Telecom Italia Q3 Profit Down, Backs Cautious Forecast; Approves Strategic Plan

(RTTNews) - Telecom Italia Group (TI, TIAOF.PK) reported Thursday a sharp decline in third-quarter profit as revenues were hurt mainly by weak domestic market, despite growth in Brazil and Argentina. Looking ahead, the Italian telecom company backed its fiscal 2013 forecast for essentially stable revenues and a mid-single digit percentage reduction in EBITDA, a key earnings metric. Separately, Telecom Italia approved its 2014-2016 strategic plan, and also provided guidance for 2014-2016.

For the third quarter, net profit attributable to the Parent Company's shareholders declined 27.4 percent to 505 million euros from 696 million euros in the year-ago quarter.

Consolidated revenues for the quarter declined 8.8 percent to 6.63 billion euros from last year's 7.27 billion euros. In terms of organic variation, consolidated revenues were down 1.1 percent. The company noted that a contraction in the Domestic Business Unit was partially offset by the positive performance of the Brazil and Argentina Business Units.

In the quarter, domestic results were hurt by a negative economic scenario that has worsened despite expectations of a recovery, a market characterised by fierce competition and accelerated downward pressure on prices as well as discontinuity of a regulatory nature.

Operating profit or EBIT for the period decreased 12.4 percent to 1.48 billion euros from 1.69 billion euros last year.

Earnings before interest, tax, depreciation and amortization or EBITDA of 2.70 billion euros declined 10.1 percent on a reported basis, and 7.1 percent organically, essentially attributable to the Domestic Business Unit. EBITDA margin was 40.7 percent, down 0.6 percentage points from prior year's 41.3 percent.

Separately, Telecom Italia approved its 2014-2016 strategic plan, which envisages investments of about 9 billion euros over three years in Italy. Of these, 3.4 billion euros in innovative investments will be made for NGN, LTE and Cloud Computing.

The company also provided financial guidance for the 2014-2016 plan, aiming for stable revenue CAGR and EBITDA CAGR. Meanwhile, cumulative capex for 2014-16 is seen to be less than 14 billion euros and net debt to EBITDA ratio of 2:1 expected at 2016.

Telecom Italia said its Board approved extraordinary transactions to strengthen its financial position to support the 2014-2016 three-year Industrial Plan that sets out major objectives for the development of new infrastructures and innovative services.

CEO Marco Patuano stated, "The Plan for the three year period 2014-2016 envisages some extraordinary transactions intended to strengthen the Group. These will allow us to boost development of ultrabroadband and accelerate our converging business strategy, and to achieve greater financial flexibility, preparatory to our achieving metrics over the life of the plan that are coherent with "investment grade" status."

The company expects the support measures to contribute approximately 4 billion euros, in total. These actions include issuing of mandatory convertible bonds for a maximum of 1.3 billion euros, the disposal of the stake in Telecom Argentina, the valuation of the towers in Italy and Brazil and of the TI Media multiplexes.

Telecom Italia further announced the launch of an offer of up to 1.30 billion euros Fixed Rate Guaranteed Subordinated Mandatory Convertible Bonds due November 2016.

On the NYSE, Telecom Italia shares closed Thursday's trading at $9.48, down $0.51 or 5.11 percent. In Italy, shares closed at 0.720 euros, down 0.032 euros or 4.26 percent.