the presentation slides

TELECOM ITALIA GROUP
Investor Meetings - April 2015
Telecom Italia Group
Company Presentation and 2015-2017 Plan Outline
Investor Relations
Safe Harbour
This presentation contains statements that constitute forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements appear in a
number of places in this presentation and include statements regarding the intent, belief or current expectations of the customer base, estimates regarding future growth in the different
business lines and the global business, market share, financial results and other aspects of the activities and situation relating to the Telecom Italia Group. Such forward looking statements
are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those projected or implied in the forward looking statements as a
result of various factors. Consequently, Telecom Italia makes no representation, whether expressed or implied, as to the conformity of the actual results with those projected in the forward
looking statements.
Forward-looking information is based on certain key assumptions which we believe to be reasonable as of the date hereof, but forward looking information by its nature involves risks and
uncertainties, which are outside our control, and could significantly affect expected results. Analysts and investors are cautioned not to place undue reliance on those forward looking
statements, which speak only as of the date of this presentation. Telecom Italia undertakes no obligation to release publicly the results of any revisions to these forward looking statements
which may be made to reflect events and circumstances after the date of this presentation, including, without limitation, changes in Telecom Italia business or acquisition strategy or
planned capital expenditures or to reflect the occurrence of unanticipated events. Analysts and investors should consult the Company's Annual Report on Form 20-F as well as periodic
filings made on Form 6-K, which are on file with the United States Securities and Exchange Commission which may identify factors that affect the forward looking statements included
herein.
The 2014 preliminary financial results of the Telecom Italia Group and the data of the previous years provided for comparison were drafted in accordance with the International Financial
Reporting Standards issued by the International Accounting Standards Board and endorsed by the European Union (designated as “IFRS”).
The accounting policies and consolidation principles adopted in the preparation of the preliminary financial results for the 2014 FY have been applied on a basis consistent with those
adopted in the Annual Financial Statements at 31 December 2013, to which reference should be made, except for the new standards and interpretations adopted by the Telecom Italia
Group starting from 1 January 2014 which had no effects on the 2014 preliminary financial results. The 2014 preliminary financial results have not been verified by the independent auditors.
Following the classification, starting from the fourth quarter 2013, of the Sofora - Telecom Argentina group as a disposal group (Discontinued operations/Non-current assets held for sale),
the consolidated financial statements data of prior periods (including the twelve months ended 31 December 2013) have been restated accordingly and therefore the Sofora - Telecom
Argentina group is no longer separately presented as a business unit.
Furthermore:
• starting from 2014, Organic changes in Revenues, EBITDA and EBIT are determined excluding, where applicable, only the effects of the changes in the scope of consolidation and
exchange differences and therefore don’t take into account, as in the past, non-organic income and expenses, including those non-recurring;
• starting from 2014, the Domestic business unit includes the Olivetti group, in addition to Core Domestic and International Wholesale. This different presentation reflects the commercial
and business placement of the Olivetti group and the process of integrating its products and services with those offered by Telecom Italia in the domestic market. Therefore, the Olivetti
group is no longer separately presented as a business unit;
as a result, the data for prior periods under comparison have been restated, accordingly.
In this presentation reference is also made to a normalization called “Domestic Underlying EBITDA trend”, which is based on the Adjusted (for one-offs and discontinuities) Reported
Domestic EBITDA. This representation is provided as additional information to our Reported EBITDA that represents Operating profit before depreciation and amortization, capital gains
(losses) and impairment reversals (losses) on non-current assets.
Investor Meetings – April 2015
Investor Relations
1
Telecom Italia Performance by Markets – Full Year 2014
Organic data, € mln, %YoY
FY’14
Group
Domestic
Total
Revenues
21.6 €bln
15.3 €bln
6.2€bln
-5.4% YoY
-6.6% YoY
-2.1% YoY
Ebitda
8.8 €bln
7.0 €bln
1.8 €bln
-6.8% YoY
-9.6% YoY
+6.6% YoY
Excluding
License(1)
4.0 €bln
-5.4% YoY
Capex
5.0 €bln
Brazil
1.2 €bln
2.8 €bln
-8.2% YoY
Including
License(1)
+13.3%
Excluding
Licenses(2)
25.8 €bln; (-1.0 €bln vs FY’13)
YoY(3)
+1.5% YoY
2.2 €bln
+62.7% YoY(3)
Net Debt
Including
Licenses(2)
(1)
(2)
(3)
26.65 €bln; (-0.2 €bln vs FY’13)
Brazilian Spectrum & Clean-up cost
Brazilian & Argentinean Spectrum
Reported data
Investor Meetings – April 2015
Investor Relations
2
TI Group International Footprint
Italy
International Wholesale Services
#1 player in fixed and mobile
~49% m/s on retail broadband
~32% m/s on mobile
TI Sparkle is a leading global telecommunication
service provider, , offering a complete range of data,
internet, mobile and voice solutions for fixed and mobile
carriers, ISPs, content providers, multimedia players
and corporate customers. TI Sparkle has a global
presence based on its fully owned companies and
offices in 40 countries.
Pan European
Backbone Asset
Companies
Frankfurt
Brazil
London
Paris
New York
Madrid
Miami
Moscow
Wien
Bucharest
Istanbul
Athens Tel Aviv
Cairo
Dubai
Tripoli
Hong Kong
Mumbai
#2 mobile player (m/s ~27%)
Singapore
#1 player in prepaid (m/s ~30%)
#3 player in postpaid (m/s ~18%)
Rio de Janeiro
Buenos Aires
Johannesburg
Owned Company
Office
Investor Meetings – April 2015
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3
TI Group Shareholders breakdown as of December 30, 2014
Other italian
shareholders
14,54%
Other foreign
shareholders
0,07%
Foreign
companies
3,02%
Telco S.p.A.
22,30%
Telecom Italia
Group 1,20%
Italian
companies
0,77%
Italian
institutional
investors
3,54%
Foreign
institutional
investors
54,56%
 Telecom Italia shares are listed on the
Milan and New York stock exchange.
Telecom Italia Media shares are quoted
on the Milan Stock Exchange.
 Included in more than 50 indices. Among
which: FTSE MIB, FTSE Italia All Share ,
FTSE Eurotop 100 , DJ STOXX 600, DJS
Telecom
Current Market Cap (€bln)*
Ordinary Shares 14.5
Saving Shares 5.3
19.8bln
TI Savs +30.5%
TLC Europe +28.3%
TI Ords +26.2%
Last 1 Year
TI Shares
Performance
FtseMIB (Italy) +6.6%
17-Apr-14
17-Jul-14
* As of 17 April 2015.
17-Oct-14
17-Jan-15
17-Apr-15
Investor Meetings – April 2015
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4
Domestic Fixed Revenues Breakdown
Reported, € mln, %YoY
4Q’13
4Q’14
YoY
FY’13
FY’14
YoY
Total Wireline
2,935
2,773
-5,5%
11,794
10,999
-6.7%
Service Wireline
2,803
2,655
-5.3%
11,491
10,672
-7.1%
Sparkle group
245
258
+5.0%
945
943
-0.2%
Wholesale Domestic
633
540
-14.7%
2,629
2,316
-11.9%
1,873
1,801
-3.9%
7,733
7,220
-6.6%
1,173
1,073
-8.5%
4,858
4,346
-10.5%
internet
400
417
+4.4%
1,606
1,641
+2.2%
business data
286
287
+0.3%
1,107
1,084
-2.1%
other
14
23
n.m.
162
149
n.m.
53
56
n.m.
184
193
n.m.
132
118
-10.6%
303
327
+7.8%
Retail Service
voice & access
elim. & other
Products
Investor Meetings – April 2015
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5
Focus on the Italian Broadband Market: Evolution of Market
Shares on Accesses
Others
4,7%
3,5%
4,9%
3,5%
4,7%
3,6%
4,7%
3,7%
4,8%
3,5%
5,5%
3,4%
5,2%
3,3%
5.9%
3,1%
12,3%
12,3%
12,4%
12,5%
12,7%
12,8%
13,0%
12,3%
13,4%
13,6%
13,8%
13,9%
14,1%
14,1%
14,3%
14,6%
16,0%
15,9%
15,8%
15,7%
15,7%
15,4%
15,2%
15.4%
50,2%
49,8%
49,7%
49,5%
49,2%
48,9%
49,1%
48,7%
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
Source: Company data for TI, Fastweb and Vodafone, Wind. Estimates for Tiscali and “Others”
Investor Meetings – April 2015
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6
Domestic Mobile Revenues Breakdown
Reported, € mln, %YoY
4Q’13
4Q’14
YoY
FY’13
FY’14
YoY
1,442
1,368
-5.1%
5,579
5,091
-8.7%
188
185
-1.2%
442
483
+9.3%
Service Revenues
1,254
1,183
-5.7%
5,137
4,608
-10.3%
Business generated
1,135
1,040
-8.4%
4,648
4,101
-11.8%
Outgoing voice
613
501
-18.3%
2,671
2,098
-21.5%
VAS
522
539
+3.2%
1,978
2,003
+1.3%
119
143
+19.8%
489
507
+3.7%
Total revenues
Handset revenues
Business received (1)
(1) Including Visitors & other items
Investor Meetings – April 2015
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7
Italian Mobile Market: Mobile Customer Base (Market Share %)
Mobile Lines
@ 31 Dec’14
(‘000)
33,3% 33,3% 33,1% 33,0% 32,7% 32,4% 32,4%
32,2% 32,2% 32,0% 32,1% 32,2%
30,350
30,8% 30,6% 30,5% 30,1%
30,0% 29,7% 29,6% 29,3%
28,8%
28,1% 27,5%
27,1%
25,507
22,6% 22,8% 23,0% 23,0% 22,9% 22,8% 23,0% 23,0%
21,8% 21,9% 22,1% 22,2%
21,607
9,870
10,3% 10,5%
9,5% 9,6% 9,7% 9,8% 9,7% 9,8% 9,8% 10,0% 10,2% 10,3%
5,5% 6,0%
5,3%
5,2%
5,0%
4,9%
4,7%
4,6% 4,6%
6,8% 7,1% 7,2%
MNVOs
6,805
1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14
Source: Company data for TI, Vodafone, Wind, market estimates for Other Players/MVNOs
Historical trend for H3G is estimated since the operator provides only trend by half .
Investor Meetings – April 2015
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8
Main 4 Italian Operators: Mobile Service Revenues Growth YoY
(Quarterly Trend)
TIM overtaking
Wind
5,2%
-0,4%
-3,7%
-4,4%
-3,2% -3,2%
-3,0%
-7,5%
-9,8%
-13,0%
-13,4%
-6,4%
-6,8%
-7,8%
-8,3%
-9,8%
-0,5%
-0,4%
-11,7%
-14,9%
-7,9%
-7,9%
2Q12
3Q12
4Q12
-11,0%
-10,1% -10,6%
-17,1% -13,2%
-14,8% -14,4%
-18,3%
-17,9%
1Q13
2Q13
3Q13
-5,7%
-7,1%
-6,7%
-18,6% -19,1% -18,1%
1Q12
-6,4%
-1,8%
-13,3%
-6,8%
-9,1%
-9,6%
-11,7%
-14,9%
-19,3%
-20,2%
4Q13
1Q14
-18,9%
2Q14
3Q14
4Q14
Source: Company data for TI, Vodafone, Wind, market estimates for H3G.
Historical trend for H3G is estimated since the operator provides only trend by half .
Investor Meetings – April 2015
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9
TI’s New Course started in 2014: Deploying UBB and selling it
wider LTE
coverage in Italy
Today
>80%
LTE Coverage
77%
74%
actual 2014
61%
+27pp
target 2014
51%
~50%
~40%
FY'13
’000
MBB
1Q'14
1H'14
9M'14
Plan ‘13-’15
FY'14
MBB Users Growth YoY
+1.825
NGN
Agrigento
Alessandria
Ancona
Aprilia
Arezzo
Asti
Bari
Benevento
Bergamo
Bologna
Bolzano
Brescia
Brindisi
Busto A.
Cagliari
Carpi
Casoria
Catania
Catanzaro
Cesena
Cinisello B.
Como
Cremona
Cuneo
Faenza
Fano
Ferrara
Firenze
Foggia
Forli
Gela
Genova
Giugliano
Grosseto
Gugliasco
Imola
Coverage(1)
La Spezia
Perugia
Latina
Pesaro
Legnano
Pescara
Livorno
Piacenza
Lucca
Pisa
Mantova
Pistoia
Massa
Potenza
Prato
+95Matera
cities YoY
Messina
Quartu S. Elena
Milano
Ragusa
Modena.
Ravenna
Monza
Reggio Calabria
Napoli
Reggio E.
+12
pp YoY
Novara
Rimini
Padova
Roma
Palermo
Salerno
Parma
Sassari
Pavia
Savona

29% coverage
Fiber Users Growth
’000
+80
+1.627
64%
+47
45%
21%
+58
27%
% of LTE
15
1Q'14
2Q'14
3Q'14
4Q'14
MBB CB 8,677
9,151
9,596
10,071
610
844
1,343
LTE CB
409
Siena
Siracusa
Taranto
Terni
Torino
Torre del
Greco
Trento
Treviso
Trieste
Udine
Varese
Venezia
Verona
Vicenza
Vigevano
Viterbo
133 Municipalities covered
+1.985
+1.573
more than 4x the
coverage of our
main competitor
Sesto S.G.
+30
4Q'13
231 151 103 45 1Q'14
2Q'14
3Q'14
4Q'14
Average daily acquisition (k)
0.5
1.0
0.8
1.3
(1) As of Jan 30, 2015
Investor Meetings – April 2015
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10
Creating Value through Next-Generation Networks
Acceleration
Innovative Capex Breakdown
Domestic Capex Plan
a NGN
New ’15-’17 Plan
Domestic Capex ~10€Bln
o/w 0.5 €Bln
on FttH
b LTE
Old ’14-’16 Plan
Domestic Capex ~9€Bln
~2.9 €Bln (+1.1 €Bln vs Old Plan)
~0.9 €Bln (flat vs Old Plan)
c IT Cloud
~0.5 €Bln (flat vs Old Plan)
d Sparkle
~0.2 €Bln (flat vs Old Plan)
e Transformation
~0.5 €Bln (+0.4 €bln vs Old Plan)
New ‘15-’17 Plan
Innovative Capex
~5 €Bln
Peak years
~23.0%
Avg Capex/Revenues
New ‘15-’17 Plan
Avg Capex/Revenues
Old ‘14-’16 Plan
~18.5%
Old ‘14-’16 Plan
Innovative Capex
~3.4 €Bln
2014
2015
2016
2017
2018
onwards
2014
2015
2016
2017
Efficiency Delivers a Relevant Contribution
for the funding of Innovation
Investor Meetings – April 2015
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11
Fiber Italy: We are increasing our Competitive Advantage
Fiber CB Growth
Fiber Coverage Plan
~75%
~10x
New
Plan
<60%
Fiber CB on
TI BB CB
~3%
>50%
2015
2016
Connection speeds faster than DAE targets:
 50 Mb/s currently
 100 Mb/s through Vectoring
 Up to 1Gb/s with FttH
2017
2014

+1mln
Old ‘14-’16
CB Fiber Growth
Old
Plan
today @
29%
2014
New ‘15-’17
CB Fiber Growth
2015
2016
2017
Expected Ebitda monthly uplift from Fiber ranges
5-10 €/line coming from:
 Fiber Premium;
 +ve contribution from New Services Content
 Lower churn
Investor Meetings – April 2015
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12
Benchmark on Italian BB penetration…
The Weight of Mobile BB-Only Households
% of households on total
77%
71%
87%
88%
4%
5%
73%
3%
8%
20%
Italy
France
Fixed-BB Households
Germany
United
Kingdom
BB Household
Penetration in Italy is
roughly in line with other
main European Countries,
but with a different Mix
Spain
Mobile BB only Households
Source: Eurostat 1Q 2014
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13
…and on PayTV
PayTV Penetration
% on TV Household
56.3%
46.7%
54.7%
13%
11%
45%
25.8%
14%
25.4%
35%
19%
16%
11%
5%
1%
7%
5%
Italy
IT
France
FR
DTT
7%
0%
Germany
DE
IPTV
Pay DTH
8%
7%
0%
United
UK
Kingdom
5%
2%
Spain
ES
The Italian PayTV
Market is mainly
concentrated on DTT &
Pay-DTH, while in the
other main European
Countries there is a
strong presence of
Cable TV & IPTV
Cable
Source: Ovum elaboration as of 3Q14
Investor Meetings – April 2015
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14
LTE Italy: Pushing on Quality, Not on Price
LTE Users on Mobile BB CB
LTE Coverage Plan
>95%
~60%
+45
p.p.
New
Plan
13%
today @
>80
2014
80%
2015
2016
2017
Revenues Mix(1)
Target reached
Old
Plan
2
years in
advance
64%
60%
2014
2015
2016
2017
50%
36%
Geographic Coverage
~50%
Indoor Coverage
+40
p.p.
~90%
>80%
2014
2015
innovative on business generated
2016
Revenues
Cagr ‘14-’17
+10%
2017
traditional on business generated
(1) Innovative revenues = browsing+data content; traditional revenues =voice+SMS
Investor Meetings – April 2015
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15
The TI Plan fits into the Italian Market
TV Households
TLC Households
~26 mln
Mobile BB
only
~7
~26 mln
Push on win-backs from the
dongle community through F-M
Convergence & Quad-Play
TI M/S 30%
2
1
~3.5
Voice only
pay-per-use
~1.5
Voice only
on flat options
TI M/S 100%
 Rebuild the Value of the Voice
 Push on Convergence through
flatization to reduce churn
 Upgrade to BroadBand through
New Special offer & Video Content
Upgrade to Fiber &
TV potential target
Fixed BB
TI M/S 50%
No PayTV
Interested in PayTV
o/w KO dish 1 mln
~12
~7
3
~14(1)
10% <40 years & holiday homes
30% 40-70 years
60% >70 years
Consumer HH
Already
on PayTV
~7
TV HH
(1) Addressable market
Investor Meetings – April 2015
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16
A n-Play Strategy to Grow the Value of our Access
1
2
3
Defend the Value
Proposition of Access
Lever on Convergence
TV Business: Hub Approach
Fixed
Mobile BB
Video Content
Change of Fixed Access Mix
Massive Flatization
Enlarge Proposition of
Convergent Offers
F-M for
Mobile only customers
Retention of Voice Customers
Use BB as an anchor
Keeping price points rational
Upgrade to TV
% Convergent Offers(1)
Less Erosion
3-Play
2%
growing
2-Play
57%
stable
1-Play
41%
decreasing
2014
Targeted Actions for specific
segments
+20
p.p.
2017
2014
Pay tv penetration in Italy is 27%:
market is dominated by Premium Pay
DTT/DTH and BB TV is modest (~5%)
Launch
in April
Premium offer with live
events & on-demand
channels
Wide range of content offering:
SVOD, events, etc
Integration with linear TV
2017
Base-content enabler
Defend traditional, Drive Mobile BB – to – Fixed BB substitution
and further expand Fixed BB penetration through Video Content
Investor Meetings – April 2015
(1) % Convergent offers on Total Consumer Fixed Access
Investor Relations
17
Domestic Opex Efficiency
€ bln
Plan 2015 – 2017
2013 - 2014
8.6
8.3
Volume/
RevenueDriven (1)
3.1
3,1
Personnel
Costs
2,7
~20% on
rev.
Not Applicable
2,7
Allow insourcing and
increase productivity
Process /
Asset Driven(2)
Market /
Customer
Driven(3)
~1.6
~1.5
~1.4
~1.2
~1.1
~1.1
2013
Target
2014
Actual
2014
target
-0.2
Addressable Efficiency
Area
2015
2016
-20%
‘17 vs ‘14
2017
> -0.1
actual
‘15-’17 cum.
Efficiency Target
-0.4
190% of target reached including one-offs(4)
~ -0.3
104% of target reached excluding one-offs(4)
>1 €Bln
> -0.1
(4) 82
mln euro Sparkle provision reversal in 2014 and 84
mln euro Antitrust fine in 2013
(1) Interconnection, Cost of Equipment, Other COGs
(2) Industrial costs, G&A, Real Estate, Other
(3) Acquisition costs, ADV, Customer Care, Other commercial costs
Investor Meetings – April 2015
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18
TLC Brazilian Market - Competitive Enviroment
TIM
Vivo
Fixed / Mobile
Mobile
Fixed BB
Customers 4Q14 (000´s)
Mobile
74,721
Fixed1
657
Fixed BB
153
Pay‐TV
n.a.
Market share 4Q14
27.0%
1.4%
0.5%
n.a.
‐‐‐
Net Adds 12M (000´s)
2,289
25
64
n.a.
2,378
Net Revs FY14 (R$ Mln)
18,919
19,498
ARPU 4Q14
18.0
579
n.a.
n.a.
n.a.
Group
76,531
‐‐‐
Customers 4Q14 (000´s)
Mobile
79,938
Fixed1
10,939
Fixed BB
4,102
Pay‐TV
770
Group
95,749
Market share 4Q14
28.5%
23.9%
17.1%
3.9%
‐‐‐
Net Adds 12M (000´s)
2,693
502
‐205
176
Net Revs FY14 (R$ Mln)
23,740
ARPU 4Q14
Claro
Fixed / Mobile
Fixed BB/ TV
Fixed1
11,519
Fixed BB
7,523
Pay‐TV
10,182
Group
100,331
Market share 4Q14
25.3%
25.2%
31.4%
52.0%
‐‐‐
Net Adds 12M (000´s)
2,403
1,463
941
525
Net Revs FY14 (R$ Mln)
13,078
15.3
22,525
n.a.
n.a.
24.6
n.a.
n.a.
Mobile accounts for 78% of the
overall industry access growth
n.a.
35,000
n.a.
‐‐‐
Oi
Mobile
Customers 4Q14 (000´s)
Mobile
50,918
Fixed1
16,692
Fixed BB
6,554
Pay‐TV
1,303
Group
75,467
Market share 4Q14
18.1%
36.5%
27.3%
6.7%
‐‐‐
702
‐1,742
20
474
3,868
Net Adds 12M (000´s)
35,603
Net Revs FY14 (R$ Mln)
9,290
ARPU 4Q14
17.4
‐‐‐
2,665
11,260
Fixed
Mobile
Customers 4Q14 (000´s) 71,107
ARPU 4Q14
Fixed voice & BB / TV
19,132
n.a.
n.a.
1,196
28,422
n.a.
‐‐‐
TIM represents 30% of the mobile industry
revenues2 and 27% of its market share
Investor Meetings – April 2015
Source: Anatel and Players balance sheet
1 ‐ Fixed Access numbers refers to 3Q14 / 2 ‐ Mobile revenue considers only the 4 major players
Investor Relations
19
Brazil: The Mobile Data Opportunity
61.3 Mln
60%
36.8 Mln
Total Households
Other
32%
11.8 Mln
Lack of
Coverage
24%
8.8 Mln
Too
Expensive
44%
16.2 Mln
Households which does NOT
possess
Willingness to pay (% of Households)
> R$ 250
R$ 250
R$ 200
R$ 150
R$ 100
R$ 80
R$ 70
R$ 50
R$ 40
R$ 30
R$ 20
R$ 10
CABLE
FTTH
24.5 Mln
53% of active
connection base has
currently a speed below
2 Mbps
1%
1%
2%
5%
12%
ADSL
VDSL
Do NOT
Possess
Internet
connection
40%
18%
24%
39%
48%
59%
65%
71%
MBB
Possess
Internet
connection
Source: CETIC´13
Market Data Revenues Growth 2016 vs. 2012
>13 bn Reais on Mobile (+100%)
>7 bn Reais on Fixed (+35%)
Investor Meetings – April 2015
Investor Relations
20
TIM Brasil: Data Connectivity and Beyond
Getting People Connected: Broadband Penetration
Fixed (% of households)
90%
Developed
markets avg: 75%
Mobile (% of population)
105%
83%
73%
Developed
markets avg: 82%
∆: 19 p.p.
90%
73%
55%
79%
∆: 43
p.p.
72%
66%
63%
Fra
Bra
32%
Fra
UK
USA
Jap
Rus
Bra
Jap
USA
UK
Ita
 Huge gap between Brazil and developed markets
 Smaller gap between Brazil and developed markets
 Lack of infrastructure: low quality and speed
 Additional drivers for growth: days of use, data consumption
 Affordability issues (high prices, combos)
 Affordable prices
Entering in the Content World
Apps
Social
Video
Music
Gaming
RichCom
Content &
Usage Offer
COOL
OTT
TRUST
Proximity & MPayment
Connected Home & In Cars
Digital Identity & Security
Telco
Connectivity
(1) Quality of experience
QoE(1)
and
Caring
Pure
Connectivity
Offer
Investor Meetings – April 2015
Investor Relations
21
Future-Proofing our Infrastructure for Enhanced Cash Flow
New Investments
Italy
Brazil
~10 €Bln in ’15-’17
>14 R$Bln
in ’15-’17
of which 5 €Bln for
innovation
Innovation
Italy
NGN: ~75% coverage
in 2017
LTE: >95% coverage
in 2017
Single Brand
& Convergence
Business Transformation
Italy
Brazil
Brazil
Investment Monetization
Commercial Efficiency
& Core Revenues
Evolution
Stabilization
Network Costs Optimization
Efficiency & Process
Process-Driven Efficiency
Transformation
LTE: ~80% coverage
in 2017
4G Sites: >15k in 2017
3G Sites: >14k in 2017
Hetnet Strategy
People: Change of Mix
Moving Cash Flow (2) beyond
Stabilization
~3.8(1)
2014
(1)
(2)
2015
2016
Including Brazil License & Clean-up costs
Group Ebitda-Capex
2017
Investor Meetings – April 2015
Investor Relations
22
2014 Debt reduction & 2015-2017 Free Cash Flow Evolution
€ Bln
2014 – 2017
2013 - 2014
~1.0 €Bln of deleverage
before Latam frequencies
impact
Average debt reduction of ~700 €Mln per year
before Mandatory Convertible (Nov. ‘16)
~+0.9
~-1.0
-1.3
~26.8
~25.8
2013
2014
Net Debt
before Latam
frequencies
Latam
frequencies
impact
Net Debt/Ebitda Ratio
DPS BoD proposal
for 2014 (cash 2015)
~26.65
~26.65
2014
Net Debt
including
Latam
frequencies
2014
~3.0x
Mandatory
Convertible Bond
2017
towards 2.5x in 2017
Ordinary Shares
Zero
Saving Shares
2.75 €cent confirmed
Investor Meetings – April 2015
Investor Relations
23
Group Operating and Financial Outlook
Organic data
Group
Ebitda
Capex(1)
Cum. ‘15-’17
Net Debt Adj.
/Ebitda 2017
YoY Growth in
2017
~14.5 €Bln
Domestic
YoY Stabilization in
2016
Brazil
Continued Growth
YoY Growth in
2017
~10 €Bln
>14 R$Bln
Reducing Towards
2.5x(2)
(1) Including Italian GSM license extension
(2) On reported EBITDA; ratio includes Mandatory Convertible equity strengthening effect for 1.3€Bln in November 2016
Note: Organic data exclude impact from change in perimeter and FX.
Avg €/Reais exchange rate: 3.21
Investor Meetings – April 2015
Investor Relations
24
Appendix
Investor Meetings – April 2015
Investor Relations
25
TI Group – 2014 P/L by Main Business Unit
Full Year Actual 2014
TI Group
Euro mln
REVENUES
Other Operating Income
TOTAL REVENUES & OTHER INCOME
Domestic
Brazil
Other
Activities
Media
Elimin./Adj
ust. (*)
21,573
15,303
6,244
71
0
(45)
401
382
18
1
0
0
21,974
15,685
6,262
72
0
(45)
Total Purchases of materials and external services
(9,430)
(5,831)
(3,593)
(35)
(6)
35
Personnel
of which payroll
(3,119)
(3,079)
(2,730)
(2,691)
(379)
(379)
(8)
(7)
(2)
(2)
0
0
Other operating costs
(1,175)
(570)
(598)
(4)
(4)
1
Capitalized Cost and Others
Change in inventories
Capitalized internal constructions costs
536
444
82
0
0
10
(52)
(41)
(11)
0
0
0
588
485
93
0
0
10
EBITDA
% on Revenues
8,786
40.7%
6,998
45.7%
1,774
28.4%
25
35.2%
(12)
1
Depreciation & Amortization
(4,284)
(3,290)
(976)
(19)
0
1
(1)
(1)
0
0
0
0
Writedowns and revaluations of non current assets
Gains/losses of non current assets realization
EBIT
% on Revenues
29
31
(3)
0
0
1
4,530
21.0%
3,738
24.4%
795
12.7%
6
8.5%
(12)
3
Income (loss) equity invest. valued equity method
(5)
(5)
0
0
0
0
Other income ( expenses ) from investments
16
(40)
0
0
220
(164)
Net Financial Income / (Expenses)
(2,194)
(2,239)
(90)
(9)
145
(1)
Income before Taxes & Disc. Ops.
% on Revenues
2,347
10.9%
1,454
9.5%
705
11.3%
(3)
(4.2%)
353
(162)
(928)
(702)
(208)
0
(19)
1
1,419
752
497
(3)
334
(161)
541
0
0
0
(1)
542
1,960
9.1%
752
497
(3)
333
381
Taxes
Income before Disc. Ops.
Net income (loss) of assets disposed
Net Income (ante Minorities)
% on Revenues
Minorities
Net Income (post Minorities)
% on Revenues
(610)
1,350
6.3%
(*) includes TI Finance, TI Capital, TI international and other
companies not icluded in the other Business Units.
Investor Meetings – April 2015
Investor Relations
26
TI Group – 2014 Balance Sheet by Main Business Unit
Full Year Actual 2014
TI Group
Domestic
Brasile
Media
Other & Elim (*)
Euro mln
Intangible Assets
of which Goodwill
Tangible Assets
Equity Investments
36,770
32,719
3,887
172
(8)
29,943
28,443
1,470
30
0
13,387
10,542
2,764
81
0
79
9,309
0
0
(9,230)
584
66
512
16
(10)
1,118
783
276
6
53
TOTAL NET ASSETS
51,938
53,419
7,439
275
(9,195)
WORKING CAPITAL & FUNDS
(4,307)
(2,856)
(1,213)
(28)
(210)
Operating Working Capital & Funds
(3,786)
(2,862)
(931)
6
1
Operating Working Capital
Total net inventories
Total net trade accounts receivable
Trade accounts payable
Other operating current assets/liabilities
Other operating current assets
Other operating current liabilities
Other Operating Allowances
(1,791)
313
4,132
(5,041)
(1,195)
2,434
(3,629)
(934)
(1,098)
231
3,008
(2,958)
(1,379)
1,774
(3,153)
(705)
(716)
82
1,106
(2,082)
178
659
(481)
(215)
15
0
32
(14)
(3)
1
(4)
(7)
8
0
(14)
13
9
0
9
(7)
Total Severance Indemnities
(1,061)
(1,059)
0
(2)
0
Non Operating Working Capital & Funds
(521)
6
(282)
(34)
(211)
Net assets/liabilities of Disc. Ops.
2,089
0
0
0
2,089
49,720
21,699
28,021
50,563
17,483
33,080
6,226
5,835
391
247
(22)
269
(7,316)
(1,597)
(5,719)
Other L/T Investments
Deferred Tax Assets
NET INVESTED CAPITAL
Shareholders Equity
Net Financial Position Reported
MtoM derivati
Net Financial Position Adj
1,370
26,651
(*) includes TI Finance, TI Capital, TI international and other
companies not icluded in the other Business Units.
Investor Meetings – April 2015
Investor Relations
27
Refinancing at record low rates
€ mln
12.930
Debt Maturities and liquidity Margin
31.443
11.313
4.782
3.436
Covered until 2018
13.112
4.067
6.112
2.854
3.374
7.000
1.879
975
1.970
1.404
FY 2015
Liquidity
margin
2.963
1.104
2.324
1.112
1.617
23.614
3.165
1.617
7.829
FY 2016
FY 2017
FY 2018
FY 2019
Beyond 2019 Total M/L Term
Debt
Undraw portions of committed
Bonds
C&CE (escluded discontinued)
Loans (of which long-term rent, financial and operating lease payable € 1,200)
2011-2015 Bond Issuance Yields
Highlights
 TI’s funding costs since 2013 have significantly
lowered
6,968%
6,184%
Yield on issue date
5,198%
4,769%
Drawn bank facility
5,054%
4,740% 4,570%
4,594%
4,134%
3,993%
3,330%
 New record-low coupon has been printed with
our January 8-yr issue @ 3.25%
 ECB QE plans running until September 2016
further support favourable funding environment
Tenor
5
7
5,25
6,5
3
5
8
7
7
10
8
 This context will continue offering TI significant
refinancing opportunities
Issue date
€ 31.443 mln is the nominal amount of outstanding medium-long term debt. Adding by Mandatory Convertible Bond (€ 1.300 mln), discontinued operations (€ 28 mln), IAS adjustments (€ 1.192 mln) and
current financial liabilities (€ 458 mln), the gross debt figure of € 34.421 mln is reached. N.B. Debt maturities are net of € 1.281 mln (face value) of repurchased (of which € 523 in the 2013 and € 543 in
the 2014) own bonds (of which € 1.066 mln related to bonds ue within 2016).
Investor Meetings – April 2015
Investor Relations
28
Well-Diversified and Hedged Debt
Total Gross Debt net of Adjustment:
Euro 34.421 mln
Maturities and
Risk Management
€ mln
Average m/l term maturity: 7,10 years
(bond only 7,85 years)
Fixed rate portion on gross debt approximately
66,3%
Around 41% of outstanding bonds (nominal amount)
is denominated in USD, GBP and YEN and is fully
hedged
Gross debt
34,421
(of which 30 mln disc. Operations)
Financial assets
of which Cash & CE and marketable securities
Cash & Cash Equivalent
Marketable securities
Italian Government Securities
Other
Discontinued operations
Net Financial Position
(7,605)
(6,112)
(4,812)
(1,300)
(915)
(385)
(165)
Cost of debt:
 5.4%
26,651
N.B. The figures are net of the adjustment due to the fair value measurement of derivatives and related financial liabilities/assets, as follows:
- the impact on Gross Financial Debt is equal to 2.633 €/mln (of which 687 €/mln on bonds)
- the impact on Financial Assets is equal to 1.263 €/mln.
Therefore, the Net Financial Indebtedness is adjusted by 1.370 €/mln.
Investor Meetings – April 2015
Investor Relations
29
Successful Placement of 2€bln Equity-Linked Bond due 2022
Issuer
Gross proceeds
Maturity
Coupon p.a.
Conversion premium
Telecom Italia Convertible Bond
Telecom Italia S.p.A.
€2,000 mln
March 2022 (7 years)
1,125%
70%
Initial Conversion price
€ 1.8476
Issue / redemption at maturity
Issuer Call (at 130% trigger)
Shares delivered at maturity based
on conversion price
100%
After 4 years
1.082 mln shares
Following the successful placement of the 2€bln equity-linked bonds due 2022”, the
Board of Directors resolved to supplement the agenda of the Shareholders' Meeting of 20
May 2015 to include the proposed authorisation to convert the bonds and increase the
share capital, by means of the issue of new-issue ordinary shares reserved to service the
initiative, with the exclusion of preferential subscription rights.
Investor Meetings – April 2015
Investor Relations
30
Announced Tender Offers to Buyback
Max 2€bln Bonds due in 2017-2022
Not for distribution in or into or to any person located or resident in the
United States, its territories and possessions, any state of the United
States or the District of Columbia (including Puerto Rico, the U.S. Virgin
Islands, Guam, American Samoa, Wake Island and the Northern
Mariana Islands) or in or into or to any person located or resident in any
other jurisdiction where it is unlawful to distribute this document.
The Offers are being made as part of the Company’s liability management and are aimed at
optimising its cost of debt and, furthermore, providing liquidity to those Note-holders whose
Notes are accepted in the Offers.
Outstanding Purchase Nominal Spread
Amount (€mln)
Order of Priority*
Notes
Coupon
1
1
1
1
2
2
Feb‐22
Jan‐21
Sep‐20
Jan‐20
Jan‐19
Dec‐18
5.25%
4.50%
4.88%
4.00%
5.38%
6.13%
1,250 1,000 1,000 1,000 1,250 750 2
May‐18
4.75%
750 160 bps
155 bps Subject as set out herein, an aggregate nominal amount of Priority One Notes of up to the Maximum Acceptance Amount
145 bps
130 bps
115 bps
Subject as set out herein, an aggregate nominal amount of Priority Two Notes 110 bps of up to the Maximum Acceptance Amount less the aggregate nominal amount of Priority One Notes validly tendered and accepted for purchase
95 bps
3
Sep‐17
4.50%
736 85 bps
3
Jan‐17
7.00%
626 55bps
Maximum Acceptance Amount Subject as set out herein, an aggregate nominal amount of Priority Three Notes of up to the Maximum Acceptance Amount less the aggregate nominal amount of Priority One Notes and Priority Two Notes validly tendered and accepted for purchase • Expiration Deadline: 21 April 2015 (h. 5pm CET)
• Pricing Date: 22 April 2015 (h.11am CET)
• Settlement Date: Expected on 24 April 2015
* Acceptance of valid tenders of Notes of each Series of Notes which have the same Order of Priority is at the Company’s sole discretion and the
Company reserves the right, at its sole discretion, to accept more or less (by an amount which may or may not be significant), or none, of the Notes of
any Series as compared to the other Series within the lowest Order of Priority in which Notes are accepted for purchase
Investor Meetings – April 2015
Investor Relations
31
Inwit IPO: a unique opportunity to invest in
the leading pure-play European wireless
tower company
•
The largest independent tower in Italy: ~11.5k sites representing
~27% the total number of telecom towers in Italy
•
High quality assets located in top locations, with high-level
features
•
Attractive market fundamentals and high barriers to entry
•
Long term contracted revenues with high quality customers
•
Multiple opportunities for growth: co-tenancy, new sites, new
services, tower consolidation
•
Significant cash flow conversion and growth
•
Proven and experienced management team
Investor Meetings – April 2015
Investor Relations
32
TI Merger with Telecom Italia Media
(€m, except for share data)
TIME
Mkt Cap Ordinary Shares
Mkt Cap Savings Shares
# Ordinary shares (m)
# Saving shares (m)
Net Debt (excl. Persidera) 2014E
Holding Costs 2014E
107.0
3.4
103.3
5.5
195
(7)
77.7% Ordinary Shares
0.9% Saving Shares
(€m)
Persidera
Net Debt 2014E
EBITDA 2014E
70%
(1)
75
35
Persidera
Transaction Pillars and Impact on Telecom Italia
 Simplification will extend to the Telecom Italia Group structures
 Elimination of costs associated with listing, in light of the limited stock liquidity
 Enhanced flexibility to manage Persidera disposal process
 Minority-friendly: cash withdrawal right (as per Italian Civil Code) at 6-month arithmetic
average share price
 Limited impact on TI
 0.1% ordinary share voting dilution if no withdrawal right exercised
 €28 million max cash outlay if all minority shareholders exercise withdrawal right
 Moderate EPS accretion (0.1%) / savings of ca. €2 million corporate costs
Key Terms and Milestones
 0.66x Telecom Italia ordinary shares for each Telecom Italia Media ordinary share
 0.47x Telecom Italia saving shares for each Telecom Italia Media saving share
 Exchange ratios to be confirmed on 19th March
 Cash withdrawal right granted to TIME shareholders (€1.06 per ordinary share and €0.60
per saving share)
 TI to purchase any withdrawing share not pre-empted
 Transaction to be approved in April/May 2015
 Closing expected in July/August 2015
30%
Note: (1) Pro-forma for 100% contribution of GELE assets.
Persidera Merger
 Telecom Italia and GELE to continue assessing
options for a short-to-medium-term disposal of
Persidera
 The only frequency platform available to nonintegrated TV broadcasters in the digital
terrestrial TV landscape in Italy
 Business poised to grow meaningfully through
2018
 Most contracts with TV broadcasters
successfully renegotiated and in place
for multiple years
 Contractual visibility on the large
majority of revenues forecast over the
plan horizon
 Call option for Telecom Italia on Channel 55
(700 MHz frequency)
Investor Meetings – April 2015
Investor Relations
33
2015 Annual General Meeting on May 20th
Proposed Resolutions:
Approval of the FY2014 financial statements
Distribution of only the privileged dividend to savings shares, in the amount of 2.75 euro cents per share (in
line with that already announced when presenting the industrial plan).
Approval of the report on remuneration;
Appointment of the Board of Statutory Auditors for FYs 2015-2017, to be made by means of the slate voting
system (and for the first time applying the gender balance rule);
Authorization to convert the “€2€bln equity-linked bonds due 2022” and increase the share capital.
Introduction of a deferral mechanism by means of the liquidation in ordinary shares of a portion of the shortterm incentive, with reference to the 2015 MBO cycle for the Top Management and a selected number of
executives.
Granting of powers to increase the share capital to service said remuneration plan, by means of the
allocation of profits for up to a maximum of 25.5mln euros, to be allocated when approving the financial
statements.
Merger by incorporation of the subsidiary TI Media, as per separate joint press release.
Amendment of some statutory rules regarding the Board of Directors and Board of Statutory Auditors;
Proposed changes on TI Bylaws essentially relate to:
Introduction of a principle of independence (in accordance with the law and/or the Corporate Governance
Code of Borsa Italiana), when renewing the Board of Directors, for at least half of the candidates and
elected directors on each slate;
the amendment of the majority premium, when renewing the administrative body, to 2/3 of the
Directors to be elected (at present, the Bylaws establish that 4/5 of the seats shall be assigned to the
majority slate);
a change to the mechanism for convening the Board of Directors at the request of the Directors, attributing
this right to 2 Directors (rather than to one fifth of the Directors in office), in a similar way to the legal
provisions regarding Auditors.
Investor Meetings – April 2015
Investor Relations
34
TI Group Share - Capital Composition
Total Telecom Italia Share capital (euros)
# ordinary shares (without nominal value)
# savings shares (without nominal value)
10,723,391,861.60
13,470,955,451
6,026,120,661
Number of TI S.p.A. ordinary treasury shares
Number of TI S.p.A. ordinary shares held by TI Finance S.A.
37,672,014
124,544,373
% of ordinary treasury shares held by the Group to total share capital
0.83%
Market capitalization (based on December 2014 average prices)
16,568 €mln
Investor Meetings – April 2015
Investor Relations
35
NGN coverages across Europe: TI is driving Italy to pick-up
89%
90%
90%
85%
85%
81%
80%
75% >75%
74%
67%
70%
69%
63%
72%
70%
57%
50%
44%
39%
35%
19%
22%
43%
40%
25%
29%
7%
9%
7%
2007
2008
2009
2010
17%
11%
2011
9%
2012
2013
13%
2014
2015
2016
2017
2018
2019
2020
DT (FttC+Vectoring, FttH)
BT (FttX)
Telecom Italia (FttC)
KPN (FttH)
Belgacom (VDSL2/FttH)
Orange (FTTH)
2021
2022
Telefonica (FttH)
Investor Meetings – April 2015
Investor Relations
36
Improving Macro-Economic Outlook in Italy:
Gross Fixed Investments (YoY %)
+1,7%
(1/2)
Industrial Production (YoY %)
+2,0%
+1,2%
+0,6%
+0,0%
-0,8%
-1,9%
-3,3%
-3,1%
-5,8%
-9,3%
2011
2012
-6,4%
2013
2014
2015E
2016E
Unemployment Rate
12,2%
12,7%
12,8%
2011
2012
2013
2014
2015E
2016E
Household Consumption (YoY %)
12,4%
10,6%
+0,3%
+0,0%
+0,7%
+0,8%
2015E
2016E
8,4%
-2,9%
-3,9%
2011
2012
2013
2014
2015E
2016E
2011
2012
2013
2014
Source: Consensus Economics Inc 2015 (March 9, 2015), consensus based on a survey of 19 prominent financial and economic
research institutes.
Investor Meetings – April 2015
Investor Relations
37
Improving Macro-Economic Outlook in Italy: GDP trend (2/2)
GDP YoY growth%, as of March 2015
2015
2016
Centro Europa Ricerche
Banca Nazionale del Lavoro
Prometeia
REF Ricerche
ABI
Credit Suisse
ING Financial Markets
UBS
Confindustria
HSBC
Econ Intelligence Unit
UniCredit
Barclays Capital
Goldman Sachs
Intesa Sanpaolo
Moody's Analytics
Citigroup
Oxford Economics
Bank of America - Merrill
0.9
0.7
0.7
0.7
0.6
0.7
0.7
0.5
0.5
0.5
0.5
0.6
0.4
0.4
0.4
0.4
0.8
0.3
0.3
1.2
1.3
1.4
1.2
1.1
1.6
1.3
1.0
1.1
0.8
0.9
1.2
1.1
0.9
1.0
1.1
1.4
1.0
0.9
Average Consensus
0.6
1.1
Italian Government (Mar 15)
Bank of Italy (Jan 15)
EU Commission (Feb 15)
IMF (Jan 15)
OECD (Feb 15)
0.7
0.4
0.6
0.4
0.4
1.4
1.2
1.3
0.8
1.3
Investor Meetings – April 2015
Investor Relations
38
Brazilian Market Outlook 2015-2017
A Close Look at
Business Performance
2015-2017 Guidance
MTR Impact Analysis
Net Revenues
(R$; %)
(R$ billion)
EBITDA
Exposure
31%
18%
Net Services 24%
Revenues
Exposure
Near
mid-single
12%
2010 2011 2012 2013 2014 2015e 2016e 2017e
MTR Cut (% YoY)
-15% -11% -25% -33% -35% -44%
Mobile Net Revenues Analysis
(R$; %)
Innovative:
Data
Content
Other
% YoY
Traditional:
Voice
Incoming
SMS
-11%
18.8
19.9
19.5
2012A
2013A
2014A
Continued
growth
2015e
2016e
2017e
EBITDA
(R$ billion)
+48%
2013A
2014A
Continued
growth,
improving
margin
5.0
5.2
5.5
2012A
2013A
2014A
2015e
2016e
2017e
2017e
Innovative and Traditional Investments
(R$; %)
6.9
CAPEX
(R$ billion)
Innovative
52%
60%
63% 65% ~9 bln
Organic
Traditional
48% 2014a
40%
2015e
37%
2016e
35% ~5 bln
2017e
Others/
Licenses
3.8
3.9
3.1
3.5
0.6
0.4
2012A
2013A
3.9
CAPEX
2015-2017:
>14 R$Bln
2.9
2014A
2015e
2016e
2017e
Investor Meetings – April 2015
Investor Relations
39