TI FY 2009 - 2009 Results and the 2010-2012 Strategic Plan Update

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The Telecom Italia 2009 Results and the 2010-2012 Strategic Plan Update

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TI FY 2009 - 2009 Results and the 2010-2012 Strategic Plan Update

  1. 1. Telecom Italia Group 2009 Results & Strategic Plan Update FRANCO BERNABE’
  2. 2. Safe Harbour These presentations contain 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 Company and the 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. 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 are cautioned not to place undue reliance on those forward looking statements, which speak only as of the date of this presentation. Telecom Italia S.p.A. 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 S.p.A. business or acquisition strategy or planned capital expenditures or to reflect the occurrence of unanticipated events. Analysts and investors are encouraged to 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. 1 FRANCO BERNABE’
  3. 3. Agenda  TI Group 2009 Results  TI Group 2010-2012 Strategic Plan Update  Focus on Domestic Market 2 FRANCO BERNABE’
  4. 4. Confirming Organic 2009 Group Results Operating Free Cash Flow: 6.3 bln € (+12% YoY) Focus on TARGET REACHED Core Organic Domestic Ebitda: 10.1bln € (-2.1% YoY) Organic Ebitda Margin: 46.5% (+2.3 p.p. YoY) Markets: Domestic TARGET REACHED & Domestic Cash Cost Efficiencies: 0.9 bln € 2009 DPS Brazil Ord.: 5.0 €/cents TARGET REACHED TIM Brasil Ebitda: 1,289 mln € (+9.6% YoY) Sav.: 6.1 €/cents Ebitda Margin: 25.7% (+2.3 p.p. YoY) TARGET REACHED NFP Adj.: 33,949 mln € at YE09 (-577 mln € vs YE08) Financial Discipline HanseNet Disposal: 0.9 bln € Net Debt Reduction in Feb.’10 3 FRANCO BERNABE’
  5. 5. Strong Operating Free Cash Flow Euro mln, Reported data Operating FCF % OFCF on Revenues +662 6,298 5,636 23.2% +3.8 p.p. 19.4% 2008 2009 2008 2009 Figures considering HanseNet classified as Discontinued Operations. 4 FRANCO BERNABE’
  6. 6. Net Income Evolution 11,115 (5,622)  HanseNet GW Writedown/Provisions (597)  HanseNet Net Income (23) (2,154)  Other provisions (2) 3,339 (1,121) (622) (15) 1,581 EBITDA Deprec. / Net Interest & Income Taxes Net Income Minorities Net Income Reported Amortiz.* Net Income Before Taxes of assets 2009 /Equity & Disc.Ops. disposed  vs. +0.2% -0.5% -15.3% +15.4% +65.6% -27.4% FY 2008 * Including gains/losses of non current assets realization 5 FRANCO BERNABE’
  7. 7. Net Debt Dynamics Euro mln +1,839 Income Taxes  +2,225 Cash Financial Expenses o/w +248 Tax Litigation  (206) Financial Accruals +52 Disc. Ops. HanseNet +214 Substitutive Tax 34,526 (6,298) +404 33,949 +1,050 +2,019 +2,301 (53) (577) 2008YE Operating Disposals Cash Cash Dividends Financial 2009YE FCF Taxes Financial Investments Adjusted Expenses/ & other Adjusted Financial impacts Accruals 2007YE (1,347) 2008YE (*) 35,873 (5,636) (599) +633 +2,102 +1,665 +488 34,526 vs. 08 (662) +546 +1,668 (83) (615) (84) (*) o/w +202 Disc. Ops. HanseNet 6 FRANCO BERNABE’
  8. 8. Focus on TI Sparkle Provision Euro mln 2005-2007 Revenues and Commercial Margin TI Sparkle Provision 2005-2009 Restatement FY ’07: 70 Mln Commercial FY ’06: 256 Mln Revenues Margin FY ’05: 77 Mln 72 32 507 Cum. 403 ’07-’05 -1,246 -72 FY ‘07 -169 -13 FY ‘06 -754 -47 VAT* Commercial Interests Total FY ‘05 -323 -12 Margin Provision * Includes Penalties No Impact on 2008-2009 Revenues and Ebitda 2008-2009 Net Income impacted by €10 mln of Annual Financial Charges 7 FRANCO BERNABE’
  9. 9. Telecom Italia Group Strategic Plan Update FRANCO BERNABE’
  10. 10. Global Macro Economic and TLC Market Outlook CAGR% ’10-’12 Brazil 8.6% +4.5% Italy  Modest growth for +1.1% 3.9% 4.5% developed countries 3.0% (in particular WE) GDP Outlook 1.4%  China and India still By Geography* driving emerging Western North Latin China & Middle East & markets growth Europe America America India Africa CAGR% ’10-’12 12.4% 6.5%  Fixed voice decline Worldwide  Mobile voice growth TLC Market 1.5% driven by emerging markets Outlook By Technology**  Mobile BB confirmed as the new growth -5.4% area Fixed Mobile Fixed Mobile Voice Voice Data Data Source: TI processing on Global Insight data * ** TLC Services Revenue. Source: TI processing on Ovum data 9 FRANCO BERNABE’
  11. 11. Key Objectives and Strategic Levers Confirmed Focus on Domestic Enhanced Free Cash Core Flow Markets Brazil Generation A Platform to Create Solid Growth of No M&A for Geographic Shareholder Deleverage Expansion Value & Capital Strengthen Discipline Balance Non-Core Assets Disposal Sheet 10 FRANCO BERNABE’
  12. 12. TI Domestic: the Transformation Journey Transformation journey Telcos’ path Telcos’ Main Challenges High “Enhanced Connectivity & Monetize market Service convergence Company” “Customer Power” Customer Loyalty Market Share Protection Brand Free Cash Flow “Lean Reinforcement Telco” Generation “Connectivity & Protect the value of Transport” connectivity through a New Operating Model Low Low High “Efficiency” 11 FRANCO BERNABE’
  13. 13. TIM Brasil: a Solid Platform for Growth Exploiting Market Opportunities TLC Market (Revenues) Fixed vs. Mobile (Revenues) BB Growth (Users) 122 105 52 26.5 Data 50 49 16.0 Fixed Fixed Voice 10.0 Mobile 47 Fixed 48 Data 42 Mobile Mobile Voice Service 2009 2012 2008 2010 2012 2008 2010 2012 Revenues Growth & Building a Platform of Growth Margin #1 & #2 Task #3 Task #4 Task #5 Task Improvements 3 Development Waves Intelig: Option Value Network Infrastructure Ebitda% - CAPEX% MAN ~6% ~15% Back-hauling 2009* 2012 Penetration Usage Data EBITDA % CAPEX % Back- bone *: 2009 Proforma Intelig 12 months Source: TIM Brasil Estimates 12 FRANCO BERNABE’
  14. 14. Cash Flow Generation Remains our Key Priority ORGANIC CAGR 09-12 REVENUES Model Improve Back to Growth Change Stabilize Trend ~1% Organic EBITDA 11.4 11.3 Cum. ’10-’12 OFCF*: ~21 bln € OFCF/Organic Revenues +3 p.p. 23% ~26% CAPEX 5.0 4.6 2009 2012 2008 2009 2010 2011 2012 * Based on reported Ebitda and Capex, including  working Capital & excluding Sparkle impact. 13 FRANCO BERNABE’
  15. 15. Cash Allocation Priorities: Continuous Deleverage and Shareholders Remuneration Free Cash Flow Generation Cum. 2010 – 2012 Net Financial Position Adjusted Euro Bln Euro Bln 34.5 33.9 29.5 < 28 €5 bln Net Debt 21 reduction confirmed (YE ’11 vs. YE ’08) -0.5 2008 2009 2011 2012 ~1 10.5 -11 Total Shareholders Remuneration 3,08 Euro Bln ~1.0 ~1.0 OFCF Maximum Financial Hansenet FCF Sparkle Exp./Taxes Disposal before Impact Dividends 2009 2010 2011 2012 * Source: UBS 14 FRANCO BERNABE’
  16. 16. Agenda  TI Group 2009 Results  TI Group 2010-2012 Strategic Plan Update  Focus on Domestic Market 15 FRANCO BERNABE’
  17. 17. The Transformation Journey: Business and Operating Model  Speed up Mobile Turnaround Reverse  Consolidate Positive Fixed Momentum Revenues  Exploit Convergent Opportunities on Business segment Trend  Continue to attack Adjacent Services “Enhanced Connectivity &  Front-end loaded efficiency program confirmed and Service Company” Cash Cost extended Rationalization  New “Lean Company” operating model to better adapt & Operating to new industry scenario Model  Selective Capex approach  Reinforce strategic Touch Points and improve assistance “Lean Telco” Excellence in and caring Customer “Connectivity &  Re-launch Points of Sales Transport” Satisfaction & QoE  Prepare the network to business evolution  Reduce ex-ante obligations Regulatory  Improve symmetry Dialogue  Set a favourable scenario for NGAN 16 FRANCO BERNABE’
  18. 18. Reverse Revenues Trend Operating Model Domestic Customer Satisfaction Reverse Revenues Trend: TI Priorities Regulatory Dialogue Speed-up Mobile CAGR ’09-’12: Broadly stable turnaround 13% Strategic Improve Back Trend Stabilize 16% to Growth priority Applications & Platforms (1) 7% 12% Broadband (2) Cooperation Consolidate positive 13% 16% Fixed momentum Leadership Access & Voice (3) 80% 72% Protection Exploit Convergent Opportunities on Business Segment 2009 2010 2011 2012 Continue to Attack (1) ICT Services, BB Content (Adv., IPTV), Mobile VAS Content Adjacent Services (2) Mobile BB, Fixed BB (Access) (3) Fixed: Access, Outgoing Voice, Voice VAS, Business Data, Handsets; Mobile: Outgoing Voice, Messaging, Handsets 17 FRANCO BERNABE’
  19. 19. Reverse Revenues Trend Operating Model Domestic Customer Satisfaction TI Operating Model Regulatory Dialogue Integrated, Multi-access, Network Flexible & Open IT Lean IT as growth Enabler Customer Operations End2End & On-line (Multichannel) Quality Time Efficiency of Service to Market Customer Operations Service Delivery* Progressing on the Overall Satisfaction 17 Headcount Reduction Plan Average days Headcount (’000) 7.56 13 7.44 +1.6% 64.1 +5.5% 10 57.4 7.05 9 6 6 - 6.7 - 10% of workforce vs Jan. 2008 FY ‘08 FY ‘09 1Q ‘10 FY ‘08 FY ‘09 1Q’10 Jan 1, 08 March, 10 * Consumer Voice Retail ADSL Retail 18 FRANCO BERNABE’
  20. 20. Reverse Revenues Trend Operating Model Domestic Customer Satisfaction Cash Cost Rationalization and Efficiency Plan Regulatory Dialogue Euro bln, Organic data Cash Cost 2012 vs 2009 Efficiency YoY -1.8 bln € 17% 30% 53% 58% Opex Cash Cost on 69.8% Revenues ~65% 42% Capex ’10 vs ‘09 ’11 vs ‘10 ’12 vs ‘11 Cum. ’09-’12 +1.2 Efficiency by Programs (2009-12) 15.1 Total 1.8 Capex 3.5 1 Network  <14.0 Operations 0.2 -0.6 <3.0 2 MKT &  Distribution 0.4 -1.8 bln € 3 Organization & Support process 0.2 Opex 11.6 <11.0 Information 4 0.5 Technology > -1.1 bln € Customer 5 Operations 0.1 Volume Delivery  2009 ITX Efficiency 2012 6 & Assurance 0.2 driven 7 Buildings and Cum 09-12 Efficiency 2.7 bln € Energy Mng 0.2 19 FRANCO BERNABE’
  21. 21. Reverse Revenues Trend Operating Model Domestic Customer Satisfaction Selective Capex Approach Regulatory Dialogue Capex by Function Key Highlights Euro bln, % - Organic data Total 3.5 Cum ‘10-’12 ~9€ bn Rebalancing Commercial Capex: strong effort Comm. - Other 0.8 to reposition Sales Network PoS self-financed by lower handset subsidies Network & IT 2.7 Access Network Capex focused on BroadBand development (Fixed and Mobile) 2009 2010 2011 2012 IT reduction driven by leaner architectures and vendors consolidation Capex by Destination Total 3.5 Business Maintenance slight reduction driven by network optimization 1,7 Business  Increasing focus on Capex related to 57% 58% 59% Development business development to improve network capacity and efficiency Business 43% 42% 41% Maintenance Selective approach on NGN development 2009 2010 2011 2012 20 FRANCO BERNABE’
  22. 22. Reverse Revenues Trend Operating Model Domestic Customer Satisfaction Excellence in Customer Satisfaction Regulatory Dialogue & Quality of Experience Goals Actions KPIs Brand and Communication: Customer Satisfaction Index CAGR ‘09-’12: 2% Consistency and uniqueness in CAGR: 2.1% Communication Plan 72.70 Offer Proposition: 68.60 66.16  Portfolio simplification Reach excellence in Solid and consistent “Customer centric” value Customer service IQ '08 IVQ '09 Tgt '12 proposition increasing perceived quality of the most Closeness to the customers with re-launch of the important “Touch Points of Sales as strategic Touch Points and new Point” for the Mobile Broadband Accessibility initiatives for selected Business/TOP customers Customer 99.5% 99.5% Technical Quality increase technical quality of 98.7% 99.4% broadband network (F-M) and reduce fault rates. Leverage on past strong investment in capacity to support mobile data traffic 2009 2010 2011 2012 21 FRANCO BERNABE’
  23. 23. Reverse Revenues Trend Operating Model Domestic Customer Satisfaction Regulatory Main Goals Regulatory Dialogue  Reduction of the ex–ante obligations enhancing pricing flexibility on access and Retail traffic services markets  New pricing test rules aimed at improving TI’s retail competitiveness  Reduce the gap with the European average on ULL monthly fee Wholesale markets  Achieve a real symmetry in fixed termination charges between TI and Alternative Operators  Fully NGAN symmetrical regulatory approach where no bottlenecks exist NGAN  NGAN access prices based on a “risk premium”  Geographical differentiation of NGAN access obligations and pricing 22 FRANCO BERNABE’

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