Telecom Italia (TI) has announced full-year 2009 result with earnings per ADS of $1.15 missing the Zacks Consensus Estimate of $1.44. Net income dipped 27.4% year-over-year to €1.58 billion ($2.2 billion) on account of weak performance from the carrier’s domestic operation, higher taxes and write-downs associated with its German broadband unit Hansenet, which was recently acquired by Spanish telecom giant Telefonica (TEF).
The company delayed the publication of its 2009 annual results due the investigation into its international wholesale business division (“Sparkle”) by the Italian government. Sparkle has been under fire for fraud and tax evasion and investigation revealed irregularities in the operating results during 2005−2007. Telecom Italia set aside a risk provision of €507 million ($707 million) in 2009 for taxes and penalties owed to the government.
Revenue & EBITDA
The largest Italian carrier reported operating revenue of €27.2 billion ($38.3 billion), down 6.3% year-over-year, primarily due to lower revenue from the domestic mobile business as the company is struggling with intense competition. Consolidated EBITDA rose 0.2% to €11.1 billion ($15.5 billion) with EBITDA margin increasing to 40.9% from 38.2% in 2008, supported by the carrier’s cost saving initiatives.
Results by Key Segments
Revenues from domestic business operation (consist of fixed-line, retail voice, Internet, business data, wholesale and mobile operations) totaled €21.7 billion ($30.3 billion), down 6.7% year-over-year, representing 80% of total revenues.
Domestic fixed-line telecommunications and mobile telecommunications segments generated revenues of €14.7 billion ($4.8 billion), down 1.7%, and €8.6 billion ($12 billion), down 11.3%, respectively. The contraction in mobile revenues was mainly due to lower mobile terminal sales and a declining subscriber base.
Revenues from domestic Internet operations increased 4.7% year-over-year to €1.7 billion ($2.4 billion), partly contributed by the growing adoption of ‘Alice Casa’ triple-play (voice, video and broadband) bundle service.
Telecom Italia’s TIM Brazil operation, the second largest contributor to its revenues, posted sales of R$13.9 billion ($8 billion), down 0.3% year-over-year. Subscriber growth in Brazil was healthy as TIM Brazil exited 2009 with 41.1 million mobile lines (up 13% year-over-year) and 23.6% market share.
Subscriber Statistics
Total broadband access lines at the end of 2009 were 8.7 million (including 7 million retail customers) with a net addition of 607,000 lines for the year. Telecom Italia had 30.8 million mobile subscribers (down 11.3% year-over-year) and 18.5 million fixed network lines (down 7.5%) at the end of the year. IPTV subscriber base reached 401,000 with a net addition of 72,000 customers in 2009.
Financial Position
Cash flow from operation for the year was €5.5 billion ($7.7 billion) while capital expenditure totaled €4.5 billion ($6.3 billion), resulting in a free cash flow of €1 billion ($1.4 billion). Telecom Italia exited 2009 with approximately €5.5 billion ($7.7 billion) in cash and equivalents and a net debt of €34.7 billion ($48.4 billion).
Outlook
The carrier has released its financial forecasts for 2010 and corporate strategies through 2012. The company expects organic (excluding exchange rate fluctuations and acquisitions/disposals) revenues to decline by 2%−3% from 2009 and organic EBITDA to remain stable year-over-year. Capital expenditure (CAPEX) for 2010 has been set at €4.3 billion ($6 billion) with an adjusted net debt target of €32 billion ($44.6 billion).
For 2010−2012, Telecom Italia targets average revenue growth of 1% (down from more than 2% forecasted for 2009−2011). The carrier expects EBITDA of roughly €12 billion ($16.7 billion) in 2012 and total CAPEX of €12 billion ($16.7 billion) between 2010 and 2012. The company plans to spend €9 billion ($12.6 billion) through 2012 on constructing fiber networks and improving its radio network in Italy.
Telecom Italia also unveiled its strategy through 2012 as the carrier will be focused on bringing its domestic revenues on the growth track while accelerating sales from its Brazilian unit. Moreover, the company plans to boost cash flow from operations and reduce debt over the three-year period.
The carrier targets to cut debt to below €28 billion ($39 billion) by 2012. Moreover, the company plans to achieve €2.7 billion ($3.8 billion) in cost savings by 2012 through reduction in capital expenditure and job cuts. Telecom Italia has trimmed it domestic workforce by 10% in the last two years.
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