” campaign and “#ioamoiltalento”, promoting the direct involvement of employees on the filming set.
Archimede, the competition which, since 2008, has been gathering and rewarding the best innovative ideas aimed at optimising the processes and services offered by the sector, continued in 2013. During the first half of 2013, awards were presented for the 2012 Archimede campaign to Open Access and Customer Care colleagues. The plan is currently being extended to other parts of the Company.
Health and safety at work
The "Sicuri, adesso" (Safe, now) campaign launched in 2012 for the employees of Telecom Italia S.p.A. continued to spread knowledge and awareness on occupational safety at all levels of the Company. In particular, video testimonies were published on the Company intranet by the managers most heavily involved in occupational safety (network and property management). Presentations were held in Company offices to illustrate the procedure for unblocking obstructed airways in children, to which the family members of employees were also invited, and "reverse" training days were organised with Network engineers, who taught their supervisors how to climb ladders, telephone poles and motorised platforms safely. In May, an event was held in Rome to conclude the campaign aimed at involving managers and the main stakeholders in a fruitful discussion on good behaviour at work and in private and family life. The event was also attended by the Chief Operating Officer and the HR Manager of Telecom Italia S.p.A. Over the coming months, a survey will be carried out among around 25,000 employees to assess the positive effects of the “Sicuri, adesso” campaign.
A training plan was launched on the subject of safety and aimed at all Company personnel (workers, supervisors, managers) which uses a personalised approach based on the role and operational context of trainees and state-of-the-art educational tools that measure the effectiveness and efficiency of the training. The plan, which will be completed during the first half of 2014, provides for at least 8 hours of training to be provided for each employee involved.
Ad hoc activities have also been carried out on the subject of "work in confined spaces", which have involved technical personnel and staff of the businesses operating in the Fixed Network area.
With regard to road safety, safe driving courses for two-wheeled transport were organised for technical network personnel operating with environmentally-friendly MP3 mopeds in the historic centres of Italy's main cities. The sessions involved 40 employees.
The experimental “Behaviour Based Safety and Control” project launched in 2012 in 4 work centres (2 in Naples and 2 in Milan) was completed. It analysed the Company's safety procedures, established a check list to monitor the actions of engineers during their work and implement assessment and self-assessment in the field. The trend in accidents occurring in the 4 work centres involved in the project showed a reduction in the number of accidents.
An agreement is currently being implemented with ISPRA (National Institute for Environmental Protection and Research), which provides for joint measures to be taken at a number of Company sites to develop a new method for assessing occupational exposure to certain specific sources of electromagnetic fields.
With regard to noise, an assessment was launched of the risks to which some teams of engineers are exposed in their work. A new method was established to assess and measure the noise in headphones and a campaign is currently under way to measure noise levels in a number of call centres assigned to the 187, 187-2, 119 and 191 Telecom Italia and Telecontact services.
With regard to the checks carried out on suppliers, 10 audits were carried out on Fixed Network companies during the first half of the year. As of this year, the results of health, safety and environment audits carried out will contribute to determining the Vendor Rating.
Industrial relations
Telecomitalia S.p.A.
In February and March, during specific meetings, Telecom Italia provided the trade unions with an overview of the macroeconomic context, which is particularly critical for the whole telecommunication sector, and the respective market scenario, characterised by very strong competitive pressure. The meetings addressed the development prospects for the various businesses, the organisational considerations and the impact on employment levels.
In this context, the Company and the trade unions held discussions to find solutions aimed at achieving the shared goal of safeguarding employment levels by recovering efficiency and productivity, particularly in access network operations and caring services.
The discussion ended positively with specific agreements being signed on March 27 and 28, which identify an important series of actions to support employability and aimed in particular at promoting internalisation processes. The agreements also provided for production surpluses to be managed by using the most socially sustainable safety nets: above all defensive solidarity contracts and voluntary collective mobility. For employees who already meet the requirements for access to social security payments, an agreement was reached to consider this condition as an entitlement to collective mobility.
At the same meeting, an agreement was signed between the Company and the trade unions regarding the Performance Bonus, running from January 1, 2013 to December 31, 2015, which provides for the variable elements of the remuneration that do not vest in the employee to be correlated to results achieved, which are assessed on the basis of profitability, revenue performance and quality of service.
Telecom Italia has also decided to recognise the contribution made by workers to the economic and productive performance of the Company by paying an undifferentiated amount to all employees of the same grade for the second half of 2012. For this purpose, a specific agreement was reached with trade union representatives.
Pursuant to current legislation regarding Company transfers, Telecom Italia S.p.A. and Telecom Italia Sparkle S.p.A. implemented the procedure with the trade unions involved with regard to Telecom Italia Sparkle's intention to transfer its Network Operations business unit to Telecom Italia S.p.A., through a partial spin-off, as of September 1st, 2013. Employment contracts will be transferred without interruption from Telecom Italia Sparkle S.p.A. to Telecom Italia S.p.A..
The operation will allow the organisational structures dedicated to planning activities, processes and skills to be made more efficient.
Specific agreements were signed in June, as part of the discussions held between the Company and the trade unions to help find agreed solutions on how to introduce new work shifts for people operating in the Consumer Mobile and Business Credit Customer Operations, in the context of Caring Services.
These agreements, which will contribute to further improving oversight of the service and meeting the requirements of the relevant customers, will also allow workers to achieve a better work-life balance.
Telecontact Center
Numerous meetings with trade unions were held during the first half of 2013, during which the Company illustrated the new system for overseeing customer activities and the respective shift structure. The parties reached specific agreements on the introduction of new working hours needed to improve the fulfilment of requirements expressed by customers.
In the context of these agreements, the Company and trade unions established the minimum percentage of staff away on leave, in order to determine, in a definite and measurable way, how this leave is being taken and to allow it to be planned.
A specific agreement with trade union representatives was drawn up that allows an undifferentiated bonus to be paid by the Company for each employment grade which recognises the contribution made by workers to the Company's economic and productive performance during the second half of 2012. At the same meeting, a Performance Bonus was established for the employees of Telecontact Center S.p.A., running for three years from January 1, 2013 to December 31, 2015, which provides for the variable elements of the remuneration that do not vest in the employee to be correlated to results achieved, which are assessed on the basis of profitability, revenue performance and quality of service.
On the same dates, particularly in order to identify initiatives aimed at allowing a better work-life balance to be achieved, agreements were reached with the Trade Unions on the conditions for pregnant workers, leave for mothers and fathers, start time flexibility and the interval in working hours.
Advanced Caring Center
During the first half of 2013, specific agreements were reached with the trade unions with regard to identifying tools that will allow workers to improve their work-life balance.
In particular, it was decided that workers may use their paid annual leave in shorter periods than established by the applicable national collective labour agreement (30 minutes instead of 4 hours).
HRS Srl
The application of home-based teleworking was confirmed for operational staff working for HRS Srl. While contributing positively to the environment and to the quality of life of employees, by reducing travel time and improving their work-life balance, teleworking allows activity schedules to be optimised to achieve improvements in effectiveness and operational flexibility at the same time.
A specific agreement with the trade unions was signed, in June, on this issue to agree on implementation methods: teleworking may involve a maximum of 15% of operational resources. It will be voluntary and last for one year, which may be extended.
Remuneration policy
The Group's remuneration policy is based on an individual pay packet structure that aims to ensure a proper balance between the fixed and variable components, based on the Company's strategic objectives and risk management policy. The structure is intended to safeguard the identity and integration of the Group (unity) as well as to respect the diversity of the relevant markets (differentiation), so as to sustain the Company's competitiveness and performance and ensure staff involvement, honesty and internal fairness.
Remuneration policies differ according to a horizontal classification of employees aimed at subdividing resources based on the role they perform and their individual value.
The fixed remuneration component reflects the breadth and strategic nature of the role performed, measured using a job assessment system based on methods that are recognised and certified at international level, as well as the distinctive subjective characteristics and strategic skills of the employee.
The short term variable remuneration aims to establish a transparent link between pay and the degree of fulfilment of annual targets. For this purpose, the targets are fixed according to qualitative and quantitative indicators that represent and are consistent with the strategic priorities and business plan, measured according to pre-established and objective criteria, subject to discretional assessment margins.
The general terms of short-term incentive (MBO) policies, which were significantly reviewed in 2012 in terms of operating mechanisms and people involved, are understood to be confirmed for 2013, except for the further refinements introduced, particularly in light of the incentive results reported in 2012.
Alongside the MBO, another system of incentives exists for professional staff, with the aim of aligning the results achieved by these employees with the overall performance of the Company.
The Company's remuneration structure also provides for a long-term variable component that involves participation in annual Long Term plan cycles with an incentive period corresponding to the strategic planning period. In light of the current economic situation, the Board of Directors decided to suspend the 2013 Long Term Incentive plan cycle intended for a select group of the Company's managers.
Research and Development
Research and development activities at Telecom Italia are carried out by the Information Technology, TILab and Innovation & Industry Relations departments, which oversee the analysis of new technologies and the engineering of services offered to customers.
Activities to enhance and generate competitive advantage for the Group are of particular importance and are pursued through strategic management of the relationship between research, Intellectual Property Right (IPR) and business, aimed at developing the Company’s assets in patents rights.
Telecom Italia's JOLs (Joint Open Labs) are actual joint laboratories where academic research and knowledge combine with industrial know-how and experience. In this context, the WHITE (Wellbeing and Health Innovative TEchnologies) laboratory has been opened in association with the Pisa-based Scuola Superiore Sant’Anna, the activities of which include prevention and recovery from ill health with the help of ICT and bio-robotic technologies. In particular, the laboratory addresses issues related to assisted living and digital health, with a view to developing services based on sensor technology, robotics and "distributed communication", which allow movement to be detected in motor rehabilitation processes and new "telehealth" management processes to be defined.
As part of the Changemakers business acceleration programme promoted by Telecom Italia and Expo Milano 2015, with the ambitious aim of changing the lives of 10 million people, 3 new projects have been selected:
•
Tooteko, which allows an "audio" track to be applied to objects and make any surface clickable and interactive. The potential applications of this technology include helping the visually impaired to gain information about the appearance of objects, providing a new educational tool to teach children to read and write, and creating a new device to replace conventional light switches;
•
Orange Fiber, a "social" fashion project that uses nano-technologies to transform citrus fruit waste into textile raw materials and clothing that release vitamins when they come into contact with the skin, involving women in difficulty and disadvantaged people in the production process;
•
PanPan, a smartphone social information app that allows geolocalised questions associated with specific areas to be sent and users to be identified in the same area who might be able to answer the questions. The application can also be used as a B2B platform for surveys and market research.
During the first half of 2013, Telecom Italia inaugurated the new business acceleration area in Milan, dedicated to talents from Working Capital, the programme launched in 2009 to support the creation and development of new Italian businesses based on digital innovation. The following projects will be developed in this context:
•
Welco (www.welco.co), a device that allows people to connect their home or office intercom to their smartphone or tablet;
•
Cityglance (www.cityglance.co), innovative social networking app that connects people travelling on public transport anywhere in the world;
•
ViciniDcasa, which allows a neighbourhood platform to be created to connect people and create new social relationships, communities of interest and even business opportunities between neighbours;
•
Dropin (www.dropin.fm), an innovative cloud service that provides access to a virtual recording studio via your browser, making music composition a "social" experience;
•
Starteed (www.starteed.com), innovative crowdfunding platform (collective financing via the Internet), which provides support for people with ideas, through funds and skills on a non-profit-making basis.
The following is a list of the projects and initiatives undertaken or pursued during the first half of 2013, subdivided into the major strands that make up the Group's Research and Development activities:
•
new generation network;
•
future Internet applications;
•
positive environmental impacts;
•
positive social impacts.
New generation network projects
•
The Ecousin project has been launched to analyse and propose a model for improving the scalability of network infrastructure, through information of a social nature, and generally improve the quality of the content experience for users. In particular, Telecom Italia is involved in gathering the information and studying the dynamics of how the content will be used in social networks, while prototyping innovative mechanisms for the distribution of content that do not necessarily require the involvement of third party content/service providers.
•
As part of the work being done to improve the quality control of services, development of the CHECK Suite system continued. The system implements an innovative approach to mobile network configuration and performance issues and presents the following strengths:
–
design and optimisation integrated with network creation and operation processes;
–
overall view of the network and service starting with its individual nodes;
–
innovative and patented data analysis techniques;
–
automatic detection of inefficiencies in Near Real Time and calculation of the impact on the end customer for optimal management of recovery activities in terms of costs/benefits.
Specifically, functions have been introduced for Near Real Time monitoring of services, such as intra-network traffic, traffic directed towards the other mobile operators and all signalling traffic for managing user mobility. Research activities continued on virtualising network functions, i.e. potentially transforming network services into resident applications on cloud computing platforms. Meetings were held in this context with the leading manufacturers and a number of emerging businesses to explore strategies.
One initial example of how virtualisation could be applied to the mobile network was presented during the Study Day entitled “Ultra Broadband and SDN” held on 17th June. On that occasion, a demonstration was given of how the network is able automatically to activate new GGSNs (Gateway GPRS Support Nodes) to deal with requests for greater capacity arising from an increase in connected users.
•
An external wireless router prototype has been created to provide ADSL-like services in digital divide apartment buildings and industrial districts.
•
Solutions for the new FTTCab offer have been engineered and tested.
•
New, higher performance technologies have been introduced for the Metro network (Juniper solutions).
•
The fundamental technical solutions have been devised for the plan to share the mobile access network between operators (RAN Sharing) for TIM Brasil.
•
The technical features of the solutions for the new Data Center (EASY-DataCenter) offers have been established.
Future Internet application projects
Proximity technology services that make life easier for users
•
Activities continued to develop NFC (Near Field Communications) technology, in which Telecom Italia is once again a protagonist. The "TIM Wallet" commercial services was launched in February this year to give the people of Milan the chance to use their smartphone, fitted with an NFC SIM card, to make purchases from shops registered to accept VISA payments.
•
NFC technology has also allowed Telecom Italia to launch "La tua spesa in sede" (Your shopping at the office), in association with COOP – Unicoop Tirreno, to help its employees reconcile work with family needs. This initiative allows employees to order their shopping by logging on to the website or using a mobile phone with NFC technology to select offers shown on posters displayed at the Company's offices. The shopping is delivered by a vehicle that keeps food at the correct temperature until it is collected, by the end of the working day, at the entrance to the Company's offices.
Smart applications for the Internet of the future
•
Telecom Italia is actively involved in creating the platform and services for the Future Internet, particularly through cooperative projects funded by the European Community to enable and support customers in creating and using advanced services (European FI-WARE project) by using innovative multiscreen Internet technologies such as HTML5 (European Webinos project). Identity and privacy requirements are fulfilled by integrating all the user's personal data from across his or her various digital identities into a single "personal sphere", completely managed and controlled by the user (European Digital.me project).
•
Telecom Italia has directed the end-to-end design and implementation of the Smart City App prototype for Expo 2015, which is intended to become a reference tool providing information, services and entertainment on Expo 2015, the participating nations, the city and the country, the partners and players involved. The purpose is to establish an ongoing relationship with the visitor, particularly using new generation LTE mobile connectivity networks and more evolved devices. By using innovative technologies, such as Augmented Reality and Visual Search, this prototype will allow a view of Milan today and Expo 2015 tomorrow, integrating the real vision with multimedia animation and content.
Augmented Reality is a communication tool that can boost the effectiveness of traditional media (flyers, videos, websites) to promote the purchase and use of Company products (augmented products), illustrating the content of the package, the latest advertising spots relating to the product/offer and the most recent offers associated with the product itself or other products of the same brand. In this respect, a "virtual dummy" app has been created for online clothing purchases plus a probe app to monitor the key performance indicators of this service on Android smartphones. The MART app has been developed for the Trento and Rovereto Museum of Modern and Contemporary Art to provide information regarding the artist, their technique, the work of art in general and the themes of the room in which it is exhibited whenever a work of art is framed by the camera.
•
The Telecom Italia “SocialTV” programme monitors technological and business developments and evolution taking place as a result of feedback from broadcasting, where there is an increasing trend towards simultaneous TV viewing and real time social media discussion.
Development of Big Data solutions
•
With the Trentino Open Living Data (TOLD) project, Telecom Italia has set itself the goal of developing and testing a “Big Data” platform for collecting and analysing data from different local players (companies, industries, government organisations). The objective (also pursued by the SKIL, Telecom Italia's Trento-based Semantics & Knowledge Innovation Lab, which carries out advanced research and post-university training activities in the field of semantic technologies) is to use telephone network data combined with other data sources (e.g. electricity meter readings, number of vehicles using motorways, public transport) to highlight trends, movements or the presence of people. This information allows services to be provided to customers for energy management, traffic forecasting, urban planning and insurance offers.
•
Another project run by SKIL is the Mobile Territorial Lab (MTL) for the processing of Personal Big Data: the combined data that individuals generate via their smartphones and that transform people into local sensors, as theorised in the Smart City models. According to the Living Lab model promoted by the EIT (European Institute of Innovation & Technology) and the Autonomous Province of Trento, a pilot community has been created of young families who use smartphones with "sensing" software and SIM card that constantly collects information about their movements, interactions and preferences, thus providing a dynamic map of the area in which they live.
Projects with positive environmental impacts
•
The Connected Car project focuses on interactions between vehicles, mobile terminals and network services to deliver on-board navigation services and enable environmentally-friendly and economical driving styles. Innovative solutions are continuing to be developed and prototyped in the field of Smart Mobility. In particular, the Instant Mobility project completed in March examined and tested service scenarios such as "social ride-sharing", which allows you to find someone with whom to share a journey and optimise travel.
•
As regards issues associated with exposure to electromagnetic fields, work is continuing between TILab and La Sapienza University of Rome, the Polytechnic University of the Marche and Regional Radioprotection Agencies. The dual purpose of this collaboration is to determine the average level of attenuation of electromagnetic fields afforded by the structures used in construction, in order to analyse the intensity of fields within buildings, and to measure, as accurately as possible, the amount of power transmitted by mobile radio base stations over a period of 24 hours. An initial campaign was conducted in Rome to measure the outdoor-indoor attenuation and a research project is currently under way to measure the attenuation afforded by the walls of 4 different types of buildings in a representative sample. Activities are also continuing to analyse the power transmitted for the 3G radio access network and activities relating to 4G nodes are about to begin. A joint research project has been launched with ARPA and the Polytechnic University of the Marche, where an LTE node is currently being installed to perform tests aimed at studying this technology.
Projects with positive social impacts
•
"Digital islands" are a new urban design concept that allows public administration and third parties to deliver smart and innovative functionalities to citizens, including simplified access to services, wellness and comfort, safety, purchasing and sustainable mobility services. The activity was also included as part of the SM2ART (Smart Square Metre) project for the Smart Cities and Communities tender (welfare and inclusion sector) launched by MIUR (the Italian Ministry of Education, Universities and Research). By redeveloping the local area, digital islands are in fact a social inclusion tool. A prototype smart island is currently being designed at the Via Reiss Romoli Telecom Italia offices in Turin.
Commitment to AAL (Ambient Assisted Living) with European projects and field tests
•
In the field of health, the Fisio@Home application is being developed for the remote rehabilitation of patients affected by osteo-articular or neurological problems by allowing health care specialists to monitor them remotely. The application uses a network of sensors placed on the patient's body and provides several additional features for doctors.
•
The Vrehab project, coordinated by the Italian Auxological Institute and co-financed by the Italian Ministry of Health and the Piedmont Region, has been launched with a view to developing, among other things, a non-intrusive system to assess the state of health of Parkinson's Disease sufferers and, if necessary, adapt treatments promptly and effectively. For this purpose, inertial sensors are fixed to the lower limbs that record acceleration, angular velocity and magnetic field. Analysing this data allows information to be extrapolated, including the amplitude and speed of movement, which is used by neurologists to assess the patient's conditions.
•
Telecom Italia is also focused on the world of the elderly. The aim of the European WIDER (green groWing SMEs: Innovation and Development in the energy sector in mEd aRea) project in the field of Ambient Assisted Living is to achieve better management and sharing of knowledge for small and medium sized companies on the subject of ecosmart dwellings for the elderly. Telecom Italia is part of the scientific committee and contributes to guiding technical and technological activities.
The European Life 2.0 project is intended to promote a totally independent way of life for elderly people through a platform of location-based services and social networking. An experiment is taking place that involves around 80 users aged between 65 and 75 and living in 4 pilot cities in Italy and abroad. The Italian project is coordinated by the Polytechnic of Milan and involves 19 people. The purpose of the experiment is the native app for iPad created by Telecom Italia, with which elderly people can manage their profile, read or publish ads and register for events organised by the entities taking part in the project.
Also for elderly people, an experimental service has been launched with Cilte, a social cooperative offering a remote assistance service. Users of the remote assistance service have been offered two different solutions they can use at home: RicordaTI and Cassiel. RicordaTI is a tablet app that reminds elderly people of the things they have to do, such as a doctor's appointment or a medicine they have to take. Cassiel instead uses a small wireless sensor to monitor the front door and alert the remote assistance centre if the door is left open for too long.
•
The project implemented by Compagnia di San Paolo on the subject of Social Housing, to which Telecom Italia contributes as a technological partner by supplying networks, services and tutors in the context of Working Capital, continues to offer apartments to temporary users in a building located in the Porta Palazzo area of Turin, for a total of 50/60 users. A second building will be opened during the year.
Solutions for "scuola 3.0" ("school 3.0")
•
SOCIETY (SOCIal Ebook communiTY) is the collaborative reading tool that involves the reader directly in the reading experience. With this tool, Telecom Italia is able to support dyslexic children at home and in school. Cooperation has recently been launched at European level with the EIT “Playful learning on the cloud” project and nationally with the University of Modena and Reggio Emilia.
•
“Robot@school” solutions, which will be developed for Italian secondary schools, were presented during a workshop held at the Grassi Technical Industrial Institute of Turin. A memorandum of understanding was also agreed between Telecom Italia and the Regional Education Department for Piedmont which, among other things, provides for a specific agreement on service robotics. In this context, Telecom Italia will provide schools with systems and platforms for the introduction, sharing and network integration (the so-called "cloud") of robots that will support human beings in their daily living environment.
•
The Autonomous Province of Trento, Telecom Italia and other partners have signed a cooperation agreement to launch an “eSchooling” research project aimed at developing advanced digital teaching models for schools.
The aim is to create new systems, at the Trento technology centre, based on applications that can simplify learning for students and teaching for teachers and allow teaching support tools to be used in a more informed way, including interactive whiteboards (IWB), tablets and the latest generation of digital books.
The project will generate software applications that will be tested experimentally at a number of schools in the Trentino region which have already expressed their interest.
Telecom Italia Group
Half-year Condensed
Consolidated
Financial Statements
at June 30, 2013
Contents
Telecom Italia Group Half-year Condensed Consolidated Financial
Statements at June 30, 2013
Consolidated Statements of Financial Position
88
Separate Consolidated Income Statements
90
Consolidated Statements of Comprehensive Income
91
Consolidated Statements of Changes in Equity
92
Consolidated Statements of Cash Flows
93
Note 1 Form, content and other general information
95
Note 2 Accounting policies
99
Note 3 Goodwill
103
Note 4 Other intangible assets
107
Note 5 Tangible assets (owned and under finance leases)
109
Note 6 Investments accounted for using the equity method and Other investments
110
Note 7 Financial assets (non-current and current)
111
Note 8 Trade and miscellaneous receivables and other current assets
113
Note 9 Equity
115
Note 10 Financial liabilities (non-current and current)
117
Note 11 Net financial debt
127
Note 12 Financial risk management
128
Note 13 Derivatives
134
Note 14 Supplementary disclosures on financial instruments
135
Note 15 Employee benefits
137
Note 16 Provisions
138
Note 17 Trade and miscellaneous payables and other current liabilities
139
Note 18 Contingent liabilities, other information, commitments and guarantees
140
Note 19 Finance income and expenses
145
Note 20 Profit (loss) for the period
148
Note 21 Earnings per share
149
Note 22 Segment reporting
151
Note 23 Related party transactions
155
Note 24 Equity compensation plans
167
Note 25 Significant non-recurring events and transactions
170
Note 26 Positions or transactions resulting from atypical and/or unusual operations
172
Note 27 Other information
173
Note 28 Events subsequent to June 30, 2013
174
Note 29 List of companies of the Telecom Italia Group
177
Consolidated Statements of Financial Position
Assets
| | | | | | |
(millions of euros)
| | note
| 6/30/2013
| of which related parties
| 12/31/2012
| of which related parties
|
| | | | | | |
Non-current assets
| | | | | | |
Intangible assets
| | | | | | |
Goodwill
| | 3)
| 30,101
| | 32,410
| |
Other intangible assets
| | 4)
| 7,585
| | 7,927
| |
| | | 37,686
| | 40,337
| |
Tangible assets
| | 5)
| | | | |
Property, plant and equipment owned
| | | 13,884
| | 14,465
| |
Assets held under finance leases
| | | 963
| | 1,014
| |
| | | 14,847
| | 15,479
| |
Other non-current assets
| | | | | | |
Investments in associates and joint ventures accounted for using the equity method
| | 6)
| 65
| | 65
| |
Other investments
| | 6)
| 42
| | 39
| |
Non-current financial assets
| | 7)
| 1,553
| 163
| 2,496
| 265
|
Miscellaneous receivables and other non-current assets
| | | 1,603
| | 1,496
| |
Deferred tax assets
| | | 945
| | 1,432
| |
| | | 4,208
| | 5,528
| |
Total Non-current assets
| (a)
| | 56,741
| | 61,344
| |
Current assets
| | | | | | |
Inventories
| | | 536
| | 436
| |
Trade and miscellaneous receivables and other current assets
| | 8)
| 7,095
| 229
| 7,006
| 235
|
Current income tax receivables
| | | 50
| | 77
| |
Current financial assets
| | 7)
| | | | |
Securities other than investments, financial receivables and other current financial assets
| | | 1,834
| 44
| 1,256
| 12
|
Cash and cash equivalents
| | | 4,793
| 102
| 7,436
| 279
|
| | | 6,627
| | 8,692
| |
Current assets sub-total
| | | 14,308
| | 16,211
| |
Discontinued operations/Non-current assets held for sale
| | | | | | |
of a financial nature
| | | −
| | −
| |
of a non-financial nature
| | | −
| | −
| |
| | | −
| | −
| |
Total Current assets
| (b)
| | 14,308
| | 16,211
| |
Total assets
| (a+b)
| | 71,049
| | 77,555
| |
| | | | | | |
(millions of euros)
| | note
| 6/30/2013
| of which related parties
| 12/31/2012
| of which related parties
|
| | | | | | |
Equity
| | 9)
| | | | |
Share capital issued
| | | 10,693
| | 10,693
| |
less: treasury shares
| | | (89)
| | (89)
| |
Share capital
| | | 10,604
| | 10,604
| |
Paid-in capital
| | | 1,704
| | 1,704
| |
Other reserves and retained earnings (accumulated losses), including profit (loss) for the period
| | | 4,654
| | 7,070
| |
Equity attributable to owners of the Parent
| | | 16,962
| | 19,378
| |
Equity attributable to Non-controlling interests
| | | 3,516
| | 3,634
| |
Total Equity
| (c)
| | 20,478
| | 23,012
| |
Non-current liabilities
| | | | | | |
Non-current financial liabilities
| | 10)
| 31,435
| 394
| 34,091
| 476
|
Employee benefits
| | 15)
| 862
| | 872
| |
Deferred tax liabilities
| | | 649
| | 848
| |
Provisions
| | 16)
| 855
| | 863
| |
Miscellaneous payables and other non-current liabilities
| | | 984
| 2
| 1,053
| 2
|
Total Non-current liabilities
| (d)
| | 34,785
| | 37,727
| |
Current liabilities
| | | | | | |
Current financial liabilities
| | 10)
| 6,531
| 187
| 6,150
| 178
|
Trade and miscellaneous payables and other current liabilities
| | 17)
| 9,137
| 294
| 10,542
| 327
|
Current income tax payables
| | | 118
| | 124
| |
Current liabilities sub-total
| | | 15,786
| | 16,816
| |
Liabilities directly associated with discontinued operations/non-current assets held for sale
| | | | | | |
of a financial nature
| | | −
| | −
| |
of a non-financial nature
| | | −
| | −
| |
| | | −
| | −
| |
Total Current Liabilities
| (e)
| | 15,786
| | 16,816
| |
Total Liabilities
| (f=d+e)
| | 50,571
| | 54,543
| |
Total Equity and Liabilities
| (c+f)
| | 71,049
| | 77,555
| |
Separate Consolidated Income Statements
| | | | | | |
(millions of euros)
| | note
| 1st Half 2013
| of which related parties
| 1st Half 2012
| of which related parties
|
| | | | | | |
| | | | | | |
Revenues
| | | 13,760
| 485
| 14,793
| 508
|
Other income
| | | 110
| | 108
| |
Total operating revenues and other income
| | | 13,870
| | 14,901
| |
Acquisition of goods and services
| | | (6,154)
| (356)
| (6,500)
| (343)
|
Employee benefits expenses
| | | (1,931)
| (58)
| (2,006)
| (53)
|
Other operating expenses
| | | (941)
| | (897)
| |
Change in inventories
| | | 114
| | 62
| |
Internally generated assets
| | | 278
| | 299
| |
Operating profit before depreciation and amortization, capital gains (losses) and impairment reversals (losses) on non-current assets (EBITDA)
| | | 5,236
| | 5,859
| |
of which: impact of non-recurring items
| | 25)
| (106)
| | (18)
| |
Depreciation and amortization
| | | (2,589)
| | (2,676)
| |
Gains (losses) on disposals of non-current assets
| | | (81)
| | 16
| |
Impairment reversals (losses) on non-current assets
| | | (2,213)
| | −
| |
Operating profit (loss) (EBIT)
| | | 353
| | 3,199
| |
of which: impact of non-recurring items
| | 25)
| (2,398)
| | 3
| |
Share of profits (losses) of associates and joint ventures accounted for using the equity method
| | 6)
| −
| | (4)
| |
Other income (expenses) from investments
| | | 2
| | −
| |
Finance income
| | 19)
| 1,487
| 55
| 1,272
| 26
|
Finance expenses
| | 19)
| (2,436)
| (64)
| (2,189)
| (39)
|
Profit (loss) before tax from continuing operations
| | | (594)
| | 2,278
| |
of which: impact of non-recurring items
| | 25)
| (2,398)
| | 3
| |
Income tax expense
| | | (633)
| | (822)
| |
Profit (loss) from continuing operations
| | | (1,227)
| | 1,456
| |
Profit (loss) from Discontinued operations/Non-current assets held for sale
| | | 3
| | −
| |
Profit (loss) for the period
| | 20)
| (1,224)
| | 1,456
| |
of which: impact of non-recurring items
| | 25)
| (2,389)
| | 1
| |
Attributable to:
| | | | | | |
Owners of the Parent
| | | (1,407)
| | 1,242
| |
Non-controlling interests
| | | 183
| | 214
| |
| | | |
(euro)
| | 1st Half
| 1st Half
|
| | 2013
| 2012
|
| | | |
| | | |
Earnings per share:
| | | |
Basic and Diluted Earnings Per Share (EPS)(*):
| 21)
| | |
Ordinary Share
| | (0.07)
| 0.06
|
Savings Share
| | (0.07)
| 0.07
|
of which:
| | | |
from Continuing operations
| | | |
ordinary share
| | (0.07)
| 0.06
|
savings share
| | (0.07)
| 0.07
|
from Discontinued operations/Non-current assets held for sale
| | | |
ordinary share
| | −
| −
|
savings share
| | −
| −
|
Consolidated Statements of Comprehensive Income
Note 9
| | | |
| | | |
(millions of euros)
| | 1st Half 2013
| 1st Half 2012
|
| | | |
Profit (loss) for the period
| (a)
| (1,224)
| 1,456
|
Other components of the Consolidated Statements of Comprehensive Income:
| | | |
Other components that will not be reclassified subsequently to the Separate Consolidated Income Statement
| | | |
Remeasurements of employee defined benefit plans (IAS 19):
| | | |
Actuarial gains and losses
| | 3
| 4
|
Net fiscal impact
| | (2)
| (1)
|
| (b)
| 1
| 3
|
Share of other profits (losses) of associates and joint ventures accounted for using the equity method:
| | | |
Profit (loss)
| | −
| −
|
Net fiscal impact
| | −
| −
|
| (c)
| −
| −
|
Total other components that will not be reclassified subsequently to the Separate Consolidated Income Statement
| (d=b+c)
| 1
| 3
|
Other components that will be subsequently reclassified to the separate consolidated income statements
| | | |
Available-for-sale financial assets:
| | | |
Profit (loss) from fair value adjustments
| | (31)
| 31
|
Loss (profit) transferred to the separate consolidated income statement
| | 1
| 1
|
Net fiscal impact
| | 6
| (7)
|
| (e)
| (24)
| 25
|
Hedging instruments:
| | | |
Profit (loss) from fair value adjustments
| | (472)
| (76)
|
Loss (profit) transferred to the Separate Consolidated Income Statement
| | 277
| 39
|
Net fiscal impact
| | 55
| 10
|
| (f)
| (140)
| (27)
|
Exchange differences on translating foreign operations:
| | | |
Profit (loss) on translating foreign operations
| | (620)
| (337)
|
Loss (profit) on translating foreign operations transferred to the Separate Consolidated Income Statement
| | −
| −
|
Net fiscal impact
| | −
| −
|
| (g)
| (620)
| (337)
|
Share of other profits (losses) of associates and joint ventures accounted for using the equity method:
| | | |
Profit (loss)
| | 1
| −
|
Loss (profit) transferred to the Separate Consolidated Income Statement
| | −
| −
|
Net fiscal impact
| | −
| −
|
| (h)
| 1
| −
|
Total other components that will be reclassified subsequently to the Separate Consolidated Income Statement
| (i=e+f+g+h)
| (783)
| (339)
|
Total other components of the Consolidated Statement of Comprehensive Income
| (k=d+i)
| (782)
| (336)
|
Total comprehensive income (loss) for the period
| (a+k)
| (2,006)
| 1,120
|
Attributable to:
| | | |
Owners of the Parent
| | (1,925)
| 1,018
|
Non-controlling interests
| | (81)
| 102
|
Consolidated Statements of Changes in Equity
Changes in Equity from January 1, 2012 to June 30, 2012
| | | | | | | | | | | |
| Equity attributable to owners of the Parent
| | | |
(millions of euros)
| Share capital
| Paid-in capital
| Reserve for available-for-sale financial assets
| Reserve for cash flow hedges
| Reserve for exchange differences on translating foreign operations
| Reserve for remeas-urements of employee defined benefit plans
(IAS 19)(*)
| Share of other profits (losses) of associates and joint ventures accounted for using the equity method
| Other reserves and retained earnings, including profit (loss) for the period
| Total
| Equity attributable to Non-controlling interests
| Total equity
|
| | | | | | | | | | | |
Balance at December 31, 2011
| 10,604
| 1,704
| (4)
| (74)
| 1,089
| 196
| (1)
| 9,276
| 22,790
| 3,904
| 26,694
|
Changes in equity during the period:
| | | | | | | | | | | |
Dividends approved
| | | | | | | | (895)
| (895)
| (99)
| (994)
|
Total comprehensive income (loss) for the period
| | | 25
| (27)
| (225)
| 3
| | 1,242
| 1,018
| 102
| 1,120
|
Grant of equity instruments
| | | | | | | | 1
| 1
| | 1
|
Other changes
| | | | | | | | −
| −
| 2
| 2
|
Balance at June 30, 2012
| 10,604
| 1,704
| 21
| (101)
| 864
| 199
| (1)
| 9,624
| 22,914
| 3,909
| 26,823
|
(*) The Reserve is presented as a result of the early adoption of revised IAS 19. The recognition of this Reserve led to the reduction, for the same amount, of the opening balance of “Other reserves and retained earnings (accumulated losses), including profit (loss) for the period”.
Changes in Equity from January 1, 2013 to June 30, 2013 Note 9
| | | | | | | | | | | |
| Equity attributable to owners of the Parent
| | | |
(millions of euros)
| Share capital
| Paid-in capital
| Reserve for available-for-sale financial assets
| Reserve for cash flow hedges
| Reserve for exchange differences on translating foreign operations
| Reserve for remea-surements of employee defined benefit plans (IAS 19)
| Share of other profits (losses) of associates and joint ventures accounted for using the equity method
| Other reserves and retained earnings, including profit (loss) for the period
| Total
| Equity attributable to Non-controlling interests
| Total equity
|
| | | | | | | | | | | |
Balance at December 31, 2012
| 10,604
| 1,704
| 43
| (383)
| 504
| 154
| (1)
| 6,753
| 19,378
| 3,634
| 23,012
|
Changes in equity during the period:
| | | | | | | | | | | |
Dividends approved
| | | | | | | | (452)
| (452)
| (55)
| (507)
|
Total comprehensive income (loss) for the period
| | | (24)
| (140)
| (356)
| 1
| 1
| (1,407)
| (1,925)
| (81)
| (2,006)
|
Effect of equity transactions of TI Media
| | | | | | | | (23)
| (23)
| 23
| −
|
Telecom Argentina group buy-back of treasury shares
| | | | | | | | (10)
| (10)
| (2)
| (12)
|
Other changes
| | | | | | | | (6)
| (6)
| (3)
| (9)
|
Balance at June 30, 2013
| 10,604
| 1,704
| 19
| (523)
| 148
| 155
| −
| 4,855
| 16,962
| 3,516
| 20,478
|
Consolidated Statements of Cash Flows
| | | | |
(millions of euros)
| | note
| 1st Half
| 1st Half
|
| | | 2013
| 2012
|
| | | | |
Cash flows from operating activities:
| | | | |
Profit (loss) from continuing operations
| | | (1,227)
| 1,456
|
Adjustments for:
| | | | |
Depreciation and amortization
| | | 2,589
| 2,676
|
Impairment losses (reversals) on non-current assets (including investments)
| | | 2,213
| 1
|
Net change in deferred tax assets and liabilities
| | | 352
| 627
|
Losses (gains) realized on disposals of non-current assets (including investments)
| | | 80
| (16)
|
Share of profits (losses) of associates and joint ventures accounted for using the equity method
| | | −
| 4
|
Change in provisions for employees benefits
| | | (6)
| (6)
|
Change in inventories
| | | (96)
| (57)
|
Change in trade receivables and net amounts due from customers on construction contracts
| | | 87
| 235
|
Change in trade payables
| | | (851)
| (695)
|
Net change in current income tax receivables/payables
| | | 16
| (54)
|
Net change in miscellaneous receivables/payables and other assets/liabilities
| | | (69)
| (192)
|
Cash flows from (used in) operating activities
| (a)
| | 3,088
| 3,979
|
Cash flows from investing activities:
| | | | |
Purchase of intangible assets on an accrual basis
| | 4)
| (1,000)
| (917)
|
Purchase of tangible assets on an accrual basis
| | 5)
| (1,193)
| (1,352)
|
Total purchase of intangible and tangible assets on an accrual basis (*)
| | | (2,193)
| (2,269)
|
Change in amounts due to fixed asset suppliers
| | | (653)
| (641)
|
Total purchase of intangible and tangible assets on a cash basis
| | | (2,846)
| (2,910)
|
Acquisition of control of subsidiaries or other businesses, net of cash acquired
| | | −
| (7)
|
Acquisitions/disposals of other investments
| | | −
| −
|
Change in financial receivables and other financial assets
| | | 259
| 236
|
Proceeds from sale that result in a loss of control of subsidiaries or other businesses, net of cash disposed of
| | | (118)
| (5)
|
Proceeds from sale/repayment of intangible, tangible and other non-current assets
| | | 46
| 30
|
Cash flows from (used in) investing activities
| (b)
| | (2,659)
| (2,656)
|
Cash flows from financing activities:
| | | | |
Change in current financial liabilities and other
| | | (1,404)
| (100)
|
Proceeds from non-current financial liabilities (including current portion)
| | | 1,577
| 1,846
|
Repayments of non-current financial liabilities (including current portion)
| | | (2,679)
| (2,687)
|
Share capital proceeds/reimbursements (including subsidiaries)
| | | −
| (2)
|
Dividends paid (*)
| | | (498)
| (1,027)
|
Changes in ownership interests in consolidated subsidiaries
| | | (12)
| −
|
Cash flows from (used in) financing activities
| (c)
| | (3,016)
| (1,970)
|
Cash flows from (used in) Discontinued operations/Non-current assets held for sale
| (d)
| | −
| −
|
Aggregate cash flows
| (e=a+b+c+d)
| | (2,587)
| (647)
|
Net cash and cash equivalents at beginning of the period
| (f)
| | 7,397
| 6,670
|
Net foreign exchange differences on net cash and cash equivalents
| (g)
| | (104)
| (28)
|
Net cash and cash equivalents at end of the period
| (h=e+f+g)
| | 4,706
| 5,995
|
(*) of which related parties:
| | | | |
Total purchase of intangible and tangible assets on an accrual basis
| | | 65
| 61
|
Dividends paid
| | | 62
| 139
|
| | | | |
Additional Cash Flow Information
|
| | | | |
(millions of euros)
| | | 1st Half
| 1st Half
|
| | | 2013
| 2012
|
| | | | |
Income taxes (paid) received
| | | (229)
| (241)
|
Interest expense paid
| | | (1,650)
| (1,875)
|
Interest income received
| | | 600
| 727
|
Dividends received
| | | 2
| −
|
| | | | |
Analysis of Net Cash and Cash Equivalents
|
| | | | |
(millions of euros)
| | | 1st Half
| 1st Half
|
| | | 2013
| 2012
|
| | | | |
Net cash and cash equivalents at beginning of the period
| | | | |
Cash and cash equivalents - from continuing operations
| | | 7,436
| 6,714
|
Bank overdrafts repayable on demand – from continuing operations
| | | (39)
| (44)
|
Cash and cash equivalents - from Discontinued operations/Non-current assets held for sale
| | | −
| −
|
Bank overdrafts repayable on demand – from Discontinued operations/Non-current assets held for sale
| | | −
| −
|
| | | 7,397
| 6,670
|
Net cash and cash equivalents at end of the period
| | | | |
Cash and cash equivalents - from continuing operations
| | | 4,793
| 6,029
|
Bank overdrafts repayable on demand – from continuing operations
| | | (87)
| (34)
|
Cash and cash equivalents - from Discontinued operations/Non-current assets held for sale
| | | −
| −
|
Bank overdrafts repayable on demand – from Discontinued operations/Non-current assets held for sale
| | | −
| −
|
| | | 4,706
| 5,995
|
Note 1
Form, content and other general information
Form and content
Telecom Italia (the “Parent”) and its subsidiaries form the “Telecom Italia Group” or the “Group”.
Telecom Italia is a joint-stock company (S.p.A.) organized under the laws of the Republic of Italy.
The registered offices of the Parent, Telecom Italia, are located in Milan, Italy at Piazza degli Affari 2.
The duration of Telecom Italia S.p.A., as stated in the company’s bylaws, extends until December 31, 2100.
The Telecom Italia Group operates mainly in Europe, the Mediterranean Basin and South America.
The Group is engaged principally in the communications sector, particularly the fixed and mobile domestic and international telecommunications sector.
The Telecom Italia Group half-year condensed consolidated financial statements at June 30, 2013 have been prepared on a going concern basis (further details are provided in the Note “Accounting policies”) and in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board and endorsed by the European Union (designated as “IFRS”), as well as the laws and regulations in force in Italy (particularly the measures enacted implementing art. 9 of Legislative Decree 38 dated February 28, 2005).
The Telecom Italia Group half-year condensed consolidated financial statements at June 30, 2013 have been prepared in accordance with IAS 34 (Interim Financial Reporting) and, as permitted by this standard, do not include all the information that would be required in annual financial statements; accordingly, these financial statements should be read together with the 2012 Telecom Italia Group consolidated financial statements.
For purposes of comparison, the consolidated statement of financial position at December 31, 2012 and the separate consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of cash flows, as well as the consolidated statement of changes in equity for the first half of 2012 have been presented in accordance with IAS 34.
The comparative figures for the first half of 2012 have been adjusted following the completion of the process of allocation of the price paid for the acquisition of Tim Fiber SP and Tim Fiber RJ in accordance with the provisions of IFRS 3 “Business Combinations” which establishes that “during the measurement period, the acquirer shall recognize adjustments to the provisional amounts as if the accounting for the business combination had been completed at the acquisition date”. The completion of this measurement process, which took place in the last quarter of 2012, led to a change in the separate consolidated income statement for the first half of 2012 consisting of higher depreciation and amortization of 6 million euros and lower income tax expense of 2 million euros.
The Telecom Italia Group half-year condensed consolidated financial statements at June 30, 2013 are expressed in euro (rounded to the nearest million, unless otherwise indicated).
Publication of the Telecom Italia Group half-year condensed consolidated financial statements at June 30, 2013 was approved by resolution of the board of directors’ meeting held on August 1, 2013.
Financial statement formats
The financial statement formats adopted are consistent with those indicated in IAS 1. In particular:
•
the Consolidated statement of financial position has been prepared by classifying assets and liabilities according to “current and non-current” criterion;
•
the Separate consolidated income statement has been prepared by classifying operating expenses by nature of expense as this form of presentation is considered more appropriate and representative of the specific business of the Group, conforms to internal reporting and is in line with the industrial sector of reference.
The separate consolidated income statement includes, in addition to EBIT, or Operating profit (loss), the performance measure EBITDA, or Operating profit (loss) before depreciation and amortization, capital gains (losses) and impairment reversals (losses) on non-current assets.
In particular, in addition to EBIT, Telecom Italia uses EBITDA as the financial target in internal presentations (business plans) and in external presentations (to analysts and investors). EBITDA 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). EBIT and EBITDA are calculated as follows:
| | |
Profit (loss) before tax from continuing operations
|
+
| Finance expenses
|
-
| Finance income
|
+/-
| Other expenses (income) from investments
|
+/-
| Share of losses (profits) of associates and joint ventures accounted for using the equity method
|
EBIT- Operating profit (loss)
|
+/-
| Impairment losses (reversals) on non-current assets
|
+/-
| Losses (gains) on disposals of non-current assets
|
+
| Depreciation and amortization
|
EBITDA - Operating profit (loss) before depreciation and amortization, capital gains (losses) and impairment reversals (losses) on non-current assets
|
•
the Consolidated statement of comprehensive incomeincludes the profit or loss for the period as shown in the separate consolidated income statement and all other non-owner changes in equity;
•
the Consolidated statement of cash flowshas been prepared by presenting cash flows from operating activities according to the “indirect method”, as permitted by IAS 7 (Statement of Cash Flows).
Furthermore, as required by Consob resolution 15519 dated July 27, 2006, in the separate consolidated income statement, income and expenses relating to non-recurring transactions or events have been specifically identified and their relative impact has been shown separately at the main intermediate result levels. Non-recurring events and transactions have been identified mainly according to the nature of the transactions. Specifically, non-recurring income (expenses) include events or transactions which by their nature do not occur continuously during the normal course of business operations (for instance: income/expenses arising from the acquisition/sale of properties, business segments and investments included under non-current assets; income/expenses stemming from corporate-related reorganizations; income/expenses arising from fines levied by regulatory agencies; and impairment losses on goodwill).
Also in reference to the above Consob resolution, the amounts of the balances or transactions with related parties have been shown separately in the consolidated financial statements.
Segment reporting
An operating segment is a component of an entity:
•
that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity);
•
whose operating results are regularly reviewed by the entity’s chief operating decision maker (in the case of Telecom Italia the board of directors) to make decisions about resources to be allocated to the segment and assess its performance; and
•
for which discrete financial information is available.
In particular, the operating segments of the Telecom Italia Group are organized according to the relative geographic location (Domestic, Brazil and Argentina) for the telecommunications business and according to the specific businesses for the other segments.
The term “operating segment” is considered synonymous with “Business Unit”.
The operating segments of the Telecom Italia Group are as follows:
•
Domestic: includes domestic operations for voice and data services on fixed and mobile networks for final customers (retail) and other operators (wholesale), the operations of the Telecom Italia Sparkle group (international wholesale) as well as the relative support activities;
•
Brazil: includes mobile (Tim Celular) and fixed (Tim Celular and Intelig) telecommunications operations in Brazil;
•
Argentina: includes fixed (Telecom Argentina) and mobile (Telecom Personal in Argentina and Núcleo in Paraguay) telecommunications operations;
•
Media: operates as a network operator through Telecom Italia Media Broadcasting and, in the television sector, through MTV Italia;
•
Olivetti: includes manufacturing operations for products and services for Information Technology. It carries out Solution Provider activities to automate processes and business activities for small and medium-size enterprises, large corporations and vertical markets;
•
Other Operations: includes finance companies and other minor companies not strictly related to the core business of the Telecom Italia Group.
Scope of consolidation
The changes in the scope of consolidation at June 30, 2013 compared to December 31, 2012 are listed below:
Exit of subsidiaries from the scope of consolidation:
| | | |
Company
| | Business Unit
| Month
|
| | | |
Tecnoservizi Mobili S.r.l.
| liquidated
| Domestic
| June 2013
|
La7 S.r.l.
| sold
| Media
| April 2013
|
Besides the above, the changes in the scope of consolidation at June 30, 2013 compared to June 30, 2012 are listed as follows:
Exit of subsidiaries from the scope of consolidation:
| | | |
Company
| | Business Unit
| Mese
|
| | | |
Matrix S.p.A.
| sold
| Other Operations
| October 2012
|
Olivetti Holding B.V.
| liquidated
| Other Operations
| October 2012
|
| | | |
| | | |
Company
| | Business Unit
| Month
|
| | | |
4G Holding S.p.A
| merged in 4G Retail S.r.l.
| Domestic
| November 2012
|
Mediterranean Nautilus B V.
| merged in Lan Med Nautilus Ltd
| Domestic
| November 2012
|
Saiat Società Attività Intermedie Ausiliarie TLC S.p.A.
| merged in Telecom Italia S.p.A.
| Other Operations
| November 2012
|
Tim Fiber SP Ltda
Tim Fiber RJ S.A.
| merged in Tim Cellular S.A.
| Brazil
| August 2012
|
|
The breakdown by number of subsidiaries, associates and joint ventures of the Telecom Italia Group is as follows:
| | | | |
| 6/30/2013
|
Companies:
| Italy
| Outside Italy
| Total
|
| | | |
subsidiaries consolidated line-by-line
| 40
| 61
| 101
|
joint ventures accounted for using the equity method
| -
| -
| -
|
associates accounted for using the equity method
| 14
| -
| 14
|
Total companies
| 54
| 61
| 115
|
| | | |
| 12/31/2012
|
Companies:
| Italy
| Outside Italy
| Total
|
| | | |
subsidiaries consolidated line-by-line
| 42
| 61
| 103
|
joint ventures accounted for using the equity method
| 1
| -
| 1
|
associates accounted for using the equity method
| 15
| -
| 15
|
Total companies
| 58
| 61
| 119
|
| | | |
| 6/30/2012
|
Companies:
| Italy
| Outside Italy
| Total
|
| | | |
subsidiaries consolidated line-by-line
| 45
| 65
| 110
|
joint ventures accounted for using the equity method
| 1
| -
| 1
|
associates accounted for using the equity method
| 15
| -
| 15
|
Total companies
| 61
| 65
| 126
|
Further details are provided in the Note “List of companies of the Telecom Italia Group”.
Note 2
Accounting policies
Going concern
The half-year condensed consolidated financial statements at June 30, 2013 have been prepared on a going concern basis as there is the reasonable expectation that Telecom Italia will continue its operational activities in the foreseeable future (and in any event with a time horizon of more than 12 months).
In particular, consideration has been given to the following factors which management believes, at this time, are not such as to generate doubts as to the Group’s ability to continue as a going concern:
•
the main risks and uncertainties (that are for the most part of exogenous nature) to which the Group and the various activities of the Telecom Italia Group are exposed:
–
changes in the general macroeconomic situation in the Italian, European and South American
markets, as well as the volatility of financial markets in the Eurozone;
–
variations in business conditions;
–
changes to laws and regulations (price and rate variations);
–
outcomes of disputes and litigations with regulatory authorities, competitors and other parties;
–
financial risks (interest rate and/or exchange rate trends, the possible downgrading of the
Group’s credit rating by rating agencies);
•
the mix between equity and debt capital considered optimal as well as the policy for the remuneration of equity, described in the 2012 consolidated financial statements in the paragraph devoted to the “Share capital information” under the Note “Equity”;
•
the policy for financial risk management (market risk, credit risk and liquidity risk) described in the Note “Financial risk management”.
Accounting policies and principles of consolidation
The accounting policies and principles of consolidation adopted in the preparation of the half-year condensed consolidated financial statements at June 30, 2013 have been applied on a basis consistent with those used for the annual consolidated financial statements at December 31, 2012, to which reference should be made, except for:
•
the new standards and interpretations adopted by the Group since January 1, 2013, hereinafter described;
•
the changes required because of the nature of interim financial reporting.
Furthermore, in the half-year condensed consolidated financial statements at June 30, 2013, income taxes for the first six months of the individual consolidated companies are calculated according to the best possible estimate based on available information and on a reasonable forecast of performance up to the end of the tax period. Conventionally, the income tax liabilities (current and deferred) on the profit for the interim period of the individual consolidated companies are recorded net of advances and tax receivables (excluding receivables for which refunds have been requested) as well as deferred tax assets, and classified in “Deferred tax liabilities”; if the balance between deferred tax assets and deferred tax liabilities is an asset it is conventionally recognized in “Deferred tax assets”.
Use of accounting estimates
The preparation of the half-year condensed consolidated financial statements at June 30, 2013 and related disclosure requires management to make estimates and assumptions based also on subjective judgments, past experience and hypotheses considered reasonable and realistic in relation to the information known at the time of the estimate. Such estimates have an effect on the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as the amount of revenues and costs during the period. Actual results could differ, even significantly, from those estimates owing to possible changes in the factors considered in the determination of such estimates. Estimates are reviewed periodically.
With regard to the most important accounting estimates, please refer to those illustrated in the annual consolidated financial statements at December 31, 2012.
New Standards and Interpretations endorsed by the EU and in force from January 1, 2013
As required by IAS 8 (Accounting Policies, Changes in Accounting Estimates and Errors), the following is a brief description of the IFRS in force from January 1, 2013.
•
Amendments to IAS 1 (Presentation of Financial Statements)
On June 5, 2012, the EC issued the Regulation EC no. 475-2012 that endorsed in the EU certain amendments to IAS 1, which revise the way Other Comprehensive Income is presented. The amendments require to group separately those elements which will be reclassified (“recycled”) to the separate income statement and those elements that will not.
The adoption of these amendments did not have any effect on the measurement of the financial statement items and had limited effects on the disclosure provided in the half-year condensed consolidated financial statements at June 30, 2013.
•
Amendments to IFRS 7 (Financial Instruments: Disclosures-Offsetting Financial Assets and Financial Liabilities)
On December 13, 2012, the EC issued the Regulation EC no. 1256-2012 that endorsed in the EU the amendments to IFRS 7 with reference to Financial Assets and Financial Liabilities Offsetting disclosure.
These amendments did not have any effect on the half-year condensed consolidated financial statements at June 30, 2013.
•
Amendments to IAS 12 (Income Taxes)
On December 11, 2012, the EC issued the Regulation EC no. 1255-2012 that endorsed in the EU the amendments to IAS 12. IAS 12 requires an entity to measure the deferred tax relating to an asset according to whether the entity expects to recover the carrying amount of the asset through use or sale. The amendment provides a practical solution to the problem by introducing a presumption that recovery of the carrying amount will normally be through sale.
These amendments did not have any effect on the half-year condensed consolidated financial statements at June 30, 2013.
•
IFRS 10 (Consolidated Financial Statements) and IAS 27 (Separate Financial Statements)
On December 11, 2012, the EC issued the Regulation EC no. 1254-2012 that endorsed in the EU the IFRS 10, replacing SIC 12 (Consolidation: Special Purpose Entities) in its entirety, as well as all those parts of IAS 27 (“Consolidated and Separate Financial Statements”, now renamed “Separate Financial Statements”), that address when and how an investor should prepare consolidated financial statements.
The IFRS 10 introduces some changes in the definition of control, including also some implementing guidelines (including the agency relationship and the holding of potential voting rights).
The assessment of the control requirements must be carried out continuously and not only at the time of the investment.
The objective of IAS 27 is to prescribe the accounting policies and disclosure requirements for investments in subsidiaries, joint ventures and associates when an entity elects, or is required by local regulations, to present separate financial statements.
The Telecom Italia Group, as permitted by the aforementioned Regulation, has decided to adopt these principles starting from the half-year condensed consolidated financial statements at June 30, 2013; their adoption, however, did not have any effect on the half-year condensed consolidated financial statements at June 30, 2013.
•
IFRS 11 (Joint Arrangements)
The aforementioned Regulation EC no. 1254-2012 endorsed in the EU the IFRS 11 (Joint Arrangements) which supersedes IAS 31 (Interests in Joint Ventures) and SIC-13 (Jointly controlled Entities – Non-Monetary contributions by Venturers).
IFRS 11 requires the use of the equity method of accounting for interests in joint ventures. The proportionate consolidation method is eliminated.
The Telecom Italia Group, as permitted by the aforementioned Regulation, has decided to adopt this principle starting from the half-year condensed consolidated financial statements at June 30, 2013; its adoption, however, did not have any effect on the half-year condensed consolidated financial statements at June 30, 2013.
•
IAS 28 (Investments in associates and joint ventures)
The aforementioned Regulation EC n. 1254-2012 endorsed in the EU the revised IAS 28 (Investments in associates and joint ventures). The objective of the revised IAS 28 is to prescribe the accounting for investments in associates and to set out the requirements for the application of the equity method when accounting for investments in associates and joint ventures.
The Telecom Italia Group, as permitted by the aforementioned Regulation, has decided to adopt this principle starting from the half-year condensed consolidated financial statements at June 30, 2013; its adoption, however, did not have any effect on the half-year condensed consolidated financial statements at June 30, 2013.
•
IFRS 12 (Disclosure of interests in other entities)
The aforementioned Regulation EC no. 1254-2012 endorsed in the EU the IFRS 12, which sets the disclosure requirements to be provided in the financial statements in order to evaluate the nature of and risks associated with all forms of its interests in other entities, including joint arrangements, subsidiaries, associates and special purpose vehicles.
The disclosure required will be provided in the notes to the annual consolidated financial statements and, therefore, the introduction of the new standard did not have any effect on the disclosure provided in the half-year condensed consolidated financial statements at June 30, 2013.
•
IFRS 13 (Fair value measurement)
On December 11, 2012, EC issued the Regulation EC no. 1255-2012 that endorsed in the EU the IFRS 13, which aims to improve consistency and comparability in fair value measurement through the “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 clarifications 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; for further details, please see Note “Supplementary disclosures on financial instruments”. The application of the IFRS 13 has resulted for the first half 2013 in a positive effect on the net result and equity attributable to owners of the Parent company of 22 million euros.
The adoption of the IFRS 13 did not have any effect on basic and diluted earnings per share.
•
Improvements to IFRS (2009-2011 Cycle)
On March 27, 2013, the EC issued the Regulation EC no. 301-2013 that endorsed in the EU certain improvements to the IFRSs for 2009-2011 Cycle.
The improvements impact, in particular, the following areas:
·
IAS 1 - clarification of the requirements for comparative information;
·
IAS 16 - classification of spare parts and servicing equipment;
·
IAS 32 - tax effect of distribution to holders of equity instruments;
·
IAS 34 - additional disclosure in interim financial reporting in relation to the segment information for total assets and liabilities.
The adoption of these amendments did not have any effect on the measurement of the financial statement items in the half-year condensed consolidated financial statements at June 30, 2013.
•
Transition Guidance - Amendments to IFRS 10, IFRS 11 and IFRS 12
On April 4, 2013, the EC issued the Regulation EC no. 313-2013 that endorsed in the EU the document Transition Guidance.
The document amends IFRS 10 to clarify how an investor should retrospectively adjust the comparative period if the conclusions on consolidation are not the same in accordance with IAS 27 / SIC 12 and IFRS 10 at the “date of initial application”.
This document has also amended IFRS 11 (Joint Arrangements) and IFRS 12 (Disclosure of Interests in Other Entities) to provide a similar facilitation for the presentation or amendment of comparative information relating to periods earlier than that defined “the immediately preceding period”.
The Telecom Italia Group, as permitted by the aforementioned Regulation, has decided to adopt these principles starting from the half-year condensed consolidated financial statements at June 30, 2013; their adoption, however, did not have any effect on the half-year condensed consolidated financial statements at June 30, 2013.
New Standards and Interpretations endorsed by the EU but not yet in force
In December 2012, the EU endorsed some amendments to IAS 32 (Financial Instruments: Presentation - Offsetting Financial Assets and Financial Liabilities) that clarify the application of certain criteria for offsetting financial assets and financial liabilities.
These amendments will be applied from January 1, 2014.
Such amendments are not expected to have material effects on the Group consolidated financial statements.
Note 3
Goodwill
Goodwill shows the following breakdown and changes during the first half of 2013:
| | | | | | |
(millions of euros)
| 12/31/2012
| Increase
| Decrease
| Impairments
| Exchange differences
| 6/30/2013
|
| | | | | | |
Domestic
| 30,630
| | | (2,187)
| | 28,443
|
Core Domestic
| 30,215
| | | (2,187)
| | 28,028
|
International Wholesale
| 415
| | | | | 415
|
Brazil
| 1,759
| | | | (122)
| 1,637
|
Argentina
| −
| | | | | −
|
Media
| 21
| | | | | 21
|
Other Operations
| −
| | | | | −
|
Total
| 32,410
| −
| −
| (2,187)
| (122)
| 30,101
|
The decrease of 2,309 million euros includes:
the goodwill impairment loss of 2,187 million euros for the Domestic Business Unit, due to the result of the impairment test conducted at June 30, 2013, implemented using the same method adopted in previous impairment tests and in particular comparing the value in use of the Core Domestic Cash Generating Unit (CGU) with its recoverable amount at the same date;
negative exchange differences, totaling 122 million euros, relating to the goodwill of the Brazil Business Unit.
Goodwill, under IAS 36, is not amortized but is tested for impairment annually or more frequently if specific events or circumstances indicate that it may be impaired. The impairment test was carried out by the Group for the annual report at December 31, 2012. In the first half of 2013, the Group, in the presence of presumptions of impairment, repeated the impairment test on goodwill. This test led to an impairment loss of 2,187 million euros relating to the Core Domestic CGU.
The impairment test is carried out on two levels. At a first level, an estimate is made of the recoverable amount of the individual Cash Generating Units (or groups of units) to which goodwill is allocated at a second level the group is considered as a whole (including the CGUs to which goodwill has not been allocated).
The Cash Generating Units (or groups of units) to which goodwill has been allocated are the following:
| |
Segment
| Cash Generating Units (or groups of units)
|
| |
Domestic
| Core Domestic
|
| International Wholesale
|
Brazil
| Tim Brasil group
|
Media
| Telecom Italia Media group
|
The value used to determine the recoverable amount of the Cash Generating Units (or groups of units) to which goodwill has been allocated is the value in use for the CGUs of the Domestic segments and for Brazil. For the Telecom Italia Media CGU, the recoverable amount has been determined on the basis of the market capitalization of TI Media S.p.A. at June 28, 2013.
For the Core Domestic CGU, the estimate of the recoverable amount at June 30, 2013 was less than the carrying amount. As a result an impairment loss of 2,187 million euros has been recognized.
No goodwill impairment losses were identified for the International Wholesale, Brazil and Telecom Italia Media CGUs.
The main variables that had a significant influence on the value in use, for the three CGUs for which this value is used (Core Domestic, International Wholesale and Brazil), are detailed in the table below:
| | |
Core Domestic
| International Wholesale
| Brazil
|
| | |
EBITDA Margin (EBITDA/revenues)
during the period of the plan
| EBITDA Margin (EBITDA/revenues)
during the period of the plan
| EBITDA Margin (EBITDA/revenues)
during the period of the plan
|
Growth of EBITDA during the period of the plan
| Growth of EBITDA during the period of the plan
| Growth of EBITDA during the period of the plan
|
Capital expenditures rate (capex/revenues)
| Capital expenditures rate (capex/revenues)
| Capital expenditures rate (capex/revenues)
|
| | BRL/euro exchange rate
|
Cost of capital
| Cost of capital
| Cost of capital
|
Long-term growth rate
| Long-term growth rate
| Long-term growth rate
|
In keeping with the new procedure already adopted for the annual impairment test, the estimate of the value in use for the Core Domestic CGU is based on the analytical forecasts of plan cash flows (2013-2015) extended to cover a time period of five years (2013-2017).
These cash flows were adjusted to take account of the following items:
a)
the solely “negative” divergences between the 2013 forecast, updated on the basis of the actual first half results, and the 2013 budget (prior to the impact of the AGCom decisions of July 2013). The resulting adjusted cash flows have been compared with the analysts’ forecasts over the plan period to verify whether they fall within the “Ebitda – capex” (min-max) range established by the analysts before the AGCom decision;
b)
the expected impacts following the AGCom decisions of July 2013 regarding the lowering of wholesale prices of the copper network.
The estimate of the value in use for the International Wholesale and Brazil CGUs was based on the 2013-2015 plan figures adjusted to take account – where applicable – of the solely “negative” divergences between the 2013 forecast, updated on the basis of the actual first half results, and the original 2013 budget.
The nominal growth rates used to estimate the terminal value are the following (the growth rates for Brazil refer to flows in Brazilian reais):
| | | |
Core Domestic
| International Wholesale
| Brazil
|
| | |
-0.18%
| -0.18%
| +3.93%
|
In particular, the growth rates for the CGUs of the Domestic segment are in line with the growth rates applied by the analysts who follow Telecom Italia shares (consensus of available estimates after the presentation of the results for the first quarter 2013).
Since the growth rate in the terminal value is correlated to the level of capital expenditures (capex) necessary to sustain such growth, for the estimate of the earnings flow to be capitalized, a level of capital expenditure (capex/revenues) of the Core Domestic CGU in line with the median applied by the analysts terminal year of valuation (equal to 17.80%) was used. The Group considers that the level of investment forecast by the analyst consensus to support an annual decrease in earnings of 0.18% beyond the explicit forecast period, overestimates the cash commitment needed to maintain the Core Domestic business; nevertheless it considered it appropriate to comply with the provisions of IAS 36 according to which the estimate of the cash flows for the calculation of the value in use should give greater weight to information from external sources.
The cost of capital was estimated by considering the following:
•
the criterion applied was the criterion for the estimate of CAPM - Capital Asset Pricing Model (the
criterion used by the Group to estimate the value in use and referred to in Annex A of IAS 36);
•
in the case of International Wholesale, a “full equity” financial structure was considered since it is
representative of the normal financial structure of the business; for the remaining CGUs, a Group target
financial structure was assumed in line with the average of the European telephone incumbents, including
Telecom Italia itself;
•
the Beta coefficient for the Core Domestic CGU and the International Wholesale CGU was arrived at by
using the Beta coefficients of the European telephone incumbents, including Telecom Italia itself, adjusted
to take into account the financial structure (Core Domestic CGU beta coefficient = 1.35; International
Wholesale CGU beta coefficient = 0.73 (unlevered beta));
•
the Beta coefficient for the Brazil CGU was calculated on the basis of the list price of the corresponding
ADR compared to the relative stock market index (beta coefficient = 1.02).
On the basis of these elements, the post-tax and pre-tax weighted average cost of capital and the relative capitalization rates (WACC - g) have been estimated for each Cash Generating Unit (the values of Brazil refer to flows in reais) as follows:
| | | |
| Core Domestic
%
| International Wholesale
%
| Brazil
%
|
| | | |
WACC post-tax
| 8.30
| 8.81
| 12.50
|
WACC post-tax – g
| 8.48
| 8.99
| 8.57
|
WACC pre-tax
| 12.11
| 12.78
| 16.71
|
WACC pre-tax – g
| 12.29
| 12.96
| 12.78
|
The differences between the values in use and the carrying amounts before impairment test at June 30, 2013 for the three CGUs considered amount to:
| | | |
(millions of euros)
| Core Domestic
| International Wholesale
| Brazil
|
| | | |
Difference between values in use and carrying amounts
| - 2,187
| + 35
| +610
|
For purposes of the sensitivity analysis, four principal variables were considered for the two CGUs whose value in use is in excess of the carrying amount: the WACC pre-tax discount rate, the growth rate in the terminal value (g), the compound annual growth rate (CAGR) of EBITDA in the years 2013-2015 calculated based on the year 2012 (CAGR 2013-2015) and capital expenditures in proportion to revenues (capex/revenues). The following tables report the values of the key variables used in estimating the value in use and the changes in such variables needed to render the recoverable amount of the respective CGUs equal to their carrying amount.
Value of key variables used in estimating the value in use
| | |
| International Wholesale
%
| Brazil
%
|
| | |
Pre -tax discount rate
| 12.78
| 16.71
|
Long-term growth rate (g)
| -0.18
| 3.93
|
Compound Annual Growth Rate (CAGR) of EBITDA 2013-2015
| - 3.31
| 10.42
|
Capital expenditures rate (Capex/Revenues)
| from 5.64 to 7.67
| from 16.39 to 16.51
|
Changes in key variables needed to render the recoverable amount equal to the carrying amount
| | |
| International Wholesale
%
| Brazil
%
|
| | |
Pre -tax discount rate
| 0.52
| 1.11
|
Long-term growth rate (g)
| - 0.57
| - 1.33
|
Compound Annual Growth Rate (CAGR) of EBITDA 2013-2015
| - 1.65
| - 1.84
|
Capital expenditures rate (Capex/Revenues)
| 0.34
| 1.06
|
A second level impairment test was then conducted to test for impairment at the level of the entire Group, in order to include the Central Functions and the financial Cash Generating Units of the Group without any goodwill allocation (Argentina and Olivetti). The total recoverable amount of all the Cash Generating Units of the Group was compared to the carrying amount of the total operating capital referring to the same units/segments post-impairment losses at the first level. No impairment losses resulted at this further level of testing.
Note 4
Other intangible assets
Other intangible assets decreased 342 million euros compared to December 31, 2012.
Details on the composition and movements are as follows:
| | | | | | | | |
(millions of euros)
| 12/31/2012
| Additions
| Amortization
| Impairment (losses) / reversals
| Disposals
| Exchange differences
| Other changes
| 6/30/2013
|
| | | | | | | | |
Industrial patents and intellectual property rights
| 2,335
| 351
| (681)
| −
| (1)
| (63)
| 249
| 2,190
|
Concessions, licenses, trademarks and similar rights
| 3,170
| 87
| (191)
| | | (99)
| 1,133
| 4,100
|
of which Licenses with an indefinite useful life
| 378
| | | | | (30)
| | 348
|
Other intangible assets with a finite useful life
| 795
| 209
| (252)
| | | (43)
| −
| 709
|
Work in progress and advance payments
| 1,627
| 353
| | | | (10)
| (1,384)
| 586
|
Total
| 7,927
| 1,000
| (1,124)
| −
| (1)
| (215)
| (2)
| 7,585
|
Additions in the first half of 2013 include 152 million euros of internally generated assets (146 million euros in the first half of 2012).
The other net changes in the first half of 2013 include, among others, the effects of the change in consolidation scope due to the sale of the investee La7 S.r.l. on April 30, 2013 (9 million euros).
Industrial patents and intellectual property rights at June 30, 2013 essentially consist of applications software purchased outright and user license rights acquired, and relate to Telecom Italia S.p.A. (1,306 million euros) and the Brazil Business Unit (844 million euros). The sale of the investee La7 S.r.l. resulted in a reduction of 8 million euros.
With regard to amortization, it is noted that, based on the recent evolution of the commercial offers of the Parent Telecom Italia, the useful life of the software applications developed to support those offers has been reduced from 3 to 2 years, with effect from January 1, 2013; this has resulted in higher amortization charges recognized in the first half of 2013 of 25 million euros.
Listed below are the estimated impacts on amortization for the subsequent periods, calculated based on the non-current assets at June 30, 2013:
•
higher charges of 10 million euros in the second half of 2013;
•
lower charges of 8 million euros in the year 2014;
•
lower charges of 23 million euros in the year 2015;
•
lower charges of 4 million euros in the year 2016.
Concessions, licenses, trademarks and similar rights at June 30, 2013 mainly refer to:
•
unamortized cost of telephone licenses and similar rights (2,486 million euros for Telecom Italia S.p.A.,
640 million euros for the Brazil Business Unit and 14 million euros for the Argentina Business Unit);
•
the PCS mobile telephone license, with an indefinite useful life, of the Argentina Business Unit (348
million euros);
•
Indefeasible Rights of Use -IRU (260 million euros) mainly relate to companies of the Telecom Italia
Sparkle group (International Wholesale);
•
TV frequencies of the Media Business Unit (106 million euros);
•
unamortized cost of the trademarks of the Argentina Business Unit (240 million euros).
Other intangible assets with a finite useful life at June 30, 2013 basically include:
•
365 million euros of customer relationships relating to the Argentina Business Unit, recognised upon
acquisition of control;
•
292 million euros of capitalized Subscriber Acquisition Costs (SAC) referring to a number of sales
campaigns of Telecom Italia S.p.A. (211 million euros) and the Argentina Business Unit (81 million
euros).
Work in progress and advance payments, show a decrease primarily due to the effect of the entry into force from January 1, 2013 of the user rights for the 800, 1800 and 2600 MHz LTE frequencies to be allocated to broadband mobile services, acquired by Telecom Italia S.p.A. during the year 2011; as a consequence, the related finance expenses have no longer been capitalized.
Note 5
Tangible assets
(owned and under finance leases)
Property, plant and equipment owned
Property, plant and equipment owned decreased 581 million euros compared to December 31, 2012. Details on the composition and movements are as follows:
| | | | | | | | |
(millions of euros)
| 12/31/2012
| Additions
| Depreciation
| Impairment (losses) / reversals
| Disposals
| Exchange differences
| Other changes
| 6/30/2013
|
| | | | | | | | |
Land
| 232
| | | | (1)
| (9)
| | 222
|
Buildings (civil and industrial)
| 698
| 6
| (34)
| | (1)
| (23)
| 8
| 654
|
Plant and equipment
| 11,837
| 755
| (1,226)
| | (7)
| (237)
| 360
| 11,482
|
Manufacturing and distribution equipment
| 39
| 6
| (7)
| | | −
| 4
| 42
|
Other
| 677
| 62
| (135)
| (24)
| (3)
| (27)
| 82
| 632
|
Construction in progress and advance payments
| 982
| 349
| | (2)
| (1)
| (31)
| (445)
| 852
|
Total
| 14,465
| 1,178
| (1,402)
| (26)
| (13)
| (327)
| 9
| 13,884
|
Additions in the first half of 2013 include 126 million euros of internally generated assets (153 million euros in the first half of 2012).
Other changes mainly relate to entry into operation of assets of the Parent Telecom Italia, recognized at December 31, 2012 under Construction in progress.
Assets held under finance leases
Assets held under finance leases decreased 51 million euros compared to December 31, 2012. Details on the composition and movements are as follows:
| | | | | |
(millions of euros)
| 12/31/2012
| Additions
| Depreciation
| Other changes
| 6/30/2013
|
| | | | | |
Buildings (civil and industrial)
| 972
| 11
| (58)
| 5
| 930
|
Other
| 17
| | (5)
| | 12
|
Construction in progress and advance payments
| 25
| 4
| | (8)
| 21
|
Total
| 1,014
| 15
| (63)
| (3)
| 963
|
Note 6
Investments accounted for using the equity method and Other investments
Investments in associates accounted for using the equity method are composed as follows:
| | |
(millions of euros)
| 6/30/2013
| 12/31/2012
|
| | |
Trentino NGN S.r.l.
| 25
| 25
|
Tiglio I
| 15
| 15
|
Tiglio II
| 1
| 1
|
Other
| 24
| 24
|
Total
| 65
| 65
|
The list of investments in associates accounted for using the equity method is presented in the Note “List of companies of the Telecom Italia Group”.
Other investments refer to the following:
| | |
(millions of euros)
| 6/30/2013
| 12/31/2012
|
| | |
Assicurazioni Generali
| 3
| 3
|
Fin.Priv.
| 9
| 10
|
Sia
| 11
| 11
|
Italtel S.p.A.
| 5
| -
|
Other
| 14
| 15
|
Total
| 42
| 39
|
Note 7
Financial assets (non-current and current)
Financial assets (non-current and current) are composed as follows:
| | | |
(millions of euros)
| | 6/30/2013
| 12/31/2012
|
| | | |
Non-current financial assets
| | | |
Securities, financial receivables and other non-current financial assets
| | | |
Securities other than investments
| | 13
| 22
|
Financial receivables for lease contracts
| | 86
| 110
|
Hedging derivatives relating to hedged items classified as non-current assets/liabilities of a financial nature
| | 1,354
| 2,291
|
Receivables from employees
| | 32
| 34
|
Non-hedging derivatives
| | 64
| 33
|
Other financial receivables
| | 4
| 6
|
Total non-current financial assets
| (a)
| 1,553
| 2,496
|
| | | |
Current financial assets
| | | |
Securities other than investments
| | | |
Held for trading
| | -
| -
|
Held-to-maturity
| | 3
| -
|
Available-for-sale
| | 1,308
| 754
|
| | 1,311
| 754
|
Financial receivables and other current financial assets
| | | |
Liquid assets with banks, financial institutions and post offices
(with maturity over 3 months)
| | 129
| 83
|
Receivables from employees
| | 12
| 13
|
Financial receivables for lease contracts
| | 93
| 101
|
Hedging derivatives relating to hedged items classified as current assets/liabilities of a financial nature
| | 239
| 246
|
Non-hedging derivatives
| | 42
| 39
|
Other short-term financial receivables
| | 8
| 20
|
| | 523
| 502
|
Cash and cash equivalents
| | 4,793
| 7,436
|
Total current financial assets
| (b)
| 6,627
| 8,692
|
Total non-current and current financial assets
| (a+b)
| 8,180
| 11,188
|
Financial receivables for lease contracts refer to:
•
Teleleasing lease contracts entered into directly with customers in previous years and of which
Telecom Italia is the guarantor;
•
portion of rental contracts, with the rendering of accessory services under the “full rent” formula.
“Hedging derivatives relating to hedged items classified as non-current assets/liabilities of a financial nature” refer to the mark-to-market component, while “Hedging derivatives relating to hedged items classified as current assets/liabilities of a financial nature” mainly consist of accrued income on derivative contracts. Further details are provided in the Note “Derivatives”.
Securities other than investments (included in current assets) refer to listed securities, classified as available-for-sale due beyond three months. They include Italian treasury bonds purchased by Telecom Italia S.p.A. and Telecom Italia Finance S.A., respectively for 357 million euros and 671 million euros, Treasury Credit Certificates (assigned to Telecom Italia S.p.A., as per the Decree of December 3, 2012 of the Ministry of Economy and Finance, as the owner of trade receivables) for 5 million euros, and 268 million euros of bonds purchased by Telecom Italia Finance S.A. with different maturities, all with an active market and therefore readily convertible into cash. The long term treasury bonds and the Treasury Credit Certificates, which in accordance with Consob Communication no. DEM/11070007 of August 5, 2011 represent investments in “Sovereign debt securities”, were purchased in accordance with the Guidelines on “Management and control of financial risks” adopted by Telecom Italia Group in August 2012, which replace the previous policies in force since July 2009.
Cash and cash equivalents decreased, also as a result of the buyback of own bonds, by 2,643 million euros compared to December 31, 2012. The composition is as follows:
| | |
(millions of euros)
| 6/30/2013
| 12/31/2012
|
| | |
Liquid assets with banks, financial institutions and post offices
| 3,833
| 5,761
|
Checks, cash and other receivables and deposits for cash flexibility
| 2
| 2
|
Securities other than investments (due within 3 months)
| 958
| 1,673
|
Total
| 4,793
| 7,436
|
The different technical forms used for the investment of liquidity as of June 30, 2013 can be analyzed as follows:
•
maturities: all deposits have a maximum maturity date of three months;
•
counterpart risks: deposits have been made with leading high-credit-quality banks and financial
institutions with a rating of at least BBB- according to Standard & Poor’s with regard to Europe and with
leading local counterparts with regard to investments in South America;
•
country risk: deposits have been made mainly in major European financial markets.
Securities other than investments (due within 3 months) include 100 million euros (150 million euros at December 31, 2012) of Euro Commercial Papers, with at least an A+ rating of the issuer by S&P’s or equivalent, and 843 million euros (1,517 million euros at December 31, 2012) of Brazilian bank certificates of deposit (Certificado de Depósito Bancário), made with leading local banking and financial institutions by the Brazil Business Unit.
Note 8
Trade and miscellaneous receivables and other current assets
Trade and miscellaneous receivables and other current assets increased 89 million euros compared to December 31, 2012 and are composed of the following:
| | |
(millions of euros)
| 6/30/2013
| 12/31/2012
|
Amounts due on construction contracts
| 44
| 63
|
Trade receivables:
| | |
Receivables from customers
| 4,100
| 4,254
|
Receivables from other telecommunications operators
| 1,213
| 1,184
|
| 5,313
| 5,438
|
Miscellaneous receivables and other current assets:
| | |
Other receivables
| 1,004
| 1,016
|
Trade and miscellaneous prepaid expenses
| 734
| 489
|
| 1,738
| 1,505
|
Total
| 7,095
| 7,006
|
Trade receivables amount to 5,313 million euros (5,438 million euros at December 31, 2012) and are net of the provision for bad debts of 897 million euros (910 million euros at December 31, 2012). The reduction in net trade receivables, of 125 million euros, mainly reflected the performance of sales.
Trade receivables specifically refer to Telecom Italia S.p.A. (3,038 million euros), the Brazil Business Unit (1,401 million euros) and the Business Unit Argentina (389 million euros).
Trade receivables include 109 million euros (96 million euros at December 31, 2012) of medium/long-term trade receivables from customers, principally in respect of agreements for the sale of Indefeasible Rights of Use – IRU.
Other receivables amount to 1,004 million euros (1,016 million euros at December 31, 2012) and are net of a provision for bad debts of 107 million euros (113 million euros at December 31, 2012). Details are as follows:
| | |
(millions of euros)
| 6/30/2013
| 12/31/2012
|
| | |
Advances to suppliers
| 28
| 31
|
Receivables from employees
| 32
| 26
|
Tax receivables
| 529
| 525
|
Sundry receivables
| 415
| 434
|
Total
| 1,004
| 1,016
|
Tax receivables include, inter alia, 454 million euros relating to the Brazil Business Unit largely related to local indirect taxes and 66 million euros to the Domestic Business Unit partly represented by credits resulting from tax returns, other taxes and also the VAT receivable on the purchase of cars and related accessories for which refunds were requested under Legislative Decree 258/2006, converted with amendments by Law 278/2006.
Sundry receivables mainly include:
•
receivables from factoring companies of 121 million euros, of which 77 million euros is from Mediofactoring (a company in the Intesa Sanpaolo group) and 44 million euros from other factoring companies;
•
receivable for the Italian Universal Service (27 million euros). This is a regulated contribution in relation to the costs arising from Telecom Italia’s obligation to provide basic telephone services at a sustainable price or to offer special rates solely to subsidized users;
•
receivables from the Italian State and the European Union (40 million euros) for grants regarding research and training projects of Telecom Italia S.p.A.;
•
miscellaneous receivables from OLOs (60 million euros).
Trade and miscellaneous prepaid expenses mainly pertain to building leases, rentals and maintenance payments as well as the deferral of costs referring to contracts for the activation of telecommunications services. Trade prepaid expenses include, in particular, 459 million euros of the Parent, Telecom Italia, (mainly the deferral of costs connected with the activation of new contracts for 256 million euros, building leases for 71 million euros, rent and maintenance payments for 27 million euros and insurance premiums for 26 million euros).
Note 9
Equity
Equity is composed as follows:
| | |
(millions of euros)
| 6/30/2013
| 12/31/2012
|
| | |
Equity attributable to owners of the Parent
| 16,962
| 19,378
|
Equity attributable to Non-controlling interests
| 3,516
| 3,634
|
Total
| 20,478
| 23,012
|
The composition of Equity attributable to owners of the Parent is the following:
| | | | |
(millions of euros)
| | 6/30/2013
| | 12/31/2012
|
| | | | |
Share capital
| | 10,604
| | 10,604
|
Paid-in capital
| | 1,704
| | 1,704
|
Other reserves and retained earnings (accumulated losses), including profit (loss) for the period
| | 4,654
| | 7,070
|
Reserve for available-for-sale financial assets
| 19
| | 43
| |
Reserve for cash flow hedges
| (523)
| | (383)
| |
Reserve for exchange differences on translating foreign operations
| 148
| | 504
| |
Reserve for remeasurements of employee defined benefit plans
(IAS 19)
| 155
| | 154
| |
Share of other profits (losses) of associates and joint ventures accounted for using the equity method
| −
| | (1)
| |
Other reserves and retained earnings (accumulated losses), including profit (loss) for the period
| 4,855
| | 6,753
| |
Total
| | 16,962
| | 19,378
|
On the basis of the resolution passed by the shareholders’ meeting held on April 17, 2013, the loss for the year 2012 shown in the financial statements of the Parent, Telecom Italia S.p.A., was covered by utilizing retained earnings. An amount of 452 million euros was drawn from retained earnings for the payment of extraordinary dividends, as follows:
•
0.020 euros for each ordinary share;
•
0.031 euros for each savings share;
gross of withholdings as established by law.
Movements in share capital during the first half of 2013 are presented in the following tables:
Reconciliation between the number of shares outstanding at December 31, 2012 and June 30, 2013
| | | | | |
(number of shares at par value of 0.55 euros)
| | at 12/31/2012
| Shares issued for plans intended for employees
| at 6/30/2013
| % of capital share
|
| | | | | |
Ordinary shares issued
| (a)
| 13,416,839,374
| 204,151
| 13,417,043,525
| 69.01
|
less: treasury shares
| (b)
| (162,216,387)
| | (162,216,387)
| |
Ordinary shares outstanding
| (c)
| 13,254,622,987
| 204,151
| 13,254,827,138
| |
Savings shares issued and outstanding
| (d)
| 6,026,120,661
| | 6,026,120,661
| 30.99
|
Total Telecom Italia S.p.A. shares issued
| (a+d)
| 19,442,960,035
| 204,151
| 19,443,164,186
| 100
|
Total Telecom Italia S.p.A. shares outstanding
| (c+d)
| 19,280,743,648
| 204,151
| 19,280,947,799
| |
Reconciliation between the value of shares outstanding at December 31, 2012 and June 30, 2013
| | | | |
(millions of euros)
| | Share capital at 12/31/2012
| Change in share capital
| Share capital at 6/30/2013
|
| | | | |
Ordinary shares issued
| (a)
| 7,379
| −
| 7,379
|
less: treasury shares
| (b)
| (89)
| −
| (89)
|
Ordinary shares outstanding
| (c)
| 7,290
| −
| 7,290
|
Savings shares issued and outstanding
| (d)
| 3,314
| −
| 3,314
|
Total Telecom Italia S.p.A. shares capital issued
| (a+d)
| 10,693
| −
| 10,693
|
Total Telecom Italia S.p.A. shares capital outstanding
| (c+d)
| 10,604
| −
| 10,604
|
Share capital increased 112 thousand euros as a result of the issue of ordinary shares as part of the first stage of the “Long Term Incentive Plan 2010-2015”, approved by the Company’s shareholders’ meeting of April 29, 2010. For further details see the description provided in the Note “Equity compensation plans”.
Future potential changes in share capital
Details of “Future potential changes in share capital” are presented in the Note “Earnings per share”.
Note 10
Financial liabilities
(non-current and current)
Non-current and current financial liabilities (gross financial debt) are composed as follows:
| | | |
(millions of euros)
| | 6/30/2013
| 12/31/2012
|
| | | |
Financial payables (medium/long-term):
| | | |
Bonds
| | 21,705
| 23,956
|
Amounts due to banks
| | 6,062
| 5,944
|
Other financial payables
| | 464
| 460
|
| | 28,231
| 30,360
|
Finance lease liabilities (medium/long-term)
| | 1,085
| 1,159
|
Other financial liabilities (medium/long-term):
| | | |
Hedging derivatives relating to hedged items classified as non-current assets/liabilities of a financial nature
| | 2,108
| 2,558
|
Non-hedging derivatives
| | 10
| 13
|
Other liabilities
| | 1
| 1
|
| | 2,119
| 2,572
|
Total non-current financial liabilities
| (a)
| 31,435
| 34,091
|
Financial payables (short-term):
| | | |
Bonds
| | 3,655
| 3,593
|
Amounts due to banks
| | 1,638
| 1,287
|
Other financial payables
| | 703
| 684
|
| | 5,996
| 5,564
|
Finance lease liabilities (short-term)
| | 199
| 219
|
Other financial liabilities (short-term):
| | | |
Hedging derivatives relating to hedged items classified as current assets/liabilities of a financial nature
| | 329
| 350
|
Non-hedging derivatives
| | 7
| 17
|
Other liabilities
| | -
| -
|
| | 336
| 367
|
Total current financial liabilities
| (b)
| 6,531
| 6,150
|
Financial liabilities directly associated with Discontinued operations/Non-current assets held for sale
| (c)
| -
| -
|
Total Financial liabilities (Gross financial debt)
| (a+b+c)
| 37,966
| 40,241
|
Gross financial debt according to the original currency of the transaction is as follows:
| | | | |
| 6/30/2013
| 12/31/2012
|
| (millions of foreign currency)
| (millions of euros)
| (millions of foreign
currency)
| (millions of euros)
|
| | | | |
USD
| 10,884
| 8,321
| 12,499
| 9,474
|
GBP
| 2,538
| 2,960
| 2,535
| 3,106
|
BRL
| 3,086
| 1,065
| 2,945
| 1,092
|
JPY
| 19,869
| 153
| 19,865
| 175
|
ARS
| 55
| 8
| 331
| 51
|
PYG
| 143,949
| 25
| 123,347
| 22
|
EURO
| | 25,434
| | 26,321
|
| | 37,966
| | 40,241
|
The breakdown of gross financial debt by effective interest rate bracket, excluding the effect of any hedging instruments, is provided below:
| | |
(millions of euros)
| 6/30/2013
| 12/31/2012
|
| | |
Up to 2.5%
| 6,437
| 5,917
|
From 2.5% to 5%
| 6,194
| 6,222
|
From 5% to 7.5%
| 15,729
| 18,246
|
From 7.5% to 10%
| 5,695
| 4,977
|
Over 10%
| 417
| 505
|
Accruals/deferrals, MTM and derivatives
| 3,494
| 4,374
|
| 37,966
| 40,241
|
Following the use of derivative hedging instruments, the gross financial debt by nominal interest rate bracket is:
| | |
(millions of euros)
| 6/30/2013
| 12/31/2012
|
| | |
Up to 2.5%
| 8,360
| 8,633
|
From 2.5% to 5%
| 7,867
| 8,121
|
From 5% to 7.5%
| 13,653
| 15,180
|
From 7.5% to 10%
| 3,983
| 3,229
|
Over 10%
| 609
| 704
|
Accruals/deferrals, MTM and derivatives
| 3,494
| 4,374
|
| 37,966
| 40,241
|
The maturities of financial liabilities according to the expected nominal repayment amount, as defined by contract, are the following:
Details of the maturities of Financial liabilities – at nominal repayment amount:
| | | | | | | |
| maturing by 6/30 of the year:
|
(millions of euros)
| 2014
| 2015
| 2016
| 2017
| 2018
| After 2018
| Total
|
| | | | | | | |
Bonds
| 3,234
| 1,154
| 3,538
| 1,000
| 4,139
| 11,587
| 24,652
|
Loans and other financial liabilities
| 1,717
| 2,594
| 918
| 1,287
| 164
| 2,159
| 8,839
|
Finance lease liabilities
| 186
| 120
| 132
| 139
| 167
| 527
| 1,271
|
Total
| 5,137
| 3,868
| 4,588
| 2,426
| 4,470
| 14,273
| 34,762
|
Current financial liabilities
| 644
| -
| -
| -
| -
| -
| 644
|
Total
| 5,781
| 3,868
| 4,588
| 2,426
| 4,470
| 14,273
| 35,406
|
The main components of financial liabilities are commented below.
Bonds are composed as follows:
| | |
(millions of euros)
| 6/30/2013
| 12/31/2012
|
| | |
Non-current portion
| 21,705
| 23,956
|
Current portion
| 3,655
| 3,593
|
Total carrying amount
| 25,360
| 27,549
|
Fair value adjustment and measurement at amortized cost
| (708)
| (1,226)
|
Total nominal repayment amount
| 24,652
| 26,323
|
The nominal repayment amount totals 24,652 million euros, decreasing 1,671 million euros compared to December 31, 2012 (26,323 million euros) as a result of the new issues/repayments/buybacks during the first half of 2013.
The following table lists the bonds issued by companies of the Telecom Italia Group, by issuing company, expressed at the nominal repayment amount, net of bond repurchases, and also at market value:
| | | | | | | | |
Currency
| Amount
(millions)
| Nominal repayment amount
(millions of euros)
| Coupon
| Issue date
| Maturity date
| Issue price (%)
| Market price at 6/30/13
(%)
| Market value at 6/30/13
(millions of euros)
|
| | | | | |
Bonds issued by Telecom Italia S.p.A.
|
Euro
| 268
| 267.7
| 3 month Euribor + 0.63%
| 7/19/07
| 7/19/13
| 100
| 100.011
| 268
|
Euro
| 284
| 284.1
| 7.875%
| 1/22/09
| 1/22/14
| 99.728
| 103.922
| 295
|
Euro
| 557
| 556.8
| 4.750%
| 5/19/06
| 5/19/14
| 99.156
| 103.367
| 576
|
Euro
| 750
| 750
| 4.625%
| 6/15/12
| 6/15/15
| 99.685
| 105.054
| 788
|
Euro
| 120
| 120
| 3 month Euribor + 0.66%
| 11/23/04
| 11/23/15
| 100
| 98.249
| 118
|
GBP
| 500
| 583.3
| 5.625%
| 6/29/05
| 12/29/15
| 99.878
| 105.913
| 618
|
Euro
| 1,000
| 1,000
| 5.125%
| 1/25/11
| 1/25/16
| 99.686
| 105.843
| 1,058
|
Euro
| 850
| 850
| 8.250%
| 3/19/09
| 3/21/16
| 99.740
| 113.962
| 969
|
Euro
| 400
| 400
| 3 month Euribor + 0.79%
| 6/7/07
| 6/7/16
| 100
| 96.112
| 384
|
Euro
| 1,000
| 1,000
| 7.000%
| 10/20/11
| 1/20/17
| (*) 100.185
| 111.572
| 1,116
|
Euro
| 1,000
| 1,000
| 4.500%
| 9/20/12
| 9/20/17
| 99.693
| 103.028
| 1,030
|
GBP
| 750
| 874.9
| 7.375%
| 5/26/09
| 12/15/17
| 99.608
| 109.755
| 960
|
Euro
| 750
| 750
| 4.750%
| 5/25/11
| 5/25/18
| 99.889
| 103.029
| 773
|
Euro
| 750
| 750
| 6.125%
| 6/15/12
| 12/14/18
| 99.737
| 108.569
| 814
|
Euro
| 1,250
| 1,250
| 5.375%
| 1/29/04
| 1/29/19
| 99.070
| 104.616
| 1,308
|
GBP
| 850
| 991.6
| 6.375%
| 6/24/04
| 6/24/19
| 98.850
| 102.471
| 1,016
|
Euro
| 1,000
| 1,000
| 4.000%
| 12/21/12
| 1/21/20
| 99.184
| 97.401
| 974
|
Euro
| (**) 217
| 216.7
| 6 month Euribor
(base 365)
| 1/1/02
| 1/1/22
| 100
| 100
| 217
|
Euro
| 1,250
| 1,250
| 5.250%
| 2/10/10
| 2/10/22
| 99.295
| 101.244
| 1,266
|
GBP
| 400
| 466.6
| 5.875%
| 5/19/06
| 5/19/23
| 99.622
| 94.204
| 440
|
Euro
| 670
| 670
| 5.250%
| 3/17/05
| 3/17/55
| 99.667
| 81.274
| 545
|
Euro
| 750
| 750
| 7.750%
| 3/20/13
| 3/20/73
| 99.499
| 98.688
| 740
|
Subtotal
| 15,781.7
| | 16,273
|
Bonds issued by Telecom Italia Finance S.A. and guaranteed by Telecom Italia S.p.A.
|
JPY
| 20,000
| 154.6
| 3.550%
| 4/22/02
| 5/14/32
| 99.250
| 100.612
| 156
|
Euro
| 1,015
| 1,015
| 7.750%
| 1/24/03
| 1/24/33
| (*) 109.646
| 111.864
| 1,135
|
Subtotal
| 1,169.6
| | 1,291
|
Bonds issued by Telecom Italia Capital S.A. and guaranteed by Telecom Italia S.p.A.
|
USD
| 2,000
| 1,529.1
| 5.250%
| 10/29/03
| 11/15/13
| 99.742
| 101.202
| 1,547
|
USD
| (***) 779.5
| 595.9
| 6.175%
| 6/18/09
| 6/18/14
| 100
| 103.542
| 617
|
USD
| (***) 528.3
| 403.9
| 4.950%
| 10/6/04
| 9/30/14
| 99.651
| 103.388
| 418
|
USD
| (***) 765.2
| 585.0
| 5.250%
| 9/28/05
| 10/1/15
| 99.370
| 104.682
| 612
|
USD
| 1,000
| 764.5
| 6.999%
| 6/4/08
| 6/4/18
| 100
| 110.696
| 846
|
USD
| 1,000
| 764.5
| 7.175%
| 6/18/09
| 6/18/19
| 100
| 111.643
| 854
|
USD
| 1,000
| 764.5
| 6.375%
| 10/29/03
| 11/15/33
| 99.558
| 93.949
| 718
|
USD
| 1,000
| 764.5
| 6.000%
| 10/6/04
| 9/30/34
| 99.081
| 91.207
| 697
|
USD
| 1,000
| 764.5
| 7.200%
| 7/18/06
| 7/18/36
| 99.440
| 98.649
| 754
|
USD
| 1,000
| 764.5
| 7.721%
| 6/4/08
| 6/4/38
| 100
| 102.165
| 781
|
Subtotal
| 7,700.9
| | 7,844
|
Total
| 24,652
| | 25,408
|
(*) Weighted average issue price for bonds issued with more than one tranche.
(**) Reserved for employees.
(***) Net of the securities bought back by Telecom Italia S.p.A. on June 3, 2013.
The regulations and/or Offering Circulars relating to the bonds described above are available on the corporate website www.telecomitalia.com.
The following table lists the changes in bonds during the first half of 2013:
New issues
| | | |
(millions of original currency)
| Currency
| Amount
| Issue date
|
Telecom Italia S.p.A. subordinated bonds, 750 million euros at 7.750%, maturing 3/20/2073 (1)
| Euro
| 750
| 3/20/2013
|
(1)
The hybrid debt securities are Telecom Italia’s first subordinated issue on the euro market. The bond has a tenor of 60 years, with final maturity in 2073 and a first call date for the issuer in 2018. The call schedule begins on March 20, 2018 at par, and then continues every five years thereafter. The coupon will step up by 25 bps in 2023, and by a further 75 bps in 2038. The effective yield at the first call date will be 7.875%. The notes are listed on the Luxembourg Stock Exchange.
Repayments
| | | | | |
(millions of original currency)
| Currency
| Amount
| Repayment date
|
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
|
(1)
Net of buybacks by the Company for 172 million euros during 2011 and 2012.
(2)
Net of buybacks by the Company for 218 million euros during 2011 and 2012.
Buybacks
On June 3, 2013 Telecom Italia S.p.A. successfully concluded the buyback offer on three bond issues of Telecom Italia Capital S.A. in USD, maturing between June 2014 and October 2015, buying back a total nominal amount of USD 1,577 million (equal to approximately 1.2 billion euros). The repurchased bonds are in the portfolio of the buyer Telecom Italia S.p.A., while at consolidated level, this amount is no longer included under liabilities.
Details of the bond issues of Telecom Italia Capital S.A. bought back by Telecom Italia S.p.A. are provided below:
| | | |
Bond Name
| Outstanding nominal amount prior to the purchase offer
| Repurchased nominal amount
| Buyback price
|
| | | |
Telecom Italia Capital S.A. USD 1,000 million 6.175%
| USD 1,000,000,000
|
USD 220,528,000
| 105.382%
|
Telecom Italia Capital S.A. USD 1,250 million 4.950%
| USD 1,250,000,000
|
USD 721,695,000
| 105.462%
|
Telecom Italia Capital S.A. USD 1,400 million 5.250%
| USD 1,400,000,000
|
USD 634,797,000
| 108.523%
|
The main components of financial liabilities are commented below.
Medium/long-term amounts due to banks of 6,062 million euros (5,944 million euros at December 31, 2012) increased by 118 million euros. Short-term amounts due to banks totaled 1,638 million euros, increasing 351 million euros (1,287 million euros at December 31, 2012). Short-term amounts due to banks included 1,313 million euros for the current portion of medium/long-term amount due to banks.
Medium/long-term other financial payables amounted to 464 million euros (460 million euros at December 31, 2012). They included 274 million euros of payable due from Telecom Italia S.p.A. to the Ministry of Economic Development for the purchase of the rights of use for the 800, 1800 and 2600 MHz frequencies due in October 2016, and 156 million euros for Telecom Italia Finance S.A.’s loan of 20,000 million Japanese yen expiring in 2029. Short-term other financial payables amounted to 703 million euros (684 million euros at December 31, 2012) increasing 19 million euros, and included 382 million euros of the current portion of medium/long-term other financial payables, of which 102 million euros referring to the amount owed by Telecom Italia S.p.A. on the purchase of the user rights for the 800, 1800 and 2600 MHz frequencies, and 264 million euros relating to debt certificates regulated by German law denominated “Schuldschein” issued by Telecom Italia Finance S.A..
Medium/long-term finance lease liabilities totaled 1,085 million euros (1,159 million euros at December 31, 2012) and mainly related to building sale and leaseback transactions recorded in accordance with the financial method established by IAS 17. Short-term finance lease liabilities amounted to 199 million euros (219 million euros at December 31, 2012).
Hedging derivatives relating to items classified as non-current liabilities of a financial nature amounted to 2,108 million euros (2,558 million euros at December 31, 2012). Hedging derivatives relating to items classified as current liabilities of a financial nature totaled 329 million euros (350 million euros at December 31, 2012). Further details are provided in the Note “Derivatives”.
Non-hedging derivatives relating to items classified as non-current liabilities of a financial nature amounted to 10 million euros (13 million euros at December 31, 2012). Non-hedging derivatives relating to items classified as current liabilities of a financial nature amounted to 7 million euros (17 million euros at December 31, 2012). These refer to the measurement of derivatives which, although put into place for hedging purposes, do not possess the formal requisites to be considered as such under IFRS. Further details are provided in the Note “Derivatives”.
“Covenants”, “Negative pledges” and other contract clauses in effect at June 30, 2013
The bonds issued by the Telecom Italia Group do not contain 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 interest 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 the U.S.A.), the terms which regulate the bonds are in line with 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”), it is noted that following the downgrade of Telecom Italia to Baa3 by Moody’s last February 11, 2013, the EIB performed a review of all the outstanding contracts (for a total nominal amount of 3,350 million euros) and the parties agreed to slightly modify the contracts with reference to the clauses of asset 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. Lastly a clause was added on the basis of which if one or more of the credit ratings of the medium and long-term debt not subordinate to and not guaranteed by Telecom Italia is less than BBB- for Standard & Poor’s, Baa3 for Moody’s and BBB- for Fitch Ratings, the Company must immediately inform the EIB of this. The latter shall have the right to request that additional guarantees be established to its liking, or that Telecom Italia provide another type of guarantee, offering protection in a manner, form and content deemed acceptable by the bank. If Telecom Italia does not comply with the EIB’s requests, the latter shall have the right to demand the immediate repayment of the amount disbursed.
With reference to the EIB loans not secured by bank guarantees for an amount of 1,453 million euros (out of a total of 3,359 million euros at June 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 contracts, the EIB shall
have 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 capacity as creditor);
•
“Inclusion clause” provided for in the 100 million euro loan of August, 5 2011 and the 300 million euro loan
of February 7, 2013: where there are more restrictive clauses (e.g. cross default clauses, financial covenants,
commitments restricting the sale of goods) conceded by the Company in new loan contracts the EIB shall
have the right to ask for guarantees to be set up or changes to be made to the loan contract in order to obtain
the equivalent clause in favor of the EIB. The provision in question does not apply to subsidized loans
until the remaining total amount of principal is above 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 in 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 shall have 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 established for adjusting the cost of funding in relation to Telecom Italia’s credit rating, with spread on the Euribor between a minimum of 0.0875% and a maximum of 0.2625% for the credit line maturing on 2014.
The syndicated bank line contains 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 the assets of the Company unless specific conditions exist (e.g. the sale takes place at fair market value). Covenants with basically the same content are also 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.
Such obligation, required by national legislation in matters governing qualifying rights, is firstly contained in the general authorization rights granted to Telecom Italia for the operation and the provision of the electronic communication network and for the offer of electronic communication services, besides the concession/general authorization rights granted to the subsidiary TI Media for the network operator and content supplier activities. A similar obligation is governed on the basis of the local legislation and content in the concession/license rights of the telecommunications services in favor of the foreign subsidiaries of the Group.
Telecom Italia is also a party to agreements in which the phenomenon of a change in control involves a change in or the termination of the relationship. Some, however, not regarding financing relationships, are subject to restrictions on confidentiality, such that the disclosure of the presence of the clause would cause severe detriment to the Company, which consequently takes advantage of the right not to proceed to make any disclosure on the issue, pursuant to art. 123-bis of the TUF, paragraph 1, letter h), second part. In other cases, the significance of the agreement is excluded.
There remain the following types of agreements, all regarding financing relationships:
•
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 five 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
disbursed (currently equal to 1,500,000,000 euros) to the same. Conventionally, no change of 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
the 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.) which had signed a shareholders’ agreement on April 28,
2007 regarding the Telecom Italia shares, or (iii) by a combination of parties belonging to the two
categories;
•
Revolving credit facility (200,000,000 euros). The agreement was entered into by Telecom Italia with
UniCredit S.p.A. on December 20, 2010 and contemplates a discipline similar to that contained in the
August 1, 2005 credit facility agreement, even though it was updated to take into account the October 28,
2009 modifications to the April 28, 2007 shareholders’ agreement. Therefore, no change of control is held
to exist 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., with the provisions described above remaining unchanged. Currently this
facility is not being used;
•
Bonds. The regulations covering the bonds issued under the EMTN Programme by both Olivetti and
Telecom Italia and bonds denominated in U.S. dollars typically provide that, in the event of mergers or
transfer of all or substantially all of the assets of the issuing company or of 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). The total nominal amount is 3.35 billion euros:
–
the contracts signed by Telecom Italia with the EIB, for an amount of 2.65 billion euros, carry the obligation of promptly informing the bank about changes regarding the bylaws or the allocation of share 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. The contract shall also be terminated when a shareholder, which, 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 the ordinary shareholders’ meeting or, in any case, a number of shares such that it represents more than 50% of the share capital. Whenever, 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 an amount of 600 million euros, carry the obligation of promptly informing the bank about changes involving its bylaws or shareholder structure. Failure to communicate this information to the bank shall result in the termination of the contract. With regard to the contracts in question, a change of control is generated if a subject or group of subjects acting in concert acquires control of Telecom Italia, or of the entity that, directly or indirectly, controls Telecom Italia. No change of control is held to exist in the event control is acquired, directly or indirectly (i) by 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 shareholders’ meeting, or (ii) by the investors Telefónica S.A., Assicurazioni Generali S.p.A., Intesa Sanpaolo S.p.A. or Mediobanca S.p.A. or their subsidiaries. Under the assumption that there is a change in control, the bank has the right to ask for the early repayment of the loan;
–
the three contracts covered by guarantees, signed on September 26, 2011, for a total amount of 200 million euros and the agreements backed by a SACE guarantee concluded on February 7, 2013 for an amount of 100 million euros, contain an “inclusion clause” according to which in the event Telecom Italia commits to uphold in other loan contracts financial covenants which are not present or are more stringent than those granted to the EIB, then the EIB will have the right to request the providing of guarantees or the modification of the loan contract in order to envisage an equivalent provision in favor of the EIB. The provision in question does not apply to subsidized loans until the remaining total amount of principal is above 500 million euros.
•
Senior Secured Syndicated Facility. The contract was signed in October 2011 by BBVA Banco Francés and
Tierra Argentea S.A (a wholly-owned subsidiary of the Telecom Italia Group) for a facility of 312,464,000
Argentine pesos, and provides for the repayment of the loan in 2016. Following the signing of a Waiver &
Prepayment Agreement on March 6, 2013, the facility has a residual value of 55,164,000 Argentine pesos
(equal to approximately 8 million euros). The loan is secured by an on-demand bank guarantee for an
amount equal to the residual value of the facility, for which the collateral formerly pledged of (i) 15,533,834
Telecom Argentina shares and (ii) 2,351,752 American Depositary Shares (ADS) representing 117,588
Nortel Inversora S.A. class B preferred shares, has been released. The covenants established by contract, in
the form of negative covenants or financial covenants, are consistent with those of syndicated loans and
with local practice; there is also a change of control clause which requires the full early repayment of the
loan should the Telecom Italia Group hold less than a 100% interest in Tierra Argentea S.A. or loose
control of the other Argentine subsidiaries.
Finally, 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 the usual other covenants, under pain of a request for the early repayment of the loan.
Finally, as of June 30, 2013, no covenant, negative pledge clause or other clause relating to the above-described debt position, has in any way been breached or violated.
Revolving Credit Facility
The following table shows the composition and the drawdown of the committed credit lines available at June 30, 2013:
| | | | |
(billions of euros)
| 6/30/2013
| 12/31/2012
|
| Agreed
| Drawn down
| Agreed
| Drawn down
|
| | | | |
Revolving Credit Facility – expiring February 2013
| -
| -
| 1.25
| -
|
Revolving Credit Facility – expiring August 2014
| 8.0
| 1.5
| 8.0
| 1.5
|
Revolving Credit Facility – expiring December 2013
| 0.2
| -
| 0.2
| -
|
Total
| 8.2
| 1.5
| 9.45
| 1.5
|
On May 24, 2012, Telecom Italia entered into an agreement for a Forward Start Facility of 4 billion euros, extending half the Revolving Credit Facility (RCF) of 8 billion euros expiring August 2014. The new facility will come into effect as of August 2014 (or at an earlier date should Telecom Italia extinguish its commitments under the current RCF 2014 in advance) and expire in May 2017.
On March 25, 2013, Telecom Italia signed a new agreement to extend a further 3 billion euros of the Revolving Credit Facility (RCF) expiring August 2014, which had already been extended in part in 2012. The extension was obtained through a Forward Start Facility of 3 billion euros which will come into effect in August 2014 (or at an earlier date should Telecom Italia extinguish its commitments under the current RCF 2014 in advance) and will expire in March 2018.
Telecom Italia also has a bilateral stand-by credit line expiring August 3, 2016 for 100 million euros from Banca Regionale Europea, drawn down for the full amount.
Telecom Italia’s Rating at June 30, 2013
At June 30, 2013 the three rating agencies - Standard & Poor’s, Moody’s and Fitch Ratings – issued the following ratings for Telecom Italia:
| | |
| Rating
| Outlook
|
| | |
STANDARD & POOR’S
| BBB -
| Stable
|
MOODY’S
| Baa3
| Negative
|
FITCH RATINGS
| BBB
| Negative
|
Note 11
Net financial debt
As required by Consob Communication DEM/6064293 of July 28, 2006, the following table presents the net financial debt at June 30, 2013 and December 31, 2012 calculated in accordance with the criteria set out in the Recommendation of ESMA (European Securities & Markets Authority) – the former CESR (Committee of European Securities Regulators) – of February 10, 2005 “Recommendations for the Uniform Implementation of the European Commission Regulation on Disclosures” and also introduced by Consob.
For the purpose of determining such figure, the amount of financial liabilities has been adjusted by the effect of the relative hedging derivatives recorded in assets and the receivables arising from financial subleasing.
This table also shows the reconciliation of net financial debt determined according to the criteria indicated by ESMA and net financial debt calculated according to the criteria of the Telecom Italia Group and presented in the Report on Operations.
| | | |
(millions of euros)
| | 6/30/2013
| 12/31/2012
|
| | | |
Non-current financial liabilities
| | 31,435
| 34,091
|
Current financial liabilities
| | 6,531
| 6,150
|
Financial liabilities relating to Discontinued operations/Non-current assets held for sale
| | -
| -
|
Total Gross financial debt
| (a)
| 37,966
| 40,241
|
Non-current financial assets (°)
| | | |
Non-current financial receivables for lease contract
| | (86)
| (110)
|
Non-current hedging derivatives
| | (1,354)
| (2,291)
|
| (b)
| (1,440)
| (2,401)
|
Current financial assets
| | | |
Securities other than investments
| | (1,311)
| (754)
|
Financial receivables and other current financial assets
| | (523)
| (502)
|
Cash and cash equivalents
| | (4,793)
| (7,436)
|
Financial assets relating to Discontinued operations/Non-current assets held for sale
| | -
| -
|
| (c)
| (6,627)
| (8,692)
|
Net financial debt as per Consob communication DEM/6064293/2006
| (d=a+b+c)
| 29,899
| 29,148
|
Non-current financial assets (°)
| | | |
Securities other than investments
| | (13)
| (22)
|
Other financial receivables and other non-current financial assets
| | (100)
| (73)
|
| (e)
| (113)
| (95)
|
Net financial debt(*)
| (f=d+e)
| 29,786
| 29,053
|
Reversal of fair value measurement of derivatives and related financial assets/liabilities
| (g)
| (973)
| (779)
|
Adjusted net financial debt
| (f+g)
| 28,813
| 28,274
|
(°) At June 30, 2013 and at December 31, 2012, “Non-current financial assets” (b+e) amount to 1,553 million euros and 2,496 million euros, respectively.
(*) As regards the effects of related party transactions on net financial debt, reference should be made to the specific table included in the Note “Related party transactions“.
Note 12
Financial risk management
Financial risk management objectives and policies of the Telecom Italia Group
The Telecom Italia Group is exposed to the following financial risks in the ordinary course of its business operations:
•
market risk: stemming from changes in interest rates and exchange rates in connection with financial assets
that have been originated and financial liabilities that have been assumed;
•
credit risk: representing the risk of the non-fulfillment of the obligations undertaken by the counterpart
with regard to the liquidity investments of the Group;
•
liquidity risk: connected with the need to meet short-term financial commitments.
These financial risks are managed by:
•
the definition, at a central level, of guidelines for directing operations;
•
the activity of an internal committee which monitors the level of exposure to market risks consistently with
prefixed general objectives;
•
the identification of the most suitable financial instruments, including derivatives, to reach prefixed
objectives;
•
the monitoring of the results achieved;
•
the exclusion of the use of financial instruments for speculative purposes.
The policies for the management and the sensitivity analyses of the above financial risks by the Telecom Italia Group are described below.
Identification of risks and analysis
The Telecom Italia Group is exposed to market risks as a result of changes in interest rates and exchange rates in the markets in which it operates or has bond issues, principally Europe, the United States, Great Britain and Latin America.
The financial risk management policies of the Telecom Italia Group are directed towards diversifying market risks, hedging exchange rate risk in full and minimizing interest rate exposure by an appropriate diversification of the portfolio, which is also achieved by using carefully selected derivative financial instruments.
The Group defines an optimum composition for the fixed-rate and variable-rate debt structure and uses derivative financial instruments to achieve that prefixed composition. In consideration of the Group’s operating activities, the optimum combination of medium/long-term non-current financial liabilities has been established, on the basis of the nominal amount, in the range 65% - 75% for the fixed-rate component and 25% - 35% for the variable-rate component.
In managing market risk, the Group adopted Guidelines on “Financial risk management and control” and mainly uses the following financial derivatives:
•
Interest Rate Swaps (IRS): used to modify the profile of the original exposure to interest rate risks on
loans and bonds, whether fixed or variable;
•
Cross Currency and Interest Rate Swaps (CCIRS) and Currency Forwards: used to convert loans and
bonds issued in currencies other than euro – principally in U.S. dollars and British pounds – to the
functional currencies of the operating companies.
Derivative financial instruments are designated as fair value hedges for the management of exchange rate risk on instruments denominated in currencies other than euro and for the management of the interest rate risk on fixed-rate loans. Derivative financial instruments are designated as cash flow hedges when the objective is to pre-fix the exchange rate of future transactions and the interest rate.
All derivative financial instruments are entered into with banking and financial counterparts with at least a “BBB-” rating from Standard & Poor’s or equivalent rating. The exposure to the various market risks can be measured by sensitivity analyses, as set forth in IFRS 7. This analysis illustrates the effects produced by a given and assumed change in the levels of the relevant variables in the various reference markets (exchange rates, interest rates and prices) on finance income and expenses and, at times, directly on equity. The sensitivity analysis was performed based on the suppositions and assumptions indicated below:
•
sensitivity analyses were performed by applying reasonably likely changes in the relevant risk variables to
the amounts in the Half-year condensed consolidated financial statements at June 30, 2013;
•
the changes in value of fixed-rate financial instruments, other than derivatives, produced by changes in the
reference interest rates, generate an impact on profit only when, in accordance with IAS 39, they are
accounted for at their fair value. All fixed-rate instruments, which are accounted for at amortized cost, are
not subject to interest rate risk as defined by IFRS 7;
•
in the case of fair value hedge relationships, fair value changes of the underlying hedged item and of the
derivative instrument, due to changes in the reference interest rates, offset each other almost entirely in the
income statement for the period. As a result, these financial instruments are not exposed to interest rate
risk;
•
the changes in value of designated financial instruments in a cash flow hedge relationship, produced by
changes in interest rates, generate an impact on the debt level and on equity; accordingly they are included
in this analysis;
•
the changes in value, produced by changes in the reference interest rates, of variable-rate financial
instruments, other than derivatives, which are not part of a cash flow hedge relationship, generate an impact
on the finance income and expenses for the period; accordingly they are included in this analysis.
Exchange rate risk – Sensitivity analysis
At June 30, 2013 (as was the case at December 31, 2012), the exchange risk of the Group’s loans denominated in currencies other than the functional currency of the consolidated financial statements of each subsidiary was hedged in full. For this reason, a sensitivity analysis has not been performed on the exchange risk.
Interest rate risk – Sensitivity analysis
The change in interest rates on the variable component of payables and liquidity may lead to higher or lower finance income and expenses, while the changes in the level of the expected interest rate affect the fair value measurement of the Group’s derivatives. In particular:
•
with regard to derivatives that convert the liabilities contracted by the Group to fixed rates (cash flow
hedging), in keeping with international accounting standards that regulate hedge accounting, the fair value
(mark-to-market) measurement of such instruments is set aside in a specific unavailable Equity reserve. The
combined change of the numerous market variables to which the mark-to-market calculation is subject
between the transaction inception date and the measurement date renders any assumption about the trend
of the variables of little significance. As the contract expiration date approaches, the accounting effects
described will gradually be absorbed until they cease to exist;
•
if at June 30, 2013 the interest rates in the various markets in which the Telecom Italia Group operates had
been 100 basis points higher/lower compared to that actually realized, then higher/lower finance expenses,
before the tax effect, would have been recognized in the income statement for 49 million euros (18 million
euros at December 31, 2012).
Allocation of the financial structure between fixed rate and variable rate
As for the allocation of the financial structure between the fixed-rate component and the variable-rate component, for both financial assets and liabilities, reference should be made to the following tables. They show the nominal repayment/investment amount (insofar as that amount expresses the effective interest rate exposure of the Group) and, as far as financial assets are concerned, the intrinsic nature (financial characteristics and duration) of the transactions under consideration rather than just the stated contractual terms alone. Bearing that in mind, a transaction whose characteristics (short or very short time frame and frequent renewal) are such that the interest rate is periodically reset on the basis of market parameters, even though the contract does not call for re-fixing the interest rate (such as in the case of bank deposits, Euro Commercial Paper and receivables on sales of securities), has been considered in the category of variable rate.
Total Financial liabilities (at the nominal repayment amount)
| | | | | | |
| 6/30/2013
| 12/31/2012
|
(millions of euros)
| Fixed
rate
| Variable
rate
| Total
| Fixed
rate
| Variable
rate
| Total
|
| | | | | | |
Bonds
| 19,083
| 5,569
| 24,652
| 20,823
| 5,500
| 26,323
|
Loans and other financial liabilities
| 5,823
| 4,287
| 10,110
| 5,744
| 3,918
| 9,662
|
Total non-current financial liabilities (including the current portion of medium/long-term financial liabilities)
| 24,906
| 9,856
| 34,762
| 26,567
| 9,418
| 35,985
|
Total current financial liabilities (*)
| 79
| 565
| 644
| 71
| 567
| 638
|
Total
| 24,985
| 10,421
| 35,406
| 26,638
| 9,985
| 36,623
|
(*) At June 30, 2013, variable-rate current liabilities include 237 million euros of payables to other lenders for installments paid in advance which are conventionally classified in this line item even though they are not correlated to a definite rate parameter (252 million euros at December 31, 2012).
Total Financial assets (at the nominal investment amount)
| | | | | | |
| 6/30/2013
| 12/31/2012
|
(millions of euros)
| Fixed
rate
| Variable
rate
| Total
| Fixed
rate
| Variable
rate
| Total
|
| | | | | | |
Cash and cash equivalents
| -
| 3,955
| 3,955
| -
| 5,840
| 5,840
|
Euro Commercial Papers
| -
| 100
| 100
| -
| 150
| 150
|
Securities
| 892
| 1,275
| 2,167
| 380
| 1,902
| 2,282
|
Other receivables
| 576
| 201
| 777
| 611
| 298
| 909
|
Total
| 1,468
| 5,531
| 6,999
| 991
| 8,190
| 9,181
|
With regard to variable-rate financial instruments, the contracts provide for revisions of the relative parameters to take place within the subsequent 12 months.
Effective interest rate
As to the effective interest rate, for the categories where that parameter can be determined, such parameter refers to the original transaction net of the effect of any derivative hedging instruments.
The disclosure, since it is provided by class of financial asset and liability, was determined, for purposes of calculating the weighted average, using the carrying amount adjusted by accruals, prepayments, deferrals and changes in fair value: this is therefore the amortized cost, net of accruals and any changes in fair value as a consequence of hedge accounting.
Total Financial liabilities
| | | | |
| 6/30/2013
| 12/31/2012
|
(millions of euros)
| Adjusted carrying amount
| Effective interest rate (%)
| Adjusted carrying amount
| Effective interest rate (%)
|
| | | | |
Bonds
| 24,405
| 5.94
| 26,175
| 5.90
|
Loans and other financial liabilities
| 10,067
| 3.48
| 9,692
| 3.68
|
Total
| 34,472
| 5.22
| 35,867
| 5.30
|
| | | | |
| 6/30/2013
| 12/31/2012
|
(millions of euros)
| Adjusted carrying amount
| Effective interest rate (%)
| Adjusted carrying amount
| Effective interest rate (%)
|
| | | | |
Cash and cash equivalents
| 3,955
| 2.64
| 5,840
| 1.31
|
Euro Commercial Papers
| 100
| 0.40
| 150
| 0.27
|
Securities
| 2,167
| 5.67
| 2,282
| 8.20
|
Other receivables
| 231
| 6.04
| 276
| 5.72
|
Total
| 6,453
| 3.75
| 8,548
| 3.27
|
As for financial assets, the weighted average effective interest rate is not essentially influenced by the existence of derivatives.
As for market risk management using derivatives, reference should be made to the Note “Derivatives”.
Credit risk
Exposure to credit risk for the Telecom Italia Group consists of possible losses that could arise from the failure of either commercial or financial counterparts to fulfill their assumed obligations. Such exposure mainly stems from general economic and financial factors, the potential occurrence of specific insolvency situations of some borrowers and other more strictly technical-commercial or administrative factors.
The Telecom Italia Group’s maximum theoretical exposure to credit risk is represented by the carrying amount of the financial assets and trade receivables recorded in the financial statements.
Risk related to trade receivables is managed using client scoring and analysis systems. For specific categories of trade receivables the Group also makes use of factoring, mainly on a “non-recourse” basis.
Provision charges for bad debts are recorded for specific credit positions that present an element of individual risk. On credit positions that do not present such characteristics, provision charges are recorded by customer segment according to the average uncollectibility estimated on the basis of statistics. Further details are provided in the Note “Trade and miscellaneous receivables and other current assets”.
For the credit risk relating to the asset components which contribute to the determination of “Net financial debt”, it should be noted that the management of the Group’s liquidity is guided by conservative criteria and is principally based on the following:
•
money market management: the investment of temporary excess cash resources during the year which are
expected to turn around within the subsequent 12-month period;
•
bond portfolio management: the investment of a permanent level of liquidity and the investment of that
part of liquidity which is expected to turn around for cash requirement purposes after a 12-month period,
as well as the improvement in the average yield.
In order to limit the risk of the non-fulfillment of the obligations undertaken by the counterpart, deposits of the European companies are made with leading high-credit-quality banking and financial institutions. Investments by the companies in South America are made with leading local counterparts. Moreover, deposits are made generally for periods of less than three months. With regard to other temporary investments of liquidity, there are investments in Euro Commercial Paper (the issuers all have at least an A+ rating by Standard & Poor’s or equivalent and headquarters in Europe) and bonds featuring a limited level of risk. All investments were carried out in compliance with the Guidelines on “Financial risk management and control” adopted by the Group in August 2012, which replaced previous policies in force since July 2009.
In order to minimize credit risk, the Group also pursues a diversification policy for its investments of liquidity and allocation of its credit positions among different banking counterparts. Consequently, there are no significant positions with any one single counterpart.
Liquidity risk
The Group pursues the objective of achieving an “adequate level of financial flexibility” which is expressed by maintaining a current treasury margin to cover the refinancing requirements at least for the next 12 months with irrevocable bank lines and liquidity.
Current financial assets at June 30, 2013, together with unused committed bank lines, ensure complete coverage of debt repayment obligations also beyond the next 24 months.
16.3% of gross financial debt at June 30, 2013 (nominal repayment amount) will become due in the next 12 months.
The following tables report the contractual cash flows, not discounted to present value, relative to gross financial debt at nominal repayment amounts and the interest flows, determined using the conditions and the interest and exchange rates in place at June 30, 2013. The portions of principal and interest of the hedged liabilities includes both the disbursements and the receipts of the relative hedging derivatives.
Financial liabilities – Maturities of contractually expected disbursements
| | | | | | | | |
| | maturing by 6/30 of the year:
|
(millions of euros)
| | 2014
| 2015
| 2016
| 2017
| 2018
| After 2018
| Total
|
|
| | | | | | | |
Bonds
| Principal
| 3,234
| 1,154
| 3,538
| 1,000
| 4,139
| 11,587
| 24,652
|
| Interest portion
| 1,456
| 1,293
| 1,206
| 1,019
| 949
| 6,959
| 12,882
|
Loans and other financial liabilities
| Principal
| 1,717
| 2,594
| 918
| 1,287
| 164
| 2,159
| 8,839
|
| Interest portion
| 276
| 157
| 58
| (40)
| (43)
| (303)
| 105
|
Finance lease liabilities
| Principal
| 186
| 120
| 132
| 139
| 167
| 527
| 1,271
|
| Interest portion
| 88
| 81
| 72
| 62
| 52
| 97
| 452
|
Non-current financial liabilities (*)
| Principal
| 5,137
| 3,868
| 4,588
| 2,426
| 4,470
| 14,273
| 34,762
|
| Interest portion
| 1,820
| 1,531
| 1,336
| 1,041
| 958
| 6,753
| 13,439
|
Current financial liabilities
| Principal
| 644
| -
| -
| -
| -
| -
| 644
|
| Interest portion
| 5
| | | | | | 5
|
Total Financial liabilities
| Principal
| 5,781
| 3,868
| 4,588
| 2,426
| 4,470
| 14,273
| 35,406
|
| Interest portion
| 1,825
| 1,531
| 1,336
| 1,041
| 958
| 6,753
| 13,444
|
(*) These include hedging and non-hedging derivatives.
Derivatives on financial liabilities – Contractually expected interest flows
| | | | | | | |
| maturing by 6/30 of the year:
|
(millions of euros)
| 2014
| 2015
| 2016
| 2017
| 2018
| After 2018
| Total
|
| | | | | | | |
Disbursements
| 807
| 619
| 543
| 467
| 444
| 3,815
| 6,695
|
Receipts
| (733)
| (626)
| (592)
| (538)
| (525)
| (4,233)
| (7,247)
|
Hedging derivatives – net (receipts) disbursements
| 74
| (7)
| (49)
| (71)
| (81)
| (418)
| (552)
|
Disbursements
| 2
| 4
| -
| -
| -
| -
| 6
|
Receipts
| (39)
| -
| (1)
| (41)
| (2)
| (9)
| (92)
|
Non-Hedging derivatives – net (receipts) disbursements
| (37)
| 4
| (1)
| (41)
| (2)
| (9)
| (86)
|
Total net (receipts) disbursements
| 37
| (3)
| (50)
| (112)
| (83)
| (427)
| (638)
|
Market value of derivatives
In order to determine the fair value of derivatives, the Telecom Italia Group uses various valuation models.
The mark-to-market calculation is determined by discounting to present value the interest and notional future contractual flows using market interest rates and exchange rates.
The notional amount of IRSs does not represent the amount exchanged between the parties and therefore does not constitute a measurement of credit risk exposure which, instead, is limited to the amount of the difference between the interest rates paid/received.
The market value of CCIRSs, instead, also depends on the differential between the reference exchange rate at the date of signing the contract and the exchange rate at the date of measurement, since CCIRSs imply the exchange of the reference interest and principal, in the respective currencies of denomination.
Note 13
Derivatives
The following table presents the derivative financial instruments of the Telecom Italia Group at June 30, 2013 and at December 31, 2012, by type:
| | | | | |
Type
(millions of euros)
| Hedged risk
| Notional amount at 6/30/2013
| Notional amount at 12/31/2012
| Spot (*) Mark-to-Market (Clean Price) at
6/30/2013
| Spot (*) Mark-to-Market (Clean Price) at 12/31/2012
|
| | | | | |
Interest rate swaps
| Interest rate risk
| 3,650
| 2,400
| (37)
| (1)
|
Cross Currency and Interest Rate Swaps
| Interest rate risk and currency exchange rate risk
| 2,082
| 3,179
| 76
| 188
|
Total Fair Value Hedge Derivatives
| 5,732
| 5,579
| 39
| 187
|
Interest rate swaps
| Interest rate risk
| 3,120
| 3,120
| (146)
| (228)
|
Cross Currency and Interest Rate Swaps
| Interest rate risk and currency exchange rate risk
| 10,245
| 10,402
| (913)
|
(577)
|
Commodity Swap and Options
| Commodity risk (energy)
| 45
| 27
| 0
| 1
|
Forward and FX Options
| Currency exchange rate risk
| 123
| 32
| 8
| (2)
|
Total Cash Flow Hedge Derivatives
| 13,533
| 13,581
| (1,051)
| (806)
|
Total Non-Hedge Accounting Derivatives
| 640
| 627
| 94
| 45
|
Total Telecom Italia Group Derivatives
| 19,905
| 19,787
| (918)
| (574)
|
(*) Spot Mark-to-market above represents the market measurement of the derivative net of the accrued portion of the flow in progress.
Note 14
Supplementary disclosures on financial instruments
Measurement at fair value
The measurement at fair value of the financial instruments of the Group is classified according to the three levels set out in IFRS 7. The fair value hierarchy is composed by three levels of input:
•
Level 1: quoted prices in active market;
•
Level 2: values estimated using observable market inputs;
•
Level 3: values estimated using inputs that are not based on observable market data.
Specifically, the fair value measurements of the level 2 financial instruments were made using standard market financial models (e.g. discounted cash flow model and Hull & White).
Furthermore, on December 11, 2012, Regulation EC no. 1255-2012 was issued, representing the adoption at EU level of IFRS 13, which aims to improve consistency and comparability in fair value measurement through the “fair value hierarchy”. IFRS 13, which must be adopted prospectively, does not extend the use of fair value accounting, but provides guidance on how it should be applied. However, IFRS 13 does not provide a method for calculating fair value that includes “non-performance risk”. Based on best market practice, Telecom Italia has developed an algorithm that includes i) exposure to risk, measured as the current exposure of riskless mark-to-market and assumed to be constant over the duration of the financial instrument, ii) the value of Credit Default Swaps (CDS) of the contracting parties to represent their probability of default and iii) remaining period of exposure to the specific risk of the financial instrument, assumed to be equal to the duration of the financial instrument or, in the case of specific contractual conditions, the period up to the nearest break clause.
At June 30, 2013, for the various classes of financial assets and liabilities classified as level 2, except for “Other investments”, the input data used in the above-mentioned algorithm were the interest rates, exchange rates and the CDS values interpolated for the various periods of reference, obtained from the main financial information agencies.
The assessment of the risk of default also takes into account any forms of risk mitigation, such as the entry into agreements involving the exchange of margin cash collateral.
The tables below provide some additional information on the financial instruments, including the table relating to hierarchy level for each class of financial asset/liability measured at fair value at June 30, 2013.
Key for IAS 39 categories
| |
| Acronym
|
| |
Loans and Receivables
| LaR
|
Financial assets Held-to-Maturity
| HtM
|
Available-for-sale financial assets
| AfS
|
Financial Assets/Liabilities Held for Trading
| FAHfT/ FLHfT
|
Financial Liabilities at Amortized Cost
| FLAC
|
Hedging Derivatives
| HD
|
Fair value hierarchy level for each class of financial asset/liability at 6/30/2013
| | | | | | | |
| | | | | Hierarchy Levels
|
(millions of euros)
| | IAS 39 Categories
| note
| Carrying amount in financial statements at 6/30/2013
| Level 1 (*)
| Level 2 (*)
| Level 3 (*)
|
| | | | | | | |
ASSETS
| | | | | | | |
Non-current financial assets
| | | | | | | |
Other investments
| | AfS
| 6)
| 42
| 3
| 9
|
|
Securities, financial receivables and other non-current financial assets
| | | | | | | |
of which securities
| | AfS
| 7)
| 13
| 13
|
|
|
of which hedging derivatives
| | HD
| 7)
| 1,354
|
| 1,354
|
|
of which non-hedging derivatives
| | FAHfT
| 7)
| 64
|
| 64
|
|
| (a)
| | | 1,431
| 16
| 1,427
| -
|
Current financial assets
| | | |
|
|
|
|
Securities
| | | |
|
|
|
|
of which available-for-sale financial assets
| | AfS
| 7)
| 1,308
| 1,308
|
|
|
Financial receivables and other current financial assets
| | | |
|
|
|
|
of which hedging derivatives
| | HD
| 7)
| 239
|
| 239
|
|
of which non-hedging derivatives
| | FAHfT
| 7)
| 42
|
| 42
|
|
| (b)
| | | 1,589
| 1,308
| 281
| -
|
Total
| (a+b)
| | | 3,062
| 1,324
| 1,708
| -
|
LIABILITIES
| | | |
|
|
|
|
Non-current financial liabilities
| | | |
|
|
|
|
of which hedging derivatives
| | HD
| 10)
| 2,108
|
| 2,108
|
|
of which non-hedging derivatives
| | FLHfT
| 10)
| 10
|
| 10
|
|
| (c)
| | | 2,118
| -
| 2,118
| -
|
Current financial liabilities
| | | |
|
|
|
|
of which hedging derivatives
| | HD
| 10)
| 329
|
| 329
|
|
of which non-hedging derivatives
| | FLHfT
| 10)
| 7
|
| 7
|
|
| (d)
| | | 336
| -
| 336
| -
|
Total
| (c+d)
| | | 2,454
| -
| 2,454
| -
|
(*) Level 1: quoted prices in active markets.
Level 2: values estimated using observable market inputs.
Level 3: values estimated using inputs that are not based on observable market data.
Note 15
Employee benefits
Employee benefits decreased 5 million euros compared to December 31, 2012 and are composed of the following:
| | | | | | |
(millions of euros)
| | 12/31/2012
| Increases/ Present value
| Decrease
| Exchange differences and other changes
| 6/30/2013
|
| | | | | | |
Provision for employee severance indemnities
| (a)
| 835
| 16
| (16)
| (8)
| 827
|
Provision for pension plans
| | 23
| 1
| (1)
| -
| 23
|
Provision for termination benefit incentives
| | 58
| 19
| (8)
| (8)
| 61
|
Total other provisions for employee benefits
| (b)
| 81
| 20
| (9)
| (8)
| 84
|
Total
| (a+b)
| 916
| 36
| (25)
| (16)
| 911
|
of which:
| | | | | | |
non-current portion
| | 872
| | | | 862
|
current portion (*)
| | 44
| | | | 49
|
(*) The current portion refers only to Other provisions for employee benefits.
Provision for employee severance indemnities only refers to Italian companies and decreased overall by 8 million euros. The reduction of 16 million euros under “decreases” refers to indemnities paid during the period to employees who terminated employment or for advances. The increase of 16 million euros in the column “Increases/Present value” includes the following:
| | |
(millions of euros)
| 1st Half 2013
| 1st Half 2012
|
| | |
Current service cost (*)
| -
| -
|
Finance expenses
| 19
| 21
|
Net actuarial (gains) losses recognized during the period
| (3)
| (4)
|
Total
| 16
| 17
|
Effective return on plan assets
| there are no assets servicing the plan
|
(*) Following the social security reform in 2007, the portions intended for the INPS Treasury Fund or for the supplementary pension funds have been recorded under “Employee benefits expenses”, in “Social security expenses”, and not as “Employee severance indemnities expenses”. The latter account will still be used only for the severance indemnity expenses of companies with less than 50 employees, equal to 0.2 million euros in first half of 2013 (basically unchanged compared to 2012).
The actuarial losses recognized at June 30, 2013 (3 million euros) are essentially related to the changes in the economic parameters (discount and inflation rate), as well as changes in headcount.
Provision for pension plans principally refer to pension plans operating in foreign companies of the Group.
Provision for termination benefit incentives increased in total by 3 million euros. In detail, the use during the period of the provision for mobility under Law 223/91 by Olivetti S.p.A., for Olivetti I-Jet and for restructuring expenses of Telecom Argentina, made during 2012, were offset, in 2013, by the provisions for expenses for mobility under Law 223/91 totaling 19 million euros, made following the framework agreement signed by the Parent with the Trade Unions on March 27, 2013.
Note 16
Provisions
Provisions decreased 44 million euros compared to December 31, 2012 and are composed of the following:
| | | | | | |
(millions of euros)
| 12/31/2012
| Increase
| Used through income statement
| Used directly
| Exchange differences and other changes
| 6/30/2013
|
| | | | | | |
Provision for taxation and tax risks
| 142
| 16
| (1)
| (4)
| 1
| 154
|
Provision for restoration costs
| 463
| 2
| −
| (2)
| (6)
| 457
|
Provision for legal disputes
| 367
| 68
| (1)
| (62)
| (43)
| 329
|
Provision for commercial risks
| 130
| 4
| (1)
| (1)
| | 132
|
Provision for risks and charges on investments and corporate-related transactions
| 88
| −
| −
| (10)
| 1
| 79
|
Other provisions
| 131
| 2
| (5)
| (2)
| | 126
|
Total
| 1,321
| 92
| (8)
| (81)
| (47)
| 1,277
|
of which:
| | | | | | |
non-current portion
| 863
| | | | | 855
|
current portion
| 458
| | | | | 422
|
Provision for taxation and tax risks increased 12 million euros as the net result from provision charges and utilizations, mainly attributable to the companies Tim Participações (+9 million euros) and Telecom Italia Media Broadcasting (+3 million euros). The balance of the provision at June 30, 2013 is attributable to the Domestic Business Unit (53 million euros), the Brazil Business Unit (65 million euros) and the Argentina Business Unit (30 million euros).
Provision for restoration costs refers to the provision for the estimated cost of dismantling tangible assets – in particular: batteries, wooden poles and equipment – and for the restoration of the sites used for mobile telephony by the companies of the Domestic Business Unit (342 million euros), Brazil Business Unit (104 million euros) and Argentina Business Unit (11 million euros).
Provision for legal disputes includes the provision for litigation with employees, social security entities and third parties and shows a decrease of 38 million euros compared to December 31, 2012.
The balance of the provision at June 30, 2013 is attributable to the Domestic Business Unit (146 million euros), the Brazil Business Unit (66 million euros) and the Argentina Business Unit (115 million euros).
Provision for commercial risks, which is essentially unchanged compared to the end of 2012, consists of provisions made primarily by Telecom Italia S.p.A., Olivetti S.p.A. and Telecom Italia Digital Solutions S.p.A., to cover existing risks.
Provision for risks and charges on investments and corporate-related transactions shows a reduction of 9 million euros following the utilizations by the companies Telecom Italia S.p.A. and Telecom Italia Deutschland Holding Gmbh.
Other provisions are substantially unchanged from December 31, 2012 and comprise the provision made in prior years for the Telecom Italia Sparkle case in the amount of 86 million euros, the provision for risks relating to the liberalization of frequencies, and the provisions made for regulatory proceedings.
Note 17
Trade and miscellaneous payables and other current liabilities
Trade and miscellaneous payables and other current liabilities decreased 1,405 million euros compared to December 31, 2012 and are composed of the following:
| | | |
| | 6/30/2013
| 12/31/2012
|
| | | |
Payables on construction work
| (a)
| 26
| 35
|
Trade payables
| | | |
Payables to suppliers
| | 4,008
| 5,481
|
Payables to other telecommunication operators
| | 584
| 638
|
| (b)
| 4,592
| 6,119
|
Tax payables
| (c)
| 965
| 641
|
Miscellaneous payables and other current liabilities
| | | |
Payables for employee compensation
| | 527
| 625
|
Payables to social security agencies
| | 136
| 212
|
Trade and miscellaneous deferred income
| | 856
| 853
|
Advances received
| | 15
| 20
|
Customer-related items
| | 974
| 1,003
|
Payables for TLC operating fee
| | 23
| 35
|
Dividends approved, but not yet paid to shareholders
| | 63
| 60
|
Other current liabilities
| | 489
| 437
|
Employee benefits (except for employee severance indemnities) for the current portion expected to be settled within 1 year
| | 49
| 44
|
Provisions for risks and charges for the current portion expected to be settled within 1 year
| | 422
| 458
|
| (d)
| 3,554
| 3,747
|
Total
| (a+b+c+d)
| 9,137
| 10,542
|
| | | |
Trade payables (due within 12 year) amounting to 4,592 million euros (6,119 million euros at December 31, 2012) mainly refer to Telecom Italia S.p.A. (2,150 million euros), the companies in the Brazil Business Unit (1,203 million euros) and the Argentina Business Unit (657 million euros). The decrease of 1,527 million euros compared to December 31, 2012 reflects the trend in disbursements relating to expenses, recognized in the last quarter of 2012, for which the related cash flows are largely postponed to the initial months of the following year due to the normal payment terms and contractually applicable conditions.
Tax payables refer in particular to the VAT payable of Telecom Italia S.p.A. (556 million euros), the government concession tax of Telecom Italia S.p.A. (63 million euros), other tax payables of the Brazil Business Unit (200 million euros) and the Argentina Business Unit (88 million euros).
Within miscellaneous payables and other current liabilities it is noted in particular that:
•
trade and miscellaneous deferred income mainly relates to the deferral of fees for the activation of
telephone services, as well as the deferral of subscription, traffic and interconnection charges of the Parent
Telecom Italia;
•
customer-related items largely consist of payables of the Parent Telecom Italia due to its subscribers for
deposits made for telephone calls and subscription charges debited in advance;
•
other current liabilities mainly relate to debt positions of the Parent Telecom Italia for leases,
reimbursements to customers, contributions to the government and penalties.
Note 18
Contingent liabilities, other information, commitments and guarantees
The most significant arbitration cases and legal or fiscal disputes in which the Telecom Italia Group is involved at June, 30 2013 are described below.
The Telecom Italia Group has posted liabilities totalling 310 million euros for those disputes described below where the risk of losing the case has been considered probable.
a) Significant disputes and pending legal action
For the following disputes and pending legal actions no significant facts have emerged with respect to what was published in the 2012 Annual Report:
•
Telecom Italia Sparkle – Relations with I-Globe, Planetarium, Acumen, Accrue Telemedia and Diadem: investigation by the Public Prosecutor’s Office of Rome
•
National tax disputes
•
International tax and regulatory disputes
•
Administrative offence charge pursuant to Legislative Decree 231/2001 for the so-called Telecom Italia Security Affair.
Investigation by the Public Prosecutor’s Office of Monza
After the service on Telecom Italia, in December 2012, of some reports of findings on direct taxation and VAT for the years 2007, 2008 and 2009 relating to some supply in leasing and/or sale of goods transactions by the Monza Guardia di Finanza, the Company has agreed upon the charges, paying a total of 3.4 million euros over the first six months of 2013.
Taking account of the potential risks linked to other transactions still being investigated, and considering the payment made so far, the provision made for liabilities remains at 7.8 million euros.
─ ● ─
It should be noted that for some disputes, described below, on the basis of the information available at the closing date of the present document and with particular reference to the complexity of the proceedings, to their progress, and to elements of uncertainty of a technical - trial nature, it was not possible to make a reliable estimate of the size and/or times of possible payments, if any. Moreover, in the case in which the disclosure of information relative to the dispute could seriously jeopardise the position of Telecom Italia or its subsidiaries, only the general nature of the dispute is described.
For the following disputes no significant facts have emerged with respect to what was published in the 2012 Annual Report:
•
Antitrust Case I757
•
Dispute relative to "Adjustments on license fees" for the years 1994-1998
•
FASTWEB
•
FEDERAZIONE ANTI PIRATERIA AUDIOVISIVA (FAPAV)
•
TELEUNIT
•
Irregular sale of handsets to companies in San Marino - Investigation by the Public Prosecutor’s Office of
Forlì
•
POSTE
•
Elitel Telecom S.p.A. Group
•
Brazil – Opportunity Arbitration
•
Dispute concerning the license fees for 1998
•
TELETU
Antitrust Case A428
At the conclusion of case A428, the Italian antitrust authority (AGCM) imposed two administrative sanctions of 88,182,000 euros and 15,612,000 euros on Telecom Italia for abuse of its dominant position.
Specifically, the Company allegedly (i) hindered or delayed activation of access services requested by OLOs through unjustified and spurious refusals; (ii) offered its access services to final customers at economic and technical conditions that allegedly could not be matched by competitors purchasing wholesale access services from Telecom Italia itself, only in those geographic areas of the Country where disaggregated access services to the local network are available, and hence where other operators can compete more effectively with the Company.
Telecom Italia has appealed the decision before the Administrative Court (TAR) for Lazio, with a precautionary application for payment of the fine to be suspended, alleging, specifically: infringement of its rights to defend itself in the proceedings, the circumstance that the organisational choices challenged by AGCM and allegedly at the base of the abuse of the OLO provisioning processes had been the subject of specific rulings made by the sector Authority (AGCom), the circumstance that the comparative examination of the internal/external provisioning processes had in fact shown better results for the OLOs than for the Telecom Italia retail department (hence there lacked any form of inequality of treatment and/or opportunistic behaviour by Telecom Italia), and (regarding the second abuse) the fact that the alleged conduct was structurally unsuitable to reduce the margins of the OLOs. In its hearing on July 17, 2013, the Administrative Court for Lazio ordered that a hearing date be set for the merit hearing, without considering the suspension application. It is reasonable to suppose that this hearing will take place by the end of 2013.
Antitrust Case I761
With a ruling issued on July 10, 2013, the AGCM extended the investigation started in March into some enterprises active in the fixed network maintenance sector to Telecom Italia. The investigation aims to establish if an agreement exists that is prohibited pursuant to article 101 of the Treaty on the Functioning of the European Union. The proceedings were initiated after Wind filed two complaints in which the AGCM was informed that, after an invitation to bid for the assignment of network corrective maintenance services, it had encountered substantial uniformity of prices offered by the aforementioned enterprises and a significant difference from the offers submitted subsequently by other and different companies.
The AGCM alleges that Telecom Italia carried out a role of coordinating the other parts of the procedure, both during the formulation of the offers requested by Wind and in relation to the positions represented to AGCom.
Unless further extended, the proceedings are currently scheduled to conclude on March 27, 2014, and given that the procedure is at an early stage, it is not possible at present to provide forecasts regarding its foreseeable outcome.
Wind
Without prejudice to the proceedings started with a writ issued in January 2012 for compensation of alleged damages (quantified as 90 million euros) deriving from alleged unfair competition caused by the refusal to activate service requests in the period July 2009 – October 2010, based on the recent antitrust decision A428, Wind started proceedings against the Company in June 2013 claiming compensation for the alleged damages (quantified as over 247 million euros, around 37 million of which for reputational damage) consequent on the refusal to activate 80,159 potential customers in the period July 2011 – October 2012.
Telecom Italia will file an appearance contesting Wind’s claims.
Eutelia and Voiceplus
In June 2009, Eutelia and Voiceplus asked that alleged acts of abuse by Telecom Italia of its dominant position in the premium services market (based on the offer of services provided through so-called Non Geographic Numbers) be investigated. The complainants quantified their damages at a total of approximately 730 million euros.
The case follows a precautionary procedure in which the Milan Appeal Court prohibited certain behaviours relating to the management of some financial relations with Eutelia and Voiceplus concerning the Non Geographic Numbers for which Telecom Italia managed the payments from the end customers, on behalf of such OLOs and in the light of regulatory requirements.
In a judgement on April 24, 2013, the Milan Appeal Court accepted the objections of Telecom Italia, declaring that it was not competent in this matter and referring the case to the Civil Court (Tribunale). The terms for the resumption before the Milan Civil Court are pending.
Greece – DELAN
During 2009, the company Carothers Ltd., acting as successor of Delan Cellular Services S.A. (“Delan”), started against Wind Hellas (the new corporate name of TIM Hellas, the Greek subsidiary sold by the Telecom Italia Group in 2005) judicial proceedings for the compensation of damages, both precautionary and on the merits, before the Greek courts. Wind Hellas in turn summoned Telecom Italia International to appear, as guarantor, allegedly on the basis of the indemnification obligations contained in the stock purchase agreement for the sale of the subsidiary.
In April 2012 the Judge of First Instance declared the lack of jurisdiction on Telecom Italia International (whose contractual indemnification obligation falls under the law of New York and is subject to arbitration), while it condemned Wind Hellas to payment of damages to Carothers for an overall amount of approximately 85 million euros (including costs and accrued interests). The judgement has been entirely appealed by Wind Hellas, which subsequently formally renounced the proceedings against Telecom Italia International.
Subsequently, Wind Hellas served Telecom Italia International with a request for an international arbitration, seeking a declaration of its right to be held harmless for any possible negative outcome deriving from the ongoing appeal proceedings.
In August 2012, Telecom Italia International filed the answer to the request for arbitration and counterclaim, requesting – among others – compensation for damages as a result of breach of the arbitration clause contained in the Stock Purchase Agreement executed in 2005, in connection with the notice of joinder to Telecom Italia International as guarantor before the Greek Courts. Following the first procedural hearing, in March 2013 Wind Hellas filed the Statement of Claim accompanied by the supporting documentation (including witness depositions and expert reports), in compliance with the procedural calendar.
In June 2013 Telecom Italia International filed its Statement of Defence and Counterclaim, including witness depositions, expert reports and further supporting documentation. The proceedings are currently in the so-called discovery phase.
Brazil - Docas/JVCO arbitration
In March 2013, the Brazilian companies Docas Investimentos S.A. (“Docas”) and JVCO Participações Ltda. (“JVCO”) started arbitration proceedings against Tim Brasil Serviços e Participações S.A. (“Tim Brasil”), Tim Participações S.A. (“Tim Participações.”) and Intelig Telecomunicações Ltda. (“Intelig”) requesting the restitution of the Tim Participações shares held by the Tim group as guarantee for the indemnity obligations undertaken by the Docas group upon acquisition of Intelig (a Docas group company) by the merger by incorporation of its subsidiary into Tim Participações (so-called “Alienaçao Fiduciaria”), as well as compensation for damages for alleged breach of the merger agreement and alleged offences by Tim Participações in determining the exchange ratio between Tim Participações shares and Intelig shares. After the Arbitration Tribunal had been constituted in May 2013, Tim Brasil, Tim Participações and Intelig filed their response, including a counterclaim against the Docas group for compensation for damages. An incidental phase is currently underway to determine if the conditions still exist for a precautionary measure issued by a San Paolo judge, that prevents Tim Brasil executing a guarantee on the aforementioned Tim Participações shares held by the Tim group in “Alienaçao Fiduciaria”, to be upheld by the Arbitration Tribunal. This is contested by the Tim group.
Others - Telecom Argentina
On June 3, 2013, four trade union organizations issued proceedings against Telecom Argentina to obtain the issue of profit sharing bonds reserved for the employees, as provided in a specific Argentine Law, challenging the constitutionality of the subsequent Decree no. 395/92 which exempted Telecom Argentina from issuing such bonds. At present it has not been possible to make an economic assessment of the potential impact deriving from the liabilities the company might have to deal with as a result of this case. Moreover, at the current state of the proceedings, the management, supported by legal opinion, considers that the risk of losing the case, for the Company, is possible but not probable.
b) Other information
Mobile telephony - criminal proceedings
In March 2012 Telecom Italia was served notice of the conclusion of the preliminary enquiries, which showed that the Company was being investigated by the Public Prosecutor of Milan pursuant to the Legislative Decree no. 231/2001, for the offences of handling stolen/counterfeited goods (Art. 648 of the Criminal Code) and counterfeiting (Art. 491-bis of the Criminal Code) committed, according to the alleged allegations, by fourteen employees of the so-called “ethnic channel”, with the participation of a number of dealers, for the purpose of obtaining undeserved commissions from Telecom Italia. The Company, as the injured party damaged by such conduct, had brought two legal actions in 2008 and 2009 and had proceeded to suspend the employees involved in the criminal proceedings (suspension later followed by dismissal). It has also filed an initial statement of defence, together with a technical report by its own expert, requesting that the proceedings against it be suspended, and that charges of aggravated fraud against the Company be brought against the other defendants. On December 19, 2012, the Public Prosecutor's Office filed a request for 89 natural persons and the Company itself to be committed for trial. The preliminary hearing, initially scheduled for July 1, 2013, has been postponed to October 4, 2013. On that date the Company, as injured party, will present all the arguments in its defence and will apply to be joined as civil party.
* * *
There are no substantial updates regarding the criminal proceedings for the offence of “Preventing the public supervisory authorities from performing their functions” against a former Executive Director (Mr. Riccardo Ruggiero) and two former managers, relative, in the statement of charges, to the communication to AGCom of a customer base deemed to have been altered both by false extensions of 5,130,000 SIM cards refilled with 0.01 euros, and the activation of 1,042,447 SIM cards deemed irregular and not topped up in the twelve months after activation. During the hearing on February 11, 2013, the Milan Court declared that it did not have territorial competence, and ordered that the case papers be transmitted to the Rome Public Prosecutor’s Office. In May the Company was notified of the date set for the preliminary hearing, listed by the Rome Court for October 2, 2013.
c) Commitments and guarantees
Guarantees for 17 million euros, net of back-to-back guarantees received, include surety bonds issued by Telecom Italia on behalf of associates (5 million euros) and other third parties for medium/long-term financial transactions.
Guarantees were provided by third parties to Group companies, amounting to 5,372 million euros, to guarantee financing received (2,494 million euros) and performance under outstanding contracts (2,878 million euros).
Among the guarantees provided by third parties for Telecom Italia S.p.A.’s obligations are two guarantees in favor of the Ministry of Economic Development for the auction to assign the user rights for the 800, 1800 and 2600 MHz frequencies. The guarantees amount, respectively, to 456 million euros (for the request to pay back the total amount owed over a period of 5 years) and 38 million euros (for the commitment undertaken by the Company to build equipment networks according to eco-sustainability characteristics). In particular, the Company has made a commitment to achieve energy savings in the new LTE technologies of approximately 10% on infrastructure and 20% on transmission devices over a period of 5 years (compared to energy consumed by current technology).
Details of the main guarantees received for EIB financing at June 30, 2013 are as follows:
Issuer
| |
(millions of euros)
| Amount(1)
|
| |
BBVA - Banco Bilbao Vizcaya Argentaria
| 605
|
Intesa Sanpaolo
| 471
|
Bank of Tokyo - Mitsubishi UFJ
| 254
|
Banco Santander
| 139
|
Sumitomo
| 109
|
SACE
| 210
|
Natixis(2)
| 92
|
Barclays Bank
| 158
|
Citibank
| 28
|
(1)
Relative to loans issued by EIB for Tim Rete Mobile, Telecom Italia Breitband Infrastruktur Deutschland, Telecom Italia Media Digital Network, Telecom Italia Banda Larga, Telecom Italia Ricerca & Sviluppo, Telecom Italia Digital Divide Projects.
(2)
With regard to the Telecom Italia Banda Larga project, in November 2012 the 92 million euros guarantee from CARIGE (which was no longer an eligible counterpart for EIB) was replaced with another guarantee from Natixis.
There are also surety bonds on the 3G service in Brazil for 76 million euros.
d) Assets pledged to guarantee financial liabilities
The contracts for low-rate loans granted by the Brazilian development bank BNDES (Banco Nacional de Desenvolvimento Econômico e Social) to Tim Celular for a total equivalent amount of 884 million euros are covered by specific covenants. In the event of non-compliance with the covenant obligations, BNDES will have a right to the receipts which transit on the bank accounts of the company.
Based on the commitments made as part of the restructuring of the debts of Italtel S.p.A. and Italtel Group S.p.A. in accordance with Article 182-bis of the Bankruptcy Law, on March 27, 2013, Telecom Italia Finance Société Anonyme pledged 4,500,000 class A and B equity instruments issued by Italtel S.p.A., with a par value of 1 euro each. The pledge was issued in favor of a pool of banks against the financial obligations arising from a number of contracts.
Note 19
Finance income and expenses
Finance income
Finance income increased by 215 million euros, compared to the first half of 2012, and is broken down as follows:
| | | |
(millions of euros)
| | 1st Half 2013
| 1st Half 2012
|
| | | |
Interest income and other finance income:
| | | |
Income from financial receivables, recorded in Non-current assets
| | -
| -
|
Income from securities other than investments, recorded in Non-current assets
| | -
| -
|
Income from securities other than investments, recorded in Current assets
| | 19
| 20
|
Income other than the above:
| | | |
Interest income
| | 117
| 113
|
Exchange gains
| | 206
| 298
|
Income from fair value hedge derivatives
| | 81
| 100
|
Reversal of the Reserve for cash flow hedge derivatives to the income statement (interest rate component)
| | 335
| 404
|
Income from non-hedging derivatives
| | 99
| 11
|
Miscellaneous finance income
| | 14
| 67
|
| (a)
| 871
| 1,013
|
Positive fair value adjustments to:
| | | |
Fair value hedge derivatives
| | 40
| 131
|
Underlying financial assets and liabilities of fair value hedge derivatives
| | 250
| 14
|
Non-hedging derivatives
| | 326
| 114
|
| (b)
| 616
| 259
|
Reversal of impairment loss on financial assets other than investments
| (c)
| -
| -
|
Total
| (a+b+c)
| 1,487
| 1,272
|
Finance expenses
Finance expenses increased by 247 million euros, compared to the first half of 2012, and are broken down as follows:
| | | |
(millions of euros)
| | 1st Half 2013
| 1st Half 2012
|
| | | |
Interest expenses and other finance expenses:
| | | |
Interest expenses and other costs relating to bonds
| | 730
| 740
|
Interest expenses to banks
| | 108
| 129
|
Interest expenses to others
| | 104
| 114
|
| | 942
| 983
|
Commissions
| | 62
| 35
|
Exchange losses
| | 271
| 355
|
Charges from fair value hedge derivatives
| | 24
| 56
|
Reversal of the Reserve for cash flow hedge derivatives to the income statement (interest rate component)
| | 401
| 438
|
Charges from non-hedging derivatives
| | 28
| 29
|
Miscellaneous finance expenses
| | 192
| 97
|
| (a)
| 1,920
| 1,993
|
Negative fair value adjustments to:
| | | |
Fair value hedge derivatives
| | 265
| 29
|
Underlying financial assets and liabilities of fair value hedge derivatives
| | 7
| 88
|
Non-hedging derivatives
| | 244
| 79
|
| (b)
| 516
| 196
|
Impairment losses on financial assets other than investments
| (c)
| -
| -
|
Total
| (a+b+c)
| 2,436
| 2,189
|
For greater clarity of presentation, the net effects relating to derivative financial instruments are summarized in the following table:
| | | |
(millions of euros)
| | 1st Half 2013
| 1st Half 2012
|
| | | |
Exchange gains
| | 206
| 298
|
Exchange losses
| | (271)
| (355)
|
Net exchange gains and losses
| | (65)
| (57)
|
| | | |
Income from fair value hedge derivatives
| | 81
| 100
|
Charges from fair value hedge derivatives
| | (24)
| (56)
|
Net result from fair value hedge derivatives
| (a)
| 57
| 44
|
Positive effect of the reversal of the Reserve of cash flow hedge derivatives to the income statement (interest rate component)
| | 335
| 404
|
Negative effect of the reversal of the Reserve for cash flow hedge derivatives to the income statement (interest rate component)
| | (401)
| (438)
|
Net effect of the Reversal of the Reserve of cash flow hedge derivatives to the income statement (interest rate component)
| (b)
| (66)
| (34)
|
Income from non-hedging derivatives
| | 99
| 11
|
Charges from non-hedging derivatives
| | (28)
| (29)
|
Net result from non-hedging derivatives
| (c)
| 71
| (18)
|
Net result from derivatives
| (a+b+c)
| 62
| (8)
|
| | | |
Positive fair value adjustments to fair value hedge derivatives
| | 40
| 131
|
Negative fair value adjustments to underlying financial assets and liabilities of fair value hedge derivatives
| | (7)
| (88)
|
Net fair value adjustments
| (d)
| 33
| 43
|
Positive fair value adjustments to underlying financial assets and liabilities of fair value hedge derivatives
| | 250
| 14
|
Negative fair value adjustments to fair value hedge derivatives
| | (265)
| (29)
|
Net fair value adjustments
| (e)
| (15)
| (15)
|
Net fair value adjustment to fair value hedge derivatives and underlyings
| (d+e)
| 18
| 28
|
| | | |
Positive fair value to non-hedging derivatives
| (f)
| 326
| 114
|
Negative fair value adjustments to non-hedging derivatives
| (g)
| (244)
| (79)
|
Net fair value adjustments to non-hedging derivatives
| (f+g)
| 82
| 35
|
Note 20
Profit (loss) for the period
Profit (loss) for the period, decreased 2,680 million euros compared to the first half of 2012 and may be broken down as follows:
| | |
(millions of euros)
| 1st Half 2013
| 1st Half 2012
|
| | |
Profit (loss) for the period
| (1,224)
| 1,456
|
Attributable to:
| | |
Owners of the Parent:
| | |
Profit (loss) from continuing operations
| (1,410)
| 1,242
|
Profit (loss) from Discontinued operations/Non-current assets held for sale
| 3
| −
|
Profit (loss) for the period attributable to owners of the Parent
| (1,407)
| 1,242
|
Non-controlling interests:
| | |
Profit (loss) from continuing operations
| 183
| 214
|
Profit (loss) from Discontinued operations/Non-current assets held for sale
| | |
Profit (loss) for the period attributable to Non-controlling interests
| 183
| 214
|
Note 21
Earnings per share
For purposes of the calculation of diluted earnings per share, account was only taken of the potential ordinary shares relating to the equity compensation plans of the employees who satisfied, at June 30, 2013, the market and non-market performance conditions.
| | | |
| | 1st Half 2013
| 1st Half 2012
|
| | | |
| | | |
Basic and diluted earnings per share
| | | |
Net profit (loss) for the period attributable to owners of the Parent
| | (1,407)
| 1,242
|
Less: additional dividends for the savings shares (0.011 euros per share)
| | −
| (66)
|
| (millions of euros)
| (1,407)
| 1,176
|
Average number of ordinary and savings shares
| (millions)
| 19,304
| 19,294
|
Basic and diluted earnings per share – Ordinary shares
| | (0.07)
| 0.06
|
Plus: additional dividends per savings share
| | −
| 0.01
|
Basic and diluted earnings per share – Savings shares
| (euros)
| (0.07)
| 0.07
|
Basic and diluted earnings per share from continuing operations
| | | |
Profit (loss) from continuing operations
| | (1,410)
| 1,242
|
Less: additional dividends for the savings shares
| | −
| (66)
|
| (millions of euros)
| (1,410)
| 1,176
|
Average number of ordinary and savings shares
| (millions)
| 19,304
| 19,294
|
Basic and diluted earnings per share from continuing operations — Ordinary shares
| | (0.07)
| 0.06
|
Plus: additional dividends per savings share
| | −
| 0.01
|
Basic and diluted earnings per share from continuing operations — Savings shares
| (euros)
| (0.07)
| 0.07
|
Basic and diluted earnings per share from Discontinued operations/Non-current assets held for sale
| | | |
Profit (loss) from Discontinued operations/Non-current assets held for sale
| (millions of euros)
| 3
| −
|
Average number of ordinary and savings shares
| (millions)
| 19,304
| 19,294
|
Basic and diluted earnings per share from Discontinued operations/Non-current assets held for sale - Ordinary shares
| (euros)
| -
| -
|
Basic and diluted earnings per share from Discontinued operations/Non-current assets held for sale - Savings shares
| (euros)
| -
| -
|
| | | |
| | 1st Half 2013
| 1st Half 2012
|
| | | |
Average number of ordinary shares (*)
| | 13,277,523,776
| 13,267,508,877
|
Average number of savings shares
| | 6,026,120,661
| 6,026,120,661
|
Total
| | 19,303,644,437
| 19,293,629,538
|
(*)
The number only takes into account the potential ordinary shares relating to the equity compensation plans of employees for whom the market and non-market performance conditions have been satisfied.
Future potential changes in share capital
The following table shows the future potential changes in share capital on the basis of the options and rights granted under equity compensation plans still outstanding at June 30, 2013:
| | | | |
| Number of maximum shares issuable
| Par value
(thousands of euros) (*)
| Paid-in capital
(thousands of euros)
| Subscription price per share
(euros)
|
Additional capital increases not yet approved (ordinary shares)
| | | | |
Resolution by the shareholders’ meeting held on April 8, 2009
| 1,600,000,000
| 880,000
| n.a.
| n.a.
|
“Long Term Incentive Plan 2010-2015”
(bonus capital increase)
| 204,151
| 112
| -
| -
|
“Long Term Incentive Plan 2011”
(capital increase in cash for Selected Management)
| n.a.
| 4,525
| n.a.
| n.a.
|
“Long Term Incentive Plan 2011”
(bonus capital increase for Selected Management)
| n.a.
| 4,525
| -
| -
|
“Long Term Incentive Plan 2011”
(bonus capital increase for Top Management)
| n.a.
| 2,806
| -
| -
|
“Long Term Incentive Plan 2012”
(capital increase in cash for Selected Management)
| n.a.
| 4,710
| n.a.
| n.a.
|
“Long Term Incentive Plan 2012”
(bonus capital increase for Selected Management)
| n.a.
| 4,710
| -
| -
|
“Long Term Incentive Plan 2012”
(bonus capital increase for Top Management)
| n.a.
| 3,267
| -
| -
|
Total additional capital increases not yet approved (ordinary shares)
| | 904,655
| | |
(*)
For capital increases connected to incentive plans this is the “total estimated value” including the possible paid-in capital.
Further details are provided in the Note “Equity compensation plans”.
Note 22
Segment reporting
a) Reporting by operating segment
Segment reporting is based on the following operating segments:
•
Domestic
•
Brazil
•
Argentina
•
Media
•
Olivetti
•
Other Operations
Separate Consolidated Income Statements by Operating Segment
| | | | | | | | | | | | | | | | |
(millions of euros)
| Domestic
| Brazil
| Argentina
| Media
| Olivetti
| Other Operations
| Adjustments and eliminations
| Consolidated total
|
| 1st Half 2013
| 1st Half 2012
| 1st Half 2013
| 1st Half 2012
| 1st Half 2013
| 1st Half 2012
| 1st Half 2013
| 1st Half 2012
| 1st Half 2013
| 1st Half 2012
| 1st Half 2013
| 1st Half 2012
| 1st Half 2013
| 1st Half 2012
| 1st Half 2013
| 1st Half 2012
|
Third-party revenues
| 8,066
| 8,998
| 3,615
| 3,720
| 1,887
| 1,821
| 87
| 117
| 105
| 109
| −
| 28
| −
| −
| 13,760
| 14,793
|
Intragroup revenues
| 38
| 50
| 5
| 13
| 3
| 2
| 1
| 2
| 19
| 21
| −
| 13
| (66)
| (101)
| −
| −
|
Revenues by operating segment
| 8,104
| 9,048
| 3,620
| 3,733
| 1,890
| 1,823
| 88
| 119
| 124
| 130
| −
| 41
| (66)
| (101)
| 13,760
| 14,793
|
Other income
| 83
| 92
| 11
| 3
| 2
| 2
| 3
| 4
| 11
| 8
| 1
| 1
| (1)
| (2)
| 110
| 108
|
Total operating revenues and other income
| 8,187
| 9,140
| 3,631
| 3,736
| 1,892
| 1,825
| 91
| 123
| 135
| 138
| 1
| 42
| (67)
| (103)
| 13,870
| 14,901
|
Acquisition of goods and services
| (2,869)
| (3,236)
| (2,274)
| (2,255)
| (873)
| (839)
| (76)
| (104)
| (117)
| (123)
| (4)
| (34)
| 59
| 91
| (6,154)
| (6,500)
|
Employee benefits expenses
| (1,429)
| (1,472)
| (179)
| (177)
| (280)
| (267)
| (21)
| (33)
| (20)
| (43)
| (1)
| (14)
| (1)
| −
| (1,931)
| (2,006)
|
of which: accruals to employee severance indemnities
| −
| −
| −
| −
| −
| −
| −
| −
| −
| −
| −
| −
| −
| −
| −
| −
|
Other operating expenses
| (365)
| (301)
| (341)
| (373)
| (223)
| (197)
| (6)
| (3)
| (4)
| (3)
| (2)
| (21)
| −
| 1
| (941)
| (897)
|
of which: write-downs and expenses in connection with credit management and provision charges
| (161)
| (187)
| (92)
| (84)
| (36)
| (32)
| (3)
| (1)
| (4)
| (3)
| −
| (20)
| −
| 1
| (296)
| (326)
|
Change in inventories
| 66
| 22
| 42
| 17
| 21
| 28
| 1
| 1
| (17)
| (7)
| −
| −
| 1
| 1
| 114
| 62
|
Internally generated assets
| 234
| 253
| 40
| 39
| −
| −
| −
| −
| −
| −
| −
| −
| 4
| 7
| 278
| 299
|
EBITDA
| 3,824
| 4,406
| 919
| 987
| 537
| 550
| (11)
| (16)
| (23)
| (38)
| (6)
| (27)
| (4)
| (3)
| 5,236
| 5,859
|
Depreciation and amortization
| (1,788)
| (1,818)
| (499)
| (526)
| (286)
| (295)
| (18)
| (30)
| (2)
| (3)
| −
| (9)
| 4
| 5
| (2,589)
| (2,676)
|
Gains (losses) on disposals of non-current assets
| 4
| 17
| −
| (1)
| 1
| −
| (105)
| −
| −
| −
| 18
| −
| 1
| −
| (81)
| 16
|
Impairment reversals (losses) on non-current assets
| (2,187)
| −
| −
| | (26)
| −
| −
| −
| −
| −
| −
| −
| −
| −
| (2,213)
| −
|
EBIT
| (147)
| 2,605
| 420
| 460
| 226
| 255
| (134)
| (46)
| (25)
| (41)
| 12
| (36)
| 1
| 2
| 353
| 3,199
|
Share of profits (losses) of associates and joint ventures accounted for using the equity method
| −
| (4)
| −
| −
| −
| −
| −
| −
| −
| −
| −
| −
| −
| −
| −
| (4)
|
Other income (expenses) from investments
| 2
| −
|
Finance income
| 1,487
| 1,272
|
Finance expenses
| (2,436)
| (2,189)
|
Profit (loss) before tax from continuing operations
| (594)
| 2,278
|
Income tax expense
| (633)
| (822)
|
Profit (loss) from continuing operations
| (1,227)
| 1,456
|
Profit (loss) from Discontinued operations/ Non-current assets held for sale
| 3
| −
|
Profit (loss) for the period
| (1,224)
| 1,456
|
Attributable to:
| | |
Owners of the Parent
| (1,407)
| 1,242
|
Non-controlling interests
| 183
| 214
|
Revenues by Operating Segment
| | | | | | | | | | | | | | | | |
(millions of euros)
| Domestic
| Brazil
| Argentina
| Media
| Olivetti
| Other Operations
| Adjustments and eliminations
| Consolidated total
|
| 1st Half 2013
| 1st Half 2012
| 1st Half 2013
| 1st Half 2012
| 1st Half 2013
| 1st Half 2012
| 1st Half 2013
| 1st Half 2012
| 1st Half 2013
| 1st Half 2012
| 1st Half 2013
| 1st Half 2012
| 1st Half 2013
| 1st Half 2012
| 1st Half 2013
| 1st Half 2012
|
Revenues from equipment sales - third party
| 312
| 333
| 564
| 421
| 194
| 163
| −
| −
| 104
| 108
| −
| −
| −
| −
| 1,174
| 1,025
|
Revenues from equipment sales - intragroup
| −
| 1
| −
| −
| −
| −
| −
| −
| 14
| 17
| −
| −
| (14)
| (18)
| −
| −
|
Total revenues from equipment sales
| 312
| 334
| 564
| 421
| 194
| 163
| −
| −
| 118
| 125
| −
| | (14)
| (18)
| 1,174
| 1,025
|
Revenues from services - third party
| 7,773
| 8,657
| 3,051
| 3,299
| 1,693
| 1,658
| 87
| 117
| 1
| 1
| −
| 28
| −
| −
| 12,605
| 13,760
|
Revenues from services - intragroup
| 38
| 49
| 5
| 13
| 3
| 2
| 1
| 2
| 5
| 4
| −
| 13
| (52)
| (83)
| −
| −
|
Total revenues from services
| 7,811
| 8,706
| 3,056
| 3,312
| 1,696
| 1,660
| 88
| 119
| 6
| 5
| −
| 41
| (52)
| (83)
| 12,605
| 13,760
|
Revenues on construction contracts - third party
| (19)
| 8
| −
| −
| −
| −
| −
| −
| −
| −
| −
| −
| −
| −
| (19)
| 8
|
Revenues on construction contracts-intragroup
| −
| −
| −
| −
| −
| −
| −
| −
| −
| −
| −
| −
| −
| −
| −
| −
|
Total revenues on construction contracts
| (19)
| 8
| | −
| | −
| −
| −
| | −
| | −
| −
| −
| (19)
| 8
|
Total third-party revenues
| 8,066
| 8,998
| 3,615
| 3,720
| 1,887
| 1,821
| 87
| 117
| 105
| 109
| −
| 28
| −
| −
| 13,760
| 14,793
|
Total intragroup revenues
| 38
| 50
| 5
| 13
| 3
| 2
| 1
| 2
| 19
| 21
| −
| 13
| (66)
| (101)
| −
| −
|
Total revenues by operating segment
| 8,104
| 9,048
| 3,620
| 3,733
| 1,890
| 1,823
| 88
| 119
| 124
| 130
| −
| 41
| (66)
| (101)
| 13,760
| 14,793
|
Capital Expenditures by Operating Segment
| | | | | | | | | | | | | | | | |
(millions of euros)
| Domestic
| Brazil
| Argentina
| Media
| Olivetti
| Other Operations
| Adjustments and eliminations
| Consolidated total
|
| 1st Half 2013
| 1st Half 2012
| 1st Half 2013
| 1st Half 2012
| 1st Half 2013
| 1st Half 2012
| 1st Half 2013
| 1st Half 2012
| 1st Half 2013
| 1st Half 2012
| 1st Half 2013
| 1st Half 2012
| 1st Half 2013
| 1st Half 2012
| 1st Half 2013
| 1st Half 2012
|
Purchase of intangible assets
| 602
| 565
| 322
| 255
| 62
| 75
| 13
| 16
| 1
| −
| −
| 6
| −
| −
| 1,000
| 917
|
Purchase of tangible assets
| 743
| 768
| 275
| 407
| 169
| 161
| 5
| 14
| 1
| 1
| −
| 1
| −
| −
| 1,193
| 1,352
|
Total capital expenditures
| 1,345
| 1,333
| 597
| 662
| 231
| 236
| 18
| 30
| 2
| 1
| −
| 7
| −
| −
| 2,193
| 2,269
|
Headcount by Operating Segment
| | | | | | | | | | | | | | |
(number)
| Domestic
| Brazil
| Argentina
| Media
| Olivetti
| Other Operations
| Consolidated total
|
| 6/30/2013
| 12/31/2012
| 6/30/2013
| 12/31/2012
| 6/30/2013
| 12/31/2012
| 6/30/2013
| 12/31/2012
| 6/30/2013
| 12/31/2012
| 6/30/2013
| 12/31/2012
| 6/30/2013
| 12/31/2012
|
Headcount
| 52,997
| 53,224
| 11,494
| 11,622
| 16,713
| 16,803
| 208
| 735
| 729
| 778
| 22
| 22
| 82,163
| 83,184
|
Assets and liabilities by operating segment
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(millions of euros)
| Domestic
| Brazil
| Argentina
| Media
| Olivetti
| Other Operations
| Adjustments and eliminations
| Consolidated total
|
| 6/30/2013
| 12/31/2012
| 6/30/2013
| 12/31/2012
| 6/30/2013
| 12/31/2012
| 6/30/2013
| 12/31/2012
| 6/30/2013
| 12/31/2012
| 6/30/2013
| 12/31/2012
| 6/30/2013
| 12/31/2012
| 6/30/2013
| 12/31/2012
|
Non-current operating assets
| 44,927
| 47,487
| 6,342
| 6,653
| 2,688
| 2,967
| 231
| 241
| 22
| 22
| 7
| 9
| (81)
| (67)
| 54,136
| 57,312
|
Current operating assets
| 4,575
| 4,545
| 2,249
| 2,026
| 580
| 546
| 43
| 128
| 208
| 222
| 48
| 63
| (72)
| (88)
| 7,631
| 7,442
|
Total operating assets
| 49,502
| 52,032
| 8,591
| 8,679
| 3,268
| 3,513
| 274
| 369
| 230
| 244
| 55
| 72
| (153)
| (155)
| 61,767
| 64,754
|
Investments accounted for using the equity method
| 44
| 44
| −
| −
| −
| −
| −
| −
| −
| −
| −
| −
| 21
| 21
| 65
| 65
|
Discontinued operations /Non-current assets held for sale
| −
| −
|
Unallocated assets
| 9,217
| 12,736
|
Total assets
| 71,049
| 77,555
|
Total operating liabilities
| 8,422
| 9,238
| 2,236
| 2,693
| 1,127
| 1,092
| 65
| 166
| 162
| 217
| 15
| 35
| (235)
| (153)
| 11,792
| 13,288
|
Liabilities directly associated with Discontinued operations/Non-current assets held for sale
| −
| −
|
Unallocated liabilities
| 38,779
| 41,255
|
Equity
| 20,478
| 23,012
|
Total Equity and Liabilities
| 71,049
| 77,555
|
Following the merger of Saiat into Telecom Italia S.p.A., in 2012 the investment in Teleleasing has been included in the Domestic segment instead of Other operations.
b) Reporting by geographical area
| | | | | | | |
| | Revenues
| Non-current operating assets
|
(millions of euros)
| | Breakdown by location of operations
| Breakdown by location of customers
| Breakdown by location of operations
|
| | 1st Half 2013
| 1st Half 2012
| 1st Half 2013
| 1st Half 2012
| 6/30/2013
| 12/31/2012
|
Italy
| (a)
| 8,120
| 9,094
| 7,685
| 8,504
| 44,744
| 47,328
|
Outside Italy
| (b)
| 5,640
| 5,699
| 6,075
| 6,289
| 9,392
| 9,984
|
Total
| (a+b)
| 13,760
| 14,793
| 13,760
| 14,793
| 54,136
| 57,312
|
c) Information about major customers
None of the Telecom Italia Group’s customers exceeds 10% of consolidated revenues.
Note 23
Related party transactions
The following tables show the figures relating to transactions with related parties and the impact of those amounts on the separate consolidated income statement, consolidated statement of financial position and consolidated statement of cash flows.
In accordance with art. 5, paragraph 8 of Consob Regulation 17221/2010 concerning “related party transactions” and the subsequent Consob Resolution 17389/2010, it is noted that no significant transactions were entered into in the first half of 2013 as defined by art. 4, paragraph 1, letter a) of the aforementioned regulation or other transactions with related parties which had a major impact on the financial position or on the results of the Telecom Italia Group for the first half of 2013.
Furthermore, there were no changes or developments regarding the related party transactions described in the 2012 report on operations which had a significant effect on the financial position or on the results of the Telecom Italia Group in the first half of 2013.
Transactions with related parties, when not dictated by specific laws, were conducted at arm’s length. The transactions were subject to an internal procedure (available for consultation on the Company’s website at the following address: www.telecomitalia.com, section Governance – channel governance system) which establishes procedures and time scales for verification and monitoring.
The effects on the individual line items of the separate consolidated income statements for the first half 2013 and 2012 are as follows:
SEPARATE CONSOLIDATED INCOME STATEMENT LINE ITEMS — FIRST HALF 2013
| | | | | | | | | | |
(millions of euros)
| Total
| Related Parties
|
| | Associates and joint ventures
| Companies controlled by associates and joint ventures
| Other related parties (*)
| Pension funds
| Key managers
| Total related parties
| Transactions of Discontinued Operations
| Total related parties net of Disc.Op.
| % of financial statement item
|
| | | | | | | | | | |
Revenues
| 13,760
| 5
| 1
| 479
| −
| | 485
| | 485
| 3.5
|
Acquisition of goods and services
| 6,154
| 3
| 12
| 341
| −
| | 356
| | 356
| 5.8
|
Employee benefits expenses
| 1,931
| −
| −
| 6
| 42
| 10
| 58
| | 58
| 3.0
|
Finance income
| 1,487
| −
| −
| 55
| −
| | 55
| | 55
| 3.7
|
Finance expenses
| 2,436
| 7
| −
| 56
| −
| | 63
| | 63
| 2.6
|
(*) Other related parties through directors, statutory auditors and key managers.
|
SEPARATE CONSOLIDATED INCOME STATEMENT LINE ITEMS — FIRST HALF 2012
| | | | | | | | | | |
(millions of euros)
| Total
| Related Parties
|
| | Associates and joint ventures
| Companies controlled by associates and joint ventures
| Other related parties (*)
| Pension funds
| Key managers
| Total related parties
| Transactions of Discontinued Operations
| Total related parties net of Disc.Op.
| % of financial statement item
|
| | | | | | | | | | |
Revenues
| 14,793
| 22
| 1
| 485
| | | 508
| | 508
| 3.4
|
Acquisition of goods and services
| 6,500
| 5
| 10
| 328
| | | 343
| | 343
| 5.3
|
Employee benefits expenses
| 2,006
| | −
| 2
| 41
| 10
| 53
| | 53
| 2.6
|
Finance income
| 1,272
| −
| −
| 26
| | | 26
| | 26
| 2.0
|
Finance expenses
| 2,189
| 10
| −
| 29
| | | 39
| | 39
| 1.8
|
(*) Other related parties through directors, statutory auditors and key managers.
|
The effects on the individual line items of the consolidated statements of financial position of the Group at June 30, 2013 and at December 31, 2012 are as follows:
CONSOLIDATED STATEMENT OF FINANCIAL POSITION LINE ITEMS AT 6/30/2013
| | | | | | | | | |
(millions of euros)
| Total
| Related Parties
|
| | Associates and joint ventures
| Companies controlled by associates and joint ventures
| Other related parties (*)
| Pension funds
| Total related parties
| Transactions of Discontinued Operations
| Total related parties net of Disc.Op.
| % of financial statement item
|
| | | | | | | | | |
Net financial debt
| | | | | | | | | |
Non-current financial assets
| (1,553)
| −
| −
| (163)
| −
| (163)
| | (163)
| 10.5
|
Securities other than investments (current assets)
| (1,311)
| −
| −
| (30)
| −
| (30)
| | (30)
| 2.3
|
Financial receivables and other current financial assets
| (523)
| (2)
| −
| (12)
| −
| (14)
| | (14)
| 2.7
|
Cash and cash equivalents
| (4,793)
| −
| −
| (102)
| −
| (102)
| | (102)
| 2.1
|
Current financial assets
| (6,627)
| (2)
| −
| (144)
| −
| (146)
| | (146)
| 2.2
|
Non-current financial liabilities
| 31,435
| 85
| −
| 337
| −
| 422
| | 422
| 1.3
|
Current financial liabilities
| 6,531
| 82
| −
| 105
| −
| 187
| | 187
| 2.9
|
Total net financial debt
| 29,786
| 165
| −
| 135
| −
| 300
| | 300
| 1.0
|
Other statement of financial position line items
| | | | | | | | | |
Trade and miscellaneous receivables and other current assets
| 7,095
| 4
| 1
| 224
| −
| 229
| | 229
| 3.2
|
Miscellaneous payables and other non-current liabilities
| 984
| −
| −
| 2
| −
| 2
| | 2
| 0.2
|
Trade and miscellaneous payables and other current liabilities
| 9,137
| 5
| 33
| 230
| 26
| 294
| | 294
| 3.2
|
(*) Other related parties through directors, statutory auditors and key managers.
|
|
CONSOLIDATED STATEMENT OF FINANCIAL POSITION LINE ITEMS AT 12/31/2012
| | | | | | | | | |
(millions of euros)
| Total
| Related Parties
|
| | Associates and joint ventures
| Companies controlled by associates and joint ventures
| Other related parties (*)
| Pension funds
| Total related parties
| Transactions of Discontinued Operations
| Total related parties net of Disc.Op.
| % of financial statement item
|
| | | | | | | | | |
Net financial debt
| | | | | | | | | |
Non-current financial assets
| (2,496)
| −
| −
| (265)
| −
| (265)
| | (265)
| 10.6
|
Securities other than investments (current assets)
| (754)
| −
| −
| −
| | −
| | −
| −
|
Financial receivables and other current financial assets
| (502)
| (2)
| −
| (10)
| −
| (12)
| | (12)
| 2.4
|
Cash and cash equivalents
| (7,436)
| −
| −
| (279)
| −
| (279)
| | (279)
| 3.8
|
Current financial assets
| (8,692)
| (2)
| −
| (289)
| −
| (291)
| | (291)
| 3.3
|
Non-current financial liabilities
| 34,091
| 109
| −
| 367
| −
| 476
| | 476
| 1.4
|
Current financial liabilities
| 6,150
| 103
| −
| 75
| −
| 178
| | 178
| 2.9
|
Total net financial debt
| 29,053
| 210
| −
| (112)
| −
| 98
| | 98
| 0.3
|
Other statement of financial position line items
| | | | | | | | | |
Trade and miscellaneous receivables and other current assets
| 7,006
| 11
| 5
| 219
| −
| 235
| | 235
| 3.4
|
Miscellaneous payables and other non-current liabilities
| 1,053
| −
| −
| 2
| −
| 2
| | 2
| 0.2
|
Trade and miscellaneous payables and other current liabilities
| 10,542
| 10
| 39
| 253
| 25
| 327
| | 327
| 3.1
|
(*) Other related parties through directors, statutory auditors and key managers.
|
|
The effects on the individual line items of the consolidated statements of cash flows for the first half of 2013 and 2012 are as follows:
CONSOLIDATED STATEMENT OF CASH FLOWS LINE ITEMS — FIRST HALF 2013
| | | | | | | | | |
(millions of euros)
| Total
| Related Parties
|
| | Associates and joint ventures
| Companies controlled by associates and joint ventures
| Other related parties (*)
| Pension funds
| Total related parties
| Transactions of Discontinued Operations
| Total related parties net of Disc.Op.
| % of financial statement item
|
| | | | | | | | | |
Purchase of intangible and tangible assets on an accrual basis
| 2,193
| 1
| 56
| 8
| | 65
| | 65
| 3.0
|
Dividends paid
| 498
| | | 62
| −
| 62
| | 62
| 12.4
|
(*) Other related parties through directors, statutory auditors and key managers.
|
CONSOLIDATED STATEMENT OF CASH FLOWS LINE ITEMS — FIRST HALF 2012
| | | | | | | | | |
(millions of euros)
| Total
| Related Parties
|
| | Associates and joint ventures
| Companies controlled by associates and joint ventures
| Other related parties (*)
| Pension funds
| Total related parties
| Transactions of Discontinued Operations
| Total related parties net of Disc.Op.
| % of financial statement item
|
| | | | | | | | | |
Purchase of intangible and tangible assets on an accrual basis
| 2,269
| −
| 60
| 1
| | 61
| | 61
| 2.7
|
Dividends paid
| 1,027
| | | 139
| −
| 139
| | 139
| 13.5
|
(*) Other related parties through directors, statutory auditors and key managers.
|
Transactions with associates and joint ventures
The most significant amounts are summarized as follows:
SEPARATE CONSOLIDATED INCOME STATEMENT LINE ITEMS
| | | |
(millions of euros)
| 1st Half 2013
| 1st Half 2012
| TYPE OF CONTRACT
|
| | | |
Revenues
| | | |
NordCom S.p.A.
| 1
| 1
| Fixed and mobile voice services, data network connections, outsourcing, I.C.T. products and services.
|
Teleleasing S.p.A. (in liquidation)
| 3
| 20
| Sale of equipment.
|
Other minor companies
| 1
| 1
| |
Total revenues
| 5
| 22
| |
Acquisition of goods and services
| | | |
Movenda S.p.A.
| −
| 1
| Supply of SIM cards and related adapters, software development and advanced maintenance.
|
NordCom S.p.A.
| 1
| 1
| Supply and development of IT solutions, supply of rented equipment and IT services, and provision of customized services as part of Telecom Italia offerings to end customers.
|
Teleleasing S.p.A. (in liquidation)
| 1
| 1
| Purchase of goods assigned under leasing arrangements with Telecom Italia customers.
|
TM News S.p.A.
| 1
| 2
| Supply of information content for the TimSpot service, services and photos for intranet, supply of journalistic information (news, APCOM News data flow).
|
Total acquisition of goods
and services
| 3
| 5
| |
Finance expenses
| 7
| 10
| Interest expenses for finance leases of equipment and finance leases with Teleleasing S.p.A. (in liquidation).
|
CONSOLIDATED STATEMENT OF FINANCIAL POSITION LINE ITEMS
| | | |
(millions of euros)
| 6/30/2013
| 12/31/2012
| TYPE OF CONTRACT
|
| | | |
Net financial debt carrying amount
| | | |
Financial receivables and other current financial assets
| 2
| 2
| Shareholder loan to Aree Urbane S.r.l. (in liquidation).
|
Non-current financial liabilities
| 85
| 109
| Finance leases of equipment and finance leases with Teleleasing S.p.A. (in liquidation).
|
Current financial liabilities
| 82
| 103
| Finance leases of equipment and finance leases with Teleleasing S.p.A. (in liquidation).
|
Other statement of financial position line items
| | | |
Trade and miscellaneous receivables and other current assets
| | | |
NordCom S.p.A.
| | 1
| Fixed and mobile voice services, data network connections, outsourcing, I.C.T. products and services.
|
Teleleasing S.p.A. (in liquidation)
| 2
| 8
| Sale of equipment.
|
TM News S.p.A.
| 1
| 1
| Property leases and telecommunications services.
|
Other minor companies
| 1
| 1
| |
Total trade and miscellaneous receivables and other current assets
| 4
| 11
| |
Trade and miscellaneous payables and other current liabilities
| | | |
Movenda S.p.A.
| 1
| 3
| Supply of SIM cards and related adapters, software development and advanced maintenance.
|
NordCom S.p.A.
| 1
| 2
| Supply and development of IT solutions, supply of rented equipment and IT services, and provision of customized services as part of Telecom Italia offerings to end customers.
|
Teleleasing S.p.A. (in liquidation)
| 2
| 2
| Purchase of goods assigned under leasing arrangements with Telecom Italia customers.
|
TM News S.p.A.
| −
| 2
| Supply of information content for the TimSpot service, services and photos for intranet, supply of journalistic information (news, APCOM News data flow).
|
Other minor companies
| 1
| 1
| |
Total trade and miscellaneous payables and other current liabilities
| 5
| 10
| |
| | | |
| | | |
CONSOLIDATED STATEMENT OF CASH FLOWS LINE ITEMS
|
(millions of euros)
| 1st Half 2013
| 1st Half 2012
| TYPE OF CONTRACT
|
| | | |
Purchase of intangible and tangible assets on an accrual basis
| 1
| −
| Acquisition from other minor companies.
|
Transactions with companies controlled by associates and joint ventures
The most significant amounts are summarized as follows:
| | | |
SEPARATE CONSOLIDATED INCOME STATEMENT LINE ITEMS
|
(millions of euros)
| 1st Half 2013
| 1st Half 2012
| TYPE OF CONTRACT
|
| | | |
Revenues
| 1
| 1
| Provision of equipment rental, fixed and mobile telephone and outsourced communication services to the Italtel Group.
|
Acquisition of goods and services
| 12
| 10
| Supply and maintenance of switching equipment, software development and platforms upgrading, and customized products and services, as part of Telecom Italia offerings to the Italtel group customers.
|
| | | |
CONSOLIDATED STATEMENT OF FINANCIAL POSITION LINE ITEMS
|
(millions of euros)
| 6/30/2013
| 12/31/2012
| TYPE OF CONTRACT
|
| | | |
Trade and miscellaneous receivables and other current assets
| 1
| 5
| Supply of products and services, sale of products and convertible loan to the Italtel group. The convertible loan in place at December 31, 2012 relating to Italtel S.p.A of 5 million euros was converted in the first half of 2013 into equity instruments in the company.
|
Trade and miscellaneous payables and other current liabilities
| 33
| 39
| Supply relationships linked to Capex and Opex for the Italtel group.
|
| | | |
CONSOLIDATED STATEMENT OF CASH FLOWS LINE ITEMS
|
(millions of euros)
| 1st Half 2013
| 1st Half 2012
| TYPE OF CONTRACT
|
| | | |
Purchase of intangible and tangible assets on an accrual basis
| 56
| 60
| Purchases of TLC equipment from Italtel group.
|
At June 30, 2013 the Telecom Italia Group had provided guarantees on behalf of the associate Aree Urbane S.r.l. (In liquidation), for 5 million euros.
Transactions with other related parties (through directors, statutory auditors and key managers)
The “Procedure for carrying out transactions with related parties” – pursuant to the Regulation containing the provisions on related party transactions adopted by Consob under Resolution 17221 of March 12, 2010, as amended – provides that the procedure should be applied also to parties who, regardless of whether they qualify as related parties according to the accounting principles, participate in significant shareholders’ agreements according to art. 122 of the Consolidated Law on Finance, which govern the candidacy to the position of director of Telecom Italia, where the slate presented is the majority slate pursuant to art. 9 of the bylaws of the Company.
The most significant amounts are summarized as follows:
SEPARATE CONSOLIDATED INCOME STATEMENT LINE ITEMS
| | | |
(millions of euros)
| 1st Half 2013
| 1st Half 2012
| TYPE OF CONTRACT
|
| | | |
Revenues
| | | |
Generali group
| 46
| 36
| Supply of telephone and data transmission services, peripheral data networks, connections, storage and telecommunications equipment and services for foreign holdings.
|
Intesa Sanpaolo group
| 33
| 32
| Telephone services, MPLS data and international network, ICT services and Microsoft licenses, Internet connectivity and high-speed connections.
|
Mediobanca group
| 3
| 3
| Telephone and MPLS data network services and marketing of data and VoIP devices and marketing of equipment for fixed and mobile networks.
|
Telefónica group
| 397
| 412
| Interconnection services, roaming, broadband access fees, supply of “IRU” transmission capacity and software.
|
Other minor companies
| −
| 2
| |
Total revenues
| 479
| 485
| |
Acquisition of goods and services
| | | |
China Unicom group
| −
| 1
| International telecommunications and roaming services.
|
Generali group
| 18
| 17
| Insurance premiums and property leases.
|
Intesa Sanpaolo group
| 6
| 9
| Factoring fees, fees for telephone card top-ups/activation and commissions for payment of telephone bills by direct debit and collections via credit cards.
|
Mediobanca group
| 2
| −
| Credit recovery activities and professional services.
|
Telefónica group
| 315
| 300
| Interconnection and roaming services, site sharing, co-billing agreements, broadband linesharing and unbundling.
|
Other minor companies
| −
| 1
| |
Total acquisition of goods and services
| 341
| 328
| |
Employee benefits expenses
| 6
| 2
| Non-obligatory employee insurance taken out with the Generali group.
|
Finance income
| | | |
Intesa Sanpaolo group
| 42
| 19
| Bank accounts, deposits and hedging derivatives.
|
Mediobanca group
| 13
| 7
| Bank accounts, deposits and hedging derivatives.
|
Total finance income
| 55
| 26
| |
Finance expenses
| | | |
Intesa Sanpaolo group
| 44
| 22
| Term Loan Facility, Revolving Credit Facility, hedging derivatives, loans and bank accounts.
|
Mediobanca group
| 12
| 7
| Term Loan Facility and Revolving Credit Facility and hedging derivatives.
|
Total finance expenses
| 56
| 29
| |
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the United States Private Securities Litigation Reform Act of 1995.
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. The Group's interim report as of and for the six months ended June 30, 2013 included in this Form 6-K contains certain forward-looking statements. Forward-looking statements are statements that are not historical facts and can be identified by the use of forward-looking terminology such as "believes," "may," "is expected to," "will," "will continue," "should," "seeks" or "anticipates" or similar expressions or the negative thereof or other comparable terminology, or by the forward- looking nature of discussions of strategy, plans or intentions.
Actual results may differ materially from those projected or implied in the forward-looking statements. Such forward-looking information is based on certain key assumptions which we believe to be reasonable but forward-looking information by its nature involves risks and uncertainties, which are outside our control, that could significantly affect expected results.
The following important factors could cause our actual results to differ materially from those projected or implied in any forward-looking statements:
1. our ability to successfully implement our strategy over the 2013-2015 period;
2. our ability to successfully achieve our debt reduction and other targets;
3. the increasing competition from global and local OTT (Over The Top) players (operators offering contents and services on the internet without owning its own proprietary telecommunications network infrastructure);
4. the continuing impact of increased competition in our markets, including competition from established domestic competitors and global and regional alliances formed by other telecommunications operators in our core Italian domestic fixed-line and wireless markets and our other principal markets;
5. the continuing effects of the global economic crisis in the principal markets in which we operate, including, in particular, our core Italian market;
6. our ability to introduce new services to stimulate increased usage of our fixed and wireless networks to offset declines in the traditional voice business mainly due to the continuing impact of regulatory required price reductions, market share loss and pricing pressures generally;
7. our ability to successfully implement our internet and broadband strategy;
8. the impact of regulatory decisions and changes in the regulatory environment in Italy and other countries in which we operate, including recent changes to allowable charges for data and voice roaming;
9. the impact of economic development generally on our international business and on our foreign investments and capital expenditures;
10. as our services are technology-intensive, our ability to develop new technologies in order to avoid our services becoming non-competitive;
11. the impact of political developments in Italy and other countries in which we operate;
12. the impact of fluctuations in currency exchange and interest rates;
13. our ability to build up our business in adjacent markets and in international markets (particularly in Brazil and Argentina), due to our specialist and technical resources;
14. our ability to achieve the expected return on the investments and capital expenditures we have made and continue to make (such as those in Brazil and Argentina);
15. the amount and timing of any future impairment charges for our authorizations, goodwill or other assets; and
16. the outcome of litigation, disputes and investigations in which we are involved or may become involved.
The foregoing factors should not be construed as exhaustive. Due to such uncertainties and risks, readers are cautioned not to place undue reliance on such forward-looking statements, which speak only as of the date hereof. We undertake no obligation to release publicly the result of any revisions to these forward-looking statements which may be made to reflect events or circumstances after the date hereof, including, without limitation, changes in our business or acquisition strategy or planned capital expenditures, or to reflect the occurrence of unanticipated events.
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