Telecom Italia's CEO Discusses H1 2012 Results - Earnings Call Transcript

Telecom Italia S.p.A. (TI)

H1 2012 Results Earnings Call

August 2, 2012 8:00 AM ET

Executives

Franco Bernabè – Group Chairman and CEO

Marco Patuano – Chief Operating Officer

Alex Bolis – Investor Relations

Stefano de Angelis – Group Controller

Analysts

Luigi Minerva – HSBC

Micaela Ferruta – Intermonte

Georgios Ierodiaconou – Citi

Mathieu Robilliard – BNP Paribas

Nick Lyall – UBS

James Britton – Nomura

Tim Boddy – Goldman Sachs

Torsten Achtmann – JPMorgan

James Ratzer – New Street Research

Stanley Martinez – Legal & General Investments

Paul Marsch – Berenberg

Presentation

Alex Bolis

Today’s call we will review Telecom Italia Group’s First Half 2012 Results. We have with us this morning. Mr. Franco Bernabè, the Group Chairman and CEO; and 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.

You may follow us today via simultaneous webcast that maybe 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 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 the United States Securities and Exchange Commission.

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

Franco Bernabè

Good afternoon, ladies and gentlemen. And thanks for attending today’s Telecom Italia conference call in which we will summarize Telecom Italia Group results for the first half of 2012.

From April onwards the macro context in Italy has become more challenging with an overall deterioration of consumer spending and forecasting for 2012 a 2.2% fall of GDP year-on-year. Small to medium sized enterprises went through considerable difficulties mostly related to very tight credit conditions, while large corporations further reduced their spending.

Vice versa consumer spending on telecom services appears not to have suffered from relevant reductions. Overall, our expectations on the trend for the year remained unchanged.

The deterioration of the European macro environment and the weak cyclonical recovery in the United States are negatively affecting the emerging market economies including South America.

Brazil has been experiencing an adjustment in consumption in the C Class of its population after a number of quarters of robust income growth. We see this as a healthy adjustment which should actually move along with the sustainable trend in consumer credit in the future. The countries potential remained solid and continues to provide precious support to our Group’s performance.

Argentina has enjoyed a support of commodity prices and seems to be well-prepared to meet the forthcoming foreign currency sovereign debt deadlines. Our operations have successfully dealt with the introduction of mobile number portability while continuing to profit from the growth in mobile data and fixed broadband.

In order to better oversee management of business development in our Latin American operations, yesterday’s Board of Directors appointed Andrea Mangoni as the General Manager for South America. Andrea has recently been doing a good work in TIM Participações and we are sure he will guarantee the best possible evolution of our position there.

On the regulatory side, TI is following with great interest the positive developments on copper and fiber access within the European Commission regulatory framework. We believe that the new policy statement announced [audio gap] balance between income stabilization and investment promotion, which is needed by the European incumbents deploy the ultra broadband networks.

A new package to be adopted by the end of 2012 will facilitate the transition from legacy to next-generation networks and grant more price flexibility for fiber-based wholesale services deriving from the removal cost orientation while avoiding price cuts on copper assets.

Another positive development concerns to the European Commissions finding that the recent law imposing on Telecom Italia, the obligation to grant alternative operators the possibility to direct and manage local open bundling maintenance services is not compliant with the EU regulatory framework.

Moving to Brazil, as you know, we’re addressing the current issues with Anatel. I have personally had an active and open dialogue with the Brazilian regulators on this matter in order to clear up any potential previous misunderstanding and to confirm that the quality issues are extremely important for us. A detailed course of action is being agreed upon and we believe that the commercial ban will be lifted very-very shortly.

Let’s now move on to a brief review of our Group’s first half results. On the right hand side of slide number three, you can see that the Group level revenues grew organically year-on-year by 3.1%. Organic EBITDA was down 1% year-on-year and reached €5.893 billion in the first half of 2012, both are trending and full consistence with 2012 year end targets.

Moving to the left hand side of the slide, reported revenues increased by 1.7% year-on-year, while reported EBITDA performance was down 1.6% year-on-year. Group reported results were impacted by the weakening of the real that once converted into euro reduced the local currency positive performance.

TIM Brasil posted solid figures in light of the fact that Brazil has been experiencing a macro economic slowdown. On Telecom Argentina’s contribution, I shall briefly comment later on, but let me just point out that the mobile number portability was introduced in the country. We did not increase post-paid tariffs for the time being and we achieved the first position in terms of shares of revenues.

On slide number four, I only wish to draw your attention to the first half net income, which grew on a comparable basis by 9.2% year-on-year reaching more than €1.2 billion.

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