Telecom Italia S.p.A. (TI)

Q3 2011 Earnings Call

November 11, 2011 4:00 AM ET

Executives

Alex Pierre Bolis – Head, IR

Franco Bernabè – Chairman and CEO

Marco Patuano – Managing Director and COO

Stefano de Angelis – Group Controller

Analysts

Giovanni Montalti – Cheuvreux

JP Davids – Barclays Capital

Tim Boddy – Goldman Sachs

Mathieu Robilliard – BNP Paribas

Micaela Ferruta – Intermonte Sim

Nick Lyall – UBS

Nick Delfas – Morgan Stanley

Georgios Ierodiaconou – Citigroup London

Justin Funnell – Credit Suisse

Chris Alliott – RBS

James Britton – Nomura

Ottavio Adorisio – Société Générale

Presentation

Alex Pierre Bolis

Good morning, ladies and gentlemen. This is Alex Bolis, Head of TI Investor Relations and I wish to welcome you to the Presentation of Telecom Italia Group Nine Months 2011 Results. Today’s conference call is hosted by Mr. Franco Bernabè, the Group Chairman and CEO, and by Mr. Marco Patuano, Chief Operating 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 are completed, we will be happy to take your questions. You may follow us today via simultaneous webcast that may be accessed through the company’s website, www.telecomitalia.com, 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 and 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 over the conference to Mr. Franco Bernabè.

Franco Bernabè

Thank you, and good morning, ladies and gentlemen. Thanks for attending Telecom Italia nine months 2011 results conference call.

The third quarter of 2011 has been very important for our group. While delivering a domestic up trend and insuring a continued double-digit performance in our Latin American operations, we also undertook important initiatives to secure future growth opportunities in both markets.

In Brazil, we acquired AES Atimus and successfully completed a EUR700 million equivalent capital increase of TIM Participações aimed at funding future CapEx requirements. In Italy, we’ve reached the successful outcome in the LTE spectrum auction, the active bidding which characterized the process indicated the importance that all mobile players in Italy ascribe to LTE development.

The final allocation of the essential 800 megahertz frequencies were able to satisfy only three out of the four infrastructure mobile operators. Notwithstanding the current difficult in the euro context, our domestic commercial value-focused strategies met with resilient consumer demand in the summer months and paved the way to visible improvements for both top-line and profitability.

In Latin America, TIM Participações lines grew in this quarter by about 3.7 million, securing its position as the second mobile player in Brazil. In Argentina, our fixed operations performed well in broadband and our mobile operator, Personal, registered a positive result for us. Overall, after a period of robust growth in Latin America and of TIM market shares strengthening in Italy, we reached a total of about EUR130 million consolidated lines on September 30, 2011.

Now let’s focus on the key results for the Group for the last nine months. Reported Group revenues increased by 10.9% year-on-year including the positive results of Telecom Argentina. Organically, the Group top line grew by 1.9% year-on-year, featuring an acceleration in third quarter to 3.7% year-on-year. Reported Group EBITDA was up 8.3% year-on-year, while it was down 1% on an organic basis, reaching EUR9.23 billion in the nine months of 2011.

In the third quarter, year-on-year performance turned positive, as we continued to benefit from TIM Brazil and Telecom Argentina’s contribution, as well as from ongoing operational efficiency at domestic level.

We will focus later on net income performance. The nine-month Group operating free cash flow was up EUR684 million. That is equivalent to 17.8% year-on-year, excluding the Sparkle settlement of EUR389 million paid out in the third quarter of 2010. Net debt visibly decreased from year end 2010 by EUR1.52 billion. In the last quarter of 2011, we will book the cost of the spectrum auction for an amount of EUR1.2 billion.

During the fourth quarter, we will also have a cash-out of around EUR700 million for the AES Atimus acquisition, which as we already anticipated, will have no impact on the Group net financial position, due to the better overall Group performance and to the free float contribution of TIM Participações recent capital increase.

In this framework, given the third quarter results, I will further comment on – we can confirm our main targets for 2011, including the pre-auction debt target of EUR29.5 billion for the full year. Including the auction of course, the full debt target is now EUR30.7 billion.

Operating free cash flow generation in the first nine months of 2011 totaled EUR4.524 million. Net cash flow was EUR2.846 billion, a 45.3% increase compared with the same period of last year. This important nine month net cash generation continues to allow the group to strengthen the core business within its geographic footprint and to reduce debt without deviating from our shareholders remuneration policy.

Investing in our core business, of course, remains a priority. Year-to-date, CapEx totaled EUR3.19 billion, up 8.6% year-on-year. In the first nine months of 2011, we increased our economic interest in Telecom Argentina from 18.3% to 21.1%. This gradual approach does not and will not make us deviate from our deleveraging priorities. Also, thanks to divestments from non-core assets such as EtecSA or Loquendo. More recently, at the end of the quarter, we raised this percentage to 22.6% with a further disbursement of about EUR50 million.

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