Milan, March 7 th 2014 Telecom Italia Group
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 developments and changes in the customer base, estimates regarding future growth in the different business lines and the global business, market share, financial results and other aspects of the activities and situation relating to the 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. Consequently, Telecom Italia S.p.A. 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 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 should consult the Company's Annual Report on Form 20-F as well as periodic filings made on Form 6-K, which are on file with the United States Securities and Exchange Commission which may identify factors that affect the forward looking statements included herein. The accounting policies adopted in the preparation of the Separate and Consolidated Financial Statements as of, and for the full year ended, 31 December 2013 have been applied on a basis consistent with those adopted in the Annual Separate and Consolidated Financial Statements at 31 December 2012, to which reference can be made, except for the new standards and interpretations adopted by Telecom Italia, which, other than for the prospective adoption of IFRS 13 (Fair Value measurement), didn t impact on the Separate and Consolidated Financial Statements as of, and for the full year ended, 31 December 2013. Please note that the audit of the Telecom Italia Separate and Consolidated Financial Statements at 31 December 2013 has not yet been completed. Some data for the first quarter 2012, used in comparisons, included in this presentation have been restated as a result of the early adoption, starting from the first half 2012, of the revised version of IAS 19 (Employee Benefits) and the reclassification of Matrix (company that was disposed of on October 31, 2012) from the Business Unit Domestic Core Domestic to the Business Unit Other Activities. Furthermore, on November 13, 2013, the Telecom Italia Group accepted an offer to sell its entire controlling stake in Sofora Group Telecom Argentina (Business Unit Argentina). Consequently, the latter was accounted for as Discontinued Operations (Assets held for sale) starting from the current Annual Report as of December 31, 2013. 1
Agenda TI FY13 Results Appendix 2
Telecom Italia Group results Organic data, mln, %YoY 4Q13 (including Telecom Argentina line-by-line) FY13 Targets Group Revenues 6.76 bln Organic: -2.0% - YoY Reported: -9.5% - YoY 27.15 bln Organic: -2.1% - YoY Reported: -8.1% - YoY «Stable YoY»: Revenues below guidance, as previously anticipated Group Ebitda 2.73 bln Organic: -3.0% YoY Reported: -5.4% YoY 10.78 bln Organic: -5.9% YoY Reported: -9.3% YoY «Mid-single digit decline YoY»: Guidance met Group Net Income 0.23 bln -0.67 bln writedown -2.2 bln in 1H Net Debt 26.8 bln 25.5 bln -1.5 bln YoY including 1.3 bln mandatory bond conversion «Less than 27 bln»: Guidance met 3
Telecom Italia Group results (excluding Telecom Argentina) (1) Organic data, mln, %YoY 4Q13 FY13 Group Revenues 5.88 bln Organic: -4.8% - YoY Reported: -9.7% - YoY 23.44 bln Organic: -5.2% - YoY Reported: -9.1% - YoY Group Ebitda 2.49 bln Organic: -3.5% YoY Reported: -3.5% YoY 9.75 bln Organic: -7.6% YoY Reported: -9.4% YoY Group Net Income 0.23 bln -0.67 bln writedown -2.2 bln (occurred in 1H) Net Debt 26.8 bln 25.5 bln -1.5 bln YoY including 1.3 bln mandatory bond conversion (1) accounted as discontinued operations in accordance with IFRS 5 4
Telecom Italia performance by markets Organic data, mln, %YoY FY13 Group Domestic Brazil Revenues Weight (1) 23.44 bln -5.2% YoY 16.21 bln -9.4% YoY 69% 6.95 bln +6.2% YoY 30% Ebitda Weight (1) 9.75 bln -7.6% YoY 7.96 bln -9.8% YoY 1.81 bln +2.7% YoY 82% 19% Ebitda-Capex 5.35 bln 4.93 bln 0.46 bln Weight (1) 92% 9% (1) Including TI Media, Olivetti, other&elim. 5
Domestic performance dashboard Organic data, mln, %YoY 4Q 17,897 4,481 Total Revenues -9.4% -7.7% 16,207 4,138 Below «Mid-single digit decline YoY» guidance Service Revenues trend 1Q 2Q 3Q 4Q 9M 13,416-10.0% 12,069 FY -9.8% -9.2% -8.7% -10.4% -10.9% FY'12 FY'13 Ebitda Ebitda trend on revenues 49.3% 8,826 4Q 2,115-9.8% -6.4% 49.1% 7,961 1,979 In line with «High-single digit decline YoY» guidance 1Q 2Q 3Q 4Q -6.4% 9M 6,711 FY'12-10.9% 5,982 FY'13-9.8% FY -9.8% -11.9% -10.9% 6
Domestic Mobile Revenues Organic data, mln, %YoY total 1,656 handsets 191 service 1,465 business received 166 business generated mln 1,299 4Q'12 4Q Total Revenues -11.2% +12.7% -14.3% -27.9% -12.6% 1,470 215 1,255 120 1,135 4Q'13 Innovative vs Traditional VAS Δ YoY Browsing Revenues plus Messaging Revenues 1Q'13 vs 1Q'12 2Q'13 vs 2Q'12 3Q'13 vs 3Q'12 4Q'13 vs 4Q'12 service business generated business received YoY Service Revenues Trend -17.9% -18.3% -12.0% -50.9% -47.7% -14.8% -12.8% -13.1% -14.3% -12.6% -28.1% -27.9% Service Revenues Trend Italian Market YoY 3Q'13 4Q'13-35 -27 +1 +12 TIM Op.2 Op.3 Op.4 stable decresing growing decreasing 7
A better Mobile Outlook is already perceivable Recent mobile pricing evolution in Italy 12-15 /month 8-10 /month pricing position high competition in the market bundles size reduction among all competitors moving towards more sustainable entry-level prices for the whole market lowest + ++ YoY +40% +40% +40% MNP stepping down 1Q'14 /month -20% Opening to ARPU accretion Steep decline in MNP volume implies lower churn level, reduced pressure on ARPU, less commercial/ advertising costs New portfolio offer on entry level price is not anymore ARPU dilutive 3Q 13 4Q 13 2014 1Q'14 ARPU outgoing entry price bundle ARPU outgoing End of the MTR Dislocation No more MTR cuts on which to build new discounted offers Stable premium price between tier-one and tier-two players Less F-M substitution effect driven by higher prices in the market Paving the way for mobile UBB High differentiation on UBB mobile coverage for healthy technological competition 8
Domestic Fixed Revenues Organic data, mln, %YoY 4Q Total Revenues Service Revenues Trend equipment 3,194 130-7.1% -3.2% 2,967 125 Total -7.5% -8.1% -7.2% -7.2% -6.3% service 3,064-7.2% 2,842 Core -7.8% -8.3% -7.9% 4Q'12 4Q'13 Sparkle -18.4% +6.6% +3.6% -10.7% +0.6% -3.5% -13.1% total vs third parties Retail Service Revenues Breakdown -4.4% -8.7% -2.7% -4.7% -9.4% -9.4% consumer business -5.5% -8.5% -4.6% YoY net FTR (1) -7.9% YoY net of FTR (1) Highlights Stable fixed service revenues trend on quartely basis, due to improving performance in Core business via: consistent internet revenues results, with a positive YoY growth on BB ARPU @ 19.2 /month positive figures in business data driven by a sound growth in ICT services (+2.5% YoY in FY13) better performance in domestic wholesale trend Sparkle performance: 2H13 Third Parties revenues turnaround thanks to a more efficient and effective commercial approach (1) FTR=F-F termination rates, revised from July 1 st 2013 from 0.272 cent/min to 0.104 cent/min 9
Building a better Outlook also for Fixed %YoY reduction Consumer Business Lines with BB Lines w/o BB Fixed Net adds BB lines show less exposure to CB erosion than «pure voice» clients Leveraging on «Tutto» proposition and convergent concepts to reduce CB erosion and stimulate traffic from fixed Technological efficiency in the business segment: enterprises are progressively adopting Unified Communication Solutions, optimizing the number of lines per site while increasing their spending on a more diversified ICT Solution BB Net adds F-M volume -YoY -20% -19 «Tutto» launch -22% -22% -32-36 -14% -3% +16 +6% 1Q'13 2Q'13 3Q'13 Oct Nov Dec ICT revenues -YoY +9.4% +5.0% +2.0% -5.7% 10
Domestic 4Q checklist Drivers Highlights Consumer Fixed Mobile Positive signs from Tutto proposition with constant progression in F-M flat traffic volume Competitive arena rationalization Better gross adds mix and significant weight increase of convergent offer on total activations % F-M flat traffic acquisition mix 27% 28% 15% 4% 3Q'13 Oct Nov Dec % convergent offers on total activations 36% 39% 41% 7% 5% 11% Jul Aug Sep Oct Nov Dec Business Fixed Mobile Improving trend in Business Data driven by healthier performance in ICT, including double-digit growth on Cloud services (weight ~20% of ICT services) Positive set of KPIs: ~8mln mobile clients at the end of 2013 (+8.0% YoY), with positive YoY trend in human lines after 15 month decrease Business Data Revenues human CB YoY +1.0% -4.6% -8.7% -3.4% 2012-2% +1% -2% 2013 Mar Jun Sep Dec 11
TIM Brasil performance dashboard Organic data, mln, %YoY Revenues Ebitda 4Q 6,542 1,620 +6.2% +3.1% 6,945 1,665 on revenues 27.0% 26.1% 4Q 1,765 +2.7% 1,812 465 +4.5% 486 9M 4,922 +7.3% 5,280 9M 1,300 +2.0% 1,326 FY'12 FY'13 FY'12 FY'13 Capex Highlights 4Q 9M 1,181 332 849 FY'12 +14.3% +8.6% +16.8% 1,349 357 992 FY'13 Total Revenues +6.2% YoY in FY13 backed by mobile handset sales (+37% YoY) and VAS revenues (above +20% YoY), offsetting fixed business performance, MTR cuts, macroeconomic slowdown and worse competitive landscape Healthy EBITDA Margin at 26.1% in FY13, with a solid rebound in 4Q13 at 28.9% (+0.4pp YoY) confirming the to company s efficient cost control model High commitment to Quality improvement: total Capex+14.3% YoY in FY13 (19.4% of revenues) with more than 90% allocated to infrastructure Growing top and bottom line, increasing dividend payout 12
TIM Brasil: 4Q Check List Key Drivers Commercial Strategy & Offer Evolution Takeaways Customer base growing above market: TIM lines at 73.4mln lines with 27.1% market share (#1 Pre- Paid, #2 Post Paid) with >3 mln net adds in 2013 (of which 1.6mln in postpaid) Managed customer base with segmented offers Evolved offers toward data and internet services: increased 3G and 4G Market Share positions (close to 31%), leader in Internet on Smartphones Network Quality & Infrastructure Improvements on all Anatel Quality metrics, delivering on quality Least complained mobile operator at National Consumer Protection agency Preparing network for data evolution: 39 main cities in the country covered with Fiber to the Site / MBB ready Focused Capex and Opex allocation Institutional Relation Participating actively in industry discussions Recovered institutional image and dialogue Open Doors transparency initiative generated excellent results for customer interactions (>400k collaborations/month) Took corporate governance to the next level and implemented a Statutory Audit Committee People & Organization M&A rumors did not affect in any way our best-in-class workforce Driving sense of belonging and employee pride Seeking Best Company to Work For status 13
Agenda TI FY13 Results Appendix 14
Domestic Mobile KPIs Total SIM cards 000, QoQ mln, QoQ Net adds 31.9 31.7 31.6 31.2-301 -152-152 -333 TIM MNP Balance +78-12 -12-21 -53-50 -97-88 -74-127 -164-157 Jan Feb Mar April May June July Ago Sept Oct Nov Dec Op.2 Op.3 Op.4 Cum. 15
Domestic Fixed KPIs 000 Fixed Access 000 BB Access OLO 21,016 20,788 20,536 20,378 7,238 7,233 7,164 7,169 ARPU /month 18.9 19.1 19.2 19.2 13,812 13,805 13,753 13,834 OLO 6,828 6,872 6,861 6,919 TI retail 13,777 13,555 13,372 13,210 M/S 64.0% 63.5% 63.4% 63.0% TI retail 6,984 6,933 6,892 6,915 M/S 50.6% 50.2% 50.1% 50.0% Line Losses Trend BB net adds +63 +5 OLO +90 +44-11 +58-201 -222-5 -69-183 -162 TI retail -36-51 -41 +23 TI OLO 16
market dynamics Customer Care: operating KPI s 2013 Front End (call) Back Office (items) 61,5 FY 12-2% 60,4 15,5 14,4-0,5% «buy» reduction FY13 Headcount «make» growth FTE -536 10840 10304 FY 2012 FY 2013 «in-house» incidence caring production capacity credit production capacity Front End (call) Back Office (items) Contribution CS on selling activities Consumer Annual managed issue Consumer: 12 mln Enterprise: 3,9 mln 59% -19% Sollecit 75% 10% -10% 48% FY '13 FY '13 quality (CSI customer care) 21% fixed +8% +26% 75% Access MNP BB ULL SI Content 87% Enterprise 34% 7.18 7.32 7.56 6.57 6.67 6,93 1Q'12 4Q'12 4Q'13 Consumer Enterprise 47% 52% FY 2012 FY 2013 41% mobile 52% FY 2012 FY 2013 8% 46% 15% Access MNP BB ULL 7.84 7.89 8.01 6.7 6.9 7.17 1Q'12 4Q'12 4Q'13 Consumer Enterprise 17
Domestic Mobile Revenues Breakdown Organic data, mln, %YoY 4Q 12 4Q 13 YoY FY YoY total wholesale (1) Consumer+Business services business generated (2) outgoing voice VAS business received handsets 1,656 1,470-11.2% -14.8% 64 75 +17.2% +3.9% 1,592 1,395-12.4% -15.6% 1,401 1,181-15.7% -17.3% 1,310 1,136-13.2 % -12.8% 798 615-22.9% -18.8% 511 521 +1.9% -3.2% 92 45-51.1% -62.1% 191 215 +12.7% +5.9% (1) Including Visitors (2) Total Retail Service Revenues net of Incoming 18
Domestic Fixed Revenues Breakdown Organic data, mln, %YoY 4Q 12 4Q 13 YoY FY YoY total Sparkle group Core service voice & access internet business data national wholesale other & subs products eliminations 3,194 2,967-7.1% -7.6% 340 328-3.5% -8.7% 2,785 2,566-7.9% -7.6% 1,307 1,173-10.2% -9.2% 403 400-0.8% +0.8% 285 286 +0.3% -2.3% 731 653-10.7% -10.8% 59 54 n.m. n.m. 130 125-3.2% -10.9% (61) (52) n.m. n.m. 19
New Generation VAS: the content start-up Music Television x x Monthly music streaming offer (4 /month) CB: 1,7 million, mainly mobile users - triple digit growth YoY Portfolio of over 5 million songs Streams/month : 14,3 million Strong endorsement on Young target Ready to surf streaming service massification from a leading position Value Add on «Serie A TIM» Football League The best of SerieA TIM Italian Football League: Live matches, Videogoal, Highlights, Videonews in streaming on Smartphone and Tablet. Leveraging on TIM long-term Sponsorship of Italian Football Championship Users: 350k, App Download: 1,6 million,# videostreams/month: 10 million Future evolution Enrich LTE / 4G Value proposition Focus on usage Push (M-adv, Try&Buy,..) Enlarge Customer Base Affordable and valuable monthly video offer (from 4.9 /month to 14.9 /month) CB: > 250k users, double digit growth YoY OTT approach, Multi-vision on Fixed and Mobile Valuable content: more than 30 premium channels in partnership with Studios More than 2,000 VOD events base offer Sochi Olympic Games Reinforcement of sports offering in partnership with Sky Enhancement of the super fast LTE network «from Super G to super 4G!» Willingness to pay for mobile only (9 for live broadcasts and special content on Smartphone and Tablet) 30k activations 20