Operating performance
Report on Operations
Revenues
Revenues amount to 18,045 million euros, decreasing 940 million euros (-5.0%) compared to 2010; in organic terms, revenues fell by 5.1% compared to 2010. It should be noted that organic revenues excluded 35 million euros of revenues of the second quarter of 2010 relating to the end of the “1001TIM” loyalty program which had resulted in the recognition of revenues from previously deferred bonus points that had not been used by the customer.
The trend in revenues shows the following changes in the sales segments compared to 2010:
- a contraction in revenues in the Consumer segment (9,168 million euros, decreasing 5.4% compared to 2010, or -519 million euros), due to the reduction in services (-681 million euros), compensated in part by the increase in sales (+120 million euros). The reduction in revenues from services is entirely attributable to the contraction of revenues from traditional voice services, particularly fixed voice (-104 million euros, or -8.1%) and outgoing Mobile voice (-336 million euros, or -11.5%). As far as internet services are concerned, revenues increased compared to 2010 due to the continuous growth of mobile broadband services (+71 million euros), which offsets the slowdown recorded in fixed broadband services (-38 million euros);
- a reduction in revenues in the Business segment (3,267 million euros, decreasing 6.9%, or -242 million euros compared to 2010). This reduction is mainly due to fixed telephony services (-150 million euros) while mobile browsing services have basically remained stable (+2 million euros);
- a shrinkage in revenues in the Top segment (3,308 million euros, decreasing 5.4% compared to 2010, or -188 million euros). The voice and data areas were penalized the most by the difficulties in the overall economic scenario, recording a decline of 9.6% (-92 million euros) and 6.8% (-11 million euros), respectively. The mobile area also recorded a contraction in revenues (-6%, or -48 million euros);
- an increase in revenues in the National Wholesale segment (+28 million euros, or +1.3%), generated by the growth of the customer base of OLOs on services for Local Loop Unbundling, Wholesale Line Rental and Bitstream.
EBITDA
EBITDA is 9,000 million euros, decreasing 89 million euros (-1%) compared to 2010. The organic change in EBITDA is a negative 3.3% (-315 million euros). The EBITDA margin grew from 47.9% in 2010 to 49.9%; at the organic level, the EBITDA margin is 50.5% (49.5% in 2010).
Non-organic income and expenses excluded from the calculation of organic EBITDA are as follows:
| (millions of euros) | 2011 | 2010 | Change |
|---|---|---|---|
|
|
|
|
|
| Non-organic revenues | - | (35) | 35 |
| Expenses for mobility agreements under Law 223/91 | 9 | 245 | (236) |
| Disputes and settlements | 63 | 91 | (28) |
| Other (income) expenses | 33 | 30 | 3 |
| Total non-organic (income) expenses | 105 | 331 | (226) |
At the EBITDA level, the negative effects described under the comments on revenues are partly offset by the reduction in operating costs which are analyzed below.
Acquisition of goods and services
Acquisition of goods and services stands at 6,324 million euros, decreasing 327 million euros (-4.9%) compared to 2010 (6,651 million euros). The change is attributable to a reduction in the portion of revenues to be paid to other operators mainly as a result of the reduction in mobile termination prices.
The increase recorded by certain expense items (purchases of goods related to the sale of products and energy) has largely been compensated by the benefits arising from efficiency measures applied to fixed operating costs.
| (millions of euros) | 2011 | 2010 | Change |
|---|---|---|---|
|
|
|
|
|
| Purchases of goods | 1,088 | 895 | 193 |
| Portion of revenues to paid to other operators and interconnection costs | 1,730 | 2,055 | (325) |
| Commercial and advertising costs | 883 | 982 | (99) |
| Consulting and professional services | 163 | 155 | 8 |
| Power, maintenance and outsourced services | 982 | 942 | 40 |
| Rent and leases | 788 | 843 | (55) |
| Other expenses | 690 | 779 | (89) |
| Total acquisition of goods and services | 6,324 | 6,651 | (327) |
| % of Revenues | 35.0 | 35.0 | - |
Employee benefits expenses
Details are as follows:
| (millions of euros) | 2011 | 2010 | Change |
|---|---|---|---|
|
|
|
|
|
| Ordinary employee expenses and costs – excluding actuarial (gains) losses | 2,731 | 2,879 | (148) |
| Actuarial (gains) losses relating to employee severance indemnities | (102) | (3) | (99) |
| Expenses for mobility under Law 223/91 | 9 | 245 | (236) |
| Total employee benefits expenses | 2,638 | 3,121 | (483) |
The reduction of 483 million euros in the employee benefits expenses is due to the following factors:
- a reduction in the ordinary component mainly due to a lower average headcount of the salaried workforce, which went from 50,076 in 2010 to 46,206 in 2011, with a reduction of -3,870 (of whom -880 are under so-called “solidarity contracts”);
- a reduction (99 million euros) deriving from the actuarial effects regarding employee severance indemnities in connection with the change in the economic parameters of reference (discount rate and inflation rate) and also the new law on pensions (Law 214 of December 22, 2011) which extends the estimated period in which a person works;
- lower accruals for mobility expenses. In fact, in 2010, expenses were accrued for 245 million euros for the start of the mobility procedure under Law 223/91 which followed the August 4, 2010 agreement with the unions. In 2011, the provision was adjusted by an additional 9 million euros.
Headcount at December 31, 2011 is 47,801 with a reduction of 1,835 compared to December 31, 2010.
Other operating expenses
Details are as follow:
| (millions of euros) | 2011 | 2010 | Change |
|---|---|---|---|
|
|
|
|
|
| Writedowns and expenses in connection with credit management | 359 | 310 | 49 |
| Provision charges | 48 | 52 | (4) |
| Telecommunications operating fees and charges | 57 | 53 | 4 |
| Indirect duties and taxes | 80 | 92 | (12) |
| Penalties, settlement compensation and administrative fines | 59 | 105 | (46) |
| Association dues and fees, donations, scholarships and traineeships | 20 | 22 | (2) |
| Sundry expenses | 82 | 32 | 50 |
| Total | 705 | 666 | 39 |
Other operating expenses increased by 39 million euros compared to 2010. Specifically, other operating expenses show higher writedowns and expenses in connection with credit management (mainly referring to business customers as a result of a progressive deterioration in the macroeconomic picture), and a reduction in indirect duties and taxes and settlement compensation which more than offset the increase in sundry expenses.
Depreciation and amortization
Depreciation and amortization charges are 3,793 million euros (4,107 million euros in 2010), decreasing 314 million euros and referring to tangible assets for 184 million euros and intangible assets for 130 million euros. The reduction in depreciation is largely on account of the decrease in depreciable assets owing in part to the reduction of capital expenditures in recent years, especially for rentals (-49 million euros of depreciation) and the underground network (-108 million euros). The decrease in the amortization charge of intangible assets is mainly due to a lower amount of amortizable assets referring to the development of software applications.
Gains on disposals of non-current assets
Gains on disposals of non-current assets are a negative 9 million euros. They include losses for 26 million euros, principally in connection with the disposal of tangible assets, particularly for the replacement and subsequent disposal of dedicated mobile telephony plant, as well as gains for 17 million euros referring mostly to the contribution of some trademarks and patents to the subsidiary Olivetti S.p.A.
Impairment (reversals) losses on non-current assets
Net impairment losses on non-current assets amount to 5,380 million euros in 2011 (9 million euros in 2010). The line item includes 5,376 million euros for the impairment charge on goodwill referring to domestic activities. In particular, in preparing the annual financial statements, Telecom Italia S.p.A. repeated the impairment test that had been performed in the first half of 2011. The macroeconomic and market climate was marked by a slowdown in the higher growth economies and fears of a recession in the mature ones. Added to this was an escalation, in the second half of the year, of financial market pressures, with particular reference to the trend in interest rates. The measurement therefore took into account such deterioration of the financial markets and also the worsening of the prospects of the reference market of the company.
Further details are provided in the Note “Goodwill” in the separate financial statements of Telecom Italia S.p.A. at December 31, 2011.
The line item also includes 4 million euros referring to the writedown of network materials that are no longer usable and telephone systems in the process of being replaced with new technologically advanced materials.
EBIT
EBIT is a negative 182 million euros, down from 5,151 million euros compared to 2010 as a result of the impact of the above goodwill impairment charge. The organic change in EBIT is a negative 0.3% (-16 million euros); at the organic level, the EBIT margin is 29.3% (27.9% in 2010). Non-organic income and expenses excluded from the calculation of organic EBIT are as follows:
| (millions of euros) | 2011 | 2010 | Change |
|---|---|---|---|
|
|
|
|
|
| Non-organic expenses already described under EBITDA | 105 | 331 | (226) |
| Gain on the sale of trademarks and patents | (15) | - | (15) |
| Goodwill impairment charge | 5,376 | - | 5,376 |
| Total Non-organic (revenues and income) /costs and expenses | 5,466 | 331 | 5,135 |
Income (expenses) from investments
Details are as follows:
| (millions of euros) | 2011 | 2010 | Change |
|---|---|---|---|
|
|
|
|
|
| Dividends | 254 | 2,357 | (2,103) |
| Other income and gains on disposals of investments | 41 | 1 | 40 |
| Impairment losses on financial assets | (442) | (562) | 120 |
| Total | (147) | 1,796 | (1,943) |
Specifically:
- in 2011, dividends mainly refer to Telecom Italia Sparkle (250 million euros) and in 2010 this item comprised dividends from Telecom Italia International for 2,000 million euros and Telecom Italia Deutschland Holding for 345 million euros;
- gains on the sale of investments relate to the gain, net of incidental expenses, arising from the sale of the subsidiary Loquendo S.p.A. on September 30, 2011;
- impairment losses are mainly in respect of the writedowns of the investments in Matrix (130 million euros), Telecom Italia Media (45 million euros) and Telecom Italia Sparkle (199 million euros), Olivetti (36 million euros) and Telecom Italia Deutschland Holding GMBH (13 million euros), on the basis of the results of the impairment test. In 2010, impairment losses mainly included those in respect of the investments in Telecom Italia Deutschland Holding (352 million euros, following the reduction in the equity of the company after the distribution of reserves), Telecom Italia Media (162 million euros, on the basis of the results of the impairment test), Olivetti (18 million euros), Tiglio 1 (13 million euros) and SSC (10 million euros).
Finance income (expenses)
The balance of financial income (expenses), which shows an improvement of 106 million euros largely because of lower net debt exposure, is an expense of 2,049 million euros (an expense balance of 2,155 million euros in 2010).
Income tax expense
Income tax expense is 1,193 million euros and posts an increase of 96 million euros compared to 2010 mainly due to the increase in the taxable base.
Profit (loss) for the year
The Parent, Telecom Italia S.p.A., reports a loss of 3,571 million euros in 2011. Excluding non-recurring items and the above goodwill impairment charges, the net result for the year would have been a profit of 1,765 million euros.