TELECOM ITALIA GROUP 9M 2014 Results Rome, November 7th, 2014 Telecom Italia Group 9M 2014 Results Marco Patuano Piergiorgio Peluso
Safe Harbour This presentation contains statements that constitute forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements appear in a number of places in this presentation and include statements regarding the intent, belief or current expectations of developments and changes in the customer base, estimates regarding future growth in the different business lines and the global business, market share, financial results and other aspects of the activities and situation relating to the Telecom Italia Group. Such forward looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those projected or implied in the forward looking statements as a result of various factors. Consequently, Telecom Italia makes no representation, whether expressed or implied, as to the conformity of the actual results with those projected in the forward looking statements. Forward-looking information is based on certain key assumptions which we believe to be reasonable as of the date hereof, but forward looking information by its nature involves risks and uncertainties, which are outside our control, and could significantly affect expected results. Analysts and investors are cautioned not to place undue reliance on those forward looking statements, which speak only as of the date of this presentation. Telecom Italia undertakes no obligation to release publicly the results of any revisions to these forward looking statements which may be made to reflect events and circumstances after the date of this presentation, including, without limitation, changes in Telecom Italia business or acquisition strategy or planned capital expenditures or to reflect the occurrence of unanticipated events. Analysts and investors should consult the Company's Annual Report on Form 20-F as well as periodic filings made on Form 6-K, which are on file with the United States Securities and Exchange Commission which may identify factors that affect the forward looking statements included herein. The accounting policies and consolidation principles adopted in the preparation of the Condensed Consolidated Financial Statements as of and for the nine months ended 30 September 2014 have been applied on a basis consistent with those adopted in the Annual Consolidated Financial Statements at 31 December 2013, to which reference should be made, except for the new standards and interpretations adopted by the Telecom Italia Group starting from 1 January 2014 which had no effects on the Condensed Consolidated Financial Statements as of and for the nine months ended 30 September 2014. The Telecom Italia Group Condensed Consolidated Financial Statements at 30 September 2014 have not undergone an external audit/review. Following the classification, starting from the fourth quarter 2013, of the Sofora - Telecom Argentina group as a disposal group (Discontinued operations/Non-current assets held for sale) the consolidated financial statements data of prior periods (including the nine months ended 30 September 2013) have been restated accordingly and therefore the Sofora - Telecom Argentina group is no longer separately presented as a business unit. Furthermore: • starting from 2014, Organic changes in Revenues, EBITDA and EBIT are determined excluding, where applicable, only the effects of the changes in the scope of consolidation and exchange differences and therefore don’t take into account, as in the past, non-organic income and expenses, including those non-recurring; • starting from 2014, the Domestic business unit includes the Olivetti group, in addition to Core Domestic and International Wholesale. This different presentation reflects the commercial and business placement of the Olivetti group and the process of integrating its products and services with those offered by Telecom Italia in the domestic market. Therefore, the Olivetti group is no longer separately presented as a business unit; as a result, the data for prior periods under comparison have been restated, accordingly. In this presentation reference is also made to a normalization called “Domestic Underlying Ebitda trend”, which is based on the Adjusted (for one-offs and discontinuities) Reported Domestic Ebitda. This representation is provided as additional information to our Reported Ebitda that represents Operating profit before depreciation and amortization, capital gains (losses) and impairment reversals (losses) on non-current assets. 9M 2014 Results 2 Marco Patuano - Piergiorgio Peluso
Agenda TI 3Q’14 Results • Financial Update • Take-Aways • Appendix • 9M 2014 Results 3 Marco Patuano
3Q’14 Group Highlights • Improving organic performance at -5.7% YoY vs -7.1% in 2Q’14 due to a different mix: Service Revenues • Better domestic trend both in Fixed and Mobile underpinned by healthier competitive 4,943 mln € environment and good acquisition results in UBB KPIs (2Q’14: 4,871 mln €) • TIM Brasil: Positive “Business Generated” results supported by an excellent MBB take-up • Group Ebitda at 2.2 bln € in 3Q’14 (Reported -8.0% YoY, Organic -8.5% YoY) • Performance at domestic level (Reported Ebitda -11.6% YoY) impacted by non-recurring Ebitda items ; Underlying Domestic Ebitda (net of new handset subsidy approach and one-offs) -7% 2,243 mln € YoY in 3Q’14 (2Q’14: 2,145 mln €) • Sound performance in Brazil (+6.5% YoY in 3Q’14) driven by a strong results in data revenues, efficiency on network and reduction in interconnection costs • Focus on innovation confirmed : • Italy : current 27% NGN coverage is above the mid-point of 2014-16 of the Original Plan target; Innovative actual 74% LTE coverage shows strong upbeat vs FY’14 target at 60% and FY’15 target at 70% Capex ~ 620 mln € YTD • Brazil : 700Mhz spectrum acquired at fair price, ensuring a better coverage (Indoor and Rural) with a much larger penetration than the 2,500 MHz band currently used for 4G services. 81 (Italy & Brazil) cities have been covered so far by our MBB Project (36% Urban coverage); 100 cities will be covered by end of 2014 Net debt reduction to • Lower by 0.2 bln € vs FY’13 and by 0.8 bln € vs 2Q’14. Usual 2H NFP improvement kicks in 26.57 bln € • On October 24, Sale Agreement with Fintech was Amended and Restated: • Total Sale Proceeds confirmed at US$ 960mln, which now translate into a 6x Ebitda Argentina multiple after recent Peso devaluation • 2 nd Tranche for US$ 215.7mln cashed in • Cash collateral and Break-up Fee to support completion of transaction 9M 2014 Results 4 Marco Patuano
Domestic top line recovery gains momentum € mln Domestic Service Revenues trend +13 +27 +19 -80 -49 QoQ Domestic Service Revenues improvement: 3,914 3,895 constant topline recovery on YoY basis : 3,834 • 3,785 -6.2% in 3Q’14 vs -8.9% in 2Q’14 and 3,594 3,567 3,554 -8.8% in 1Q’14 growing performance quarter on • quarter : +0.7% in 3Q’14 and +0.4% in -6.2% 2Q’14 vs -1.0% on average in 2013 -8.8% -8.9% -9.1% -9.1% Service revenues stabilization YoY -10.1% • -10.5% at 3.6 bln € per quarter in 2014 1Q'13 2Q'13 3Q'13 4Q'13 1Q'14 2Q'14 3Q'14 Fixed Service Revenues Mobile Service Revenues 2,715 1,189 2,664 2,639 1,138 1,099 Improving Sound recovery performance in in mobile service fixed business revenues driven YoY -7.4% -7.2% -7.1% thanks to better by better results -8.6% results in all -13.3% both in Business YoY -14.9% components Generated & Received 1Q'14 2Q'14 3Q'14 1Q'14 2Q'14 3Q'14 9M 2014 Results 5 Marco Patuano
Domestic Ebitda: progressing towards an improving FY trend %YoY,€ mln Domestic Ebitda Ebitda trend 1H'14 3Q'14 2,031 -11.6% 40 1,795 net of new -5.4% handset subsidy approach net of new handset subsidy approach -7.9% reported -9.8% -9.8% -11.6% 3Q'13 3Q'14 Ebitda Discontinuities Underlying Ebitda trend • Effects on Year-on Year performance for this quarter 1H'14 3Q'14 4Q'14 are: • ~ 30 mln euro for • incentive plans for employees & + -7% management and • salary discontinuous increases enabling -9% insourcing • ~ 30 mln euro for regulatory termination disputes and other provisions Normalized for discontinuous increases in labour costs, • 40 mln euro for new handset subsidy approach provisions & handset subsidy 9M 2014 Results 6 Marco Patuano
Translating Domestic Innovative Capex into Revenues a b c d 2,025 +102 -63 -69 - 54 -138 -11 others 106 1,792 innovative traditional commercial& 249 95 others IT Efficiency (1) : -197 mln € 195 443 IT 380 Innovative portion on network capex 9M’14 37% 35% 35% +8pp YoY 33% 1,089 network 1,122 1Q'14 2Q'14 3Q'14 handset subsidy 138 9M'13 network IT commercial&others others subsidy 9M'14 network commercial&others IT IT Growing penetration of Innovative Revenues on total (2) Innovative Mobile Service Revenues (3) Innovative Fixed Service Revenues (4) 35% 33% 32% 2014 32% 32% 31% 2013 28% 30% 25% 24% 28% 28% 1Q 2Q 3Q 1Q 2Q 3Q (1) total domestic capex efficiency= + + + (3) Broadband & VAS Content a b c d (2) net of wholesale (4) Broadband, VAS Content & ICT 9M 2014 Results 7 Marco Patuano
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