Consolidated financial statements and financial

Transcription

ABCD
(Translation from the Italian original which remains
the definitive version)
WIND Group
Consolidated financial statements and
financial statements
as at and for the year ended
31 December 2010
(with reports of the auditors thereon)
KPMG S.p.A.
6 April 2011
WIND GROUP
Report on operations at December 31, 2010
CONTENTS
THE WIND TELECOMUNICAZIONI GROUP ..................................................................................... 3
BOARD OF DIRECTORS AND CORPORATE BODIES OF WIND TELECOMUNICAZIONI SPA .............................. 5
WIND GROUP HIGHLIGHTS AT DECEMBER 31, 2010....................................................................... 6
THE ITALIAN TELECOMMUNICATIONS SERVICES MARKET .................................................................... 7
TRENDS IN OPERATIONS ........................................................................................................ 10
NETWORK.......................................................................................................................... 23
RESEARCH AND DEVELOPMENT ACTIVITIES .................................................................................. 25
HUMAN RESOURCES .............................................................................................................. 27
CORPORATE SOCIAL RESPONSIBILITY ........................................................................................ 32
DATA PROTECTION ............................................................................................................... 33
REGULATORY FRAMEWORK AT DECEMBER 31, 2010 ...................................................................... 34
MAIN PENDING LEGAL PROCEEDINGS AT DECEMBER 31, 2010 .......................................................... 46
CONSOLIDATED FINANCIAL AND PERFORMANCE DATA...................................................................... 50
SUMMARIZED FINANCIAL STATEMENTS OF THE PARENT WIND TELECOMUNICAZIONI SPA ......................... 61
SUMMARIZED FINANCIAL STATEMENTS OF WIND’S SUBSIDIARIES ...................................................... 62
SUBSEQUENT EVENTS ............................................................................................................ 64
RISK MANAGEMENT .............................................................................................................. 64
RELATED PARTY TRANSACTIONS ............................................................................................... 64
DISCLOSURES PURSUANT TO ARTICLE 2497-TER OF THE ITALIAN CIVIL CODE ....................................... 64
OUTLOOK .......................................................................................................................... 65
PROPOSED ALLOCATION OF THE RESULT FOR THE YEAR OF THE PARENT WIND TELECOMUNICAZIONI SPA ..... 65
GLOSSARY ......................................................................................................................... 66
Report on operations
at December 31, 2010
2
THE WIND TELECOMUNICAZIONI GROUP
The WIND Telecomunicazioni Group (hereinafter also WIND or the Group) is a leading Italian
telecommunications operator offering mobile, Internet, fixed-line voice and data products and services to
consumer and corporate subscribers.
The Group markets its mobile services through its ‘‘WIND’’ brand and it provides voice, network access,
international roaming and value added services, or ‘‘VAS,’’ as well as mobile Internet services, to its
mobile subscribers, through (i) the Global System for Mobile Communications (‘‘GSM’’) and General
Packet Radio Services allowing continuous connection to the Internet (‘‘GPRS’’) (which are known as
‘‘second generation’’ or ‘‘2G’’ technologies), and (ii) universal mobile telecommunications systems, which
are designed to provide a wide range of voice, high speed data and multimedia services (‘‘UMTS’’) and
High-Speed Downlink Packet Access (‘‘HSDPA’’) technology (which are known as ‘‘third generation’’ or
‘‘3G’’ technologies). In line with the Italian telecommunications market, the majority of WIND mobile
subscribers are pre-paid subscribers.
WIND is the leading alternative fixed-line operator in Italy. It markets its fixed-line voice, broadband and
data services primarily through ‘‘Infostrada’’ brand and offers its Internet services, including narrowband
(dial-up) access and Internet portal services, primarily through the ‘‘Libero’’ brand.
The following are the main offices of the Parent, WIND Telecomunicazioni SpA:
Registered office
Secondary office
Via Cesare Giulio Viola, 48 - 00148 Rome - Italy
Via Lorenteggio, 257 - 20152 Milan - Italy
The Parent WIND Telecomunicazioni SpA is controlled by WIND TELECOM SpA (formerly Weather
Investments SpA) through WIND Acquisition Holdings Finance SpA, which wholly owns WIND
Telecomunicazioni SpA.
At the present date the Sawiris family holds 67.02% of WIND TELECOM SpA through a company
registered in Luxembourg, Weather Investments II Sàrl, institutional investors hold 21.61%, while WIND
Acquisition Holdings Finance SpA holds 7.76% and other investors hold the remaining 3.61%.
3
The following diagram outlines the structure of the WIND Group at December 31, 2010:
WIND
Telecomunicazioni
SpA
27%
27%
100%
100%
ITNet Srl
WIND Retail Srl
WIND Acquisition
Finance II SA
WIND Finance SL SA
100%
100%
WIND International
Services SpA
WIND Acquisition
Finance SA
100%
WIND International
Services Sàrl
99.13%
0.87%
WIND International
Services SA
On October 4, 2010 the indirect parent Weather Investments II Sàrl and VimpelCom Ltd signed an
preliminary agreement for the merger of the two groups, an operation which will lead to the creation of
the sixth largest mobile phone operator in the world by number of customers. No final agreement had yet
been signed at the date of these consolidated financial statements, as subject to the completion of a
series of conditions necessary for the closing of the transaction. In this respect, on March 17, 2011 the
majority of the Shareholders of VimpelCom Ltd at their Extraordinary General Meeting approved the issue
of up to 325,639,827 ordinary shares and 305,000,000 convertible preference shares and the increase of
VimpelCom Ltd’s share capital needed to complete the merger between VimpelCom Ltd and WIND
TELECOM SpA. With this approval, the closing of the merger transaction will proceed and is expected to
be completed in the first half of 2011, subject to satisfaction of additional conditions of contract. As
defined by the agreement, same Group’s assets should be returned to Weather Investments II Sàrl as
part of the agreed fee for the sale.
In particular for the Wind Group these are the assets relating to web portal "Libero", the subsidiaries
WIND International Services SpA and It Net Srl and the branch referring to the operation of the
submarine cable between Italy and Greece. In base on the information currently available, the Directors
estimate that the relating assets included in the consolidated financial statements at December 31, 2010
are recoverable.
In addition, on November 12, 2010 the merger of Enel Net Srl and Italia Online Srl into WIND
Telecomunicazioni SpA was completed. The accounting, tax and profit-sharing effects were as from
January 1, 2010, and the transaction, which qualified as "under common control, did not result in any
impact on the Group consolidated financial statement.
4
BOARD OF DIRECTORS AND CORPORATE BODIES OF WIND TELECOMUNICAZIONI SPA
Board of Directors (1)
Chairman
Naguib Onsi Naguib Sawiris
Directors
Luigi Gubitosi, CEO
Hassan Abdou
Ossama Bessada
Khaled Bichara
Amedeo Carassai
Emad Farid
Vincenzo Nesci
Board of Statutory Auditors (2)
Chairman
Giancarlo Russo Corvace
Standing auditor
Roberto Colussi
Standing auditor
Maurizio Paternò di Montecupo
Substitute auditor
Luana Iadarola
Substitute auditor
Stefano Zambelli
Independent Auditors
KPMG SpA
(1)
Re-appointed in the shareholders’ meeting of April 12, 2010 for a two-years term, until the date of the
shareholders’ meeting convened for the approval of the Company’s financial statements at December 31,
2011. Furthermore, in consequence of the resignation of Mr. Onsi Nagib Sawiris from his office as director,
the Board of Directors held on November 5, 2010 co-opted Mr. Vincenzo Nesci as new director of the
Company in replacement of Mr. Onsi Nagib Sawiris. The Shareholders’ meeting held on November 24, 2010
confirmed Mr. Vincenzo Nesci in his office as director for the same term as the others Board Members as
indicated above.
(2)
Re-appointed in the shareholders’ meeting of April 12, 2010 for three-years term, until the date of the
shareholders’ meeting convened for the approval of the Company’s financial statements at December 31,
2012. The shareholders’ meeting held on April 12, 2010 appointed Mrs. Luana Iadarola and Mr. Stefano
Zambelli as substitute auditors in replacement of Mr. Luca Dezzani and Bruno Franceschetti.
5
WIND GROUP HIGHLIGHTS AT DECEMBER 31, 2010
The operating and financial data below are based on the Group’s consolidated financial statements as of
and for the year ended December 31, 2010, prepared in compliance with the IFRS endorsed by the
European Union, while operational data derive from the management systems of the Parent.
Operational data
At December 31, 2010
Mobile customers (millions of SIM Cards)
19.9
18.4
Mobile ARPU (euro/month)
16.6
17.4
Fixed-line customers (millions of lines)
3.0
2.8
34.0
35.4
99.70%
99.66%
7,236
7,054
Income statement figures (millions of euro)
2010
2009
Revenue
5,898
5,726
(1)
2,185
2,142
Operating income
1,160
1,139
Profit/(Loss) for the year attributable to owners of the Parent
(252)
308
Fixed-line ARPU (euro/month)
Mobile network coverage(1)
Employees (headcount)
(1) As a percentage of the Italian population.
EBITDA
(1) Operating income before depreciation and amortization, reversal of impairment losses/impairment losses on non-current assets and gains/losses on
disposal of non-current assets.
Statement of financial position figures (millions of euro)
Total assets
14,091
14,463
1,517
1,667
Equity attributable to
owners of the parent
non-controlling interests
Total liabilities
Net financial indebtedness
0
1
12,573
12,794
8,415
8,541
6
THE ITALIAN TELECOMMUNICATIONS SERVICES MARKET
Industry overview
Italy is Europe’s fourth largest telecommunications services market by revenue. The value of the Italian
mobile market in 2010 is estimated in approximately €21 billion, a decline over the previous year, with a
6.4% increase in multimedia and data services and a 5.3% decrease in voice services. The Italian fixedline market (Voice and VAS voice) totalled approximately €8.5 billion, a decrease over 2009 mainly as a
result of a drop in voice traffic revenues. Value added service revenues are estimated to be 9.5% of the
total market, with a fall of 10% over the previous year.
The value of the Internet access market in 2010 is estimated in approximately €4.3 billion, with the
broadband segment accounting for 99%.
All the leading operators launched promotions or revised their tariffs and bundles as far as the various
mobile telephony services are concerned. Operators continued the race in 2010 to provide advanced
mobile internet services for new terminals (smartphones, tablets, e-readers) and dongles. As the result of
the availability of advanced terminals and the numerous applications and contents that may be used on
the move, the mobile internet market has been a driving force for operators. Voice offerings on the other
hand suffered the greatest falls in prices due to the heavy competition, with especially aggressive offers
to be found above all in the area of Mobile Number Portability (MNP).
All the leading operators renewed their offering portfolios in the fixed telephone sector in 2010 aiming at
dual play offers (internet and voice at a predetermined fixed fee), accompanying these with promotional
prices for a certain period of time. WIND introduced an FMC (Converging Fixed-Mobile) offer for the first
time during the year for the residential and business segments.
Mobile Telecommunications
The Italian mobile market is the second largest market in terms of sales in Europe after France. There
are four network operators in Italy offering mobile telecommunications services to approximately 90
million registered subscribers at December 31, 2010, representing a penetration rate of approximately
150% of the Italian population. Penetration is distorted by the widespread use of multiple SIM cards by
individual users. It is estimated that about 85% of mobile users in Italy subscribe to pre-paid services,
leading to low subscriber acquisition costs and high EBITDA margins compared to the rest of Europe.
The Italian market is characterized by very limited competition from MVNOs. WIND has a MVNO
agreements with Auchan (one of the leading large retail store groups) and, it also entered into a
commercial partnership agreement with ENEL for the supply of mobile telephone services under the
ENELMia brand.
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At December 31, 2010, excluding MVNOs, WIND had an estimated market share of 22%, while Telecom
and Vodafone had a market share of 34% and H3G of 10%.
Fixed-Line Telecommunications
Voice
The Italian market for fixed-line voice telecommunication services is the fourth largest market in Europe
in terms of value after Germany, the United Kingdom and France. Telecom Italia still dominates the fixedline voice market although the liberalization of the fixed-line voice market after 1998 has enabled
operators to provide indirect voice services and, since 2003, direct fixed-line voice services via LLU. The
advantage of providing direct, unbundled voice services to subscribers is that Infostrada bills the
subscriber directly and the relationship between the subscriber and Telecom Italia is therefore removed.
For customers located outside the direct service coverage areas Infostrada offers WLR (wholesale line
rental) through which it is able to set up an exclusive commercial relationship with its customer, leasing
the lines from Telecom Italia under wholesale terms and conditions. WIND’s competitors in the fixed-line
voice market include, among others, Fastweb, BT Albacom, Vodafone/Teletu and Tiscali.
Internet
At December 31, 2010, consumer Internet access reached a penetration of approx 59% of total fixed
lines in Italy. Broadband services in Italy have grown rapidly since 2001, reaching around 13.3 million
connections at December 31, 2010, representing a penetration of approximately 22% of the Italian
population.
Despite the recent strong growth in broadband, Italy still lags behind other European countries, mainly
due to the lack of technological infrastructure and low personal computer penetration.
At December 31, 2010, with over 1.9 million broadband subscribers, WIND is Italy’s second largest
broadband service provider after Telecom Italia and has a market share of 14%.
At the beginning of May 2010, WIND, Fastweb and Vodafone launched the “2010: Fiber for Italy” project
for the development of a new NGN network that envisages coverage of the country’s 15 largest cities in 5
years, reaching 10 million inhabitants, in 4 million property units, with of investments totaling €2.5 billion
distributed among the operators and institutions involved. The project’s initial stage will see the cabling
of 7,400 property units in the Fleming Hill quarter in Rome, where testing regarding the first customers
began in July 2010 at a speed of 100 Mbps for households and 1 Gbps for businesses.
The year 2010 was also important as far as regulations governing the development of new generation
networks (NGNs) at a national level were concerned. In September the NGN Committee published
guidelines for transition to NGNs; this document, however, was disputed by the alternative operators
(Other Licensed Operators, OLOs) on the basis that it failed to include the positions expressed by these
operators. Subsequently AGCOM initiated an analysis of the fixed access network market in Italy in line
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with the European Commission recommendation on Next Generation Access (NGA) networks. The
government therefore set up a discussion table with the operators which ended with the definition of a
model common to all operators for a “passive” infrastructure of reference for the NGN. On 10 November
a Memorandum of Understanding (MoU) was signed by the Ministry of Economic Development and seven
telephone operators - Telecom Italia, Vodafone, WIND, Fastweb, Tiscali, 3 and BT Italia - for the setting
up of a vehicle company to look after the realisation of the passive infrastructure required to develop new
generation networks for broadband. Agcom was given the task of determining a regulatory framework for
access to the infrastructure, which must be open to all operators under the same conditions.
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TRENDS IN OPERATIONS
Mobile Operations
WIND had a total of 19.9 million mobile telephone customers at December 31, 2010, a rise of 8.2% over
December 31, 2009, increasing its a market share (excluding MVNO operators) to 22% from the 20.9%
achieved in the fourth quarter of 2010.
The following table sets out key figures regarding mobile operations.
Mobile
2010
12 months
2009
12 months
Change
8.2%
19.9
18.4
3,985
3,785.5
5.3%
Voice traffic (billions of minutes) (1)
41.5
35.5
16.9%
ARPU (Euro/month)
16.6
17.4
(4.6%)
19.4%
16.5%
Customer base (millions of SIM Cards)
Revenue (millions of euro)
% ARPU Data/Total ARPU
(1)
International incoming traffic not incuded
Voice and SMS offerings
Consumer voice and SMS offerings
In 2010 WIND concentrated on increasing its customer base through the seasonal Passa a WIND
promotion, that gives new customers who apply for number portability a 50% discount on the monthly
fee of major Noi voice options. The aim of this promotional strategy is to increase the interest of the
customers of other operators in the services offered by WIND, gaining their loyalty by means of an
automatic renewal offer and providing them with a price advantage linked to the customization of their
tariff plan. During the summer, WIND has kicked off the Super Summer Ricarica which had the objective
of stimulating the recharges made and the traffic generated by customers.
In June, WIND continued with its off-net strategy by reformulating its Noi Tutti x2 and Noi Tutti x3
offers; these offers had been on promotion for new customers with a reduction of 50% given on the
monthly fee for the Voice and SMS options for the first three months. The historical Noi 2 option was
renewed and renamed Noi 2 Unlimited and this provides unlimited calls to a favourite WIND number for
only 1 euro a week.
WIND’s Christmas offer was enriched with the Super Noi Tutti 2x1 and 3x2 promotions, whose aim was
to allow customers to get to know Internet browsing from a mobile phone and discover its benefits: all
new customers choosing the Noi Tutti offers received the Internet No Stop option for 6 months as a
present from WIND, and this allows them to browse without limit. In addition, Internet No Stop was
provided free of charge for one year if a Noi Tutti option was activated together with a Noi Tutti SMS
option.
10
In order to attract new customers WIND also introduced seasonal packs with two rechargeable SIMs
offered at a special price, for which the latest summer or Christmas items or promotions can be
activated.
There was no shortage of possibilities for existing customers either: WIND gave the go ahead to
promotions such as Super Summer Ricarica, having the aim of encouraging the top-ups and traffic
generated by customers, and the SMS Christmas Pack, which offers messages for 6 months at a price of
€19 or €39 depending on the number of messages selected.
During the second half of the year WIND continued to put particular emphasis on the ethnic segment
where it continues to be the market leader. Always ready to satisfy the needs of foreign residents in
Italy, WIND proposed beneficial tariffs to enable its customers to keep in contact with their loved ones
throughout the world. In particular, tariffs were reduced in November and December for calls made to
the principal destinations abroad with the Call Your Country option: Rumania, Albania, Morocco and
Senegal.
Communication has become closer to the ethnic segment too: after translating the Call Your Country
brochure into the main languages, WIND published an information leaflet in Rumanian describing the
tariff plans and the dedicated options it offers.
Always attentive to the needs of young people in September WIND entered an agreement with the
Ministry for Education, the Universities and Research concerning the dissemination of Information and
Communication Technology to high school pupils. The Group made its experience and technological skills
available for the “IoStudio - La Carta dello Studente” initiative organised by the Ministry of Education,
offering a real economic benefit to over 4 million students by extending the “WIND Campus” offer, which
was previously only available to university students, to high school students holding the card.
Finally, in 2010 WIND strengthened its commercial thrust on package offers dedicated to subscription
customers through an advertising campaign for the All Inclusive tariff plan, for which the monthly fee
was reformulated to include minutes, SMS, unlimited Internet browsing from mobile phones and a mobile
phone starting from zero euros. In addition, for new customers activating one of the All Inclusive tariff
plans, a discount is given for 24 months equivalent to the cost of the government concessionary tax. The
“Summer Edition” promotion was launched in July for customers subscribing to All Inclusive without
buying a mobile phone, and this offers an even more beneficial monthly fee on the whole range of All
Inclusive tariff plans. The promotion also continued after the summer, offering All Inclusive customers
the possibility of making a choice between the SIM + Telephone version and the SIM Edition version
which does not include a telephone but has a lower monthly fee.
Additional options for SMS consumer voice and SMS offers
Together with the consumer voice tariffs dedicated to specific market segments, WIND also offers
customers the possibility of extending and customizing their usage profile by subscribing to certain
options dedicated to calls, SMSs or internet browsing through the payment of a fixed monthly or weekly
fee.
11
WIND continues to concentrate its strategy on on-net offers and on options that aim at building a
“community” by encouraging mobile users to subscribe to WIND services and use the WIND SIM card as
their primary one. These options enable the Group to acquire new subscribers who are interested in
becoming members of the community WIND because their friends or relatives use WIND.
At the same time, WIND is continuing to focus on their off-net options that enable it to reach larger
market segments, thanks also to the introduction of SMS bundles of varying sizes that customers can
choose on the basis of a combination of usage and spending that is best suited to their needs.
In line with this strategy, in the third quarter WIND launched a promotion for the Pieno WIND option for
new customers who receive calls and SMSs from other operators; this provides for a free of charge
service for the first four months and free activation costs.
Corporate voice offerings
WIND also provides voice services to its corporate customers, to small and medium-sized entities (SMEs)
and to professionals (SOHOs), with offers tailored for each market segment. In the case of large
companies, which often require competitive offers to be made for their mobile telephony requirements,
WIND offers customized services suitable for their specific needs. WIND offers more standard products
for SMEs and SOHO customers:
-
Flat tariff plans that envisage a certain number of minutes of calls (also shared between the different
SIM cards of the customer) for the payment of a monthly fee or “all inclusive” plans that envisage
packages of minutes for voice calls, SMSs and mobile internet against payment of a fixed monthly
fee.
-
Pay-per-use tariff plans with specific promotions (a reduction in the government concessionary tax or
in the fee or the exclusion of a monthly minimum-sized spending threshold).
In September 2010 WIND enhanced the range of offerings for its business customers with One Company,
the integrated solution dedicated to small and medium-sized businesses. One Company provides fixed
telephones, mobile telephones, ADSL and mobile internet and allows for unlimited free of charge calls
from fixed numbers to business mobile phones, unlimited calls from fixed telephones to national fixed
telephone numbers and a single tariff to non-business mobiles.
For the mobile component, One Company makes it possible to choose between two tariff plans, one flat
and one based on usage; in addition, it is possible to select options which on the payment of a monthly
charge per SIM provide additional packages of minutes to all mobile operators.
Corporate voice options
WIND offers a variety of voice service options to SMEs and SOHO customers and to large businesses,
such as:
−
Extra Options, that offer voice minutes in addition to the minutes included in the flat tariff plan;
−
Extra SMS Option, an offer of SMSs in addition to those included in the flat tariff plan or that may be
subscribed in addition to the voice only flat plans;
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−
Leonardo Voice and SMSs, that offers benefits over OnNet services to corporate subscribers, similar
to the Noi options available to consumer customers;
−
WIND Dual SIM, which allows customers to use the same telephone number, functionalities and tariff
plan by means of two SIM cards in two separate devices, in this way meeting the needs of customers
having a mobile telephone for vocal calls and a smartphone/mobile internet key for internet
connection and data.
Data and VAS offerings for consumer and corporate
In addition to its mobile telephone offers WIND also provides a complete range of mobile data services
and VASs for telephones and computers, for both consumer and corporate subscribers. The majority of
WIND’s data and VAS offers are available on both GSM and UMTS / HSDPA networks, while certain
services, such as videocalls, are restricted to the UMTS network.
WIND offers the following data and VAS services:
• Mobile Internet. During the year WIND increased its penetration of Mobile Internet in its customer base
by increasing the activation of Internet options and simplifying the Internet on-consumption tariff. WIND
introduced for all of its top-up customers a single on-consumption tariff based on connection time, thus
removing the barriers relating to an understanding of service access costs based on data volume.
Customers with frequent Internet use have continued to choose the options without time limit but subject
to a fair usage policy under which an abuse of the Internet service envisages a significant slowing down
of connection speed. These “without limits” offers continue to be a driving force for the activation of
options for connections from mobile telephones and from tablets or personal computers, thanks also to
the promotions introduced in the Christmas period; for navigation from PCs the Mega Unlimited option
was offered with a discount of 50% on the 12 months option to all those who bought a WIND Internet
Key, thereby winning a group of new customers. In November WIND completed its Internet offer for
mobile telephone connection with Internet No Stop Daily, which allows for navigation for an entire day
for a fixed price of €1, with no time limits. In conclusion, a “test and buy” promotion was launched on the
Internet No Stop option for the Christmas campaign for a period of between 6 and 12 months, valid for
all customers activating Noi Tutti and Noi Tutti SMS offers for voice and SMS traffic.
For SOHO and SME customers WIND offers a complete portfolio of options, Leonardo Mega Ore,
dedicated to Internet navigation, which includes variable Internet traffic packs ranging from 50 hours
every two months to unlimited traffic and which has fees varying from 9 to 45 euros a month. The range
of offers was further enriched as the result of the commercial launch in November 2010 of the new
Leonardo Mega Smartphone option, devised specifically for people accustomed to navigating in Internet
and reading their e-mails directly from their smartphone.
13
• BlackBerry. The BlackBerry services provided by WIND are available for large companies, SMEs and
consumer customers, with the possibility for new customers to include a the smartphone in the chosen
tariff plan charge.
• Info from SMSs and MMSs. SMS offers provide customers with information such as news, sport,
weather forecasts, horoscopes, financial information and information about television programs, together
with a series of games, ringing tones, a chat service for subscribers and services specifically aimed at
students. MMS offers provide multi-media contents (photo, audio and video), such as for example
sporting events, news, gossip, music and a chat service.
• WIND WAP portal and web. The WIND WAP portal enables customers to buy ring tones and other
options for their telephones and to browse a variety of websites, with various services such as news,
sport and finance. In addition, Libero Internet and the mobile portal are at the disposal of all mobile
telephone subscribers (both WIND and other operators), providing an electronic mailbox and other free
of charge services and basing itself on the advertising revenue business model. In connection with its
data and VAS offers, WIND works in close contact with suppliers of content and applications, such as for
example Mediaset, RAI, Dada (RCS group) and Zed I-musica. These provide content using their own
names and provide cross-operator services.
International roaming
WIND subscribers can use their mobile telephone services in other countries, including SMS, MMS and
data services (GPRS, EDGE, 3G, HSDPA), where available, through international roaming. Roaming
coverage outside Italy is guaranteed by agreements with approximately 440 international operators.
During the summer months two new Roaming options, Easy Travel Europe and Easy Travel World have
been introduced, with particular success in terms of activation. At a fixed monthly fee, they offer
affordable tariffs for all calls made in the EU area and other parts of the world, respectively.
Sales and distribution
WIND markets its products and mobile services, including SIM cards, scratch cards and WIND branded
and unbranded handsets, through a series of exclusive sales outlets, which at December 31, 2010
consisted of 159 WIND-owned stores and 391 points of sales operating exclusively under the WIND
brand. The non-exclusive sales network consists of 1,311 WIND dealers, 573 points of sales in electronic
chain store outlets and 4,020 other points of sales in small towns in Italy managed by SPAL SpA, the
largest WIND distributor in terms of sales outlets. WIND also sells a portion of its services online through
the www.155.it website, while scratch cards are distributed through small points of sales (tobacconists,
newsagents, etc.).
14
As part of its strategy, which sees the distribution network as an increasingly crucial factor for growth,
WIND continues to extend and raise the quality of its distribution chain as a means of strengthening its
sales network.
In the wake of the Group’s evolution and the excellent results achieved over the years the new WIND
flagship store located in the heart of Milan was opened on June 17, 2010, a shop combining elegance,
design and technology. Inside the open store it is possible to view sales offers on modern LCD monitors,
try out mobile phones using touch screens and have an area at your disposal that is fully dedicated to
post-sales assistance.
Fixed Telephony and Internet
Voice services
The following table sets out the key fixed-line indicators.
Fixed-line
Customer base (thousands of lines)
(1)
2010
12 months
2009
12 months
Change
3,003
2,843
6%
2,226
2,009
11%
1,786
1,789
(0.2%)
Voice traffic (billions of minutes)
19.5
18.9
3%
ARPU (Euro/month)
34.0
35.4
(4%)
of which LLU (thousands)
Revenue (millions of euro)
(1) Including Virtual LLU.
WIND offers a vast range of direct and indirect fixed-line voice services, broadband and narrowband
(dial-up) internet and data transmission services, and provides one of the leading internet portals in Italy.
WIND provides its services for the consumer and corporate markets under the Infostrada brand (fixedline voice services and broadband internet) and under the Libero brand (narrowband or dial-up, data
services and the internet portal).
WIND offers broadband services to both its direct and indirect customers. For the direct offer WIND rents
the “last mile” of the access network from Telecom Italia which is disconnected from the Telecom Italia
equipment and connected to the WIND equipment in the telephone exchange. WIND pays a monthly
rental fee to Telecom Italia for this service. For the indirect offer WIND resells to its customers a service
that it buys wholesale from Telecom Italia. In order to promote its business also in areas where direct
access to the network via unbundling (LLU) is not envisaged for its customers, WIND also provides its
services using WLR technology.
As a response to the trends in the fixed telecommunications market in Italy with an increasing fixedmobile replacement and migration of customers from narrowband to broadband, WIND has been
concentrating its efforts on increasing the number of subscribers to direct voice services and broadband
15
internet services. At December 31, 2010, WIND’s fixed-line voice customer base amounted to 3 million
subscribers, representing an increase of 5.6% over December 31, 2009 mainly driven by the rise in direct
voice customers, whose number grew by 10.8% over the previous year. At December 31, 2010, WIND
had 777 thousand indirect voice customers of whom 439 thousand were WLR subscribers.
Internet and data
The following table sets out the key internet access indicators.
Internet and data services
2010
12 months
2009
12 months
Change
Internet Customer Base ('000)
2,056
1,923
7%
of which Narrowband ('000)
of which Broadband ('000)
of which LLU ('000)
of which Shared Access ('000)
145
281
(48%)
1,912
1,643
16%
1,587
1,340
18%
22
29
(24%)
WIND offers a vast range of internet and data transmission services for both consumer and business
customers. At December 31, 2010, WIND had 1.91 million broadband internet customers and 0.14 million
narrowband subscribers.
In order to respond to the needs of customers requiring a single solution for their telephonic and internet
connectivity needs, WIND offers the 'TuttoIncluso and Absolute ADSL packages which consist of a bundle
of a vocal fixed line and unlimited broadband connectivity for a predetermined monthly fee. The Group’s
positioning in this market has been consolidated by the launch, on October, 10 2010, of an Infostrada
promotion on TuttoIncluso and Absolute that provides a €10 discount in the monthly fee for two years.
An increasing number of LLU customers (71.8% at December 31, 2010) chose an offer including voice
and broadband internet services.
Consumer voice offerings
WIND offers a traditional analogue service (PSTN), a digital fixed-line telephone service (ISDN) and other
services such as caller ID, an answering service, conference calls, call restriction, information services
and call transfers all over Italy.
Corporate voice and data offerings
WIND provides PSTN, ISDN and VoIP fixed-line network voice services, data services and connectivity
services to corporate subscribers. More specifically, WIND’s offer is increasingly directed towards the
large corporate subscribers segment, capitalizing on the experience gained with ENEL and the specific
service infrastructures for that group such as dedicated call center. For customers of this nature WIND
16
tailors its offering to the specific needs expressed by the customer and, where asked, to the
requirements needed for taking part in tenders. Direct access to the network is assured to large
corporate subscribers by radio link, by direct optic fiber connections or, in areas where direct access via
LLU is not available, by dedicated lines leased from Telecom Italia. In addition, WIND provides these
corporate subscribers with a national dedicated toll-free number, prepaid cards and magnetic stripe
telephone cards.
For SMEs, WIND offers a wide range of products such as off-the-shelf dual-play suite (voice + internet)
with tariff plans based on VoIP technology: TuttoIncluso Aziende offers from 3 to 8 voice lines with ADSL
internet access while the latest offer, Infostrada Impresa, later renamed WIND Impresa, provides for a
minimum of 8 to a maximum of 60 voice lines with SHDSL internet access. In addition, subscriptions may
be made to a rental, management and maintenance of telephone switchboards service together with the
WIND Impresa offer: a single monthly fee per user includes a number of minutes of traffic, internet, PBX
services and IP telephones.
For the SMEs, in September 2010 WIND launched One Company, the integrated solution that provides
fixed telephones (based on VoIP technology), mobile telephones, ADSL, mobile internet and VAS. One
company provides free calls between fixed and mobile business, unlimited calls from fixed telephones to
national fixed telephone numbers, unlimited ADSL up to 20 Mbps and a single tariff to non-business
mobiles. In addition, it is possible to select payment options which provide additional packages of
minutes to mobile operators.
In terms of the Internet access service, WIND offers a complete set of value added services, some of
which, such as IP Static, level II Dominion and the Evolved Mail and Messaging services, are included in
the ADSL offer, while others are optional and have a charge. Included among the main charged services
offered is the Certified E-Mail service, which by using predetermined legal standards certifies the
despatch of e-mails from a specific e-mail box, giving it legal value. The Certified E-Mail service is
supplied through a promotion providing a free of charge post box for 24 months. The positioning of value
added services was consolidated with the launch of two new service packs in December:
1. Communication Pack: evolved e-mail with sharing of contacts and calendar, also available from a
person’s own mobile phone, which enables faxes to be sent to national numbers and provides a
real time messaging service from a person’s own PC together with certified email which gives
legal value to correspondence.
2. Security pack: The integrated service for electronic security which consists of an antivirus and
firewall to protect the PC and services for storing data on WIND servers to ensure that they are
kept safe.
17
Award of Enel tender
At the end of December 2010 WIND was awarded the tender for the supply of national
telecommunications services to the ENEL group. More specifically, it won the tender for the supply of
mobile access, fixed telephony, access and data backbone.
The ENEL tender had been announced in 2009 as the most important European supply contract for fixed
telephony, mobile telephony and intranet and internet access data. Based on the auction the total value
of the contract was estimated at over 238 million euros, with contract terms ranging from 3 to 5 years.
Given the volumes, complexity and technical skills required, the tender attracted the interest of the
leading fixed and mobile infrastructure operators. The award process was based on objective quality
criteria relating to the technical solution proposed and the best price.
Fixed-line sales and distribution
The main consumer-dedicated fixed-line sales channel is represented by telephonic sales made by call
centers through both outbound and inbound calls. To acquire business customers WIND avails itself of
dedicated outbound sales agencies. Call center staff are trained to recognize a customer’s needs or to get
these to emerge, and to propose products and services that best meet their specific needs. Call centers
also make outbound calls to potential customers chosen using business intelligence means.
In the consumer customer internet access market the Libero web portal represents a fundamental
distribution channel, as it enables subscribers to register for internet access.
There was a considerable rise in consumer purchases in 2010 via the WIND Store network, in particular
for the TuttoIncluso and Absolute bundle offers. For its business customers WIND proposes its Internet
and fixed telephone services through selling agencies, call centres and its direct sales force.
Libero internet portal
WIND manages the ''Libero'' internet portal, which at December 31, 2010 was the leading portal in Italy
in terms of the number of active user accounts and visited pages, having over 11 million individual
visitors and more than 2.2 billion visited pages each month. In addition to being one of the major e-mail
service suppliers in Italy, with 8,3 million active e-mail accounts at December 31, 2010, Libero also offers
a vast range of content and services, including a search engine, news and vertical channels (organized
into groups such as finance, cars, women and travel). The portal also hosts an online community called
the Libero Community, which at December 31, 2010 had approximately over 5.2 million visitors (source
Nielsen Unique Audience for Brand “Libero Share” Chanel that include Libero Community). Libero also has
a social network service, Libero Blog, and is one of the Italian portals that allows its customers to share
the content they generate through the Libero Video application, in this way making a substantial
contribution to the 2.0 web and succeeding in reaching further important market segments.
18
National wholesale data services
WIND, thanks to its presence at a national level, offers connectivity services to other operators exploiting
the excess capacity in its network. Since April 2009 international services have been channeled into
WIND International Services SpA (WIS), a fully-owned subsidiary of WIND, while the sale of national
services at a wholesale level has remained under the direct responsibility of WIND.
Interconnection services
WIND offers other operators its wholesale services and through these it makes its network available to
national and international operators and manages inbound and outbound call termination traffic on its
network for them. For managing calls that terminate on its mobile or fixed-line network WIND receives a
fee from other operators. In the same way WIND is required to pay termination tariffs to other operators
for calls that terminate on their mobile or fixed-line telephone networks. Mobile to mobile, mobile to
fixed, fixed to mobile and fixed to fixed interconnection tariffs are regulated by AGCOM.
Bundled and converging services
WIND is one of the leading suppliers in Italy of mobile telephony services, internet, fixed-line voice
services and data services having an integrated infrastructure and a network coverage that extends
throughout the country, thus allowing it to be well placed when it comes to offering integrated service
packages that combine these products. The Dual-play package offers broadband internet and fixed-line
vocal communication services, while the Triple-Play package offers broadband internet, a fixed voice line
and DSL television (IPTV). The last one at the end of December has been further enhanced with the
launch of the new VideoOnDemand section that allows all Infostrada TV customers to access an
extensive catalog of films. It also includes a personal video recorder, web programming (through the
internet tv.libero.it website) and the sharing of multi media content with the PC for a fixed monthly fee.
As part of the converging services WIND offers packages that include a fixed voice line and a
predetermined number of minutes of traffic towards specified WIND mobile telephone users, including
Noi 2 Infostrada and Noi 3 for consumer customers and Azienda WIND in the SOHO market.
It is to note the success of the SuperTuttoIncluso offering that combines the benefits of Infostrada’s
TuttoIncluso offer with WIND’s post-paid All Inclusive Smart mobile offer. In particular, customers who
take advantage of the SuperTuttoIncluso offer also enjoy a reduction in the fees for the services included
in the offer.
Customer services and retention of customers
WIND’s customer service activities are coordinated by the customer operations unit, which is divided into
mobile telephony, fixed-line telephony (including also the internet segment) and business customers. In
order to provide a made-to-measure service for customers, WIND provides customer service also in
Rumanian.
19
During 2010 surveys of customer satisfaction index showed that the WIND Customer Operation units
were the best compared to major competitors.
WIND has enterprise call centers in Rome and Ivrea dedicated to its customers, with internal agents
allocated to each individual customer in order to provide those of a strategic nature with top quality
services. The call centers dedicated to residential customers are located throughout the country in favor
of which were provided over 100,000 hours of training (Fixed Consumer Customer Care).
WIND puts special emphasis on its customer interface systems in order for them to be accessible and
easy to use, and has an integrated billing system for all of its subscribers as well as a free of charge
system that enables business customers to pay their bills, enter orders and obtain information
electronically in a matter of minutes. WIND manages the websites www.wind.it, www.infostrada.it and
www.windbusiness.it where considerable emphasis is placed on effective customer management. Since
the beginning of 2010 in order to meet the needs of customers, WIND offers the option of paying the
bills in all Sisal offices in Italy. By analysing customer needs the customer relationship management
function (CRM) identifies the specific action that needs to be taken on the basis of individual demands,
drawing up and carrying out promotional programmes designed to improve customer satisfaction,
increase the value associated with each customer, augment the use of the service, develop cross-selling
and up-selling strategies. In particular, in recent months there has been a significant push to maximize
the spread of Internet access service by mobile phone.
The revival of loyalty programs has also increased the benefits for customers through discounts and
promotions at new partner in order to consolidate the retention process and the perception of
competitive advantage against other operators.
WIS Group
The WIS Group manages a long-distance international communications network which provides voice and
data services via satellite, electrical and optical cable and new generation technologies, together with the
related support services. WIS also offers private satellite circuits for corporate and government customers
that need dedicated circuits between two points, typically between Africa and a location in Europe.
Marketing and Branding
The WIND’s reference markets are mobile telephony, internet, fixed-line telephony and data, which are
offerings requiring the use of a multibrand strategy that exploits the strength inherent in each of the
WIND, Infostrada and Libero brands in their respective markets. WIND positions each of its products and
adapts its marketing and communication campaigns to all of the markets in which it operates: each
brand, WIND, Infostrada and Libero, bears distinctive “W” logo, which enables the brand of the various
products to be identified as all belonging to WIND.
By carrying out a massive multi-media campaign (TV, posters, radio and the press) in 2010 WIND
confirmed its interest in and commitment towards the high-spending consumer customers as a target, a
20
person geared towards achieving value for money, as represented by the All Inclusive subscription plans.
In addition the attention placed by WIND on new technologies has continued to rise, with the Group
carrying out a new campaign dedicated to Internet browsing in mobility.
As confirmation of its considerable interest in new technologies and in the social media in September
WIND opened official profiles on Facebook, Twitter and Friendfeed, tools with which WIND is once more
asserting its commitment to be “closer” to its customers.
As ratification of WIND’s positioning as a successful operator, two evocative and emotional institutional
campaigns were devised and realised in 2010, planned for TV, the internet and the national press, in
which WIND takes the opportunity of thanking all those customers who have put their trust in the
company over the past few years.
The choice of the pay-off of the “Closer” campaign is intended to emphasise the particular relationship
that the Group has established with its customers.
Cooperation with the Panariello-Incontrada duo, once again the stars of the WIND advertisements,
continued in the fourth quarter. The alternation of testimonials, together with clear communication
focused on the product, is the cornerstone of the success of WIND’s communications, always high in the
public’s appreciation.
The year 2010 also marked the start of a new, innovative communication campaign dedicated to the
Business segment. Channelled via billboards (airports), the press (daily and periodical), internet and
radio, and for the first time also via TV, the campaign successfully presented to the public the WIND
Business offer, which is geared to a target of professionals and small businessmen.
The campaign dedicated to the WIND Business Class offer was carried out with the contribution of a new
face, Riccardo Rossi, the testimonial selected for this market segment.
The Infostrada advertising campaigns supporting the fixed line and internet offers, carried out with the
collaboration of Rosario Fiorello, one of the most famous and highly esteemed Italian showmen, and
channelled through a precise media strategy combined with a clear and direct style of communication
and a complete but simple offer, continue to be effective in providing support for the brand Infostrada
and its recognition. The success of Infostrada continued thanks to the simplicity and essentiality of the
new communication format, supported in the year by two massive television and radio campaigns as well
as by the constant presence of the brand on the internet channel.
In September Infostrada launched on TV and on-line, on the main Italian websites, a new communication
format "With Infostrada you live better" and has been very successful in commercial terms and approval
by the public. The new format has in fact accompanied the brand until the end of the year, closing with a
second massive television campaign and a national radio campaign.
In addition WIND sponsors concerts, television programmes and sports events; more specifically, in
music where the interest shown by each age band and the possibility of involving the public are greater,
21
WIND produces the exclusive television programme the "WIND Music Awards", the occasion for giving
awards to those Italian singers who have achieved the greatest success during the year. WIND is also the
main sponsor of the football club AS Roma and will sponsor all the matches played by the club until June
30, 2013.
22
NETWORK
WIND has developed an integrated network infrastructure providing high-capacity transmission
capabilities and extensive coverage throughout Italy. At December 31, 2010, WIND mobile network
covered 99.70% of the Italian population while WIND UMTS network covered 81.54% of the Italian
population.
WIND has expanded its HSDPA at 7.2 Mbps in all UMTS covered cities. In 2010 the HSDPA service has
evolved to 14.4 Mbps in 64 Italian provincial capitals. Mobile and fixed-line networks are supported by
19,629 kilometers of fiber optic cable backbone in Italy and 4,335 kilometers of fiber optic cable MANs as
of December 31, 2010. The network uses a common system platform, WIND ‘‘intelligent network,’’ for
both mobile and fixed-line networks. Network platform has been upgraded to provide it with a uniform IP
network platform, which provides additional capacity. The integrated nature of operations allows to offer
subscribers mobile, fixed-line and Internet product bundles and VAS. WIND has also approximately 449
roaming agreements with other Italian and international telecommunications operators around the world.
Fixed-Line Network
WIND fixed-line network consists of an extensive fiber optic transport network with over 19,629
kilometers of transmission backbone, 4,335 kilometers of fiber optic cable MANs linking all capitals of
Italian provinces and other major cities in Italy, a radio transmission network with approximately 14,651
radio links in operation. The voice switching network consists of a TDM/ATM network composed of 63
switching centrals (Local, Transit and International) and a NGN/IMS network composed of 31 softswitch
and 28 TrunkingGateways. From June this network is
supported by a new C4 NGN network that consists of 2
Media Gateway Controllers and 12 Media Gateway Soft
switches. WIND is able to route almost all backbone traffic
via own infrastructure, with little need to lease further
capacity from third parties.
At December 31, 2010 WIND had 1,158 LLU sites for
direct
subscriber
approximately
connections,
2,740
million
with
a
lines,
capacity
and
of
had
interconnections with 613 SGUs, which allow direct and
indirect carrier pre-selection, as well as WLR services.
WIND Internet network consists of an aggregated data
network with more than 168 points of presence,
broadband remote access servers for ADSL direct and indirect access Internet services and for virtual
private network corporate services, more than ten network access servers for dial-up access Internet
services and EDGE routers for direct Internet access.
23
Mobile Network
WIND offers mobile services through dual band GSM900 and GSM-1800 digital mobile network, which also
supports GPRS, a mobile technology that provides
greater bandwidth for data transmission and Internet
access than GSM.
GSM network also supports EDGE capabilities. EDGE is
an upgraded technology that enables to offer increased
data speeds and VAS over GSM network and also to
reduce the cost of handling mobile data traffic. WIND
also offers mobile services over UMTS network, a mobile
technology that provides even greater bandwidth than
GSM network, using HSDPA technology to provide
enhanced speeds for data transmission and mobile
Internet services.
The following table provides an analysis of WIND’s GSM/GPRS and UMTS/HSDPA networks at December
31, 2010.
Units
GSM/GPRS
Radiating sites
12,218
258
BSC (Base Station Controllers)
MSC (Mobile Switching Centers)
55
HLR (Home Location Register)
15
SGSN (Service GPRS Support Node)
13
GGSN (Gateway GPRS Support Node)*
6
UMTS
Node B
7,514
52
RNC (Radio Network Controller)
MSC-Server
7
MGW (mediagateway)
SGSN (Service GPRS Support Node)
10
16 (13 SGSN dual access)
* shared with UMTS core network
24
RESEARCH AND DEVELOPMENT ACTIVITIES
In order to select the best technologies and the best architectural solutions for the fixed and mobile
network, WIND focuses on the study and trials of new solutions designed to increase performance for
broadband customers for both mobile and fixed networks. For the mobile network, WIND has developed
technical and economic studies and tested and selected new technologies to allow in the medium term
for broadband services up to 42 Mbit/s through the gradual inclusion of all the features provided by the
HSPA (High Speed Packet Access) standard. To support the development of mobile broadband, the
optimization of the mobile network and predisposition to LTE (Long Term Evolution), WIND has launched
new and innovative multi-year infrastructure projects, such as for example the modernisation of the 2G
and 3G networks in a Single RAN perspective (namely one single infrastructure for various technologies)
and the backhauling of the BTS in optic fiber. The project to introduce latest generation radio bridges
continued.
On the fixed access network WIND has developed technical and economic studies and tested new
technologies that will enable ultra broadband fiber networks (Fiber To The Home, Fiber to the Building,
Fiber to The Mobile) to be developed. As part of the “Fiber for Italy” project, WIND has developed a pilot
project in conjunction with Fastweb and Vodafone to create a point-to-point FTTH network in the Fleming
quarter of Rome, capable of connecting a potential number of 7,000 homes in optic fiber. This aim of this
test is to demonstrate the efficiency of an access infrastructure in fiber which has avant-garde
architecture, is efficient and "future proof" and can be shared amongst various operators, encouraging a
competitive situation with clear benefits for end users.
WIND continued along its route of testing and selecting new technologies to be used over the next few
years in order to simplify the "all-IP" global access network architecture at all levels of the network (fixed,
mobile, transport and core).
Confirming its vocation, through its WIND Innovation Lab (WIL) centre of excellence, the “workshop of
ideas and projects, WIND encourages the introduction of solutions designed to improve the Group’s
offering and business potential, and more specifically certain precise lines of technological scouting were
followed.
A detailed analysis was carried out in order to identify new “on-line sales” channels and to seek markets
to encourage the definition of new service models by means of crowdsourcing solutions. The purpose of
this is to strengthen solutions aimed at improving the “self care” section available to the user by including
collaboration functionalities to solve technical aspects, to provide information without using the usual call
center methods and to create new interactive channels. The new solutions, based on the potential which
crowdsourcing offers, enable an architecture to be defined having several interaction channels with the
customer, including not only that on the internet and Interactive Voice Response systems (IVR)
architecture, but also and above all those of an innovative nature represented by the mobile web and
social network solutions. During the second half of 2010 an innovative study was also started up on
25
“Sentiment analysis” to anticipate error situations which may involve customers who are working together
in the network.
In addition Customer Care Automation and Customer Equipment Management solutions were analysed
during the year with the aim of improving the quality of the services offered by WIND: in particular,
measures were planned to improve performance and to identify and solve problems for the section
regarding both the network and the systems.
For this purpose various activities were implemented to increase WIND’s ability to provide solutions for
Mobile Device Management: diagnoses, the configuration of new services, overcoming malfunctioning
automatically, configurations and installations of new applications functionalities to which others are
added to enable users to manage their profile directly on the mobile terminal automatically.
On the question of innovation, in 2010 WIND continued to encourage a detailed analysis of the
opportunities of Cloud Computing by analysing the possible scenarios which may increase opportunities in
related businesses.
The Group has a series of activities in progress to improve “green vision” in order to increase adherence
to the Green ICT model in service development sectors and more generally in internal behaviour.
The technological scouting activities of WIL were also focused on the key services to be offered for FTTH
access, M-payment solutions (which may be managed through mobile devices) and any matters
regarding Infomobility.
In 2010 WIL also took an active part in various research projects, capable of exploiting financing
opportunities available at both European Union and local public administration levels.
26
HUMAN RESOURCES
At December 31, 2010, the Group had a workforce of 7,236 employees structured as follows.
Senior Managers
Middle Managers
Office Staff
Subtotal
(w/o WIS Group)
WIS Group
Total WIND Group
No. of employees at
12/31/2010 12/31/2009
158
151
582
565
6,385
6,241
7,125
6,957
average No. of employees in
2010
2009
156
149
582
567
6,368
6,105
7,106
6,821
111
97
110
94
7,236
7,054
7,216
6,915
During 2010, 414 employees joined the group and 254 left (excluding WIS Group), of which 273 hiring
(of which 241 under temporary contracts) and 101 terminations (including 68 under temporary contracts)
were at WIND Retail.
Below the Recruiting report (excluding temporary workers).
27
The following charts summarize personnel statistics relating to WIND Telecomunicazioni SpA and its
Italian subsidiaries
(WIS SpA not included).
Wind Group - Age Groups
45-54
13%
Wind Group (Wind Retail not incl) - Education
>54
2%
Other 4%
<35
32%
Degree
24%
Secondary
School 72%
35-44
53%
Average age: 37,6
Graduates excluding Call Center: 28%
Within the WIND Group there is a significant female presence of 46%, this percentage increased with the
acquisition of Phone, WIND Retail today.
Approximately 70% of personnel is based in Milan, Rome and Naples. Ivrea and Palermo are two other
important locations in terms of number of employees.
Departments1)
Sites 1) 2) 12/31/2010
12/31/2010
12/31/2009
37%
36%
Milan
14%
14%
7%
7%
Ivrea
11%
11%
Customer Care
28%
29%
Rome
36%
35%
Marketing & Sales
18%
18%
Naples
19%
20%
Staff
10%
10%
Other
20%
20%
100%
100%
Total
100%
100%
Network
Information Technology
Total
1) WIND Retail and Wis Group not included
12/31/2009
2) Naples include also Pozzuoli site
Organization
During the year the main organizational changes that have occurred as part of Operations concern the
Technology Department, where Ziad Shatara, who was previously Information Technology Manager, took
over responsibilities as Chief Technology Officer from January 1, 2010.
Changes were made to the Infostrada Customer Management micro-organization in September with an
effect on the service team structure.
28
Consistent with the Group’s commitment to be “Closer” to its customers, the mobile sales structures were
reorganized in October by intensifying local presence.
The merger of Enel Net and Italia On Line into WIND Telecomunicazioni was completed in November
2010.
The Flamingo project, aimed at improving development processes and the practical use of Information
Technology, was initiated during the year.
Development and training
Development
During the first part of 2010, top management drew up the vision, strategy and new values that are
representative of a corporate culture based on excellence. Consistent with this, a series of activities
marking the various steps on the journey towards excellence were commenced. One of the first steps
was to share the results of the Opinion Survey launched in 2009 by publishing these on the Group’s
intranet. Various initiatives have been set up at a management and Group level on the basis of certain of
the findings emerging from the survey, of which the following are the most important:
•
Job Posting, to encourage an encounter between organizational needs and individual expectations
concerning growth and change;
•
the redefinition of a 12-skill model defined by the Group’s new values. Types of conduct are
associated with these skills and are measured annually through the Performance Appraisal process;
•
a review of the Performance Appraisal process. To reinforce the changes a training program on all
the Group’s assessors was carried out. The process was completed with 100% of the appraisals and
95% of the feedback and orientation meetings between appraiser and appraisee performed;
•
a re-examination of the meritocracy policy with specific emphasis being placed on the management
appointment process;
•
the launching of a rich new internal training catalogue open to all employees;
•
the start-up of Cross Appraisals, meaning 360 degree appraisals, for all managers, designed to
improve managerial skills.
In addition, consistent with previous years, 144 people attended the Development Center initiatives.
Training
A total of 27,631 man-days of training were given in 2010, of which:
29
- 54% relating to Technological Innovation & Product Development activities, realized both as direct
training given to the professional families of the Technology Department and as internal training carried
out by the Business Units for sales and customer management;
- 38% relating to training activities, consisting mainly of catalogue courses on cross board and
occupational subjects addressed to the whole of the Group’s workforce;
- 7% relating to training activities carried out by the Safety department and concerning health and safety
at work.
In addition, institutional training programs continued during the year, such as:
•
the Induction in WIND training program: the young new graduates hired during 2008 and 2009
completed their project, structured during the year into various training activities dedicated to Team
Effectiveness and Self Realization, while the group of new graduates hired in 2010 began their own
project with a dedicated training course, Telecoms Mini MBA, given thanks to collaboration with
INFORMA, a prestigious international training firm;
•
the managerial skills program dedicated to recently appointed middle and senior management, which
reached its third edition after starting up in 2008 and is determined by the need to provide basic and
advanced elements of such skills.
30
Industrial relations
The procedure required by Law no. 428/90 in connection with the reverse merger of Mondo WIND Srl
into Phone Srl, Group companies working in the marketing of telecommunications products and services,
was initiated in February.
The procedure was completed with the signing of an agreement with the trade unions with whom specific
flexibility regimes were defined; in addition to this an accord was reached under which the national
collective bargaining agreement (CCNL) for employees providing telecommunications services would
apply.
The work of the bilateral commissions set up at a company level continued during the year, and it was in
these bodies that the organizational and professional repercussions of the operating model adopted to
manage the strengthening of the network infrastructures were presented to the Trade Unions, together
with the results of the check required by the CCNL of October 23, 2009 regarding the new provisions on
employee classification.
As far as vacation is concerned, a formal minute was signed with the trades unions in May relating to the
way in which leave may be taken in 2010; this also included an agreement with the Unions on the
objective of fully using leave vesting during the year and all residual back leave. The issue was picked up
again in subsequent months and two agreements were signed in December: the first relating to the way
in which vacation leave would be managed, in order to harmonize the Group’s regulations with the new
legal and contractual rules, and the second regarding collective closures in 2011.
An agreement was signed in June which will also allow certain training initiatives to be funded by the
Group’s account with Fondimpresa.
The new quality assurance organization and the new operating team structure of Infostrada Customer
Management were presented to the Unions in September.
As a result of following the procedure envisaged by Law no. 428/90 in connection with the merger of
Italia On Line Srl into WIND in November, 18 workers have continued their employment relationship in
the merging company.
31
CORPORATE SOCIAL RESPONSIBILITY
WIND confirmed its commitment to corporate responsibility with the objective of increasingly integrating
its many business activities with social and environmental actions, as well as ensuring that it conducts
itself in a responsible manner in its relations with both internal and external stakeholders.
WIND is constantly committed to following an internal path for continuous improvement in all its
processes and actions, enabling it to increase the value of its brand and corporate reputation.
The WIND 2009 Sustainability Report was published in October 2010 whose aim is to provide
stakeholders with information on the Group’s economic, social and environmental performance during the
year.
The “WIND per te” (WIND for you) initiative introduced at the beginning of 2006 and designed to assist
WIND employees in reconciling their work obligations with their day-to-day personal needs (info service,
online consulting, administrative practices, laundry and car assistance) continues to be much appreciated
by employees.
A variety of social initiatives was supported in 2010: blood donation at the Rome and Milan offices that
achieved considerable success; “Race for the cure” in the fight against breast cancer; charity Easter egg
sales to raise funds for the Don Orione Foundation; the free breast visits carried out at the Sandro Pertini
Hospital in Rome for all female employees; unlimited internet access key was donated to the pediatric
cancer ward of the Policlinico Gemelli; Christmas sale of the pig-shaped piggy banks to support projects
10/10.
Cooperation was given to San Patrignano during the year for the “Wefree” project, a touring show aiming
to raise awareness in adolescents over the issue of youth hardship.
To celebrate the first 10 years of WIND, the “10/10 - let’s put solidarity into focus” project was launched;
this sees 11 not-for-profit associations getting together for the first time in Italy to work on 10 worldwide
projects: in Manila (Philippines), Kiev (Ukraine), Italy, Congo (Africa) and Apurimac (South America). The
project continues successfully and about €92 thousand euro was donated at the end of 2010.
WIND supported more than 90 SMS fundraising initiatives in 2010, collecting approximately €4.2 million
for not-for-profit organizations.
32
DATA PROTECTION
Personal data protection in Italy is governed by Legislative Decree no. 196 of June 30, 2003, the
“Personal Data Protection Code”, whose aim is to ensure that personal data processing is carried out in
observance of the rights, fundamental liberties and dignity of the persons concerned, with special
emphasis being put on the confidentiality, integrity and availability of the personal data. In this respect,
in its capacity as data owner, WIND has set up a Privacy Office in its Asset Corporate Governance
department whose function is to satisfy legislative requirements on the subject and any subsequent
changes and additions, as well as those arising from the provisions of the Guarantor for the protection of
personal data.
The Group accordingly has a Data Protection Document (Documento Programmatico sulla Sicurezza dei
Dati - DPS) which consists of all the security measures introduced to protect the data for which WIND is
the data owner and for which the law requires an annual updating.
The DPS is currently updated to March 31, 2010, and steps are being taken to prepare a version of the
DPS updated to March 31, 2011. An inquiry of data was carried out in preparing the 2010 DPS whose aim
was to accurately identify the data processed within the Group, at the end of which a review was
performed of the risk analysis and gap analysis regarding the security measures. In addition, WIND
appointed data supervisors pursuant to article 29 of Legislative Decree no. 196/03 and persons in charge
of processing pursuant to article 30 of Legislative Decree no. 196/03, drawing up the related operating
instructions.
In view of the request for “prior checking” presented to the Guarantor for the protection of personal data
concerning Profiling carried out on the combined personal data of customers, in line with the
requirements of the provision “Prescriptions to providers of publicly accessible electronic communication
services who perform profiling activities” issued on June 25, 2009 and published in the Official Journal of
July 11, 2009, and following its acceptance, WIND also set up all the technical and organisational
measures aimed at the complete fulfilment of the prescriptions of a general nature contained in the
provision and those of a specific nature contained in the acceptance request.
In addition, WIND set up all the measures necessary for checking compliance with the Guarantor’s
provision for the protection of personal data in matters concerning video-surveillance, dated April 8, 2010
and published in the Official Journal of April 29, 2010.
Further, steps were taken to adopt all the requirements of the provision of April 8, 2010, again of the
above-mentioned Authority, in respect of the measures to protect any “reverse search” for old telephone
service subscribers. Again in 2010, in its capacity as data owner and in compliance with its duty to
monitor the data supervisors, WIND continued to perform a series of checks on such with the aim of
ensuring that the work they are doing and the security measures adopted respond to the instructions
given to them on appointment as per article 29 of Legislative Decree no. 196/03 and later by means of
communications and operating instructions.
33
REGULATORY FRAMEWORK AT DECEMBER 31, 2010
In December 2009, the European Parliament and Council approved both the directives amending the
present regulatory framework and the Regulation establishing the BEREC (the Body of European
Regulators for Electronic Communications set up by the chairmen of the 27 EU Authorities), which has
the purpose of assisting the European Commission, by means of non-binding opinions and documents in
harmonizing the approaches to the regulations in the various countries of the European Union.
The directives that have been approved became effective on December 19, 2009 and must be adopted at
the national level by June 19, 2011, whereas the Regulation creating the BEREC has been directly
effective since January 7, 2010.
It is also worth noting the complex topic of next generation networks that involved operators in the
definitions of a proper procedural and regulatory framework for the transaction from copper to fiber
optics.
Fixed-line market
Antitrust Activities
On June 23, 2010 the Italian Antitrust Authority (Autorità Garante della Concorrenza e del Mercato AGCM) initiated the A428 - “WIND-Fastweb/ Telecom Italia Conduct” proceeding aimed at ascertaining
whether Telecom Italia had abused its dominant position in the fixed-line market by means of operating
and commercial practices consisting of: i) the refusal to activate customers and the failure to update the
data bases needed for defining activation orders; ii) policies under which significant discounts were given
on access fees for narrowband offers (POTS and ISDN services) addressed to business customers in
areas open to the LLU service.
Telecom Italia Reference Offers
The following proceedings for the revision of the Telecom Italia offers have been initiated in 2010:
- WLR and LLU services (15/10/CIR and 16/10/CIR): the proceedings to revise these offers specifically
regard the economic terms of services not subject to network caps and the technical terms of the offer.
These proceedings were concluded with resolutions 53/10/CIR and 54/10/CIR and published in August
2010;
- Bitstream services, market 5 (ex 12): with resolution no. 43/10/CIR, in August 2010 the procedure to
revise the bitstream 2010 RO began, with respect in particular to the economic conditions of the services
not subject to network caps and the technical conditions of the offer. Concerning the matters included in
the above-mentioned resolution, on December 9, 2010 resolution no. 105/10/CIR was passed, approving
34
the 2010 Reference Offer. The economic conditions of the services not subject to network caps are
effective retrospectively from May 1, 2010. The economic conditions applied from January 1 to 30 April
were those approved in 2009 through resolution no. 71/09/CIR.
Concerning the way in which the BU LRIC model (Bottom-Up Long Run Incremental Cost: the model for
calculating the cost on the fixed access services of Telecom Italia) is proceeding, the cost model for the
services subject to network caps of the WLR, LLU and Bitstream offers was determined through
resolution no. 578/10/CONS, specifying the values to be used in applying the network cap mechanism for
the years from 2010 to 2012. These values are applicable from May 1, 2010 to December 31, 2012. For
the period from May 1 to December 31, 2010 the changes must be applied by respecting the prices
relating to the same services contained in the 2009 Reference Offer, as approved by the Authority.
- call collection, termination and transit services in the fixed public telephone network, markets 2, 3 ex 10
(ex 8, 9 and 10): through resolution no. 55/10/CIR public consultation relating to the 2010 RO began in
August 2010, as the result of the rules introduced by market analysis resolution no. 179/10/CONS.
Resolution no. 119/10/CIR was passed on December 17, 2010 approving, the 2010 Reference Offer
whose economic conditions have effect from January 1, 2010.
- dedicated capacity transmission services, wholesale direct circuits and partial circuits (market 6 ex
13,14): through resolution no. 34/10/CIR the revision procedure began at the end of June 2010 following
the completion of the market analysis (Resolution no. 2/10/CONS).
On October 27, 2010 resolution no. 73/10/CIR was published, approving the 2010 Reference Offer whose
economic conditions have effect from January 1, 2010.
Fixed access network
- Market analysis – Markets 1, 4 and 5
With Resolution no. 731/09/CONS, AGCOM completed its analysis of the wholesale fixed network access
service markets (markets 4 and 5 of the Recommendation), confirming all the requirements that Telecom
Italia has to meet as envisaged by the regulatory framework. With the same resolution AGCOM
additionally confirmed Telecom Italia as being the dominant operator in the fixed network voice access
service retail markets.
With Resolution no. 2/10/CONS AGCOM concluded its analysis of the leased line terminal segments
(market 6 of the Recommendation), as part of this decision the network terminal segment market has
been separated into segments used for reconnecting base radio stations and those used for supplying
fixed network services to end users. Only this latter market was considered worthy of regulation in
advance and it has seen the introduction of all the requirements envisaged by the regulatory framework
on Telecom Italia, while for the BTS backhauling circuit market the regulator has provided for the
removal of all the obligations incurred by Telecom Italia from 2011.
35
The proceedings for analysing the wholesale and retail markets for fixed network voice traffic services
were concluded during the second quarter of 2010 with the issue of Resolution no. 179/10/CONS for the
wholesale markets, substantially confirming Telecom Italia’s obligations, under the regulatory framework.
Resolution no. 180/10/CONS relating to the Transit wholesale service left Telecom Italia with the
obligation for district traffic only, liberalising the transit service at a national level.
At a retail market level, acknowledging that the markets are no longer susceptible to regulation a priori,
resolution no. 284/10/CONS initiates a process to remove the retail obligations of Telecom Italia
completely, and this will be completed at the end of 2010. AGCOM still however holds the right to verify
the replicability of Telecom Italia’s retail offers through wholesale traffic service offers (collection and
termination) by carrying out procedures to be identified in the proceeding initiated with resolution no.
667/09/CONS, and specifying the consequences of any inability to achieve replicability (penalties and the
suspension of the offer).
In respect of the market for the provision of wholesale access services to new generation networks, the
market analysis establishes, again under the responsibility of Telecom Italia, the requirement for
bitstream on fibre and access to civil infrastructures and used fiber, leaving open the issue of defining the
conditions for the implementation of the matters included in the provision for optic fiber network access
services, subsequent to the approval of the Recommendation on NGAN networks by the European
Commission and on the basis of the non-binding proposal for guidelines of the NGN Italia Committee,
taking into account the actual development of optic fiber networks throughout the country.
- NGN
In September 2010, AGCOM set up a preliminary investigation procedure through resolution no.
498/10/CONS, whose object was an examination of market conditions and competition regarding
wholesale access services to new generation networks (markets 4 and 5 amongst those identified by
Recommendation 2007/879/EC), in order to adjust the regulatory provisions established on this matter in
resolution no. 731/09/CONS. As part of this procedure, in December AGCOM sent a questionnaire to all
the operators. WIND sent its reply to this questionnaire on January 14, 2011, consequently AGCOM set
up public consultation no. 1/11/CONS.
- Monitoring Group for Telecom Italia’s Commitments
As a result of the meetings between AGCOM, Telecom Italia and the alternative operators that have been
held since March 2010, the Commitment Monitoring Group (Gruppo Monitoraggio Impegni - GMI)
requested Telecom Italia to carry out specific measures on groups 1, 3, 4, 5 and 6 aimed at: i) reducing
the refusal of customer passage; ii) improving parity of treatment; and iii) avoiding situations where ATM
are closed without prior notice/planning.
36
Telecom Italia has published new policies for contacting customers in line with the principles required by
the Commitment Monitoring Group (Gruppo Monitoraggio Impegni - GMI) and arranged a mechanism for
providing notice of the state of saturation of ATM centers.
In conjunction with the other alternative operators, WIND has reported a series of items to the
Authority’s Commitment Monitoring Group concerning the critical matters still encountered regarding
Commitment Groups 1, 3, 4, 5, 6, 8, 9 and 12, on which the Authority’s Council must express its opinion.
- Definition of cost model
The procedure carried out to satisfy the requirements of market analysis resolution no. 731/09/CONS,
aiming at defining a cost model for the determination of wholesale prices for access services to the fixed
network of Telecom Italia (Unbundling, Bitstream, VLLU) and calculating the WACC (weighted average
cost of capital), was completed through the issue by AGCOM of its final resolution no. 578/10/CONS of
November 11, 2010.
- Price testing
With Resolution no. 667/09/CONS, AGCOM set up a public consultation relating to the proposal for the
adjustment and innovation of the price testing methodology used in connection with Resolution no.
152/02/CONS. In October 2010, AGCOM published its final proceeding for defining a new price testing
model as per resolution no. 499/10/CONS “Adjustment and innovation of the price testing methodology
currently used in connection with Resolution no. 152/02/CONS ‘measures designed to ensure the full
application of the principle of internal and external parify of treatment by operators having considerable
market strength in fixed telephony’”.
Pure number portability procedures
On February 11, 2010 a public consultation procedure was initiated on “the introduction of secret codes
in pure number portability (NP) procedures as per resolution no. 41/09/CIR” and WIND provided its
comments on March 16, 2010. In July 2010 resolution no. 35/10/CIR was published, which contains the
basic rules for the realization of the procedures for number portability between operators. At present
meetings of the inter-operator discussion table on the issue are being held with AGCOM in order to
complete the final details concerning the start-up of the procedures and manage the transitional/pilot
stage in the passage from the present situation to the new one.
In a circular dated October 28, 2010, AGCOM defined the means of testing and managing NPs during the
transition period until definitive NP procedures become effective. The effective date for the procedures
defined in this way by 35/10/CIR was established as February 7, 2011.
37
Again in October 2010, the means of carrying out the testing of the pure NP procedures as per resolution
no. 35/10/CIR was defined jointly amongst the operators.
Public consultations of the European Commission and the ERG
During the second half of 2009 WIND replied to a series of European consultations, amongst which that
on Regulating Access to the NGAN (Next Generation Access Network) stands out in particular; in this
latter case WIND expressed its view that access to the development of these networks should be open to
all the players in the sector in an effective, transparent and non-discriminatory way. The recommendation
was published in September, 2010.
During 2010 WIND took part in a series of consultations on the following subjects:
-
the Functional Separation guidelines and experience at a national level, the consultation set up by the
BEREC with the aim of identifying the guidelines able to support the national regulatory authorities
relating to the decision as to whether to proceed with the adoption of functional separation models,
and in the case in question regarding the most suitable methods to implement them. In addition, it
was stressed that the Functional Separation remedy should be accompanied exclusively by the
criterion of the Equality of Input (EoI), and hence that its minimum level should guarantee that the
wholesale services offered by the functionally “separate” entity should be provided through the same
systems and processes and have the same timing, terms and conditions.
-
updating the existing universal service regulation, supporting the position that fixed and mobile
services are complementary and that there is the need to finance such services by means of a State
fund which, on the basis of the extent to which it may be extended to other sectors, would define the
means of coverage;
-
Public consultation as preparation for the European Commission’s program for radio spectrum
policies, which highlights the necessity for a harmonized approach to policies for managing the radio
spectrum at a European level, noting the need to have access to a greater portion of spectrum in
order to encourage the development on the market of broadband services and technologies and
requesting additionally to have the 800MHz band available by 2013 as well as transparent, procompetition and non-discriminatory procedures for allocating frequencies;
-
determining best practice in establishing procedures for customer migration between operators, with
WIND expressing its full agreement with the guidelines proposed by the BEREC which substantially
coincide with the principles inspiring current procedures and stressing the need for similar guidelines
to be extended to business customers;
-
Public consultation on the second draft of the European Commission Recommendation on the Next
Generation Access Network (NGAN), making direct amendments to the text under consultation and
therefore supporting the need for an alternative operator (such as WIND) to see its current
38
obligations for the access markets (markets 4 and 5) unaltered, even in the case of the development
of the NGAN, to see these obligations extended also in the case of access infrastructure in fiber and
finally to see that the migration process from the current copper network to a fiber network occurs
within a reasonable time, providing for measures protecting both competition and the investments in
copper made by alternative operators;
-
The European Commission public consultation on “Open internet and net neutrality”, supporting the
need for network providers to be able to manage their network freely as a means of optimizing
information flow and to provide both the end-user and the content/service provider with a different
quality service based on different pricing policies and stressing that the present level of transparency
in supplying services for both the fixed and mobile network provides a sufficient and suitable balance
between the customer’s need for information and the complexity involved for the network/service
provider to manage the information. In addition, the need has been highlighted not to establish any
further regulatory limitations on internet services from both fixed lines and mobiles, in order not to
inhibit the desire of operators to make investments in new technologies (i.e. NGN, LTE) or slow down
the development of new broadband internet services/applications.
AGCOM public consultations
Resolution no. 395/10/CONS referred to public consultations on the market analysis relating to market 18
of radio and television broadcasting services for the transmission of contents to the final user. It was
noted that the companies operating in broadcasting activities on terrestrial digital networks currently
have a position of extreme importance in market 18 (i.e. deriving from their vertical integration and their
level of revenues) which might become even stronger due to the considerable discontinuity introduced by
the passage to digital. It was additionally proposed that on completion of the analogue-digital switch off
a new market analysis should be conducted to check the accuracy of the assessments made in the
present market analysis. Finally, it was requested that the process of transition to digital should lead to
the freeing of frequencies in the 790 - 862 MHz band, to be allocated to mobile operators.
39
Mobile market
Mobile Termination
With resolution no. 667/08/CONS, all Italian mobile operators (Telecom Italia, Vodafone, WIND, H3G)
have been identified as holders of significant market power, and transparency, access, non
discrimination, price control and cost accounting obligations have been put on each of them. More
specifically, article 12 of resolution no. 667/08/CONS requires the following glide path for mobile
termination rates to be used as from July 1, 2009.
As from
As from
As from
As from
Eurocents/minute
07/01/2009
07/01/2010
07/01/2011
07/01/2012
H3G
11.0
9.0
6.3
4.5
Telecom Italia
7.7
6.6
5.3
4.5
Vodafone
7.7
6.6
5.3
4.5
WIND
8.7
7.2
5.3
4.5
With reference to this glide path, article 14 of resolution no. 667/08/CONS provides for the possibility to
review this reduction in tariffs subject to the definition of a new long-term incremental cost model, which
will not have retroactive effect.
Following the advice of Europe Economics, the Authority began developing the cost model at the
beginning of 2009. In this respect on November 25, 2010 the consultative stage initiated with AGCOM
resolution no. 509/10/CONS was completed; the final decision of AGCOM is currently awaited in respect
of the definition of a cost model relating to the voice termination service on the mobile network pursuant
to article 14 of resolution no. 667/08/CONS.
Market Analysis - Mobile Termination
At the end of the public consultation procedure by which the Authority defined the new model for
determining mobile termination tariffs (submitted to the European Union for its opinion), AGCOM took the
decision with Resolution no. 670/10/CONS to initiate the third cycle of the mobile termination market
analysis. The object of the proceeding is “to review the glide path defined in 2008, namely to verify
whether, and to what extent, the termination tariff levels of the four mobile operators must be revised to
take account of market changes and the degree of competition. As usual, before dealing with the
question of the regulatory measures, the market analysis will review both the definition of the market, as
part of which the SMS termination service will also be assessed, and the analysis of the competitive
situation, also in the light of the increasing role of virtual mobile operators”. This proceeding is expected
to be completed by the first half of 2011.
40
During the proceeding WIND will be involved in the compilation of a preliminary questionnaire prepared
by AGCOM aimed at collecting the data to be used for carrying out the market analysis by the Authority
and preparing the respective document that will be subject to public consultation.
Roaming regulation
The guidelines for the provision of the international roaming service between European countries for
SMS, MMS and data services came into effect on July 1, 2009. In particular these further reduce the price
sof roaming calls, introducing ‘per second’ billing after the first 30 seconds and after the first second for
calls received from abroad. In addition, the cost of sending an SMS from abroad has been reduced and
tariffs for browsing the net with a mobile phone abroad have been brought down through the
introduction of a maximum wholesale price of 1 euro for each MB downloaded. A locking mechanism has
also been introduced for when the bill reaches 50 euros or another ceiling chosen by the consumer. In
conclusion, the European discipline protecting consumers using European roaming mobile data traffic
became effective on March 1, 2010; included amongst the regulations is the possibility for customers to
define maximum spending ceilings and alert and automatic blocking mechanisms if these are exceeded.
National Numbering Plan
With resolutions no. 34/09/CIR and no. 80/09/CIR the Authority amended and supplemented certain
provisions of the national numbering plan contained in resolution no. 26/08/CIR. These resolutions
postponed the effective date of the new numbering regulations in “decade 4” to February 1, 2010, with
the possibility of a transitional arrangement until April 30, 2010.
With resolution no. 2/10/CIR on March 8, 2010 a new public consultation was launched on the NNP, in
respect of which WIND submitted its comments on April 7, 2010. The issue is under study and is awaiting
a final decision about publication.
With of resolution no. 74/10/CIR, published in the Official Journal of December 10, 2010, the NNP has
been supplemented and updated (resolution no. 26/08/CIR), introducing certain important changes
including 4-figure codes for radiomobile services which are available for allocation in blocks of 1 million
numbers.
41
Additional topics
Audiovisual and multimedia content
With resolution no. 407/09/CONS, AGCOM extended the deadline for the survey on the producers of
content in the electronic communications sector, initiated with resolution no. 626/08/CONS. The final
closing date for this proceeding (originally planned for the end of February 2010) is currently pending.
Audiovisual and Radiophonic Media Services
In June, with resolutions no. 258/10/CONS and no. 259/10/CONS, AGCOM published two consultations
concerning regulations to define permits for providing linear and non-linear audiovisual services and
radiophonic services for “other means of communication” (such as IP networks, namely Web TV, VOD,
IPTV, radio/video services via internet, etc.). These resolutions respond to the commitment of AGCOM to
establish such regulations, defined as part of Decree no. 177 of July 31, 2005, the so-called “Romani
Decree”, as amended by Legislative Decree no. 44 of March 15, 2010 (see article 21, paragraph 1-bis of
the Consolidated Law on Audiovisual and Radio Media Services - Testo Unico dei Servizi di Media
Audiovisivi e Radiofonici – TUSMAR). WIND has presented a position paper in this respect regarding the
regulation of non-linear services (no. 259/10/CONS)
At the end of December AGCOM closed two proceedings with resolutions no. 606/10/CONS and no.
607/10/CONS, respectively. A detailed analysis has been initiated on the impact of the final decisions for
WIND, which are expected to extend some of the authorizations required to provide services and certain
operating activities connected with IPTV services and Libero portal services.
Digital decoders
As part of activities as per resolution no. 523/09/CONS (an investigation into the characteristics of
receiving television programmes digitally and the initiatives needed for introducing a “single decoder”), in
February WIND took part in providing information regarding its SetTopBox product offer (which includes
a terrestrial digital decoder) using a questionnaire drawn up by AGCOM.
Copyright
On February 12, 2010, AGCOM published the results of a survey on copyright for electronic
communications networks. The aim of the survey was to take stock of the situation regarding piracy and
national regulation. In this context WIND took part in the drafting of a reply document as part of ASSTEL
and in a hearing at the Authority office as part of the IPTV Association.
42
At the end of December, AGCOM set up a public consultation through resolution no. 668/10/CONS on a
package of initiatives regarding responsibilities for copyright protection, also in the light of those which
the law allocates to the Authority.
WIND is involved in defining an internal positioning on the management of the issues in question, with
specific emphasis being given to the adverse effects for telecommunications operators which may derive
from these (tax, any economic or operating charges, responsibility for the process of providing services,
etc.).
In addition, activities continue in ASSTEL in which WIND actively participates. Discussion meetings have
been planned to establish a common positioning in reply to the consultation.
Technical discussions regarding spectrum management rules
On February 9, 2010 AGCOM initiated discussions for an updating of the spectrum management rules by
publishing a notice on its website.
The first meeting between operators and AGCOM was held on February 22, 2010, with the aim of
discussing qualifying and prequalifying activities performed as part of unbundling and bitstream services.
The discussions are still ongoing.
Technical discussions concerning “regulatory intervention regarding IP interconnection and
interoperability for the supply of VoIP services”
On February 9, 2010 AGCOM initiated discussions regarding “regulatory intervention regarding IP
interconnection and interoperability for the supply of VoIP services” by publishing a notice on its website.
These discussions regard issues concerning IP interconnection such as: interwork between IP technology
networks, the definition of a common set of standards, the signalling protocols and technical interfaces
required for the supply of IP-based services and the determination of traffic delivery points. The
discussions also involve the use of numbering (geographic and non-geographic) for the supply of VoIP
services and the related regulatory requirements, such as the requirement to provide access to
emergency services and number portability.
The first meeting between operators and AGCOM was held on February 22, 2010. The discussions are
still ongoing.
43
Law no. 220 of December 13, 2010: provisions for the preparation of the Government’s
annual and multi-annual financial statements (the 2011 budget law, also known as the 2011
stability law), published in the Official Journal, General Series no. 297 of December 21,
2010.
Paragraph 1 of article 8 of this law establishes that the Authority must initiate a procedure for allocating
the frequencies (790-862 MHz and other available frequencies) to be used for broadband mobile services
within 15 days of the date on which the law enters into force.
The Ministry will establish the allocation of the frequencies at a later date. In addition, article 13 provides
that revenue of not less than €2,400 million will result from the implementation of paragraph 1 of article
8. The allocation procedures must be completed within a term that ensures that the revenues arising
from the allocation will be recognized in the Government’s financial statement by September 30, 2011.
Main new consumer protection regulations
As the consequence of AGCOM resolutions no. 244/08/CSP and no. 400/10/CONS, by the end of October
2010 consumers will be able to monitor the performance of their desktop internet connection by means
of certified, free of charge software which they may use on their own personal computers. The
introduction of this innovative monitoring system is the result of collaboration between AGCOM and FUB
(Ugo Bordoni Foundation) and support provided by the operators.
To this end, the operators published certain parameters, including the maximum and minimum speeds
used in uploading and downloading.
In conjunction with FUB, AGCOM additionally set up a technical discussion table with the mobile
operators to update resolution no. 104/05/CSP, with the aim of defining the indicators to be used as a
basis for testing the quality of in-mobility data and voice services.
The operators confirmed their full availability to collaborate in this project and have prepared a work
program which will be put into practice over a period of seven months and which envisages a periodic
updating of FUB and AGCOM on the results achieved regarding the identification of the above-mentioned
indicators.
With resolution no. 326/10/CONS the regulator has provided for the following measures concerning user
protection:
•
Alert systems and expense limits for data traffic;
•
The availability of systems for controlling data traffic costs;
•
The predetermination of upper monthly data traffic consumption thresholds;
•
Information to be provided to customers regarding the above measures;
•
The availability of tariff plans for voice and SMS services that are in line with EC standards and
related disclosure to customers.
44
WIND has started the necessary internal implementation activities aimed at full compliance with the
provisions of said resolution. It is also actively involved in joint initiatives as a member of Asstel.
45
MAIN PENDING LEGAL PROCEEDINGS AT DECEMBER 31, 2010
WIND is subject to various legal proceedings arising in the ordinary course of business. Below is a
description of all material pending legal proceedings at December 31, 2010, excluding those situations in
which the cost arising from a negative outcome of the proceedings cannot be estimated or for which a
negative outcome is not considered probable. In addition, WIND is subject from time to time to tax audits
and investigations, some of which may in the future result in legal proceedings.
Audit by the Italian Tax Authorities
On November 29 and 30, 2010 the Tax Revenue Office notified separate assessments in which it disputed
omission by WIND to subject interest payments made to WIND France SL SA and WIND Acquisition
Finance SA in 2005 to withholding tax at source. The disputed withholding tax for the year in question
amounts approximately to €1.3 million plus the penalties and interest due by law. This adjustment arises
from the Tax Audit Findings Report dated May 31, 2010 in which the Tax Revenue Office disputes the
request for a refund of the withholding tax on the interest payments made by WIND to WIND France SL
SA (the issuer of the Second Lien loan) and WIND Acquisition Finance SA (the issuer of the High Yield
bonds) for 2005 and part of 2006, as well as questioning whether such tax should have been withheld on
the interest paid by WIND for the remainder of 2006 and for 2007 and 2008.
The Parent has filed a tax settlement proposal in this respect within the terms of law. An unsuccessful
outcome of the tax settlement procedure would be duly challenged before the competent judicial
authorities.
Based on a detailed analysis of this matter no provision has been made in the financial statements at
December 31, 2010.
Proceedings Concerning Electromagnetic Radiation
Proceedings are still pending, in particular before the administrative courts, regarding the installation of
base radio stations. These are mainly the result of current concerns about electromagnetic radiation. The
claims are of an undeterminable monetary amount.
Proceedings with agents
Certain proceedings are still pending at different judicial stages relating to the termination of agency
agreements (including those with Golden Voice, I&IA), in which the agents seek payment from WIND of
certain indemnities provided for by Italian legislation; these include the termination indemnity, the
collection indemnity, the indemnity in lieu of notice and the indemnities pursuant to article 1751 of the
Italian Civil Code.
46
WIND/ITALGO SPA
WIND was sued by Italgo SpA (formerly Delta SpA), which on the declaration of a breach by WIND of
certain provisions of an agreement signed with Delta SpA for the provision of goods and services (the
“Commercial Agreement”) is seeking the termination of the agreement and other related agreements, the
sentencing of WIND to pay a penalty of €3.3 million, the sentencing of Wind to refund the price of €23
million paid for Delta SpA shares and pay additional damages (to be quantified during the proceedings)
for the costs which Italgo alleges to have incurred as the result of WIND’s breaches. Subordinately, the
plaintiff has asked for a reduction in the purchase price agreed by the parties to be settled by offsetting
this amount against an amount of €9 million payable to WIND. On March 19, 2010, an injunction was
issued by the Court of Rome ordering WIND to pay a total of €3 million. WIND appealed the decision
and, presently, a negative outcome is considered probable.
IOL/RTI
RTI SpA - Mediaset (“RTI”) initiated a proceeding against ITALIA ONLINE Srl (“IOL”) before the Court of
Milan on the grounds that IOL continued to make 1,600 videos owned by RTI available on
www.libero.mediasd.it following the expiry of IOL’s non-exclusive license for such video content on
December 31, 2008. RTL is claiming for damages of approximately €100 million. However, if the Court
recognizes the responsibility of IOL, it is probable that the company will be liable for a payment of €1
million. The hearing held on July 14, 2010 started the phase for the clarification of the conclusions. The
pleading for the conclusions has been filed and the hearing for the final discussion was held on January
20, 2011. Currently WIND is waiting for the outcome of the proceeding.
WIND/Crest One SpA
Crest One SpA (‘‘Crest One’’) has initiated proceedings against WIND for (i) the refund of approximately
€16 million, previously paid to WIND by Crest One as value added tax under a distribution agreement
entered into between Crest One and WIND, and (ii) the compensation of all damages suffered by Crest
One (to be determined following the trial) in relation pursuant to the payment of such value added tax by
Crest One to WIND. The legal action is at its initial phases and therefore it is not yet possible to quantify
any potential liability. The next hearing will be held on May 16, 2012.
47
Terna/Enel.Net/WIND
Through a writ of summons notified on June 11, 2010, Terna and Telat sued WIND and Enel.Net before
the Court of Rome in order to request the termination of three contracts executed by Terna, Enel.Net and
Telat, alleging the breach by Enel.Net under article 1453 of the Italian Civil Code, of contractual
provisions relating to the review of fees. In particular, the contracts concern i) the hospitality of Enel
Net’s fiber on Terna’s insfrastructure ii) the lease of the relevant industrial sites; and iii) the maintenance
of Enel.Net’s fiber cables. The first hearing, scheduled for February 23, 2011 as indicated in the writ of
summons, was brought forward to January 19, 2011 following a request of anticipation by Terna and
Telat; at the present state of affairs the second hearing has been scheduled for June 1, 2011 and any
losses to be incurred by the Group, while considered possible, are unable to be determined.
Proceedings concerning Misleading Advertising and Unfair Commercial Practices
Under Legislative decree no. 146/2007, the Italian Antitrust Authority has the power to initiate
proceedings concerning unfair commercial practices and misleading advertising and issue fines of up to
€500 thousand for each proceeding. In particular, many of these proceedings brought against WIND
concerned the advertising of VAS; on September 30, 2010, only one of these proceedings was still
pending. This proceeding was closed on December 15, 2010 and notified on January 3, 2011. On January
5, 2010 AGCM started a sanction proceeding against WIND regarding undue telemarketing activities (i.e.
calls to customers that had not given their acceptance to be contacted). This proceeding has been closed
with the acceptance of WIND undertaking.
Turnover contribution
On September 19, 2009, WIND served two appeals to the competent Ministries before the Regional
Administrative Court of Lazio (the Lazio TAR) (one on its own behalf and the other on behalf of the
former Infostrada), claiming for re-payment of the interest on the amounts paid as turnover contribution,
which were found to have been illegally assessed and were reimbursed to WIND on July 12, 2007 and to
the former Infostrada on December 17, 2008.
Following the hearing of December 10, 2009, the Lazio TAR accepted WIND’s appeal, and on December
17, 2009, the Ministry of the Economy and Finance repaid interest approximately €4.7 million to WIND.
On January 20, 2010, a hearing was held to discuss the appeal before the Lazio TAR for the repayment
of interest on the contribution paid by the former Infostrada, where the Lazio TAR acknowledged the
right of Infostrada to receive only a partial amount of the interest payments, as calculated starting from
April 18, 2006 rather than, as demanded by WIND, from the date of payment of the concerned amounts.
48
On May 25, 2010 WIND filed a claim before the State Council against the TAR Lazio’s ruling in order to
obtain the entire repayment of the interest payments related to the amounts paid by the former
Infostrada. The hearing before the State Council will take place on April 15, 2011.
WIND-Antitrust Authority (Proceeding no. A/357)
With a decision dated August 3, 2007, the Antitrust Authority closed proceeding no. A/357 by
condemning WIND and Telecom Italia for abuse of their dominant positions in the wholesale termination
market due to the discriminatory application of economic and technical conditions for fixed-to-mobile on
net (fixed-mobile calls originating and terminating on the WIND network) and intercom calls (the calls on
the internal telephone lines of a business customer) in favor of their respective internal divisions and to
the detriment of fixed-line competitors. WIND was fined a sum of €2 million and ordered to cease the
discriminatory behaviour. WIND appealed against the decision by seeking the annulment before the
Administrative Court of Lazio (the Lazio TAR). The hearing was discussed on January 23, 2008. The Lazio
TAR rejected WIND’s appeal on January 29, 2008 and the related decision was published on April 7,
2008. On September 17, 2008 WIND filed an appeal before the State Council, seeking the annulment of
the above Lazio TAR’s decision. The related hearing for the discussion before the State Council originally
scheduled for May 11, 2010 was postponed to October 12, 2010.
During the hearing the Judge has declared the interruption of the proceedings acknowledging the
insolvency procedure declared by one of the parties (Eutelia SpA) on its insolvency procedure. The next
hearing for the discussion before the State Council will take place on March, 15, 2011, where the parties
will discuss the case. We are currently awaiting the definitive sentence.
49
CONSOLIDATED FINANCIAL AND PERFORMANCE DATA
The following tables provide a summary of the main consolidated financial and performance data for the
Group for 2010, prepared in conformity with the IFRS endorsed by the European Union, together with a
comparison with the corresponding figures for 2009.
Revenue
EBITDA(1)
Operating income
Net finance expense
Unusual finance expense
Profit/(Loss) before tax
Profit/(Loss) for the year attributable to the owners of the parent
2010
5,898
2,185
1,160
(883)
(386)
(103)
(252)
2009
5,726
2,142
1,139
(557)
0
582
308
(1) Operating income before depreciation and amortization, reversal of impairment losses/impairment losses on non-current assets and gains/losses
on disposal of non-current assets.
Capital expenditure (millions of euro)
Statement of financial position figures
(millions of euro)
Total assets
Equity attributable to
non-controlling interests
Total liabilities
2010
2009
956
999
December 31,
2010
14,091
December
31,
2009
14,463
1,517
0
12,573
8,415
1,667
1
12,794
8,541
50
EEaarrnniinnggss ppeerrffoorrm
maannccee
The table below sets out the consolidated income statement for 2010 and a comparison with the 2009
figures.
2010
2009
Change
(millions of euro)
Revenue
Other revenue
Total revenue
amount
%
5,771
127
5,898
5,575
151
5,726
196
(24)
172
3.5%
(15.9)%
3.0%
Purchases and services
Other operating costs
Personnel expenses
(3,180)
(145)
(388)
(3,072)
(144)
(368)
(108)
(1)
(20)
(3.5)%
(0.7)%
(5.4)%
Operating income before depreciation and
amortization, reversal of impairment
losses/impairment losses on non-current assets
and gains/losses on disposal of non-current assets
2,185
2,142
43
2.0%
(1,002)
(997)
(5)
(0.5)%
(23)
0
1,160
4
(10)
1,139
(27)
10
21
n.s.
100%
1.8%
11
(894)
(386)
6
88
(645)
0
0
(77)
(249)
(386)
6
(87.5)%
(38.6)%
n.s.
n.s.
(103)
582
(149)
(273)
(252)
309
0
0
(252)
309
0
1
(252)
308
Depreciation and amortization
Reversal of impairment losses/(impairment losses) on
non-current assets
Gains (losses) on disposal of non-current assets
Operating Income
Finance income
Finance expense
Foreign exchange gains (losses)
Income tax
Profit/(Loss) from continuing operations
Profit/(Loss) from discontinued operations
Profit/(Loss) for the year
Non-controlling interests
Profit/(Loss) for the year attributable to the
(685) (117.7)%
124
45.4%
(561) (181.6)%
0
n.s.
(561) (181.6)%
(1)
n.s.
(560) (181.8)%
51
Revenue
The Group generated total revenue of €5,898 million in 2010, an increase of €172 million over 2009.
Revenue amounted to €5,771 million in 2010, an increase of €196 million (+3.5%) over the previous
year. The following table provides details of this item and changes with respect to 2009.
The following table provides an analysis of this item for 2010 and a comparison with the figures for the
previous year:
2010
2009
(millions of euro)
Revenue from sales
Telephony services
Interconnection traffic
International roaming
Judicial authority services
Other revenue from services
Total
144
4,199
1,233
53
7
135
5,771
130
3,991
1,268
68
9
109
5,575
Change
Amount
%
14
208
(35)
(15)
(2)
26
196
10.8%
5.2%
(2.8)%
(22.1)%
(22.2)%
23.9%
3.5%
The positive performance was mainly due to a rise of €208 million in revenue from telephony services,
€4,199 million in 2010 (€3,991 million in 2009). This increase is essentially attributable to a rise in the
mobile segment, also due to the increase in the customer base.
In the fixed segment, there has been a rise in revenue from fixed charges and contributions mainly in
internet and data services as a consequence of growth in the customer base and due to tariff policies.
The revenue from sales increased by €14 million during 2010 (+10.8% over 2009), the increase in this
item is mainly due to the increase in the sale of mobile handsets also to the good performance achieved
by the sales outlets of WIND Retail Srl.
Other revenue amounts in total to €127 million for 2010 (€151 million for 2009) and refers principally
to prior year income and the revision of estimates made in previous years.
The decrease in the item is mainly due to inclusion in December 31, 2009 of €30 million arising from
settlement agreements with some operators (€16 million for 2010) and €10 million (€3 million for 2010)
arising from the grant obtained from the Puglia Region as part of the “Measures to support local growth”
programme, regarding investments made between 2004 and 2008, in which the Parent took part through
the Elawind Consortium.
52
Operating costs
Operating costs for 2010 came to €3,713 million, representing an increase of €129 million over the
previous year.
Purchases and services amounted to €3,180 million in 2010, an increase of €108 million over 2009.
The following table provides an analysis of this item for 2010 and a comparison with the figures for the
previous year.
2010
2009
(millions of euro)
Leases
Customer acquisitions costs
Cost of goods sold and consumable materials
Outsourcing, consulting and professional services
Advertising and promotional services
Maintenance and repair
Utilities
National and international roaming
Other
Total
1,286
708
254
189
193
182
123
75
31
139
3,180
1,293
666
225
182
177
174
119
71
28
137
3,072
Change
Amount
%
(7)
42
29
7
16
8
4
4
3
2
108
(0.5)%
6.3%
12.9%
3.8%
9.0%
4.6%
3.4%
5.6%
10.7%
1.5%
3.5%
In accordance with the National Numbering Plan, following the introduction in February 2010 of the
interoperability of series 4 numbers, the Group records higher termination and content costs compared
with traffic revenue relating to series 4 towards customers of other operators for whom the Company
performs the role of Service Provider.
The change in purchases and services is mainly attributable to:
- an increase of €36 million in “Lease of local access network” costs compared to 2009 due to an increase
in the LLU and WLR customer bases also as the result of the migration of the VLLU customer base to the
Wholesale Line Rental (WLR) service;
- an increase of €29 million in “Customer acquisition costs” compared to 2009 principally due to the
increase in commissions resulting from the rise in activations and mobile traffic. The 2009 balance
includes the reclassification of €78 million from this item to amortization of intangible assets due to the
different presentation of some customer acquisition costs.
53
Personnel expenses increased by €20 million (+5.4%) over 2009.
The change is mainly due to the increase in Group employees during the year (an increase of 182 units
compared with December 31, 2009, mainly due to the increase in the subsidiary WIND Retail Srl) and to
the renewal of the National Collective Labour Contract signed on October 23, 2009.
The change in Other personnel expenses is mainly due to the provision for restructuring of €10 million,
for which further details may be found in note 19 to the consolidated financial statements at December
31, 2010.
EBITDA
Operating income before depreciation and amortization, reversal of impairment losses/impairment losses
on non-current assets and gains/losses on disposal of non-current assets (EBITDA) came to €2,185
million in 2010, representing an increase of €43 million, or 2.0%, over 2009.
This change is essentially the result of the positive performance of revenue and the prior year actions
aimed at controlling operating costs.
Operating income
Operating income for 2010 came to €1,160 million, an increase of €21 million compared with 2009.
This is primarily the result of an increase in EBITDA partially offset by the impact of the impairment
losses in certain radio network components, decommissioned in the end of the year, due to the
equipment modernisation plan.
Finance income and expense
In 2010, net finance expense came to €1,263 million (€557 million in 2009), including unusual finance
expense of €386 million related to the debt refinancing transaction of November 2010.
Excluding unusual items, net finance expense increased by €320 million (57%) as the result of an
increase in charges on bond loans caused by the issues of July 2009 and November 2010, only partially
offset by a decrease in bank expense due to a lower exposure to banks following the repayments made
during the year on the previous loan and a change in the bond/bank debt mix as a result of the Group
refinancing operation (more details are available in notes 16, 33 and 35 to the 2010 consolidated
financial statements).
54
Result for the year attributable to owners of the Parent
2010 closed with a loss of €252 million (profit of €308 million in 2009).
This result was negatively impacted by one-off costs related to the debt refinancing operation of
November 2010 and higher finance charges in part not deductible for tax purposes, only partially offset
by increases in the item "Revenue" (€196 million compared to 2009).
55
SSttaatteem
meenntt ooff ffiinnaanncciiaall ppoossiittiioonn hhiigghhlliigghhttss
The following reclassified statement of financial position represents an aggregate under operational
criteria of the assets and liabilities of the statement of financial position prepared in accordance with
IFRS:
As of December 31,
As of December 31,
2010
2009
Non-current assets
Property, plant and equipment
Intangible assets
Financial assets measured at cost
Total non-current assets
3,471
7,995
2
11,468
3,423
8,117
2
11,542
48
(122)
0
(74)
1.4%
(1.5)%
n.m.
(0.6)%
Net working capital
Inventories
Trade receivables
Trade payables
Tax assets and liabilities
Other assets
Other liabilities
Total net working capital
22
1,379
(1,773)
(577)
185
(529)
(1,293)
28
1,401
(1,792)
(565)
401
(551)
(1,078)
(6)
(22)
19
(12)
(216)
22
(215)
(21.4)%
(1.6)%
1.1%
(2.1)%
(53.9 )%
4.0%
(19.9)%
(61)
(182)
(62)
(192)
1
10
1.6%
5.2%
9,932
10,210
(278)
(2.7)%
Equity attributable to owners of the Parent
Total equity
1,517
0
1,517
1,667
2
1,669
(150)
(2)
(152)
(9.0)%
(100.0)%
(9.1)%
8,415
8,541
(126)
(1.5)%
9,932
10,210
(278)
(2.7)%
(millions of euro)
Employee benefits
Provisions
Net invested capital
Total net financing
Change
Amount
%
Property, plant and equipment amounted to €3,471 million, increased by €48 million compared with 31
December 2009, mainly as the net effect of investments of €699 million, the depreciation charge for the
year of €639 million and impairment losses of €13million.
In addition, during the year, Radio bridges were written down by €16 million as part of an operation to
modernize production infrastructures. In the connection with an operation to replace transmission
equipment being carried out to render the network more efficient and to obtain benefits from synergies,
the net carrying amount of the replaced equipment was impaired by €19 million, more than offset by the
positive effect of €21 million resulting from the recognition of the increase in the market value of the
equipment received as a replacement.
56
Intangible assets amounted to €7,995 million, down €122 million compared with 2009, mainly as the net
effect of investments of €257 million, and the amortization charge for the year of €362 million.
The balance at December 31, 2009 of Other intangible assets includes the reclassification of €66 million,
originally recognized in Other receivables, due to the effect of the different presentation of some
customer acquisition costs, for which details may be found in note 2.1 to the 2010 consolidated financial
statements.
Working capital, which had a negative balance of €1,293 million at December 31, 2010, decreased by
€215 million mainly as the effect of the decrease in Other assets, due to Put options exercised on Hellas
Telecommunications I Sàrl.
Equity amounted to €1,517 million at December 31, 2010, of which €1,517 million is attributable to
owners of the Parent and €0.3 million to non-controlling interests. The following table sets out the
principal changes in consolidated equity in 2010 and 2009.
Consolidated equity (millions of euro)
Beginning of year
Consolidation reserve
Result for the year
Dividends paid
Change in Cash Flow Hedge reserve
Other changes
End of year
December 31,
2010
December 31,
2009
1,669
4,282
0
(252)
(10)
112
(2)
(39)
309
(2,744)
(141)
2
1,517
1,669
57
The following table sets out the composition of net financial indebtedness at December 31, 2010 and
the changes over December 31, 2009.
December, 31
December 31,
2010
2009
amount
Non-current financial liabilities
Bonds
Financing from banks
Financing from other lenders
Derivative financial instruments
5,315
3,299
239
34
3,863
4,806
415
1,452
(1,507)
239
(381)
Current financial liabilities
Bonds
167
108
67
-
157
9
9
102
9,229
9,361
(132)
(1.4)%
Non-current financial assets
Financial receivables
173
220
179
40
(6)
180
(3.4)%
n.m.
Current financial assets
15
17
(2)
n.m.
(11.8)%
Cash and cash equivalents
406
584
(178)
(30.5)%
TOTAL FINANCIAL ASSETS (B)
814
820
(6)
(0.7)%
8,415
8,541
(126)
(1.5)%
(millions of euro)
Change
%
FINANCIAL LIABILITIES
TOTAL GROSS FINANCIAL INDEBTEDNESS (A)
37.6%
(31.4)%
n.m.
(91.8)%
10
6.4%
99
n.m.
58
n.m.
(102) (100.0)%
FINANCIAL ASSETS
NET FINANCIAL INDEBTEDNESS (A-B)
Net financial indebtedness decreases by €126 million over that at December 31, 2009, mainly due to the
change in the mix of financial liabilities as the result of refinancing completed on November 26, 2010
which led, inter alia, to the settlement of most derivatives partially financed through loans from other
banks funded by liabilities to other included in Financing from other lenders. With respect to financial
assets, the item Financial receivables includes the financial receivable from the indirect parent WIND
TELECOM SpA, amounting to EUR 144 million.
58
CCaasshh fflloow
w ssttaatteem
meenntt
Consolidated cash flows for 2010 are set out in the following statement and are compared to the
corresponding figures for 2009.
Consolidated Cash Flow Statement
2010
2009
(millions of euro)
Change
amount
%
Cash flows from (used in) operating activities
(252)
309
(561)
(181.6)%
Adjustments to reconcile the profit / (loss) for the
year with the cash flows from/ (used in) operating
activities
Depreciation, amortization and impairment losses on noncurrent assets
Net changes in provisions and employee benefits
(Gains)/losses on disposal of non-current assets
Changes in current assets
Changes in current liabilities
1,025
(11)
1
73
287
994
25
10
108
204
31
(36)
(9)
(35)
83
3.1%
(144.0)%
(90.0)%
(32.4)%
40.7%
1,123
1,650
(527)
(31.9)%
(699)
(5)
(256)
(1)
(690)
2
(309)
(86)
(9)
(7)
53
85
(1.3)%
n.m.
17.2%
98.8%
(961) (1,083)
122
11.2%
Net cash flows from operating activities
Cash flows from (used in) investing activities
Acquisition of property, plant and equipment
Proceeds from sale of property, plant and equipment
Acquisition of intangible assets
(Acquisition)/Disposal of financial assets
Net cash flows used in investing activities
Cash flows from (used in) financing activities
Changes in loans and bank facilities
Dividends paid
(334)
(5)
2,381
(2,744)
(2,715)
2,739
(114.0)%
99.8%
Net cash flows used in financing activities
(339)
(363)
24
6.6%
Net cash flows for the year
(178)
204
Cash and cash equivalents at the beginning of the year
584
379
205
54.1%
Cash and cash equivalents at the end of the year
406
583
(177)
(30.4)%
(382) (187.1)%
Cash flows from operating activities, amounting to €1,123 million, decreased by €527 million over the
previous year, mostly as an effect of the higher finance expense for the year following the issue of July
2009 and the refinancing operation of November 2010, previously commented.
59
Investing activities used cash during 2010 of a total of €961 million, representing a decrease of €122
million over 2009. Investments in 2009 included the purchase of a license for the use of a further 5 MHz
in the 2100 MHz band for €89 million and €53 million for the acquisition of M-Link Sàrl and €31 million for
the purchase of Phone Srl.
During 2010, financing activities used cash of €339 million as the net effect of the following
operations:
•
early repayments of €363 million, made by the Parent on January 12, 2010 (€336 million) and
on August 9, 2010 (€27 million), attributable to the Credit Facility Agreement;
•
early repayments following the partial refinancing operation which was completed on November
26, 2010 as follows:
o
€3,869 million related to the termination of the Parent’s Credit Facility Agreement;
o
€688 million related to the termination of the Luxembourg associate WIND Finance SL
SA’ s Second Lien Subscrition Agreement;
o
€1,441 million related to the termination of the Senior Notes Proceeds Loan Agreement
maturing in 2015 issued by the subsidiary WIND Acquisition Finance SA;
•
distribution of dividends of €5.4 million to the direct parent WIND Acquisition Holdings Finance
SpA, to pay the consent fees for the issue of the new debt, provided by clauses of the Pik
Proceeds Loan Agreement under which a bond was issued by the Luxembourg associate Wind
Acquisition Holdings Finance SA on December 15, 2009;
•
the issue of new Senior Security Notes maturing in 2018 and having an amount of €2,734 million
(nominal amount of €1,750 million and USD1,300 million);
•
the subscription of a new bank loan (Senior Facility Agreement) of €3,530 million;
•
payment of fees of €237 million connected with the issue of new loans and bonds.
60
SUMMARIZED FINANCIAL STATEMENTS OF THE PARENT WIND TELECOMUNICAZIONI
SPA
The income statement and statement of financial position figures below relate to the separate financial
statements of the Parent WIND Telecomunicazioni SpA at December 31, 2010, prepared in conformity
with the IFRS endorsed by the European Union.
Revenue
EBITDA(1)
Operating income
Net finance expense
Profit/(Loss)l for the year
2010
5,554
2,148
1,128
(885)
(386)
(121)
(256)
2009
5,446
2,093
1,099
(604)
0
495
263
on disposal of non-current assets.
Total assets
Equity
Total liabilities
December 31,
2010
December 31,
2009
13,677
1,497
12,180
14,693
1,497
13,196
61
SUMMARIZED FINANCIAL STATEMENTS OF WIND’S SUBSIDIARIES
The income statement and statement of financial position figures below relate to the separate financial
statements or the reporting packages of the subsidiaries of WIND Telecomunicazioni SpA, prepared in
accordance with the IFRS endorsed by the European Union. The term IFRS includes all International
Financial Reporting Standards (IFRSs), all International Accounting Standards (IASs), all interpretations of
the International Financial Reporting Interpretations Committee (IFRIC) and all interpretations of the
Standing Interpretations Committee (SIC) currently endorsed by the European Union and contained in
published EU Regulations.
ITnet Srl
Revenue
EBITDA(1)
Operating income
Net finance expense
2010
2009
15.9
1.1
(0.0)
0.0
(0.0)
(0.2)
15.0
1.7
1.0
0.1
1.1
0.6
on disposal of non-current assets
Total assets
Equity
Total liabilities
December 31,
2010
December 31,
2009
24
9
15
26
9
17
2010
2009
70.3
3.0
1.5
(0.1)
1.5
(0.1)
16.0
(4.8)
(4.8)
(0.0)
(4.9)
(4.9)
WIND Retail Srl
Revenue
EBITDA(1)
Operating income
Net finance expense
December 31,
December 31,
2010
2009
Total assets
53
27
Equity
26
8
Total liabilities
27
19
62
WIS SpA
2010
2009
Revenue
EBITDA(1)
Operating income
Net finance expense
655.9
21.1
21.1
0.2
21.0
12.1
484.9
23.7
23.7
0.0
23.6
15.4
December 31,
2010
December 31,
2009
285
85
200
255
73
182
2010
2009
Revenue
EBITDA(1)
Operating income
Net finance expense
0.0
(1.2)
(1.2)
(18.8)
(16.9)
(17.3)
0.0
(0.1)
(0.1)
0.7
0.6
0.4
Total assets
Equity
Total liabilities
WIND Acquisition Finance SA
Total assets
Equity
Total liabilities
December 31,
2010
December 31,
2009
5,621
83
5,538
4,045
2
4,044
63
SUBSEQUENT EVENTS
For a comment of the events that took place after December 31, 2010, please refer to note 41 to the
consolidated financial statements and to note 40 to the separate financial statements of WIND
Telecomunicazioni SpA at December 31, 2010.
RISK MANAGEMENT
For a disclosure on the management of financial risks, please refer to note 2.5 to the consolidated
financial statements and to note 2.5 to the separate financial statements of WIND Telecomunicazioni SpA
at December 31, 2010.
RELATED PARTY TRANSACTIONS
All related party transactions, including those among WIND Group’ companies, are part of ordinary
operations, are carried out contractually at market rates and mainly relate to transactions with telephone
operators. Then, the Group’s tax position and its presentation in the financial statements reflect the
effects of the election made in 2006 and renewed in 2009 by the Italian parent WIND TELECOM SpA
(formerly Weather Investments SpA) to take part in the national tax consolidation procedure.
The disclosure on related party transactions is presented in note 37 to the consolidated financial
statements and to note 36 to the separate financial statements of WIND Telecomunicazioni SpA at
December 31, 2010, to which reference is made.
At December 31, 2010 and during the year, Group companies did not hold treasury shares of the Parent
WIND Telecomunicazioni SpA, either directly or through trustees, or shares of the parent WIND
Acquisition Holdings Finance SpA and the indirect parent WIND TELECOM SpA or investments in the
indirect parent Weather Investments II Sàrl.
DISCLOSURES PURSUANT TO ARTICLE 2497-TER OF THE ITALIAN CIVIL CODE
There are no events to report under article 2497-ter Italian Civil Code, governing the management and
coordination activities of WIND TELECOM SpA on WIND.
64
OUTLOOK
The positive growth trend experienced by the WIND Group throughout the year coupled with an ongoing
cost structure optimization process reasonably allow to believe that the Group will continue consolidating
its performance and further strengthening its competitive position in 2011.
The WIND Group will continue to explore and develop the most promising opportunities arising from the
combination of new technologies and new needs expressed by the market while continuing to build, in
2011, upon the commercial success experienced during the course of 2010 in the mobile, fixed-line voice
and internet segments.
The growth prospects of the WIND Group in 2011 will be supported and sustained by the necessary
financial investments which will be in line with the investments made in 2010.
PROPOSED ALLOCATION OF THE RESULT FOR THE YEAR OF THE PARENT WIND
TELECOMUNICAZIONI SPA
2010 ended with a loss of €256 million.
The Board of Directors recommends that the shareholders approve the financial statements at December
31, 2010 and carry forward the loss for the year under the Retained earnings reserve.
65
GLOSSARY
ADSL (Asymmetric Digital Subscriber Line): a technology which via a modem uses normal twistedpair telephone lines and converts the traditional telephone line into a high-speed digital link for
transferring multimedia data into asymmetric mode.
ATM (Asynchronous Transfer Mode): a switching technology that permits the transmission of
different kinds of information such as voice, data and video.
Backbone: the telecommunications network portion with the highest traffic intensity and from which the
connections for services in the local areas depart.
Base Station Controller (BSC): an interface with the MSC switching exchange. It has the task of
supervising and controlling radio resources, both during the phase when a call is being set up and during
the maintenance phase.
Base Transceiver Station (BTS): a radio signal transmitter which sends out the GSM radio signal via
antenna to cover an area (a cell).
Bitstream: a service consisting in the supply by the incumbent to the alternative operator of the
transmission capacity between the final customer’s workstation and the interconnection point or PoP
(Point of Presence) of an alternative operator which wants to offer broadband services to its final
customers.
Broadband: services characterized by a transmission speed of 2 Mbit/s or more.
Cloud Computing: represents the emerging development model, implementation of ICT infrastructures
which support the provision of the services and the distribution of Cloud Services, meaning services
where the “intangible” asset may be acquired and used in real time through the internet.
Crowdsourcing: a neologism which specifies a model in which a business or an institution delegates an
activity which is usually assigned to employees of a group, generally containing a large number of
members who have not been determined in advance, in “open call” mode using the internet (through
outsourcing).
EDGE (Enhanced Data rates for GSM Evolution): an evolution of the GPRS standard that increases
the data transmission rate on the GSM network.
EIR (Equipment Identity Register): a database which contains the data to validate access to the
network by a mobile phone through its IMEI code.
ESP (Enhanced Service Provider): an operator which provides telecommunications services to the
public availing of an agreement with a mobile network licensee.
FEMTO Cell: low power indoor cellular base station. FEMTO Cells allow mobile operators to connect
standard mobile devices to their networks through the customers’ home DSL or cable broadband
network.
FNR: (Flexible Numbering Register): a table in which the telephone numbers of a single customer
under the old and the new operator are listed.
FR (Frame Relay): a packet switching transmission technique.
Gateway: a network node which allows interfacing with another network using different protocols.
66
GGSN (Gateway GPRS Support Node): a node which acts as a gateway between a GPRS wireless
network and an Internet or private network.
GPON (Gigabit Passive Optical Network): optical access network.
GPRS (General Packet Radio Service): a packet-switching based system of transmitting data over
the GSM network at medium speed.
GSM (Global System for Mobile Communications): standard architecture for digital cellular
communications working on 900MHz and 1800MHz bands. This is currently the most widespread mobile
telephony standard in the world.
HLR (Home Location Register): a centralized database containing the details of each mobile
telephone customer authorized to access the GSM network.
HSDPA (High Speed Downlink Packet Access): a protocol which allows UMTS networks to improve
their performance by increasing capacity and band width.
Internet: a global computer network accessible to the public. The Internet is an interface for networks
based on different technologies but which use the TCP/IP protocol platform.
IP (Internet Protocol): a packet-switching network protocol which enables networks with
heterogeneous technologies to be inter-connected.
IPTV (Internet Protocol Television): a system which transmits digital audiovisual content via a
broadband Internet connection.
ISDN (Integrated Services Digital Network): a circuit-switching technology which allows the
transmission of voice and data over traditional telephone lines.
ISP (Internet Service Provider): a vendor who provides access to the Internet.
LLU (Local Loop Unbundling): it indicates unbundled access to the local network, meaning the
possibility for alternative operators, on the payment of a fee, to make use of the incumbent’s
infrastructure to offer services to its own customers.
MAN (Metropolitan Area Network): a computer network infrastructure within a town or city.
MGW (Media Gateway): it connects different types of networks (such as PSTN, Next Generation
Networks, 2G and 3G); one of its main functions is to convert between the different transmission and
coding techniques.
MMS (Mobile Multimedia Services): multimedia messaging services for mobile phones.
MNP/FNR Node: (Mobile Number Portability/Flexible Numbering Register) Node - see FNR.
Modem: a device that modulates and demodulates signals containing the information to enable digital
data to be transmitted on analog channels.
MSC (Mobile Switching Center): a part of the GSM mobile telephone network which in addition to
acting as a network interface executes functions such as controlling calls, switching traffic and issuing
data cards (used for tariffing traffic).
MSC-Server: a 3G core network element.
67
MVNO (Mobile Virtual Network Operator): a company which provides mobile phone services but
which does not own a telephone network or have its own frequencies and which uses the infrastructure
and frequencies of other mobile telephone operators to offer mobile telephone services.
NGN/IMS: (Next Generation Network/IP Multimedia Subsystem): these allow all types of information
and services (voice, data and all sorts of media) to be transported by encapsulating them into packets:
NGN type networks are based on the Internet Protocol.
Node: a topological network junction, commonly a switching center or station.
B Node: a term which in UMTS technology denotes the radio base station which creates the coverage of
the cell.
Packet Switching: method of transmitting information by which each message is divided into different
packets that are then sent to their specified destination, even by different routes.
PoP (Point of Presence): a point of access to the network provided by an ISP to route traffic to the
final users connected to it.
RNC (Radio Network Controller): an element of the UMTS network with supervisory and control
functions over the B Nodes.
Roaming: a service by which mobile telephone operators allow their customers to make connections by
using a network not owned by them. This service is activated when the phone is used in a foreign
country (if the operators of the other country belong to the GSM network) or when the customer is in the
home country of an operator which does not have fLLU coverage in that country.
SGSN (Serving GPRS Support Node): the SGSN is responsible for the delivery of data packets from
and to the mobile stations within its geographical service area.
Shared Access: indicates the sharing of access to the user’s twisted-pair telephone lines by the
incumbent and another LLU service provider.
Short Message Service Center: a network element in the mobile telephone network which delivers
SMS messages.
SIM (Subscriber Identity Module): a chip to which a serial number is associated that enables a
telephone operator to identify on its computer system a specific mobile telephone subscriber, and which
enables the subscriber to gain access to its services.
SME: small and medium-sized enterprises.
SMS: short text messages that can be received and sent through GSM network connected mobile
phones.
Softswitch: a central device in a telephone network which routes calls from one phone line to another
entirely by means of software (instead of by physical switchboards).
Switching Center: network nodes which handle the set-up and routing of the signal towards the
required destination.
TDM (Time-Division Multiplexing): a technique for sharing a communication channel in which two or
more signals are apparently transferred simultaneously within the channel, but where in reality each in
turn has the exclusive use of the channel for a short period of time.
Trunking Gateway: an interface between the VoIP network and the traditional telephone network.
68
UMTS (Universal Mobile Telecommunications System): a third generation mobile phone
technology (3G), the successor to GSM, consisting of a broadband transmission system in which data
travels at 2Mbit/s.
Unbundling: see LLU.
VAS: Value Added Services.
VDSL2: (Very High Digital Subscriber Loop): Transmission system at high speeds over copper wire.
Virtual Unbundling: VLLU, meaning "virtual LLU”, is the complete unbundling of the old operator’s line
for administrative purposes only. Telephony services continue to be provided by the old operator while
data and internet services are provided by the new operator.
VMS (Voicemail System): a centralized system for managing telephone messages.
VoIP: a technology which makes it possible to hold a telephone conversation over the Internet or
another dedicated network using the IP protocol instead of passing through the traditional telephone
network.
WAP (Wireless Application Protocol): a protocol allowing access to the Internet from a mobile
phone.
Web 2.0: a general term describing an evolution of the World Wide Web and referring to the set of
online applications characterized by a high level of interaction between the website and the user.
Webmail: an application which enables an electronic mail account to be managed via a web browser.
Wholesale Line Rental (WLR): a service in which a telecommunications operator other than the
incumbent may set up an exclusive commercial relationship with its customers, also outside the LLU
service coverage areas, leasing the customer’s lines from the incumbent under wholesale terms and
conditions.
WiMax (Worldwide Interoperability for Microwave Access): a technology that allows wireless
access to broadband telecommunications networks.
69
WIND GROUP
Consolidated financial statements as of and for the
year ended December 31, 2010
FINANCIAL STATEMENTS AND NOTES THERETO
CONTENTS
CONSOLIDATED STATEMENT OF FINANCIAL POSITION ................................................................ 73
CONSOLIDATED INCOME STATEMENT ......................................................................................... 74
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME ......................................................... 75
CONSOLIDATED CASH FLOW STATEMENT ................................................................................... 76
STATEMENT OF CHANGES IN CONSOLIDATED EQUITY ................................................................. 77
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF THE WIND TELECOMUNICAZIONI GROUP
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2010 ................................................... 78
1
INTRODUCTION ............................................................................................................. 78
2
GENERAL ACCOUNTING POLICIES ................................................................................... 80
3
SEGMENT REPORTING .................................................................................................. 104
4
ACQUISITIONS AND DISPOSALS.................................................................................... 105
5
PROPERTY, PLANT AND EQUIPMENT ............................................................................. 106
6
INTANGIBLE ASSETS .................................................................................................... 107
7
FINANCIAL ASSETS ...................................................................................................... 110
8
DEFERRED TAX ASSETS AND LIABILITIES ...................................................................... 112
9
INVENTORIES .............................................................................................................. 113
10
TRADE RECEIVABLES.................................................................................................... 113
11
CURRENT TAX ASSETS.................................................................................................. 115
12
OTHER RECEIVABLES ................................................................................................... 115
13
CASH AND CASH EQUIVALENTS .................................................................................... 116
14
EQUITY ....................................................................................................................... 116
15
EARNINGS PER SHARE.................................................................................................. 119
16
FINANCIAL LIABILITIES ................................................................................................ 119
17
DERIVATIVE FINANCIAL INSTRUMENTS ......................................................................... 123
18
EMPLOYEE BENEFITS ................................................................................................... 124
19
PROVISIONS ................................................................................................................ 125
20
OTHER LIABILITIES ...................................................................................................... 126
21
TRADE PAYABLES ......................................................................................................... 126
22
OTHER PAYABLES ........................................................................................................ 127
23
TAX PAYABLES ............................................................................................................. 128
24
REVENUE ..................................................................................................................... 128
25
OTHER REVENUE ......................................................................................................... 129
26
PURCHASES AND SERVICES .......................................................................................... 130
27
OTHER OPERATING COSTS ........................................................................................... 131
Consolidated financial statements
as of and for the year ended December 31, 2010
71
28
PERSONNEL EXPENSES ................................................................................................. 132
29
DEPRECIATION AND AMORTIZATION ............................................................................ 132
30
REVERSAL OF IMPAIRMENT LOSSES / (IMPAIRMENT LOSSES) ON NON-CURRENT ASSETS 133
31
GAINS/(LOSSES) ON DISPOSAL OF NON-CURRENT ASSETS ............................................. 133
32
FINANCE INCOME ........................................................................................................ 134
33
FINANCE EXPENSE ....................................................................................................... 134
34
FOREIGN EXCHANGE GAINS/(LOSSES), NET ................................................................... 135
35
UNUSUAL FINANCE EXPENSE ........................................................................................ 136
36
INCOME TAX ................................................................................................................ 136
37
RELATED PARTY TRANSACTIONS .................................................................................. 137
38
NET FINANCIAL DEBT ................................................................................................... 139
39
CASH FLOW STATEMENT .............................................................................................. 139
40
OTHER INFORMATION .................................................................................................. 140
41
SUBSEQUENT EVENTS .................................................................................................. 145
72
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(thousands of euro)
Note
At December 31,
At December 31,
2010
2009
ASSETS
5
3,471,478
3,422,568
Intangible assets
6
7,994,844
8,117,067
Financial assets
7
399,695
227,702
Deferred tax assets
8
210,465
262,223
12,076,482
12,029,560
Inventories
9
21,767
28,122
Trade receivables
10
1,379,470
1,401,311
Financial assets
7
15,836
224,424
Current tax assets
11
11,877
10,217
Other receivables
12
179,406
185,581
13
406,147
583,690
2,014,503
2,433,345
14,090,985
14,462,905
Issued capital
147,100
147,100
Share premium
751,887
736,887
(105,708)
(201,445)
Total current assets
TOTAL ASSETS
Equity and Liabilities
Equity
14
Reserves
Retained earnings
Equity attributable to owners of the parent
Total equity
724,217
984,556
1,517,496
1,667,098
299
1,451
1,517,795
1,668,549
9,083,434
Liabilities
Financial liabilities
16
8,887,739
Employee benefits
18
61,264
62,014
Provisions
19
182,141
192,200
Other non-current liabilities
20
11,622
6,700
Deferred tax liabilities
8
792,092
822,170
9,934,858
10,166,518
Total non-current liabilities
16
341,163
277,444
Trade payables
21
1,773,087
1,791,768
Other payables
22
517,508
543,932
Tax payables
23
6,574
14,694
2,638,332
2,627,838
Total liabilities
12,573,190
12,794,356
TOTAL EQUITY AND LIABILITIES
14,090,985
14,462,905
Total current liabilities
73
CONSOLIDATED INCOME STATEMENT
(thousands of euro)
Note
2010
2009
12 months
12 months
5,574,718
Revenue
24
5,770,916
Other revenue
25
126,898
151,655
5,897,814
5,726,373
Total revenue
26
(3,179,511)
(3,072,254)
27
(144,878)
(143,885)
Personnel expenses
Operating income before depreciation and amortization,
reversal of impairment losses/impairment losses on
non-current assets and gains/losses on disposal of
non-current assets
28
(388,254)
(368,393)
2,185,171
2,141,841
29
(1,001,365)
(996,598)
Reversal of impairment losses/(impairment losses) on non-current assets
30
(23,319)
3,948
Gains/(losses) on disposal of non-current assets
31
(406)
(9,848)
1,160,081
1,139,343
Operating income
Finance income
32
10,513
88,343
Finance expense
33
(894,032)
(645,247)
(509)
Foreign exchange gains/(losses), net
34
6,736
35
(386,326)
-
(103,028)
581,930
(148,769)
(273,303)
(251,797)
308,627
-
-
(251,797)
308,627
10
364
(251,807)
308,263
(1.72)
2.11
Income tax
36
Losses from discontinued operations
Profit/(Loss) for the year attributable to the owners of the parent
Earnings per share (in euro) – basic and diluted:
Continuing operations
15
74
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(thousands of euro)
Note
Other comprehensive income
Cash flow hedges
Income tax relating to components of other comprehensive income
14
14
2010
2009
12 months
12 months
(251,797)
308,627
140,394
(194,300)
(27,978)
53,433
112,416
(140,908)
(139,381)
167,719
(139,391)
167,355
10
364
(41)
Translation reserve
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
Total comprehensive income attributable to:
Owners of the parent
75
CONSOLIDATED CASH FLOW STATEMENT
(thousands of euro)
2010
2009
12 months
12 months
(251,797)
308,627
1,024,678
994,336
(10,809)
25,018
Cash flows from operating activities
Adjustments to reconcile the profit/(loss) for the year with the cash flows from/ (used in)
operating activities
Depreciation, amortization and (reversal of impairment losses)/impairment losses on non-current assets
406
9,848
73,451
108,246
286,861
204,230
Changes in non-controlling interests
-
364
1,122,790
1,650,670
(699,148)
(689,982)
Cash flows from investing activities
(4,998)
2,191
(256,656)
(309,731)
(547)
(85,588)
(961,349)
(1,083,110)
Cash flows from financing activities
Proceeds from loans and banks' facilities
(333,583)
2,381,038
(5,401)
(2,743,615)
(338,984)
(362,577)
(177,543)
204,983
583,690
378,707
406,147
583,690
Dividends paid
ADDITIONAL INFORMATION ON THE CASH FLOW STATEMENT
(thousands of euro)
Income tax paid
2010
2009
12 months
12 months
(82,269)
(68,979)
Interest paid on loans/bonds
(707,102)
(476,210)
Interest paid on hedging derivative instruments
(489,586)
(149,615)
338,598
138,293
Interest received on hedging derivative instruments
76
STATEMENT OF CHANGES IN CONSOLIDATED EQUITY
Equity
attributable
Retained
to the
earnings/(losses owners of
carried forward) the parent
Equity attributable to the owners of the parent
Issued
capital
Share
premium
reserve
Other
reserves
147,100
3,001,055
(52,636)
- Profit for the year
-
-
- Cash flow hedge
-
-
- Translation reserve
-
(thousands of euro)
Balances at January 31, 2009
1,185,160
Noncontrolling
interests
4,280,679
1,087
Equity
4,281,766
308,263
308,263
364
308,627
(140,867)
-
(140,867)
-
(140,867)
(41)
-
(41)
-
(41)
Transactions with equity holders
- Allocation of profit
-
-
17,446
(17,446)
-
-
-
- Consolidation reserve
-
-
(38,596)
-
(38,596)
-
(38,596)
- Dividends paid
- (2,264,168)
- Other changes
-
Balances at December 31, 2009
147,100
-
-
(479,447) (2,743,615)
- (2,743,615)
13,249
(11,974)
1,275
-
1,275
736,887 (201,445)
984,556
1,667,098
1,451
1,668,549
- Loss for the year
-
-
-
(251,807)
(251,807)
10
(251,797)
- Cash flow hedge
-
-
112,416
-
112,416
-
112,416
(9,500)
- Dividends paid
-
-
-
(9,500)
(9,500)
-
- Other changes
-
15,000
(16,679)
968
(711)
(1,162)
(1,873)
751,887 (105,708)
724,217
1,517,496
299
1,517,795
147,100
77
NOTES
TO
THE
CONSOLIDATED
FINANCIAL
STATEMENTS
OF
THE
WIND
TELECOMUNICAZIONI GROUP AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2010
1
INTRODUCTION
WIND Telecomunicazioni SpA (“WIND”, the “Parent” or the “Company”) is a joint stock company having
its registered office in Via Cesare Giulio Viola, 48, Rome (Italy), and is controlled by WIND TELECOM SpA
(formerly Weather Investments SpA) through WIND Acquisition Holdings Finance SpA which wholly owns
WIND Telecomunicazioni SpA.
WIND Telecomunicazioni SpA and its subsidiaries (the “Group” or the “Wind Group”) operate primarily in
Italy in the fixed and mobile telecommunications sector under the brands “Infostrada” and “Wind” and in
the Internet services sector under the “Libero” brand. In addition the Group manages a long-distance
international telecommunications network through the Group headed by WIND International Services
SpA.
The following diagram outlines the structure of the WIND Group at December 31, 2010.
WIND
Telecomunicazioni
SpA
Wind Acquisition
Finance II SA
27%
Wind Finance SL SA
27%
100%
WIND Retail Srl
ITNet Srl
100%
100%
100%
WIND International
Services SpA
Wind Acquisition
Finance SA
100%
WIND International
Services Sàrl
99.13%
0.87%
WIND International
Services SA
On October 4, 2010 the indirect parent Weather Investments II Sàrl and VimpelCom Ltd signed an
the sixth largest mobile phone operator in the world by number of customers.
No final agreement has yet been signed at the date of these consolidated financial statements, as subject
to a series of conditions necessary for the closing of the transaction.
78
In this respect, on March 17, 2011 the majority of the Shareholders of VimpelCom Ltd at their
Estraordinary General Meeting approved the issue of up to 325,639,827 ordinary shares and 305,000,000
convertible privileged shares and the increase of VimpelCom Ltd’s share capital needed to complete the
merger between VimpelCom Ltd and WIND TELECOM SpA.
With this approval, the closing of the merger transaction will proceed and is expected to be completed in
the first half of 2011, subject to the fulfillment of additional conditions of contract.
As defined by the agreement, same Group’s assets should be returned to Weather Investments II Sàrl as
In particular for the Wind Group these are the assets relating to "Libero" web portal, the subsidiaries
submarine cable between Italy and Greece. In base on the information currently available, the Directors
estimate that the relating assets included in the consolidated financial statements at December 31, 2010
are recoverable.
Contextually in November 2010 the Group completed an important refinancing occurred in the transaction
with VimpelCom Ltd, which led to the following:
i)
the disbursement to the Parent of a new Senior Facility Agreement of €3,530 million;
ii)
the issue of new Senior Secured Notes maturing in 2018 and having an amount of €1,716
million and USD1,275 million (nominal amount of €1,750 million and USD1,300 million,
respectively).
This liquidity enabled the following financial liabilities to be fully repaid in advance at the same time:
i)
the Parent’s Senior Credit Facility (Credit Facility Agreement entered into on August 11,
2005) for €3,756 million and USD149 million;
ii)
Second Lien Notes issued by the Luxembourg associate WIND Finance SL SA for €552 million
and USD180 million;
iii)
Senior Notes maturing in 2015 issued by the Luxembourg subsidiary Wind Acquisition
Finance SA for €950 million and USD650 million.
The completion of the refinancing operation enabled the Group to extend the average maturity of
approximately two years and benefit from lower average finance expense.
The Group closed 2010 with a loss before tax of €103,028 thousand (a profit before tax of €581,930
thousand in 2009) and a loss for the year of €251,807 thousand (a profit for the year of €308,263
thousand in 2009). This result has been negatively affected by the unusual finance expense (of €386,326
thousand of euro) incurred in connection with the repayment of these loans and the greater finance
expense due to issue of the bond of €2.7 billion completed in July 2009, which are both partially nondeductible, within the limits imposed by current tax legislation.
79
The WIND Group will continue developing its commercial activities throughout 2011 in both the fixed
telephony and internet segment and the mobile segment, pursuing the business opportunities arising
from new technologies meeting the emerging demands of its various customer segments. The 2011
investment program to support planned growth is at least in line with that implemented in 2010.
The Group’s business plan confirms that the economic and financial balance will be maintained, that
profitability will increase in the medium term and that the carrying amounts of recognized non-current
assets at December 31, 2010 will be recovered.
2
GENERAL ACCOUNTING POLICIES
2.1
Basis of preparation
The consolidated financial statements of WIND Telecomunicazioni SpA at December 31, 2010 have been
prepared on a going concern basis and in accordance with the IFRS endorsed by the European Union.
The term IFRS includes all International Financial Reporting Standards (IFRSs), all International
Accounting Standards (IASs), all interpretations of the International Financial Reporting Interpretations
Committee (IFRIC) and all interpretations of the Standing Interpretations Committee (SIC) endorsed by
the European Union and contained in published EU Regulations.
During the year no exceptional events occurred such as to require the waivers provided for by IAS 1.
These consolidated financial statements are expressed in euros, the currency of the economy in which
the Group operates. Unless otherwise stated, all amounts shown in the tables and in these notes are
expressed in thousands of euro.
For presentation purposes, the current/non-current distinction has been used for the statement of
financial position, while expenses are analyzed in the income statement using a classification based on
their nature. The indirect method has been selected to present the cash flow statement.
For the purposes of comparison, balances in the statement of financial position and income statement
and the detailed tables in the notes have been reclassified where necessary. These reclassifications
however do not affect the Group’s loss for the year or equity.
During 2010 in order to follow sector practice more closely the directors have changed the presentation
of costs incurred for the acquisition of customers (mainly relating to commissions paid to the sales
network) capitalizing them as intangible assets, when the IFRS requirements for recognition as noncurrent assets are met, and amortizing them over the minimum contractual term. In prior years these
costs were deferred over the minimum contractual term and presented as “Other receivables” in current
assets, so this change in presentation has had no effect on the opening equity or the profit or loss for
prior years. The effects relating to this different presentation may be found in notes 6, 12, 26 and 29.
These consolidated financial statements were approved by the Parent’s Board of Directors on March 22,
2011.
80
2.2
Basis of consolidation
These consolidated financial statements include the financial statements of WIND Telecomunicazioni SpA
and those entities over which the company exercises control, both directly or indirectly, from the date of
acquisition to the date when such control ceases. Control may be exercised through direct or indirect
ownership of shares with majority voting rights, or by exercising a dominant influence expressed as the
direct or indirect power, based on contractual agreements or statutory provisions, to determine the
financial and operational policies of the entity and obtain the related benefits, regardless of any equity
relationships. The existence of potential voting rights that are exercisable or convertible at the reporting
date is also considered when determining whether there is control or not.
The financial statements used in the consolidation process are those prepared by the individual Group
entities as of and for the year ended December 31, 2010 (the reporting date for these consolidated
financial statements) in accordance with the IFRS used by the Parent in drawing up these statements and
approved by the respective Boards of Directors.
The consolidation procedures used are as follows:
¾
the assets and liabilities and income and expenses of consolidated subsidiaries are included on a
line-by-line basis, allocating to non-controlling interests, where applicable, the share of equity
and profit or loss for the year that is attributable to them. The resulting balances are presented
separately in consolidated equity and the consolidated income statement;
¾
the purchase method of accounting is used to account for business combinations in which the
control of an entity is acquired. The cost of an acquisition is measured as the fair value of the
assets acquired, liabilities incurred or assumed and equity instruments issued at the acquisition
date. Any excess of the cost of acquisition over the fair value of the assets and liabilities acquired
is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of
the subsidiary acquired, the difference is recognized directly in the profit or loss after first
verifying that the fair values attributed to the acquired assets and liabilities and the cost of the
acquisition have been measured correctly;
¾
business combinations in which all of the combining entities or businesses are ultimately
controlled by the same party or parties both before and after the business combination are
considered business combinations involving entities under common control. In the absence of an
accounting standard guiding the accounting treatment of these operations the Group applies IAS
8, consolidating the carrying amounts of the transferred entity and reporting any gains arising
from the transfer directly in equity;
¾
the purchase of investements from minority holders in entities where control is already exercised
is not considered a purchase but an equity transaction. Therefore, the difference between the
81
cost incurred for the acquisition and the respective share of the accounting equity acquired is
recognized directly in equity;
¾
unrealized gains and losses arising from transactions carried out between companies
consolidated on a line-by-line basis and the respective tax effects are eliminated if material, as
are corresponding balances of receivables and payables, income and expense, and finance
income and expense;
¾
gains and losses arising from the sale of investments in consolidated subsidiaries are recognized
in income as the difference between the selling price and the corresponding portion of the
consolidated equity sold.
The following table provides a summary of the Group’s investments showing the criteria used for
consolidation and measurement.
Registered
office
Share/quota
capital
Euros
Basis of consolidation /
measurement
% holding
12.31.2010
12.31.2009
12.31.2010
12.31.2009
Subsidiaries
Enel.Net Srl
Italy
21,135,000
Merged
100
Merged
Line by line
Italia Online Srl
Italy
1,400,000
Merged
100
Merged
Line by line
ItNet Srl
Italy
1,004,000
100
100
Line by line
Line by line
WIND Retail Srl
Italy
1,026,957
100
100
Line by line
Line by line
WIND international Services SpA
Italy
640,000
100
100
Line by line
Line by line
Wind international Services Sàrl
Luxembourg
1,065,000
100
100
Line by line
Line by line
Wind international Services SA
Belgium
1,265,000
100
100
Line by line
Line by line
Luxembourg
60,031,000
100
27
Line by line
Line by line
Elawind Consortium
Italy
4,500
33.33
33.33
Cost
Cost
Wind Team Consortium
Italy
4,500
33.33
33.33
Cost
Cost
WIND Finance SL SA
Luxembourg
31,000
27
27
Line by line
Line by line
Wind Acquisition Finance II SA
Others
Luxembourg
31,000
27
27
Line by line
Line by line
Mix Srl
Italy
99,000
15
15
Cost
Cost
Consel
Italy
51,000
1
1
Cost
Cost
Janna Scarl
Italy
13,717,365
17
17
Cost
Cost
QXN
Italy
500,000
10
10
Cost
Cost
Hellas Telecommunication I Sàrl
Luxembourg
1,873,400
-
15.83
N/A
Fair Value
Weather Finance II Sàrl
Luxembourg
12,500
-
16
N/A
Cost
Wind Acquisition Finance SA
Associates
Compared to the consolidated financial statements as of and for the year ended December 31, 2009 the
following operations have affected the scope of consolidation:
•
on March 25, 2010, the reverse merger of Mondo WIND Srl into Phone Srl was completed, with
the aim of pursuing economic, operational and corporate structure efficiency objectives, with
Phone Srl changing its name at the same time to WIND Retail Srl. In this respect, on July 17,
2009 the subsidiary Mondo WIND Srl had acquired 100% of the quota capital of Phone Srl, for
which details may be found in the consolidated financial statements as of and for the year ended
December 31, 2009;
82
•
on November 12, 2010, the merger of the companies Enel.Net Srl and Italia Online Srl into WIND
Telecomunicazioni SpA was completed. It should be noted that this transaction, which may be
defined as “under common control”, had no effect on the Group’s scope of consolidation;
•
on November 26, 2010, the Parent completed the purchase of the remaining 73% of the share
capital of the Luxembourg company Wind Acquisition Finance SA, already consolidated on a lineby-line basis as “special purpose vehicle” from CCT Corporate Nominees Limited at a price of
€1,788 thousand.
As a result of the acquisition of Phone Srl completed during the second half of 2009, the amounts in the
income statement, the statement of comprehensive income and the cash flow statement at December 31,
2009 and 2010 are not directly comparable. In order to allow a clearer reading of the amounts, the
following table sets out the contribution to the Group’s consolidated income statement of former Phone
Srl (WIND Retail Srl to which former Mondo WIND Srl’s implicit values have been unbundled, calculated
on basis of trend of data at merger date).
2009
12 months
2010
12 months
Revenue
Other revenue
13,135
8
28,161
167
Total revenue
13,143
28,328
Personnel expenses
Operating income before depreciation and amortization, reversal of impairment
losses/impairment losses on non-current assets and gains/losses on disposal of noncurrent assets
(3,734)
(246)
(4,336)
(6,054)
(106)
(13,832)
4,826
8,336
(thousands of euro)
Depreciation and amortization and impairment losses
Operating income
Finance income
Finance expense
Profit before tax
Income tax
Profit for the year
(58)
(1.125)
4,768
7,211
5
(12)
(25)
4,761
7,186
(1)
(1,567)
4,760
5,619
The investments in WIND Finance SL SA and Wind Acquisition Finance II SA, in which the Group has an
interest of 27%, have been consolidated on a line-by-line basis because they are special purpose entities.
2.3
Summary of main accounting policies
The principal accounting policies adopted in preparing these consolidated financial statements are set out
below.
83

Property, plant and equipment are stated at purchase cost or production cost, net of accumulated
depreciation and any impairment losses. Cost includes expenditure directly attributable to bringing the
asset to the location and condition necessary for use and any dismantling and removal costs which may
be incurred as a result of contractual obligations which require the asset to be returned to its original
state and condition. Borrowing costs directly associated with the purchase or construction of property,
plant and equipment are recognized directly in profit or loss.
Costs incurred for ordinary and cyclical repairs and maintenance are taken directly to profit or loss in the
period in which they are incurred. Costs incurred for the expansion, modernization or improvement of the
structural elements of owned or leased assets are capitalized to the extent that they have the requisites
to be separately identified as an asset or part of an asset, in accordance with the “component approach”.
Under this approach each asset is treated separately if it has an autonomously determinable useful life
and carrying amount. Depreciation is charged systematically, on a straight-line-basis from the date the
asset is available and ready for use over its estimated useful life.
The useful lives of property, plant and equipment and their residual values are reviewed and updated,
where necessary, at least at each year end. Land is not depreciated. When a depreciable asset is
composed of identifiable separate components whose useful lives vary significantly from those of other
components of the asset, depreciation is calculated for each component separately, applying the
“component approach”.
The useful lives estimated by the Group for the various categories of property, plant and equipment are
as follows.
Plant and machinery
Planning and development costs of the fixed line and mobile telephone network
5-20 years
Residual term of license
Equipment
Other assets
4 years
5-10 years
Gains or losses arising from the sale or retirement of assets are determined as the difference between
the selling price and the carrying amount of the asset sold or retired and are recognized in profit or loss
under “Gains/(losses) on disposal of non-current assets”.
Finance leases are leases that substantially transfer all the risks and rewards incidental to the ownership
of assets to the Group. Property, plant and equipment acquired under finance leases are recognized as
assets at their fair value or, if lower, at the present value of the minimum lease payments, including any
84
amounts to be paid for exercising a purchase option. The corresponding liability due to the lessor is
recognized as part of financial liabilities.
An asset acquired under a finance lease is depreciated over the shorter of the lease term and its useful
life.
Lease arrangements in which the lessor substantially retains the risks and rewards incidental to
ownership of the assets are classified as operating leases. Lease payments under operating leases are
recognized as an expense in profit or loss on a straight-line basis over the lease term.

Intangible assets
Intangible assets are identifiable non-monetary assets without physical substance which can be controlled
and which are capable of generating future economic benefits. Intangible assets are stated at purchase
and/or production cost including any expenses that are directly attributable to preparing the asset for its
intended use, net of accumulated amortization in the case of assets being amortized and any impairment
losses. Borrowing costs accruing during and for the development of the asset are recognized in profit or
loss. Amortization begins when an asset becomes available for use and is charged systematically on the
basis of the residual possibility of utilization of the asset, meaning on the basis of its estimated useful life.
¾
Industrial patents and intellectual property rights, concessions, licenses, trademarks and similar rights
Costs for the purchase of industrial patents and intellectual property rights, concessions, licenses,
trademarks and similar rights are capitalized. Amortization is charged on a straight-line basis such as to
write off the cost incurred for the acquisition of a right over the shorter of the period of its expected use
and the term of the underlying agreement, starting from the date on which the acquired right may be
exercised. Trademarks are not amortized as they are considered to have an indefinite useful life.
¾
Software
Costs relating to the development and maintenance of software programs are expensed as incurred.
Unique and identifiable costs directly related to the production of software products which are controlled
by the Group and which are expected to generate future economic benefits for a period exceeding one
year are accounted for as intangible assets. Direct costs – where identifiable and measurable – include
the cost of employees who develop the software, together with a share of overheads as appropriate.
Amortization is charged over the useful life of the software which is estimated at 5 years.
¾
Goodwill
Goodwill represents the excess of the cost of an acquisition over the interest acquired in the fair value at
the acquisition date of the assets and liabilities of the entity or business acquired. Goodwill relating to
investments accounted for using the equity method is included in the carrying amount of the investment.
85
Goodwill is not systematically amortized but is rather subject to periodic tests to ensure that the carrying
amount in the statement of financial position is adequate (“impairment test”). Impairment tests are
carried out annually or more frequently when events or changes in circumstances occur that could lead to
an impairment loss on the cash generating units (“CGUs”) to which the goodwill has been allocated. An
impairment loss is recognized whenever the recoverable amount of goodwill is lower than its carrying
amount. The recoverable amount is the higher of the fair value of the CGU less costs to sell and its value
in use, which is represented by the present value of the cash flows expected to be derived from the CGU
during operations and from its disposal at the end of its useful life. The method for calculating value in
use is described in the paragraph below “Impairment losses”. Once an impairment loss has been
recognized on goodwill it cannot be reversed.
Whenever an impairment loss resulting from the above tests exceeds the carrying amount of the goodwill
allocated to a specific CGU, the residual amount is allocated to the assets of that particular CGU in
proportion to their carrying amounts. The carrying amount of an asset under this allocation is not
reduced below the higher of its fair value less costs to sell and its value in use as described above.
¾
Customer list
The customer list as an intangible asset consists of the list of customers identified on allocating the
goodwill arising on acquisitions carried out by the Group. Amortization is charged on the basis of the
respective estimated useful lives, which range from 5 to 15 years.
¾
Customer Acquisition Costs
These consist mainly of the cost of commissions paid to the sales network, which in line with sector
practice are capitalized as intangible assets from 2010, in accordance with the principles of reference,
and amortized over the minimum contract term.

Impairment losses
At each reporting date, property, plant and equipment and intangible assets with finite lives are assessed
to determine whether there is any indication that an asset may be impaired. If any such indication exists,
the recoverable amount of the asset concerned is estimated and any impairment loss is recognized in
profit or loss. Intangible assets with an indefinite useful lives are tested for impairment annually or more
frequently when events or changes in circumstances occur that could lead to an impairment loss. The
recoverable amount of an asset is the higher of its fair value less costs to sell and its value in use, which
is represented by the present value of its estimated future cash flows. In determining an asset’s value in
use the estimated future cash flows are discounted using a pre-tax rate that reflects the market’s current
assessment of the cost of money for the investment period and the specific risk profile of the asset. If an
asset does not generate independent cash flows, its recoverable amount is determined in relation to the
cash-generating unit (CGU) to which it belongs. An impairment loss is recognized in the profit or loss
86
when the carrying amount of an asset or the CGU to which it is allocated exceeds its recoverable amount.
If the reasons for previously recognizing an impairment loss cease to exist, the carrying amount of an
asset other than goodwill is increased to the carrying amount of the asset that would have been
determined (net of amortization or depreciation) had no impairment loss been recognized on the asset,
with the reversal being recognized in profit or loss.

Investments
Investments in non-consolidated subsidiaries are stated at cost. Investments in companies where the
Group exercises a significant influence (“associates”), which is presumed to exist when the Group holds
between 20% and 50%, are accounted for using the equity method.
The equity method is as follows:
¾
the Group’s share of the profit or loss of an investee is recognized in profit or loss from the date
when significant influence or control begins up to the date when that significant influence or control
ceases. Where the investee accounted for using the equity method has a deficit as the result of
losses, its carrying amount is reduced to zero and any excess attributable to the Group in the event
that it has legal or constructive obligations on behalf of the investee or in any case to cover the
losses is recognized in a specific provision. Equity changes in investees accounted for using the
equity method that do not result from profit or loss are recognized directly in consolidated equity
reserves;
¾
unrealized gains and losses generated from transactions between the Parent or its subsidiaries and
its investees accounted for using the equity method are eliminated on consolidation for the portion
pertaining to the Group; unrealized losses are eliminated unless they represent an impairment loss.
Investments in other companies are measured at fair value with any changes in fair value being
recognized in profit or loss. If the fair value cannot be reliably determined an investment is measured at
cost. Cost is adjusted for impairment losses if necessary, as described in the paragraph “Impairment
losses”. If the reasons for an impairment loss no longer exist, the carrying amount of the investment is
reversed up to the extent of the loss with the related effect recognized in profit or loss. Any risk arising
from losses exceeding the carrying amounts of investments is accrued in a specific provision under
liabilities to the extent of the Group’s legal or constructive obligations on behalf of the investee or in any
case to the extent that it is required to cover the losses. Investments held for sale or to be wound up in
the short term are classified as current assets and stated at the lower of their carrying amount and fair
value less costs to sell.
87

Financial instruments
Financial instruments consist of financial assets and liabilities whose classification is determined on their
initial recognition and on the basis of the purpose for which they were purchased. Purchases and sales of
financial instruments are recognized at settlement date.
¾
Financial assets
Financial assets are initially recognized at fair value and classified in one of the following four categories
and subsequently measured as described below:
i)
Financial assets at fair value through profit or loss: this category includes financial assets
purchased primarily for sale in the short term, those designated as such upon initial recognition,
provided that the assumptions exist for such classification or the fair value option may be
exercised, and financial derivatives except for the effective portion of those designated as cash
flow hedges. These assets are measured at fair value; any change in the period is recognized in
profit or loss. Financial instruments included in this category are classified as current assets if
they are held for trading or expected to be disposed of within twelve months from the reporting
date. Derivatives are treated as assets or liabilities depending on whether their fair value is
positive or negative; positive and negative fair values arising from transactions with the same
counterparty are offset if this is contractually provided for.
ii)
Loans and receivables: these are non-derivative financial instruments, mostly relating to trade
receivables, which are not quoted on an active market and which are expected to generate fixed
or determinable repayments. They are included as current assets unless they are contractually
due over more than twelve months after the reporting date in which case they are classified as
non-current assets. These assets are measured at amortized cost using the effective interest
method. If there is objective evidence of factors which indicate an impairment loss, the asset is
reduced to the discounted value of future cash flows. The impairment loss is recognized in profit
or loss. If in future years the factors which caused the impairment loss cease to exist, the
carrying amount of the asset is reinstated up to the amount that would have been obtained had
amortized cost been applied.
iii)
Held-to-maturity investments: these are fixed maturity non-derivative financial instruments
having fixed or determinable payments which the Group has the intention and ability to hold until
maturity. These assets are measured at amortized cost using the effective interest method,
adjusted as necessary for impairment losses. In the case of impairment the policies used for
financial receivables apply.
88
iv)
Available-for-sale financial assets: these are non-derivative financial instruments which are either
specifically included in this category or included there because they cannot be classified in the
other categories. These assets are measured at fair value and any related gain or loss is
recognized directly in an equity reserve and subsequently recognized in profit or loss only when
the asset is actually sold or, if there are cumulative negative changes, when it is expected that
the losses recognized in equity cannot be recovered in the future. For debt securities, if in a
future period the fair value increases due to the objective consequence of events occurring after
the impairment loss has been recognized in profit or loss, the original value of the instrument is
reinstated with the corresponding gain recognized in profit or loss. Additionally, the yields from
debt securities arising from the use of the amortized cost method are recognized in profit or loss
in the same manner as foreign exchange differences, whereas foreign exchange differences
relating to available-for-sale equity instruments are recognized in the specific equity reserve. The
classification as current or non-current assets is the consequence of strategic decisions regarding
the estimated period of ownership of the asset and its effective marketability, with those which
are expected to be realized within twelve months from the reporting date being classified as
current assets.
Financial assets are derecognized when the right to receive cash flows from them ceases and the Group
has effectively transferred all risks and rewards related to the instrument and its control.
¾
Financial liabilities consisting of loans, trade payables and other obligations are measured at amortized
cost using the effective interest method. When there is a change in expected cash flows which can be
reliably estimated, the value of the loans is recalculated to reflect such change based on the present
value of expected cash flows and the originally determined internal rate of return. Financial liabilities are
classified as current liabilities except where the Group has an unconditional right to defer payment until
at least twelve months after the reporting date.
Financial liabilities are derecognized when settled and the Group has transferred all the related costs and
risks relating to the instrument.
¾
When a contract is entered into the instrument is initially recognized at fair value, with subsequent
changes in fair value being recognized as a financial component of income. Where instead it has been
decided to use hedge accounting, meaning in those situations in which the hedging relationship is
identified, subsequent changes in fair value are accounted for in accordance with the following specific
criteria. The relationship between each derivative qualifying as a hedging instrument and the hedged
89
item is documented to include the risk management objective, the strategy for covering the hedge and
the means by which the hedging instrument’s effectiveness will be assessed. An assessment of the
effectiveness of each hedge is made when each derivative financial instrument becomes active and
throughout the hedge term.
In the case of a fair value hedge, i.e. the hedge refers to changes in the fair value of a recognized asset
or liability, the changes in the fair value of the hedging instrument and those of the hedged item are both
recognized in profit or loss. If the hedge is not fully effective, meaning that these changes are different,
the non-effective portion is treated as finance income or expense for the year in the income statement.
For a cash flow hedge, the fair value changes of the derivative are subsequently recognized, limited to
the effective portion, in a specific equity reserve (the “cash flow hedge reserve”). A hedge is normally
considered highly effective if from the beginning and throughout its life the changes in the expected cash
flows for the hedged item are substantially offset by the changes in the fair value of the hedging
instrument. When the economic effects deriving from the hedged item are realized, the reserve is
reclassified to the income statement together with the economic effects of the hedged item. Whenever
the hedge is not highly effective, the non-effective portion of the change in fair value of the hedging
instrument is immediately recognized as a financial component of the profit or loss for the year. Cash
flow hedges also include hedges of the currency risk for transactions carried out in US dollars. These
obligations are translated at the year-end exchange rate and any resulting exchange gains and losses are
offset in the income statement against the change in the fair value of the hedging instrument.
When hedged forecast cash flows are no longer considered highly probable during the term of a
derivative, the portion of the “cash flow hedge reserve” relating to that instrument is reclassified as a
financial component of the profit or loss for the year. If instead the derivative is sold or no longer
qualifies as an effective hedging instrument, the “cash flow hedge reserve” recognized to date remains as
a component of equity and is reclassified to profit or loss for the year in accordance with the criteria of
classification described above when the originally hedged transaction takes place.
Quotations at the reporting date are used to determine the fair value of financial instruments listed on
active markets. In the absence of an active market, fair value is determined by referring to prices
supplied by third-party operators and by using valuation models based primarily on objective financial
variables and, where possible, prices in recent transactions and market prices for similar financial
instruments.
90

Taxation
Income tax is recognized on the basis of taxable profit for the year and the applicable laws and
regulations, using tax rates prevailing at the reporting date.
Deferred taxes are calculated on temporary differences arising between the tax bases of assets and
liabilities and their carrying amounts in the consolidated financial statements at the tax rates that are
expected to apply for the years when the temporary differences will be realized or settled and tax losses
carried forward will be reversed, based on tax laws that have been enacted or substantively enacted by
the reporting date. An exception to this rule regards the initial recognition of goodwill and temporary
differences connected with investments in subsidiaries when the Group is able to control the timing of the
reversal of the temporary differences or when it is probable that the differences will not reverse.
Current and deferred taxes are recognized in profit or loss, except for those arising from items taken
directly to equity; in such cases the tax effect is recognized directly in the specific equity item.
Tax assets and liabilities, including those regarding deferred taxation, are offset when they relate to
income taxes levied by the same taxation authority on the same taxable entity and when the entity has a
legally enforceable right to offset these balances and intends to exercise that right. In addition, current
tax assets and liabilities are offset in the case that different taxable entities have the legally enforceable
right to do so and when they intend to settle these balances on a net basis.
The Group’s tax position and its presentation in the financial statements reflect the effects of the election
made in 2006 and renewed in 2009 by the Italian parent WIND TELECOM SpA (formerly Weather
Investments SpA) to take part in the national tax consolidation procedure.
For the regulations on electing the tax consolidation procedure to apply, the parent that elected for
consolidation is required to determine a single overall tax base for corporate income tax (IRES) purposes
consisting of the sum of the taxable profit or tax loss of the Parent and those of its subsidiaries taking
part in the procedure, and to settle a liability by making a single tax payment or to recognize a single tax
credit for repayment or to be carried forward.
Therefore, it follows that a receivable or payable with the Parent is found in the financial statements on
transferring a tax loss or taxable profit, respectively, in the place of the respective tax receivables or
payables accrued by the Group companies taking part in the procedure.

Inventories
Inventories are stated at the lower of purchase cost or production cost and net estimated realizable
value. Cost is determined using the weighted average cost method for fungible goods or goods held for
resale. When necessary, provisions are made for slow-moving and obsolete inventories.
91

Cash and cash equivalents are recognized at fair value and consist of short-term highly liquid investments
(generally not exceeding three months) that are readily convertible to known amounts of cash and which
are subject to an insignificant risk of changes in value.

Assets held for sale and assets in disposal groups
Assets held for sale consist of non-current assets (or disposal groups) whose carrying amount will be
recovered principally through a sale transaction rather than through continuing use. Assets held for sale
are measured at the lower of their carrying amount and fair value less costs to sell. No further
depreciation is charged from the time that a depreciable asset is reclassified to this caption. Gains or
losses arising from discontinued operations or from assets held for sale are reported as a separate item in
profit or loss, net of any tax effects.

Provisions
Provisions are recognized for a loss or expense of a specific nature that is certain or probable to arise but
for which the timing or amount cannot be precisely determined. Provisions are only recognized when the
Group has a present legal or constructive obligation arising from past events that will result in a future
outflow of resources, and when it is probable that this outflow of resources will be required to settle the
obligation. The amount provided represents the best estimate of the present value of the outlay required
to meet the obligation. The interest rate used in determining the present value of the liability reflects
current market rates and takes into account the specific risk of each liability.
Risks for which the likelihood of a liability arising is only possible are disclosed in the notes under
“Contingent assets and liabilities” and no provision is made.

Employee benefits
¾
Short-term employee benefits
Short-term employee benefits are recognized in profit or loss in the period when an employee renders
the related service.
¾
Post-employment benefits
Post-employment benefits may be divided into two categories: 1) defined contribution plans and 2)
defined benefit plans. Contributions to defined contribution plans are charged to profit or loss when
incurred, based on their nominal value. For defined benefit plans, since benefits are determinable only
after the termination of employment, costs are recognized in profit or loss based on actuarial calculations.
Defined benefit plans, which include the Italian post-employment benefits (TFR) which are due in
accordance with the provisions of article 2120 of the Italian Civil Code and which are accrued up to
December 31, 2006, are based on an employee’s working life and the remuneration received during
92
service. The related liability is projected forward to calculate the probable amount payable at the
termination date and is then discounted using the Projected Unit Credit Method, to take account of the
passage of time before the actual payment of the benefit. The measurement of the liability recognized in
the statement of financial position is carried out by third party actuaries, based on actuarial assumptions
which relate mainly to: the discount rate, which must reflect market yields on the high quality corporate
bonds having a term consistent with the expected term of the obligation, increases in salaries and
employee turnover.
As a consequence of the introduction of Law no. 296 of December 27, 2006 (the 2007 Finance Act) and
subsequent decrees and regulations, the post-employment benefits accruing from January 1, 2007 are
considered to be part of defined contribution plans and recognized in the same manner as other defined
contribution plans, if the amounts are transferred to treasury funds of the national social security
organization (INPS), or from June 30, 2007 or the date of employee election, if earlier, if transferred to
private pension plans. The post-employment benefits accrued up to these dates remain defined benefit
plans, with the related actuarial calculations excluding any assumptions regarding increases in salaries as
had been previously made. The difference arising from this change was recognized in the consolidated
profit or loss for the year ended December 31, 2007.
At each reporting date, actuarial gains and losses, defined as the difference between the carrying amount
of the liability and the present value of the Group’s obligation at year end, which arise from changes in
the actuarial assumptions referred to above, are recognized using the “corridor approach”, meaning only
when the gains or losses exceed 10% of the present value of the Group’s obligation at the previous
reporting date. Any amount in excess of 10% is charged against future income over a period in line with
the average remaining working life of employees, starting with the first period subsequent to recognition.
¾
Termination benefits and redundancy incentive schemes
Benefits due to employees on the termination of employment contracts are treated as a liability when the
Group is demonstrably committed to terminating these contracts for a single employee or group of
employees before the normal retirement date or to granting termination benefits in order to facilitate
voluntary resignations of surplus employees following a formal proposal. These benefits do not create
future economic advantages to the Group and the related costs are therefore immediately recognized in
profit or loss.
¾
Share-based payments
The Group recognizes additional benefits to certain managers and other members of personnel through
stock option plans. IFRS 2 - Share-based Payments considers these plans to represent a component of
employee remuneration; the cost of these plans therefore consists of the fair value of the option at the
grant date and is recognized in profit or loss on a straight-line basis over the period between the grant
93
date and the vesting date, with the corresponding entry recognized directly in equity. Changes in the fair
value of the option subsequent to the grant date have no effect on the original measurement.

Translation of items in non-euro currencies
Transactions in foreign currencies are translated into euros at the exchange rate prevailing at the date of
the transaction. Exchange gains and losses arising on the settlement of transactions and those arising on
the translation at year-end exchange rates of monetary assets and liabilities are recognized in profit or
loss.
With reference to foreign transactions whose currency risk is covered with derivatives, further details are
provided in the note Financial instruments.

Revenue recognition
Revenue is recognized at the fair value of the consideration received, net of rebates and discounts.
Revenue from the sale of goods is recognized when the Group transfers the risks and rewards of
ownership of the goods. Revenue from services is recognized in profit or loss by reference to the stage of
completion and only when the outcome can be reliably estimated.
More specifically, the criteria followed by the Group in recognizing core-business revenue are as follows:
¾
revenue arising from post-paid traffic, interconnection and roaming is recognized on the basis of the
actual usage of each subscriber and telephone operator. Such revenue includes amounts paid for
access to and usage of the Group network by customers and other domestic and international
telephone operators;
¾
revenue from the sale of prepaid cards and recharging is recognized on the basis of the prepaid
traffic actually used by subscribers during the year. The unused portion of traffic at period end is
recognized as “Other payables - Prepaid traffic to be used”;
¾
revenue from the sale of mobile phones and fixed-line phones and related accessories is recognized
at the time of sale;
¾
one-off revenue from fixed and mobile (prepaid or subscription) activation and/or substitution,
activation of new services and tariff plans is recognized for the full amount at the moment of
activation independent of the period in which the actual services are rendered by the Group. In the
case of promotions with a cumulative plan still open at year end, the activation fee is recognized on
an accrual basis so as to match the revenue with the period in which the service may be used;
¾
one-off fees received for the granting of rights to use owned fiber optic cables are recognized at the
time of the transfer of the underlying right and, therefore, of the related risks and rewards.
94

Government grants
Government grants are recognized when a formal decision of the disbursing government institution has
been taken, with recognition being matched to the costs to which they relate. Grants related to income
are taken to “Other revenue” in the profit or loss, while grants related to assets are recognized as
deferred revenue and taken to income on a straight-line basis over the useful life of the asset to which
the grant directly relates.

Finance expense is recognized on an accruals basis using the effective interest method, meaning at the
interest rate that renders all cash inflows and outflows linked to a specific transaction financially
equivalent.

Earnings per share
¾
Basic
Basic earnings per share are calculated by dividing the profit or loss for the year attributable to owners of
the parent, both from continuing and discontinued operations, by the weighted average number of
ordinary shares of the parent outstanding during the year.
¾
Diluted
Diluted earnings per share are calculated by dividing the profit or loss for the year attributable to owners
of the parent by the weighted average number of ordinary shares of the parent outstanding during the
year where, compared to basic earnings per share, the weighted average number of shares outstanding
is adjusted for the effects of all dilutive potential shares, while the profit or loss for the year is adjusted
for the effects of such conversion net of taxation. Diluted earnings per share are not calculated when
there are losses as any dilutive effect would improve earnings per share.

New accounting standards and interpretations
The Group has adopted all the newly issued and amended standards of the IASB and interpretations of
the IFRIC, endorsed by the European Union, applicable to its transactions and effective for financial
statements for years beginning January 1, 2010 and thereafter.
Accounting standards, amendments and interpretations adopted from 1 January 2010
The following is a brief description of the new standards and interpretations adopted by the Group in the
preparation of the consolidated financial statements at December 31, 2010.
95
¾
IFRS 3 – Business Combinations (2008)
The main changes to IFRS 3 concern: i) the accounting treatment of step acquisition of subsidiaries, ii)
the possibility to measure non-controlling interests at fair value in a partial acquisition, iii) the recognition
of acquisition-related costs as expenses and iv) the recognition at the acquisition date of any contingent
consideration included in the arrangements. The introduction of this standard had no effect on the
Group’s consolidated financial statements at December 31, 2010.
¾
IFRS 1 - First Time Adoption of International Financial Reporting Standards (2008)
The restructured IFRS 1 eliminates certain transitory provisions and also contains certain minor changes
to the text having the aim of ensuring high quality information in the accounts of first-time adopters. The
introduction of this standard had no effect on the Group’s consolidated financial statements at December
31, 2010.
¾
Amendment to IAS 39 Financial Instruments: Recognition and Measurement (Eligible Hedged Items)
The aim of this amendment to IAS 39 is to clarify the application of hedge accounting to the inflation
component of financial instruments and option contracts when they are used as hedging instruments.
The amendment, effective from July 1, 2009, had no effect on the Group’s consolidated financial
statements at December 31, 2010.
¾
Amendment to IAS 27 – Consolidated and Separate Financial Statements
The revisions to IAS 27 principally affect the accounting for transactions and events that result in a
change in the Group’s interest in its subsidiaries and the attribution of a subsidiary’s losses to noncontrolling interests. The amendment, effective from July 1, 2009, had no effect on the Group’s
consolidated financial statements at December 31, 2010.
¾
IFRIC 17 – Distribution of Non-cash Assets to Owners
This interpretation provides clarification and guidance for accounting for the distribution of non-cash
assets to owners. The interpretation, effective from July 1, 2009, had no effect on the Group’s
consolidated financial statements at December 31, 2010.
¾
IFRIC 18 – Transfers of Assets from Customers
This interpretation, effective from July 1, 2009, provides clarification and guidance for accounting for
items of property, plant and equipment received from customers or for cash received from customers to
acquire or construct items of property, plant and equipment. The introduction of this interpretation had
no effect on the Group’s consolidated financial statements at December 31, 2010.
¾
Improvements to IFRS (April 2009)
In April 2009, the International Accounting Standards Board (IASB) issued Improvements to IFRS as part
of its annual process of making amendments designed to simplify and clarify international financial
96
reporting standards. The majority of these improvements, effective from July 1, 2009, are clarifications of
or corrections to existing IFRS or changes resulting from amendments made previously to IFRS. The
amendments to IFRS 8, IAS 17, IAS 36 and IAS 39 lead to changes to existing requirements or provide
additional guidance on the implementation of these requirements.
¾
Amendments to IFRS 2 - Group Cash-settled Share-based Payment Transactions
These amendments, effective from January 1, 2010, clarify the accounting for share-based payment
transactions where the supplier of the goods or services is paid in cash and the obligation is undertaken
by another group entity (group cash-settled share-based payment transactions). These amendments has
had no effect on the Group’s consolidated financial statements at December 31, 2010.
Accounting standards, amendments and interpretations not yet effective and not adopted
early by the Group
The following standards and interpretations had been issued at the date of these notes but were not yet
effective for the preparation of these consolidated financial statements at December 31, 2010.
STANDARD/INTERPRETATION
EFFECTIVE DATE
EU
endorsement
Amendments to IAS 32 - Classifications of rights issues
Annual financial statements beginning
on or after February 1, 2010
Endorsed
IAS 24 - Related Party Disclosures (revised in November 2009)
on or after January 1, 2011
Endorsed
IFRS 9 – Financial Instruments
Not endorsed
Amendments to IFRS 1 and IFRS 7 - Limited Exemption from Comparative IFRS 7
Disclosures for First-time Adopters
on or after July 1, 2010
Endorsed
IFRIC 19 – Extinguishing Financial Liabilities with Equity Instruments
Endorsed
IFRIC 14 – Prepayments of a Minimum Funding Requirement
Endorsed
Improvements to IFRS (May 2010)
Endorsed
Amendments to IFRS 7 – Financial Instruments: Disclosures
Not endorsed
Amendments to IAS 12 - Deferred tax: Recovery of Underlying Assets
Not endorsed
Amendments to IFRS1 – Severe Hyperinflation and Removal of Fixed Dates for FirstTime Adopters
Not endorsed
The Group is currently assessing any impact the new standards and interpretations may have on the
financial statements for the years in which they become effective.
2.4
Use of estimates
The preparation of these consolidated financial statements required management to apply accounting
policies and methodologies based on complex, subjective judgments, estimates based on past experience
and assumptions determined from time to time to be reasonable and realistic based on the related
circumstances. The use of these estimates and assumptions affects the amounts reported in the
97
statement of financial position, the income statement and the cash flow statement as well as the notes.
The final amounts for items for which estimates and assumptions were made in the consolidated financial
statements may differ from those reported in these financial statements due to the uncertainties that
characterize the assumptions and conditions on which the estimates are based.
The accounting principles requiring a higher degree of subjective judgment in making estimates and for
which changes in the underlying conditions could significantly affect the consolidated financial statements
are briefly described below.
¾
Goodwill: goodwill is tested for impairment at least on an annual basis to determine whether any
impairment losses have arisen that should be recognized in profit or loss. More specifically, the
test is performed by allocating the goodwill to a cash generating unit (CGU) and subsequently
estimating the unit’s fair value. Should the fair value of the net capital employed be lower than
the carrying amount of the CGU, an impairment loss is recognized on the allocated goodwill. The
allocation of goodwill to cash generating units and the determination of the fair value of a CGU
require estimates to be made that are based on factors that may vary over time and that could
as a result have an impact on the measurements made by management which might be
significant.
¾
Impairment losses on non-current assets: non-current assets are reviewed to determine whether
there are any indications that the carrying amount of these assets may not be recoverable and
that they have suffered an impairment loss that needs to be recognized. In order to determine
whether any such elements exist it is necessary to make subjective measurements, based on
information obtained within the Group and in the market and also on past experience. When a
potential impairment loss emerges it is estimated by the Group using appropriate valuation
techniques. The identification of the elements that may determine a potential impairment loss
and the estimates used to measure such loss depend on factors which may vary over time,
thereby affecting estimates and measurements.
¾
Depreciation of non-current assets: the cost of property, plant and equipment is depreciated on a
straight-line basis over the useful lives of the assets. The useful life of property, plant and
equipment is determined when the assets are purchased and is based on the past experience of
similar assets, market conditions and forecasts concerning future events which may affect them,
amongst which are changes in technology. The actual useful lives may therefore differ from the
estimates of these. The Group regularly reviews technological and business sector changes,
dismantling costs and recoverable amounts in order to update residual useful lives. Such regular
updating may entail a change of the depreciation period and consequently a change in the
depreciation charged in future years.
¾
Deferred tax assets: the recognition of deferred tax assets is based on forecasts of future taxable
profit. The measurement of future taxable profit for the purposes of determining whether or not
98
to recognize deferred tax assets depends on factors which may vary over time and which may
lead to significant effects on the measurement of this item.
¾
Provisions: in recognizing provisions the Group analyses the extent to which it is probable that a
liability will arise from disputes with employees, suppliers and third parties and, in general, the
losses it will be required to incur as a result of past obligations. The definition of such provisions
entails making estimates based on currently known factors which may vary over time and which
could actually turn out to be significantly different from those referred to in preparing the notes
to these financial statements.
2.5
Risk management
Credit risk
The Group’s credit risk is principally associated with trade receivables which at December 31, 2010
amounted to €1,379,470 thousand. The Group minimizes credit risk through a preventive credit check
process which ensures that all customers requesting new products and services or additions to existing
services are reliable and solvent, also by using a preference for contracts which provide for the use of
automatic payment methods with the aim of reducing the underlying credit risk. This check is carried out
in the customer acceptance phase through the use of internal and external information.
The Group additionally exercises timely post-customer acquisition measures for the purpose of credit
collection such as the following:
•
sending reminders to customers;
•
employing measures for the collection of overdue receivables, separated by strategy, portfolio and
customer profiles;
•
measuring and monitoring the debt status through reporting tools.
The result of this effective action is that the Group has a limited amount of credit losses. Additionally, as
a general rule, the Group has a limited level of credit concentration as the consequence of diversifying its
product and services portfolio to its customers. In more detail, a small concentration of credit may be
found in the business that WIND Telecomunicazioni SpA carries out with the Enel Group, with dealers and
domestic and international operators.
WIND Telecomunicazioni SpA is also assisted by sureties issued by primary banks as collateral for the
obligations resulting from supplies and receivables from dealers.
In terms of financial assets, the Group has an exposure to credit risk with financial counterparties with
whom it enters into derivative agreements to hedge against interest rate and currency risk, makes
deposits of available cash through money market transactions and holds current accounts.
In order to manage its counterparty risk, the Group carries out money market transactions and
99
transactions involving derivatives for hedging purposes solely with parties having “Investment Grade”
rating and monitors and limits the concentration of transactions with any single party.
The Group had a positive net balance on its current accounts of €404,359 thousand at December 31,
2010. The Group’s credit risk exposure from derivative contracts is represented by their realizable value
or fair value, if positive.
The positive fair value of the entire portfolio at December 31, 2010 was €45,446 thousand (details of this
may be found in note 17).
Liquidity risk
Liquidity risk arises mostly from the cash flows generated by debt servicing, in terms of both interest and
principal, and from all of the Group’s payment obligations that result from business activities.
In respect of debt, on November 26, 2010 WIND Telecomunicazioni SpA entered a new floating rate
long-term loan agreement - the Senior Facility Agreement - consisting of two tranches: tranche A,
amortizing, and tranche B, bullet, denominated in euros. The total nominal amount of this agreement
amounts to €3,530,000 thousand, to which €400 million of a revolving credit facility not drawn down
should be added.
The subsidiary Wind Acquisition Finance SA, a company registered under Luxembourg law, has a high
yield bond outstanding with value date July 13, 2009 and maturity date July 15, 2017 which consists of a
tranche of a nominal amount of USD2,000,000 thousand and a tranche of a nominal amount of
€1,250,000 thousand, each with a coupon of 11.75%. On November 26, 2010 this company issued Senior
Secured Notes in euros and US dollars maturing on February 15, 2018. The Notes are divided into two
tranches: one having a nominal amount of USD1,300,000 thousand and paying a six-monthly coupon of
7.25% and one having a nominal amount of €1,750,000 thousand and paying a six-monthly coupon of
7.375%. As mentioned in the previous note 1, the new bond issue and the new loan were required to
make early repayment of the high yield bond maturing in December 2015, the previous Senior Credit
Facility Agreement and the Second Lien Notes.
The “Senior Secured Notes” are subject to mandatory repayment in the following situations:
•
if there is a change of control, all bondholders will be entitled to request the total or partial
repurchase of the bonds they hold at a price equal to 101% of the notional amount plus the interest
accrued at the repurchase date;
•
in the case of asset sales, any proceeds not reinvested in the form envisaged by the offering
memorandum and which exceed the amount of €25,000 thousand must be used to make a pari-
passu repurchase offer to bondholders and debtholders at a price of 100% of the notional amount
plus the interest accrued at the repurchase date.
100
The mandatory repayment flows provided for in the above agreements, including the amounts not
yet used, which translate US dollar tranches at the hedge agreement exchange rate are as follows.
(millions of euro)
2011
2012
2013
2014
2015
2016
2017
2018
Total
Senior Facilities Agreement
Term Loan A1
11
27
27
30
33
37
-
-
165
Term Loan A2
89
223
223
245
267
303
-
-
1,350
Term Loan B1
-
-
-
-
-
-
1,334
-
1,334
Term Loan B2
-
-
-
-
-
-
681
-
681
Revolving
-
-
-
-
-
400
-
-
400
56
77
73
52
20
17
-
-
294
Senior Notes Euro
-
-
-
-
-
-
1,250
-
1,250
Senior Notes USD
-
-
-
-
-
-
1,428
-
1,428
1,750
Annuity
Senior Secured Notes 2017
Senior Secured Notes 2018
Senior Notes Euro
Senior Notes USD
Total
-
-
-
-
-
-
-
1,750
-
-
-
-
-
-
-
924
924
156
327
323
327
320
757
4,693
2,674
9,577
The Senior Facilities Agreement imposes certain covenants on the Group, with which the Group, at 31
December 2010, is fully in compliance.
The tranches of bonds that are denominated in US dollars are hedged by cross currency swaps. As
concerns liquidity risk, these cross currency swaps will lead to an exchange of principal on maturity.
In order to deal with the liquidity risk arising from these commitments, the Group may, in addition to
cash flows from ordinary operations, also count on a revolving credit line of €400,000 thousand which
forms part of the long-term loan agreement referred to above, disbursed on a committed basis and
currently unused.
The contractual due dates for financial liabilities, including those for interest payments, which are
representative of the respective effects on profit or loss, are set out in the following tables, which provide
the figures at December 31, 2010 and 2009.
Carrying
amount at
December
31, 2010
Total
Contractual
cash flows
2011
2012
2013
2014
2015
2016
2017
Bank loans
3,407
(4,532)
(265)
(422)
(409)
(422)
(433)
(458)
(2,120)
-
Bonds
5,482
(9,185)
(516)
(522)
(522)
(522)
(522)
(522)
(3,269)
(2,790)
(73)
(89)
(80)
(56)
(21)
(18)
-
-
(4,288)
(264)
(302)
(281)
(270)
(260)
(261)
(1,672)
(978)
4,299
260
274
262
256
251
251
1,740
1,005
(861) (1,061)
(1,030)
(1,014)
(985)
(1,008)
(5,321)
(2,763)
(millions of euro)
2018
Non-derivative financial liabilities
Loans from others
Net derivative financial liabilities
306
45
Outflows
Inflows
Total
9,240
(13,706)
101
Carrying
amount
at
December
31,
2009
Contractual
cash flows
2010
2011
2012
2013
2014
Bank loans
4,816
(5,765)
(508)
(552)
(690)
(1,697)
(2,318)
-
-
-
Bonds
4,019
(7,474)
(470)
(469)
(469)
(469)
(469)
(1,870)
(310)
(2,948)
(4,570)
(382)
(408)
(386)
(356)
(489)
(781)
(170)
(1,598)
3,874
249
272
262
294
415
668
163
1,551
(1,111) (1,157)
(1,283)
(2,228) (2,861)
(1,983)
(317)
(2,995)
(millions of euro)
2015
2016
2017
516
Outflows
Inflows
Total
9,351
(13,935)
Market risk
The Group’s strategy for managing interest rate and currency risks is aimed at both managing and
controlling such financial risks. More specifically, this strategy is aimed at eliminating currency risk and
optimizing debt cost wherever possible, taking into account the interests of the Group’s stakeholders.
Managing market risk for the WIND Group refers to financial liabilities from the time they actually arise or
from when there is a high probability that they will arise.
More specifically, the following market risks are monitored and managed:
•
Cash flow risk - this is the risk that movements in the yield curve could have an impact on profit or
loss in terms of greater finance expense.
•
Fair value risk - this is the risk that movements in the yield curve could have an impact on the fair
value of debt.
•
Currency risk - this is the risk that the fair value of financial instruments in currencies other than the
euro or their cash flows, or the amounts payable or receivable generated by ordinary operations but
not in euros, could undergo adverse effects caused by fluctuations in exchange rates.
The main objectives that the Group intends to reach are:
¾
to continue to defend the strategic plan scenario from the effects of exposure to currency, interest
rate and inflation risks, identifying an optimum combination of the fixed rate, floating rate and
inflation components for financial liabilities;
¾
to reduce the cost of debt;
¾
to manage derivatives in compliance with the Group’s approved strategies, taking into consideration
the different effects that derivative transactions could have on profit or loss and the statement of
financial position.
After signing the medium/long-term loan contract with a banking syndicate, WIND Telecomunicazioni SpA
issued a hedging letter in 2010 in which, regarding interest rate risk, it undertook to hedge, for the first
102
three years, at least 50% of its exposure to the interest accruing on the total debt and to hedge 100% of
its currency risk exposure on the Senior Secured Notes issued in foreign currency.
To meet these commitments the interest rate risk was hedged and, at the present time, this has reached
a level of approximately 94%, with a maximum hedge term of less than seven years. At December 31,
2010, outstanding derivative contracts hedging interest rate risk total €3,300,000 thousand, of which
€2,530,000 thousand having a residual term of between one and five years and €800,000 thousand
having a residual term exceeding five years.
Considering that the total of loans and bonds outstanding at December 31, 2010 amounted to
€8,999,690 thousand, the fixed to floating ratio was as follows at that date.
(millions of euro)
Outstanding at 12.31.2010
Rate at 12.31.2010
8,799
97.78%
200
2.22%
At fixed rate
At floating rate
In compliance with the Hedging Letter, the currency risk resulting from the bonds issued by the
subsidiary Wind Acquisition Finance SA has been fully hedged by cross currency swap transactions having
a total notional of USD3,300,000 thousand.
All derivative agreements were entered into at market rates, without any up-front payments or receipts
(a zero cost basis) and with a credit margin being applied.
With regard to the unhedged portion of floating rate debt, it is estimated that an increase of 100 basis
points in the euro interest rate yield curve (all other variables remaining constant) would lead to an
increase in borrowing costs of approximately €2,000 thousand, with the related effect on equity.
Fair value hierarchy
IFRS 7 requires financial instruments recognised in the statement of financial position at fair value to be
classified on the basis of a hierarchy that reflects the significance of the inputs used in determining fair
value. The following levels are used in this hierarchy:
•
Level 1 – quoted prices in active markets for the assets or liabilities being measured;
•
Level 2 – inputs other than quoted prices included within Level 1 that are observable for the asset or
liability, either directly (as prices) or indirectly (derived from prices) on the market;
•
Level 3 – inputs that are not based on observable market data.
The following table provides an analysis under this hierarchy of financial assets and liabilities measured at
fair value at December 31, 2010.
103
(millions of euro)
Level 1
Note
Level 2
Level 3
Total
Assets at fair value
17
Total assets
-
173
-
173
-
173
-
173
Liabilities at fair value
17
Total liabilities
-
34
-
34
-
34
-
34
In 2010 there were no transfers either from Level 1 to Level 2 or vice versa or from Level 3 to other
levels or vice versa.
The following table provides changes in Level 3 in 2010.
(millions of euro)
Derivative
financial instruments
207
Gains and (losses) recognised in profit or loss
6
Increases/(Decreases)
(213)
3
-
SEGMENT REPORTING
Identifying the Group’s segments was carried out on the basis of its organizational structure and internal
reporting system. In particular, since the risks and rewards of the Group’s investments are influenced
exclusively by differences in the products sold and services rendered, the format for reporting segment
information is by business segments (fixed-mobile telephony). Assets and liabilities for which a specific
allocation to the segments was not possible (in particular financial assets and liabilities and current and
deferred tax assets and liabilities) have been assigned on the basis of specific parameters. Those assets and
liabilities are reported separately in the table below.
Fixed
(millions of euro)
Mobile
Total
2010
2009
2010
2009
2010
2009
12 months
12 months
12 months
12 months
12 months
12 months
1,855
1,850
4,043
3,876
5,898
5,726
351
356
1,834
1,786
2,185
2,142
Total revenue
Operating income (*)
(*) operating income before amortization and depreciation, impairment losses on non-current assets and gains/(losses) on disposal of non-current assets
Fixed
(millions of euro)
Allocated assets
Non allocated assets
Total
Allocated liabilities
Non allocated liabilities
Total
Mobile
Others
Total
At December
At December
At December
At December
At December
At December
At December
At December
31, 2010
31, 2009
31, 2010
31, 2009
31, 2010
31, 2009
31, 2010
31, 2009
2,128
2,144
9,147
9,229
1,776
1,789
13,052
13,162
-
-
-
-
1,039
1,301
1,039
1,301
2,128
2,144
9,147
9,229
2,816
3,090
14,091
14,463
959
943
1,482
1,377
-
-
-
959
943
1,482
1,377
105
277
2,546
2,597
10,028
10,197
10,028
10,197
10,132
10,474
12,573
12,794
104
4
¾
ACQUISITIONS AND DISPOSALS
Hellas Telecommunications I Sàrl
On June 30, 2010 as resolved by the Parent’s Board of Directors of March 17, 2010, the Put option was
partially exercised on 985 shares held in Hellas Telecommunications I Sàrl for an amount of €70,066
thousand. The related amount due from the Parent Weather Investments SpA has been recognized
through the assignment of an equal amount of receivables from the subsidiaries Enel.Net Srl (€48,787
thousand), ITALIA ONLINE Srl (€18,665 thousand), ITNET Srl (€2,181 thousand) and WIS SpA (€432
thousand).
By means of a written notification to the parent WIND TELECOM SpA, on November 29, 2010, the Parent
exercised its put option on the remaining 1,980 shares held in Hellas Telecommunications I Sàrl at a price
of €143,103 thousand. As provided by the transfer agreement signed on November 29, 2010 by WIND
Telecomunicazioni SpA and WIND TELECOM SpA, the investment in Hellas Telecommunications I Sàrl,
which had a nil carrying amount at December 31, 2009, was fully transferred to the parent WIND
TELECOM SpA. Regarding the payment of the consideration by the parent, on November 29, 2010, the
Group Parent and WIND TELECOM SpA signed an intragroup loan agreement by virtue of which the
Group Parent granted the parent a loan of €143,103 thousand, for which details may be found in note 7.
¾
On November 26, 2010, the Group Parent completed the purchase of remaining 73% of the share capital
(4,526 shares) of the Luxembourg company Wind Acquisition Finance SA from CCT Corporate Nominees
Limited at a price of €1,788 thousand, for a corresponding equity of €1,162 thousand. The Group Parent
already owned 27% of the share capital of the company as a consequence of which the transaction led to
the acquisition of 100% of the share capital of the Luxembourg company.
¾
WIND International Services Sàrl
On September 30, 2010, the board of directors of WIND International Services SpA granted powers to its
representative to vote at the shareholders' meeting of the subsidiary WIND International Services Sàrl
(held on October 21, 2010) in favour of the winding up of that company. Under this operation all of the
subsidiary's activities will be transferred to WIND International Services SpA within the first half of 2011.
105
5
PROPERTY, PLANT AND EQUIPMENT
The following table sets out the changes in “Property, Plant and Equipment” at December 31, 2010.
(thousands of euro)
At December 31,
2009
Additions
(Impairment
losses)/
Reversal of
impairment
losses
Depreciation
Disposals
Other
At December
31, 2010
1,859
-
(51)
-
-
-
1,808
2,925,812
444,537
(606,554)
(12,963)
(4,745)
309,354
3,055,441
Equipment
18,913
12,070
(9,983)
-
-
4,047
25,047
Other
57,608
16,329
(22,392)
-
(199)
19,988
71,334
418,376
226,212
-
-
-
(326,740)
317,848
3,422,568
699,148
(638,980)
(12,963)
(4,944)
6,649
3,471,478
Land and buildings
Plant and machinery
Assets under construction
Total
The cost, accumulated impairment losses and accumulated depreciation at December 31, 2010 can be
summarized as follows.
(thousands of euro)
Cost
Land and buildings
Plant and machinery
Accumulated
impairment losses
Accumulated
depreciation
Carrying
amount
2,355
-
547
1,808
9,253,974
56,956
6,141,577
3,055,441
25,047
Equipment
134,019
-
108,972
Other
468,974
162
397,478
71,334
318,490
642
-
317,848
10,177,812
57,760
6,648,574
3,471,478
Total
“Property, plant and equipment” increased by a net amount of €48,910 thousand in the year ended
December 31, 2010, determined mostly by the investments (amounting to €699,148 thousand) which
were only partially offset by the charges for depreciation and impairment losses of €638,980 and €12,963
thousand, respectively.
In particular, “Plant and machinery” increased by €129,629 thousand over the previous year. The main
gross increases of the year regard purchases and operations of radio links and high frequency equipment
for the expansion of the mobile access network and plant and machinery under construction (3G mobile
technologies and the respective transport and support networks and IT investments connected with the
increasing number of new services being provided to customers).
As part of the plan for the development of the Group’s production structure, disposals have been made of
equipment, infrastructure and transmission systems having a carrying amount of €4,745 thousand which
are no longer usable; these relate mostly to radio links and high frequency equipment (€1,361 thousand)
and electronic switchboards and equipment (€1,180 thousand). Radio bridges were impaired by €16,282
thousand during the year as part of an operation to modernize production infrastructures. In addition, in
connection with an operation to replace transmission equipment being carried out to render the network
more efficient and to obtain benefits from synergies, the net carrying amount of replaced equipment of
€18,596 thousand was written off, more than offset by the positive effect of €20,703 thousand resulting
from the recognition as an increase in the market value of the equipment received as a replacement.
“Other” mainly includes plant and machinery which entered into use during the year.
106
At December 31, 2010, transmission equipment, telephone systems and commutation switchboards
owned by the Parent and having a carrying amount of €122,578 thousand were with customers for use
(€105,758 thousand at December 31, 2009), while transmission equipment for direct access through
“unbundling of the local loop” having a carrying amount of €90,833 thousand (€110,811 thousand at
December 31, 2009) was held on deposit by Telecom Italia SpA.
“Plant and machinery” additionally includes the expenditure incurred to acquire the exclusive rights for
the use of cable ducts and optic fiber for a total of €77,859 thousand at December 31, 2010 (€61,513
thousand at December 31, 2009).
At December 31, 2010, “Equipment” had a carrying amount of €25,047 thousand, representing an
increase over the balance at the end of the previous year as the result of the investments which were
only partially offset by the depreciation charge for the year. Commercial equipment having a carrying
amount of €10,664 thousand at December 31, 2010, was with third parties, mostly authorized dealers,
for use at that date (€9,290 thousand al December 31, 2009).
The net balance of “Other”, €71,334 thousand at December 31, 2010, increased during the year mainly
as the result of increased investments and the entry into use during the year of office machines and
electronic equipment, which were only partially offset by the depreciation charge for the year.
The balance of “Assets under construction” of €317,848 thousand at December 31, 2010 consists mainly
of plant and machinery being completed and tested.
6
INTANGIBLE ASSETS
The following table sets out the changes in “Intangible assets” at December 31, 2010.
(thousands of euro)
Industrial patents and intellectual property rights
Concessions, licenses, trademarks and similar rights
Other intangible assets
Goodwill
Assets under development
Total
At December
31, 2009
Additions
Amortization
(Impairment
losses)/
Reversal of
impairment
losses
239,688
96,296
(90,545)
(3)
54,950
300,386
3,473,226
197
(115,116)
-
(1,389)
3,356,918
695,401
115,236
(156,724)
-
1,143
655,056
-
(810)
499
3,621,249
3,621,560
Other
At
December
31, 2010
87,192
44,927
-
-
(70,884)
61,235
8,117,067
256,656
(362,385)
(813)
(15,681)
7,994,844
The cost, accumulated impairment losses and accumulated amortization at December 31, 2010 can be
107
(thousands of euro)
Cost
Accumulated
Accumulated
impairment losses
amortization
Carrying amount
1,517,382
6,866
1,210,130
300,386
4,561,872
1,002
1,203,952
3,356,918
1,292,535
-
637,479
655,056
Goodwill
3,622,059
810
-
3,621,249
Total
61,235
-
-
61,235
11,055,083
8,678
3,051,561
7,994,844
“Intangible assets decreased by a net amount of €122,233 thousand during the year mainly due to the
combined effect of new investments of €256,656 thousand and the amortization charge for the year of
€362,385 thousand. “Other” mainly includes industrial patents and intellectual property rights which
entered into use during the year.
The balance at December 31, 2009 of “Other intangible assets” includes the reclassification of €66,450
thousand, originally recognized in “Other receivables”, due to the effect of the different presentation of
some customer acquisition costs, for which details may be found in note 2.1.
“Industrial patents and intellectual property rights” consist of the cost for the outright purchase of
application software licenses or the right to use such licenses for an unlimited period and the capitalized
costs relating to the time spent by Parent personnel in designing, developing and implementing
information systems, which at December 31, 2010 amounted to €6,499 thousand (€7,123 thousand at
December 31, 2009).
Application software having a carrying amount of €710 thousand was in use by third parties, customers
and business call center outsourcers at the end of the year (€551 thousand at December 31, 2009).
“Concessions, licenses, trademarks and similar rights” include individual licenses for the installation of
networks and concessions to operate in the regulated activities of the telecommunications sector granted
to the Group’s companies by the relevant authorities, as detailed below.
108
Individual licenses or General Authorizations
Date of issue
Date of expiry (*)
February 1998
February 2018
WIND Telecomunicazioni SpA
Installation of network and provision of voice telephony services on the Italian national territory
(**)
Installation and provision of public telecommunications networks on the Italian national territory
April 1998
April 2018
Provision of public digital mobile communications services using DCS 1800 technology, including
June 1998
June 2018
April 1999
April 2019
January 2001 (***)
December 2029
July 2002
July 2022
February 2009
February 2029
February 2009
February 2029
License related to telecom for using earth stations and satellite stations on the Belgian territory
September 2005
N/A (Autorenowable)
License for using a V-Sat earth station 73ASEQ
September 2005
N/A (Autorenowable)
License for using a V-Sat earth station 73AGBL
September 2005
N/A (Autorenowable)
the possibility of operating in frequencies in the 900 MHz band using GSM technology pursuant
to article 6, paragraph 6(c) of Presidential Decree no. 318 of September 19, 1997
issued to Infostrada SpA now merged
Provision of third generation mobile communications services adopting the UMTS standard
(IMT-2000 family) and the installation of the related network on the Italian national territory
pursuant to article 6, paragraph 6(c) of Presidential Decree no. 318 of September 19, 1997
Use of frequencies for broadband point-multipoint radio networks in the 24.5-26.5 GHz band for
the geographical area corresponding to the specified Italian region/autonomous province
(****)
Wind International Services SpA
Installation of a telecommunications network in order to present the voice telephony service
within the limits of the Italian national territory
Installation and provision of a public telecommunication network within the limits of the Italian
national territory
Wind International Services SA
(*) Individual licenses are renewable in compliance with the regulations prevailing at the time of the renewal upon submission of an application at
least 60 days prior to the expiry date (article 25, paragraph 6, of Decree no. 259/03)
(**) The Parent has two licenses for network installation and the provision of fixed line telephony services following the merger of Infostrada SpA
(***) The term of the license came into effect on January 1, 2002
(****) A total of 21 individual point-multipoint licenses have been assigned
“Concessions, licenses, trademarks and similar rights” for €1,453,103 thousand refer to trademarks which
have an indefinite useful life.
“Similar rights” consist of rights of way and the right to use assets owned by third parties for a
predetermined period of time and are initially recognized at their one-off purchase price, including any
accessory costs. This item relates for the most part to the costs incurred by Infostrada SpA, now merged,
for the purchase in 1998 of the right of way on the Italian railway network and the purchase of the right
to use the existing optic fiber on the network.
“Other intangible assets” mainly relate to the fair value of the customer list, amounting to €556,167
thousand, identified on allocating the goodwill at December 31, 2006 arising from the merger of the
former parent Wind Acquisition Finance SpA and to the customer acquisition costs amounting to €85,954
thousand.
109
“Assets under development” consist of the internal and external costs incurred for the purchase or
development of intangible assets for which the respective ownership right has not yet been fully acquired
at the end of the year or which relate to incomplete projects, and downpayments made to suppliers for
the purchase of intangible assets. More specifically, intangible assets under development relate to the
costs incurred for the design, development and implementation of information systems or specific
modules thereof.
“Goodwill” pertains to the subsidiary WIND Retail Srl for €28,632 thousand and to the parent WIND
Telecomunicazioni SpA for 3,592,617 thousand with the excess amount allocated to the following cash
generating units.
CGU
Fixed
Mobile
Goodwill
276,997
276,997
3,344,252
3,344,563
3,621,249
3,621,560
The change in the goodwill attributable to WIND Retail Srl is the net effect of an increase of €499
thousand arising from the purchase on January 28, 2010 of two new points of sales and a decrease of
€810 thousand resulting from the recognition of an impairment loss during the year relating to the share
of the goodwill allocated to the points of sales which form part of the rationalization of the subsidiary’s
commercial network planned to take place in 2011.
Goodwill at December 31, 2010 is allocated to the individual cash generating units representing the
minimum level used for monitoring such assets for management control purposes. The carrying amount
of goodwill recognized and of intangible assets with indefinite useful lives at December 31, 2010 was
tested for impairment but no impairment losses were identified. The test was carried out by comparing
the carrying amount with the value in use and recoverable amount. More specifically, the value in use
was calculated on the basis of the discounted cash flows resulting from the 2011-2015 business plan. A
growth rate of 1% was assumed for the years not covered by this plan. An interest rate of 7.78% was
used to discount the cash flows being the weighted average cost of capital, net of the tax effect,
calculated using the capital asset pricing model.
7
FINANCIAL ASSETS
The following table sets out “Financial assets” at December 31, 2010 and 2009.
(thousands of euro)
Non-current
2,165
Current
-
Total
2,165
Financial assets at fair value through profit or loss
Total
172,575
Non-current
Current
Total
2,063
-
-
-
2,063
-
179,323
207,167
386,490
-
172,575
224,955
15,836
240,791
46,316
17,257
63,573
399,695
15,836
415,531
227,702
224,424
452,126
110
“Financial assets measured at cost” consist of non-controlling interests in companies and consortia as set
out in the following table:
Company / consortium
Elawind Consortium
Consel Consortium
Janna Scarl
Mix Srl
QXN Scpa
Other consortiums
Total financial assets measured at cost
% of investment
33.33%
33.33%
1.00%
17.00%
15.00%
10.00%
-
2
1
1
2,072
15
50
24
2,165
2
1
1
1,971
15
50
21
2
2,063
The change in the item “Derivative financial instruments” essentially reflects the exercising of the option
on the shares in Hellas Telecommunications I Sàrl carried out during the year (€207,054 thousand at
December 31, 2009) for which details may be found in note 4. Details of the composition of the
“Derivative financial instruments” balance and respective changes are to be found in note 17.
“Financial receivables” classified as “Financial assets” and amounting to €240,791 thousand at December
31, 2010 consist mainly of:
•
the loan of €143,103 thousand from WIND TELECOM SpA (formerly Weather Investments SpA)
as per the Intercompany Loan Agreement signed on November 29, 2010 following the exercising
of the options on the shares in Hellas Telecommunications I Sàrl. The agreement provides for a
single lump-sum repayment 37 months after November 30, 2010, with interest being capitalized
and charged at an annual Euribor+2.625% rate;
•
fees of €71,420 thousand (of which €11,394 thousand in current assets) recognized for hedging
derivatives arranged in the current and previous years, which are being amortized over the
terms of these instruments;
•
the residual value of the transaction costs for the unused portion of bank loans equal to €15,863
thousand (revolving tranches for which further details may be found in note 16), which are
charged to profit or loss on a straight-line basis over the term of the agreement.
An amount of €1,737 thousand was collected in November 2010 representing the interest accrued on the
sums at the time inappropriately paid to the Parent and the former Infostrada as Turnover Contribution
(Law no. 448/1998), for which a formal legal request for repayment has been made that was notified on
March 31, 2009. At December 31, 2010 the current financial receivable relating to the Turnover
Contribution was €3,430 thousand.
The following table sets out the due dates for financial receivables.
(thousands of euro)
Guarantee deposits
Receivables due from parents
Receivables due from related parties
Others
Total
<1 year
519
11
15,306
15,836
1<x<5 years
1,891
143,632
42,969
188,492
>5 years
3,543
32,920
36,463
Total
5,953
143,632
11
91,195
240,791
<1 year
549
16,708
17,257
1<x<5 years
4,015
4,015
>5 years
2,208
40,093
42,301
Total
6,772
56,801
63,573
111
8
DEFERRED TAX ASSETS AND LIABILITIES
The following tables provide the variation of “Deferred tax assets” and “Deferred tax liabilities” by origin
At December 31,
2009
Description
Tax losses carried forward
Provision for bad debts (taxed)
Provisions for risks (taxed)
Measurement of financial assets/liabilities
Amortization and depreciation of non-current assets
Deferred tax assets
Employee benefits
Accelerated depreciation and amortization
Property, plant, and equipment at fair value
Depreciation of PPA
Decrease
At December 31,
2010
Increase
38,333
38,333
-
-
104,108
15,136
18,412
107,384
53,680
18,737
15,136
50,079
1,523
1,523
-
-
64,348
27,977
-
36,371
231
24
16,424
16,631
262,223
101,730
49,972
210,465
1,366
552
-
814
15,580
-
-
15,580
101,044
7,328
-
93,716
704,180
22,198
-
681,982
822,170
30,078
-
792,092
The decrease in the deferred tax assets during the year is mainly due to the utilization of tax losses
carried forward against the IRES tax charge for year. For details please refer to note 36.
Deferred tax assets at December 31, 2010 and 2009 which relate to items recognized directly in other
components of profit or loss relate entirely to the transactions on derivatives hedging cash flows, as
described in further detail in note 14.
The table below provides an analysis of the deferred tax assets arising from the carryforward of tax
losses by year of expiry of the loss, together with changes for the year.
(thousands of euro)
Year
Valid until
1997-1999
unlimited
Total
Increase/ (decrease)
38,333
(38,333)
-
38,333
(38,333)
-
Deferred tax assets have been recognized by considering the probability of their utilization and the extent
to which the directors believe there is a reasonable certainty that sufficient profits will be generated in
future years against which the losses may be used within the time limits imposed by prevailing tax laws
and regulations.
In 2010, no deferred tax assets were recognized in respect of temporary differences carried forward
indefinitely totalling €116,397 thousand (€14,387 thousand at December 31, 2009), arising from nondeductible finance expenses within the limits imposed by law, due to the lack of reasonable certainty of
their recoverability. As such, even if transferred to the tax consolidation, consistently with the terms of
the agreement, no receivables due from the indirect parent WIND TELECOM SpA have been recognized.
In fact, on the basis of this agreement, if the excess interest expense is transferred to the national
112
consolidation, the transferring company obtains the right to remuneration corresponding to the
theoretical tax benefit transferred, only if, and to the extent to which, the company which has transferred
this excess interest expense transfers to the consolidation the excess gross operating profit (GOP) not
utilized in the tax period for the deduction of interest expense pursuant to article 96, paragraphs 1, 2 and
7 of the Consolidated Income Tax Law (TUIR).
9
INVENTORIES
The following table provides an analysis of “Inventories” at December 31, 2010 and 2009.
(thousands of euro)
Finished goods
Advances
Write-downs
Total
At December 31,
At December 31,
2010
2009
22,607
28,721
-
-
(840)
(599)
21,767
28,122
“Finished goods” consist principally of mobile phone handsets and the related accessories. The significant
change taking place during the year is essentially due to a fall in the value of inventory of mobile
telephone terminals, kits and related accessories, stocks consisting of products which are technologically
extremely advanced but do not have a very high unit value, ensuring an optimum level of rotation.
10
TRADE RECEIVABLES
The following table provides an analysis of “Trade receivables” at December 31, 2010 and 2009.
(thousands of euro)
Due from final customers
Due from telephone operators
Due from authorized dealers
Due from related parties
Other trade receivables
(Provision for bad debts)
Total
At December 31,
2010
At December 31,
2009
980,792
386,341
303,724
17,467
77,526
(386,380)
980,221
373,945
336,630
20,724
66,183
(376,392)
1,379,470
1,401,311
“Due from final customers” arise principally from the supply of fixed and mobile telephony services to
customers with subscription contracts, while “Due from telephone operators” mainly relate to
interconnection and roaming services. “Due from authorized dealers” relate to sales of radio mobile and
fixed-line handsets and related accessories, as well as rechargeable telephone cards and top-ups.
The balance of net trade receivables at December 31, 2010 has decreased by a total of €21,841
thousand over that at December 31, 2009. This is mostly due to the decrease in receivables from
113
authorized dealers (€32,906 thousand) as the consequence of the improvement in average collection
days.
The €9,988 thousand increase in the provision for bad debts has been affected by the increase in
receivables from customers, which is mainly connected with the rise in turnover.
The following table provides an analysis of trade receivables and the respective provision for bad debts
by due date at December 31, 2010 and 2009.
(thousands of euro)
- unexpired
Gross amount
(Provision)
Gross amount
(Provision)
1,013,197
(9,517)
876,957
(6,728)
- expired from:
- 0-30 days
- 31-120 days
- 121-150 days
- beyond 150 days
Total
120,316
(281)
137,740
(422)
90,608
(1,251)
181,219
(927)
21,871
(237)
33,115
(411)
519,858
(375,094)
548,672
(367,904)
1,765,850
(386,380)
1,777,703
(376,392)
The following table provides an analysis of trade receivables at December 31, 2010 and 2009, net of the
provision for bad debts, between those falling due within 12 months and those falling due after 12
months.
(thousands of euro)
At December 31,
-within 12 months
-after 12 months
Total
At December 31,
2010
2009
1,369,287
1,396,223
10,183
5,088
1,379,470
1,401,311
The following table sets out changes in the provision for bad debts during the year ended December 31,
2010.
(thousands of euro)
Provision for bad debts
At December 31,
2009
376,392
Increases
74,851
(Utilizations)
At December 31,
2010
(64,863)
386,380
In order to guarantee the obligations assumed by the Parent as a consequence of loans disbursed under
the Senior Facility Agreement on November 24, 2010, for which further details may be found in note 16,
and the obligations assumed by the subsidiary Wind Acquisition Finance SA (“WAF”), as a consequence of
the Senior Notes, expiring in 2017, issued on July 13, 2009 and the Senior Secured Notes, expiring in
2018, issued on November 26, 2010, the Parent established collateral by transferring trade receivables,
receivables from intercompany loans and receivables relating to insurance contracts, both present and
future, in favor of the lending banks and the other creditors specified in the supplemental deed related to
the respective collateral contract and in favor of the subscribers to the Senior Secured Notes.
114
11
CURRENT TAX ASSETS
The balance on this item of €11,877 thousand at December 31, 2010 (€10,217 thousand at December
31, 2009) mostly regards receivables for current tax assets arising from taxes paid in previous years.
Advance payments of IRAP tax made during the year are classified as a deduction from tax payables.
12
OTHER RECEIVABLES
The following table sets out details of “Other receivables” at December 31, 2010 and 2009.
(thousands of euro)
At December 31,
At December 31,
2010
2009
Trade prepayments
87,823
83,458
Other receivables due from third parties
29,531
33,408
Tax receivables
33,096
34,513
Advances to suppliers
30,284
32,611
Other receivables due from parents
10,964
14,020
240
1,808
Other receivables due from related parties
Other receivables due from associates
Total
12
11
(12,544)
(14,248)
179,406
185,581
The following table provides an analysis of “Other receivables” and the respective provision for bad debts
(thousands of euro)
- unexpired
Gross balance
(Provision)
Gross balance
(Provision)
167,552
(7,258)
175,071
(7,691)
- expired from:
- 0-30 days
1,314
-
6,960
-
- 31-120 days
945
-
3,347
-
- 121-150 days
368
-
249
-
21,771
(5,286)
14,202
(6,557)
191,950
(12,544)
199,829
(14,248)
- beyond 150 days
Total
The following table provides an analysis of other receivables at December 31, 2010 and 2009, net of the
months.
(thousands of euro)
-within 12 months
-after 12 months
Total
At December 31,
At December 31,
2010
2009
176,694
185,581
2,712
-
179,406
185,581
“Trade prepayments” relate mainly to lease installments for civil and technical sites and lease installments
for telephone network circuits.
115
The balance at December 31, 2009 of trade prepayments include the reclassification of €66,450 thousand
due to the different presentation of some customer acquisition costs under intangible assets, for which
further details may be found in note 2.1.
The following table provides an analysis of “Tax receivables” at December 31, 2010 and 2009.
(thousands of euro)
At December 31,
VAT
Other tax receivables
Total
At December 31,
2010
2009
30,806
29,914
2,290
4,599
33,096
34,513
The following table sets out changes in the provision for bad debts for other receivables for the year
ended December 31, 2010. This table refers solely to receivables which are due for payment after 12
months.
(thousands of euro)
13
14,248
Increases
(Utilizations)
-
(1,704)
12,544
CASH AND CASH EQUIVALENTS
The following table sets out an analysis of “Cash and cash equivalents” at December 31, 2010 and 2009.
(thousands of euro)
At December 31,
At December 31,
2010
2009
Bank deposits and checks
406,110
583,597
Cash on hand and stamps
37
93
406,147
583,690
Total
The level of cash and cash equivalents is the consequence of the surplus cash generated by operations.
Changes occurred mostly as the effect of cash flows arising from ordinary settlements of a financial
nature. Further details may be found in note 39 to the cash flow statement.
14
EQUITY
The following table provides details of the changes in “Equity” during the years ended December 31,
2010 and 2009.
116
Retained
earnings/(losses
carried forward)
Equity
attributable
to the
owners of
the parent
Noncontrolling
interests
1,185,160
4,280,679
1,087
Equity attributable to the owners of the parent
Issued
capital
Share
premium
reserve
Other
reserves
147,100
3,001,055
(52,636)
-
-
- Cash flow hedge
-
-
- Translation reserve
-
(thousands of euro)
Total
equity
4,281,766
308,263
308,263
364
308,627
(140,867)
-
(140,867)
-
(140,867)
(41)
-
(41)
-
(41)
- Allocation of 2008 profit
-
-
17,446
(17,446)
-
-
-
- Consolidation reserve
-
-
(38,596)
-
(38,596)
-
(38,596)
- Dividends paid
- (2,264,168)
- Other changes
-
147,100
-
-
(479,447) (2,743,615)
- (2,743,615)
13,249
(11,974)
1,275
-
1,275
736,887 (201,445)
984,556
1,667,098
1,451
1,668,549
- Loss for the year
-
-
-
(251,807)
(251,807)
10
(251,797)
- Cash flow hedge
-
-
112,416
-
112,416
-
112,416
(9,500)
- Dividends paid
-
-
-
(9,500)
(9,500)
-
- Other changes
-
15,000
(16,679)
968
(711)
(1,162)
(1,873)
751,887 (105,708)
724,217
1,517,496
299
1,517,795
147,100
The share capital of the parent WIND Telecomunicazioni SpA at December 31, 2010 consisted of
146,100,000 ordinary shares with no nominal value, fully subscribed and paid up by the sole shareholder
WIND Acquisition Holdings Finance SpA.
Despite the encumbrances on the pledged shares underlying the share capital of the Parent held by
WIND Acquisition Holdings Finance SpA, the voting rights at shareholders’ meetings of the Parent are
retained by WIND Acquisition Holdings Finance SpA by express contractual agreement as an exception to
the provisions of paragraph 1, article 2352 of the Italian Civil Code.
Changes in equity attributable to the owners of the Parent during the year ended December 31, 2010
were due mainly to:
¾
the resolution adopted on April 12, 2010 by the parent’s shareholders that approved the annual
financial statements as of and for the year ended December 31, 2009 allocating the profit for the
year of €263,279,546.37 to Retained earnings;
¾
the resolution adopted on November 24, 2010 by the Parent’s shareholders that approved the
distribution of a dividend of €9,500,000 to the parent WIND Acquisition Holdings Finance SpA;
¾
the resolution of the Board of Directors of the Parent, which at its meeting of December 15, 2010
approved the release of sums totaling €15,000 thousand included in the financial statements
under the item “Other reserves”, reclassifying them to the “Share premium reserve”. This reserve
had been created to put into practice the resolution adopted by the shareholders of the Parent in
an extraordinary general meeting held on June 23, 2005, in respect of its possible use as part of
117
the implementation of the Puglia Project, as this latter project was implemented and completed
without the allocation or utilization of such sums;
¾
the increase in the cash flow hedge reserve as the effect of the income and the expense
recognized among other components of the Consolidated Statement of Comprehensive Income
for 2010 that relate entirely to the transactions on hedging derivatives on cash flows, as
described in further detail in note 17. The following table shows the changes in the cash flow
hedge reserve.
Interst rate risk
(thousands of euro)
Foreign currency risk
Gross reserve
Tax effect
Total
Gross reserve
Tax effect
Total
Cash Flow Hedge
Reserve
(201,952)
55,537
(146,415)
(85,639)
23,550
(62,089)
(208,504)
(106,263)
29,221
(77,042)
245,920
(60,885)
185,035
107,993
122,359
(33,649)
88,710
(121,622)
37,335
(84,287)
4,423
(185,856)
51,109
(134,747)
38,659
0
38,659
(96,088)
Changes in fair value
Reversal to profit or loss
The loss for the year attributable to the owners of the parent totaled €251,807 thousand.
During the year, the stock option plan approved on June 30, 2006 by the Board of Directors of the
indirect parent WIND TELECOM SpA (formerly Weather Investments SpA) ended. The plan, with a total
duration of 5 years, awarded a number of Group employees the right to acquire a specified number of
ordinary shares of WIND Acquisition Holdings Finance SpA or WIND Telecomunicazioni SpA. The options
granted have a vesting period split into three tranches of equal value and may be exercised every year
from June 30, 2008 until June 30, 2010, subject to a public offering for sale and subscription and the
consequent listing of the shares of one of these companies on the electronic stock exchange organized
and managed by Borsa Italiana SpA or on a foreign stock exchange. The exercising of the options was
additionally subject to a number of restrictions on the duration of the employment relationship and to
achieving certain professional performance objectives.
The rights vest from the grant dated and were exercised for a one-year period in the following three
tranches: June 30, 2008, June 30, 2009 and June 30, 2010. A total of 1,376,160 options were granted at
the date the plan became effective, representing a total of approximately 3% of the economic capital of
WIND Telecomunicazioni SpA or, alternatively, WIND Acquisition Holdings Finance SpA, at a strike price
of €73.85.
As an alternative to the stock option plan the Group has defined the long-term incentive plan that
quantifies the benefits pertaining to each employee under a method aimed at remunerating the creation
118
of value during the period in which the stock option plan of the WIND Group is valid, which is
proportionally linked to growth as measurable in terms of EBITDA and reduction of debt.
With reference to the stock option plan, the first, the second and the third tranches of the alternative
long-term incentive plan were disbursed on June 30, 2008, June 30, 2009 and June 30, 2010,
respectively.
15
EARNINGS PER SHARE
The calculation of earnings per share is based on the profit attributable to the owners of the Parent;
profit refers to continuing operations and discontinued operations. Both basic and diluted earnings per
share have been calculated by using as a denominator the weighted average for the year of the number
of outstanding shares, since there were no diluting effects at December 31, 2010 or December 31, 2009.
The data underlying the calculation are as follows.
(thousands of euro)
At December 31,
Weighted average number of shares (units)
Earnings per share from continuing operations – basic and diluted (in Euro)
16
At December 31,
2010
2009
(251,797)
308,627
146,100,000
146,100,000
(1.72)
2.11
The following table sets out an analysis of “Financial liabilities” at December 31, 2010 and 2009.
(thousands of euro)
Non-current
Current
Total
Non-current
Current
Total
Bonds issues
5,315,107
166,777
5,481,884
3,862,788
156,586
4,019,374
Bank loans
3,299,470
107,857
3,407,327
4,806,043
9,673
4,815,716
238,928
66,529
305,457
-
9,678
9,678
34,234
-
34,234
414,603
101,507
516,110
8,887,739
341,163
9,228,902
9,083,434
277,444
9,360,878
Loans from others
Total financial liabilities
The change in the composition of the balances in financial liabilities results from the effect of the partial
refinancing operation which was completed on November 26, 2010 and which led to the following:
i)
the disbursement to the Parent of a new Senior Facility Agreement of €3,530 million;
ii) the issue of new Senior Secured Notes maturing in 2018 and having an amount of €1,716 million
and USD1,275 million (€964 million) (nominal value of €1,750 million and USD1,300 million,
respectively).
119
i)
the Parent’s Senior Credit Facility Agreement entered into on August 11, 2005 in the amount of
€3,756 million and USD149 million (€113 million);
ii) Second Lien Notes issued by the Luxembourg associate WIND Finance SL SA in the amount of
€552 million and USD180 million (€136 million);
iii) Senior Notes maturing in 2015 issued by the Luxembourg subsidiary Wind Acquisition Finance SA in
the amount of €950 million and USD650 million (€491 million).
As shown in the following table and as detailed further below, by carrying out the refinancing operation
the Group has changed the mix between bank debt and bond debt, enabling them to extend average
maturity of approximately two years and benefit from lower average finance expense.
The following table sets out an analysis of “Financial liabilities” at December, 2010 and 2009 by due date.
(thousands of euro)
1<x<5
years
>5 years
<1 year
Total
1<x<5
years
>5 years
<1 year
Total
Bonds issues
166,777
-
5,315,107
5,481,884
156,586
-
3,862,788
4,019,374
Bank loans
107,857
1,075,000
2,224,470
3,407,327
9,673
4,806,043
-
4,815,716
66,529
221,019
17,909
305,457
9,678
-
-
9,678
-
10,782
23,452
34,234
101,507
194,320
220,283
516,110
341,163
1,306,801
7,580,938
9,228,902
277,444
5,000,363
4,083,071
9,360,878
Loans from others
The following table provides an analysis of “Financial liabilities”, excluding derivative financial
instruments, by currency and effective interest rate.
(thousands of euro)
Euro
US dollars
Total
<5%
5%<x<7.5%
7.5%<x<10%
10%<x<12.5%
12.5%<x<15%
Total
168,340
3,511,497
1,762,808
-
1,252,653
6,695,298
-
-
959,329
-
1,540,041
2,499,370
168,340
3,511,497
2,722,137
-
2,792,694
9,194,668
The following table provides a comparison between the carrying amount and fair value of non-current
“Financial liabilities” at December 31, 2010 and 2009.
(thousands of euro)
Carrying amount
Fair value
Carrying amount
Fair value
Bonds issues
5,315,107
5,668,996
3,862,788
4,216,050
Bank loans
3,299,470
3,422,143
4,806,043
4,891,720
238,928
238,928
-
-
34,234
34,234
414,603
414,603
8,887,739
9,364,301
9,083,434
9,522,373
Loans from others
Total
The fair value is approximately the same as the carrying amount for current “Financial liabilities”.
Current “Financial liabilities” at December 31, 2010 consist exclusively of the portions of bank loans and
bonds described below, for which payment is due by the end of the following financial year, referring to
both principal and accrued interest.
120
An analysis of the derivative financial instruments balance and of the respective changes is found in note
17.
Bonds
The item “Bonds” increased principally as the result of the Group’s debt refinancing, which led on
November 26, 2010 to the early repayment of the 2015 Senior Notes by an amount of €950 million and
USD650 million and the issue of new Senior Secured Notes maturing in 2018 and divided into two
tranches of €1,750 million (having a coupon of 7.375%) and USD1,300 million (having a coupon of
7.25%), respectively.
Since the 2015 Senior Notes provide for early repayment options at determined prices, the operation led
to the payment of a premium for the repayment to bondholders of approximately €73 million.
The following table sets out the main information relating to outstanding “Bonds” at December 31, 2010
following the refinancing operation.
(thousands of euro)
Bonds
Carrying
amount at
December
31, 2010
Carrying
amount at
December 31,
2009
Nominal
amount
Issue
price
Currency
Due date
Interest rate
Price
2017 Senior Secured Notes €
1,252,653
1,257,931
1,250,000
96.3%
EUR 07/15/2017
11.75%
112.00%
2017 Senior Secured Notes $
1,540,041
1,435,145
1,496,782
97.5%
USD 07/15/2017
11.75%
112.00%
2018 Senior Secured Notes €
1,729,861
-
1,750,000
99.3%
EUR 02/15/2018
7.38%
101.25%
2018 Senior Secured Notes $
959,329
-
972,908
99.3%
USD 02/15/2018
7.25%
101.50%
5,481,884
2,693,076
5,469,690
Total
As required by the Group’s risk management policies, for which details may be found in note 2.5 in order
to fully eliminate any currency risks arising from issues denominated in US dollars, the Group has entered
into hedging arrangements based on cross currency swaps for a notional amount of €2,389,169
thousand, which at December 31, 2010 had a positive fair value of €77,376 thousand and a negative fair
value of €20,404 thousand.
Bank loans
The decrease in “Bank loans” is principally due to the effects of the Group’s debt refinancing, which led to
the early repayment on November 26, 2010, of the Credit Facility Agreement by an amount of €3,756
million and USD149 million (€113 million) and the Second Lien Subscription Agreement by an amount of
€552 million and USD180 million (€136 million), both entered into in 2005.
The following table sets out the main information relating to outstanding “Bank loans” at December 31,
2010 following the refinancing operation.
121
(thousands of euro)
Bank loans
Carrying
amount at
December 31,
2010
Nominal
amount at
December 31,
2010
Residual
Commitment
Currency
Due date
Interest rate
Senior Facility Agreement
- Tranche A1
160,222
166,118
166,118
EUR
11/26/2016
Euribor+4.00%
- Tranche A2
1,300,999
1,348,882
1,348,882
EUR
11/26/2016
Euribor+4.00%
- Tranche B1
1,285,973
1,333,882
1,333,882
EUR
11/26/2017
Euribor+4.25%
- Tranche B2
656,696
681,118
681,118
EUR
11/26/2017
Euribor+4.50%
-
-
400,000
EUR
11/26/2016
Euribor+4.00%
3,530,000
3,930,000
- Revolving
- Bank overdrafts
- Other accrued interest expense
Total
1,751
1,686
3,407,327
The new Senior Facility Agreement, disbursed on November 26, 2010 to the Parent WIND
Telecomunicazioni SpA and denominated exclusively in euros, is made up of various tranches, each
having its own specific repayment plan and interest rates which may be reviewed on the basis of the
trend of specific equity ratios.
Details and the main features of the tranches are as follows:
•
tranche A1 is repayable from May 26, 2011 to November 26, 2016. Interest is payable at Euribor plus
a spread of 400 basis points. The maximum amount of the facility of €166 million was fully in use at
December 31, 2010;
•
tranche A2 is repayable from May 26, 2011 to November 26, 2016. Interest is payable at Euribor plus
a spread of 400 basis points. The maximum amount of the facility of €1,349 million was fully in use
at December 31, 2010;
•
tranche B1 is repayable in a single lump sum on November 26, 2017. Interest is payable at Euribor
plus a spread of 425 basis points. The maximum amount of the facility of €1,334 million was fully in
use at December 31, 2010;
•
plus a spread of 450 basis points. The maximum amount of the facility of €681 million was fully in
•
a revolving tranche having final repayment on November 26, 2016. This may be used either as a
cash loan or a signature loan. If used as a cash loan interest is payable at Euribor plus a margin of
400 basis points and there is a non-use commission of 160 basis points. The maximum amount of the
facility, €400 million, is wholly unused and therefore fully available.
With the aim of reducing its bank loan exposure to fluctuations in interest rates and foreign exchange
rates, the Group has entered transactions which qualify as hedges for a notional amount of €3,330,000
thousand, whose fair value at December 31, 2010, including forward start transactions, is negative for
€11,526 thousand. The hedges extend to September 2016 and consist of plain vanilla interest rate swaps
and plain vanilla forward start interest rate swaps.
122
Loans from others
This item, having a balance of €305,457 thousand (€9,678 thousand at December 31, 2009), consists of
€295,778 thousand (of which €56,950 is the current portion) payable to banks against the deferred
repayment plan of the fair value of the derivative instruments hedging loans that were repaid with the
refinancing of the Group’s debt.
17
DERIVATIVE FINANCIAL INSTRUMENTS
The following table provides details of the outstanding derivative financial instruments at December 31,
2010 and 2009.
(thousands of euro)
Fair value (+)
Fair value (-)
Fair value (+)
Fair value (-)
77,376
20,404
113
276,565
2,304
13,830
-
239,545
79,680
34,234
113
516,110
- Exchange rate risk
- Interest rate risk
Total cash flow hedges
Put & call options
207,054
-
Total Fair value hedge
207,054
-
- Embedded derivatives on Senior Secured Notes
Total Non Hedge Accounting Derivatives
Total
92,895
-
179,323
92,895
-
179,323
172,575
34.234
386,490
516,110
The following table shows the detail of current and non-current derivative instruments.
(thousands of euro)
Fair Value (+)
Current
Fair Value (-)
Fair Value (+)
Fair Value (-)
101,507
-
-
207,167
Non-current
172,575
34,234
179,323
414,603
Totale derivati
179,575
34,234
386,490
516,110
The fair value of financial instruments listed on active markets was determined as the market quotation
at the reporting date. In the absence of an active market, fair value was determined by referring to
prices provided by external operators and using valuation models based mostly on objective financial
variables, as well as by taking into account, where possible, the prices used in recent transactions and
the quotations of similar financial instruments.
The following were outstanding at December 31, 2010:
•
cross currency swaps hedging the interest rate and currency risks relating to the tranches of bonds
denominated in US dollars, for which reference should be made to note 16, having a notional amount
of €2,389,169 thousand (€2,254,022 thousand at December 31, 2009) and having a positive fair
value of €77,376 thousand and a negative fair value of €20,404 thousand (negative fair value of
€276,565 thousand at December 31, 2009);
123
•
plain vanilla interest rate swaps and plain vanilla forward start interest rate swaps hedging the
interest rate risk of bank loans, having a notional amount of €3,330,000 thousand (€4,475,000
thousand at December 31, 2009) and a negative fair value of €13,830 thousand and a positive fair
value of €2,304 thousand (negative fair value of 239,545 at December 31, 2009);
•
embedded derivatives of €92,895 thousand (€179,323 thousand at December 31, 2009) relating to
the fair value of the early repayment options provided for on issue of the Senior Secured Notes
(€77,706 thousand and €15,189 thousand on the loans expiring in 2017 and 2018, respectively), for
which details may be found in note 16.
The change in the balance of derivative financial instruments compared with the previous year is mainly
due to the inclusion at December 31, 2009 of:
•
the fair value of the put option on the shares of Hellas Telecommunications I Sàrl by an amount
of €207,054 that was extinguished during the year through the partial exercising of the option on
June 30, 2010 and the exercising of the remaining portion on November 29, 2010 (details of this
matter may be found in note 4);
•
the fair value of the derivative financial instruments relating the loans repaid and closed as result
of the refinancing operation.
18
EMPLOYEE BENEFITS
The following table sets out the changes in “Employee benefits” at December 31, 2010.
(thousands of euro)
At December 31,
2009
Accrual
(Utilization)
Other changes
At December 31,
2010
62,014
20,994
(2,124)
(19,620)
61,264
Other changes during the year consist mostly of the transfer of the post-employment benefits accrued
during the year to supplementary pension funds or to the Treasury fund held by the Italian social security
organization INPS (€18,265 thousand).
The main actuarial assumptions underlying the calculation of the post-employment benefits are the
following.
Average inflation rate
Discount rate
Increase in wages and
salaries
Employee turnover rate
2.00%
4.3%
N/A
3.00%– 4.00%
The effects recognized in profit or loss are as follows.
(thousands of euro)
Current service costs
Finance expense
Total
Actual return on plan assets
At December 31,
At December 31,
2010
18,858
2,136
20,994
N/A
2009
24,365
(2,816)
21,549
N/A
124
19
PROVISIONS
The following table sets out changes in “Provisions” during the year ended December 31, 2010.
At December
31, 2009
Increases
(Decreases)
At December
31, 2010
Litigation
34,076
16,344
(13,895)
36,525
Restructuring
Universal service contribution as per Presidential Decree no. 318
of September 19, 1997
15,475
10,022
(13,482)
12,015
(thousands of euro)
57,406
527
-
57,933
Product assistance
2,399
1,947
(1,549)
2,797
Dismantling and removal
8,139
1
(419)
7,721
74,705
21,740
(31,295)
65,150
192,200
50,581
(60,640)
182,141
Other provisions
Total
Litigation
The provision at the respective dates is based on estimates using the best information available of the
total charge that the Group expects to incur upon settlement of all outstanding legal proceedings (for
details on the main proceedings in progress, please refers to paragraph on main pending legal
proceedings in note 40).
Restructuring
The provision consists of the costs which the Parent expects to incur in future years as a consequence of
implementing restructuring and reorganization plans resulting from the identification of areas of efficiency
in certain business areas initiated during the current and previous years. The utilization of the
restructuring provision in the amount of €13,482 thousand is entirely due to leaving incentives and
personnel outplacement costs.
Universal service contribution
Article 3, paragraph 6, of Presidential Decree no. 318 of September 19, 1997 regarding the
“Implementation of European Union Directives” establishes a mechanism designed to distribute the net
cost of providing universal service throughout the country whenever the related obligations represent an
unfair cost for the entity or entities assigned the responsibility for supplying the service. For the years
2004 to 2009, the contribution has been estimated on the basis of the best information available at the
date of the calculation, pending the determination by the Communications Regulator of the actual
amount to be paid by the Parent.
Other provisions
This item consists of the measurement of certain liabilities arising from obligations assumed by the Group
for which an estimate is made at the date of these financial statements of the amount to be settled upon
125
due date. The balance includes €24,534 thousand for liabilities for termination benefits arising from
agency contracts in existence at the reporting date and €16,843 thousand accrued in 2010 relating to
compensation plan for the long-term retention and incentive of management, for which further details
may be found in note 14. Changes in the year relate to the payment of the third tranche in July 2010 and
to the amounts accrued during the year that will be paid in the future.
20
OTHER LIABILITIES
“Other non-current liabilities” at December 31, 2010 and 2009 amount to €11,622 thousand and €6,700
thousand, respectively, and relate to deferred income on long-term commercial contracts.
21
TRADE PAYABLES
The following table provides details of “Trade payables” at December 31, 2010 and 2009.
(thousands of euro)
At December 31,
At December 31,
2010
2009
520,308
506,190
Due to agents
52,945
40,455
Due to authorized dealers
41,664
32,847
2,440
1,178
Due to telephone operators
Due to parents
Due to associates
Due to related companies
-
2
25,697
35,470
Construction contracts
Other trade payables
Total
-
10
1,130,033
1,175,616
1,773,087
1,791,768
The change in this item over the year is principally due to the effect of normal settlements during the
course of the year.
Payables to agents and authorized dealers have risen by €21,307 thousand as the result of an increase in
customer acquisition costs, details of which may be found in note 26.
Trade payables “due to parents” of €2,440 thousand are the consequence of the agreement between the
indirect
parent WIND TELECOM
SpA
(formerly
Weather
Investments
SpA)
and
the
WIND
Telecomunicazioni SpA relating to the provision of services for which further details may be found in note
37.
Trade payables “due to telephone operators” mainly relate to interconnection and roaming services.
Trade payables “due to related companies” mainly relate to transactions with telephone operators
belonging to the group for which further details may be found in note 37.
“Other trade payables” mainly relate to payables to suppliers for the purchase of goods and services.
The following table provides an analysis of trade payables by due date.
126
(thousands of euro)
-within 12 months
-after 12 months
Total
22
At December 31,
At December 31,
2010
2009
1,742,507
1,770,848
30,580
20,920
1,773,087
1,791,768
OTHER PAYABLES
The following table provides an analysis of “Other payables” at December 31, 2010 and 2009.
(thousands of euro)
At December 31,
At December 31,
2010
2009
Payables to social security organizations
35,274
34,674
Tax payables
34,667
37,056
Payables to personnel
58,180
59,386
24,721
24,499
85,238
82,487
Payables to government bodies:
- grants
Other amounts payable to parents
Other amounts payable to related companies
214
87
223,594
219,941
Deferred income
26,455
29,232
Other payables
29,165
56,570
517,508
543,932
Prepaid traffic to be used
Total
The following table provides an analysis by due date.
(thousands of euro)
-within 12 months
-after 12 months
Total
At December 31,
At December 31,
2010
2009
517,508
543,932
-
-
517,508
543,932
“Payables to social security organizations” relate principally to the employer’s and employees’ portions of
social security contributions for December and the employer’s portion accrued on deferred remuneration
(mostly accrued vacation and other permitted leaves that have been accrued but not yet taken). This
item also includes the amounts payable to the Italian social security organization INPS for the accrued
post-employment benefits (TFR) yet to be paid which employees had elected to transfer to the Treasury
fund in accordance with Law no. 296 of December 27, 2006, the “2007 Finance Act”, and subsequent
decrees and regulations.
The following table sets out details of “Tax payables” at December 31, 2010 and 2009.
(thousands of euro)
At December 31,
At December 31,
2010
2009
Government license fee
20,033
13,979
Withholding tax
10,836
11,973
3,000
10,423
VAT
Other
798
681
Total
34,667
37,056
127
“Payables to personnel” consist mostly of liabilities for accrued vacation and other accrued leaves still to
be taken at the end of the year.
“Payables to government bodies for grants” represent amounts due for licenses and concessions provided
by the relevant bodies.
Of “Other payables to parents”, €79,827 thousand refers to a payable to the indirect parent WIND
TELECOM SpA (formerly Weather Investments SpA) following the transfer of IRES tax payables by Group
companies as part of the national tax consolidation procedure and €4,099 thousand to a payable to the
direct parent WIND Acquisition Holdings Finance SpA following the resolution adopted by the
shareholders of the Group Parent, who in their general meeting of November 24, 2010 approved the
distribution of a dividend to the parent of €9,500 thousand, of which €5,401 thousand has been paid.
“Prepaid traffic to be used” consists of the unused portion of prepaid traffic, sold by the Parent via
rechargeable telephone cards and top-ups, which had not yet been utilized at the end of the year.
“Deferred income” refers to income for billings made contractually in advance in prior years and in 2010
for lease and installation fees relating to the utilization of broadband capacity (‘initial capacity’), which will
be recognized in later periods.
“Other payables” consist of amounts due to supplementary pension funds, amounts payable for bank
commissions and guarantee deposits received from customers.
23
TAX PAYABLES
The balances at December 31, 2010 and 2009 of €6,574 thousand and €14,694 thousand, respectively,
represent the amounts due by the parent for income tax for the year (IRAP), net of advance payments
for the corresponding tax periods.
Receivable and payable items for IRES are included in receivables and payables from and to the parent,
as Group companies have elected to take part in the national tax consolidation procedure of WIND
TELECOM SpA.
24
REVENUE
The following table provides an analysis of “Revenue” for 2010 and 2009.
(thousands of euro)
Change
2010
2009
12 months
12 months
Amount
%
144,208
129,654
14,554
11.2%
- Telephone services
4,199,393
3,991,152
208,241
5.2%
- Interconnection traffic
1,232,876
1,267,924
(35,048)
(2.8)%
- International roaming
52,632
68,269
(15,637)
(22.9)%
7,351
9,380
(2,029)
(21.6)%
24.1%
Revenue from sales
Revenue from services
- Judicial authority services
- Other revenue from services
134,456
108,339
26,117
Total revenue from services
5,626,708
5,445,064
181,644
3.3%
Total
5,770,916
5,574,718
196,198
3.5%
128
“Revenue” has increased by €196,198 thousand over the previous year.
In accordance with the National Numeration Plan, following the introduction in February 2010 of the
interoperability of series 4 numbers, the Group has recorded the traffic revenue towards customers of
other operators for whom the Company performs the role of Service Provider.
This positive trend was mainly driven by a €208,241 thousand increase in revenue from telephone
services which reached €4,199,393 thousand at December 31, 2010 (€3,991,152 thousand at December
31, 2009). This increase is essentially attributable to a rise in the mobile segment due also to the
increase in the customer base. In the fixed segment, there has been a rise in revenue from fixed charges
and contributions mainly in internet and data services as a consequence also of growth in the customer
base.
The revenue from sales increased by €14,554 thousand during the year 2010 (+11.2% over 2009) mainly
due to the increase in the sale of mobile handsets, also as the result of the good performance of the
WIND Retail Srl points of sales.
Other revenue from services increased by €26,117 thousand in 2010 mainly as the result of an increase
in sales of advertising space on the portal.
These changes are only partially offset by:
¾
the decrease of €35,048 thousand in revenue from “Interconnection traffic” (-2.8% over 2009)
mainly due to the combined effect of:
•
lower termination revenue from the mobile and fixed network caused by the reduction in unit
charges, which was only partially offset by an increase in incoming fixed and mobile voice traffic;
•
the decrease in interconnection revenue from narrowband internet traffic following a general shift
in the direction of broadband technology;
•
an increase in the traffic volume of SMS value added services.
¾ a decrease of €15,637 thousand in revenue from international roaming (-22.9% over 2009) mainly
due to the general reduction in roaming tariffs on international markets, which was not sufficiently
offset by the increase in the roaming volumes of the voice component.
25
OTHER REVENUE
“Other revenue” amounts in total to €126,898 thousand for 2010 (€151,655 thousand for 2009) and
refers principally to prior year income and the revision of estimates made in previous years.
The decrease in the item is mainly due to inclusion at December 31, 2009 of €30,000 thousand arising
from agreements reached for settlement agreements with some operators (€16,580 thousand for 2010)
and €10,215 thousand (€2,691 thousand for 2010) arising from the grant obtained from the Puglia
129
Region as part of the “Measures to support local growth” framework programme, regarding investments
made between 2004 and 2008, in which the Parent took part through the Elawind Consortium.
26
PURCHASES AND SERVICES
The following table provides an analysis of “Purchases and services” for 2010 and 2009.
(thousands of euro)
Customer acquisition costs
Lease of civil and technical sites
Purchases of raw materials, consumables, supplies and goods
Lease of telecommunication circuits
Outsourced services
Other services
Lease of local access network
Utilities
Consultancies and professional services
Change in inventories
Other leases and use of third party assets
Bank and postal charges
Transport and logistics
Total purchases and services
Change
2010
12 months
2009
12 months
Amount
%
1,286,425
253,961
242,413
183,135
95,390
181,500
142,015
101,301
350,232
122,740
74,727
31,473
51,141
6,356
20,696
19,546
16,460
1,292,987
224,773
239,627
194,231
90,758
174,478
134,563
104,254
314,457
118,997
71,198
27,879
42,004
(11,989)
21,221
18,585
14,231
(6,562)
29,188
2,786
(11,096)
4,632
7,022
7,452
(2,953)
35,775
3,743
3,529
3,594
9,137
18,345
(525)
961
2,229
(0.5)%
13.0%
1.2%
(5.7)%
5.1%
4.0%
5.5%
(2.8)%
11.4%
3.1%
5.0%
12.9%
21.8%
(153.0)%
(2.5)%
5.2%
15.7%
3,179,511
3,072,254
107,257
3.5%
Purchases and services increased by €107,257 thousand over 2009.
interoperability of series 4 numbers, the Group had recorded higher termination and content costs
against revenue from series 4 traffic towards customers of other operators for whom the Company
performs the role of Service Provider (note 24).
The change in the item is mainly due to the combined effect of the following increases and decreases
compared to 2009:
•
an increase of €37,775 thousand in “Lease of local access network” costs due to an increase in the
LLU and WLR customer bases also as the result of the migration of the VLLU customer base to the
•
an increase of €29,188 thousand in “Customer acquisition costs” principally due to the increase in
commissions resulting from the rise in activations and mobile traffic. The balance at December 31,
2009 includes the reclassifications of €78,202 thousand from this item to amortization of intangible
assets due to the different presentation of some customer acquisition costs, for which further details
may be found in note 2.1;
•
an increase of €9,137 thousand in “Consultancies and professional services” mainly due to the
increase in purchases of the external professional services. The item includes remuneration for
130
statutory auditors of Group companies, equal to €344 thousand, and the remuneration for the
external audit activities on financial statements, equal to €1,360 thousand (total compensation for
the audit to separate and consolidate financial statements at December 31, 2010 is equal to €499
thousand). As resolved by shareholders in their ordinary general meeting of April 12, 2010 the
Directors of the Parent receive no fees;
•
an increase of €7,452 thousand in “Outsourced services” mainly due to the rise in purchase volumes
of call center services, which is also the result of the increase in the customer base;
•
a net increase of €7,249 thousand in “Change in inventories” and “Purchases of raw materials,
consumables, supplies and goods” due to an increase in mobile phone handsets sell in and the need
for larger quantities to ensure stocks of the new stores acquired with WIND Retail;
•
an increase of €7,022 thousand in “Advertising and promotional services” due to higher costs of tv
advertising tools and productions;
•
a decrease of €6,562 thousand in “Interconnection traffic” costs. This is mainly due to the fall in
termination tariffs on the mobile network, the lower costs for internet collection due to the increase
in broadband traffic and the lower costs of voice collection due to the increase in the penetration of
direct technology, only partially offset by higher volumes of national termination to mobile and fixedline phones, higher international termination retail volumes and higher termination costs incurred
with other operators as the result of the introduction of the interoperability of series 4 numbers.
27
OTHER OPERATING COSTS
The following table provides an analysis of “Other operating costs” for 2010 and 2009.
(thousands of euro)
2010
2009
12 months
12 months
Amount
%
74,885
65,046
9,839
15.1%
(58.1)%
Impairment losses on trade receivables and current assets
Accruals for costs
Change
7,345
17,548
(10,203)
Annual license fees
25,737
23,004
2,733
11.9%
19,070
19,124
(54)
(0.3)%
Accruals for risks
16,344
16,464
(120)
(0.7)%
1,497
2,699
(1,202)
(44.5)%
144,878
143,885
993
0.7%
Gifts
Total other operating costs
The decrease shown is mostly due to lower accruals for costs mainly due of the revision to the estimated
amount due for the Universal Service contribution, only partially offset by the rise in impairment losses on
trade receivables as an effect of the increase in collection risk.
131
28
PERSONNEL EXPENSES
The following table provides an analysis of “Personnel expenses” for 2010 and 2009.
(thousands of euro)
2010
12 months
2009
12 months
305,557
85,554
24,286
19,079
(46,222)
289,316
83,421
21,772
18,397
(44,513)
16,241
2,133
2,514
682
(1,709)
5.6%
2.6%
11.5%
3.7%
3.8%
388,254
368,393
19,861
5.4%
Wages and salaries
Social security charges
Other personnel expenses
(Costs capitalized for internal works)
Total personal expenses
Change
Amount
%
The item increases by €19,861 thousand (+5.4%) over 2009 mainly due to the increase in Group
employees during the year (an increase of 182 units compared with December 31, 2009, mainly related
to the subsidiary WIND Retail Srl) and to the renewal of the National Collective Labour Contract signed
on October 23, 2009.
“Other personnel expenses” include mainly the provision for restructuring for €10,010 thousand, for
which further details may be found in note 19.
The number of employees at year end was as follows.
At December 31,
2010
At December 31,
2009
166
597
6,473
157
581
6,316
7,236
7,054
2010
12 months
2009
12 months
166
597
6,464
156
583
6,179
7,227
6,918
Senior management
Middle management
Employees
Total
The average number of employees during the year was as follows.
Senior management
Middle management
Employees
Total
29
DEPRECIATION AND AMORTIZATION
The following table provides an analysis of “Depreciation and amortization” for 2010 and 2009.
(thousands of euro)
Depreciation of property, plant and equipment
- Buildings
- Plant and machinery
- Industrial and commercial equipment
- Other assets
Amortization of intangible assets with finite lives
- Industrial patents and similar rights
- Licenses, trademarks and similar rights
- Other intangible assets
Total depreciation and amortization
Change
2010
12 months
2009
12 months
Amount
%
51
606,554
9,983
22,392
51
630,973
7,996
23,517
(24,419)
1,987
(1,125)
n.m.
(3.9)%
24.8%
(4.8)%
90,545
115,116
156,724
84,837
109,246
139,978
5,708
5,870
16,746
6.7%
5.4%
12.0%
1,001,365
996,598
4,767
0.5%
132
The 2009 balance of Amortization of Other intangible assets includes the reclassification of €78,202
thousand, originally recognized in Purchases and services, due to the different presentation of some
customer acquisition costs, for which details may be found in note 2.1.
The rise in the deprecation and amortization charge over 2009 is due to an increase in the amortization
of intangible assets (€28,324 thousand), essentially as the result of the increased investments in software
and the increase in the customer base, which, above all in the final quarter, led to a considerable rise in
customer acquisition costs, only partially offset by a decrease in the depreciation of property, plant and
equipment (€23,557 thousand) as a result of the completion of the deprecation period for equipment
acquired in previous years and the effect of the disposals of non-current assets.
30
REVERSAL OF IMPAIRMENT LOSSES / (IMPAIRMENT LOSSES) ON NON-CURRENT
ASSETS
The following table provides an analysis of “Reversal of impairment losses / (impairment losses) on non-
current assets” for 2010 and 2009.
(thousands of euro)
Reversal of impairment losses / (Impairment losses) on property, plant and equipment
Reversal of impairment losses / (Impairment losses) on intangible assets
Total
2010
2009
Change
12 months
12 months
Amount
%
(22,506)
2,927
(25,433)
n.m.
(813)
1,021
(1,834)
n.m.
(23,319)
3,948
(27,267)
n.m.
This item, having a negative balance of €23,319 thousand for 2010 (a positive balance of €3,948
thousand for 2009), consists mainly of the impairment losses recognised under plant and equipment and
relates to the following:
•
for €16,282 thousand to the impairment losses on radio bridges due to the equipment
modernisation plan;
•
for €2,107 thousand to the positive effect arising from the operation to replace certain
transmission equipment (of €20,703 thousand), net of impairment losses (of €18,596 thousand),
for which details may be found in note 5.
31
GAINS/(LOSSES) ON DISPOSAL OF NON-CURRENT ASSETS
The following table provides an analysis of “Gains/(losses) on disposal of non-current assets” for 2010
and 2009.
133
(thousands of euro)
2009
12 months
Amount
%
2,510
902
1,608
178.3%
(2,916)
(10,750)
7,834
(72.9)%
(406)
(9,848)
9,442
(95.9)%
Gains on disposal of property, plant and equipment
Losses on disposal of property, plant and equipment
Total
Change
2010
12 months
The change over the previous year is due to the lower losses recorded in 2010 on the disposal and/or
sale of property, plant and equipment as part of the normal renewal process for these assets.
32
FINANCE INCOME
The following table provides an analysis of “Finance income” for 2010 and 2009.
(thousands of euro)
Income on bank deposits
Change
2010
2009
12 months
12 months
Amount
%
2,885
5,578
(2,693)
(48.3)%
(91.5)%
Fair value measurement of derivatives
6,114
71,535
(65,421)
Other
1,514
11,230
(9,716)
(86.5)%
10,513
88,343
(77,830)
(88.1)%
Total finance income
The decrease in finance income is mainly due to the result of lower gains on the measurement of
derivatives at fair value (€58,270 thousand at December 31, 2009). In this respect at December 31, 2010
the item consists principally of income of €6,114 thousand arising from the measurement at fair value of
the put option on the shares held in Hellas Telecommunications I Sàrl until November 29, 2010, the date
on which the option was fully exercised (for further details reference is made to note 4).
The decrease in finance income is also due to the lower finance income accrued on the average stock of
cash, primarily due to the reduction in market rates and to the amount of €9,881 thousand included at
December 31, 2009 in Other finance income relating to interest accrued on the undue amounts paid by
the Parent and by the former Infostrada SpA as Turnover Contribution (Law no. 448/1998), for which a
refund has been requested through two notices to pay served on March 31, 2009.
33
FINANCE EXPENSE
The following table provides an analysis of “Finance expense” for 2010 and 2009.
(thousands of euro)
Finance expense on:
Bond issues
Bank loans
Discounted provisions
Cash flow hedges, reversed from equity
Other
Total finance expense
2010
12 months
2009
12 months
Change
Amount
(510,536)
(243,590)
(2,418)
(104,645)
(26,010)
(6,833)
(300,079)
(268,546)
(2,872)
(69,687)
(218)
(3,845)
(210,457)
24,956
454
(34,958)
(25,792)
(2,988)
70.1%
(9.3)%
(15.8)%
50.2%
n.m.
77.7%
(894,032)
(645,247)
(248,785)
38.6%
%
134
Finance expense increased by €248,785 thousand during 2010 as the result of an increase in bond
finance expense caused by the July 2009 and November 2010 issues, only partially offset by a decrease
in exposure to banks following the repayments made during the year on the previous loan and a change
in the bond/bank debt mix as the result of the Group refinancing operation. In this respect the following
table provides an analysis of finance expense on bonds and loans by interest and amortized cost charge
component.
(thousands of euro)
Bonds
Bank loans
12 months 2010
12 months 2009
interest
expense
amortized
cost charges
Total
interest
expense
amortized
cost charges
Total
(495,808)
(14,728)
(510,536)
(285,538)
(14,541)
(300,079)
(216,958)
(26,632)
(243,590)
(249,914)
(18,632)
(268,546)
(216,958)
(41,360)
(754,126)
(535,452)
(33,173)
(568,625)
The following effects should be added to the expense accruing on financial liabilities, as detailed in note
16:
•
hedge accounting for the portion of the cash flow hedge reserve reclassified to profit or loss
during the year following the use of derivative financial instruments, amounting to €104,645
thousand;
•
the measurement of the embedded derivatives in the early repayment options on the 2017
Senior Secured Notes, amounting to €26,010 thousand.
34
FOREIGN EXCHANGE GAINS/(LOSSES), NET
The following table provides an analysis of “Foreign exchange gains (losses) - net” for 2010 and 2009.
(thousands of euro)
Change
Amount
2010
12 months
2009
12 months
Realized gains
Unrealized gains
Foreign exchange gains
260,324
182,966
443,290
7,178
132,034
139,212
253,146
50,932
304,078
n.m.
38.6%
n.m.
Realized losses
Unrealized losses
Foreign exchange losses
Total
283,271
153,283
436,554
6,736
6,852
132,869
139,721
(509)
276,419
20,414
296,833
7,245
n.m.
15.4%
n.m.
n.m.
%
135
35
UNUSUAL FINANCE EXPENSE
The item of €386,326 recognized during the year refers to the refinancing operation completed on
November 26, 2010, following the transaction with VimpelCom Ltd. This refinancing led to the early
repayment of the Credit Facility Agreement, the Second Lien Subscription Agreement and the 2015 Senior
Notes. More specifically, these charges relate to the following:
•
for €153,724 thousand (of which €79,119 thousand on the bonds and €74,605 thousand on the
bank loans) to the residual balance of the fee paid on entering the arrangement/issue of the old
loans at the repayment date, forming part of the amortized cost of the same loans;
•
for €92,385 thousand to the repayment of the premium due to the subscribers of the 2015
Senior Notes and the payment of the fee for authorising the refinancing operation;
•
for €75,897 thousand to the write-off of the positive fair value of the embedded derivative in the
2015 Senior Notes;
•
for €64,320 thousand to the reclassification to profit or loss of the portion of the cash flow
hedge reserve relating to extinct derivative instruments which no longer met the conditions to
hedge future cash flows.
36
INCOME TAX
The following table provides an analysis of “Income tax” for 2010 and 2009.
(thousands of euro)
Current tax
Deferred tax
Total income tax
Change
Amount
2010
12 months
2009
12 months
(193,237)
44,468
(330,611)
57,308
137,374
(12,840)
(41.6)%
(22.4)%
(148,769)
(273,303)
124,534
(45.6)%
%
The net charge for the year is made up of the following:
•
current income taxes expense of €193,237 thousand (of which €123,150 thousand for IRES tax and
€70,087 thousand for IRAP tax) charged on the consolidated taxable income for 2010 in decrease
compared to 2009 due to the lower result before tax. It should be noted, however, that the overall
tax expense increased due to the higher interest payable, which is partially non-deductible, on the
€2.7 billion bond issue completed in July 2009 and on the Group refinancing operation completed on
November 26, 2010;
•
net deferred tax income of €44,468 thousand, arising from a decrease of €14,684 thousand in
deferred tax assets mainly relating to the changes in temporary differences arising from provisions
and financial instruments and from the release of deferred tax liabilities of €29,784 thousand, mainly
relating to the changes in temporary differences arising from non-current assets.
136
The following table provides a reconciliation between the theoretical tax rate and the effective tax rate
for 2010 and 2009.
(thousands of euro)
2010
Theoretical tax rate
Theoretical tax assets relating to IRES
Non-deductible costs/non-taxable revenue
Non-recognized deferred tax assets
Adjustments to previous years taxes
27.50%
(103,028)
2009
27.50%
581,930
(28,333)
132,075
(25,060)
78,682
Actual IRES tax (current and deferred)
Effective IRES tax rate
IRAP tax at Group level
Actual tax expense recognized in profit or loss
Overall tax rate
76.37%
160,031
31,202
(1,403)
10,861
200,691
34.49%
70,087
148,769
144.40%
72,612
273,303
46.96%
The above reconciliation between the theoretical and effective tax rates has been performed solely for
IRES tax (corporate income tax) purposes. The IRAP tax charge is included to reconcile with the overall
income tax expense in the financial statements.
37
Transactions with related parties
Transactions with the related parties described below consist of those with WIND TELECOM Group
(formerly Weather Group) companies.
Related party transactions are part of normal operations which are conducted on an arm's length basis
from an economic standpoint and formalized in agreements, and mainly relate to transactions with
telephone operators. In particular, the Parent has entered into an agreement with the parent WIND
TELECOM SpA (formerly Weather Investments SpA) under which the latter is entitled to receive an
annual fee of approximately €8 million plus ancillary expenses for providing services to the former (such
as those relating to IT, marketing, personnel, purchasing, etc.). In addition, as discussed in note 4, to
which reference is made for further details, the Parent has been assigned a put option versus its parent
WIND TELECOM SpA (formerly Weather Investments SpA), with a fair value of €207,054 thousand at
December 31, 2009. On June 30, 2010 the put option was partially exercised on 985 shares held in Hellas
Telecommunications I Sàrl for an amount of €70 million, and on November 29, 2010 the option was
exercised on the remaining 1,980 shares held in that company for consideration of €143 million.
Regarding the payment of the consideration by the parent, on November 29, 2010 the Parent and WIND
TELECOM SpA (formerly Weather Investments SpA) signed an intragroup loan agreement by virtue of
which the Parent granted the parent a loan of €143,103, for which details may be found in note 7.
137
At December 31, 2010 and during the year, the Group companies did not hold treasury shares of WIND
Telecomunicazioni SpA, either directly or through trustees, or shares of WIND Acquisition Holdings
Finance SpA or of the indirect parent WIND TELECOM SpA (formerly Weather Investments SpA) or
investments in the indirect parent Weather Investments II Sàrl.
The table below provides a summary of the main effects of related party transactions on the financial
position and result of operations of the year.
(thousands of euro)
2010
Revenue
Arpu for Telecommunication Services
Finance
Income Expenses
Trade
receivables
Other
receivables
Trade
payables
Other
payables
Acquisitions
of noncurrent
assets
-
-
700
-
-
-
-
1,176
1,658
319
-
806
-
-
-
687
443
-
292
-
-
Orascom Telecom Algeria
16,811
47,655
2,856
-
6,108
30
-
Orascom Telecom Tunisie SA
20,748
44,783
4,451
-
11,018
34
-
-
99
-
-
1,333
-
125
Egyptian Company for Mobile Services
Orascom Telecom Holding S,A,E,
Orascom Technology Solutions (OTS)
Orascom Telecom Service Europe
17
269
17
-
63
-
124
1
110
-
-
-
-
4
573
892
-
265
-
-
20
-14
54
-
1
12
-
Mobinil for Telecommunication S,A,E,
-
-
4
-
-
-
-
Trans World Associates (Private) Ltd,
-
645
-
230
-
-
-
322
-
-
-
-
-
-
-
-
89
-
43
-
-
14,602
4,555
-
-
-
-
-
Telecel Centrafrique S,A,
469
79
625
-
79
-
-
U-Com Burundi S,A, (Telecel Burundi)
833
1,539
429
-
817
5
-
2,135
5,063
426
-
945
2
-
-
-
-
-
5
-
-
314
-
315
-
1
-
6,896
1,835
3,543
-
727
-
-
-
-
10
-
-
-
5,431
7,399
2,200
-
3,069
-
-
-
-
-
-
125
-
-
Pakistan Mobile Communications Ltd, (Mobilink)
Mobizone
Orascom Telecom Bangladesh Ltd, (Banglalink)
Med Cable Ltd
Consortium Algerien de Telecommunication
Global Entity for Telecom Trade
Telecel Zimbabwe
Globalive Wireless Management
Wind Mobile Canada
Link Direct International Limited
Rain Srl
Wind Hellas Telecommunications SA
-6
Weather Capital Sàrl
-
128
-
-
-
128
WIND Acquisition Holdings Finance SpA
-
-25
-
1,195
274
4,099
-
WIND TELECOM SpA*
50
529
7,579
-
9,831
2,166
81,139
-
Wind Acquisition Holdings Finance SA
-
-
-
-
-
-
23
-
-
-
-
-
1
-
-
-
Elawind Consortium
-
-
-
-
11
-
-
-
69,953
529
124,508
17,467
11,278
28,137
85,472
125
Total
* payables to WIND TELECOM SpA relate for €79,827 to the transfer, by the parent and the subsidiaries IT.Net and WIS, of their corporate income
tax (IRES) payables following the choice of taking part in the national tax consolidation procedure with WIND TELECOM SpA.
Directors
The directors of the Parent, who are identified as key management personnel, receive no fees, as
resolved by shareholders in their ordinary general meeting of April 12, 2010.
There were no transactions with directors in 2010.
138
38
NET FINANCIAL DEBT
The following statement shows the Group’s net financial debt broken down into its principal components,
as already described in notes 7, 16 and 17 to the financial components of the statement of financial
position.
At December 31,
At December 31,
2010
2009
Bonds issues
5,315,107
3,862,788
Bank loans
3,299,470
4,806,043
238,928
-
(Amounts in thousands of euros)
34,234
414,603
8,887,739
9,083,434
Bonds issues
166,777
156,586
Bank loans
107,857
9,673
66,529
9,678
Loans from others
-
101,507
341,163
277,444
TOTAL GROSS FINANCIAL DEBT
9,228,902
9,360,878
(406,147)
(583,690)
-
(113)
(15,306)
(16,708)
(15,306)
(16,821)
TOTAL CURRENT FINANCIAL ASSETS
(421,453)
(600,511)
NET FINANCIAL DEBT
8,807,449
8,760,367
(172,575)
(179,323)
(219,521)
(40,093)
(392,096)
(219,416)
NET FINANCIAL DEBT
8,415,353
8,540,951
The net financial debt at December 31, 2010 does not include guarantee deposits of €5,953 thousand.
39
CASH FLOW STATEMENT
Cash flows from operating activities, amounting to €1,122,790 thousand, decreased by €527,880
thousand over the previous year, mostly as an effect of the higher finance expense incurred during the
year due to the issue oF July 2009, and the refinancing operation of November 2010.
Investing activities used cash during 2010 of a total of €961,349 thousand, representing a decrease of
€121,761 thousand over 2009. Investments in 2009 included the purchase of a license for the use of a
139
further 5 MHz in the 2100 MHz band for €88,781 thousand and €53,493 thousand for the acquisition of
M-Link Sàrl and €30,893 thousand for the purchase of Phone Srl.
During 2010, financing activities used cash of €338,984 thousand as the net effect of the following
transactions:
•
early repayment of €363 million, made by the Parent on January 12, 2010 (€336 million) and on
August 9, 2010 (€27 million), attributable to the Credit Facility Agreement;
•
early repayments following the partial debt refinancing operation which was completed on
November 26, 2010, as follows:
o
€3,869 million related to the closure of the Parent’s Credit Facility Agreement;
o
€688 million related to the closure of the Luxembourg associate WIND Finance SL SA’s
Second Lien Subscription Agreement;
o
€1,441 million related to the closure of the 2015 Senior Notes issued by the Luxembourg
subsidiary Wind Acquisition Finance SA;
•
SpA, to pay the consent fees for the issue of the new bond, issued under the Pik Proceeds Loan
Agreement by the Luxembourg associate WIND Acquisition Holdings Finance SA on December
15, 2009;
•
the issue of new Senior Secured Notes maturing in 2018 and having an amount of €2,734 million
(nominal amount of €1,750 million and USD1,300 million);
40
•
the entering into a new bank loan (Senior Facility Agreement) of €3,530 million;
•
payment of €237 million of fees connected with the issue of new loans and bonds.
OTHER INFORMATION
Main pending legal proceedings
negative outcome is not considered probable.
certain indemnities provided for Italian legislation; these include the termination indemnity, the collection
140
indemnity, the indemnity in lieu of notice and the indemnities pursuant to article 1751 of the Italian Civil
Code.
WIND/ITALGO SPA
IOL/RTI
WIND/Crest One SpA
141
insolvency procedure declared by one of (Eutelia SpA) on its insolvency procedure. The next hearing for
the discussion before the State Council will take place on March, 15, 2011, where the parties will discuss
the case.. We are currently awaiting the definitive sentence.
Contingent assets and liabilities
The WIND Group had the following contingent liabilities at December 31, 2010.
142
The Parent has filed a tax settlement proposal in this respect within the terms of law. An unsuccessful
authorities.
December 31, 2010.
base radio stations. These are mainly the result of current concerns about electromagnetic radiation. The
Terna/Enel.Net/WIND
Telat, alleging the breach by Enel.Net under article 1453 of the Italian Civil Code, relating of contractual
losses to be incurred by the Group, while considered possible, are unable to be determined.
The WIND Group had the following contingent assets at December 31, 2010.
former Infostrada), claiming for payment of the interest on the amounts paid as turnover contribution,
143
Guarantees
No Group company has pledged any guarantees, either directly or indirectly, in favor of parents or
companies controlled by the latter.
The collateral pledged by Group companies at December 31, 2010 as a guarantee for liabilities may be
summarized as follows:
¾
a special lien pursuant to article 46 of the Consolidated Banking Law on certain assets, present and
future, belonging to the Parent as specified in the relevant deed, in favor of the banking syndicate
party to the Senior Facility Agreement and other creditors specified in the relevant deed;
¾
a lien exists on the Parent’s trademarks and intellectual property rights, as specified in the relevant
deed, pledged in favor of the banking syndicate party to the Senior Facility Agreement and other
creditors specified in the relevant deed;
¾
a lien exists on 640,000 shares corresponding to the entire share capital held by the Parent in WIND
International Services SpA, pledged in favor of the banking syndicate party to the Senior Facility
Agreement and the subscribers to the Senior Notes, expiring in 2017, issued by WIND Acquisition
Finance SA on July 13, 2009 and the Senior Secured Notes, expiring in 2018, issued by Wind
Acquisition Finance SA on November 26, 2010.
Despite the encumbrances on the pledged shares, the voting rights at shareholders’ meetings of the
companies are retained by the Group by express contractual agreement as an exception to the provisions
of paragraph 1, article 2352 of the Italian Civil Code.
Finally, in order to provide a guarantee for its obligations, the Parent has pledged as security its trade
receivables, receivables arising from intercompany loans and receivables relating to insurance policies,
present and future, as described in the specific instrument, to the banking syndicate in accordance with
the Senior Facility Agreement and the other lending parties specified in the supplemental deed related to
the respective contract as a guarantee for and in favor of the subscribers to the Senior Notes, expiring in
2017, issued on July 13, 2009 by Wind Acquisition Finance SA and in favor of the subscribers to the
Senior Secured Notes, expiring in 2018, issued on November 26, 2010 by Wind Acquisition Finance SA..
Moreover, the Parent has pledged as security its receivables arising from the Put and Call option dated
May 26, 2005 as described in the relevant deed, to the banking syndicate in the Senior Facility
Agreement and the other lending parties specified therein as a guarantee for and in favor of the
144
subscribers to the Senior Secured Notes expiring in 2017 issued by Wind Acquisition Finance SA on July
13, 2009 and the Senior Secured Notes expiring in 2018 issued by Wind Acquisition Finance SA on
November 26, 2010.
A description is provided below of personal guarantees (sureties) issued mainly by banks and insurance
companies on behalf of the Group and in favor of third parties in respect of commitments of various
kinds. The total of these, amounting to €129,216 thousand at December 31, 2010 includes:
•
sureties totaling €66,517 thousand issued by insurance companies, of which €44,111 thousand in
favor of the Rome Tax Revenue Office as security against the Group’s excess VAT receivable which
was offset in 2008 (for €29,652 thousand) and in 2009 (for €14,459 thousand) as part of the special
procedure envisaged by Presidential Decree no. 633 of October 26, 1972 and subsequent
amendments;
•
sureties totaling €62,699 thousand issued by banks, relating to sponsorships, participation in tenders,
property leases, operations regarding prize competitions, events and excavation licenses.
The Parent has been under the management and coordination of WIND TELECOM SpA (formerly Weather
Investments SpA) since July 2007.
41
SUBSEQUENT EVENTS
On March 17, 2011, the majority of the shareholders of VimpelCom Ltd at their Extraordinary General
Meeting approved the issue of up to 325,639,827 ordinary shares and 305,000,000 convertible privileged
shares and the increase in VimpelCom Ltd’s authorized share capital needed to complete the merger
between VimpelCom Ltd and WIND TELECOM SpA.
As defined by the agreement, same Group’s assets should be returned to Weather Investments II Sàrl as
In particular for the Wind Group these are the assets relating to "Libero" web portal, the subsidiaries
submarine cable between Italy and Greece.
145
Separate financial statements as of and for the
year ended December 31, 2010
FINANCIAL STATEMENTS AND NOTES THERETO
CONTENTS
STATEMENT OF FINANCIAL POSITION....................................................................................... 149
INCOME STATEMENT ............................................................................................................... 150
STATEMENT OF COMPREHENSIVE INCOME ................................................................................ 151
CASH FLOW STATEMENT .......................................................................................................... 152
STATEMENT OF CHANGES IN EQUITY........................................................................................ 153
NOTES TO THE SEPARATE FINANCIAL STATEMENTS OF THE WIND TELECOMUNICAZIONI SpA AS OF
AND FOR THE YEAR ENDED DECEMBER 31, 2010 ........................................................... 154
1
INTRODUCTION ........................................................................................................... 154
2
GENERAL ACCOUNTING POLICIES ................................................................................. 155
3
ACQUISITIONS AND DISPOSALS.................................................................................... 176
4
PROPERTY, PLANT AND EQUIPMENT ............................................................................. 179
5
INTANGIBLE ASSETS .................................................................................................... 181
6
FINANCIAL ASSETS ...................................................................................................... 183
7
DEFERRED TAX ASSETS AND LIABILITIES ...................................................................... 186
8
INVENTORIES .............................................................................................................. 188
9
TRADE RECEIVABLES.................................................................................................... 188
10
CURRENT TAX ASSETS.................................................................................................. 190
11
OTHER RECEIVABLES ................................................................................................... 190
12
CASH AND CASH EQUIVALENTS .................................................................................... 191
13
EQUITY ....................................................................................................................... 192
14
FINANCIAL LIABILITIES ................................................................................................ 195
15
DERIVATIVE FINANCIAL INSTRUMENTS ......................................................................... 199
16
EMPLOYEE BENEFITS ................................................................................................... 200
17
PROVISIONS ................................................................................................................ 201
18
OTHER LIABILITIES ...................................................................................................... 202
19
TRADE PAYABLES ......................................................................................................... 202
20
OTHER PAYABLES ........................................................................................................ 203
21
TAX PAYABLES ............................................................................................................. 204
22
REVENUE ..................................................................................................................... 205
23
OTHER REVENUE ......................................................................................................... 206
24
PURCHASES AND SERVICES .......................................................................................... 206
25
OTHER OPERATING COSTS ........................................................................................... 208
26
PERSONNEL EXPENSES ................................................................................................. 208
27
DEPRECIATION AND AMORTIZATION ............................................................................ 209
Separate financial statements
147
28
REVERSAL OF IMPAIRMENT LOSSES (IMPAIRMENT LOSSES) ON NON-CURRENT ASSETS .. 210
29
GAINS/(LOSSES) ON DISPOSAL OF NON-CURRENT ASSETS ............................................. 210
30
FINANCE INCOME ........................................................................................................ 210
31
FINANCE EXPENSE ....................................................................................................... 211
32
FOREIGN EXCHANGE GAINS/(LOSSES), NET ................................................................... 212
33
UNUSUAL FINANCE EXPENSE ........................................................................................ 212
34
INCOME TAX ................................................................................................................ 213
35
RELATED PARTY TRANSACTIONS .................................................................................. 214
36
NET FINANCIAL DEBT ................................................................................................... 215
37
CASH FLOW STATEMENT .............................................................................................. 216
38
OTHER INFORMATION .................................................................................................. 217
39
SUBSEQUENT EVENTS .................................................................................................. 223
148
STATEMENT OF FINANCIAL POSITION
(thousands of euro)
Note
At December 31,
At December 31,
2010
2009
ASSETS
4
3,455,109
3,396,515
Intangible assets
5
7,963,945
8,072,927
Financial assets
6
426,251
670,526
Deferred tax assets
7
210,419
274,825
12,055,724
12,414,793
Inventories
8
16,801
22,271
Trade receivables
9
1,275,469
1,315,737
Financial assets
6
6,206
226,074
Current tax assets
10
8,022
7,285
Other receivables
11
175,104
194,328
12
139,441
512,388
1,621,043
2,278,083
13,676,767
14,692,876
Issued capital
147,100
147,100
Share premium
752,157
737,157
(105,327)
(164,084)
TOTAL ASSETS
Equity and Liabilities
Equity
13
Reserves
Retained earnings
Total equity
702,835
776,707
1,496,765
1,496,880
9,514,810
Liabilities
14
8,734,310
Employee benefits
16
59,680
60,311
Provisions
17
181,961
190,782
18
11,622
4,050
7
791,984
706,010
9,779,557
10,475,963
14
264,151
568,359
Trade payables
19
1,640,794
1,699,100
Other payables
20
495,500
444,677
Tax payables
21
-
7,897
2,400,445
2,720,033
Total liabilities
12,180,002
13,195,996
13,676,767
14,692,876
149
INCOME STATEMENT
(thousands of euro)
Note
2010
2009
12 months
12 months
5,281,489
Revenue
22
5,421,992
Other revenue
23
132,465
164,719
5,554,457
5,446,208
Total revenue
24
(2,905,879)
(2,865,066)
25
(143,321)
(140,352)
Personnel expenses
reversal of impairment losses/impairment losses on
non-current assets and gains/losses on disposal of
non-current assets
26
(357,046)
(348,012)
2,148,211
2,092,778
27
(997,431)
(988,177)
28
(22,387)
3,948
Gains/(losses) on disposal of non-current assets
29
(406)
(9,901)
1,127,987
1,098,648
Operating income
Finance income
30
10,460
88,223
Finance expense
31
(895,172)
(691,780)
Foreign exchange gains/(losses), net
32
2,240
68
33
(366,672)
-
(121,157)
495,159
(134,746)
(231,879)
(255,903)
263,280
-
-
(255,903))
263,280
Income tax
34
Losses from discontinued operations
-
150
STATEMENT OF COMPREHENSIVE INCOME
(thousands of euro)
Note
Other comprehensive income
Cash flow hedges
Income tax relating to components of other comprehensive income
Other comprehensive income for the year, net of tax
13
13
2010
2009
12 months
12 months
(255,903)
263,280
140,394
(194,300)
(27,978)
53,433
112,416
(140,867)
(143,487)
122,413
151
CASH FLOW STATEMENT
(thousands of euro)
2010
2009
12 months
12 months
(255,903)
263,280
1,019,812
985,916
(10,625)
23,432
Cash flows from operating activities
Adjustments to reconcile the profit/(loss) for the year with the cash flows from/ (used in)
operating activities
Depreciation, amortization and (reversal of impairment losses)/impairment losses on non-current assets
406
9,901
159,354
160,640
123,943
124,181
1,036,987
1,567,350
(690,728)
(675,722)
Cash flows from investing activities
(5,034)
2,084
(255,099)
(308,825)
(61,596)
(90,926)
(1,012,457)
(1,073,389)
(429,602)
2,326,095
Cash flows from financing activities
Proceeds from loans and banks' facilities
Changes in current accounts with subsidiaries
37,526
69,005
Dividends paid
(5,401)
(2,743,616)
(397,477)
(348,516)
(372,947)
145,445
512,388
366,943
139,441
512,388
ADDITIONAL INFORMATION ON THE CASH FLOW STATEMENT
(thousands of euro)
Income tax paid
2010
2009
12 months
12 months
(75,345)
(67,742)
Interest paid on loans/bonds
(840,790)
(476,896)
Interest paid on hedging derivative instruments
(489,586)
(149,615)
338,598
138,293
Interest received on hedging derivative instruments
152
STATEMENT OF CHANGES IN EQUITY
Equity
(thousands of euro)
Share
premium
reserve
Issued
capital
Other reserves
Retained
earnings/(losses
carried forward)
(52,637)
1,022,295
Equity
147,100
3,001,325
4,118,083
-
-
-
263,280
263,280
- Cash flow hedges
-
-
(140,867)
-
(140,867)
- Allocation of loss
-
-
17,446
(17,446)
-
- Dividends paid
-
(2,264,168)
-
(479,448)
(2,743,616)
- Other changes
-
-
11,974
(11,974)
-
147,100
737,157
(164,084)
776,707
1,496,880
- Loss for the year
-
-
-
(255,903)
(255,903)
- Cash flow hedges
-
-
73,757
-
73,757
- Merger of Enel Net Srl and Italia OnLine Srl
-
-
-
191,531
191,531
- Dividends paid
-
-
-
(9,500)
(9,500)
- Other changes
-
15,000
(15,000)
-
-
147,100
752,157
(105,327)
702,835
1,496,765
153
NOTES TO THE SEPARATE FINANCIAL STATEMENTS OF THE WIND TELECOMUNICAZIONI
SpA AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2010
1
INTRODUCTION
WIND Telecomunicazioni SpA (“WIND” or the “Company”) is a joint stock company having its registered
office in Via Cesare Giulio Viola, 48, Rome (Italy), and is controlled by WIND TELECOM SpA (formerly
Weather Investments SpA) through WIND Acquisition Holdings Finance SpA which wholly owns WIND
Telecomunicazioni SpA.
WIND Telecomunicazioni SpA operates primarily in Italy in the fixed and mobile telecommunications
sector under the “Infostrada” and “WIND” brands and in the Internet services sector under the “Libero”
brand. These separate financial statements are the first document prepared following the merger of the
subsidiaries Italia Online Srl and Enel Net Srl into the Company. The transaction was completed on
November 12, 2010, with the signing of the merger agreement. The operation has effect from November
12, 2010. For fiscal and accounting purposes, the merger has effect from January 1, 2010.
In this respect, taking also into account of the contribution of the “International & national wholesale”
business line to the subsidiary WIND International Services SpA made on April 1, 2009 (for which further
details may be found in the separate financial statements as of and for the year ended December 31,
2009), the amounts in the 2010 statement of financial position, income statement and statement of
comprehensive income are therefore not directly comparable with those in the corresponding 2009
statements.
On October 4, 2010 the indirect parent Weather Investments II Sàrl and VimpelCom Ltd signed a
the sixth largest mobile phone operator in the world by number of customers.
No final agreement had yet been signed at the date of these separate financial statements, as subject to
the fulfillment of a series of conditions necessary for the closing of the transaction.
In this respect, on March 17, 2011 the majority of the Shareholders of VimpelCom Ltd at their Special
General Meeting approved the issue of up to 325,639,827 ordinary shares and 305,000,000 convertible
priviliged shares and the increase in VimpelCom Ltd’s authorized share capital needed to complete the
merger between VimpelCom Ltd and WIND TELECOM SpA.
As defined by the agreement, same Company’s assets should be returned to Weather Investments II Sàrl
as part of the agreed fee for the sale. In particular, for the Company these are the assets relating to web
portal "Libero", the subsidiaries WIND International Services SpA and ItNet Srl and the business line
referring to the operation of the submarine cable between Italy and Greece. In base on the information
currently available, the Directors estimate that the relating assets included in the separate financial
statements at December 31, 2010 are recoverable.
154
In November 2010, the Company completed an important refinancing operation in connection with the
transaction with VimpelCom Ltd, which led to the following:
•
•
i) the disbursement of a new Senior Facility Agreement for an amount of €3,530 million;
ii) the disbursement of a new loan taken out with the Luxembourg registered subsidiary Wind
Acquisition Finance SA, maturing 2018 by an amount of €2,711 million;
•
i) the Company’s bank loans (“Credit Facility Agreement” entered into on August 11, 2005) in the
amount of €3,756 million and of USD149 million;
•
ii) Second Lien Proceeds Loan Agreement issued by the Luxembourg associate WIND Finance SL
SA in the amount of €552 million and of USD180 million;
•
iii) the Senior Notes Proceeds Loan Agreement maturing 2015 issued by the Luxembourg subsidiary
Wind Acquisition Finance SA in the amount of €950 million and of USD650 million.
The completion of the refinancing operation enabled the Company to extend the average maturity of
approximately two years and benefit from lower average finance expense.
The Company closed 2010 with a loss before tax of €121,157 thousand (a profit before tax of €495,159
thousand in 2009) and a loss for the year of €255,903 thousand (a profit of €263,280 thousand in 2009).
The result was adversely affected by the unusual finance expense (€366,672 thousand) incurred in
connection with the repayment of these loans and the higher interest payable due to the increase in the
financial payable due to the subsidiary Wind Acquisition Finance SA following the issue of the bond of
€2.7 billion finalized in July 2009, both of which are partially non-deductible, within the limits imposed by
current tax legislation.
The Company will continue developing its commercial activities throughout 2011 in both the fixed
telephony and internet segment and the mobile segment, pursuing the business opportunities arising
from new technologies meeting the emerging demands of its various customer segments. The 2011
investment program to support planned growth is at least in line with that implemented in 2010.
The Company’s business plan confirms that the economic and financial balance will be maintained, that
profitability will increase in the medium term and that the carrying amounts of recognized non-current
assets at December 31, 2010 will be recovered.
2
GENERAL ACCOUNTING POLICIES
2.1
Basis of preparation
These separate financial statements of WIND Telecomunicazioni SpA at December 31, 2010 have been
prepared on a going concern basis and in accordance with the IFRS endorsed by the European Union.
155
The term IFRS includes all International Financial Reporting Standards (IFRSs), all International
Accounting Standards (IASs), all interpretations of the International Financial Reporting Interpretations
Committee (IFRIC) and all interpretations of the Standing Interpretations Committee (SIC) endorsed by
the European Union and contained in published EU Regulations.
During the year no exceptional events occurred such as to require the waivers provided by IAS 1.
These separate financial statements are expressed in euro, the currency of the economy in which the
Company operates. Unless otherwise stated, all amounts shown in the tables and in these notes are
expressed in thousands of euro.
For presentation purposes, the current/non-current distinction has been used for the statement of
financial position, while expenses are analyzed in the income statement using a classification based on
their nature. The indirect method has been selected to present the cash flow statement.
For the purposes of comparison, balances in the statement of financial position and income statement
and the detailed tables in the notes have been reclassified where necessary. These reclassifications
however do not affect the Company’s loss for the year or equity.
During 2010 in order to follow sector practice more closely the directors have changed the presentation
of costs incurred for the acquisition of customers (mainly relating to commissions paid to the sales
network) capitalizing them as intangible assets, when the IFRS requirements for recognition as noncurrent assets are met, amortizing them over the minimum contractual term. In prior years these costs
were deferred over the minimum contractual term and presented as “Other receivables” in current assets,
so this change in presentation has had no effect on the opening equity or the profit or loss for prior
years. The effects relating to this different presentation may be found in notes 5, 11, 24 and 27.
These separate financial statements were approved by the Company’s Board of Directors on March 22,
2011.
2.2
Summary of main accounting policies
The principal accounting policies adopted in preparing these separate financial statements are set out
below.

Property, plant and equipment are stated at purchase cost or production cost, net of accumulated
depreciation and any impairment losses. Cost includes expenditure directly attributable to bringing the
asset to the location and condition necessary for use and any dismantling and removal costs which may
be incurred as a result of contractual obligations which require the asset to be returned to its original
state and condition. Borrowing costs directly associated with the purchase or construction of property,
plant and equipment are recognized directly in profit or loss.
156
Costs incurred for ordinary and cyclical repairs and maintenance are taken directly to the profit or loss in
the period in which they are incurred. Costs incurred for the expansion, modernization or improvement of
the structural elements of owned or leased assets are capitalized to the extent that they have the
requisites to be separately identified as an asset or part of an asset, in accordance with the “component
approach”. Under this approach each asset is treated separately if it has an autonomously determinable
useful life and carrying amount. Depreciation is charged systematically on a straight-line-basis from the
date the asset is available and ready for use over its estimated useful life.
The useful lives of property, plant and equipment and their residual values are reviewed and updated,
where necessary, at least at each year end. Land is not depreciated. When a depreciable asset is
composed of identifiable separate components whose useful lives vary significantly from those of other
components of the asset, depreciation is calculated for each component separately, applying the
“component approach”.
The useful lives estimated by the Company for the various categories of property, plant and equipment
are as follows.
Plant and machinery
5-20 years
Planning and development costs of the fixed line and mobile telephone network
Residual term of license
Equipment
4 years
Other assets
5-10 years
Gains or losses arising from the sale or disposal of assets are determined as the difference between the
selling price and the carrying amount of the asset sold or retired and are recognized in profit or loss
under “Gains/(losses) on disposal of non-current assets”.
Finance leases are leases that substantially transfer all the risks and rewards incidental to the ownership
of assets to the Company. Property, plant and equipment acquired under finance leases are recognized
as assets at their fair value or, if lower, at the present value of the minimum lease payments, including
any amounts to be paid for exercising a purchase option. The corresponding liability due to the lessor is
recognized as part of financial liabilities.
An asset acquired under a finance lease is depreciated over the shorter of the lease term and its useful
life.
Lease arrangements in which the lessor substantially retains the risks and rewards incidental to
ownership of the assets are classified as operating leases. Lease payments under operating leases are
recognized as an expense in profit or loss on a straight-line basis over the lease term.
157

Intangible assets
Intangible assets are identifiable non-monetary assets without physical substance which can be controlled
and which are capable of generating future economic benefits. Intangible assets are stated at purchase
and/or production cost including any expenses that are directly attributable to preparing the asset for its
intended use, net of accumulated amortization in the case of assets being amortized and any impairment
losses. Borrowing costs accruing during and for the development of the asset are recognized in the profit
or loss. Amortization begins when an asset becomes available for use and is charged systematically on
the basis of the residual possibility of utilization of the asset, meaning on the basis of its estimated useful
life.
¾
Industrial patents and intellectual property rights, concessions, licenses, trademarks and similar rights
Costs for the purchase of industrial patents and intellectual property rights, concessions, licenses,
trademarks and similar rights are capitalized. Amortization is charged on a straight-line basis such as to
write off the cost incurred for the acquisition of a right over the shorter of the period of its expected use
and the term of the underlying agreement, starting from the date on which the acquired right may be
exercised. Trademarks are not amortized as they are considered to have an indefinite useful life.
¾
Software
Costs relating to the development and maintenance of software programs are expensed as incurred.
Unique and identifiable costs directly related to the production of software products which are controlled
by the Company and which are expected to generate future economic benefits for a period exceeding
one year are accounted for as intangible assets. Direct costs – where identifiable and measurable –
include the cost of employees who develop the software, together with a share of overheads as
appropriate. Amortization is charged over the useful life of the software which is estimated at 5 years.
¾
Goodwill
The caption includes the goodwill arising from the mergers of Infostrada SpA (2002) and WIND
Acquisition Holdings Finance SpA (2006) and the goodwill paid to acquire the business unit of Blu SpA
(2002). Goodwill is not systematically amortized but is rather subject to periodic tests to ensure that the
carrying amount in the statement of financial position is adequate (“impairment test”). Impairment tests
are carried out annually or more frequently when events or changes in circumstances occur that could
lead to an impairment loss on the cash generating units (“CGUs”) to which the goodwill has been
allocated. An impairment loss is recognized whenever the recoverable amount of goodwill is lower than
its carrying amount. The recoverable amount is the higher of the fair value of the CGU less costs to sell
and its value in use, which is represented by the present value of the cash flows expected to be derived
from the CGU during operations and from its disposal at the end of its useful life. The method for
158
calculating value in use is described in the paragraph below “Impairment losses”. Once an impairment
loss has been recognized on goodwill it cannot be reversed.
Whenever an impairment loss resulting from the above tests exceeds the carrying amount of the goodwill
allocated to a specific CGU, the residual amount is allocated to the assets of that particular CGU in
proportion to their carrying amounts. The carrying amount of an asset under this allocation is not
reduced below the higher of its fair value less costs to sell and its value in use as described above.
¾
Customer list
The customer list as an intangible asset consists of the list of customers identified on allocating the
goodwill arising on transactions and acquisitions carried out by the Company. Amortization is charged on
the basis of the respective estimated useful lives, which range from 5 to 15 years. It should be noted that
the estimated useful lives of the mobile customer list have changed during the course of the year on the
basis of an assessment carried out by management. In particular, the useful life of these types of costs
has been extended from 10 to 15 years; the effect of this change in the accounting estimates relating to
the useful lives of this category of investments has been reflected using the prospective method, in
accordance with the provisions of IAS 8, paragraph 36.
¾
Customer Acquisition Costs
These consist mainly of the cost of commissions paid to the sales network, which in line with sector
practice are capitalized as intangible assets from 2010, in accordance with the principles of reference,
and amortized over the minimum contract term.

Impairment losses
At each reporting date, property, plant and equipment and intangible assets with finite lives are assessed
to determine whether there is any indication that an asset may be impaired. If any such indication exists,
the recoverable amount of the asset concerned is estimated and any impairment loss is recognized in
profit or loss. Intangible assets with an indefinite useful life are tested for impairment annually or more
frequently when events or changes in circumstances occur that could lead to an impairment loss. The
recoverable amount of an asset is the higher of its fair value less costs to sell and its value in use, which
is represented by the present value of its estimated future cash flows. In determining an asset’s value in
use the estimated future cash flows are discounted using a pre-tax rate that reflects the market’s current
assessment of the cost of money for the investment period and the specific risk profile of the asset. If an
asset does not generate independent cash flows, its recoverable amount is determined in relation to the
cash-generating unit (CGU) to which it belongs. An impairment loss is recognized in the profit or loss
when the carrying amount of an asset or the CGU to which it is allocated exceeds its recoverable amount.
If the reasons for previously recognizing an impairment loss cease to exist, the carrying amount of an
asset other than goodwill is increased to the carrying amount of the asset that would have been
159
determined (net of amortization or depreciation) had no impairment loss been recognized on the asset,
with the reversal being recognized in profit or loss.

Investments
Investments in subsidiaries and associates are measured at cost. Investments in other companies are
measured at fair value through profit or loss. If fair value cannot be reliably determined an investment is
measured at cost.
Cost is adjusted for impairment losses if necessary, as described in the paragraph “Impairment losses”. If
the reasons for an impairment loss no longer exist, the carrying amount of the investment is increased up
to the extent of the loss with the related effect recognized in profit or loss. Any risk arising from losses
exceeding the carrying amounts of investments is accrued in a specific provision to the extent of the
Company’s legal or constructive obligations on behalf of the investee or in any case to the extent that it is
required to cover the losses. Investments held for sale or to be wound up in the short term are classified
as current assets at the lower of their carrying amount and fair value less costs to sell.

Financial instruments
Financial instruments consist of financial assets and liabilities whose classification is determined on their
initial recognition and on the basis of the purpose for which they were purchased. Purchases and sales of
financial instruments are recognized at settlement date.
¾
Financial assets
Financial assets are initially recognized at fair value and classified in one of the following four categories
and subsequently measured as described below:
i)
Financial assets at fair value through profit or loss: this category includes financial assets
purchased primarily for sale in the short term, those designated as such upon initial recognition,
provided that the assumptions exist for such classification, i.e., the fair value option may be
exercised, and financial derivatives except for the effective portion of those designated as cash
flow hedges. These assets are measured at fair value; any change in the period is recognized in
profit or loss. Financial instruments included in this category are classified as current assets if
they are held for trading or expected to be disposed of within twelve months from the reporting
date. Derivatives are treated as assets or liabilities depending on whether their fair value is
positive or negative; positive and negative fair values arising from transactions with the same
counterparty are offset if this is contractually provided for.
160
ii)
Loans and receivables: these are non-derivative financial instruments, mostly relating to trade
receivables, which are not quoted on an active market and which are expected to generate fixed
or determinable repayments. They are included as current assets unless they are contractually
due over more than twelve months after the reporting date in which case they are classified as
non-current assets. These assets are measured at amortized cost using the effective interest
method. If there is objective evidence of factors which indicate an impairment loss, the asset is
reduced to the discounted value of future cash flows. The impairment loss is recognized in profit
or loss. If in future years the factors which caused the impairment loss cease to exist, the
carrying amount of the asset is reinstated up to the amount that would have been obtained had
amortized cost been applied.
iii)
Held-to-maturity investments: these are fixed maturity non-derivative financial instruments
having fixed or determinable payments which the Company has the intention and ability to hold
until maturity. These assets are measured at amortized cost using the effective interest method,
adjusted as necessary for impairment losses. In the case of impairment losses the principles used
for financial receivables apply.
iv)
Available-for-sale financial assets: these are non-derivative financial instruments which are either
specifically included in this category or included there because they cannot be classified in the
other categories. These assets are measured at fair value and any related gain or loss is
recognized directly in an equity reserve and subsequently recognized in the profit or loss only
when the asset is actually sold or, if there are cumulative negative changes, when it is expected
that the losses recognized in equity cannot be recovered in the future. For debt securities, if in a
future period the fair value increases due to the objective consequence of events occurring after
the impairment loss has been recognized in profit or loss, the original value of the instrument is
reinstated with the corresponding gain recognized in the profit or loss. Additionally, the yields
from debt securities arising from applying of the amortized cost method are recognized in the
profit or loss in the same manner as foreign exchange differences, whereas foreign exchange
differences relating to available-for-sale equity instruments are recognized in the specific equity
reserve. The classification as current or non-current assets is the consequence of strategic
decisions regarding the estimated period of ownership of the asset and its effective marketability,
with those which are expected to be realized within twelve months from the reporting date being
classified as current assets.
Financial assets are derecognized when the right to receive cash flows from them ceases and the
Company has substantially transferred all risks and rewards related to the instrument and its control.
161
¾
Financial liabilities consisting of loans, trade payables and other obligations are measured at amortized
cost using the effective interest method. When there is a change in expected cash flows which can be
reliably estimated, the value of the loans is recalculated to reflect such change based on the present
value of expected cash flows and the originally determined internal rate of return. Financial liabilities are
classified as current liabilities except where the Company has an unconditional right to defer payment
until at least twelve months after the reporting date.
Financial liabilities are derecognized when settled and the Company has transferred all the related costs
and risks relating to the instrument.
¾
When a contract is entered into the instrument is initially recognized at fair value, with subsequent
changes in fair value being recognized as a financial component of income. Where instead it has been
decided to use hedge accounting, meaning in those situations in which the hedging relationship is
identified, subsequent changes in fair value are accounted for in accordance with the following specific
criteria. The relationship between each derivative qualifying as a hedging instrument and the hedged
item is documented to include the risk management objective, the strategy for covering the risk and the
means by which the hedging instrument’s effectiveness will be assessed. An assessment of the
effectiveness of each hedge is made when each derivative financial instrument becomes active and
throughout the hedge term.
In the case of a fair value hedge, i.e. the hedge refers to changes in the fair value of a recognized asset
or liability, the changes in the fair value of the hedging instrument and those of the hedged item are both
recognized in the profit or loss. If the hedge is not fully effective, meaning that these changes are
different, the non-effective portion is treated as finance income or expense for the year in the income
statement.
For a cash flow hedge, the fair value changes of the derivative are subsequently recognized, to the
extent of the effective portion, in a specific equity reserve (the “cash flow hedge reserve”). A hedge is
normally considered highly effective if from the beginning and throughout its life the changes in the
expected cash flows for the hedged item are substantially offset by the changes in the fair value of the
hedging instrument. When the economic effects deriving from the hedged item are realized, the reserve
is reclassified to the income statement together with the economic effects of the hedged item. Whenever
the hedge is not highly effective, the non-effective portion of the change in fair value of the hedging
instrument is immediately recognized as a financial component of the profit or loss for the year. Cash
flow hedges also include hedges of the currency risk for transactions carried out in US dollars. These
162
obligations are translated at the year-end exchange rate and any resulting exchange gains and losses are
offset in the profit or loss against the change in the fair value of the hedging instrument.
When hedged forecast cash flows are no longer considered highly probable during the term of a
derivative, the portion of the “cash flow hedge reserve” relating to that instrument is reclassified as a
financial component of income. If instead the derivative is sold or no longer qualifies as an effective
hedging instrument, the “cash flow hedge reserve” recognized to date remains as a component of equity
and is reclassified to the income statement in accordance with the criteria of classification described
above when the originally hedged transaction takes place.
Quotations at the reporting date are used to determine the fair value of financial instruments listed on
active markets. In the absence of an active market, fair value is determined by referring to prices
supplied by third-party operators and by using valuation models based primarily on objective financial
variables and, where possible, prices in recent transactions and market prices for similar financial
instruments.

Taxation
Income tax is recognized on the basis of taxable profit for the year and the applicable laws and
regulations, using tax rates prevailing at the reporting date.
Deferred taxes are calculated on temporary differences arising between the tax bases of assets and
liabilities and their carrying amounts in the separate financial statements at the tax rates that are
expected to apply for the years when the temporary differences will be realized or settled and tax losses
carried forward will be reversed, based on tax laws that have been enacted or substantively enacted by
the reporting date. An exception to this rule regards the initial recognition of goodwill.
Current and deferred taxes are recognized in profit or loss, except for those arising from items taken
directly to equity; in such cases the tax effect is recognized directly in the specific equity item.
Tax assets and liabilities, including those regarding deferred taxation, are offset when they relate to
income taxes levied by the same taxation authority on the same taxable entity and when the entity has a
legally enforceable right to offset these balances and intends to exercise that right. In addition, current
tax assets and liabilities are offset in the case that different taxable entities have the legally enforceable
right to do so and when they intend to settle these balances on a net basis.
163
The Company’s tax position and its presentation in the financial statements reflect the effects of the
election made in 2006 and renewed in 2009
by the Italian parent WIND TELECOM SpA (formerly
Weather Investments SpA) to take part in the national tax consolidation procedure.
For the regulations on electing the tax consolidation procedure to apply, the parent that elected for
consolidation is required to determine a single overall tax base for corporate income tax (IRES) purposes
consisting of the sum of the taxable profit or loss of the Parent and its subsidiaries taking part in the
procedure, and to settle a single liability by making a single tax payment or to recognize a single tax
credit for repayment or to be carried forward.
Therefore, it follows that a receivable or payable with the Parent is found in the financial statements on
transferring a tax loss or taxable profit, respectively, instead of the respective tax receivables or payables
accrued by the Company.

Inventories
Inventories are stated at the lower of purchase cost or production cost and estimated net realizable
value. Cost is determined using the weighted average cost method for fungible goods or goods held for
resale. When necessary, provisions are made for slow-moving and obsolete inventories.

Cash and cash equivalents are recognized at fair value and consist of short-term highly liquid investments
(generally not exceeding three months) that are readily convertible to known amounts of cash and which
are subject to an insignificant risk of changes in value.

Assets held for sale and assets in disposal groups
Assets held for sale consist of non-current assets (or disposal groups) whose carrying amount will be
recovered principally through a sale transaction rather than through continuing use. Assets held for sale
are measured at the lower of their carrying amount and fair value, i.e., the amount for which the assets
could be sold, less costs to sell. No further depreciation is charged from the time that a depreciable asset
is reclassified to this caption. Gains or losses arising from discontinued operations or from assets held for
sale are reported as a separate item in profit or loss, net of any tax effects.

Provisions
Provisions are recognized for a loss or expense of a specific nature that is certain or probable to arise but
for which the timing or amount cannot be precisely determined. Provisions are only recognized when the
Company has a present legal or constructive obligation arising from past events that will result in a future
outflow of resources, and when it is probable that this outflow of resources will be required to settle the
obligation. The amount provided represents the best estimate of the present value of the outlay required
164
to meet the obligation. The interest rate used in determining the present value of the liability reflects
current market rates and takes into account the specific risk of each liability.
Risks for which the likelihood of a liability arising is only possible are disclosed in the notes under
“Contingent assets and liabilities” and no provision is made.

Employee benefits
¾
Short-term employee benefits
Short-term employee benefits are recognized in profit or loss in the period when an employee renders
the related service.
¾
Post-employment benefits may be divided into two categories: 1) defined contribution plans and 2)
defined benefit plans. Contributions to defined contribution plans are charged to profit or loss when
incurred, based on their nominal amount. For defined benefit plans, since benefits are determinable only
after the termination of employment, costs are recognized in profit or loss based on actuarial calculations.
Defined benefit plans, which include the Italian post-employment benefits (TFR) which are due in
accordance with the provisions of article 2120 of the Italian Civil Code and which are accrued up to
December 31, 2006, are based on an employee’s working life and the remuneration received during
service. The related liability is projected forward to calculate the probable amount payable at the
termination date and is then discounted using the Projected Unit Credit Method, to take account of the
passage of time before the actual payment of the benefit. The measurement of the liability recognized in
the statement of financial position is carried out by third party actuaries, based on actuarial assumptions
which relate mainly to: the discount rate, which must reflect market yields on the high quality corporate
bonds having a term consistent with the expected term of the obligation, increases in salaries and
employee turnover.
As a consequence of the introduction of Law no. 296 of December 27, 2006 (the 2007 Finance Act) and
subsequent decrees and regulations, the post-employment benefits accruing from January 1, 2007 are
considered to be part of defined contribution plans and recognized in the same manner as other defined
contribution plans, if the amounts are transferred to treasury funds of the national social security
organization (INPS), or from June 30, 2007 or the date of employee election, if earlier, if transferred to
private pension plans. The post-employment benefits accrued up to these dates remain defined benefit
plans, with the related actuarial calculations excluding any assumptions regarding increases in salaries as
had been previously made. The difference arising from this change was recognized in the separate profit
or loss for the year ended December 31, 2007.
165
At each reporting date, actuarial gains and losses, defined as the difference between the carrying amount
of the liability and the present value of the Company’s obligation at year end, which arise from changes
in the actuarial assumptions referred to above, are recognized using the “corridor approach”, meaning
only when the gains or losses exceed 10% of the present value of the Company’s obligation at the
previous reporting date. Any amount in excess of 10% is charged against future income over a period in
line with the average remaining working life of employees, starting with the first period subsequent to
recognition.
¾
Termination benefits and redundancy incentive schemes
Benefits due to employees on the termination of employment contracts are treated as a liability when the
Company is demonstrably committed to terminating these contracts for a single employee or group of
employees before the normal retirement date or to granting termination benefits in order to facilitate
voluntary resignations of surplus employees following a formal proposal. These benefits do not create
future economic advantages to the Company and the related costs are therefore immediately recognized
in profit or loss.
¾
The Company recognizes additional benefits to certain managers and other members of personnel
through stock option plans. IFRS 2 - Share-based Payments considers these plans to represent a
component of employee remuneration; the cost of these plans therefore consists of the fair value of the
option at the grant date and is recognized in profit or loss on a straight-line basis over the period
between the grant date and the vesting date, with the corresponding entry recognized directly in equity.
Changes in the fair value of the option subsequent to the grant date have no effect on the original
measurement.

Translation of items in non-euro currencies
Transactions in foreign currencies are translated into euros at the exchange rate prevailing at the date of
the transaction. Exchange gains and losses arising on the settlement of transactions and those arising on
the translation at year-end exchange rates of monetary assets and liabilities are recognized in profit or
loss.
With reference to foreign transactions whose currency risk is covered by derivatives, further details are
provided in the note Financial instruments.

Revenue recognition
Revenue is recognized at the fair value of the consideration received, net of rebates and discounts.
Revenue from the sale of goods is recognized when the Company transfers the risks and rewards of
166
ownership of the goods. Revenue from services is recognized in profit or loss by reference to the stage of
completion and only when the outcome can be reliably estimated.
More specifically, the criteria followed by the Company in recognizing core-business revenue are as
follows:
¾
revenue arising from post-paid traffic, interconnection and roaming is recognized on the basis of the
actual usage of each subscriber and telephone operator. Such revenue includes amounts paid for
access to and usage of the Company network by customers and other domestic and international
telephone operators;
¾
revenue from the sale of prepaid cards and recharging is recognized on the basis of the prepaid
traffic actually used by subscribers during the year. The unused portion of traffic at period end is
recognized as “Other payables - Prepaid traffic to be used”;
¾
revenue from the sale of mobile phones and fixed-line phones and related accessories is recognized
at the time of sale;
¾
one-off revenue from fixed and mobile (prepaid or subscription) activation and/or substitution,
activation of new services and tariff plans is recognized for the full amount at the moment of
activation independent of the period in which the actual services are rendered by the Company. In
the case of promotions with a cumulative plan still open at year end, the activation fee is recognized
on an accrual basis so as to match the revenue with the period in which the service may be used;
¾
one-off fees received for the granting of rights to use owned fiber optic cables are recognized at the
time of the transfer of the underlying right and, therefore, of the related risks and rewards.

Government grants
Government grants are recognized when a formal decision of the disbursing government institution has
been taken, with recognition being matched to the costs to which they relate. Grants related to income
are taken to “Other revenue” in the profit or loss, while grants related to assets are recognized as
deferred revenue and taken to income on a straight-line basis over the useful life of the asset to which
the grant directly relates.

Finance expense is recognized on an accruals basis using the effective interest method, meaning at the
interest rate that renders all cash inflows and outflows linked to a specific transaction financially
equivalent.

Earnings per share
¾
Basic
167
Basic earnings per share are calculated by dividing the profit or loss for the year both from continuing
and discontinued operations, by the weighted average number of ordinary shares outstanding during the
year.
¾
Diluted
Diluted earnings per share are calculated by dividing the profit or loss for the year by the weighted
average number of ordinary shares of the outstanding during the year where, compared to basic earnings
per share, the weighted average number of shares outstanding is adjusted for the effects of all dilutive
potential shares, while the profit or loss for the year is adjusted for the effects of such conversion net of
taxation. Diluted earnings per share are not calculated when there are losses as any dilutive effect would
improve earnings per share.

New accounting standards and interpretations
The Company has adopted all the newly issued and amended standards of the IASB and interpretations
of the IFRIC, endorsed by the European Union, applicable to its transactions and effective for financial
statements for years beginning January 1, 2010 and thereafter.
Accounting standards, amendments and interpretations adopted from 1 January 2010
The following is a brief description of the new standards and interpretations adopted by the Company in
the preparation of the separate financial statements at December 31, 2010.
¾
IFRS 3 – Business Combinations (2008)
The main changes to IFRS 3 concern: i) the accounting treatment of step acquisition of subsidiaries, ii)
the possibility to measure non-controlling interests at fair value in a partial acquisition, iii) the recognition
of acquisition-related costs as expenses and iv) the recognition at the acquisition date of any contingent
consideration included in the arrangements. The introduction of this standard has had no effect on the
Company’s separate financial statements at December 31, 2010.
¾
IFRS 1 - First Time Adoption of International Financial Reporting Standards (2008)
The restructured IFRS 1 eliminates certain transitory provisions and also contains certain minor changes
to the text having the aim of ensuring high quality information in the accounts of first-time adopters. The
introduction of this standard has had no effect on the Company’s separate financial statements at
December 31, 2010.
¾
Amendment to IAS 39 Financial Instruments: Recognition and Measurement (Eligible Hedged Items)
The aim of this amendment to IAS 39 is to clarify the application of hedge accounting to the inflation
component of financial instruments and option contracts when they are used as hedging instruments.
168
The amendment, effective from July 1, 2009, has had no effect on the Company’s separate financial
statements at December 31, 2010.
¾
Amendment to IAS 27 – Consolidated and Separate Financial Statements
The revisions to IAS 27 principally affect the accounting for transactions and events that result in a
change in the Group’s interest in its subsidiaries and the attribution of a subsidiary’s losses to noncontrolling interests. The amendment, effective from July 1, 2009, has had no effect on the Company’s
separate financial statements at December 31, 2010.
¾
IFRIC 17 – Distribution of Non-cash Assets to Owners
This interpretation provides clarification and guidance for accounting for the distribution of non-cash
assets to owners. The interpretation, effective from July 1, 2009, has had no effect on the Company’s
separate financial statements at December 31, 2010.
¾
IFRIC 18 – Transfers of Assets from Customers
This interpretation, effective from July 1, 2009, provides clarification and guidance for accounting for
items of property, plant and equipment received from customers or for cash received from customers to
acquire or construct items of property, plant and equipment. The introduction of this interpretation has
had no effect on the Company’s separate financial statements at December 31, 2010.
¾
Improvements to IFRS (April 2009)
In April 2009, the International Accounting Standards Board (IASB) issued Improvements to IFRS as part
of its annual process of making amendments designed to simplify and clarify international financial
reporting standards. The majority of these improvements, effective from July 1, 2009, are clarifications of
or corrections to existing IFRS or changes resulting from amendments made previously to IFRS. The
amendments to IFRS 8, IAS 17, IAS 36 and IAS 39 lead to changes to existing requirements or provide
additional guidance on the implementation of these requirements.
¾
Amendments to IFRS 2 - Group Cash-settled Share-based Payment Transactions
These amendments, effective from January 1, 2010, clarify the accounting for share-based payment
transactions where the supplier of the goods or services is paid in cash and the obligation is undertaken
by another group entity (group cash-settled share-based payment transactions). These amendments has
had no effect on the Company’s separate financial statements at December 31, 2010.
169
Accounting standards, amendments and interpretations not yet effective and not adopted
early by the Company
The following standards and interpretations had been issued at the date of these notes but were not yet
effective for the preparation of these separate financial statements at December 31, 2010.
STANDARD/INTERPRETATION
EFFECTIVE DATE
EU
Endorsement
Amendments to IAS 32 - Classifications of rights issues
on or after February 1, 2010
Endorsed
IAS 24 - Related Party Disclosures (revised in November 2009)
Endorsed
IFRS 9 – Financial Instruments
Not endorsed
Amendments to IFRS 1 and IFRS 7 - Limited Exemption from Comparative IFRS 7
Disclosures for First-time Adopters
Endorsed
IFRIC 19 – Extinguishing Financial Liabilities with Equity Instruments
Endorsed
IFRIC 14 – Prepayments of a Minimum Funding Requirement
Endorsed
Improvements to IFRS (May 2010)
Endorsed
Amendments to IFRS 7 – Financial Instruments: Disclosures
Not endorsed
Amendments to IAS 12 - Deferred tax: Recovery of Underlying Assets
Not endorsed
Amendments to IFRS1 – Severe Hyperinflation and Removal of Fixed Dates for FirstTime Adopters
Not endorsed
The Company is currently assessing any impact the new standards and interpretations may have on the
financial statements for the years in which they become effective.
2.4
Use of estimates
The preparation of these financial statements required management to apply accounting policies and
methodologies based on complex, subjective judgments, estimates based on past experience and
assumptions determined from time to time to be reasonable and realistic based on the related
circumstances. The use of these estimates and assumptions affects the amounts reported in the
statement of financial position, the income statement and the cash flow statement as well as the notes.
The final amounts for items for which estimates and assumptions were made in the separate financial
statements may differ from those reported in these financial statements due to the uncertainties that
characterize the assumptions and conditions on which the estimates are based.
The accounting principles requiring a higher degree of subjective judgment in making estimates and for
which changes in the underlying conditions could significantly affect the separate financial statements are
briefly described below.
¾
Goodwill: goodwill is tested for impairment at least on an annual basis to determine whether any
impairment losses have arisen that should be recognized in profit or loss. More specifically, the
test is performed by allocating the goodwill to a cash generating unit (CGU) and subsequently
estimating the unit’s fair value. Should the fair value of the net capital employed be lower than
170
the carrying amount of the CGU, an impairment loss is recognized on the allocated goodwill. The
allocation of goodwill to cash generating units and the determination of the fair value of a CGU
require estimates to be made that are based on factors that may vary over time and that could
as a result have an impact on the measurements made by management which might be
significant.
¾
Impairment losses on non-current assets: non-current assets are reviewed to determine whether
there are any indications that the carrying amount of these assets may not be recoverable and
that they have suffered an impairment loss that needs to be recognized. In order to determine
whether any such elements exist it is necessary to make subjective measurements, based on
information obtained within the Company and in the market and also on past experience. When a
potential impairment loss emerges it is estimated by the Company using appropriate valuation
techniques. The identification of the elements that may determine a potential impairment loss
and the estimates used to measure such loss depend on factors which may vary over time,
thereby affecting estimates and measurements.
¾
Depreciation of non-current assets: the cost of property, plant and equipment is depreciated on a
straight-line basis over the useful lives of the assets. The useful life of property, plant and
equipment is determined when the assets are purchased and is based on the past experience of
similar assets, market conditions and forecasts concerning future events which may affect them,
amongst which are changes in technology. The actual useful lives may therefore differ from the
estimates of these. The Company regularly reviews technological and business sector changes,
dismantling costs and recoverable amounts in order to update residual useful lives. Such regular
updating may entail a change of the depreciation period and consequently a change in the
depreciation charged in future years.
¾
Deferred tax assets: the recognition of deferred tax assets is based on forecasts of future taxable
profit. The measurement of future taxable profit for the purposes of determining whether or not
to recognize deferred tax assets depends on factors which may vary over time and which may
lead to significant effects on the measurement of this item.
¾
Provisions: in recognizing provisions the Company analyses the extent to which it is probable that
a liability will arise from disputes with employees, suppliers and third parties and, in general, the
losses it will be required to incur as a result of past obligations. The definition of such provisions
entails making estimates based on currently known factors which may vary over time and which
could actually turn out to be significantly different from those referred to in preparing the notes
to these financial statements.
171
2.5
Risk management
Credit risk
The Company’s credit risk is principally associated with trade receivables which at December 31, 2010
amounted to €1,275,469 thousand. The Company minimizes credit risk through a preventive credit check
process which ensures that all customers requesting new products and services or additions to existing
services are reliable and solvent, also by using a preference for contracts which provide for the use of
automatic payment methods with the aim of reducing the underlying credit risk. This check is carried out
in the customer acceptance phase through the use of internal and external information.
The Company additionally exercises timely post-customer acquisition measures for the purpose of credit
collection such as the following:
•
sending reminders to customers;
•
employing measures for the collection of overdue receivables, separated by strategy, portfolio and
customer profiles;
•
measuring and monitoring the debt status through reporting tools.
The result of this effective action is that the Company has a limited amount of credit losses. Additionally,
as a general rule, the Company has a limited level of credit concentration as the consequence of
diversifying its product and services portfolio to its customers. In more detail, a small concentration of
credit may be found in the business that WIND Telecomunicazioni SpA carries out with dealers and
domestic and international operators.
WIND Telecomunicazioni SpA is also assisted by sureties issued by primary banks as collateral for the
obligations resulting from supplies and receivables from dealers.
In terms of financial assets, the Company has an exposure to credit risk with financial counterparties with
whom it enters into derivative agreements, makes deposits of cash through money market transactions
and holds current accounts.
In order to manage its counterparty risk, the Company carries out money market transactions and
transactions involving derivatives for hedging purposes solely with parties having “Investment Grade”
rating and monitors and limits the concentration of transactions with any single party.
The Company had a positive balance on its current accounts of €139,425 thousand at December 31,
2010. The Company’s credit risk exposure from derivative contracts is represented by their realizable
value or fair value, if positive. The negative fair value of the entire portfolio at December 31, 2010 was
€11,526 thousand.
Liquidity risk
Liquidity risk arises mostly from the cash flows generated by debt servicing, in terms of both interest and
principal, and from all of the Company’s payment obligations that result from business activities.
172
In respect of debt, on November 26, 2010 WIND Telecomunicazioni SpA entered a new floating rate
medium/long-term loan agreement - the Senior Facilities Agreement - consisting of two tranches: tranche
A, amortizing, and tranche B, bullet, denominated in euros. The total nominal amount of this agreement
amounts to €3,530,000 thousand, to which €400 million of a revolving credit facility which has not been
drawn down should be added.
The Luxembourg-based subsidiary Wind Acquisition Finance SA issued to WIND:
•
the Loan Agreement 2017, with value date July 13, 2009, amended on November 26, 2010, and
maturity date June 15, 2017, with a nominal amount of €2,678,068 thousand and annual
interest of 11.90% payable semi-annually;
•
the Loan Agreement 2018, with value date November 26, 2010, and maturity date January 15,
2018, with a nominal amount of €2,711,101 thousand and annual interest of 7.60% payable
semi-annually.
Finally, the Company has amortizing loans to banks against the deferred repayment plan of the fair value
of the derivative instruments to hedge extinct since repaid loans in the refinancing of the Company’s
debt, denominated in euros with a nominal amount at of €295,781 thousand at December 31, 2010.
The mandatory repayment flows provided for in the above agreements, including the amounts not yet
used, are as follows.
(millions of euro)
2011
2012
2013
2014
2015
2016
2017
2018
Total
Senior Facility Agreement
Term Loan A1
11
27
27
30
33
37
-
-
165
Term Loan A2
89
223
223
245
267
303
-
-
1,350
Term Loan B1
-
-
-
-
-
-
1,334
-
1,334
Term Loan B2
-
-
-
-
-
-
681
-
681
Revolving
-
-
-
-
-
400
-
-
400
56
77
73
52
20
17
-
-
294
Loan agreement 2017
-
-
-
-
-
-
2,678
-
2,678
Loan agreement 2018
-
-
-
-
-
-
-
2,711
2,711
156
327
323
327
320
757
4,693
2,711
9,613
Annuity
Total
The Senior Facility Agreement imposes certain covenants on the Company, with which the Company, at
31 December 2010, is fully in compliance.
In order to deal with the liquidity risk arising from these commitments, the Company may, in addition to
cash flows from ordinary operations, also count on a revolving credit line of €400,000 thousand which
forms part of the medium/long-term loan agreement referred to above, disbursed on a committed basis
and currently unused.
The contractual due dates for financial liabilities are set out in the following tables, which provide the
figures at December 31, 2010 and 2009.
173
Carrying
amount at
December
31, 2010
Total
contractual
cash flows
2011
2012
2013
2014
2015
2016
2017
Bank loans
3,390
(4,652)
(271)
(441)
(429)
(441)
(452)
(478)
(2,140)
-
Financing from subsidiaries
5,290
(8,989)
(558)
(525)
(525)
(525)
(525)
(525)
(3,043)
(2,763)
(73)
(89)
(80)
(56)
(21)
(18)
-
-
(223)
(29)
(65)
(44)
(33)
(23)
(23)
(6)
-
113
21
34
21
15
10
10
2
-
(13,751)
(910)
(1,086)
(1,057)
(1,040) (1,011)
(1,034)
(5,187)
(2,763)
(millions of euro)
2018
Loans from others
306
12
Outflows
Inflows
Total
8,998
Carrying
amount at
December 31,
2009
Total
contractual
cash flows
2011
2012
2013
2014
Bank loans
4,151
(4,823)
(498)
(636)
(1,644)
(1,579)
-
-
-
Financing from associates
4,684
(8,415)
(522)
(522)
(522)
(1,208)
(1,870)
(310)
(2,948)
(4,570)
(408)
(386)
(356)
(489)
(781)
(170)
(1,598)
3,874
272
262
294
415
668
163
1,551
(13,934)
(1,156)
(1,282)
(2,228)
(2,861)
(1,983)
(317)
(2,995)
(millions of euro)
2015
2016
2017
516
Outflows
Inflows
Total
9,351
Market risk
The Company’s strategy for managing interest rate and currency risks is aimed at both managing and
controlling such financial risks. More specifically, this strategy is aimed at eliminating currency risk and
optimizing debt cost wherever possible, taking into account the interests of the Company’s stakeholders.
Managing market risk for WIND refers to financial liabilities from the time they actually arise or from
when there is a high probability that they will arise.
More specifically, the following market risks are monitored and managed:
•
Cash flow risk - this is the risk that movements in the yield curve could have an impact on profit or
loss in terms of greater finance expense;
•
Fair value risk - this is the risk that movements in the yield curve could have an impact on the fair
value of debt;
•
Currency risk - this is the risk that the fair value of financial instruments in currencies other than the
euro or their cash flows, or the amounts payable or receivable generated by ordinary operations but
not in euros, could undergo adverse effects caused by fluctuations in exchange rates.
The main objectives that the Company intends to reach are:
¾
to continue to defend the strategic plan scenario from the effects of exposure to currency, interest
rate and inflation risks, identifying an optimum combination of the fixed rate, floating rate and
inflation components for financial liabilities;
174
¾
to reduce the cost of debt;
¾
to manage derivatives in compliance with the Company’s approved strategies, taking into
consideration the different effects that derivative transactions could have on profit or loss and the
statement of financial position.
After signing the medium/long-term loan contract with a banking syndicate, WIND Telecomunicazioni SpA
issued a hedging letter in 2010 in which, regarding interest rate risk, it undertook to hedge, for the first
three years, at least 50% of its exposure to the interest accruing on the total debt.
To meet these commitments the interest rate risk was hedged and, at the present time, this has reached
a level of approximately 94%, with a maximum hedge term of less than seven years.
At December 31, 2010, outstanding derivative contracts hedging interest rate risk total €3,300,000
thousand, of which €2,530,000 thousand having a residual term of between one and five years and
€800,000 thousand having a residual term exceeding five years.
Considering that total bank loans and loans from subsidiaries outstanding at December 31, 2010
amounted to €8,919,169 thousand, the fixed to floating ratio was as follows at that date.
(millions of euro)
Outstanding at 12.31.2010
Rate at 12.31.2010
8,719
97.76%
200
2.24%
At fixed rate
At floating rate
All derivative agreements were entered into at market rates, without any up-front payments or receipts
(a zero cost basis) and with a credit margin being applied.
With regard to the unhedged portion of floating rate debt, it is estimated that an increase of 100 basis
points in the euro interest rate yield curve (all other variables remaining constant) would lead to an
increase in borrowing costs of approximately €2,000 thousand, with the related effect on equity.
Fair value hierarchy
IFRS 7 requires financial instruments recognised in the statement of financial position at fair value to be
classified on the basis of a hierarchy that reflects the significance of the inputs used in determining fair
value. The following levels are used in this hierarchy:
•
Level 1 – quoted prices in active markets for the assets or liabilities being measured;
•
Level 2 – inputs other than quoted prices included within Level 1 that are observable for the asset or
liability, either directly (as prices) or indirectly (derived from prices) on the market;
•
Level 3 – inputs that are not based on observable market data.
The following table provides an analysis under this hierarchy of financial assets and liabilities measured at
fair value at December 31, 2010.
175
(millions of euro)
Note
Level 1
Level 2
Level 3
Total
Assets at fair value
15
Total assets
-
95
-
95
-
95
-
95
Liabilities at fair value
15
Total liabilities
-
14
-
14
-
14
-
14
In 2010 there were no transfers neither from Level 1 to Level 2 or vice versa nor from Level 3 to other
levels or vice versa.
The following table provides changes in Level 3 in 2010.
(millions of euro)
Derivative
financial instruments
207
Gains and (losses) recognised in profit or loss
6
Increases/(Decreases)
(213)
3
0
ACQUISITIONS AND DISPOSALS
¾ Enel.Net Srl and Italia OnLine Srl;
During the second half of 2010, the corporate transactions for the integration process of the activities of
the subsidiaries Enel.Net Srl and Italia OnLine Srl were completed, began during the year with the
resolutions passed by the boards of directors of WIND Telecomunicazioni SpA and of the subsidiaries,
aimed to achieve operating synergies through simplifying ownership structure and optimizing the financial
and capital structure of the company.
The major steps of the process can be summarized as follows:
• May 27, 2010: the shareholders’ meetings of Italia OnLine Srl and Enel.Net Srl approved the merger
into WIND Telecomunicazioni SpA;
• November 12, 2010: the merger of Italia OnLine Srl and Enel.Net Srl into WIND Telecomunicazioni SpA
had real effects.
The merger, completed on November 12, 2010 but which for accounting, tax and profit-sharing purposes
was effective from January 1, 2010, was accounted for at the carrying amount in the 2010 financial
statements since the merged companies are entirely owned by the merging company and thus the
conditions for the application of IFRS 3 (Business combinations) do not exist.
The following tables provide the merger effects on the statement of financial position at January 1, 2010
with evidence also of the balances acquired from the merged companies Enel.Net Srl and Italia OnLine
Srl.
176
Merger Effects
WIND premerger
Assets
Intangible assets
Financial assets
Investments accounted for using
the equity method
Deferred tax assets
Inventories
Trade receivables
Financial assets
Current tax assets
Other receivables
Assets held for sale
Total assets
IOL pre-merger
ENEL.NET
pre-merger
Merger
3,396,515
8,006,477
670,526
35
5
10
407,891
49
2,013
274,825
336
133
12,348,343
386
410,086
22,271
1,315,737
226,074
7,285
260,778
512,388
-
17,140
61,895
72
221
2,081
-
80,900
150,522
2,736
310
-
Inter-company
(348,160)
(348,160)
-
BLA
-
(393,305)
-
-
(13,162)
-
(406,466)
(96,363)
(212,418)
(45,289)
-
33,047
-
Adjustments
WIND postmerger
12,442
-
3,411,136
8,018,973
324,389
12,442
-
262,132
12,016,631
22,271
1,317,414
226,073
7,357
251,493
514,779
-
2,344,533
81,409
234,468
-
(354,070)
33,047
-
2,339,387
14,692,876
81,795
644,554
(348,160)
(354,070)
(373,419)
12,442
14,356,018
WIND premerger
IOL pre-merger
ENEL.NET
pre-merger
Merger
Inter-company
Adjustments
WIND postmerger
147,100
737,157
(164,084)
1,400
1,561
21,135
3,000
285,368
(22,535)
(3,000)
(289,199)
-
776,707
1,496,880
51,858
54,819
104,870
414,373
(154,458)
(469,192)
-
58,057
58,057
133,474
133,474
968,238
1,688,411
9,514,810
60,311
190,782
4,050
706,010
153
1,020
31
2,650
116,038
-
-
(431,376)
-
-
9,083,434
60,464
191,802
6,700
822,079
10,475,963
1,204
118,688
-
-
(431,376)
-
10,164,479
568,359
1,699,100
444,677
7,897
5,416
20,356
-
47,457
64,019
17
-
(212,418)
(130,543)
(11,109)
-
(56,730)
56,630
-
-
299,211
1,678,060
517,943
7,914
Merger Effects
EQUITY and LIABILITIES
Equity
Issued capital
Share premium
Reserves
Retained earnings or losses
carried forward
Total equity
Liabilities
Employee benefits
Provisions
Trade payables
Other payables
Tax payable
Liabilities associates to assets
held for sale
BLA
-
-
147,100
737,157
(164,084)
-
-
-
-
-
-
-
-
2,720,033
25,772
111,493
-
(354,070)
(100)
-
2,503,128
Total liabilities
13,195,996
26,976
230,181
-
(354,070)
(431,476)
-
12,667,607
Total Equity and Liabilities
14,692,876
81,795
644,554
(469,192)
(354,070)
(373,419)
133,474
14,356,018
For comparative purposes, the following table provides the economic situation restated at December 31,
2009 which shows the economic effects of the operation from the beginning of the previous year.
177
Merger Effects
WIND
premerger
IOL
premerger
ENEL.NET
premerger
Merger
Intercompany
5,281,489
164,719
27,008
60
86,020
525
-
(100,302)
(8,170)
-
-
5,294,215
157,134
Total revenue
5,446,208
27,068
86,545
-
(108,472)
-
-
5,451,349
Personnel expenses
reversal/impairment of non-current assets and gains/losses on
disposal of non-current assets
(2,948,403)
(140,352)
(342,877)
(5,800)
(1,049)
(1,139)
(23,761)
(216)
-
-
108,472
-
(59,930)
-
-
(2,929,423)
(141,617)
(344,016)
2,014,576
19,080
62,568
-
-
(59,930)
-
2,036,294
(909,975)
3,948
(9,901)
(71)
-
(35,603)
52
-
-
29,955
-
-
(915,694)
3,948
(9,849)
1,098,648
19,009
27,017
-
-
(29,975)
-
1,114,699
Finance income
Finance expense
Foreign exchange gains (losses)
88,223
(691,780)
68
525
(12)
-
1,495
(280)
(2)
-
(981)
981
-
-
89,262
(666,610)
66
Profit before tax
495,159
19,522
28,230
-
-
(5,494)
-
537,417
Income tax
(231,879)
(6,360)
(9,460)
-
-
753
-
(246,946)
Profit / (loss) from continuing operations
263,280
13,162
18,770
-
-
(4,742)
-
290,470
-
-
-
-
-
-
-
-
263,280
13,162
18,770
-
-
(4,742)
-
290,470
Revenue
Other revenue
Gains (losses) on disposal of non-current assets
Operating income
Gain (Loss) from discontinued operations
Profit / (loss) for the year
BLA
Adjustements
24,481
WIND
postmerger
A surplus of €121,032 thousand arose on the merger, being the difference between the value of the net
equity of the merged companies and the carrying amount of these investments in the Company's
financial statements, recognized as follows:
i. €133,474 thousand as Retaining earnings (of which €94,374 thousand for Enel.Net Srl and €39,100
thousand for Italia Online Srl) representing the merging company's share of the results earned by the
merged companies between the date of acquisition of the investment and the effective accounting date
of the merger;
ii. €12,442 thousand (referring entirely to Italia Online Srl) as Goodwill under Intangible Assets, il line
with the treatment of the merged company in the Parent’s consolidated financial statements, prior to the
merger.
¾
Hellas Telecommunications I Sàrl;
On June 30, 2010, as resolved by the Company’s Board of directors of March 17, 2010, the Put option
was partially exercised on 985 shares held in Hellas Telecommunications I Sàrl for an amount of €70,066
thousand. The related amount due from the Parent WIND TELECOM SpA has been recognized through
the assignment of an equal amount of receivables from the subsidiaries Enel.Net Srl (€48,787 thousand),
ITALIA ONLINE Srl (€18,665 thousand), ITNET Srl (€2,181 thousand) and WIS SpA (€432 thousand).
178
By means of a written notification to the parent WIND TELECOM SpA, on November 29, 2010 the
Company exercised its put option on the remaining 1,980 shares held in Hellas Telecommunications I Sàrl
at a price of €143,103 thousand. As provided for by the transfer agreement signed on November 29,
2010 by WIND Telecomunicazioni SpA and WIND TELECOM SpA, the investment in Hellas
Telecommunications I Sàrl, which had a nil carrying amount at December 31, 2009, was fully transferred
to the parent WIND TELECOM SpA with effective date November 30, 2010. Regarding the payment of the
consideration by the parent, on November 29, 2010, the Company and WIND TELECOM SpA signed an
intragroup loan agreement by virtue of which the Company granted the parent a loan of €143,103
thousand, for which details may be found in note 6.
¾
Wind Acquisition Finance SA;
On November 26, 2010, the Company completed the purchase of the remaining 73% of the share capital
(4,526 shares) of the Luxembourg company Wind Acquisition Finance SA from CCT Corporate Nominees
Limited at a price of €1,789 thousand, for a corresponding equity of € 1,162 thousand. In addition, at the
same date, the Company paid €60,000 thousand into the investment as an increase in its share capital,
taking its carrying amount to €61,797 thousand at December 31, 2010 (€8 thousand at December 31,
2009).
4
PROPERTY, PLANT AND EQUIPMENT
The following table sets out the changes in “Property, Plant and Equipment” at December 31, 2010, ,
with a separate indication of the assets acquired as the result of the merger into the Company of the
subsidiaries Enel.Net Srl and Italia Online Srl, details of which may be found in note 3.
(thousands of euro)
At December
31, 2009
Land and buildings
Plant and machinery
Additions
Depreciation
(Impairment
losses)/
Reversal of
impairment
losses
Disposals
Contribution
to merger
Other
At
December
31, 2010
-
-
-
-
-
552
-
552
2,914,993
441,927
(605,384)
(12,841)
(4,730)
13,155
302,845
3,049,965
18,879
Equipment
15,191
8,311
(8,618)
-
14
3,981
Other
56,526
14,877
(21,682)
-
(178)
41
20,017
69,601
409,805
225,613
-
-
-
-
(319,306)
316,112
3,396,515
690,728
(635,684)
(12,841)
(4,908)
13,762
7,537
3,455,109
Total
The cost, accumulated impairment losses and accumulated depreciation at December 31, 2010 can be
179
(thousands of euro)
Cost
Land and buildings
Plant and machinery
Accumulated
impairment losses
Accumulated
depreciation
Carrying
amount
552
-
-
552
9,237,995
56,530
6,131,500
3,049,965
Equipment
117,848
-
98,969
18,879
Other
464,502
161
394,740
69,601
Total
316,112
-
-
316,112
10,137,009
56,691
6,625,209
3,455,109
As a result of the merger, details of which may be found in note 3, Property, plant and equipment at
December 31, 2010 rose by €58,594 thousand, representing the combined effect of the investments
made (of €690,728 thousand), the increase arising from the recognition of the balances of Enel.Net Srl
and Italia Online Srl, only partially offset by depreciation and impairment losses charged during the year
(of €635,684 thousand and €12,841 thousand, respectively) and a decrease of €22,659 thousand due to
the elimination of the accounting effects of the Backbone Lease Agreement with the former subsidiary
Enel.Net Srl, now merged.
In particular, “Plant and machinery” has increased by €134,972 thousand over the previous year. The
main gross increases of the year regard purchases and operations of radio links and high frequency
equipment for the expansion of the mobile access network and plant and machinery under construction
(3G mobile technologies and the respective transport and support networks and IT investments
connected with the increasing number of new services being provided to customers).
As part of the plan for the development of the Company’s production structure, disposals have been
made of equipment, infrastructure and transmission systems having a carrying amount of €4,730
thousand which are no longer usable; these relate mostly to radio links and high frequency equipment
(€1,361 thousand) and electronic switchboards and equipment (€1,181 thousand). Radio bridges were
impaired by €16,282 thousand during the year as part of an operation to modernize production
infrastructures. In addition, in connection with an operation to replace transmission equipment being
carried out to render the network more efficient and to obtain benefits from synergies, the net carrying
amount of replaced equipment of €18,596 thousand was written off, more than offset by the positive
effect of €20,703 thousand resulting from the recognition as an increase in the market value of the
equipment received as a replacement.
“Other” mainly includes plant and machinery which entered into use during the year.
At December 31, 2010, transmission equipment, telephone systems and commutation switchboards
owned by the Company and having a carrying amount of €122,578 thousand were with customers for
use (€105,758 thousand at December 31, 2009), while transmission equipment for direct access through
“unbundling of the local loop” having a carrying amount of €90,833 thousand (€110,811 thousand at
December 31, 2009) was held on deposit by Telecom Italia SpA.
“Plant and machinery” additionally includes the expenditure incurred to acquire the exclusive rights for
the use of cable ducts and optic fiber for a total of €77,859 thousand at December 31, 2010 (€61,513
180
thousand at December 31, 2009).
At December 31, 2010, “Equipment” had a carrying amount of €18,879 thousand, representing an
increase over the balance at the end of the previous year as the result of the investments which was only
partially offset by the depreciation charge for the year. Commercial equipment having a carrying amount
of €10,664 thousand at December 31, 2010, was with third parties, mostly authorized dealers, for use at
that date (€9,290 thousand al December 31, 2009).
The net balance of “Other”, €69,602 thousand at December 31, 2010, increased during the year mainly
as the result of increased investments and the entry into use during the year of office machines and
electronic equipment, which were only partially offset by the depreciation charge for the year.
The balance of “Assets under construction” of €316,112 thousand at December 31, 2010 consists mainly
of plant and machinery being completed and tested.
5
INTANGIBLE ASSETS
The following table sets out the changes in “Intangible assets” at December 31, 2010.
(thousands of euro)
Goodwill
Total
At December
31, 2009
Additions
Amortization
(Impairment
losses)/
Reversal of
impairment
losses
Merger
Others
239,633
96,063
(90,453)
(3)
-
54,756
299,996
3,471,558
6
(114,898)
-
5
5
3,356,676
695,077
114,103
(156,396)
-
-
870
653,654
3,579,943
-
-
-
12,442
-
3,592,385
(70,409)
61,234
12,447
(14,778)
7,963,945
86,716
44,927
-
-
8,072,927
255,099
(361,747)
(3)
At
December
31, 2010
The cost, accumulated impairment losses and accumulated amortization at December 31, 2010 can be
(thousands of euro)
Cost
Accumulated
Accumulated
impairment losses
amortization
Carrying amount
1,514,761
1,163
1,213,602
299,996
4,561,129
1,000
1,203,453
3,356,676
1,289,655
-
636,001
653,654
Goodwill
3,592,385
-
-
3,592,385
Total
61,234
-
-
61,234
11,019,164
2,163
3,053,056
7,963,945
“Intangible assets” decreased by a net amount of €108,982 thousand during the year mainly due to the
combined effect of new investments of €255,099 thousand and the amortization charge for the year of
€361,747 thousand. An amount of €12,442 thousand has been allocated to Goodwill, which arises from
the merger surplus generated by the elimination of net equity of the merged company against the
investment in Italia OnLine Srl in the financial statements of the merging company.
181
“Other” mainly includes industrial patents and intellectual property rights which entered into use during
the year.
The balance at December 31, 2009 of Other intangible assets includes the reclassification of €66,450
thousand, originally recognized in Other receivables, due to the effect of the different presentation of
some customer acquisition costs, for which details may be found in note 2.1.
“Industrial patents and intellectual property rights” consist of the cost for the outright purchase of
application software licenses or the right to use such licenses for an unlimited period and the capitalized
costs relating to the time spent by the Company personnel in designing, developing and implementing
information systems, which at December 31, 2010 amounted to €6,498 thousand (€7,123 thousand at
December 31, 2009).
Application software having a carrying amount of €710 thousand was in use by third parties, customers
and business call center outsourcers at the end of the year (€551 thousand at December 31, 2009).
“Concessions, licenses, trademarks and similar rights” include individual licenses for the installation of
networks and concessions to operate in the regulated activities of the telecommunications sector granted
to the Company by the relevant authorities, as detailed below.
Date of issue
Date of expiry (*)
February 1998
February 2018
April 1998
April 2018
Provision of public digital mobile communications services using DCS 1800 technology, including
June 1998
June 2018
April 1999
April 2019
January 2001 (***)
December 2029
July 2002
July 2022
Individual licenses or General Authorizations
Installation of network and provision of voice telephony services on the Italian national territory
(**)
the possibility of operating in frequencies in the 900 MHz band using GSM technology pursuant
to article 6, paragraph 6(c) of Presidential Decree no. 318 of September 19, 1997
issued to Infostrada SpA now merged
Provision of third generation mobile communications services adopting the UMTS standard
(IMT-2000 family) and the installation of the related network on the Italian national territory
pursuant to article 6, paragraph 6(c) of Presidential Decree no. 318 of September 19, 1997
Use of frequencies for broadband point-multipoint radio networks in the 24.5-26.5 GHz band for
the geographical area corresponding to the specified Italian region/autonomous province
(****)
(*) Individual licenses are renewable in compliance with the regulations prevailing at the time of the renewal upon submission of an application at
least 60 days prior to the expiry date (article 25, paragraph 6, of Decree no. 259/03)
(**) The Company has two licenses for network installation and the provision of fixed line telephony services following the merger of Infostrada SpA
(***) The term of the license came into effect on January 1, 2002
(****) A total of 21 individual point-multipoint licenses have been assigned
“Concessions, licenses, trademarks and similar rights” for €1,453,103 thousand refer to trademarks which
have an indefinite useful life.
“Similar rights” consist of rights of way and the right to use assets owned by third parties for a
predetermined period of time and are initially recognized at their one-off purchase price, including any
182
accessory costs. This item relates for the most part to the costs incurred by Infostrada SpA, now merged,
for the purchase in 1998 of the right of way on the Italian railway network and the purchase of the right
to use the existing optic fiber on the network.
“Other intangible assets” mainly relate to the fair value of the customer list, amounting to €556,167
thousand, identified on allocating the goodwill at December 31, 2006 arising from the merger of the
former parent Wind Acquisition Finance SpA.
“Assets under development” consist of the internal and external costs incurred for the purchase or
development of intangible assets for which the respective ownership right has not yet been fully acquired
at the end of the year or which relate to incomplete projects, and downpayments made to suppliers for
the purchase of intangible assets. More specifically, intangible assets under development relate to the
costs incurred for the design, development and implementation of information systems or specific
modules thereof.
“Goodwill” has been allocated to the following cash generating units at the relevant dates.
CGU
Fixed
Mobile
Goodwill
289,439
276,997
3,302,946
3,302,946
3,592,385
3,579,943
Goodwill at December 31, 2010 is allocated to the individual cash generating units (CGU) representing
the minimum level used for monitoring such assets for management control purposes. The carrying
amount of goodwill recognized and of intangible assets with indefinite useful live at December 31, 2010
was tested for impairment but no impairment losses were identified. The test was carried out by
comparing the carrying amount with the value in use and recoverable amount. More specifically, the
value in use was calculated on the basis of the discounted cash flows resulting from the 2011-2015
business plan. A growth rate of 1% was assumed for the years not covered by this plan. An interest rate
of 7.78% was used to discount the cash flows being the weighted average cost of capital, net of the tax
effect, calculated using the capital asset pricing model.
6
FINANCIAL ASSETS
The following table sets out “Financial assets” at December 31, 2010 and 2009.
(thousands of euro)
Total
Non-current
161,494
95,199
169,558
Current
6,206
Total
161,494
95,199
175,764
Non-current
445,785
179,323
45,418
Current
207,167
18,907
Total
445,785
386,490
64,325
426,251
6,206
432,457
670,526
226,074
896,600
183
“Financial assets measured at cost” consist of investments in subsidiaries and associates and noncontrolling interests in consortia.
The following table provides an analysis of the changes in investments during the year.
(thousands of euro)
Amounts as of
December 31,
2009
Increase/
Disposals
Merger
Amounts as of
December 31,
2010
Other
Investments in:
- subsidiaries:
Enel Net Srl
Italia OnLine Srl
ITnet Srl
Mondo Wind Srl
WIND Retail Srl
WIND International Services SpA
Total
319,998
28,162
10,473
31,103
55,887
82
8
61,789
(319,998)
(28,162)
-
(31,103)
31,103
-
10,473
31,103
55,887
82
61,797
445,713
61,789
(348,160)
-
159,342
8
2
1
8
-
-
-
8
2
1
8
19
-
-
-
19
1
50
2
2,072
10
(2)
-
-
1
2,072
10
50
-
- associates:
WIND Finance SL SA
Consorzio Elawind
Consorzio Wind Team
Total
- other companies:
Consorzio Consel
Janna Scarl
Mix Srl
QXN Società consortile per azioni
Hellas Telecommunication I Sàrl
Total
Total
53
2,080
-
-
2,133
445,785
63,869
(348,160)
-
161,494
The following table sets out investments in subsidiaries at December 31, 2010.
(thousands of euro)
ITnet Srl
Rome - Via Cesare Giulio Viola, 48
1,004
Share/quota
holders'
equity as of
12/31/2010
8,650
WIND Retail Srl
1,027
26,179
(93)
100%
31,103
640
168,034
2,865
100%
55,887
1,265
18,436
5,605
0.87%
82
60,031
82,957
(17,294)
100%
61,797
Name
Registered office
Belgium - Rue de commerce 23,
1400 Nivelles
Luxemebourg - 125 Avenue du X
September, L-2551
Share/quota
capital as of
12/31/2010
Profit (loss)
for the year
ended
12/31/2010
(171)
Holding %
as of
December
31, 2010
100%
Carrying
amount as of
12/31/2010
10,473
(*) as per the financial statements prepared by the companies' directors for the approval of the Share/quotaholders meetings, changed, where
needed, to be compliant with the Company's measurement criteria used for the preparation of these separate financial statements.
Changes in the balance of investments in subsidiaries arose mainly from the following effects:
•
the merger of Enel Net Srl and Italia Online Srl into WIND Telecomunicazioni SpA, which was
completed on November 12, 2010 and led to the elimination of the carrying amounts of the
investments from the statement of financial position of the Company, which at the merger date
184
amounted to €319,998 thousand and €28,162 thousand for Enel.Net Srl and Italia OnLine Srl,
respectively (for which details may be found in note 3);
•
the reverse merger of Mondo WIND Srl into Phone Srl (a 100% subsidiary of Mondo WIND Srl)
became effective on April 1, 2010 and the company’s name was changed from Phone Srl to
WIND Retail Srl. This operation led to the whole of the company’s quota capital being assigned
to WIND Telecomunicazioni SpA as the sole quotaholder of Mondo WIND Srl;
•
the purchase by CCT Corporate Nominees Limited, finalized on November 26, 2010, of the
remaining portion of 73% (4,526 shares) of the Luxembourg company Wind Acquisition Finance
SA at a price of €1,789 thousand. In addition, at the same date, the Company paid €60,000
thousand into the investment as an increase in its share capital, taking its carrying amount to
€61,797 thousand at December 31, 2010 (€8 thousand at December 31, 2009).
The following table sets out investments in associates at December 31, 2010.
(thousands of euro)
Wind Acquisition
Finance II SA
WIND Finance SL
S.A.
Registered office
Carrying
amount as of
December 31,
2010
Share
Capital /
Consortium
fund
Share/quota
holders' equity
as of December
31, 2010
Profit (loss) for
the year ended
December 31,
2010
31
(11)
(10)
27.0%
8
31
420
23
27.0%
8
Luxembourg - Boulevard Grande
Duchesse Charlotte, 65
Luxembourg - - 125 Avenue du X
September, L-2551
Holding % as
of December
31, 2010
The following table sets out non-controling interests in companies and consortia at December 31, 2010.
(thousands of euro)
Consel - Consorzio Elis per la
formazione professionale
superiore a rl
QXN Società consortile per azioni
Registered office
Rome - Via Sandro Sandri, 45
Rome - Via Bissolati n.76
Consorzio Janna
Cagliari - Loc. Sa Illetta, Strada Statale 195 Km
2.3
Consortium fund
Holding % as of
December 31, 2010
Carrying amount as
of December 31,
2010
1%
1
51
500
10%
50
13,717
17%
2,072
10
MIX srl
Milan - Via Caldera, 21
99
10%
Consorzio Elawind
5
33.3%
2
Consorzio Wind Team
5
33.3%
1
As a result of the merger of Enel Net Srl and Italia Online Srl into WIND Telecomunicazioni SpA, which
was completed on November 12, 2010 and for which details may be found in note 3, the Company
recognized in its statement of financial position the directly held investment of Enel.Net Srl in Janna Scarl,
equal to 17% of its quota capital, for an amount of €2,072 thousand, and the investment of Italia OnLine
Srl in Mix Srl, equal to 9.75% of its quota capital, for an amount of €10 thousand.
The change in the item “Derivative financial instruments” essentially reflects the exercising of the option
on the shares in Hellas Telecommunications I Sàrl carried out during the year (€207,054 thousand at
December 31, 2009), for which details may be found in note 3. Details of the composition of the
“Derivative financial instruments” balance and respective changes are to be found in note 15.
185
“Financial receivables” classified as non-current “Financial assets” and amounting to €169,558 thousand
at December 31, 2010 consist mainly of:
•
the new loan of €143,103 thousand to WIND TELECOM SpA (formerly Weather Investments
SpA) (as per the Intecompany Loan Agreement) resulting from the agreement signed on
November 29, 2010 by the Company and WIND TELECOM SpA (formerly Weather Investments
SpA) following the exercising of the options on the shares in Wind Hellas Telecommunications
Sàrl. The agreement provides for a single lump-sum repayment 37 months after November 30,
2010, with interest being capitalized and charged at an annual rate of Euribor+2.625%;
•
fees recognized relating to derivatives on the new bank loans issued for €5,496 thousand and
•
and guarantee deposits for electricity, property leases and the lease of ISDN lines.
“Financial receivables” classified as current assets and amounting to €6,206 thousand at December 31,
2010 relate in part to the residual value of the transaction costs for the unused portion of bank loans
(revolving tranches for which further details may be found in note 14), which are charged to profit or loss
on a straight-line basis over the term of the agreement and to the fees recognized relating to derivatives
on the new bank loans issued for €1,899 thousand.
An amount of €1,737 thousand was collected in November 2010 representing the interest accrued on the
sums at the time inappropriately paid to the Company and the former Infostrada as Turnover
Contribution (Law no. 448/1998), for which a formal legal request for repayment has been made that
was notified on March 31, 2009. At December 31, 2010 the current financial receivable relating to the
Turnover Contribution was €3,430 thousand.
The following table sets out the due dates for financial receivables.
(thousands of euro)
Guarantee deposits
Receivables due from parents
Receivables due from subsidiaries
Others
Total
7
<1 year
408
5,798
6,206
1<x<5
years
1,610
143,632
4,989
150,231
>5
years
2,958
16,369
19,327
Total
4,976
143,632
27,156
175,764
<1 year
366
1,848
16,693
18,907
1<x<5
years
3,712
-
3,712
>5 years
1,614
40,092
41,706
Total
5,692
1,848
56,785
64,325
DEFERRED TAX ASSETS AND LIABILITIES
The following tables provide the variation of “Deferred tax assets” and “Deferred tax liabilities” by origin
186
At December 31,
2009
Description
Tax losses carried forward
Provision for bad debts (taxed)
Provisions for risks (taxed)
Measurement of financial assets/liabilities
Amortization and depreciation of non-current assets
Deferred tax assets
Employee benefits
Accelerated depreciation and amortization
Decrease
38,333
38,333
-
-
103,946
15,136
18,573
107,383
53,306
18,646
15,374
50,034
1,523
1,523
-
-
64,348
27,977
-
36,371
13,369
13,162
16,424
16,631
274,825
114,777
50,371
210,419
1,246
571
584
Property, plant, and equipment at fair value
Depreciation of PPA
At December 31,
2010
Increase
31
706
14,995
15,579
-
7,327
101,044
93,717
704,180
22,198
-
681,982
706,010
30,096
116,070
791,984
The decrease in the deferred tax assets during the year is mainly due to the utilization of tax losses
carried forward against the IRES tax charge for year. For details please refer to note 34.
Deferred tax assets at December 31, 2010 and 2009 which relate to items recognized directly in other
components of profit or loss relate entirely to the transactions on derivatives hedging cash flows, as
described in further detail in note 13.
The table below provides an analysis of the deferred tax assets arising from the carryforward of tax
losses by year of expiry of the loss, together with changes for the year.
(thousands of euro)
Year
Valid until
1997-1999
unlimited
Increase/ (decrease)
38,333
(38,333)
-
38,333
(38,333)
Total
Deferred tax assets have been recognized by considering the probability of their utilization and the extent
to which the directors believe there is a reasonable certainty that sufficient profits will be generated in
future years against which the losses may be used within the time limits imposed by prevailing tax laws
and regulations.
In 2010, no deferred tax assets were recognized in respect of temporary differences carried forward
indefinitely totalling €116,397 thousand (€14,387 thousand at December 31, 2009), due to nondeductible finance expense to the limits imposed by law, due to the lack of reasonable certainty of their
recoverability.
As such, even if transferred to the tax consolidation procedure, consistently with the terms of the
agreement, no receivables due from the indirect parent WIND TELECOM SpA have been recognized. In
fact, on the basis of this agreement, if the excess interest expense is transferred to the national
consolidation, the transferring company obtains the right to remuneration corresponding to the
theoretical tax benefit transferred, only if, and to the extent to which, the company which has transferred
this excess interest expense transfers to the consolidation the excess gross operating profit (GOP) not
utilized in the tax period for the deduction of interest expense pursuant to article 96, paragraphs 1, 2 and
7 of the Consolidated Income Tax Law (TUIR).
187
8
INVENTORIES
The following table provides an analysis of “Inventories” at December 31, 2010 and 2009.
(thousands of euro)
Finished goods
Write-downs
Total
At December 31,
At December 31,
2010
2009
17.641
22.870
(840)
(599)
16,801
22,271
“Finished goods” consist principally of mobile phone handsets and the related accessories. The significant
change taking place during the year is essentially due to a fall in the value of inventory of mobile
telephone terminals, kits and related accessories, stocks consisting of products which are technologically
extremely advanced but do not have a very high unit value, ensuring an optimum level of rotation.
9
TRADE RECEIVABLES
The following table provides an analysis of “Trade receivables” at December 31, 2010 and 2009.
(thousands of euro)
At December 31,
At December 31,
2010
2009
Due from final customers
975,247
974,911
Due from telephone operators
255,163
253,474
Due from authorized dealers
303,724
336,630
44,715
60,233
Due from subsidiaries
Due from related parties
2,719
3,097
Other trade receivables
76,695
58,985
Total
(382,794)
(371,593)
1,275,469
1,315,737
“Due from final customers” arise principally from the supply of fixed and mobile telephony services to
customers with subscription contracts, while “Due from telephone operators” mainly relate to
interconnection and roaming services. “Due from authorized dealers” relate to sales of radio mobile and
fixed-line handsets and related accessories, as well as rechargeable telephone cards and top-ups.
The balance of net trade receivables at December 31, 2010 has decreased by a total of €40,268
thousand over that at December 31, 2009. This is mostly due to the decrease in receivables from
authorized dealers (€32,906 thousand) as the consequence of the improvement in average collection
days.
In addition, the balance at December 31, 2010 does not include receivables from Enel.Net Srl or Italia
OnLine Srl as these were acquired through the merger of these companies, details of which may be
found in note 3.
188
“Other trade receivables” increased by €17,710 thousand over December 31, 2009 mainly as the result of
third party receivables arising from the sale of services on the portal, which was originally carried out by
Italia OnLine.
The €11,201 thousand increase in the provision for bad debts has been affected by the increase in
receivables from customers, which is mainly connected with the rise in turnover, as well as with the
acquisition of the provisions for bad debts from the subsidiary Italia OnLine Srl.
The following table provides an analysis of trade receivables and the respective provision for bad debts
(thousands of euro)
- unexpired
Gross amount
(Provision)
Gross amount
(Provision)
977,698
(9,516)
980,443
(6,683)
- expired from:
- 0-30 days
92,357
(281)
122,742
(243)
- 31-120 days
64,005
(855)
60,498
(750)
- 121-150 days
- beyond 150 days
Total
20,939
(237)
17,133
(361)
503,264
(371,905)
506,514
(363,556)
1,658,263
(382,794)
1,687,330
(371,593)
The following table provides an analysis of trade receivables at December 31, 2010 and 2009, net of the
months.
(thousands of euro)
At December 31,
-within 12 months
2009
1,265,286
1,310,649
-after 12 months
Total
At December 31,
2010
10,183
5,088
1,275,469
1,315,737
The following table sets out changes in the provision for bad debts during the year ended December 31,
2010.
(thousands of euro)
At December
31, 2009
371,593
Increases
74,025
(Utilizations)
(63,319)
Merger
At December 31,
2010
495
382,794
In order to guarantee the obligations assumed by the Company as a consequence of loans disbursed
under the Senior Facility Agreement on November 24, 2010, for which further details may be found in
note 14, and the obligations assumed by the wholly-owned subsidiary of the Company Wind Acquisition
Finance SA (“WAF”), as a consequence of the High Yield Notes, expiring in 2017, issued on July 13, 2009
and the Senior Secured Notes, expiring in 2018, issued on November 26, 2010, the Company established
collateral by transferring trade receivables, receivables from intercompany loans and receivables relating
to insurance contracts, both present and future, in favor of the lending banks and the other creditors
189
specified in the supplemental deed related to the respective collateral contract and in favor of the
subscribers to Senior Secured Notes.
10
CURRENT TAX ASSETS
The balance on this item of €8,022 thousand at December 31, 2010 (€7,285 thousand at December 31,
2009) mostly regards receivables for current tax assets arising from taxes paid in previous years.
Advance payments of IRAP tax made during the year are classified as a deduction from tax payables.
11
OTHER RECEIVABLES
The following table sets out details of “Other receivables” at December 31, 2010 and 2009.
(thousands of euro)
At December 31,
At December 31,
2010
2009
Trade prepayments
86,833
80,787
Other receivables due from third parties
28,488
25,354
Tax receivables
24,993
33,440
Advances to suppliers
29,861
32,588
Other receivables due from parents
10,125
13,315
Other receivables due from related parties
Other receivables due from subsidiaries
Other receivables due from associates
Total
10
1,602
7,219
11,962
20
6,288
(12,445)
(11,008)
175,104
194,328
The following table provides an analysis of “Other receivables” and the respective provision for bad debts
(thousands of euro)
- unexpired
Gross balance
(Provision)
Gross balance
(Provision)
148.885
(7.160)
185.317
(7.416)
- expired from:
- 0-30 days
1.232
-
6.896
-
- 31-120 days
946
-
2.983
-
- 121-150 days
368
-
67
-
36.118
(5.285)
10.073
(3.592)
187.549
(12.445)
205.336
(11.008)
- beyond 150 days
Total
The following table provides an analysis of other receivables at December 31, 2010 and 2009, net of the
months.
(thousands of euro)
-within 12 months
-after 12 months
Total
At December 31,
At December 31,
2010
2009
172.392
194.328
2.712
-
175.104
194.328
190
“Other receivables” at December 31, 2010 fell by a total of €19,224 thousand over December 31, 2009.
At December 31, 2010 this item does not include receivables from Enel.Net Srl or Italia OnLine Srl as at
that date these companies had been merged; details of the merger may be found in note 3. The change
in “Other receivables due from associates” fell following the reclassification of the Luxembourg-based
subsidiary from an associate to a subsidiary as the result of the acquisition of the entire share capital of
this company, details of which may be found in note 3.
“Trade prepayments” relate mainly to lease installments for civil and technical sites and lease installments
for telephone network circuits.
The balance at December 31, 2009 of trade prepayments include the reclassification of €66,450 thousand
due to the different presentation of some customer acquisition costs under the intangible assets, for
which further details may be found in note 2.1.
The following table provides an analysis of “Tax receivables” at December 31, 2010 and 2009.
(thousands of euro)
At December 31,
2010
At December 31,
2009
6,294
18,699
28,907
4,533
24,993
33,440
VAT
Other tax receivables
Total
The following table sets out changes in the provision for bad debts for other receivables for the year
ended December 31, 2010. This table refers solely to receivables which are due for payment after 12
months. The increase in this item is fully due to the acquisition of the provisions for bad debts from the
subsidiary Enel Net Srl.
(thousands of euro)
12
11,008
Increases
(Utilizations)
Merger
(1,060)
2,497
12,445
CASH AND CASH EQUIVALENTS
The following table sets out an analysis of “Cash and cash equivalents” at December 31, 2010 and 2009.
(thousands of euro)
Bank deposits and checks
Cash on hand and stamps
Total
At December 31,
2010
At December 31,
2009
139,425
16
512,376
12
139,441
512,388
The level of cash and cash equivalents is the consequence of the surplus cash generated by operations.
Changes occurred mostly as the effect of cash flows arising from ordinary settlements of a financial
nature. Further details may be found in note 37 to the cash flow statement.
191
13
EQUITY
The following table provides details of the changes in “Equity” during the years ended December 31,
2010 and 2009.
Equity
Share
premium
reserve
Issued
capital
(thousands of euro)
Other reserves
Retained
earnings/(losses
carried forward)
(52,637)
1,022,295
-
-
263,280
263,280
-
(140,867)
-
(140,867)
147,100
3,001,325
-
- Cash flow hedges
-
Equity
4,118,084
- Allocation of profit
-
-
17,446
(17,446)
-
- Dividends paid
-
(2,264,168)
-
(479,448)
(2,743,616)
- Other changes
-
-
11,974
(11,974)
-
147,100
737,157
(164,084)
776,707
1,496,880
- Loss for the year
-
-
-
(255,903)
(255,903)
- Cash flow hedges
-
-
73,757
-
73,757
- Merger of Enel Net Srl and Italia OnLine Srl
-
-
-
191,531
191,531
- Dividends paid
-
-
-
(9,500)
(9,500)
- Other changes
-
15,000
(15,000)
-
-
147,100
752,157
(105,327)
702,835
1,496,765
The share capital of WIND Telecomunicazioni SpA at December 31, 2010 consisted of 146,100,000
ordinary shares with no nominal value, fully subscribed and paid up by the sole shareholder WIND
Acquisition Holdings Finance SpA.
Despite the encumbrances on the pledged shares underlying the share capital of the Company held by
WIND Acquisition Holdings Finance SpA, the voting rights at shareholders’ meetings of the Company are
retained by WIND Acquisition Holdings Finance SpA by express contractual agreement as an exception to
the provisions of paragraph 1, article 2352 of the Italian Civil Code.
Changes in equity attributable to the owners of the Company during the year ended December 31, 2010
were due mainly to:
¾
the resolution adopted on April 12, 2010 by shareholders that approved the annual financial
statements as of and for the year ended December 31, 2009 allocating the profit for the year of
€263,279,546.37 to Retained earnings;
¾
the resolution of shareholders who at their meeting of May 27, 2010 approved the plan to merge
the subsidiaries Enel.Net Srl and Italia OnLine Srl, which led to a change in Retained
earnings/(losses carried forward) of €191,531 thousand arising from:
o
the elimination of the investment in Enel.Net Srl carried in the financial statements
of the merging company at €319,998 thousand at the merger date against the
192
equity of the merged company, which led to a goodwill of €94,374 thousand
allocated to Retained earnings/(losses carried forward);
o
the elimination of the accounting effects of the Backbone Lease Agreement with
the marged former subsidiary Enel.Net Srl carried in Retained earnings/(losses
carried forward) an increase of €58,058 thousand;
o
the elimination of the investment in Italia OnLine Srl carried in the financial
statement of the merging company at €28,162 thousand at the merger date
against the equity of the merged company, which led to goodwill of €26,657
thousand,
of
which
€39,099
thousand
has
been
allocated
to Retained
earnings/(losses carried forward) and the balance of €12,442 thousand to Goodwill
in Intangible assets for which details may be found in note 3.
¾
the resolution adopted on November 24, 2010 by shareholders that approved the distribution of a
dividend of €9,500,000 to the parent WIND Acquisition Holdings Finance SpA;
¾
the resolution of the Board of Directors, which at its meeting of December 15, 2010 approved the
release of sums totaling €15,000 thousand included in the financial statements under the item
“Other reserves”, reclassifying them to the “Share premium reserve”. This reserve had been
created to put into practice the resolution adopted by the shareholders in an extraordinary
general meeting held on June 23, 2005, in respect of its possible use as part of the
implementation of the Puglia Project, as this latter project was implemented and completed
without the allocation or utilization of such sums;
¾
the increase in the cash flow hedge reserve as the effect of the income and the expense
recognized among other components of the Statement of Comprehensive Income for 2010 that
relate entirely to the transactions on hedging derivatives on cash flows, as described in further
detail in note 15. The following table shows the changes in the cash flow hedge reserve.
(thousands of euro)
Changes in fair value
Reversal to profit or loss
Interst rate risk
Foreign currency risk
Gross reserve
Tax effect
Total
Gross reserve
Tax effect
Total
Cash Flow Hedge
Reserve
(201,952)
55,537
(146,415)
(85,639)
23,550
(62,089)
(208,504)
(106,263)
29,221
(77,042)
221,402
(60,885)
160,517
83,475
122,359
(33,649)
88,710
(135,763)
37,335
(98,428)
(9,718)
(185,856)
51,109
(134,747)
-
-
-
(134,747)
The loss for the year of the Company totaled €255,903 thousand.
193
The following statement provides additional disclosure on equity and is prepared pursuant to article 2427,
number 7-bis, showing the items in equity separately according to their source, possibility of utilization
and distribution, in addition to their utilization in prior years.
Nature/description
Amount
Possibility of
utilization
Amount
available
for absorption of
losses
(thousand of euro)
Share capital
Share premium
Reserves:
Other reserves
Cash Flow Hedge Reserve
Retained earnings
Total
Amount not distributable (**)
Summary of the amounts utilized
during the previous years (*)
147,100
752,157
B
A-B-C
29,420
(134,747)
958,738
A-B-C
B
A-B-C
1,752,668
Remaining amount distributable
-
for other
reasons
752,157
(752,281)
-
580,044
-
-
1,332,201
134,747 (**)
1,197,453
Key:
A: for share capital increases
B: to cover losses
C: for distribution to shareholders
* These amounts relate to utilizations made starting from 2007, after the reverse merger of the former parent Wind Acquisition Finance SpA
** Non-distributable amount relating to the negative CFH reserve (€134,747 thousand)
During the year, the stock option plan approved on June 30, 2006 by the Board of Directors of the
indirect parent WIND TELECOM SpA (formerly Weather Investments SpA) ended. The plan, with a total
duration of 5 years, awarded a number of Company employees the right to acquire a specified number of
ordinary shares of WIND Acquisition Holdings Finance SpA or WIND Telecomunicazioni SpA. The options
granted have a vesting period split into three tranches of equal value and may be exercised every year
from June 30, 2008 until June 30, 2010, subject to a public offering for sale and subscription and the
consequent listing of the shares of one of these companies on the electronic stock exchange organized
and managed by Borsa Italiana SpA or on a foreign stock exchange. The exercising of the options was
additionally subject to a number of restrictions on the duration of the employment relationship and to
achieving certain professional performance objectives.
The rights vest from the grant dated and were exercised for a one-year period in the following three
tranches: June 30, 2008, June 30, 2009 and June 30, 2010. A total of 1,376,160 options were granted at
the date the plan became effective, representing a total of approximately 3% of the economic capital of
WIND Telecomunicazioni SpA or, alternatively, WIND Acquisition Holdings Finance SpA, at a strike price
of €73.85.
As an alternative to the stock option plan the Company has defined the long-term incentive plan that
quantifies the benefits pertaining to each employee under a method aimed at remunerating the creation
194
of value during the period in which the stock option plan of the WIND is valid, which is proportionally
linked to growth as measurable in terms of EBITDA and reduction of debt.
With reference to the stock option plan, the first, the second and the third tranches of the alternative
long-term incentive plan were disbursed on June 30, 2008, June 30, 2009 and June 30, 2010,
respectively.
14
The following table sets out an analysis of “Financial liabilities” at December 31, 2010 and 2009.
(thousands of euro)
Bank loans
Loans from others
Non-current
Current
Total
Non-current
Current
Total
5,199,876
89,765
5,289,641
431,377
290,483
721,860
-
-
-
4,523,262
160,836
4,684,098
3,281,676
107,857
3,389,533
4,145,568
5,856
4,151,424
238,928
66,529
305,457
-
9,677
9,677
13,830
-
13,830
414,603
101,507
516,110
8,734,310
264,151
8,998,461
9,514,810
568,359
10,083,169
On November 2010 the Company completed an important refinancing operation occurred in relation with
the transaction with VimpelCom Ltd, which led to following:
i)
the disbursement of a new Senior (Senior Facility Agreement) for an amount of €3,530 million;
ii) the disbursement of a new loan taken out with the Luxembourg registered subsidiary Wind
Acquisition Finance SA, maturing January 15, 2018 for an amount of €2,711 million at an annual
interest rate of 7.60% (Loan Agreement 2018);
i)
the Company’s Senior credit facility (Credit Facility Agreement entered into on August 11, 2005)
in the amount of €3,756 million and USD149 million (€113 million);
ii) Second Lien Proceeds Loan Agreement issued by the Luxembourg associate WIND Finance SL SA in
the amount of €552 million and of USD 180 million (€136 million);
iii) Senior Notes Proceeds Loan Agreement maturing 2015 issued by the Luxembourg subsidiary Wind
Acquisition Finance SA in the amount of €950 million and of USD 650 million (€491 million).
As shown in the following table and as detailed further below, by carrying out the refinancing operation
the Company has enabled it to extend its average maturity approximately of two years and benefit from
lower average finance expense.
195
In addition the acquisition of residual share of 73% of Wind Acquisition Finance SA determined the
reclassification of financial liabilities issued by it from Financing from associates to Financing from
subsidiaries.
The following table sets out an analysis of “Financial liabilities” at December, 2010 and 2009 by due date.
(thousands of euro)
1<x<5
years
>5 years
<1 year
89,765
Bank loans
Loans from others
Total
5,199,876
<1 year
5,289,641
290,483
Total
131,324
300,053
721,860
-
-
-
-
160,836
660,474
3,862,788
4,684,098
107,857
1,075,000
2,206,676
3,389,533
5,856
4,145,568
-
4,151,424
66,529
221,019
17,909
305,457
9,677
-
-
9,677
-
10,782
3,048
13,830
101,507
194,320
220,283
516,110
264,151
1,306,801
7,427,509
8,998,461
568,359
5,131,686
4,383,124
10,083,169
-
1<x<5
years
>5 years
The following table provides an analysis of “Financial liabilities”, excluding derivative financial
instruments, by currency and effective interest rate.
(thousands of euro)
<5%
5%<x<7.5%
7.5%<x<10%
Euro
225,367
3,493,703
2,658,304
10%<x<12.5% 12.5%<x<15%
-
2,607,258
8,984,631
Total
Total
225,367
3,493,703
2,658,304
-
2,607,258
8,984,631
The following table provides a comparison between the carrying amount and fair value of non-current
“Financial liabilities” at December 31, 2010 and 2009.
(thousands of euro)
Carrying amount
Bank loans
Loans from others
Total
Fair value
Carrying amount
Fair value
5,199,876
5,356,431
431,377
431,377
-
-
4,523,262
4,891,098
3,281,676
3,422,105
4,145,568
4,216,672
238,928
238,928
-
-
13,830
13,830
414,603
414,603
8,734,310
9,031,294
9,514,810
9,953,750
The fair value is approximately the same as the carrying amount for current “Financial liabilities”.
Current “Financial liabilities” at December 31, 2010 consist exclusively of the portions of loans for which
payment is due by the end of the following financial year, referring to both principal and accrued interest.
An analysis of the derivative financial instruments balance and of the respective changes is found in note
15.
Bank loans
The decrease in “Bank loans” is principally due to the effects of the Company’s debt refinancing, which
led to the early repayment of the Credit Facility Agreement on November 26, 2010, entered into in 2005,
and the disbursement of the new Senior Facility Agreement.
196
The following table sets out the main information relating to outstanding “Bank loans” at December 31,
2010 following the refinancing operation.
(thousands of euro)
Bank loans
Carrying
amount at
December 31,
2010
Nominal
amount at
December 31,
2010
Residual
Commitment
Currency
Due date
Interest rate
Senior Facility
- Tranche A1
159,384
166,118
166,118
EUR
11/26/2016
Euribor+4,00%
- Tranche A2
1,294,199
1,348,882
1,348,882
EUR
11/26/2016
Euribor+4,00%
- Tranche B1
1,279,249
1,333,882
1,333,882
EUR
11/26/2017
Euribor+4,25%
- Tranche B2
653,262
681,118
681,118
EUR
11/26/2017
Euribor+4,50%
-
-
400,000
EUR
11/26/2016
Euribor+4,00%
3,530,000
3,930,000
- Revolving
- Bank overdrafts
- Other accrued interest expense
Total
1,751
1,687
3,389,533
The new Senior Facility Agreement denominated exclusively in euros, is made up of various tranches,
each having its own specific repayment plan and interest rates which may be reviewed on the basis of
the trend in certain specific income statement and statement of financial position indices:
•
tranche A1 is repayable from May 26, 2011 and maturing on November 26, 2016. Interest is payable
at Euribor plus a spread of 400 basis points. The maximum amount of the facility of €166 million was
fully in use at December 31, 2010;
•
tranche A2 is repayable from May 26, 2011 and maturing on November 26, 2016. Interest is payable
at Euribor plus a spread of 400 basis points. The maximum amount of the facility of €1,349 million
was fully in use at December 31, 2010;
•
plus a spread of 425 basis points. The maximum amount of the facility of €1,334 million was fully in
•
plus a spread of 450 basis points. The maximum amount of the facility of €681 million was fully in
•
a revolving tranche having final repayment on November 26, 2016. This may be used either as a
cash loan or a signature loan. If used as a cash loan interest is payable at Euribor plus a margin of
400 basis points and there is a non-use commission of 160 basis points. The maximum amount of the
facility, €400 million, is wholly unused and therefore fully available.
With the aim of reducing its bank loan exposure to fluctuations in interest rates and foreign exchange
rates, the Company has entered into transactions which qualify as interest rate hedges for a notional
amount of €3,330,000 thousand, whose fair value at December 31, 2010, including forward start
transactions, is negative for €11,526 thousand. The hedges extend to September 2017 and consist of
plain vanilla interest rate swaps and plain vanilla forward start interest rate swaps.
197
The considerable increase in “Financing from subsidiaries” is mainly the result of the Loan Agreement
2018, taken out by the Company with the Luxembourg registered subsidiary Wind Acquisition Finance SA
at a notional amount of €2,711,101 thousand. Interest is payable on this loan, which is repayable on
January 15, 2018, on a half-yearly basis at an annual rate of 7.60%.
As part of the refinancing operation, WIND and its subsidiary Wind Acquisition Finance SA additionally
amended the Loan Agreement 2017 by changing the currency of the initial tranche, which was originally
denominated in dollars (USD2,000 thousand), to euros (€1,428 thousand).
In addition, as the result of the merger completed on November 12, 2010, details of which may be found
in note 3 this item does not include:
•
the debt of a financial nature due to the subsidiary Enel.Net Srl and relating to the application to the
Backbone Lease Agreement of the finance lease method as required by IAS 17, which at December
31, 2009 amounted to €488,106 thousand;
•
the current accounts with Enel.Net Srl and Italia OnLine Srl, which at December 31, 2009 amounted
to €150,423 thousand and €61,855 thousand respectively.
An amount of €56,865 thousand at December 31, 2010 refers to the sight current accounts with
subsidiaries on which interest is charged on a quarterly basis at market rates.
Details of the Financing from subsidiaries at December 31, 2010, following the refinancing operation are
provided bellow.
(thousands of euro)
Carrying
amount at
December 31,
2010
Nominal
amount at
December 31,
2010
Residual Commitment
Currency
Due date
Interest
rate
Loan Agreement 2017
2,607,258
2,678,068
2,678,068
EUR
06/15/2017
11.9%
Loan Agreement 2018
2,625,357
2,711,101
2,711,101
EUR
01/15/2018
7.60%
5,232,615
5,389,169
5,389,169
Total
As discussed earlier, on November 26, 2010 the Company made full repayment of the amounts due
under the Senior Notes Proceeds Loan Agreement maturing in 2015 and payable to the Luxembourg
registered subsidiary Wind Acquisition Finance SA (which became a subsidiary following the acquisition
completed by the Company in November 2010, details of which may be found in note 3).
The Senior Notes Proceeds Loan Agreement 2015 provided options for early repayment at predetermined
prices, as a result of which the transaction led to the payment of a premium of approximately €73 million.
198
This item had a nil balance at December 31, 2010, as the financial debt due to Wind Finance SL SA
relating to the Second Lien Proceeds Loan Agreement of September 29, 2005 was repaid on November
26, 2010, as discussed earlier.
Loans from others
This item, having a balance of €305,457 thousand (€9,677 thousand at December 31, 2009), consists of
€295,778 thousand (of which €56,950 is the current portion) payable to banks against the deferred
repayment plan of the fair value of the derivative instruments to hedge extinct since repaid loans in the
refinancing of the Company’s debt.
15
DERIVATIVE FINANCIAL INSTRUMENTS
The following table provides details of the outstanding derivative financial instruments at December 31,
2010 and 2009.
(thousands of euro)
Fair value (+)
Fair value (-)
- Exchange rate risk
- Interest rate risk
Total cash flow hedges
2,304
13,830
Fair value (+)
Fair value (-)
113
-
276,565
239.545
516.110
2,304
13,830
113
Put & call options
-
-
207,054
-
Total Fair value hedge
-
-
207,054
-
- Embedded derivatives on Senior Notes
Total Non Hedge Accounting Derivatives
92,895
92,895
-
179,323
179,323
-
Total
95,199
13,830
386,490
516,110
The following table shows the detail of current and non-current derivatives instruments.
(thousands of euro)
Fair Value (+)
Fair Value (-)
Fair Value (+)
Fair Value (-)
-
-
207,167
101,507
95,199
13,830
179,323
414,603
95,199
13,830
386,490
516,110
Current
Non current
Total derivatives
The fair value of financial instruments listed on active markets was determined as the market quotation
at the reporting date. In the absence of an active market, fair value was determined by referring to
prices provided by external operators and using valuation models based mostly on objective financial
variables, as well as by taking into account, where possible, the prices used in recent transactions and
the quotations of similar financial instruments.
There were no currency risk hedges outstanding at December 31, 2010 as following the refinancing
operation the Company no longer had any debt in currencies other than the euro at that date.
The following were outstanding at December 31, 2010:
199
•
plain vanilla interest rate swaps and plain vanilla forward start interest rate swaps hedging the
interest rate risk of bank loans, having a notional amount of €3,330,000 thousand (€4,475,000
thousand at December 31, 2009) and a negative fair value of €11,526 thousand (negative fair value
of €239,545 at December 31, 2009);
•
embedded derivatives of €92,895 thousand (€179,323 thousand at December 31, 2009) relating to
the fair value of the early repayment options on the Loan Agreement 2017 and 2018 (€77,706
thousand and €15,189 thousand on the loans expiring in 2017 and 2018, respectively), for which
details may be found in note 14.
The change in the balance of the derivative financial instruments compared with the previous year is
mainly due to the inclusion at December 31, 2009 of:
•
the fair value of the put option on the shares of Hellas Telecomunications I Sàrl by an amount of
€207,054 that was extinguished during the year through the partial exercising of the option on
June 30, 2010 and the exercising of the remaining portion on November 29, 2010 (details of this
matter may be found in note 3);
•
16
the fair value of the derivative financial instruments closed relating the loans repaid.
EMPLOYEE BENEFITS
The following table sets out the changes in “Employee benefits” at December 31, 2010.
(thousands of euro)
At December 31,
2009
60,311
Accrual (Utilization) Other changes
19,977
(2,048)
(18,790)
Merger
At December 31,
2010
230
59,680
The column Merger contains the post-employment benefits (TFR) acquired by the Company from Italia
OnLine Srl as the result of the merger.
Other changes during the year consist mostly of the transfer of the post-employment benefits accrued
during the year to supplementary pension funds or to the Treasury fund held by the Italian social security
organization INPS (€17,388 thousand).
The main actuarial assumptions underlying the calculation of the post-employment benefits are the
following.
Year
Average inflation rate
Discount rate
Increase in wages
and salaries
Employee turnover
rate
2010
2.00%
4.3%
N/A
3.00%– 4.00%
The effects recognized in profit or loss are as follows.
(thousands of euro)
Current service costs
Financial expense
Total
Actual return on plan assets
At December 31,
At December 31,
2010
17,902
2,075
19,977
N/A
2009
23,433
(2,735)
20,698
N/A
200
17
PROVISIONS
The following table sets out changes in “Provisions” during the year ended December 31, 2010.
At
December
31, 2009
Increases
(Decreases)
Merger
At
December
31, 2010
Litigation
33,057
16,344
(13,895)
1,020
36,526
Restructuring
Universal service contribution as per Presidential Decree no. 318
of September 19, 1997
15,372
10,010
(13,482)
11,900
(thousands of euro)
57,405
527
-
57,932
Product assistance
2,395
1,947
(1,549)
2,793
Dismantling and removal
8,140
1
(419)
7,722
74,413
21,737
(31,062)
65,088
190,782
50,566
(60,407)
Other provisions
Total
1,020
181,961
The column Merger contains the provisions acquired by the Company from Italia OnLine Srl as the result
of the merger
Litigation
The provision at the respective dates is based on estimates using the best information available of the
total charge that the Company expects to incur upon settlement of all outstanding legal proceedings (for
details on the main proceedings in progress, please refers to paragraph on main pending legal
proceedings in note 38).
Restructuring
The provision consists of the costs which the Company expects to incur in future years as a consequence
of implementing restructuring and reorganization plans resulting from the identification of areas of
efficiency in some business areas initiated during the current and previous years. The utilization of the
restructuring provision in the amount of €13,482 thousand is entirely due to leaving incentives and
personnel outplacement costs.
Universal service contribution
Article 3, paragraph 6, of Presidential Decree no. 318 of September 19, 1997 regarding the
“Implementation of European Union Directives” establishes a mechanism designed to distribute the net
cost of providing universal service throughout the country whenever the related obligations represent an
unfair cost for the entity or entities assigned the responsibility for supplying the service. For the years
2004 to 2009, the contribution has been estimated on the basis of the best information available at the
date of the calculation, pending the determination by the Communications Regulator of the actual
amount to be paid by the Company.
201
Other provisions
This item consists of the measurement of certain liabilities arising from obligations assumed by the
Company for which an estimate is made at the date of these financial statements of the amount to be
settled upon due date. The balance includes €24,534 thousand for liabilities for termination benefits
arising from agency contracts in existence at the reporting date and €16,843 thousand accrued in 2010
relating to the compensation plan for the long-term retention and incentive of management, for which
further details may be found in note 13. Changes in the year relate to the payment of the third tranche in
July 2010 and to the amounts accrued during the year that will be paid in the future.
18
OTHER LIABILITIES
“Other non-current liabilities” at December 31, 2010 and 2009 amount to €11,622 thousand and €4,050
thousand, respectively, and relate to deferred income on long-term commercial contracts.
19
TRADE PAYABLES
The following table provides details of “Trade payables” at December 31, 2010 and 2009.
(thousands of euro)
At December 31,
At December 31,
2010
2009
353,186
352,927
Due to agents
52,945
40,455
Due to authorized dealers
41,664
32,847
Due to telephone operators
Due to parents
Due to subsidiaries
2,438
1,178
71,993
107,043
32
5,308
Due to associates
Due to related parties
Other trade payables
Total
3,225
4,985
1,115,311
1,154,357
1,640,794
1,699,100
The change in this item over the year is principally due to the effect of normal settlements during the
course of the year.
More specifically, compared to December 31, 2009 the item “Payables due to subsidiaries” does not
include any balances due to Enel.Net Srl or Italia OnLine Srl, which were acquired by the Company as the
result of the merger and for which details may be found in note 3.
Payables to agents and authorized dealers have risen by €21,307 thousand as the result of an increase in
customer acquisition costs, details of which may be found in note 24.
“Trade payables due to parents” of €2,438 thousand are the consequence of the agreement between the
indirect parent WIND TELECOM SpA (formerly Weather Investments SpA) and the Company relating to
the provision of services for which further details may be found in note 35.
202
“Trade payables due to telephone operators” mainly relate to interconnection and roaming services
“Trade payables due to related parties” mainly relate to transactions with telephone operators belonging
to the group for which further details may be found in note 35.
“Other trade payables” mainly relate to payables to suppliers for the purchase of goods and services.
The following table provides an analysis of trade payables by due date.
(thousands of euro)
-within 12 months
-after 12 months
Total
20
At December 31,
At December 31,
2010
2009
1,610,214
1,678,180
30,580
20,920
1,640,794
1,699,100
OTHER PAYABLES
The following table provides an analysis of “Other payables” at December 31, 2010 and 2009.
(thousands of euro)
At December 31,
At December 31,
2010
2009
Payables to social security organizations
33,601
33,214
Tax payables
30,041
26,054
Payables to personnel
54,837
55,837
24,721
24,499
73,580
2,597
Payables to government bodies:
- grants
Other amounts payable to parents
Other amounts payable to subsidiaries
283
762
223,594
219,936
Deferred income
26,494
28,469
Other payables
28,349
53,309
495,500
444,677
At December 31,
At December 31,
Prepaid traffic to be used
Total
The following table provides an analysis by due date.
(thousands of euro)
-within 12 months
-after 12 months
Total
2010
2009
495,500
444,677
-
-
495,500
444,677
“Payables to social security organizations” relate principally to the employer’s and employees’ portions of
social security contributions for December and the employer’s portion accrued on deferred remuneration
(mostly accrued vacation and other permitted leaves that have been accrued but not yet taken). This
item also includes the amounts payable to the Italian social security organization INPS for the amounts of
accrued post-employment benefits (TFR) yet to be paid which employees had elected to transfer to the
Treasury fund in accordance with Law no. 296 of December 27, 2006, the “2007 Finance Act”, and
subsequent decrees and regulations.
The following table sets out details of “Tax payables” at December 31, 2010 and 2009.
203
(thousands of euro)
At December 31,
At December 31,
2010
2009
Government license fee
18,697
13,894
Withholding tax
10,546
11,479
Other
798
681
Total
30,041
26,054
“Payables to personnel” consist mostly of liabilities for accrued vacation and other accrued leave still to
be taken at the end of the year.
“Payables to government bodies for grants” represent amounts due for licenses and concessions provided
by the relevant bodies.
Of the “Other payables to parents”, €68,168 thousand refers to a payable to the indirect parent WIND
TELECOM SpA (formerly Weather Investments SpA) following the transfer of IRES tax payables by the
Comapny as part of the national tax consolidation procedure and for €4,099 thousand to a payable to the
direct parent WIND Acquisition Holdings Finance SpA following the resolution adopted by the
shareholders of the Company, who in their general meeting on November 24, 2010 approved the
distribution of a dividend to the parent of €9,500 thousand, of which €5,401 thousand has been paid.
“Prepaid traffic to be used” consists of the unused portion of prepaid traffic, sold by the Company via
rechargeable telephone cards and top-ups, which had not yet been utilized at the end of the year.
“Deferred income” refers to income for billings made contractually in advance in prior years and in 2010
for lease and installation fees relating to the utilization of broadband capacity (‘initial capacity’), which will
be recognized in later periods.
“Other payables” consist of amounts due to supplementary pension funds, amounts payable for bank
commissions and guarantee deposits received from customers.
21
TAX PAYABLES
The balances at December 31, 2010 and 2009 of €nil and €7,897 thousand, respectively, represent the
amounts due by the Company for income tax for the year (IRAP), net of advance payments for the
corresponding tax periods.
Receivable and payable items for IRES are included in receivables and payables from and to the parent,
as the company has elected to take part in the national tax consolidation procedure of WIND TELECOM
SpA (formerly Weather Investments SpA).
204
22
REVENUE
The following table provides an analysis of “Revenue” for 2010 and 2009.
The revenue for 2010 is not directly comparable with that for 2009 following the merger of the
subsidiaries Italia Online Srl and Enel Net Srl into the Company carried out in the second half of 2010, for
which further details may be found in note 3 and the contribution of the “International and national
Wholesale business” to the subsidiary Wind International Services SpA on April 1, 2009, for which further
details may be found in separate financial statements at December 31, 2009.
(thousands of euro)
Revenue from sales
Change
2010
2009
12 months
12 months
Amount
%
140,797
124,114
16,683
13,4%
Revenue from services
- Telephone services
4,192,998
3,987,861
205,137
5,1%
- Interconnection traffic
894,061
997,929
(103,868)
(10,4)%
- International roaming
60,339
68,238
(7,899)
(11,6)%
7,351
9,380
(2,029)
(21,6)%
126,446
93,967
32,479
34,6%
Total revenue from services
5,281,195
5,157,375
123,820
2,4%
Total
5,421,992
5,281,489
140,503
2,7%
- Judicial authority services
- Other revenue from services
“Revenue” has increased by €140,503 thousand over the previous year.
interoperability of series 4 numbers, the Company has recorded the traffic revenue towards customers of
other operators for whom the Company performs the role of Service Provider.
This positive trend was mainly driven by a €205,137 thousand increase in revenue from telephone
services which reached €4,192,998 thousand at December 31, 2010 (€3,987,861 thousand at December
31, 2009). This increase is essentially attributable to a rise in the mobile segment also due to the
increase in the customer base.
In the fixed segment, there has been a rise in revenue from fixed charges and contributions mainly in
internet and data services as a consequence also of growth in the customer base.
The revenue from sales increased by €16,683 thousand during the year 2010 (+13.4% over 2009) mainly
due to the increase in the sale of mobile handsets, also as a result of the increased procurement needs of
the WIND Retail Srl points of sales.
Other revenue from services increased by €32,479 thousand in 2010 mainly as the consequence of
revenues earned from the sale of services and advertising on the portal and for hospitality income, which
in 2010 also includes the revenue of the former subsidiaries IOL and Enel Net.
These changes are only partially offset by:
¾
the decrease of €103,868 thousand in revenue from “Interconnection traffic” (-10.4% over 2009)
mainly due to the combined effect of:
205
•
lower termination revenue from the mobile and fixed network caused by the reduction in unit
charges, which was only partially offset by an increase in incoming fixed and mobile voice traffic;
•
the decrease in interconnection revenue from narrowband internet traffic following a general shift
in the direction of broadband technology;
•
¾
an increase in the traffic volume of SMS value added services;
a decrease of €7,899 thousand in revenue from international roaming (-11.6% over 2009) mainly
due to the general reduction in roaming tariffs on international markets, which was not sufficiently
offset by the increase in the roaming volumes of the voice component.
23
OTHER REVENUE
“Other revenue” amounts in total to €132,465 thousand for 2010 (€164,719 thousand for 2009) and
refers principally to prior year income and the revision of estimates made in previous years.
The decrease in the item is mainly due to inclusion at December 31, 2009 of €30,000 thousand arising
from agreements reached for settlement agreements with some operators (€16,580 thousand for 2010)
and €10,215 thousand (€2,691 thousand for 2010) arising from the grant obtained from the Puglia
Region as part of the “Measures to support local growth” framework programme, regarding investments
made between 2004 and 2008, in which the Company took part through the Elawind Consortium.
24
PURCHASES AND SERVICES
The following table provides an analysis of “Purchases and services” for 2010 and 2009.
The Purchases and services for 2010 are not directly comparable with that for 2009 following the merger
of the subsidiaries Italia Online Srl and Enel Net Srl into the Company carried out in the second half of
2010, for which further details may be found in note 3 and the contribution of the “International and
national Wholesale business” to the subsidiary Wind International Services SpA on April 1, 2009, for
which further details may be found in separate financial statements at December 31, 2009.
206
(thousands of euro)
Customer acquisition costs
Lease of civil and technical sites
Purchases of raw materials, consumables, supplies and goods
Lease of telecommunication circuits
Outsourced services
Other services
Lease of local access network
Utilities
Consultancies and professional services
Change in inventories
Other leases and use of third party assets
Bank and postal charges
Transport and logistics
Total purchases and services
Change
2010
12 months
2009
12 months
Amount
%
1,001,438
286,523
236,269
185,051
93,905
180,879
141,991
93,626
350,280
121,912
73,774
31,473
47,604
5,470
20,054
19,181
16,449
1,076,479
230,740
242,236
190,027
89,172
190,049
134,509
98,010
314,503
117,775
70,519
27,879
39,018
(9,933)
21,631
18,334
14,118
(75,041)
55,783
(5,967)
(4,976)
4,733
(9,170)
7,482
(4,384)
35,777
4,137
3,255
3,594
8,586
15,403
(1,577)
847
2,331
(7.0)%
24.2%
(2.5)%
(2.6)%
5.3%
(4.8)%
5.6%
(4.5)%
11.4%
3.5%
4.6%
12.9%
22.0%
(155.1)%
(7.3)%
4.6%
16.5%
2,905,879
2,865,066
40,813
1.4%
Purchases and services increased by €40,813 thousand over 2009.
interoperability of series 4 numbers, the Company has recorded higher termination and content costs
against revenue from series 4 traffic towards customers of other operators for whom the Company
performs the role of Service Provider (note 22).
The change in the item is mainly due to the combined effect of the following increases and decreases
compared to 2009:
•
an increase of €55,783 thousand in “Customer acquisition costs” principally due to the increase in
commissions resulting from the rise in activations and mobile traffic and increased trade promotion
and comarketing costs, incurred amongst others with the subsidiary WIND Retail Srl. The balance at
December 31, 2009 include the respective reclassifications of €78,202 thousand from this item to
amortization of intangible assets due to the different presentation of some customer acquisition
costs, which further details may be found in note 2.1;
•
an increase of €35,777 thousand in “Lease of local access network” costs due to an increase in the
LLU and WLR customer bases also as the result of the migration of the VLLU customer base to the
•
a net increase of €10,427 thousand in “Change in inventories” and “Purchases of raw materials,
consumables, supplies and goods” due to an increase in mobile phone handsets sell in and the need
for larger quantities to ensure stocks of the new stores acquired by WIND Retail;
•
an increase of €8,586 thousand in “Consultancies and professional services” mainly due to the
increase in the purchases of the external professional services. The item includes remuneration for
statutory auditors of Group companies, equal to €344 thousand, and the remuneration for the
external audit activities on financial statements, equal to €1,012 thousand (total compensation for
the audit to separate and consolidate financial statements at December 31, 2010 is equal to €475
207
thousand). As resolved by shareholders in their ordinary general meeting of April 12, 2010 the
Directors of the Company receive no fees;
•
an increase of €7,482 thousand in “Outsourced services” mainly due to the the rise in purchase
volumes of call center services, which is also the result of the increase in the customer base;
•
a decrease of €75,041 thousand in “interconnection traffic” costs. This is mainly due to the fall in
termination tariffs on the mobile network, the lower costs for internet collection due to the increase
in broadband traffic and the lower costs of voice collection due to the increase in the penetration of
direct technology, only partially offset by higher volumes of national termination to mobile and fixedline phones, higher international termination retail volumes and higher termination costs incurred
with other operators as the result of the introduction of the interoperability of series 4 numbers. The
negative change in this item is also the result of the contribution of the “International & national
wholesale” business to the subsidiary WIND International Services SpA on April 1, 2009;
•
decrease of €9,170 million in costs for “Advertising and promotional services”, mainly as the result of
the reduction in intercompany internet advertising costs incurred with the former subsidiary IOL Srl,
which as the result of the merger no longer existed in 2010.
25
OTHER OPERATING COSTS
The following table provides an analysis of “Other operating costs” for 2010 and 2009
(thousands of euro)
Impairment losses on trade receivables and current assets
Accruals for costs
2010
2009
12 months
12 months
Amount
Change
%
74,025
63,115
10,910
17.3%
(58.1)%
7,345
17,548
(10,203)
Annual license fees
25,639
22,789
2,850
12.5%
18,471
18,738
(267)
(1.4)%
Accruals for risks
16,344
15,464
880
5.7%
1,497
2,698
(1,201)
(44.5)%
143,321
140,352
2,969
2.1%
Gifts
Total other operating costs
The decrease shown is mostly due to lower accruals for costs mainly due to the revision to the estimate
of the amount due for the Universal Service contribution, only partially offset by the rise in impairment
losses on trade receivables as an effect of the increase in collection risk.
26
PERSONNEL EXPENSES
The following table provides an analysis of “Personnel expenses” for the years 2010 and 2009.
(thousands of euro)
Wages and salaries
Social security charges
Other personnel expenses
(Costs capitalized for internal works)
Total personal expenses
2010
12 months
2009
12 months
Change
Amount
281,940
79,784
23,644
17,900
(46,222)
273,470
79,705
21,404
17,946
(44,513)
8,470
79
2,240
(46)
(1,709)
3.1%
0.1%
10.5%
(0.3)%
3.8%
357,046
348,012
9,034
2.6%
%
208
The item increases by €9,034 thousand (+2.6%) over 2009 mainly due to the renewal of the National
labour Contract signed on October 23, 2009.
“Other personnel expenses” include mainly the provision for restructuring for €10,010 thousand for which
further details may be found in note 17.
The number of employees at year end was as follows.
At December 31,
2010
At December 31,
2009
155
575
5,693
149
556
5,709
6,423
6,414
2010
12 months
2009
12 months
155
573
5,743
148
560
5,817
6,471
6,524
Senior management
Middle management
Employees
Total
The average number of employees during the year was as follows.
Senior management
Middle management
Employees
Total
27
DEPRECIATION AND AMORTIZATION
The following table provides an analysis of “Depreciation and amortization” for 2010 and 2009.
(thousands of euro)
Depreciation of property, plant and equipment
- Plant and machinery
- Industrial and commercial equipment
- Other assets
Amortization of intangible assets with finite lives
- Industrial patents and similar rights
- Licenses, trademarks and similar rights
- Other intangible assets
Total depreciation and amortization
Change
2010
12 months
2009
12 months
Amount
%
605,384
8,618
21,682
624,723
6,661
23,061
(19,339)
1,957
(1,379)
(3.1)%
29.4%
(6.0)%
90,453
114,898
156,396
84,807
109,015
139,910
5,646
5,883
16,486
6.7%
5.4%
11.8%
997,431
988,177
9,254
0.9%
The 2009 balance of Amortization of other intangible assets includes the reclassification of €78,202
thousand, originally recognized in Purchases and services, due to the different presentation of some
customer acquisition costs, for which details may be found in note 2.1.
The rise in the deprecation and amortization charge over 2009 is due to an increase in the amortization
of intangible assets (€28,015 thousand), essentially as the result of the increased investments in software
and the increase in the customer base, which above all in the final quarter led to a considerable rise in
customer acquisition costs, only partially offset by a decrease in the depreciation of property, plant and
209
equipment (€18,761 thousand) as a result of the completion of the deprecation period for equipment
acquired in previous years and the effect of the disposals of non-current assets.
28
REVERSAL OF IMPAIRMENT LOSSES (IMPAIRMENT LOSSES) ON NON-CURRENT
ASSETS
The following table provides an analysis of “Reversal of impairment losses (impairment losses) on non-
current assets” for 2010 and 2009.
(thousands of euro)
2010
Reversal of impairment losses / (Impairment losses) on property, plant and equipment
Reversal of impairment losses / (Impairment losses) on intangible assets
Total
2009
Change
12 months
12 months
Amount
(22,383)
(4)
(22,387)
2,927
1,021
3,948
(25,310)
(1,025)
(26,335)
%
n.m
n.m
n.m
This item, having a negative balance of €22,387 thousand for 2010 (positive balance of €3,948 thousand
for 2009), consists mainly of impairment losses recognised under plant and equipment and relates to the
following:
•
for €16,282 thousand to the impairment losses on radio bridges due to the equipment
modernisation plan;
•
for €2,107 thousand to the positive effect arising from the operation to replace certain
transmission equipment (of €20,703 thousand), net of the respective impairment losses (of
€18,596 thousand), for which details may be found in note 4.
29
GAINS/(LOSSES) ON DISPOSAL OF NON-CURRENT ASSETS
The following table provides an analysis of “Gains/(losses) on disposal of non-current assets” for 2010
and 2009.
(thousands of euro)
Gains on disposal of property, plant and equipment
Losses on disposal of property, plant and equipment
Total
Change
Amount
2010
12 months
2009
12 months
2,509
(2,915)
850
(10,751)
1,659
7,836
195.2%
(72.9)%
(406)
(9,901)
9,495
(95.9)%
%
The change over the previous year is due to the lower losses recorded in 2010 on the disposal and/or
sale of property, plant and equipment as part of the normal renewal process for these assets.
30
FINANCE INCOME
The following table provides an analysis of “Finance income” for 2010 and 2009.
210
(thousands of euro)
Income on bank deposits
Income from subsidiaries
Change
2010
2009
12 months
12 months
Amount
%
2,826
5,417
(2,591)
(47.8)%
18
62
(44)
(71.0)%
6,114
71,535
(65,421)
(91.5)%
Other
1,502
11,209
(9,707)
(86.6)%
10,460
88,223
(77,763)
(88.1)%
Total finance income
The decrease in finance income is mainly due to the result of lower gains on the measurement of
derivatives at fair value (€58,270 thousand at December 31, 2009). In this respect at December 31, 2010
the item consists principally of income of €6,114 thousand arising from the measurement at fair value of
the put option on the shares held in Hellas Telecommunications I Sàrl until November 29 2010, the date
on which the option was fully exercised (for further details reference should be made to note 6).
The decrease in finance income is also due to the lower income accrued on the average stock of cash,
primarily due to the reduction in market rates and to the amount of €9,883 thousand included at
December 31, 2009 in Other finance income relating to interest accrued on the undue amounts paid by
the Company and by the former Infostrada SpA as Turnover Contribution (Law no. 448/1998), for which
a refund has been requested through two notices to pay served on March 31, 2009.
31
FINANCE EXPENSE
The following table provides an analysis of “Finance expense” for 2010 and 2009.
(thousands of euro)
Finance expense on:
Bank loans
Discounted provisions
Cash flow hedges, reversed from equity
Impairment losses on financial assets
Other
Total finance expense
2010
12 months
2009
12 months
Change
Amount
(194,942)
(50,701)
(510,219)
(2,357)
(104,183)
(208,858)
(361,869)
(26,601)
(2,790)
(69,687)
13,916
311,168
(483,618)
433
(34,496)
(6.7)%
(86.0)%
n.m.
(15.5)%
49.5%
(26,004)
(6,767)
(26,004)
(4,112)
(17,645)
(218)
4,112
10,878
(25.786)
(100.0)%
(61.6)%
(895,172)
(691,780)
(203,392)
29.4%
%
Finance expense increased by €203,392 thousand as the result of an increase in finance expense to the
subsidiary Wind Acquisition Finance SA, following the placements concluded in July 2009 and November
2010, only partially offset by a decrease in finance expense due to a lower exposure to banks following
the repayments made during the year on the previous loan and a change in the bond/bank debt mix as
the result of the refinancing operation. In this respect the following table provides an analysis between
the interest component and the amortized cost charge component for finance expense loans.
211
(thousands of euro)
12 months 2010
Bank loans
12 months 2009
interest
expense
amortized
cost charges
Total
interest
expense
amortized
cost charges
Total
(168,105)
(26,837)
(194,942)
(192,057)
(16,801)
(208,858)
(361,869)
(49,049)
(1,651)
(50,701)
(344,428)
(17,441)
(495,688)
(14,531)
(510,219)
(26,601)
-
(26,601)
(712,842)
(43,019)
(755,861)
(563,085)
(34,243)
(597,328)
The following effects should be added to the expense accruing on financial liabilities, for which further
details may be found in note 14:
•
hedge accounting for the portion of the cash flow hedge reserve reclassified to the income
statement during the year following the use of derivative financial instruments, amounting to
€104,183 thousand;
•
the measurement of the embedded derivatives in the early repayment options on the 2017 and
2018 Loan Agreement, amounting to €26,044 thousand.
32
FOREIGN EXCHANGE GAINS/(LOSSES), NET
The following table provides an analysis of “Foreign exchange gains (losses) - net” for 2010 and 2009.
(thousands of euro)
2010
2009
12 months
12 months
Realized gains
Unrealized gains
Foreign exchange gains
Realized losses
Unrealized losses
Foreign exchange losses
Total
33
Change
Amount
%
191,901
3,658
188,243
n.m.
3,887
67,225
(63,338)
(94,2)%
195,788
70,883
124,905
n.m.
192,613
2,313
190,300
n.m.
935
68,502
(67,567)
(98,6)%
193,548
70,815
122,733
n.m.
2,240
68
2,172
n.m.
UNUSUAL FINANCE EXPENSE
The item of €366,672 recognized during the year refers to the refinancing operation completed on
November 26, 2010 following the transaction with VimpelCom Ltd. This refinancing led to the early
repayment of the Credit Facility Agreement, the Second Lien Proceeds Agreement from the Luxembourgbased associate WIND Finance SL SA and the 2015 Senior Notes Proceeds Loan Agreement from the
Luxembourg-based subsidiary Wind Acquisition Finance SA. More specifically, these charges relate to the
following:
•
for €153,724 thousand (of which €59,883 thousand on the bank loans issued by the Company,
€14,722 thousand on the financing from the Luxembourg-based associate WIND Finance SL SA
and €79,119 thousand on the financing from the Luxembourg-based subsidiary Wind Acquisition
212
Finance SA) to the residual balance at the repayment date of the fee paid on entering the
arrangement/issue of the old loans, forming part of the amortized cost of same loans;
•
for €75,897 thousand to the write-off of the positive fair value of the embedded derivative in the
2015 Senior Notes Proceeds Loan Agreement;
•
for €72,730 thousand to the repayment of the finance expense in relation to the early
repayment of the loans in relation of the financing operation;
•
for €64,320 thousand to the reclassification to the income statement of the portion of the cash
flow hedge reserve relating to extinct derivative instruments which no longer met the conditions
to hedge future cash flows.
34
INCOME TAX
The following table provides an analysis of “Income tax” for 2010 and 2009.
(thousands of euro)
Current tax
Deferred tax
Total income tax
2010
2009
12 months
(179,186)
Change
12 months
Amount
%
(281,038)
101,852
(36.2)%
44,440
49,159
(4,719)
(9.6)%
(134,746)
(231,879)
97,133
(41.9)%
The net charge for the year is made up of the following:
•
current income taxes expense of €179,186 thousand (of which €111,092 thousand for IRES tax and
€68,094 thousand for IRAP tax) charged on consolidated taxable income for 2010 in decrease
compared to 2009 due to the lower profit before tax. There is however a rise in the overall effective
tax rate caused by the increase in interest arising from the higher financial payables due to the
subsidiary WIND Acquisition Finance SA following the issue of the bond of €2.7 billion in July 2009
and the unusual financial expenses incurred in connection with the repayment of certain loans (both
of which are partially non-deductible).
•
net deferred tax income of €44,440 thousand, arising from a decrease of €14,621 thousand in
deferred tax assets mainly relating to the changes in temporary differences arising from provisions
and financial instruments and from the release of deferred tax liabilities of €29,819 thousand, mainly
relating to the changes in temporary differences arising from non-current assets.
The following table provides a reconciliation between the theoretical tax rate and the effective tax rate
for 2010 and 2009.
213
(thousands of euro)
2010
Theoretical tax rate
27.50%
(121,157)
Theoretical tax assets relating to IRES
2009
27.50%
(33,318)
495.159
136,169
125,029
Non-deductible costs/non-taxable revenue
Non-recognized deferred tax assets
Adjustments to previous years taxes
31,468
(4,061)
(25,059)
Actual IRES (current and deferred)
Effective IRES tax rate
55.01%
IRAP tax
Actual tax expense as per income statement
Overall tax rate
111.22%
163,576
66,652
33.03%
68,094
68,304
134,746
231,880
46.83%
The above reconciliation between the theoretical and effective tax rates has been performed solely for
IRES (corporate income tax) purposes. The IRAP tax charge is included to reconcile with the overall
income tax expense in the financial statements.
35
Transactions with related parties
Transactions with the related parties described below consist of those with WIND TELECOM Group
(formerly Weather Group) companies. Related party transactions are part of normal operations which are
conducted on an arm's length basis from an economic standpoint and formalized in agreements, and
mainly relate to transactions with telephone operators. In particular, the Company has entered into an
agreement with the parent WIND TELECOM SpA (formerly Weather Investments SpA) under which the
latter is entitled to receive an annual fee of approximately €8 million plus ancillary expenses for providing
services to the former (such as those relating to IT, marketing, personnel, purchasing, etc.). In addition,
as discussed in note 3 to which reference should be made for further details, the Company has been
assigned a put option versus its parent WIND TELECOM SpA (formerly Weather Investments SpA), with a
fair value of €207,054 thousand at December 31, 2009. On June 30, 2010 the put option was partially
exercised on 985 shares held in Hellas Telecommunications I Sàrl for an amount of €70 million, and on
November 29, 2010 the option was exercised on the remaining 1,980 shares held in that company for
consideration of €143 million.
Regarding the payment of the consideration by the parent, on November 29, 2010 the Company and
WIND TELECOM SpA (formerly Weather Investments SpA) signed an intragroup loan agreement by virtue
of which the Company granted the parent a loan of €143,103, for which details may be found in note 6.
Finally, following the change to euros of the currency used in the Loan Agreement 2017, set up with the
subsidiary Wind Acquisition Finance SA, the Company transferred the cross currency swaps previously
hedging the tranches in US dollars to that subsidiary.
214
At December 31, 2010 and during the year, the Company did not hold treasury shares or shares, either
directly or through trustees, or shares of WIND Acquisition Holdings Finance SpA, or of the indirect
parent WIND TELECOM SpA (formerly Weather Investments SpA) and Weather Investments II Sàrl.
The table below provides a summary of the main effects on the income statement and statement of
financial position of related party transactions during the year.
(thousands of euro)
2010
Finance
Income
Revenue
Arpu for Telecommunication Services
Finance
expense
Expenses
Trade receiv.
Other
receiv.
Financial
receiv.
Trade
Payables
Other
Payabes
Acq. of noncurrent
assets
Financial
Liabilities
-
-
-
-
700
-
-
-
-
-
-
1,176
-
1,658
-
319
-
-
806
-
-
-
-
-
701
-
443
-
-
-
-
-
-
Orascom Telecom Algeria
397
-
61
-
108
-
-
20
-
-
-
Orascom Telecom Tunisie SA
366
-
935
-
133
-
-
248
-
-
-
-
-
99
-
-
-
-
1,333
-
-
125
17
-
269
-
17
-
-
63
-
-
-
91
-
1
-
60
-
-
-
-
-
-
Mobizone
Orascom Telecom Bangladesh Ltd.
(Banglalink)
4
-
572
-
892
-
-
265
-
-
-
4
-
4
-
53
-
-
1
-
-
-
Globalive Wireless Management
-
-
-
-
-
-
-
5
-
-
-
Rain Srl
-
-
-
-
-
10
-
-
-
-
-
279
-
502
-
-
-
-
359
-
-
-
-
-
-
-
-
-
125
-
-
-
WIND Acquisition Holdings Finance
SpA
-
-
-
-
6
-
-
-
-
-
-
-
-
-
-
-
1,195
-
273
4,099
-
-
50
529
7,567
-
-
8,930
-
2,165
69,481
-
-
Consorzio Wind Team
-
-
-
-
-
1
-
-
-
-
-
Consorzio Elawind
-
-
-
-
-
11
-
-
-
-
-
-
-
-
661,827
-
2,618
-
814
-
5,232,615
-
-
-
38
-
-
-
-
32
-
-
-
WIND Finance SL SA
-
-
-
65,423
-
8
-
-
-
-
-
4,329
-
5,479
53
7,117
250
-
5,992
-
8,614
126
107,834
-
349,746
184
22,831
165
-
60,214
-
42,544
-
36,137
18
29,032
4
14,767
4,191
7
4,973
809
5,868
-
150,684
547
396,664
727,491
47,434
17,379
7
77,688
74,389
5,289,641
251
Egyptian Company for Mobile Services
Orascom Telecom Holding S.A.E.
Orascom Technology Solutions (OTS)
Orascom Telecom Services Europe
Company
Pakistan Mobile Communications Ltd.
(Mobilink)
Wind Hellas Telecommunications SA
WIND TELECOM SpA *
It Net Srl
WIND Retail Srl
Totale
Directors
The directors of the Company, who are identified as key management personnel, receive no fees, as
resolved by shareholders in their ordinary general meeting of April 12, 2010.
There were no transactions with directors in 2010.
36
NET FINANCIAL DEBT
The following statement shows the Company’s net financial debt broken down into its principal
components, as already described in notes 7, 15 and 16 to the financial components of the statement of
financial position.
215
(thousands of euro)
Financing from subsidaries
Derivatives
Financing from subsidaries
At December 31,
At December 31,
2010
2009
5,199,876
431,377
-
4,523,262
3,281,676
4,145,568
238,928
-
13,830
414,603
8,734,310
9,514,810
89,765
290,483
-
160,836
107,857
5,856
66,529
9,677
-
101,507
264,151
568,359
TOTAL GROSS FINANCIAL DEBT
8,998,461
10,083,169
(139,441)
(512,388)
Derivatives
TOTAL CURRENT FINANCIAL ASSETS
-
(113)
(5,798)
(18,543)
(5,798)
(18,656)
(145,239)
(531,044)
(95,199)
(179,323)
(164,991)
(40,093)
(260,190)
(219,416)
NET FINANCIAL DEBT
8,593,032
9,332,709
The net financial debt at December 31, 2010 does not include guarantee deposits of €4,977 thousand.
37
CASH FLOW STATEMENT
Cash flows from operating activities, amounting to €1,036,987 thousand, decreased by €530,363
thousand over the previous year, mostly as an effect of the higher finance expense incurred during the
year due to the issue of July 2009, and the refinancing operation of November 2010.
Investing activities used cash during 2010 of a total of €1,012,457 thousand, representing a decrease of
€60,932 thousand over 2009. Investments in 2009 included the purchase of a license for the use of a
further 5 MHz in the 2100 MHz band for €88,781 thousand and €53,493 thousand for the acquisition of
M-Link Sàrl and €30,893 thousand for the purchase of Phone Srl.
During 2010, financing activities used cash of €397,477 thousand as the net effect of the following
transactions:
216
•
early repayment of €363 million, made by the Company on January 12, 2010 (€336 million) and
on August 9, 2010 (€27 million), attributable to the Credit Facility Agreement;
•
early repayments following the partial debt refinancing operation which was completed on
November 26, 2010 as follows:
o
€3,859 million related to the closure of the Company’s Credit Facility Agreement;
o
€677 million related to the closure of the Luxembourg associate WIND Finance SL SA’ s
Second Lien Subscrition Agreement;
o
€1,401 million related to the closure of the 2015 Senior Notes Proceeds Loan Agreement
issued by the Luxembourg subsidiary Wind Acquisition Finance SA;
•
SpA, to pay the consent fees for the issue of the new bond issue under the Pik Proceeds Loan
Agreement by the Luxembourg associate Wind Acquisition Holdings Finance SA on December 15,
2009;
•
a new loan (Loan Agreement 2018) taken out with the Luxembourg registered subsidiary Wind
Acquisition Finance SA having a notional amount of €2,711 million and a repayment date of
January 15, 2018;
38
•
the entering into a new bank loan (Senior Facility Agreement) of €3,530 million;
•
payment of €311 million fees of connected with the issue of new loans and bonds;
•
changes in current accounts with subsidiaries for an amount of €38 million.
OTHER INFORMATION
Main pending legal proceedings
negative outcome is not considered probable.
certain indemnities provided for by Italian legislation; these include the termination indemnity, the
collection indemnity, the indemnity in lieu of notice and the indemnities pursuant to article 1751 of the
Italian Civil Code.
217
WIND/ITALGO SPA
IOL/RTI
WIND/Crest One SpA
218
insolvency procedure declared by one of (Eutelia SpA) on its insolvency procedure. The next hearing for
the discussion before the State Council will take place on March, 15, 2011, where the parties will discuss
the case.. We are currently awaiting the definitive sentence.
Contingent assets and liabilities
WIND had the following contingent liabilities at December 31, 2010.
219
The Company has filed a tax settlement proposal in this respect within the terms of law. An unsuccessful
authorities.
December 31, 2010.
base stations. These are mainly the result of current concerns about electromagnetic radiation. The
Terna/Enel.Net/WIND
Telat, alleging the breach by Enel.Net under article 1453 of the Italian Civil Code, relating of contractual
losses to be incurred by the Company, while considered possible, are unable to be determined.
WIND had the following contingent assets at December 31, 2010.
former Infostrada), claiming for payment of the interest on the amounts paid as turnover contribution,
220
Guarantees
The company has not pledged any guarantees, either directly or indirectly, in favor of parents or
companies controlled by the latter.
The collateral pledged by the Company at December 31, 2010 as a guarantee for liabilities may be
summarized as follows:
¾
a special lien pursuant to article 46 of the Consolidated Banking Law on certain assets, present and
future, belonging to the Company as specified in the relevant deed, in favor of the banking syndicate
party to the Senior Facilities Agreement and other creditors specified in the relevant deed;
¾
a lien exists on the Company’s trademarks and intellectual property rights, as specified in the relevant
deed, pledged in favor of the banking syndicate party to the Senior Facilities Agreement and other
creditors specified in the relevant deed;
¾
a lien exists on 640,000 shares corrisponding to the entire share capital held by the Company in
WIND International Services SpA, pledged in favor of the banking syndicate party to the Senior
Facilities Agreement and the subscribers to the High Yield Notes, expiring in 2017, issued on July 13,
2009 by Wind Acquisition Finance SA and the Senior Secured Notes, expiring in 2018, issued on
November 26, 2010 by Wind Acquisition Finance SA;
Despite the encumbrances on the pledged shares, the voting rights at shareholders’ meetings of the
companies are retained by the Company by express contractual agreement as an exception to the
provisions of paragraph 1, article 2352 of the Italian Civil Code.
Finally, in order to provide a guarantee for its obligations, the Company has pledged as security its trade
receivables, receivables arising from intercompany loans and receivables relating to insurance policies,
present and future, as described in the specific instrument, to the banking syndicate in accordance with
the Senior Facilities Agreement and the other lending parties specified in the supplemental deed related
to the respective contract as a guarantee for and in favor of the subscribers to the High Yield Notes,
expiring in 2017, issued on July 13, 2009 by Wind Acquisition Finance SA and in favor of the subscribers
to the Senior Secured Notes, expiring in 2018, issued on November 26, 2010 by Wind Acquisition Finance
SA. Moreover, the Company has pledged as security its receivables arising from the Put and Call option
221
dated May 26, 2005 as described in the relevant deed, to the banking syndicate in the Senior Facilities
Agreement and the other lending parties specified therein as a guarantee for and in favor of the
subscribers to the High Yield Notes expiring in 2017 issued by Wind Acquisition Finance SA, on july 13,
2009 and the Senior Secured Notes expiring in 2018 issued by Wind Acquisition Finance SA, on
November26, 2010 .
A description is provided below of personal guarantees (sureties) issued mainly by banks and insurance
companies on behalf of the Company and in favor of third parties in respect of commitments of various
kinds. The total of these, amounting to €126,012 thousand at December 31, 2010 includes:
•
sureties totaling €66,509 thousand issued by insurance companies, of which €44,111 thousand in
favor of the Rome Tax Revenue Office as security against the Company’s excess VAT receivable
which was offset in 2008 (for €29,652 thousand) and in 2009 (for of €14,459 thousand) as part of
the special procedure envisaged by Presidential Decree no. 633 of October 26, 1972 and subsequent
amendments;
•
sureties totaling €59.503 thousand issued by banks, relating to sponsorships, participation in tenders,
property leases, operations regarding prize competitions, events and excavation licenses.
The Company has been under the management and coordination of WIND TELECOM SpA (formerly
Weather Investments SpA) since July 2007. In this respect, a summary is provided below of the key data
from the latest approved set of financial statements of WIND TELECOM SpA, being those as of and for
the year ended December 31, 2009.
222
(thousands of euro)
At December 31,
2009
BALANCE SHEET
ASSETS
A) UNPAID CALLED-UP SHARE CAPITAL
B) FIXED ASSETS
C) CURRENT ASSETS
D) ACCRUED INCOME AND PREPAID EXPENSES
TOTAL ASSETS
5,808,596
445,220
1,148
6,254,964
EQUITY AND LIABILITIES
A) EQUITY
B) ALLOWANCES FOR RISKS AND CHARGES
C) EMPLOYEES’ LEAVING ENTITLEMENT
D) PAYABLES
E) ACCRUED EXPENSES AND DEFERRED INCOME
5,151,646
46,987
91
1,051,727
4,513
6,254,964
MEMORANDUM ACCOUNTS
510,587
INCOME STATEMENT
A) VALUE OF PRODUCTION
B) OPERATING COSTS
C) FINANCE INCOME AND EXPENSES
D) ADJUSTMENTS TO FINANCIAL ASSETS VALUES
E) EXTRAORDINARY INCOME AND EXPENSES
Income taxes for the year
NET PROFIT FOR THE YEAR
39
10,904
(52,301)
(189,117)
(598,131)
(9)
83,039
(745,615)
SUBSEQUENT EVENTS
On March 17, 2011 a majority of the Shareholders of VimpelCom Ltd at their Special General Meeting
approved the issue of up to 325,639,827 ordinary shares and 305,000,000 convertible priviliged shares
and the increase in VimpelCom Ltd’s authorized share capital needed to complete the merger between
VimpelCom Ltd and Wind Telecom SpA.
As defined by the agreement, same Company’s assets should be returned to Weather Investments II Sàrl
as part of the agreed fee for the sale. In particular, for the Company these are the assets relating to web
portal "Libero", the subsidiaries WIND International Services SpA and It Net Srl and the branch referring
to the operation of the submarine cable between Italy and Greece.
223