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Telecom Italia S.p.A. (TI)

Q4 2011 Earnings Conference Call

February 24, 2012 4:00 AM ET


Alex Bolis – Head, IR

Franco Bernabè – Group Chairman and CEO

Marco Patuano – COO

Luca Luciani – CEO, TIM Brasil

Franco Bertone – CEO, Telecom Argentina

Andrea Mangoni – Director, Administration, Finance and Control


JP Davids – Barclays Capital

Nick Delfas – Morgan Stanley

Mathieu Robilliard – Exane BNP Paribas

Stefano Lustig – Equita

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Alex Bolis

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Good morning, ladies and gentlemen. This is Alex Bolis, Head of TI Investor Relations. On today’s call, we will review Telecom Italia Group’s full-year preliminary results for 2011 and a brief outline for our 2012-14 plan.

We have with us this morning, Mr. Franco Bernabè, the Group Chairman and CEO; Mr. Marco Patuano, Chief Operating Officer; Mr. Luca Luciani, TIM Brasil Chief Executive Officer; and Mr. Franco Bertone, Telecom Argentina Chief Executive Officer.

As usual, this event is being recorded and all participants will be placed in a listen-only mode during the company’s presentation. After TI’s remarks will be completed, we will be pleased to take your questions. You may follow us today with a simultaneous webcast that may be accessed through the company’s website,

, from which you can download or view our slide presentation during the conference call.

We would like to remind you that this presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those in the forward-looking statements as a result of various factors. Analysts are cautioned not to place undue reliance on those forward-looking statements, which speak only as of the date of this presentation and are encouraged to consult the company’s periodic filings, which are on file with United States Securities and Exchange Commission.

I’ll turn now the conference over to Mr. Franco Bernabè.

Franco Bernabè

Thank you and good morning, ladies and gentlemen. Thanks for attending today’s Telecom Italia conference in which we will summarize the preliminary full-year 2011 results and we will give you an outline of the new 2012-2014 plan for our Group.

The last year has been a very challenging one. Nevertheless, we delivered all our Group targets. While the current economic trends progressively worsened towards the end of the year, turning GDP for the last quarter negative by half a percentage point, Brazil and Argentina posted respectively an annual GDP growth of around 3% and 9%. And this macro framework on our Domestic business, we achieved in 2011 a sequential quarterly progression on the same metrics as Marco Patuano will detail you shortly.

On the Latin American front, Brazil continue to deliver an outstanding performance acting as an engine of growth for the Group, and Luca Luciani will give you more color during his presentation later this morning. In Argentina, strong momentum on Mobile and Fixed Broadband enabled to outperform guidance for 2011, while preparing to phase the introduction of mobile number portability with a successful rebranding of our mobile operator personnel as Franco Bertone will detail in a short while.

Now let’s read together the first slide which summarizes our key accomplishments for 2011. Group revenues grew by EUR29.96 billion, up 2.7% year-on-year in organic terms. And Group EBITDA organic was stable year-on-year at EUR12.34 billion. This result was supported by our Domestic operations, which delivered an organic EBITDA of EUR9.35 billion for the full year in combination with a double-digit growth both in revenues and EBITDA coming from Latin America.

Above all we have exceeded commitments and expectations in terms of the leverage posting a year-end adjusted net financial position of EUR30.4 billion, including the effect of the full Italian spectrum allocation impact worth in excess of EUR1.2 billion, the IS EUR700 million acquisitions in Brazil and a small increase of our economic interest in Telecom Argentina from 16.2% to 22.7% during the course of 2011 for a total cash consideration of about EUR200 million.

From slide number four, I would like you to take away the constant organic progression with boasted and improved level, both in top line and in profitability. In the lower left box, we show how Latin America has contributed to growth.

Let me now comment briefly on key Group results by business units. The weight of our Latin American operations stands on a full-year basis of 35% of Group top line and a 24% of consolidated EBITDA. Year-end 2011 total lines in Brazil and Argentina amounted to 65% of total Group lines of 135 million, clearly showing the success of our internationalization path.

On the cash generation side, 85% is still coming from our Domestic activity as we will further detail in the following slide. As in 2010, also this year in normalized terms, our operating free cash flow grew. 2011’s progress was about EUR400 million, driven by top line growth and continuous cash cost control. Reported operating free cash flow stood at EUR5.8 billion impacted by the Italian outcome of the LTE spectrum auction. Normalizing for this 2011 extraordinary item, operating free cash flow would have been in the region of EUR7 billion.

Deleveraging has been my principal priority since 2007. This has been achieved through consistent improvement in Domestic cash generation profile, a turnaround in the expansion of TIM Brasil and the reshaping of our role in Telecom Argentina. This successful effort will continue during our new 2012-2014 plan and will be based on the work of the experienced management team which is sitting with me this morning.

Let’s now move to the plan out section. Telecom Italia’s strategic priorities remain the same as in the last few years. We will keep the focus in our core markets, strengthening and reinforcing our presence, particularly in Latin America. In Italy, given the tough macroeconomic environment, our key priority is to deliver the cash flow. Our customer centric organization and strong investments to recover competitiveness especially in the Mobile business will allow us to better cope with the difficult times ahead.

In the growing proportion of our business, we strengthened our presence in Latin America by acquiring AES Atimus in Brazil and increasing our economic state in Telecom Argentina, balancing our exposure to the domestic market. We confirm our commitment to grow free cash flow generation in order to complete the deleveraging program delivering what we promised and generate a sustainable shareholders’ remuneration, which I will later address in my presentation.

Let me now turn to the business outlook for the Group in the near future. Our domestic strategy is based on defending our access in voice value, making the most of those areas that are growing both in terms of scope and value. At the same time, we need to carry on with our efforts to maximize efficiencies and to find innovative ways of cutting costs. On the CapEx side, we’re always focused on allocating resources to where they will generate the best returns. And in the next few years, Brazil will keep on contributing substantially to our Group’s growth. CapEx and the AES acquisition of last year lay the foundations for development in the near future. In Argentina we are aiming to further consolidate our business always in a very careful and efficient manner.

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