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Telecom Italia 1Q 2011 Results (Bernabè)

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  • 1. TELECOM ITALIA GROUP1Q 2011 ResultsMilan, May 6th, 2011 Telecom Italia 1Q 2011 Results FRANCO BERNABE’ BERNABE
  • 2. TELECOM ITALIA GROUP1Q 2011 ResultsSafe HarbourThese presentations contain statements that constitute forward-looking statements within the meaning of thePrivate Securities Litigation Reform Act of 1995. These statements appear in a number of places in thispresentation and include statements regarding the intent belief or current expectations of the customer base intent, base,estimates regarding future growth in the different business lines and the global business, market share, financialresults 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 aresult of various factors.Forward-looking information is based on certain key assumptions which we believe to be reasonable as of the datehereof, 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 ofthe date of this presentation. Telecom Italia S.p.A. undertakes no obligation to release publicly the results of anyrevisions to these forward looking statements which may be made to reflect events and circumstances after thedate of this presentation, including, without limitation, changes in Telecom Italia S.p.A. business or acquisitionstrategy or planned capital expenditures or to reflect the occurrence of unanticipated events. Analysts andinvestors are encouraged to consult the Companys Annual Report on Form 20-F as well as periodic filings made onForm 6 K which are on file with the United States Securities and Exchange Commission 6-K, Commission.It should also be noted that starting from the year 2010, Telecom Italia reclassified some taxes paid in Brazil ofnon-material amount, previously included in “Other operating expenses”, in reduction of “Revenues” and “Otherincome” in order to ensure a better comparability and intelligibility of the financial information. FRANCO BERNABE’ 1
  • 3. TELECOM ITALIA GROUP1Q 2011 ResultsAgenda  TI Group 1Q11 Results  Telecom Italia Core Markets Results Italy Brazil Argentina  Appendix FRANCO BERNABE’ 2
  • 4. TELECOM ITALIA GROUP1Q 2011 ResultsTI Group 1Q11 Key Achievements Operating Free Cash Flow: 1.1 bln € (+322 mln € YoY, +42.7%YoY) Group Reported Revenues: 7.1 bln € (+10.3% YoY, Org. -0.2% YoY) Focus on Group Reported Ebitda: 2.9 bln € (+3.6% YoY) Core Group Organic Ebitda: 3.0 bln € (-3.6% YoY) Markets Group Organic Ebitda Margin: 41.9% (-1.5 p.p. YoY) Group Net Income ante Minorities: 648 mln € (+6.9% YoY) ( 6.9% Group Net Income post Minorities: 549 mln € (-8.7% YoY) Disposal Plan Completed Cash in: ETECSA Cuba Cash-in: 706 mln US$ (of which 511 mln US$ in Q1) Financial Discipline NFP Adj.: 30.6 bln € (-2.6 bln € vs 1Q10, -846 mln € vs FY10 ) FRANCO BERNABE’ 3
  • 5. TELECOM ITALIA GROUP Italy Enhance1Q 2011 Results Brazil Free Cash Flow GenerationStrong Free Cash Flow Generation ArgentinaEuro mln, Reported Data Operating Free Cash Flow Net Cash Flow +159 +660 7,073 Revenues 6,413  Etecsa Cuba: 374  Economic Interest TA (155)  Hansenet: 817  Sparkle: (282) 846 4,144 Opex 3,587 -557 687 219 1,042 1 042 +141 141 901 535 Capex 627 +78 952  WC 1,030 754 +322 1,076 Normalized 152 +475 OFCF 1Q10 1Q11 1Q10 1Q11 FRANCO BERNABE’ 4
  • 6. TELECOM ITALIA GROUP Italy Enhance1Q 2011 Results Brazil Free Cash Flow GenerationTI Group: Revenues & Ebitda ArgentinaEuro mln, % Reported Revenues Organic Revenues -15 M€ +660 M€ -0.2% +10.3% 7,073 7,088 7,073 6,413 1Q10 1Q11 1Q10 1Q11 Reported EBITDA Organic EBITDA % on % on Revenues 44.1% Revenues 43.4% -1.5 p.p. pp 41.9% -2.7 p.p. pp 41.4% -111M€ +103M€ +3.6% 2,929 3,077 -3.6% 2,966 2,826 1Q10 1Q11 1Q10 1Q11 FRANCO BERNABE’ 5
  • 7. TELECOM ITALIA GROUP Italy Enhance1Q 2011 Results Brazil Free Cash Flow GenerationNet Income Evolution ArgentinaEuro mln; reported data (1,430) 2,929 (457) (394) 0 (99) 1,042 648 549 549 EBITDA Deprec. / Net Interest & Income Bef. Taxes Net Income of Net Income Minorities Net income Reported Amortiz.* Net Income / Taxes & Disc. assets disposed ante Minorities Equity Ops. % vs. 1Q10 +3.6% 3 6% +0.8% 0 8% +2.2% 2 2% +8.4% 8 4% +11.0% 11 0% n.m. +6.9% 6 9% n.m. -8.7% 8 7% abs. vs. 1Q10 +103 +12 +10 +81 +39 +0 +42 +94 (52)* Including gains/losses of non current assets realization  Equity +29 o/w  Income from inv. (15)  Brasil +40  Net Fin. Charges (4)  Argentina +44 o/w related to debt (29)  Dom. (43) FRANCO BERNABE’ 6
  • 8. TELECOM ITALIA GROUP Italy Enhance1Q 2011 Results Brazil Free Cash Flow GenerationNet Debt Dynamics ArgentinaEuro mln, Reported Data -2.6 Bln € YoY 31,468 31 468 (1,076) 30,622 (377) +439 +156 +12  EBITDA (2,929) (2 929)  +633 Fi E (Cash impact) 633 Fin. Exp.  CAPEX +901  (194) Fin. Accruals   WC & Others +952  Operating FCF (1,076) (846) 2010YE Operating FCF* Disposals Cash Financial Financial Cash Taxes/Other 1Q11 Adjusted Expenses/ Financial Investments Impacts Adjusted Accruals 2009YE (687) 1Q10 33,949 (754) (818) +419 +0 +466 32,262 vs. 10 (322) +441 +20 +156 (454)* Argentina: (87) FRANCO BERNABE’ 7
  • 9. TELECOM ITALIA GROUP1Q 2011 ResultsAgenda  TI Group 1Q11 Results  Telecom Italia Core Markets Results Italy Brazil Argentina  Appendix FRANCO BERNABE’ 8
  • 10. TELECOM ITALIA GROUP Italy Enhance1Q 2011 Results Brazil Free Cash Flow GenerationItaly: Revenues & Ebitda Trend ArgentinaEuro mln, Organic data, % Revenues EBITDA % on 0.0 p.p. pp 49.5% 49.5% -369 M€ Revenues 4,965 -7.4% -187 M€ 4,596 2,460 -7.6% 2,273 1Q10 1Q11 1Q10 1Q11 Ebitda-Capex Highlights -98 M€  Sluggish domestic demand curbing economic recovery gg g y -5.7% 5 7% and impacting corporations & SMEs 1,708 1,610  Top & Business segments in the mobile affected by difficult YoY comparison  Selective approach to Int’l Wholesale Contracts with low marginality  Continuous effort on Cash Cost reduction 1Q10 1Q11 FRANCO BERNABE’ 9
  • 11. TELECOM ITALIA GROUP Italy Enhance1Q 2011 Results Brazil Free Cash Flow GenerationItaly: Protecting the Value of our Customers Argentina Drivers Highlights Fixed Mobile  Fixed retail monthly fee increase from July mln lines mln lines  Line Losses reduced vs 4Q10 despite competitors Defend aggressiveness and OLO’s win-back cap -187k +600k 31.0 30.4 Traditional  Mobile Calling CB rebound confirmed excluding ULL Back-log Services  Double digit decrease in Mobile Churn Rate (-13.9% YoY) 1Q10 1Q11 Fixed BB Access Mobile Large Screen Users mln lines mln lines, Consumer Segment  Lever on QoS to sustain price premium and fight +25.8% Strengthen back the OLO’s aggressiveness 7.1 7.2 1,853 2,332 BB  Broadband ARPU broadly stable QoQ Experience  Leadership on Large Screen confirmed % Flat 84% 87% 1Q10 1Q11 1Q10 1Q11 ICT Revenues Top ICT Portfolio Value €m +39% Regained leadership on PA winning all new Consip +13.3% Develop D l  Contracts (Fixed & Mobile) 179 Innovative  Increasing ICT contracts value boosted by Cloud 158 Cloud Computing Services Computing 1Q10 1Q11 1Q10 1Q11 FRANCO BERNABE’ 10
  • 12. TELECOM ITALIA GROUP1Q 2011 ResultsAgenda  TI Group 1Q11 Results  Telecom Italia Core Markets Results Italy Brazil Argentina  Appendix FRANCO BERNABE’ 11
  • 13. TELECOM ITALIA GROUP Italy Enhance1Q 2011 Results Brazil Free Cash Flow GenerationBrazil: Revenues & Ebitda Trend ArgentinaEuro mln, Organic data, % Revenues EBITDA % on 28.8% 28 8% +200 M€ 1,646 Revenues -1.3 p.p. 27.5% Subsidy Policy +13.8% Changed: +36 M€ +23% YoY like +8.6% for like 1,446 452 416 1Q10 1Q11 1Q10 1Q11 Ebitda-Capex Highlights +208 M€ 322 +182.3% 182.3%  Brazil confirmed as a booming economy with a solid monetary and fiscal regime  F-M substitution strategy success confirmed 114  Voice and data revenues growing double digit  Good balance between growth and profitability 1Q10 1Q11 FRANCO BERNABE’ 12
  • 14. TELECOM ITALIA GROUP Italy Enhance1Q 2011 Results Brazil Free Cash Flow GenerationBrazil: Accelerating Growth Argentina Drivers Highlights  TIM Brasil confirmed as the best performer for CB Increase Size Mln users, % growth (+24.7% YoY vs market +17.5% YoY) +25% 52.8 Total 42.4 7.7  Strong increase in data users @ ~600 k lines +17% Size (+35.5% YoY) Post-Paid 6.6 +26% 45.1 Pre-Paid Pre Paid 35.8 35 8  Sound reduction in Consumer Voice Churn Rate: - 1.2pp YoY @1.7% in 1Q11 1Q10 1Q11 Revenues Growth: the Key Driver Voice outgoing revenues confirming double digit Usage U g Data Revenues D t R growth (+13.4% YoY) Min/month % YoY 126 Revenues Data Revenues reaching 14% of service revenues 100 +26% +28% Growth leveraging on the success of Infinity Web OUT +37% Smartphones reaching 40% of total handsets sales (16% in 1Q10) IN 22% -22% 1Q10 1Q11 1Q10 1Q11 1Q10 1Q11 Ebitda-Capex Evolution Euro mln, Organic data 416 452 Enhance E h Consolidation of th «No Subsidy» Model C lid ti f the N S b id M d l Ebitda Value  Improve Cash Generation Capex Creation  Strong Net Income growth 302 130 1Q10 1Q11 FRANCO BERNABE’ 13
  • 15. TELECOM ITALIA GROUP1Q 2011 ResultsAgenda  TI Group 1Q11 Results  Telecom Italia Core Markets Results Italy Brazil Argentina  Appendix FRANCO BERNABE’ 14
  • 16. TELECOM ITALIA GROUP Italy Enhance1Q 2011 Results Brazil Free Cash Flow GenerationArgentina: Revenues & Ebitda Trend ArgentinaEuro mln, Organic data, % Revenues EBITDA +161 M€ 753 35.4% -1.3 p.p. 13 +27.2% 34.1% +47 M€ 592 +22.5% 257 210 1Q10 1Q11 1Q10 1Q11 Ebitda-Capex Highlights +49 M€ 166 +41.4%  Argentine economy continued its growing trend with an 117 expansion in consumer and industrial consumption  Solid Ebitda performance despite strong support to top line growth  Mobile Service Revenues boosting top line performance  Strong FCF Generation 1Q10 1Q11 FRANCO BERNABE’ 15
  • 17. TELECOM ITALIA GROUP Italy Enhance1Q 2011 Results Brazil Free Cash Flow GenerationArgentina: Consolidating a Healthy Growth Argentina Drivers Highlights Increase Customer Base  Fixed Business: Improving performance in BB Fixed BB Mobile* acquisitions Mln lines Mln lines  Sustained churn reduction (@ 1.2% vs 1.8% +14% 1.4 +13% 16.9 Size 1Q10) in fixed BB 1.2 14.9  Strengthening Mobile position with 3G clients more than doubled 1Q10 1Q11 1Q10 1Q11 BB ARPU Mobile Service Revenues* ARS/month ARS Mln 2,453 2 453  #2 mobile operator in Argentina 1,888 +29.9% +10% 81 Revenues  Sound increase in Mobile ARPU (+16% YoY) 73 +72.8% Growth  Weight of VAS as % of Service Revenues @ 45% +8.1% (+11 p.p. YoY) 1Q10 1Q11 Ebitda-Capex Evolution Euro mln, Organic data  Accelerating Smartphone penetration with 257 Enhance E h narrowed SAC costs 210 Ebitda Value  Selective CAPEX approach Capex Creation  Sound cash position increase 93 91 1Q10 1Q11*Argentine Operations only FRANCO BERNABE’ 16
  • 18. TELECOM ITALIA GROUP1Q 2011 ResultsAgenda  TI Group 1Q11 Results  Telecom Italia Core Markets Results Italy Brazil Argentina  Appendix FRANCO BERNABE’ 17
  • 19. TELECOM ITALIA GROUP1Q 2011 ResultsTI Group – Revenues EvolutionEuro mln +660 (+10.3%) +124 7,088 (369) ( ) (5) +5 7,073 7,073 +551 551 +200 +161 (7) 6,413 - - Brazil +123 Domestic +1 Argentina + 592 Domestic (10) Other & Elim. (31) Organic Variation 1Q11 -15 (-0.2%) 1Q10 Change in Exchange Other non 1Q10 Domestic Brazil* Argentina** Media Olivetti Other & 1Q11 Other non 1Q11 consolid. rate impact organic Organic Elim. Organic organic area items items* Average Exchange rate (Real/Euro): 2.28 in 2011, 2.49 in 2010 * * Average Exchange rate (Peso/Euro): 5.49 in 2011, 5.31 in 2010 FRANCO BERNABE’ 18
  • 20. TELECOM ITALIA GROUP1Q 2011 ResultsTI Group – Ebitda EvolutionEuro mln +103 (+3.6%) +206 +35 3,077 ( 8 ) (187) 2 966 2,966 +10 +47 (4) (3) (37) 2 929 2,929 2,826 +36 - Brazil +35 Argentina +210 Domestic (1) Other & Elim. (3) Organic Variation 44.1% 43.4% 1Q11 41.9% 41.4% -111 (-3.6%) 1Q10 Change in Exchange Other non 1Q10 Domestic Brazil* Argentina** Media Olivetti Other & Elim. 1Q11 Other non 1Q11 consolid. lid rate i impact organic i Organic O i Organic O i organic i area items items* Average Exchange rate (Real/Euro): 2.28 in 2011, 2.49 in 2010 * * Average Exchange rate (Peso/Euro): 5.49 in 2011, 5.31 in 2010 FRANCO BERNABE’ 19
  • 21. TELECOM ITALIA GROUP1Q 2011 ResultsTI Group – Ebit EvolutionEuro mln +91 (+6.5%) 1,518 1 518 (117) +113 113 +33 (4) (7) 1 536 1,536 (37) 1 499 1,499 +94 +6 +10 - 1,408 Brazil +6 Argentina +92 Other +2 Organic Variation 22.0% 21.4% 1Q11 21.7% 21.2% +18 (+1.2%) 1Q10 Change in Exchange Other non 1Q10 Domestic Brazil* Argentina** Media Olivetti Other & Elim. 1Q11 Other non 1Q11 consolid. lid rate i impact organic i Organic O i Organic O i organic i area items items* Average Exchange rate (Real/Euro): 2.28 in 2011, 2.49 in 2010 * * Average Exchange rate (Peso/Euro): 5.49 in 2011, 5.31 in 2010 FRANCO BERNABE’ 20
  • 22. TELECOM ITALIA GROUP1Q 2011 ResultsEven and Back Loaded Maturities Back-LoadedEuro mln Bonds Loans (of which € 1,623 long-term rent, financial and operating lease payable) Drawn bank facility € 6.80 bln 13,807 37,109(1) Group G 1,500 1 500 Liquidity Position + 11,139 € 7.83 bln 2Q 2H Undrawn Bonds 1,791 1,126 Portion of Loans 296 332 Facility 2,087 1,458 2,687 2,668 /Committed 2,846 = 2,250 27,312 € 14.63 bln 5,482 437 Group 1,671 Liquidity 1,500 Margin 1,175 4,758 2,757 1,225 3,984 3,408 3,545 3,170 1,350 8,297 2,917 814 628 Within 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 Beyond 2016 Total M/L Term Debt(1) € 37,109 mln is the nominal amount of outstanding medium-long term debt by adding IAS adjustments (€ 729 mln) and current liabilities (€ 447 mln), the gross debt figure of € 38,285 mln is reached.N.B. Debt maturities are net of € 180 mln (face value) of repurchased own bonds (TI Spa € 850 mln 5.25 % Notes due 2055), € 77 mln (face value) of repurchased own bonds (TI Spa € 750 mln 4.75 % Notes due2014),2014) € 35 mln (face value) of repurchased own bonds (TIF € 1 050 mln 7 75 % Notes due 2033) € 209 mln (face value) of repurchased own bonds (TIF € 2 000 mln 7 50 % Notes due 2011) and € 187 mln (face 1,050 7.75 2033), 2,000 7.50value) of repurchased own bonds (TIF € 1,000 mln 7.25 % Notes due 2012). FRANCO BERNABE’ 21
  • 23. TELECOM ITALIA GROUP1Q 2011 ResultsTI Group 1Q11 Results - P&L I QuarterEuro mln – Reported Data 2011 2010  Abs. % REVENUES 7,073 6,413 660 10.3 Other Operating Income 48 53 (5) (9.4) TOTAL REVENUES & OTHER INCOME 7,121 6,466 655 10.1 Total Purchases of materials and external services (2,995) (2,498) (497) 19.9 Personnel (990) (938) (52) 5.5 of which payroll (980) (931) (49) 5.3 Other operating costs (398) (265) (133) 50.2 Capitalized Cost and Others 191 61 130 213.1 EBITDA 2,929 2,826 103 3.6 % on Revenues 41.4% 44.1% Depreciation & Amortization (1,431) (1,412) (19) 1.3 Writedowns and revaluations of non current assets 1 (5) 6 - Gains/losses of non current assets realization 0 (1) 1 - EBIT 1,499 1,408 91 6.5 % on Revenues 21.2% 22.0% Income (loss) equity invest. valued equity method (4) 25 (29) Other income ( expenses ) from investments 17 2 15 Net Financial Income / (Expenses) (470) (474) 4 Income before Taxes & Disc. Ops. 1,042 961 81 % on Revenues 14.7% 15.0% Taxes (394) (355) (39) Income before Disc. Ops. 648 606 42 Net income (loss) of assets disposed 0 0 0 Net Income (ante Minorities) 648 606 42 % on Revenues 9.2% 9.4% Minorities (99) (5) (94) Net Income (post Minorities) 549 601 (52) % on Revenues 7.8% 9.4% FRANCO BERNABE’ 22
  • 24. TELECOM ITALIA GROUP1Q 2011 ResultsTI Group 1Q11 – Main Results by BUEuro mln I Quarter I Quarter Reported Data Organic Data 2011 2010  Abs. % REVENUES 2011 2010  Abs. % REVENUES Domestic D ti 4,596 4 596 4,974 4 974 -378 378 (7.6) (7 6) Domestic 4,596 4 596 4,965 4 965 -369 369 (7.4) (7 4) Wireline Domestic 3,331 3,498 -167 (4.8) Wireline Domestic 3,331 3,489 -158 (4.5) Tim Domestic 1,679 1,907 -228 (12.0) Tim Domestic 1,679 1,907 -228 (12.0) Brasile 1,646 1,323 323 24.4 Brasile 1,646 1,446 200 13.8 Argentina 753 0 753 Argentina 753 592 161 27.2 Media 52 57 -5 (8.8) Media 52 57 -5 (8.8) Olivetti Oli tti 78 73 5 6.8 68 Olivetti 78 73 5 6.8 68 Other Activities 1 21 -20 (95.2) Other Activities 1 0 1 - Elim. -53 -35 -18 (51.4) Elim. -53 -45 -8 (17.8) TI Group 7,073 6,413 660 10.3 TI Group 7,073 7,088 -15 (0.2) EBITDA 2011 2010  Abs. % EBITDA 2011 2010  Abs. % Domestic D i 2,236 2 236 2,451 2 451 -215 215 (8.8) (8 8) Domestic D ti 2,273 2 273 2,460 2 460 -187 187 (7.6) (7 6) Brasile 452 381 71 18.6 Brasile 452 416 36 8.6 Argentina 257 0 257 Argentina 257 210 47 22.5 Media 2 2 0 0.0 Media 2 2 0 0.0 Olivetti -14 -10 -4 (40.0) Olivetti -14 -10 -4 (40.0) Other Activities -2 -2 0 0.0 Other Activities -2 -5 3 60.0 Elim. Eli -2 2 4 -6- 6 Elim. Elim -2 2 4 -6 6 - TI Group 2,929 2,826 103 3.6 TI Group 2,966 3,077 -111 (3.6) EBITDA MARGIN 41.4% 44.1% -2.7 pp EBITDA MARGIN 41.9% 43.4% -1.5 pp 2011 2010  Abs. % 2011 2010  Abs. % EBIT EBIT Domestic 1,222 1,366 -144 (10.5) Domestic 1,259 1,376 -117 (8.5) Brasile 184 65 119 183.1 Brasile 184 71 113 158.0 Argentina 125 0 125- Argentina 125 92 33 35.4 Media -13 -13 0 0.0 Media -13 -13 0 0.0 Olivetti -15 -11 -4 (36.4) Olivetti -15 -11 -4 (36.4) Other Activities -2 -8 6 75.0 Other Activities -2 -6 4 66.7 Elim. -2 9 -11- Elim. -2 9 -11 - TI Group 1,499 1,408 91 6.5 TI Group 1,536 1,518 18 1.2 EBIT MARGIN 21.2% 22.0% -0.8 pp EBIT MARGIN 21.7% 21.4% 0.3 pp FRANCO BERNABE’ 23

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