Quarterly Report • Aug 26, 2016
Quarterly Report
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| The Telecom Italia Group _____________ 3 | |
|---|---|
| Highlights – Half-Year 2016 ___________ 5 | |
| Consolidated Operating Performance _________ 8 | |
| Financial and Operating Highlights – The Business Units of the Telecom Italia Group _____ 14 | |
| Discontinued operations/Non-current assets held for sale _________ 23 | |
| Consolidated Financial Position and Cash Flows Performance ______ 24 | |
| Consolidated Financial Statements – Telecom Italia Group ________ 32 | |
| Events Subsequent to June 30, 2016 ________ 40 | |
| Business Outlook for the Year 2016 _________ 40 | |
| Main risks and uncertainties _________ 42 | |
| Main changes in the regulatory framework __________ 45 | |
| Corporate Boards at June 30, 2016 _________ 48 | |
| Macro-Organization Chart at June 30, 2016 ________ 50 | |
| Information for Investors ____________ 51 | |
| Related Party Transactions __________ 53 | |
| Alternative Performance Measures __________ 54 | |
| Sustainability section ___________ | 56 |
| Digitization, connectivity and social innovation ______ 56 | |
| Research and development __________ 57 | |
| Environmental protection ____________ 60 | |
| Digital culture _______________ 62 | |
| Telecom Italia people _________ 63 | |
| The commitment of Fondazione TIM _________ 72 |
| Contents _____________ 76 | |
|---|---|
| Consolidated Statements of Financial Position ______ 77 | |
| Separate Consolidated Income Statements _________ 79 | |
| Consolidated Statements of Comprehensive Income _______ 80 | |
| Consolidated Statements of Changes in Equity ______ 81 | |
| Consolidated Statements of Cash Flows____________ 82 | |
| Notes to the Consolidated Financial Statements ___________ 84 | |
| Certification of the half-year condensed consolidated financial statements | |
| at June 30, 2016 pursuant to Article 81-ter of the Consob Regulation 11971 | |
| dated May 14, 1999, with amendments and additions _____169 | |
| Auditors' Review Report on Consolidated Condensed Interim Financial Statements _____ 170 | |
This document has been translated into English solely for the convenience of the readers. In the event of discrepancy, the Italian language prevails.
The Domestic Business Unit operates as the consolidated market leader in the sphere of voice and data services on fixed and mobile networks for final retail customers and other wholesale operators.
In the international field, the Business Unit develops fiber optic networks for wholesale customers (in Europe, in the Mediterranean and in South America).
Olivetti, which is now part of the Business segment of Core Domestic, operates in the area of office products and services for Information Technology.
INWIT S.p.A. operates in the electronic communications infrastructure sector, specifically relating to infrastructure for housing radio transmission equipment for mobile telephone networks, both for Telecom Italia and other operators.
The Brazil Business Unit (Tim Brasil group) provides services in the area of UMTS, GSM and LTE technologies. Moreover, with the acquisitions and subsequent integrations into the group of Intelig Telecomunicações, Tim Fiber RJ and Tim Fiber SP, the services portfolio has been extended by offering fiber optic data transmission using full IP technology such as DWDM and MPLS and by offering residential broadband services.
Tim Brasil Serviços e Participações S.A. • Tim Participações S.A.
| Chairman | Giuseppe Recchi |
|---|---|
| Deputy Chairman | Arnaud Roy de Puyfontaine |
| Chief Executive Officer | Flavio Cattaneo |
| Directors | Tarak Ben Ammar |
| Davide Benello (independent) | |
| Lucia Calvosa (independent) | |
| Laura Cioli (independent) | |
| Francesca Cornelli (independent) | |
| Jean Paul Fitoussi | |
| Giorgina Gallo (independent) | |
| Félicité Herzog (independent) | |
| Denise Kingsmill (independent) | |
| Luca Marzotto (independent) | |
| Hervé Philippe | |
| Stéphane Roussel | |
| Giorgio Valerio (independent) | |
| Secretary to the Board | Antonino Cusimano |
| Chairman | Roberto Capone |
|---|---|
| Acting Auditors | Vincenzo Cariello |
| Paola Maiorana | |
| Gianluca Ponzellini | |
| Ugo Rock | |
| Alternate Auditors | Francesco Di Carlo |
| Gabriella Chersicla | |
| Piera Vitali | |
| Riccardo Schioppo |
The second quarter of 2016 saw the revision and acceleration of the Cost Recovery Plan, relating to the Domestic Business Unit, and already envisaged in the 2016–2018 Strategic Plan, aimed at improving efficiency and business performance and providing the Company greater operating and financial flexibility. This plan is based on a significant change in approach to controlling costs, simplifying and transforming all the processes and production sectors, and optimizing sourcing policies, through continuously monitored programs and action plans. Specifically, the efficiency savings, totaling 1.6 billion euros in the three-year period, will be achieved in terms of operating costs, by:
The efficiency savings on capital expenditure, while maintaining the levels of Ultra BroadBand coverage and the quality of the service, will be achieved by simplifying the network architectures to optimize the expenditure through targeted allocation based on return on investment.
The effects of this plan were already seen in the second quarter of 2016, and will strengthen in the second half of 2016, to then continue over the entire duration of the 2016–2018 Plan.
On July 25, 2016 the Tim Brasil group announced that it had updated its 2016-2018 Industrial Plan, which has set an efficiency savings target, expressed in terms of the reduction in cash costs by 2018 compared to 2015, of 1.5 billion reais (of which 0.6 billion reais of lower operating expenses and 0.9 billion reais of lower capital expenditures), an improvement of 1.6 billion reais compared to the old plan. An overall reduction of the cash costs is envisaged within the three-year plan period, which differs from the previous plan and amounts to 4.5 billion reais (of which 3.4 billion reais of lower operating expenses and 1.1 billion reais of lower capital expenditures). The main efficiency improvement actions will involve organizational adaptation, improving E2E processes and systems, and digitizing a number of commercial processes. In terms of the offering, the focus will continue on the Mobile segment, supported by innovative and differentiated offerings, and by the enhancement of mobile broadband coverage.
In the first half of 2016 and 2015, the Telecom Italia Group recognized non-recurring operating expenses connected to events and transactions that by their nature do not occur continuously in the normal course of operations and have been shown because their amount is significant. They include expenses resulting from corporate restructuring and reorganization processes, expenses resulting from regulatory disputes and penalties and the liabilities related to those expenses, expenses for disputes with former employees, and liabilities with customers and/or suppliers.
The impacts of the following non-recurring income/expenses on the main lines of result are detailed below.
| (millions of euros) | 1st half 2016 |
1st half 2015 |
|---|---|---|
| Employee benefits expenses | ||
| Expenses related to restructuring and rationalization | (75) | (30) |
| Sundry expenses and provisions | ||
| Expenses related to disputes and regulatory penalties and liabilities related to those expenses, and expenses related to disputes with former employees and |
||
| liabilities with customers and/or suppliers | (16) | (369) |
| Impact on EBITDA | (91) | (399) |
| Gain from Brazil Towers disposal | 9 | 277 |
| Impact on EBIT | (82) | (122) |
Lastly, you are reminded that on March 8, 2016 the sale was completed of the controlling interest still held in the Sofora – Telecom Argentina Group, classified under Discontinued Operations.
In terms of equity and income, for the first half of 2016:
EBITDA amounted to 2 billion euros in the second quarter of 2016, up 25.4% on the second quarter of 2015 and 17.6% on the first quarter of 2016.
| (millions of euros) | 2nd Quarter | 2nd Quarter | 1st Half | 1st Half | % Change | |
|---|---|---|---|---|---|---|
| 2016 | 2015 | 2016 | 2015 | Reported | Organic | |
| (a) | (b) | (a/b) | ||||
| Revenues | 4,656 | 5,047 | 9,096 | 10,101 | (9.9) | (4.9) |
| EBITDA (1) |
2,014 | 1,606 | 3,726 | 3,639 | 2.4 | 7.0 |
| EBITDA Margin | 43.3% | 31.8% | 41.0% | 36.0% | 5.0 pp | |
| Organic EBITDA Margin | 43.3% | 31.9% | 41.0% | 36.4% | 4.6 pp | |
| EBIT (1) |
983 | 807 | 1,687 | 1,788 | (5.6) | 0.7 |
| EBIT Margin | 21.1% | 16.0% | 18.5% | 17.7% | 0.8 pp | |
| Organic EBIT Margin | 21.1% | 15.1% | 18.5% | 17.5% | 1.0 pp | |
| Profit (loss) from Discontinued | ||||||
| operations/Non-current assets held for sale |
− | 161 | 47 | 330 | (85.8) | |
| Profit (loss) for the period | ||||||
| attributable to owners of the Parent |
585 | (49) | 1,018 | 33 | - | |
| Capital expenditures (CAPEX) | 1,039 | 1,182 | 1,983 | 2,146 | (7.6) | |
| 6/30/2016 | 12/31/2015 | Change Amount | ||||
| Adjusted net financial debt (1) |
27,514 | 27,278 | 236 |
(*) Within the Brazil Business Unit, Management recently identified that incorrect accounting entries were made in prior years in connection with the recognition of service revenues from the sale of prepaid traffic. Such incorrect accounting entries, which did not have any impact either in terms of net financial position nor on cash and cash equivalents, resulted in the early recognition of revenues with respect to prepaid traffic not yet consumed. The comparative financial information as of December 31, 2015 and for the six-month period ended June 30, 2015, have been therefore revised, with no material impact.
(1) Details are provided under "Alternative Performance Measures".
Revenues amounted to 9,096 million euros in the first half of 2016, down 9.9% from 10,101 million euros in the first half of 2015. The decrease of 1,005 million euros was mainly attributable to the Brazil Business Unit (833 million euros) and the Domestic Business Unit (128 million euros).
In terms of organic change, consolidated revenues fell by 4.9% (-472 million euros), and were calculated as follows:
| (millions of euros) | 1st Half | 1st Half | Change | |
|---|---|---|---|---|
| 2016 | 2015 | amount | % | |
| REPORTED REVENUES | 9,096 | 10,101 | (1,005) | (9.9) |
| Foreign currency financial statements translation effect | (533) | 533 | ||
| Changes in the scope of consolidation | − | − | ||
| ORGANIC REVENUES | 9,096 | 9,568 | (472) | (4.9) |
Exchange rate fluctuations (1) were attributable to the Brazil Business Unit. No changes arose in the scope of consolidation (2) .
The breakdown of revenues by operating segment is the following:
| (millions of euros) | 1st Half 2016 | 1st Half 2015 | Change | ||||
|---|---|---|---|---|---|---|---|
| % of total | % of total | amount | % | % organic | |||
| Domestic (*) | 7,247 | 79.7 | 7,375 | 73.0 | (128) | (1.7) | (1.7) |
| Core Domestic (**) | 6,736 | 74.1 | 6,893 | 68.2 | (157) | (2.3) | (2.3) |
| International Wholesale | 649 | 7.1 | 635 | 6.3 | 14 | 2.2 | 2.2 |
| Brazil | 1,858 | 20.4 | 2,691 | 26.6 | (833) | (31.0) | (13.9) |
| Other Operations | 9 | 0.1 | 57 | 0.6 | (48) | ||
| Adjustments and eliminations | (18) | (0.2) | (22) | (0.2) | 4 | ||
| Consolidated Total | 9,096 | 100.0 | 10,101 | 100.0 | (1,005) | (9.9) | (4.9) |
(*) Following the change in the business mission of Persidera, the Media Business Unit was incorporated into the Domestic Business Unit (Core Domestic) as of January 1, 2016; without that change, the revenues of the Domestic Business Unit for the first half of 2016 would have totaled 7,210 million euros. (**) From January 1, 2016, this also includes the company Olivetti. Figures for the period under comparison have been changed accordingly.
EBITDA totaled 3,726 million euros (3,639 million euros in the first half of 2015), up 87 million euros compared to the first half of 2015; the EBITDA margin was 41.0% (36.0% in the first half of 2015, +5.0 percentage points).
Organic EBITDA was up 243 million euros (+7.0%) compared to the first half of 2015; the organic EBITDA margin was up 4.6 percentage points, from 36.4% in the first half of 2015 to 41.0% in the first half of 2016.
EBITDA in the first half of 2016 reflected the negative impact of non-recurring expenses totaling 91 million euros (399 million euros in the first half of 2015). Without these expenses the organic change in EBITDA would have been -1.7%, with an EBITDA margin of 42.0%, up 1.4 percentage points on the first half of 2015. For further details, see the Note "Significant non-recurring events and transactions" in the Half-Year Condensed Consolidated Financial Statements at June 30, 2016 of the Telecom Italia Group.
EBITDA for the second quarter of 2016 amounted to 2,014 million euros, up 408 million euros (+25.4%) on the same period of the previous year (1,606 million euros). In organic terms and without nonrecurring expenses, the increase would have been 79 million euros, up 4% compared to the second quarter of 2015.
The positive performance of EBITDA, both in terms of amount and EBITDA margin, benefited from the start of the actions of the cost recovery plan, already announced in recent months, which will be strengthened during the second half of 2016 and then continued over the entire life of the Plan. In addition, during the second quarter of 2016, EBITDA benefited from several non-structural events, relating in particular to the labor costs, detailed below.
Organic EBITDA is calculated as follows:
| (millions of euros) | 1st Half | 1st Half | Change | |
|---|---|---|---|---|
| 2016 | 2015 | amount | % | |
| REPORTED EBITDA | 3,726 | 3,639 | 87 | 2.4 |
| Foreign currency financial statements translation effect | (156) | 156 | ||
| Changes in the scope of consolidation | − | − | ||
| ORGANIC EBITDA | 3,726 | 3,483 | 243 | 7.0 |
| of which non-recurring income/(expenses) | (91) | (399) | 308 | |
| ORGANIC EBITDA excluding non-recurring component | 3,817 | 3,882 | (65) | (1.7) |
Exchange rate fluctuations were attributable to the Brazil Business Unit.
Details of EBITDA and EBITDA Margins by operating segment are as follows:
| (millions of euros) | 1st Half 2016 | 1st Half 2015 | Change | ||||
|---|---|---|---|---|---|---|---|
| % of total | % of total | amount | % | % organic | |||
| Domestic (*) | 3,184 | 85.5 | 2,846 | 78.2 | 338 | 11.9 | 11.9 |
| EBITDA Margin | 43.9 | 38.6 | 5.3 pp | 5.3 pp | |||
| Brazil | 556 | 14.9 | 790 | 21.7 | (234) | (29.6) | (12.3) |
| EBITDA Margin | 29.9 | 29.4 | 0.5 pp | 0.5 pp | |||
| Other Operations | (11) | (0.3) | 2 | 0.1 | (13) | ||
| Adjustments and eliminations | (3) | (0.1) | 1 | − | (4) | ||
| Consolidated Total | 3,726 | 100.0 | 3,639 | 100.0 | 87 | 2.4 | 7.0 |
| EBITDA Margin | 41.0 | 36.0 | 5.0 pp | 4.6 pp |
(*) Following the change in the business mission of Persidera, the Media Business Unit was incorporated into the Domestic Business Unit (Core Domestic) as of January 1, 2016; without that change the EBITDA of the Domestic Business Unit for the first half of 2016 would have totaled 3,164 million euros.
EBITDA was particularly impacted by the change in the line items analyzed below:
| (millions of euros) | 1st Half 2016 |
1st Half 2015 |
Change |
|---|---|---|---|
| Purchases of goods | 752 | 994 | (242) |
| Revenues due to other TLC operators and interconnection costs |
978 | 1,077 | (99) |
| Commercial and advertising costs | 586 | 711 | (125) |
| Power, maintenance and outsourced services | 591 | 648 | (57) |
| Rent and leases | 339 | 365 | (26) |
| Other service expenses | 537 | 577 | (40) |
| Total acquisition of goods and services | 3,783 | 4,372 | (589) |
| EBITDA Margin | 41.6 | 43.3 | (1.7)pp |
• Employee benefits expenses (1,551 million euros; 1,705 million euros in the first half of 2015): employee benefits expenses decreased by 154 million euros on the first half of 2015.
| (millions of euros) | 1st half 2016 |
1st half 2015 |
Change |
|---|---|---|---|
| Employee benefits expenses - Italy | 1,377 | 1,498 | (121) |
| Ordinary employee expenses and costs | 1,310 | 1,468 | (158) |
| Restructuring and other expenses | 67 | 30 | 37 |
| Employee benefits expenses – Outside Italy | 174 | 207 | (33) |
| Ordinary employee expenses and costs | 166 | 207 | (41) |
| Restructuring and other expenses | 8 | - | 8 |
| Total employee benefits expenses | 1,551 | 1,705 | (154) |
| EBITDA Margin | 17.1 | 16.9 | 0.2 |
The main factors that drove this change were:
| (millions of euros) | 1st Half 2016 |
1st Half 2015 |
Change |
|---|---|---|---|
| Late payment fees charged for telephone services | 27 | 31 | (4) |
| Recovery of employee benefit expenses, purchases and services rendered |
18 | 15 | 3 |
| Capital and operating grants | 8 | 14 | (6) |
| Damage compensation, penalties and sundry recoveries | 10 | 14 | (4) |
| Other income | 44 | 57 | (13) |
| Total | 107 | 131 | (24) |
• Other operating expenses (501 million euros; 888 million euros in the first half of 2015):
these expenses fell by 387 million euros compared to the first half of 2015, when the figure included non-recurring expenses of 369 million euros.
| (millions of euros) | 1st Half 2016 |
1st Half 2015 |
Change |
|---|---|---|---|
| Write-downs and expenses in connection with credit management |
161 | 160 | 1 |
| Provision charges | 70 | 404 | (334) |
| TLC operating fees and charges | 168 | 198 | (30) |
| Indirect duties and taxes | 50 | 56 | (6) |
| Penalties, settlement compensation and administrative fines | 22 | 43 | (21) |
| Association dues and fees, donations, scholarships and traineeships |
8 | 9 | (1) |
| Sundry expenses | 22 | 18 | 4 |
| Total | 501 | 888 | (387) |
| (millions of euros) | 1st Half | 1st Half | Change |
|---|---|---|---|
| 2016 | 2015 | ||
| Amortization of intangible assets with a finite useful life | 843 | 930 | (87) |
| Depreciation of tangible assets – owned and leased | 1,204 | 1,200 | 4 |
| Total | 2,047 | 2,130 | (83) |
In the first half of 2016 this item stood at 13 million euros, mainly attributable to the non-recurring gain realized by the Brazil Business Unit of 37 million reais (approximately 9 million euros) following the conclusion of the sale of the fourth tranche of telecommunications towers to American Tower do Brasil. In the first half of 2015 this item stood at 279 million euros and mainly consisted of the non-recurring gain realized of 918 million reais (approximately 277 million euros), from the sale of the first tranche of telecommunications towers to American Tower do Brasil.
Impairment reversals (losses) on non-current assets amounted to 5 million euros in the first half of 2016 (zero in the first half of 2015) and related to non-current tangible assets.
In accordance with IAS 36, goodwill is not subject to amortization, but is tested for impairment annually or more frequently, whenever specific events or circumstances occur that may indicate an impairment.
At June 30, 2016, Telecom Italia's market capitalization was less than the value of its equity. Accordingly, the Group carried out an impairment test for the Core Domestic Cash Generating Unit. This process did not identify any impairment, as the recoverable amount of the CGU estimated was higher than its carrying amount.
With regard to the other Cash Generating Units, at June 30, 2016 no events were identified that could result in significant changes with respect to the recoverable amount determined for the annual financial statements at December 31, 2015, and it was therefore not considered necessary to conduct a new impairment test. The amounts of Goodwill assigned to the individual Cash Generating Units with therefore confirmed.
EBIT totaled 1,687 million euros (1,788 million euros in the first half of 2015), decreasing by 101 million euros (-5.6%) compared to the first half of 2015; the EBIT margin was 18.5% (17.7% in the first half of 2015, +0.8 percentage points).
Organic EBIT was up 12 million euros (+0.7%), with an organic EBIT margin of 18.5% (17.5% in the first half of 2015).
EBIT in the first half of 2016 reflected the negative impact of non-recurring net expenses totaling 82 million euros (122 million euros in the first half of 2015. Without those non-recurring net expenses the organic change in EBIT would have been -1.6%, with an EBIT margin of 19.4%, up 0.6 percentage points on the first half of 2015. For further details, see the Note "Significant non-recurring events and transactions" in the Half-Year Condensed Consolidated Financial Statements at June 30, 2016 of the Telecom Italia Group.
Organic EBIT is calculated as follows:
| (millions of euros) | 1st Half | 1st Half | Change | |
|---|---|---|---|---|
| 2016 | 2015 | amount | % | |
| REPORTED EBIT | 1,687 | 1,788 | (101) | (5.6) |
| Foreign currency financial statements translation effect | (113) | 113 | ||
| Changes in the scope of consolidation | − | − | ||
| ORGANIC EBIT | 1,687 | 1,675 | 12 | 0.7 |
| of which non-recurring income/(expenses) | (82) | (122) | 40 | |
| ORGANIC EBIT excluding non-recurring component | 1,769 | 1,797 | (28) | (1.6) |
Exchange rate fluctuations were attributable to the Brazil Business Unit.
Finance income (expenses) showed a decrease in net expenses of 1,337 million euros, moving from 1,482 million euros for the first half of 2015 to 145 million euros for the first half of 2016. The figure for the first half of 2016 reflected the:
Income tax expense amounted to 489 million euros, up 294 million euros on the first half of 2015 (195 million euros), largely due to the higher tax base of the Parent Telecom Italia, partially offset by the lower tax base of the Brazil Business Unit.
In the first half of 2016 this item was positive by 47 million euros (330 million euros in the first half of 2015), consisting of the positive contribution (59 million euros) to consolidated earnings from the Sofora – Telecom Argentina group for the period January 1 to March 8, the negative impact from the sale of the equity interest and relative income tax expense totaling 12 million euros.
More details are provided in the section "Discontinued operations/Non-current assets held for sale" of this Interim Management Report and in the Note "Discontinued operations/Non-current assets held for sale" in the Half-Year Condensed Consolidated Financial Statements at June 30, 2016 of the Telecom Italia Group.
| (millions of euros) | 1st Half | 1st Half |
|---|---|---|
| 2016 | 2015 | |
| Profit (loss) for the period | 1,105 | 445 |
| Attributable to: | ||
| Owners of the Parent: | ||
| Profit (loss) from continuing operations | 1,021 | (15) |
| Profit (loss) from Discontinued operations/Non-current assets held for sale | (3) | 48 |
| Profit (loss) for the period attributable to owners of the Parent | 1,018 | 33 |
| Non-controlling interests: | ||
| Profit (loss) from continuing operations | 37 | 130 |
| Profit (loss) from Discontinued operations/Non-current assets held for sale | 50 | 282 |
| Profit (loss) for the period attributable to non-controlling interests | 87 | 412 |
The profit attributable to Owners of the Parent for the first half of 2016 amounted to 1,018 million euros (33 million euros in the first half of 2015), benefiting, in addition to the performance of the margins, from the items described above, of a merely valuation and accounting nature that do not entail any financial settlement, and in particular the fair value measurement of the embedded option included in the three-year mandatory convertible bond issued at the end of 2013. Without those items, profit for the first half of 2016 attributable to Owners of the Parent would have totaled approximately 650 million euros, in line with the same period of 2015 restated on a like-for-like basis.
| (millions of euros) | 1st Half 2016 | 1st Half 2015 | Change | ||
|---|---|---|---|---|---|
| amount | % | % organic | |||
| Revenues | 7,247 | 7,375 | (128) | (1.7) | (1.7) |
| EBITDA | 3,184 | 2,846 | 338 | 11.9 | 11.9 |
| EBITDA Margin | 43.9 | 38.6 | 5.3 pp | 5.3 pp | |
| EBIT | 1,581 | 1,222 | 359 | 29.4 | 29.4 |
| EBIT Margin | 21.8 | 16.6 | 5.2 pp | 5.2 pp | |
| Headcount at period end (number) | 52,622 | (1) 52,644 | (22) |
| 6/30/2016 | 12/31/2015 | 6/30/2015 | |
|---|---|---|---|
| Physical accesses at period end (thousands) | 19,074 | 19,209 | 19,455 |
| of which Retail physical accesses at period end (thousands) | 11,468 | 11,742 | 12,080 |
| Broadband accesses at period end (thousands) | 8,992 | 8,890 | 8,821 |
| of which Retail broadband accesses at period end (thousands) | 7,088 | 7,023 | 6,971 |
| Network infrastructure in Italy: | |||
| copper access network (millions of km – pair, distribution and connection) |
115.6 | 115.6 | 115.4 |
| access and carrier network in optical fiber (millions of km - fiber) | 11.7 | 10.4 | 9.0 |
| Total traffic: | |||
| Minutes of traffic on fixed-line network (billions): | 35.9 | 76.9 | 40.3 |
| Domestic traffic | 29.0 | 62.5 | 33.0 |
| International traffic | 6.9 | 14.4 | 7.3 |
| Broadband traffic (PBytes) | 2,690 | 4,126 | 1,927 |
| 6/30/2016 | 12/31/2015 | 6/30/2015 | |
|---|---|---|---|
| Lines at period end (thousands) | 29,742 | 30,007 | 30,075 |
| Change in lines (%) | (0.9) | (1.1) | (0.9) |
| Churn rate (%) | 10.9 | 23.4 | 11.9 |
| Total traffic: | |||
| Outgoing retail traffic (billions of minutes) | 22.2 | 43.6 | 21.8 |
| Incoming and outgoing retail traffic (billions of minutes) | 34.3 | 66.1 | 32.8 |
| Browsing Traffic (PBytes) | 119.2 | 182.6 | 81.2 |
| Average monthly revenues per line (in euros) | 11.8 | 12.1 | 11.6 |
The Media Business Unit was incorporated into the Domestic Business Unit as of January 1, 2016.
One of the key strategic drivers for growth identified in the 2016–2018 Industrial Plan is the development of quadruple Play convergent services through the offer of a rich range of diversified video content, to be realized both in partnership with key content providers and through Tim Vision, the Group's own platform of services. Within this framework, Persidera plays an important role in supporting the development of Tim Vision services, building on its distinctive Head End expertise (management and distribution of TV signals via cable platform) and Play Out experience (television program broadcasting operations). Other key synergies to help guarantee the medium-term stability/growth of revenues from bandwidth rental for Persidera will come from the development of strategic partnerships between Telecom Italia and content providers that do not have proprietary broadcasting channels (multiplexes) for free-to-air television broadcasting and which instead pursue a multi-platform distribution strategy.
The framework of the 2016–2018 Industrial Plan and the new governance structure of Persidera are consistent with this future scenario, based on the increasingly closer link between the TLC industry and Media/Content providers to underpin the growth of ultra-broadband services in the Consumer segment.
Following the change in scope, the table below shows the performance of the Domestic Business Unit in the first half of 2016, reported on a like-for-like basis with the previous year, thus excluding the contribution of the Media Business Unit:
| (millions of euros) | 1st Half 2016 | 1st Half 2015 | Change | ||
|---|---|---|---|---|---|
| amount | % | % organic | |||
| Revenues | 7,210 | 7,375 | (165) | (2.2) | (2.2) |
| EBITDA | 3,164 | 2,846 | 318 | 11.2 | 11.2 |
| EBITDA Margin | 43.9 | 38.6 | 5.3 pp | 5.3 pp | |
| EBIT | 1,571 | 1,222 | 349 | 28.6 | 28.6 |
| EBIT Margin | 21.8 | 16.6 | 5.2 pp | 5.2 pp | |
| Headcount at period end (number) | 52,559 | (1) 52,644 | (85) | (0.2) |
Revenues for the first half of 2016 amounted to 7,247 million euros, a decrease of 128 million euros compared to the first half of 2015 (-1.7%), but with an improvement on the first part of the year (-1.2% in the second quarter and -2.3% in the first quarter). Compared to the same period of 2015, revenues from services showed essentially the same trend as total revenues (-120 million euros, -1.7%; -1.1% in the second quarter and -2.4% in the first quarter), also showing a recovery driven in particular by the structural improvement in Mobile revenues.
In particular:
Revenues from product sales, including the change in work in progress, amounted to 426 million euros in the first half of 2016, essentially stable compared to the first half of 2015 (-8 million euros). Also of note was the significant growth in revenues from smartphone sales (+46 million euros, driven entirely by the sale of LTE devices, +69 million euros) supporting the growth of digital services (Internet connectivity and entertainment services).
EBITDA for the Domestic Business Unit totaled 3,184 million euros in the first half of 2016, increasing by 338 million euros compared to the first half of 2015 (+11.9%), with an EBITDA margin of 43.9% (+5.3 percentage points compared to the same period of the previous year). The first half 2016 figure reflected the negative impact of non-recurring net expenses – as already described in the Highlights section of this Report – totaling 83 million euros, of which:
Without these expenses the organic change in EBITDA would have been +0.9%, with an EBITDA margin of 45.1%, up 1.2 percentage points on the first quarter of 2015, representing a positive reversal of the trend with respect to the first quarter (+6.9% in the second quarter of 2016 compared to the same period of 2015, against -5.2% in the first quarter of 2016 compared to the same period of 2015).
Organic EBITDA is calculated as follows:
| (millions of euros) | 1st Half 2016 | 1st Half 2015 | Change | |
|---|---|---|---|---|
| amount | % | |||
| REPORTED EBITDA | 3,184 | 2,846 | 338 | 11.9 |
| Foreign currency financial statements translation effect | - | - | ||
| Changes in the scope of consolidation | - | - | ||
| ORGANIC EBITDA | 3,184 | 2,846 | 338 | 11.9 |
| of which non-recurring income/(expenses) | (83) | (393) | 310 | |
| ORGANIC EBITDA excluding non-recurring component | 3,267 | 3,239 | 28 | 0.9 |
This performance improvement was attributable to the significant reduction in operating expenses, broken down as follows with reference to the main cost items.
| (millions of euros) | 1st Half 2016 | 1st Half 2015 | Change |
|---|---|---|---|
| Acquisition of goods and services | 2,812 | 2,838 | (26) |
| Employee benefits expenses | 1,384 | 1,494 | (110) |
| Other operating expenses | 276 | 608 | (332) |
This performance reflected the positive impacts achieved by the already mentioned Cost Recovery Plan, aimed at improving efficiency and providing greater operational and financial flexibility for the business, which was boosted, particularly in the second quarter of 2016. In particular:
| (millions of euros) | 1st Half 2016 | 1st Half 2015 | Change |
|---|---|---|---|
| Write-downs and expenses in connection with credit management | 127 | 122 | 5 |
| Provision charges | 35 | 359 | (324) |
| TLC operating fees and charges | 24 | 18 | 6 |
| Indirect duties and taxes | 48 | 49 | (1) |
| Sundry expenses | 42 | 60 | (18) |
| Total | 276 | 608 | (332) |
Other income amounted to 98 million euros, down 13 million euros on the first half of 2015.
EBIT for the first half of 2016 totaled 1,581 million euros (1,222 million euros in the same period of 2015), increasing 359 million euros (+29.4%); the EBIT margin was 21.8% (16.6% in the first half of 2015). The EBIT performance reflected the positive performance of EBITDA reported above, as well as the reduction in depreciation and amortization, of 26 million euros.
EBIT in the first half of 2016 was pulled lower by a total of 83 million euros in non-recurring expenses, without which the organic change in EBIT would have been +3.0%, with an EBIT margin of 23%.
| (millions of euros) | 1st Half 2016 | 1st Half 2015 | Change | |
|---|---|---|---|---|
| amount | % | |||
| REPORTED EBIT | 1,581 | 1,222 | 359 | 29.4 |
| Foreign currency financial statements translation effect | - | - | ||
| Changes in the scope of consolidation | - | - | ||
| ORGANIC EBIT | 1,581 | 1,222 | 359 | 29.4 |
| of which non-recurring income/(expenses) | (83) | (393) | 310 | |
| ORGANIC EBIT excluding non-recurring component | 1,664 | 1,615 | 49 | 3.0 |
The main financial and operating highlights of the Domestic Business Unit are reported according to two Cash Generating units (CGU):
Key results for the first half of 2016 for the Domestic Business Unit are presented in the following tables, broken down by market/business segment and compared to the first half of 2015.
| (millions of euros) | 1st Half 2016 | 1st Half 2015 | Change | |
|---|---|---|---|---|
| amount | % | |||
| Revenues (1) | 6,736 | 6,893 | (157) | (2.3) |
| Consumer | 3,572 | 3,523 | 49 | 1.4 |
| Business (2) | 2,203 | 2,380 | (177) | (7.4) |
| Wholesale | 866 | 910 | (44) | (4.8) |
| Other | 95 | 80 | 15 | 18.7 |
| EBITDA | 3,093 | 2,759 | 334 | 12.1 |
| EBITDA Margin | 45.9 | 40.0 | 5.9 pp | |
| EBIT | 1,540 | 1,181 | 359 | 30.4 |
| EBIT Margin | 22.9 | 17.1 | 5.8 pp | |
| Headcount at period end (number) () (*) | 51,876 | (3) 51,741 | 135 | 0.3 |
• Consumer: revenues for the Consumer segment for the first half of 2016 amounted to a total of 3,572 million euros, an increase of 49 million euros compared to the same period of 2015 (+1.4%). This performance continues the recovery that had already began in 2015, driven in particular by the structural improvement in Mobile revenues, due to the steady market share, as well as the stabilization of ARPU levels.
The following is noted in particular:
revenues for the Fixed-line business came to 1,772 million euros, down 113 million euros on the first half of 2015 (-6.0%), with a stabilization in the slowdown recorded in the previous quarters (-6.0% in the second quarter, -6.0% in the first quarter). This decline, in line with previous quarters, was again attributable to the loss of voice-only accesses (although this trend has eased off, particularly in the last two quarters) and the greater pressure on ARPU levels, partially offset by the growth in innovative services, thanks to the positive performance of the broadband customer base and the growing penetration of the Fiber offering.
Business: revenues for the Business segment amounted to 2,203 million euros, decreasing by 177 million euros compared to the first half of 2015 (-7.4%), of which 104 million euros (-4.9%) were attributable to the services component and 73 million euros (-28.6%) to the products component. With regard to revenues from services:
| (millions of euros) | 1st Half 2016 | 1st Half 2015 | Change | |||
|---|---|---|---|---|---|---|
| amount | % | % organic | ||||
| Revenues | 649 | 635 | 14 | 2.2 | 2.2 | |
| of which third party | 539 | 509 | 30 | 5.9 | 5.9 | |
| EBITDA | 97 | 93 | 4 | 4.3 | 4.3 | |
| EBITDA Margin | 14.9 | 14.6 | 0.3 pp | 0.3 pp | ||
| EBIT | 41 | 40 | 1 | 2.5 | 2.5 | |
| EBIT Margin | 6.3 | 6.3 | ||||
| Headcount at period end (number)(*) | 746 | (1) 645 | 101 | 15.7 |
Revenues for the first half of 2016 of the Telecom Italia Sparkle group – International Wholesale totaled 649 million euros, up on the first half of 2015 (+14 million euros, +2.2%). The result was shaped by the increase in revenues from Voice services (+8 million euros, +1.9%) and the growth in revenues from IP/Data services including cloud and data center services (+5.3 million euros, +3.6%). All other business lines remained substantially stable.
| (millions of euros) | (millions of reais) | ||||||
|---|---|---|---|---|---|---|---|
| 1st Half 2016 | 1st Half 2015 | 1st Half 2016 |
1st Half 2015 | Change | |||
| Revised | Revised | amount | % | ||||
| (a) | (b) | (c) | (d) | (c-d) | (c-d)/d | ||
| Revenues | 1,858 | 2,691 | 7,674 | 8,912 | (1,238) | (13.9) | |
| EBITDA | 556 | 790 | 2,296 | 2,617 | (321) | (12.3) | |
| EBITDA Margin | 29.9 | 29.4 | 29.9 | 29.4 | 0.5 pp | ||
| EBIT | 121 | 574 | 498 | 1,902 | (1,404) | (73.8) | |
| EBIT Margin | 6.5 | 21.3 | 6.5 | 21.3 | (14.8pp) | ||
| Headcount at period end (number) | 12,087 | (1)13,042 | (955) | (7.3) |
| 1st Half 2016 |
1st Half 2015 |
|
|---|---|---|
| Lines at period end (thousands) | 63,988 | (1)66,234 |
| MOU (minutes/month) | 118.4 | 119.5 |
| ARPU (reais) | 17.2 | 16.4 |
Revenues for the first half of 2016 amounted to 7,674 million reais and were down 1,238 million reais (-13.9%) year-on-year. Revenues from services totaled 7,189 million reais, a decrease of 547 million reais compared to 7,736 million reais for the first half of 2015 (-7.1%). Mobile Average Revenue Per User (ARPU) was 17.2 reais in the first half of 2016 compared to 16.4 reais in the same period of the previous year (+4.9%).
Revenues from product sales came to 485 million reais (1,176 million reais in the first half of 2015, -58.8%), reflecting a commercial policy less focused on the sale of handsets, in addition to the impact of the Brazilian macroeconomic crisis on household spending.
The Business Unit's total number of lines at June 30, 2016 was 64 million, representing a decrease of 2.2 million (-3.4%) compared to December 31, 2015; the market share at the end of May 2016 was 25.6% (25.7% at December 31, 2015).
EBITDA amounted to 2,296 million reais, down 321 million reais on the first half of 2015 (-12.3%). The decline in EBITDA was attributable to the fall in revenues, partly offset by the deployment of efficiency measures and the reduction in costs for revenues due to other operators, as well as other costs; employee benefits expenses increased (+3.4%) mainly due to the salary inflation adjustment, in addition to other net non-recurring costs for termination benefits of 34 million reais.
The EBITDA margin stood at 29.9%, 0.5 percentage points higher than in the first half of 2015. The changes in the main costs are shown below:
| (millions of euros) | (millions of reais) | ||||
|---|---|---|---|---|---|
| 1st Half 2016 | 1st Half 2015 | 1st Half 2016 | 1st Half 2015 | Change | |
| (a) | (b) | (c) | (d) | (c-d) | |
| Acquisition of goods and services |
978 | 1,514 | 4,041 | 5,014 | (973) |
| Employee benefits expenses | 161 | 194 | 663 | 641 | 22 |
| Other operating expenses | 224 | 272 | 925 | 902 | 23 |
| Change in inventories | (8) | (20) | (31) | (64) | 33 |
EBIT came to 498 million reais, down 1,404 million reais compared to the first half of 2015. This result reflected the lower contribution from EBITDA, the effect of the higher depreciation and amortization (+217 million reais) and the lower benefit from the sale of telecommunication towers, which in 2015 resulted in a gain of 918 million reais compared to a gain of 37 million reais in the first half of 2016.
You are reminded that the agreement is being implemented, which was signed by TIM Celular with American Tower do Brasil on November 21, 2014, for the sale of part of the mobile infrastructure (6,481 telecommunication towers) for a total value of around 3 billion reais. The sales agreement was signed in conjunction with a master lease agreement lasting 20 years and, accordingly, the transaction is to be considered as a partial sale and lease back.
During the second quarter of 2016, the fourth partial sale of 270 towers was completed at a price of 110 million reais, corresponding to around 27 million euros. The final realized gain, already net of transaction costs, was 37 million reais (around 9 million euros at the average exchange rate at June 30, 2016). The amount of non-current assets reacquired under finance leases came to 74 million reais (around 18 million euros at the average exchange rate at June 30, 2016).
The sales of the first three blocks, for a total of 5,483 towers, were completed in 2015, as described in the Consolidated Financial Statements of the Telecom Italia Group at December 31, 2015.
On March 8, 2016, following the approval by the Enacom, the Argentinian communications regulatory authority, the Telecom Italia Group completed the sale of the entire remaining interest in the Sofora – Telecom Argentina group.
A summary is provided below of the income statement impacts from the Sofora - Telecom Argentina group and its sale; the figures for 2016 have been translated at the average exchange rate for the period January 1 – March 8 (15.7981 pesos per euro), whereas the figures for the first half of 2015 have been translated at the related average exchange rate (9.83978 pesos per euro).
| (millions of euros) | 1/1–3/8 | 1st Half |
|---|---|---|
| 2016 | 2015 | |
| Income statement effects from Discontinued operations/Non-current assets held for sale: |
||
| Revenues | 504 | 1,880 |
| EBITDA | 133 | 520 |
| EBITDA Margin | 26.4 | 27.6 |
| Operating profit (loss) (EBIT) | 133 | 520 |
| EBIT Margin | 26.4 | 27.7 |
| Finance income (expenses), net | (42) | (7) |
| Profit (loss) before tax from Discontinued operations/Non-current assets held for sale |
91 | 513 |
| Income tax expense | (32) | (179) |
| Profit (loss) after tax from Discontinued operations/Non-current assets held for sale (a) |
59 | 334 |
| Other minor entries (b) |
(4) | |
| Profit (loss) from Discontinued operations/Non-current assets held for (c= sale a+b) |
59 | 330 |
| Income statement effects on the selling entities: | ||
| Net gains on disposal | 307 | |
| Transfer to the separate consolidated income statement of the Reserve for exchange differences on translating foreign operations |
(304) | |
| Income tax expense relating to the disposal | (15) | |
| (d) | (12) | |
| Profit (loss) from Discontinued operations/Non-current assets held for sale (c+d) |
47 | 330 |
| Attributable to: | ||
| Owners of the Parent | (3) | 48 |
| Non-controlling interests | 50 | 282 |
For more details, see the Note "Discontinued operations/Non-current assets held for sale" in the Half-Year Condensed Consolidated Financial Statements of the Telecom Italia Group at June 30, 2016.
Consolidated equity amounted to 21,327 million euros (21,249 million euros at December 31, 2015), of which 19,106 million euros attributable to Owners of the Parent (17,554 million euros at December 31, 2015) and 2,221 million euros attributable to non-controlling interests (3,695 million euros at December 31, 2015).
In greater detail, the changes in equity were the following:
| (millions of euros) | 6/30/2016 |
|---|---|
| At the beginning of the period | 21,333 |
| Adjustment for errors | (84) |
| At the beginning of the period revised | 21,249 |
| Total comprehensive income (loss) for the period | 1,860 |
| Dividends approved by: | (192) |
| Telecom Italia S.p.A. | (166) |
| Other Group companies | (26) |
| Issue of equity instruments | 3 |
| Disposal of the Sofora – Telecom Argentina group | (1,582) |
| Other changes | (11) |
| At the end of the period | 21,327 |
Adjusted net financial debt stood at 27,514 million euros, up 236 million euros compared to December 31, 2015 (27,278 million euros). The change was partly attributable to the deconsolidation of the net financial debt of the Sofora – Telecom Argentina group following the completion of its sale on March 8, 2016.
The table below summarizes the main transactions that had an impact on the change in adjusted net financial debt during the first half of 2016:
| (millions of euros) | 1st Half | 1st Half | Change |
|---|---|---|---|
| 2016 | 2015 | ||
| EBITDA | 3,726 | 3,639 | 87 |
| Capital expenditures on an accrual basis | (1,983) | (2,146) | 163 |
| Change in net operating working capital: | (1,078) | (1,124) | 46 |
| Change in inventories | (40) | (54) | 14 |
| Change in trade receivables and net amounts due from customers on construction contracts |
(130) | (128) | (2) |
| Change in trade payables (*) | (635) | (912) | 277 |
| Other changes in operating receivables/payables | (273) | (30) | (243) |
| Change in employee benefits | 40 | 19 | 21 |
| Change in operating provisions and Other changes | (34) | 313 | (347) |
| Net operating free cash flow | 671 | 701 | (30) |
| % of Revenues | 7.4 | 6.9 | 0.5 pp |
| Sale of investments and other disposals flow | 732 | 1,379 | (647) |
| Share capital increases/reimbursements, including incidental costs |
− | 186 | (186) |
| Financial investments flow | (9) | (24) | 15 |
| Dividends payment | (227) | (204) | (23) |
| Change in financial leasing contracts | (123) | (984) | 861 |
| Finance expenses, income taxes and other net non-operating requirements flow |
(1,242) | (1,217) | (25) |
| Reduction/(Increase) in adjusted net financial debt from continuing operations |
(198) | (163) | (35) |
| Reduction/(Increase) in net financial debt from Discontinued operations/Non-current assets held for sale |
(38) | (178) | 140 |
| Reduction/(Increase) in adjusted net financial debt | (236) | (341) | 105 |
In addition to what has already been described with reference to EBITDA, net financial debt during the first half of 2016 has been particularly impacted by the following items:
The breakdown of capital expenditures by operating segment is as follows:
| (millions of euros) | 1st Half 2016 | % of total | 1st Half 2015 | % of total | Change |
|---|---|---|---|---|---|
| Domestic (*) | 1,575 | 79.4 | 1,506 | 70.2 | 69 |
| Brazil | 408 | 20.6 | 637 | 29.7 | (229) |
| Other Operations | − | − | 3 | 0.1 | (3) |
| Adjustments and eliminations | − | − | − | − | − |
| Consolidated Total | 1,983 | 100.0 | 2,146 | 100.0 | (163) |
| % of Revenues | 21.8 | 21.2 | 0.6 pp |
(*) Following the change in the business mission of Persidera, the Media Business Unit was incorporated into the Domestic Business Unit (Core Domestic) as of January 1, 2016; without that change, the capital expenditure of the Domestic Business Unit for the first half of 2016 would have been 1,572 million euros.
Capital expenditures in the first half of 2016 totaled 1,983 million euros, down 163 million euros (-7.6%) on the first half of 2015. The efficiency program for capital expenditures was launched in the second quarter of 2016, which will significantly improve the effectiveness of the capital expenditures for maintaining the levels of UBB coverage and the quality of the service. In particular:
The change in net operating working capital for the first half of 2016 was a decrease of 1,078 million euros (decrease of 1,124 million euros in the first half of 2015). In particular:
The change in employee benefits mainly reflected the non-recurring provisions for risk made during the first half of 2016.
This was positive by 732 million euros in the first half of 2016 and related to the sale of the Sofora – Telecom Argentina group for 704 million euros (545 million euros representing the price and 159 million euros for the deconsolidation of the related net financial debt), with the remaining amount relating to disposals of assets as part of normal operations.
In the first half of 2015 it was positive by 1,379 million euros and mainly related to the proceeds of 784 million euros, already net of transaction costs, from the placement on the market of 36.33% of the share capital of Infrastrutture Wireless Italiane S.p.A. (INWIT), and the proceeds of 1,897 million reais
(corresponding to around 585 million euros) realized by the Brazil Business Unit from the sale of the first tranche of telecommunications towers to American Tower do Brasil.
In the first half of 2016 this item amounted to zero.
In the first half of 2015, the item amounted to 186 million euros and related to the conversion option of the 1.125% unsecured equity-linked bond amounting to 2 billion euros, issued on March 26, 2015 and maturing on March 26, 2022.
In the first half of 2016 this item amounted to 9 million euros and consisted of around 6 million euros for the payment made by INWIT S.p.A., net of the cash acquired, for the acquisition of the investments in Revi Immobili S.r.l., Gestione Immobili S.r.l. and Gestione Due S.r.l., and around 3 million euros for the subscription of the capital increase in the company Northgate held as a non-controlling interest. In the first half of 2015, the item amounted to 24 million euros and essentially related to the outlay for
the acquisition of 50% of the share capital of the company Alfiere S.p.A., a real estate company that owns several buildings in the EUR district of Rome.
This item, amounting to 123 million euros, essentially represents the higher value of tangible assets under financial lease, which is partly a reflection of the associated higher financial payables, posted mainly as a result of contractual renegotiations by Telecom Italia S.p.A. in the first half of 2016 within the real estate transformation project and the renegotiation of the car rental agreements.
In the first half of 2015 this item amounted to 984 million euros and consisted of 676 million euros for Telecom Italia S.p.A. and 977 million reais (around 301 million euros) for the Tim Brasil group from part of the telecommunications towers sold and subsequently reacquired under finance lease. Further details are provided in the Note "Tangible assets (owned and under finance leases)" of the Half-Year Condensed Consolidated Financial Statements at June 30, 2016 of the Telecom Italia Group.
The item amounted to 1,242 millions euros and mainly included the payment, during the first half of 2016, of net finance expenses and income taxes, as well as the change in non-operating receivables and payables.
The item shows cash flow absorbed by the Sofora – Telecom Argentina group, equal to 38 million euros, before the disposal of the investment and the consequent deconsolidation of the relative net financial debt as of March 8, 2016. In the first half of 2015, this item amounted to a negative 178 million euros.
Net financial debt is composed as follows:
| (millions of euros) | 6/30/2016 | 12/31/2015 | Change |
|---|---|---|---|
| (a) | (b) | (a-b) | |
| Non-current financial liabilities | |||
| Bonds | 20,692 | 19,883 | 809 |
| Amounts due to banks, other financial payables and liabilities | 7,944 | 8,364 | (420) |
| Finance lease liabilities | 2,391 | 2,271 | 120 |
| 31,027 | 30,518 | 509 | |
| Current financial liabilities (*) | |||
| Bonds | 2,246 | 3,681 | (1,435) |
| Amounts due to banks, other financial payables and liabilities | 1,796 | 2,390 | (594) |
| Finance lease liabilities | 167 | 153 | 14 |
| 4,209 | 6,224 | (2,015) | |
| Financial liabilities directly associated with Discontinued operations/Non-current assets held for sale |
− | 348 | (348) |
| Total Gross financial debt | 35,236 | 37,090 | (1,854) |
| Non-current financial assets | |||
| Securities other than investments | (1) | (3) | 2 |
| Financial receivables and other non-current financial assets | (3,128) | (2,986) | (142) |
| (3,129) | (2,989) | (140) | |
| Current financial assets | |||
| Securities other than investments | (1,083) | (1,488) | 405 |
| Financial receivables and other current financial assets | (247) | (352) | 105 |
| Cash and cash equivalents | (2,707) | (3,559) | 852 |
| (4,037) | (5,399) | 1,362 | |
| Financial assets relating to Discontinued operations/Non current assets held for sale |
− | (227) | 227 |
| Total financial assets | (7,166) | (8,615) | 1,449 |
| Net financial debt carrying amount | 28,070 | 28,475 | (405) |
| Reversal of fair value measurement of derivatives and related financial assets/liabilities |
(556) | (1,197) | 641 |
| Adjusted net financial debt | 27,514 | 27,278 | 236 |
| Breakdown as follows: | |||
| Total adjusted gross financial debt | 32,920 | 34,602 | (1,682) |
| Total adjusted financial assets | (5,406) | (7,324) | 1,918 |
| (*) of which current portion of medium/long-term debt: | |||
| Bonds | 2,246 | 3,681 | (1,435) |
| Amounts due to banks, other financial payables and liabilities | 1,206 | 1,482 | (276) |
| Finance lease liabilities | 167 | 153 | 14 |
The financial risk management policies of the Telecom Italia Group are aimed at minimizing market risks, fully hedging exchange rate risk, and optimizing interest rate exposure through appropriate diversification of the portfolio, which is also achieved by using carefully selected derivative financial instruments. Such instruments, it should be stressed, are not used for speculative purposes and all have an underlying, which is hedged.
In addition, to determine its exposure to interest rates, the Group sets an optimum composition for the fixed-rate and variable-rate debt structure and uses derivative financial instruments to achieve that composition. Taking into account the Group's operating activities, the optimum mix of medium/long-term non-current financial liabilities has been established, on the basis of the nominal amount, at a range of 65% - 75% for the fixed-rate component and 25% - 35% for the variable-rate component.
In managing market risks, the Group has adopted Guidelines for the "Management and control of financial risk" and mainly uses IRS and CCIRS derivative financial instruments.
To provide a better representation of the true performance of Net Financial Debt, from 2009, in addition to the usual indicator (renamed "Net financial debt carrying amount"), a measure called "Adjusted net financial debt" has also been shown, which neutralizes the effects caused by the volatility of financial markets. Given that some components of the fair value measurement of derivatives (contracts for setting the exchange and interest rate for contractual flows) and derivatives embedded in other financial instruments do not result in actual monetary settlement, the "Adjusted net financial debt" excludes these purely accounting and non-monetary effects (including the effects resulting from the introduction of IFRS 13 – Fair Value Measurement from January 1, 2013) from the measurement of derivatives and related financial assets/liabilities.
Sales of trade receivables to factoring companies completed during the first half of 2016 resulted in a positive effect on net financial debt at June 30, 2016 of 826 million euros (1,106 million euros at December 31, 2015).
Bonds at June 30, 2016 were recorded for a total of 22,938 million euros (23,564 million euros at December 31, 2015). Their nominal repayment amount was 22,466 million euros, down 481 million euros compared to December 31, 2015 (22,947 million euros).
Changes in bonds over the first half of 2016 are shown below:
| (millions of original currency) | Currency | Amount | Issue date | |
|---|---|---|---|---|
| New issues | ||||
| Telecom Italia S.p.A. 750 million euros 3.625% maturing 1/19/2024 | Euro | 750 | 1/20/2016 | |
| Telecom Italia S.p.A. 1,000 million euros 3.625% maturing 5/25/2026 | Euro | 1,000 | 5/25/2016 | |
| (millions of original currency) | Currency | Amount | Repayment date | |
| Repayments | ||||
| Telecom Italia S.p.A. 663 million euros 5.125% (1) | Euro | 663 | 1/25/2016 | |
| Telecom Italia S.p.A. 708 million euros 8.250% (2) | Euro | 708 | 3/21/2016 | |
| Telecom Italia S.p.A. 400 million euros, Euribor 3M+ 0.79% | Euro | 400 | 6/7/2016 | |
| (1) Net of buybacks by the Company of 337 million euros during 2014 and 2015. (2) Net of buybacks by the Company of 142 million euros during 2014. |
||||
| Bond Name | Outstanding nominal amount prior to the buyback (GBP) |
Repurchased nominal amount |
(GBP) | Buyback price Buyback date |
| Buybacks | ||||
| Telecom Italia S.p.A. - 400 million British pounds, maturing May 2023, coupon 5.875% |
400,000,000 | 25,000,000 | 111.000% 6/29/2016 |
With reference to the Telecom Italia S.p.A. 2002-2022 bonds, reserved for subscription by employees of the Group, at June 30, 2016, the nominal amount was equal to 200 million euros and remained unchanged compared to December 31, 2015.
The following table shows the composition and the drawdown of the committed credit lines available at June 30, 2016:
| (billions of euros) | 6/30/2016 | 12/31/2015 | ||
|---|---|---|---|---|
| Agreed | Drawn down | Agreed | Drawn down | |
| Revolving Credit Facility – expiring May 2019 | 4.0 | - | 4.0 | - |
| Revolving Credit Facility – expiring March 2020 | 3.0 | - | 3.0 | - |
| Total | 7.0 | - | 7.0 | - |
Telecom Italia has two syndicated Revolving Credit Facilities for amounts of 4 billion euros and 3 billion euros expiring May 24, 2019 and March 25, 2020 respectively, both not yet drawn down. The beneficial changes to the economic terms of the Revolving Credit Facilities took effect from January 4, 2016, together with the two-year extension to those facilities.
Telecom Italia also has access to:
The average maturity of non-current financial liabilities (including the current portion of medium/longterm financial liabilities due within 12 months) is 7.94 years.
The average cost of the Group's debt, considered as the cost for the year calculated on an annual basis and resulting from the ratio of debt-related expenses to average exposure, is about 5.1%.
For details of the maturities of financial liabilities in terms of expected nominal repayment amounts, as contractually agreed, see the Notes "Financial liabilities (non-current and current)" in the Half-Year Condensed Consolidated Financial Statements at June 30, 2016 of the Telecom Italia Group.
The Telecom Italia Group's available liquidity margin amounted to 10,790 million euros at June 30, 2016, corresponding to the sum of "Cash and cash equivalents" and "Current securities other than investments", totaling 3,790 million euros (5,047 million euros at December 31, 2015), and the committed credit lines, mentioned above, of which a total of 7,000 million euros has not been drawn down. This margin is sufficient to cover Group financial liabilities due at least for the next 24 months. In particular:
Cash and cash equivalents amounted to 2,707 million euros (3,559 million euros at December 31, 2015). The different technical forms used for the investment of liquidity as of June 30, 2016 can be analyzed as follows:
Current securities other than investments amounted to 1,083 million euros (1,488 million euros at December 31, 2015): these forms of investment represent alternatives to the investment of liquidity with the aim of improving returns. They include 259 million euros of Italian treasury bonds purchased by Telecom Italia S.p.A. and 126 million euros of Italian treasury bonds purchased by Telecom Italia Finance S.A.; 5 million euros of Italian Treasury Certificates (CCTs) (assigned to Telecom Italia S.p.A. as the holder of trade receivables, as per Italian Ministry of the Economy and Finance Decree of 12/3/2012), and 555 million euros of bonds purchased by Telecom Italia Finance S.A. with different maturities, all with an active market and consequently readily convertible into cash. The purchases of the above government bonds and CCTs, which, pursuant to Consob Communication DEM/11070007 of August 5, 2011, represent investments in "Sovereign debt securities", have been made in accordance with the Guidelines for the "Management and control of financial risk" adopted by the Telecom Italia Group since August 2012. In addition, the Brazil Business Unit made an investment for an equivalent value of 138 million euros in a monetary fund that invests almost entirely in instruments in US dollars.
In the second quarter of 2016, the adjusted net financial debt increased by 375 million euros compared to March 31, 2016 (27,139 million euros), due to the payment of dividends, several regulatory disputes and fines, and the performance of the exchange rate for the Brazilian real.
| (millions of euros) | 6/30/2016 | 3/31/2016 | Change |
|---|---|---|---|
| (a) | (b) | (a-b) | |
| Net financial debt carrying amount | 28,070 | 28,233 | (163) |
| Reversal of fair value measurement of derivatives and related financial assets/liabilities |
(556) | (1,094) | 538 |
| Adjusted net financial debt | 27,514 | 27,139 | 375 |
| Breakdown as follows: | |||
| Total adjusted gross financial debt | 32,920 | 32,296 | 624 |
| Total adjusted financial assets | (5,406) | (5,157) | (249) |
The Half-Year Financial Report at June 30, 2016 of the Telecom Italia Group has been prepared in compliance with Article 154-ter (Financial Reports) of Italian Legislative Decree no. 58/1998 (Consolidated Law on Finance - TUF) and subsequent amendments and supplements and presented in accordance with the international accounting standards issued by the International Accounting Standards Board and endorsed by the European Union (designated as "IFRS") as well as with the regulations issued to implement Article 9 of Italian Legislative Decree no. 38/2005.
The accounting policies and consolidation principles adopted in the preparation of the half-year condensed consolidated financial statements at June 30, 2016 are the same as those adopted in the annual consolidated financial statements at December 31, 2015 to which the reader is referred, except for the new standards and interpretations adopted by the Group since January 1, 2016, which however did not have any impact on the Group's consolidated financial statements.
Within the Brazil Business Unit, Management recently identified that incorrect accounting entries were made in prior years in connection with the recognition of service revenues from the sale of prepaid traffic. Such incorrect accounting entries, which did not have any impact either in terms of net financial position nor on cash and cash equivalents, resulted in the early recognition of revenues with respect to prepaid traffic not yet consumed. The comparative financial information as of December 31, 2015 and for the six-month period ended June 30, 2015, have been therefore revised, with no material impact on the figures under comparison.
The Telecom Italia Group, in addition to the conventional financial performance measures established by IFRS, uses certain alternative performance measures in order to present a better understanding of the trend of operations and financial condition. Specifically, these alternative performance measures refer to: EBITDA; EBIT; the organic change in revenues, EBITDA and EBIT; EBITDA margin and EBIT margin; and net financial debt carrying amount and adjusted net financial debt.
Moreover, the part entitled "Business Outlook for the Year 2016" contains forward-looking statements in relation to the Group's intentions, beliefs or current expectations regarding financial performance and other aspects of the Group's operations and strategies. Readers of the Half-year financial Report are reminded not to place undue reliance on forward-looking statements; actual results may differ significantly from forecasts owing to numerous factors, the majority of which are beyond the scope of the Group's control.
The following changes in the scope of consolidation occurred during the first half of 2016:
The following changes in the scope of consolidation occurred during 2015:
| (millions of euros) | 1st Half | 1st Half | Change | |
|---|---|---|---|---|
| 2016 | 2015 | (a-b) | ||
| Revised | ||||
| (a) | (b) | amount | % | |
| Revenues | 9,096 | 10,101 | (1,005) | (9.9) |
| Other income | 107 | 131 | (24) | (18.3) |
| Total operating revenues and other income | 9,203 | 10,232 | (1,029) | (10.1) |
| Acquisition of goods and services | (3,783) | (4,372) | 589 | 13.5 |
| Employee benefits expenses | (1,551) | (1,705) | 154 | 9.0 |
| Other operating expenses | (501) | (888) | 387 | 43.6 |
| Change in inventories | 33 | 58 | (25) | (43.1) |
| Internally generated assets | 325 | 314 | 11 | 3.5 |
| Operating profit before depreciation and amortization, | ||||
| capital gains (losses) and impairment reversals (losses) on non-current assets (EBITDA) |
3,726 | 3,639 | 87 | 2.4 |
| Depreciation and amortization | (2,047) | (2,130) | 83 | 3.9 |
| Gains/(losses) on disposals of non-current assets | 13 | 279 | (266) | (95.3) |
| Impairment reversals (losses) on non-current assets | (5) | − | (5) | − |
| Operating profit (loss) (EBIT) | 1,687 | 1,788 | (101) | (5.6) |
| Share of losses (profits) of associates and joint ventures accounted for using the equity method |
(2) | − | (2) | − |
| Other income (expenses) from investments | 7 | 4 | 3 | 75.0 |
| Finance income | 2,012 | 1,581 | 431 | 27.3 |
| Finance expenses | (2,157) | (3,063) | 906 | 29.6 |
| Profit (loss) before tax from continuing operations | 1,547 | 310 | 1,237 | − |
| Income tax expense | (489) | (195) | (294) | − |
| Profit (loss) from continuing operations | 1,058 | 115 | 943 | − |
| Profit (loss) from Discontinued operations/Non-current assets held for sale |
47 | 330 | (283) | (85.8) |
| Profit (loss) for the period | 1,105 | 445 | 660 | − |
| Attributable to: | ||||
| Owners of the Parent | 1,018 | 33 | 985 | − |
| Non-controlling interests | 87 | 412 | (325) | (78.9) |
In accordance with IAS 1 (Presentation of Financial Statements), the following consolidated statements of comprehensive income include the Profit (loss) for the period as shown in the Separate Consolidated Income Statements and all non-owner changes in equity.
| (millions of euros) | 1st Half | 1st Half |
|---|---|---|
| 2016 | 2015 | |
| Revised | ||
| Profit (loss) for the period (a) |
1,105 | 445 |
| Other components of the Consolidated Statements of Comprehensive Income |
||
| Other components that subsequently will not be reclassified in the Separate Consolidated Income Statements |
||
| Remeasurements of employee defined benefit plans (IAS 19): | ||
| Actuarial gains (losses) | (118) | 56 |
| Income tax effect | 32 | (15) |
| (b) | (86) | 41 |
| Share of other profits (losses) of associates and joint ventures accounted for using the equity method: |
||
| Profit (loss) | − | − |
| Income tax effect | − | − |
| (c) | − | − |
| Total other components that subsequently will not be reclassified in the Separate Consolidated Income Statements (d=b+c) |
(86) | 41 |
| Other components that subsequently will be reclassified in the Separate Consolidated Income Statements |
||
| Available-for-sale financial assets: | ||
| Profit (loss) from fair value adjustments | 76 | (21) |
| Loss (profit) transferred to the Separate Consolidated Income Statements | (69) | (63) |
| Income tax effect | (4) | 18 |
| (e) | 3 | (66) |
| Hedging instruments: | ||
| Profit (loss) from fair value adjustments | (327) | 1,168 |
| Loss (profit) transferred to the Separate Consolidated Income Statements | 245 | (812) |
| Income tax effect | (2) | (98) |
| (f) | (84) | 258 |
| Exchange differences on translating foreign operations: | ||
| Profit (loss) on translating foreign operations | 618 | (380) |
| Loss (profit) on translating foreign operations transferred to the Separate Consolidated Income Statements |
304 | (1) |
| Income tax effect | − | − |
| (g) | 922 | (381) |
| Share of other profits (losses) of associates and joint ventures accounted for using the equity method: |
||
| Profit (loss) | − | − |
| Loss (profit) transferred to the Separate Consolidated Income Statements | − | − |
| Income tax effect | − | − |
| (h) | − | − |
| Total other components that subsequently will be reclassified to the Separate Consolidated Income Statements (i=e+f+g+h) |
841 | (189) |
| Total other components of the Consolidated Statements of Comprehensive Income (k=d+i) |
755 | (148) |
| Total comprehensive income (loss) for the period (a+k) |
1,860 | 297 |
| Attributable to: | ||
| Owners of the Parent | 1,726 | (13) |
| Non-controlling interests | 134 | 310 |
| (millions of euros) | 6/30/2016 | 12/31/2015 Revised |
Change | 1/1/2015 Revised |
|
|---|---|---|---|---|---|
| (a) | (b) | (a-b) | |||
| Assets | |||||
| Non-current assets | |||||
| Intangible assets | |||||
| Goodwill | 29,566 | 29,383 | 183 | 29,943 | |
| Intangible assets with a finite useful life | 6,777 | 6,480 | 297 | 6,827 | |
| 36,343 | 35,863 | 480 | 36,770 | ||
| Tangible assets | |||||
| Property, plant and equipment owned | 13,211 | 12,659 | 552 | 12,544 | |
| Assets held under finance leases | 2,298 | 2,208 | 90 | 843 | |
| 15,509 | 14,867 | 642 | 13,387 | ||
| Other non-current assets | |||||
| Investments in associates and joint ventures accounted for using the equity method |
39 | 41 | (2) | 36 | |
| Other investments | 38 | 45 | (7) | 43 | |
| Non-current financial assets | 3,129 | 2,989 | 140 | 2,445 | |
| Miscellaneous receivables and other non-current assets | 2,048 | 1,778 | 270 | 1,614 | |
| Deferred tax assets | 735 | 853 | (118) | 1,118 | |
| 5,989 | 5,706 | 283 | 5,256 | ||
| Total Non-current assets | (a) | 57,841 | 56,436 | 1,405 | 55,413 |
| Current assets | |||||
| Inventories | 294 | 254 | 40 | 313 | |
| Trade and miscellaneous receivables and other current assets |
5,683 | 5,112 | 571 | 5,617 | |
| Current income tax receivables | 69 | 163 | (94) | 101 | |
| Current financial assets | |||||
| Securities other than investments, financial receivables and other current financial assets |
1,330 | 1,840 | (510) | 1,611 | |
| Cash and cash equivalents | 2,707 | 3,559 | (852) | 4,812 | |
| 4,037 | 5,399 | (1,362) | 6,423 | ||
| Current assets sub-total | 10,083 | 10,928 | (845) | 12,454 | |
| Discontinued operations/Non-current assets held for sale | |||||
| of a financial nature | − | 227 | (227) | 165 | |
| of a non-financial nature | − | 3,677 | (3,677) | 3,564 | |
| − | 3,904 | (3,904) | 3,729 | ||
| Total Current assets | (b) | 10,083 | 14,832 | (4,749) | 16,183 |
| Total Assets | (a+b) | 67,924 | 71,268 | (3,344) | 71,596 |
| (millions of euros) | 6/30/2016 | 12/31/2015 | Change | 1/1/2015 | |
|---|---|---|---|---|---|
| Revised | Revised | ||||
| (a) | (b) | (a-b) | |||
| Equity and Liabilities | |||||
| Equity | |||||
| Equity attributable to Owners of the Parent | 19,106 | 17,554 | 1,552 | 18,068 | |
| Non-controlling interests | 2,221 | 3,695 | (1,474) | 3,516 | |
| Total Equity | (c) | 21,327 | 21,249 | 78 | 21,584 |
| Non-current liabilities | |||||
| Non-current financial liabilities | 31,027 | 30,518 | 509 | 32,325 | |
| Employee benefits | 1,580 | 1,420 | 160 | 1,056 | |
| Deferred tax liabilities | 434 | 323 | 111 | 438 | |
| Provisions | 569 | 551 | 18 | 720 | |
| Miscellaneous payables and other non-current liabilities | 1,207 | 1,110 | 97 | 697 | |
| Total Non-current liabilities | (d) | 34,817 | 33,922 | 895 | 35,236 |
| Current liabilities | |||||
| Current financial liabilities | 4,209 | 6,224 | (2,015) | 4,686 | |
| Trade and miscellaneous payables and other current liabilities |
7,445 | 7,882 | (437) | 8,536 | |
| Current income tax payables | 126 | 110 | 16 | 36 | |
| Current liabilities sub-total | 11,780 | 14,216 | (2,436) | 13,258 | |
| Liabilities directly associated with Discontinued operations/Non-current assets held for sale |
|||||
| of a financial nature | − | 348 | (348) | 43 | |
| of a non-financial nature | − | 1,533 | (1,533) | 1,475 | |
| − | 1,881 | (1,881) | 1,518 | ||
| Total Current Liabilities | (e) | 11,780 | 16,097 | (4,317) | 14,776 |
| Total Liabilities | (f=d+e) | 46,597 | 50,019 | (3,422) | 50,012 |
| Total Equity and Liabilities | (c+f) | 67,924 | 71,268 | (3,344) | 71,596 |
| (millions of euros) | 1st Half 2016 |
1st Half 2015 Revised |
|
|---|---|---|---|
| Cash flows from operating activities: | |||
| Profit (loss) from continuing operations | 1,058 | 115 | |
| Adjustments for: | |||
| Depreciation and amortization | 2,047 | 2,130 | |
| Impairment losses (reversals) on non-current assets (including investments) | 5 | 4 | |
| Net change in deferred tax assets and liabilities | 257 | 3 | |
| Losses (gains) realized on disposals of non-current assets (including investments) |
(13) | (279) | |
| Share of losses (profits) of associates and joint ventures accounted for using the equity method |
2 | − | |
| Change in employee benefits | 40 | 19 | |
| Change in inventories | (40) | (54) | |
| Change in trade receivables and net amounts due from customers on construction contracts |
(130) | (128) | |
| Change in trade payables | (141) | (564) | |
| Net change in current income tax receivables/payables | 95 | 132 | |
| Net change in miscellaneous receivables/payables and other assets/liabilities |
(687) | 390 | |
| Cash flows from (used in) operating activities | (a) | 2,493 | 1,768 |
| Cash flows from investing activities: | |||
| Purchase of intangible assets | (709) | (879) | |
| Purchase of tangible assets | (1,397) | (2,251) | |
| Total purchase of intangible and tangible assets on an accrual basis | (2,106) | (3,130) | |
| Change in amounts due for purchases of intangible and tangible assets | (371) | 637 | |
| Total purchase of intangible and tangible assets on a cash basis | (2,477) | (2,493) | |
| Acquisition of control in subsidiaries or other businesses, net of cash acquired |
(6) | − | |
| Acquisitions/disposals of other investments | (3) | (24) | |
| Change in financial receivables and other financial assets | 364 | (639) | |
| Proceeds from sale that result in a loss of control of subsidiaries or other businesses, net of cash disposed of |
492 | − | |
| Proceeds from sale/repayment of intangible, tangible and other non-current assets |
29 | 595 | |
| Cash flows from (used in) investing activities | (b) | (1,601) | (2,561) |
| Cash flows from financing activities: | |||
| Change in current financial liabilities and other | (262) | 696 | |
| Proceeds from non-current financial liabilities (including current portion) | 2,061 | 3,325 | |
| Repayments of non-current financial liabilities (including current portion) | (3,094) | (3,931) | |
| Share capital proceeds/reimbursements (including subsidiaries) | − | 186 | |
| Dividends paid | (227) | (204) | |
| Changes in ownership interests in consolidated subsidiaries | − | 784 | |
| Cash flows from (used in) financing activities | (c) | (1,522) | 856 |
| Cash flows from (used in) Discontinued operations/Non-current assets held for sale |
(d) | (45) | 21 |
| Aggregate cash flows | (e=a+b+c+d) | (675) | 84 |
| Net cash and cash equivalents at beginning of the period | (f) | 3,216 | 4,910 |
| Net foreign exchange differences on net cash and cash equivalents | (g) | 159 | (106) |
| Net cash and cash equivalents at end of the period | (h=e+f+g) | 2,700 | 4,888 |
| (millions of euros) | 1st Half 2016 |
1st Half 2015 Revised |
|---|---|---|
| Income taxes (paid) received | (104) | (33) |
| Interest expense paid | (1,327) | (1,485) |
| Interest income received | 516 | 573 |
| Dividends received | 7 | 2 |
| (millions of euros) | 1st Half | 1st Half |
|---|---|---|
| 2016 | 2015 | |
| Revised | ||
| Net cash and cash equivalents at beginning of the period | ||
| Cash and cash equivalents - from continuing operations | 3,559 | 4,812 |
| Bank overdrafts repayable on demand – from continuing operations | (441) | (19) |
| Cash and cash equivalents - from Discontinued operations/Non-current assets held for sale |
98 | 117 |
| Bank overdrafts repayable on demand – from Discontinued operations/Non current assets held for sale |
− | − |
| 3,216 | 4,910 | |
| Net cash and cash equivalents at end of the period | ||
| Cash and cash equivalents - from continuing operations | 2,707 | 4,752 |
| Bank overdrafts repayable on demand – from continuing operations | (7) | (2) |
| Cash and cash equivalents - from Discontinued operations/Non-current assets held for sale |
− | 138 |
| Bank overdrafts repayable on demand – from Discontinued operations/Non current assets held for sale |
− | − |
| 2,700 | 4,888 |
| (equivalent number) | 1st half 2016 |
1st half 2015 |
Change |
|---|---|---|---|
| Average salaried workforce – Italy | 47,448 | 48,701 | (1,253) |
| Average salaried workforce – Outside Italy | 11,688 | 12,071 | (383) |
| Total average salaried workforce (1) | 59,136 | 60,772 | (1,636) |
| Non-current assets held for sale - Sofora - Telecom Argentina group |
5,161 | 15,515 | (10,354) |
| Total average salaried workforce - including Non-current assets held for sale |
64,297 | 76,287 | (11,990) |
| (number) | 6/30/2016 | 12/31/2015 | Change |
|---|---|---|---|
| Headcount – Italy | 52,498 | 52,555 | (57) |
| Headcount – Outside Italy | 12,354 | 13,312 | (958) |
| Total headcount at period end (1) | 64,852 | 65,867 | (1,015) |
| Non-current assets held for sale - Sofora - Telecom Argentina group |
- | 16,228 | (16,228) |
| Total headcount at period end - including Non-current assets held for sale |
64,852 | 82,095 | (17,243) |
| (number) | 6/30/2016 | 12/31/2015 | Change |
|---|---|---|---|
| Domestic (*) | 52,622 | 52,644 | (22) |
| Brazil | 12,087 | 13,042 | (955) |
| Media | 0 | 64 | (64) |
| Other Operations | 143 | 117 | 26 |
| Total | 64,852 | 65,867 | (1,015) |
For details of subsequent events see the specific Note "Events Subsequent to June 30, 2016" in the Telecom Italia Group half-year condensed consolidated financial statements at June 30, 2016.
As forecast in the Industrial Plan, there was a constant and gradual improvement in operating performance in the Domestic perimeter in 2016, combined with a progressive reduction of the debt, thanks in part to the conversion of the Mandatory Convertible Bond (contractually set for November 2016 in the amount of 1.3 billion euros).
These dynamics of commercial and business development, accompanied by a strengthening and sharp acceleration of the efficiency and cost cutting program, represent the foundations for a further improvement in operating performance, with the aim of achieving the objective of low single digit organic growth in domestic EBITDA in the year 2016.
More specifically, Telecom Italia is continuing its transformation and transition from traditional Telco to Digital Telco, enabler of the country's digital life: a business model based on the development of innovative infrastructure and an excellent quality of customer service, increasingly aimed at disseminating premium services and digital content.
In Brazil, the Plan considers and suffers the major changes to the macroeconomic, political and market context seen in recent months.
In this context, TIM Brasil has set itself the objective of increasing its market share on revenues and improving its profitability (EBITDA margin), due to a major investment plan (in particular in 4G, where TIM is already leader today), and to a renewed commercial and competitive positioning and great attention to efficiency as a structural element necessary to give balance and financial sustainability to the Plan.
In particular, the latest forecasts on the economic outlook show a further, progressive deterioration for the whole of 2016 of its main indicators. A downturn of almost 4% is expected in the GDP and an inflation rate - also following a series of interventions raising tariffs in regulated sectors - that will remain high and very volatile. This acceleration in inflation may have an increasing impact on the purchasing power of households, consequently worsening financial conditions, particularly for the low income brackets. The exchange rate with the dollar also reached and exceeded 4.0 Real/USD in 2015, with growth forecast during the Plan up to 4.20 Real/USD.
The whole of the telecommunications segment (and prepaid Mobile in particular) is very exposed to this scenario, with a decline in the comprehensive market value also as a result of its substantial maturity and saturation. In this environment, Oi, the fourth largest telecommunications group in Brazil, with over 65 billion Reais of debt and unable to reach an agreement with its creditors, filed for bankruptcy in June, entering into receivership, with repercussions on competition and the market that are still uncertain.
The market is showing a continuing trend of constant, strong growth in data use, at even greater pace than in the other major countries. This phenomenon goes hand-in-hand with a simultaneous reduction of voice traffic and messaging, driven by the aim of optimizing and reducing customer spending, as customers privilege use of the services offered by the OTTs as an alternative to traditional methods of using services.
The business outlook for 2016 could be affected by risks and uncertainties caused by a multitude of factors, the majority of which are beyond the Group's control.
In such a scenario, risk management becomes a strategic tool for value creation. The Telecom Italia Group has adopted an Enterprise Risk Management Model based on the methodology of the Committee of Sponsoring Organizations of the Treadway Commission (ERM CoSO Report), which enables the identification and management of risk in a uniform manner within the Group companies, highlighting potential synergies between the actors involved in the assessment of the Internal Control and Risk Management System. The ERM process is designed to identify potential events that may affect the business, to manage risk within acceptable limits and to provide reasonable assurance regarding the achievement of corporate objectives.
The main risks affecting the business activities of the Telecom Italia Group, which may impact, even significantly, the ability to achieve the pre-set objectives are presented below.
The Group's economic and financial situation is subject to the influence of numerous macroeconomic factors such as economic growth, political stability, consumer confidence, and changes in interest rates and exchange rates in the markets in which it operates. The expected results may be affected, in the domestic market, by the struggling economic recovery associated with a high rate of unemployment and the consequent reduction in income available for consumption. In the Brazilian market, the expected results may be affected by the further deterioration of the macroeconomic environment, with the country currently in economic recession, and the accompanying deterioration in operating conditions. These factors mean that the possibility of consequent goodwill impairment losses cannot be ruled out.
In addition, the Telecom Italia Group is currently undertaking projects and transactions, including corporate and extraordinary transactions, whose feasibility and completion could be affected by factors outside the control of management, such as political and regulatory factors, currency exchange restrictions, bureaucratic regulations etc.. As a result, the financial outcomes of these project and transactions may differ, even significantly, from expectations.
The telecommunications market is characterized by strong competition that may reduce our share in the geographical areas we operate in as well as lower prices and margins. Competition is focused, on one hand, on innovative products and services and, on other hand, on the price of traditional services. In addition, in the area of infrastructure competition, the growth of alternative operators could represent a threat for Telecom Italia, particularly in the years of the plan after 2016 and also beyond the Plan period. In the Brazilian market the trend in the telecommunications industry is changing rapidly, amplifying the deterioration in the macroeconomic environment. The competition risk consists of the increased acceleration in the process of replacement of traditional services with innovative services, and the downsizing of consumption by customers (e.g. reduction in multi-SIM customers). In this scenario, the Tim Brasil group may be further impacted in the short term to a greater extent than its main competitors, due to the higher proportion of customers with prepaid services, which are more affected by the current macroeconomic situation.
Operational risks inherent in our business relate to possible inadequacies in internal processes, external factors, frauds, employee errors, errors in properly documenting transactions, loss of critical or commercially sensitive data and failures in systems and/or network platforms.
Our success depends heavily on the ability to deliver the services we provide through the IT infrastructure and network on a continuous and uninterrupted basis. The infrastructure is susceptible to interruptions due to failures of information and communication technologies, lack of electricity, floods, storms and human errors. Unexpected problems in installations, system failures, hardware and software failures, computer viruses or cyber attacks could affect the quality of services and cause service interruptions. Each of these events could result in a reduction in traffic and a reduction in revenues and/or in an increase of restoration costs, with an adverse impact on the level of customer satisfaction and number of customers, as well as our reputation.
To maintain and expand our customer portfolio in each of the markets in which we operate, it is necessary to maintain, update and improve existing networks in a timely manner. A reliable and high quality network is necessary to maintain the customer base and minimize the terminations to protect the Company's revenues from erosion. The maintenance and improvement of existing installations depend on our ability to:
The Group has adopted an organizational model to prevent fraud. However, the implementation of this model cannot ensure the total mitigation of the risk. Dishonest activities and illegal acts committed by people inside and outside the organization could adversely affect the Company's operating results, financial position and image.
The Group has to deal with disputes and litigation with tax authorities, regulators, competition authorities, other telecommunications operators and other entities. The possible impacts of such proceedings are generally uncertain. In the event of settlement unfavorable to the Group, these issues may, individually or as whole, have an adverse effect, which may even be significant, on its operating results, financial position and cash flows.
The Telecom Italia Group may be exposed to financial risks such as risks arising from fluctuations in interest rates and exchange rates, credit risk, liquidity risk and risks related to the performance of the equity markets in general, and – more specifically – risks related to the performance of the share price of the Group companies. The result of the "Brexit" referendum in the United Kingdom increases the probability of systemic risk. These risks may adversely impact the earnings and the financial structure of the Group. Accordingly, to manage those risks, Telecom Italia Group has established guidelines, at central level, which must be followed for operational management, identification of the most suitable financial instruments to meet set goals, and monitoring the results achieved. In particular, in order to mitigate the liquidity risk, the Group aims to maintain an "adequate level of financial flexibility", in terms of cash and syndicated committed credit lines, enabling it to cover refinancing requirements at least for the next 12 -18 months.
The telecommunications industry is highly regulated. In this context, new decisions by the regulator and changes in the regulatory environment may affect the expected results of the Group. More specifically, the elements which introduce uncertainty are:
Telecom Italia is currently implementing the project, launched in 2015, to further improve the guarantees for equal treatment of retail and wholesale customers. This project is aimed at improving both the equivalence model and the tools used to assess the process of providing wholesale services. The project and the related implementation roadmap were approved by the Board of Directors of Telecom Italia on November 5, 2015. The risk is associated with the assessment of the effectiveness of Telecom Italia's project by the designated organizations (AGCOM and AGCM). The positive assessment of the implementation of the equivalence project is a necessary condition for the termination of the A428 proceedings for failure to provide services, with consequent removal of the associated sanction risk.
The Telecom Italia Group may be exposed to risks of non-compliance due to non-observance/ breach of internal (self-regulation such as, for example, bylaws, code of ethics) and external rules (laws and regulations), with consequent judicial or administrative penalties, financial losses or reputational damage.
The Group aims to ensure that processes, procedures, systems and corporate conduct comply with legal requirements. The risk is associated with potential time lags in making the processes compliant when non-conformity has been identified.
At the end of the public consultations initiated by the Authority in 2015, the Telecom Italia Reference Offers for 2014 were all finally approved and published. The Reference Offers for the year 2015 are still in the process of being approved.
Wholesale access services
In December 2015 (see Resolution 623/15/CONS), the Authority set out the framework of rules for the access to the copper and fiber fixed-line network for the years 2015-17, which confirms the national scope of the obligations imposed on Telecom Italia, despite the increasing growth in infrastructured competition in certain areas of the country.
The most significant measures adopted by the Authority involve:
In addition, the Authority has removed Telecom Italia's qualification as an SMP operator (an operator with Significant Market Power in the market of retail access to the fixed telephone line network), canceling the existing obligations ex ante, except those relating to the verification of the "replicability" of the retail offers (price test) and the prior authorization for commercial launch.
On June 17 the public consultation, initiated by the Authority to assess the proposals submitted in February by Telecom Italia, was completed in relation to the: (i) extension of the Single System (SS) model and (ii) strengthening of the guarantees of equal treatment (New Equivalence Model), which also includes "voluntary" measures, aimed at ensuring that the wholesale access to Telecom Italia (TI) fixedline network, by TI and the other Operators, takes place at the same terms and conditions and using the same processes. AGCom's proposed measure will need to be sent to the European Commission before its final approval.
On April 22, 2016, by Resolution 120/16/CONS, AGCom published the guidelines on the wholesale access conditions to the networks benefiting from public grants.
In particular, the Authority's guidelines establish the wholesale access conditions to the subsidized ultrabroadband networks, both in terms of services provided and received. Indeed, according to the EU Commission's guidelines on state aid, the subsidized networks must be made available to third parties with the maximum level of unbundling of the services.
With specific reference to the "direct" intervention model, which the Government has chosen for the implementation of the Ultrabroadband plan, AGCom established that the access prices must be set by the entity awarding the contract based on a formula that provides for the total remuneration of solely the operating expenses, to which the concessionary costs, established on each occasion by that awarding entity, must be added.
On April 20, 2015, the Authority initiated the procedure for the 3rd cycle of market analysis of interconnection services on the fixed-line telephone network and, on May 4, 2016, Telecom Italia sent its contribution to the public consultation. AGCom's proposed measure will need to be sent to the European Commission before its final approval.
On June 3, 2016, Infratel Italia published a tender call for the construction of networks enabling the offering of Ultra Broadband services (from 30 to 100 Mbit/s) in the so-called "White Areas" of the municipalities of several Italian regions (Abruzzo, Molise, Emilia Romagna, Lombardy, Tuscany and Veneto). The tender involves over 3 million property units and around 6.5 million people, with a total public investment of around 1.4 billion euros. The infrastructure will remain as public property and will be given in concession 20 years. The tender will take place in two stages: in "Stage 1" (pre-qualification of the competitors, lasting 45 days), the operators interested must provide information on the minimum requirements for participation and the infrastructures they intend to use. The deadline for the submission of the applications for participation was July 18, 2016. In "Stage 2" (assessment of the bids), the competitors admitted to participate in the tender will submit their technical and financial bids.
At the end of 2015, following the completion of the analyses of the fixed-line markets (Resolution 623/15/CONS), AGCom re-initiated the process for the update of the price test for verifying the replicability of the retail offers for fixed line services (stand alone or in bundles).
The test under consultation envisages two alternatives: (i) confirmation of the current methods or (ii) update. AGCom's proposed measure with the new methods will need to be sent to the European Commission before its final approval, due to be given by the end of 2016.
The re-examination of the universal service obligations, initiated by the Ministry of Economic Development (MISE) during 2014, is still on hold.
In March 2016, the Authority initiated a process aimed at providing the MISE a technical opinion on the possibility of adding broadband access to the Universal Service obligations. The results of the public consultation will be sent to the MISE for the related decisions.
Also in March 2016, the Authority initiated a process examining the affordability of the prices of the fixed-line telephone Universal Service, aimed at identifying the most effective and suitable method for ensuring it is provided at an affordable price.
For information on the pending dispute relating to the remuneration of the net costs of the Universal Service, incurred by Telecom Italia for the years 1999-2003, see the Note "Contingent liabilities, other information, commitments and guarantees" of the Half-Year Condensed Consolidated Financial Statements of the Telecom Italia Group at June 30, 2016.
The provisions of Regulation EC 2015/2120 of November 25, 2015, the "Telecom Single Market Regulation" (TSM) on roaming within the European Union, became applicable from April 30, 2016. The TSM Regulation has introduced the "Roam-Like-At-Home" principle, which requires the application of national tariffs for voice/SMS/data traffic generated in the member states of the EU from June 15, 2017. The Regulation also provides for a transitional period (from April 30, 2016 to June 14, 2017), during which the suppliers of roaming services can continue to apply a surcharge on the national prices for the provision of retail roaming services. To that end, on May 31 last year, the Authority issued a guideline document on the correct application of the rules on roaming within the European Union contained in this EU Regulation.
AGCom continued to use the existing methods for the calculation of the contribution fee for 2016, despite the ruling of the Lazio Administrative Court and the subsequent ruling of the Consiglio di Stato, published in 2015. In particular, the Authority continued to use the total revenues from sales and services recorded in the income statement as the tax base and raised the contribution fee rate to 0.0014 from 0.00115 for 2015 (Decision 668/15/CONS of December 2015 and Decision 34/16/CONS). On April 1, 2016, Telecom Italia paid an amount of 19.8 million euros, with reservation, for the 2016 AGCom contribution fee, and at the same time filed an appeal against the resolutions concerned.
For information on the pending disputes relating to proceedings A428, I757 and I761 see the Note "Contingent liabilities, other information, commitments and guarantees" of the Half-year condensed consolidated financial statements of the Telecom Italia Group at June 30, 2016.
The shareholders' meeting held on April 16, 2014 appointed the Board of Directors of the Company for the three years 2014-2016, until the approval of the financial statements for the year ended December 31, 2016, to be composed of 13 directors. The same shareholders' meeting also appointed Giuseppe Recchi as Chairman of the Company's Board of Directors.
Subsequently, the Shareholders' Meeting of December 15, 2015 resolved to increase the number of members of the Board of Directors from 13 to 17, appointing four new directors proposed by the shareholder Vivendi S.A. (Arnaud Roy de Puyfontaine, Stéphane Roussel, Hervé Philippe and Félicité Herzog), with the same term in office as the existing directors.
The Chief Executive Officer, Marco Patuano, (who had been appointed on April 18, 2014) resigned with effect from March 22, 2016. On March 30, 2016, the Board of Directors appointed Flavio Cattaneo, already a board director of the Company, to replace him as Chief Executive Officer.
On April 27, 2016, the Board of Directors appointed the director Arnaud de Puyfontaine as Vice Chairman of the Company, without assigning him any delegated powers.
As a result, the Board of Directors of the Company at June 30, 2016 was composed as follows:
| Chairman | Giuseppe Recchi |
|---|---|
| Deputy Chairman | Arnaud Roy de Puyfontaine |
| Chief Executive Officer | Flavio Cattaneo |
| Directors | Tarak Ben Ammar |
| Davide Benello (independent) | |
| Lucia Calvosa (independent) | |
| Laura Cioli (independent) | |
| Francesca Cornelli (independent) | |
| Jean Paul Fitoussi | |
| Giorgina Gallo (independent) | |
| Félicité Herzog (independent) | |
| Denise Kingsmill (independent) | |
| Luca Marzotto (independent) | |
| Hervé Philippe | |
| Stéphane Roussel | |
| Giorgio Valerio (independent) | |
| Secretary to the Board | Antonino Cusimano |
All the board members are domiciled for the positions they hold in Telecom Italia at the registered offices of the Company in Milan, Via G. Negri 1.
The following board committees were in place at June 30, 2016:
The Board of Directors meeting of July 26, 2016, in support of the turnaround program initiated by the Company, approved the creation of a Strategy Committee, to be composed of the Chairman of the Board of Directors Giuseppe Recchi, the Chief Executive Officer Flavio Cattaneo, together with the Vice Chairman Arnaud Roy de Puyfontaine and Directors Davide Benello and Laura Cioli.
The new Committee will:
The updated version of the Corporate Governance Principles of the Company and the Regulations for the operation of the Strategy Committee are in the process of being published on the company website www.telecomitalia.com.
The Board of Directors has also appointed the Lead Independent Director for the current year, selecting Davide Benello to succeed the outgoing Lead Independent Director, Giorgio Valerio.
As has been the case for the last two years, the term of office of the Lead Independent Director is one year, expiring at the Shareholders' Meeting called to approve the financial statements of the corresponding year.
The ordinary shareholders' meeting of May 20, 2015 appointed the Company's Board of Statutory Auditors with a term up to the approval of the 2017 financial statements.
| Chairman | Roberto Capone |
|---|---|
| Acting Auditors | Vincenzo Cariello |
| Paola Maiorana | |
| Gianluca Ponzellini | |
| Ugo Rock | |
| Alternate Auditors | Francesco Di Carlo |
| Gabriella Chersicla | |
| Piera Vitali | |
| Riccardo Schioppo |
The Board of Statutory Auditors of the Company is now composed as follows:
The shareholders' meeting held on April 29, 2010 appointed the audit firm PricewaterhouseCoopers S.p.A. to audit the Telecom Italia financial statements for the nine-year period 2010-2018.
At the meeting of April 18, 2014, the Board of Directors confirmed Piergiorgio Peluso (Head of the Group Administration, Finance and Control Function) as the manager responsible for preparing Telecom Italia's financial reports.
The Group attaches great importance to the quality of the information on its activities provided to the financial markets, investors and all its stakeholders. Subject to the requirements of confidentiality dictated by the running of the business and statutory obligations, this communication takes place in full compliance with the criteria of transparency, fairness, clarity, timeliness and equality of access. The Company has also established specific communication channels for shareholders, bondholders and other stakeholders who are interested in obtaining financial and non-financial information on the Group.
| Share capital | 10,740,236,908.50 euros |
|---|---|
| Number of ordinary shares (without nominal value) | 13,499,911,771 |
| Number of savings shares (without nominal value) | 6,027,791,699 |
| Number of Telecom Italia S.p.A. ordinary treasury shares | 37,672,014 |
| Number of Telecom Italia S.p.A. ordinary shares held by Telecom Italia Finance S.A. |
126,082,374 |
| Percentage of ordinary treasury shares held by the Group to total share capital | 0.84% |
| Market capitalization (based on June 2016 average prices) | 14,553 million euros |
Regarding the trading of shares issued by Group companies on regulated markets, the ordinary and savings shares of Telecom Italia S.p.A. are listed in Italy (FTSE index), as well as the ordinary shares of INWIT S.p.A., whereas the ordinary shares of Tim Participações S.A. are listed in Brazil (BOVESPA index). The ordinary and savings shares of Telecom Italia S.p.A., and the ordinary shares of Tim Participações S.A. are also listed on the NYSE (New York Stock Exchange); trading occurs through ADS (American Depositary Shares) that respectively represent 10 ordinary shares and 10 savings shares of Telecom Italia S.p.A. and 5 ordinary shares of Tim Participações S.A..
Composition of Telecom Italia S.p.A. shareholders at June 30, 2016 according to the Shareholders Book, supplemented by communications received and other available sources of information (ordinary shares):
With effect from June 17, 2015, the shareholder agreement in place between the shareholders of Telco S.p.A. was dissolved, as disclosed by public notices in accordance with the applicable regulations. As a
result, there are no longer any significant shareholder agreements for Telecom Italia pursuant to Article 122 of Italian Legislative Decree 58/1998.
At June 30, 2016, taking into account the results in the Shareholders Book, communications sent to Consob and the Company pursuant to Italian Legislative Decree 58 of February 24, 1998, Article 120 and other sources of information, the principal shareholders of Telecom Italia S.p.A. ordinary share capital are:
| Holder | Type of ownership | Percentage of ownership |
|---|---|---|
| Vivendi S.A. | Direct | 24.68% |
| JPMorgan Chase & Co. | Indirect | 2.14% |
| People's Bank of China | Direct | 2.07% |
On March 12, 2014, Blackrock Inc. notified Consob that, as an asset management company, it indirectly held a quantity of ordinary shares equal to 4.78% of the total ordinary shares of Telecom Italia S.p.A. at June 30, 2016.
J.P.Morgan Chase & Co. announced that on July 1, 2016 it had reduced its indirect stake to an interest of 0.82% in the ordinary share capital of Telecom Italia.
At June 30, 2016, the three rating agencies — Standard & Poor's, Moody's and Fitch Ratings — rated Telecom Italia as follows:
| Rating | Outlook | |
|---|---|---|
| STANDARD & POOR'S | BB+ | Stable |
| MOODY'S | Ba1 | Negative |
| FITCH RATINGS | BBB- | Stable |
On January 17, 2013, the Board of Directors of Telecom Italia S.p.A. resolved to exercise the option, as per article 70 (8) and article 71 (1 bis) of the Consob Regulation 11971/99, to waive the obligations to publish disclosure documents in the event of significant operations such as mergers, demergers, capital increases by means of the transfer of assets in kind, acquisitions and disposals.
In accordance with Article 5, paragraph 8 of Consob Regulation 17221 of March 12, 2010 concerning "related party transactions" and the subsequent Consob Resolution 17389 of June 23, 2010, no significant transactions were entered into in the first half of 2016 as defined by Article 4, paragraph 1, letter a) of the aforementioned regulation or other transactions with related parties which had a major impact on the financial position or on the results of the Telecom Italia Group for the first half of 2016. Furthermore, there were no changes or developments regarding the related party transactions described in the 2015 Report on operations which had a significant effect on the financial position or on the results of the Telecom Italia Group in the first half of 2016.
Related party transactions, when not dictated by specific laws, were conducted at arm's length. In addition, the transactions were subject to an internal procedure (available for consultation on the Company's website at the following address: www.telecomitalia.com, section Group – channel governance system) which establishes procedures and time scales for verification and monitoring.
The information on related parties required by Consob Communication DEM/6064293 of July 28, 2006 is presented in the financial statements and in the Note "Related party transactions" in the Half-year condensed consolidated financial statements at June 30, 2016 of the Telecom Italia Group.
In this Half-year Financial Report at June 30, 2016 of the Telecom Italia Group, in addition to the conventional financial performance measures established by IFRS, certain alternative performance measures are presented for purposes of a better understanding of the trend of operations and financial condition. Such measures, which are also presented in other periodical financial reports (annual and interim) should, however, not be construed as a substitute for those required by IFRS.
The alternative performance measures used are described below:
• EBITDA: this financial measure is used by Telecom Italia as the financial target in internal presentations (business plans) and in external presentations (to analysts and investors). It represents a useful unit of measurement for the evaluation of the operating performance of the Group (as a whole and at the Business Unit level), in addition to EBIT. These measures are calculated as follows:
| Profit (loss) before tax from continuing operations | ||||
|---|---|---|---|---|
| + | Finance expenses | |||
| - | Finance income | |||
| +/- | Other expenses (income) from investments | |||
| +/- | Share of losses (profits) of associates and joint ventures accounted for using the equity method | |||
| EBIT - Operating profit (loss) | ||||
| +/- | Impairment losses (reversals) on non-current assets | |||
| +/- | Losses (gains) on disposals of non-current assets | |||
| + | Depreciation and amortization | |||
| EBITDA - Operating profit (loss) before depreciation and amortization, Capital gains (losses) and Impairment reversals (losses) on non-current assets |
• Organic change in Revenues, EBITDA and EBIT: these measures express changes (amount and/or percentage) in revenues, EBITDA and EBIT, excluding, where applicable, the effects of the change in the scope of consolidation and exchange differences.
Telecom Italia believes that the presentation of the organic change in revenues, EBITDA and EBIT allows for a more complete and effective understanding of the operating performance of the Group (as a whole and at the Business Unit level). This method of presenting information is also used in presentations to analysts and investors. This Half-Year Financial Report provides a reconciliation between the "reported figure" and the "organic figure".
To better represent the real performance of Net Financial Debt, in addition to the usual indicator (called "Net financial debt carrying amount"), "Adjusted net financial debt" is also shown, which excludes effects that are purely accounting and non-monetary in nature deriving from the fair value measurement of derivatives and related financial assets and liabilities.
Net financial debt is calculated as follows:
| + Non-current financial liabilities |
|---|
| + Current financial liabilities |
| + Financial liabilities directly associated with Discontinued operations/Non-current assets held for sale |
| A) Gross financial debt |
| + Non-current financial assets |
| + Current financial assets |
| + Financial assets relating to Discontinued operations/Non-current assets held for sale |
| B) Financial assets |
| C=(A - B) Net financial debt carrying amount |
| D) Reversal of fair value measurement of derivatives and related financial assets/liabilities |
| E=(C + D) Adjusted net financial debt |
In 2016 the Group has continued the process of integrating Corporate Shared Value (CSV), adopted in 2014, into the Company strategy to create economic and social value by responding to the needs expressed by the sectors in which the Group operates, identifying three areas of intervention:
In a coordinated and complementary manner with respect to the path for the development of the Country's technological infrastructure, the Group has therefore implemented a Corporate Shared Value plan that aims to increase the digital literacy of the population and enhance excellence in the Country through the potential offered by the Internet.
Digital skills have a crucial role to play in our society and have been one of the key factors in allowing economies to achieve a competitive advantage over the past twenty years, as shown by much of the work carried out by the OECD or promoted by the European Commission. In this respect as well, the Digital Agenda asks member States to take action to broaden knowledge of digital tools and increase the number of people with evolved digital skills, particularly by disseminating ICT technologies in schools. In this context, schools must make a radical change in the way they plan and provide education, and in the way pupils, teachers and parents relate to one another. Because of the importance of this subject, the European Commission constantly monitors the speed with which digital technologies are being introduced in schools and in teaching processes.
The common denominator of all the projects is the establishment of participatory, equitable and stable relationships and replicable intervention models both inside and outside.
The activities of WithYouWeDo, the crowdfunding platform that receives requests for donations from public and private entities intending to implement projects in the fields of social innovation, environmental protection and digital culture, continued over the six months. In order to promote crowdfunding, the Group, in addition to making the technological platform available as necessary for online collections (withyouwedo.telecomitalia.com), undertakes to contribute 25% (up to a maximum of 10,000 euros) towards the financing of projects that reach their collection target (10 in the first half of 2016 for the sum of around 64,000 euros) and supports, in communication terms, both aspiring designers (approximately 1,500 were involved in the tour that involved 22 Italian cities up until June 2016) and projects selected to enter the platform, also through a partnership in a national radio broadcast.
Social innovation is also the star feature of Start!, a television programme with 10 episodes broadcast on Rai2. A factual entertainment programme that revolves around the protagonists, with opinions and different levels of knowledge on digital aspects and the changes taking place in this world, who have to tackle big and small daily problems and decide to do so by testing and understanding the ideas, projects and services that have been developed thanks to the Internet and new Networks, which really improve people's lives.
The telecommunications sector has undergone a quick, but major transformation in recent years, characterised by the decline in traditional voice and text messaging services and the ever-greater growth of fixed and mobile broadband and the new services enabled by it, thereby contributing towards the rapid digitisation of the life of consumers and business processes.
In recent years the Group has started its own evolution path, confirming its role as a systems company in the supply of services and platforms as well as a supplier of connectivity with innovative digital services.
Innovation, both technological and business-based, is confirmed as the central element to respond to the change in the technological, market and competitive context and adopts the "Open Innovation" principles. Open Innovation, in fact, enables the innovation contributions generated within to be integrated with external sources of innovative ideas. Consequently, the flows of ideas coming from the ecosystem are flanked by activities of:
Internally, the Group has strengthened the company laboratories, bringing alongside the traditional infrastructural innovation a focus on digital innovation, which is met by the activities of the Innovation Centre and TIM Foundry, places where partnerships with the lead players become innovative services that can be developed and tested.
The Joint Open Labs (JOLs) are physical places of open innovation where the Group - together with universities, start-ups and SMEs - works for the co-development of innovative solutions on matters of the Internet of Things, Big Data & Personal Data, Wellness & Digital Health, Smart Spaces, Connected Robotics, Mobile Services Design and Interaction, in co-location in five Italian universities. With this model named "Company on Campus", frontier matters of innovation are intercepted with a multidisciplinary approach that involves talents of the faculties of engineering, mathematics, psychology, design and management. Over ten innovative ideas of the JOLs were transformed into business propositions and commercial opportunities for TIM, including CitySensing (a platform for managing large events in urban areas based on the collection of Big Data from social media and mobile networks), Cloud Robotics and Virgil (solutions involving drones and remote presence robots connected through the TIM 4G network), Internet of Things systems, including Smart Agriculture (developed with Olivetti). In addition to contributing to internal developments within the Company, the JOLs have also developed spin-up models, start-up launches that have received assets and the rights to use patents in exchange for equity options.
In the last three years the Group has obtained over 5 million euros in European funds and, only in 2015, it filed 33 patents originating from the activities of the JOLs; moreover, collaboration has been pursued with some of the most important European and North American universities and centres of excellence. Again under the scope of the relationship with universities, in the last four years 133 PhDs have been financed, sponsoring first level masters' degrees at the Scuola Superiore Sant'Anna di Pisa (Management, Innovation and Engineering of Services and Digital Life & Smart Living) and Tor Vergata university (Big Data in business), and the TIM Chair in Market Innovation at Milan's Bocconi University.
In order to support the growth of a true ecosystem of innovation in our country, the Group has expanded upon the Working Capital activities (now renamed TIM #Wcap), the business accelerator that, over the years, has become best in class in Europe1. Since 2013, TIM #WCAP has launched 4 accelerators in the nerve centres of Italian digital innovation: Rome, Milan, Bologna and Catania. Approximately 4,000 m2 of spaces offered to the dozens of start-ups selected each year through a "call for ideas", which receive a loan and are guided by consultants and experts in their growth path, which ranges from product development to launch on the market. Thanks to this process, since 2009 a total of 268 projects have been supported. In the last two years, the Group has started 25 collaboration activities with start-ups from TIM #Wcap, which have generated turnover for the young businesses and represent successful open innovation models for the Group. Moreover, again in the same period, 215 jobs have been created.
In November 2014, TIM Ventures, - the Group's corporate venture capital - began operating. The company, entirely and directly controlled by Telecom Italia, aims to acquire minority shares in the capital of the most innovative digital start-ups, appropriately selected in close connection with the Group's strategy. TIM Ventures has already made 13 investments and taken part in two subsequent follow-on rounds. It was included among the most active European Venture Capital investors in the second quarter of 20152 and among the 40 most active corporate venture capitals in 20153.
With reference to technological innovation, the following are the projects most worthy of note:
1 TIM has been included in "Europe's 25 Startup Stars 2016" index ranking seventh.
2 Source: Venture Pulse Q2'15 – KPMG and CB Insights
3 Source: CB Insights, March 2016
4 API is the acronym for Application Programming Interface.
As mentioned previously, as regards the innovation of business, the Group aims to supplement its offer of connectivity with innovative services that satisfy the new digital needs.
In particular, the business innovation enriches the "traditional" one, both by developing prototyping and experimentation options for solutions based on an in-depth understanding and meeting of new digital service needs internally, through the Innovation Centre, and by opening up to external sources of ideas, which can help construct an open innovation model based on a valuable network of players (Joint Open Lab, TIM #Wcap, TIM Ventures, TIM Foundry, partnerships, etc.).
The partnerships, which represent a business development method based on the optimisation of the Group's assets, are worthy of separate mention. In these terms, a "partnership programme" has been developed, which, starting out from the Company's strategic inputs and aiming to achieve business objectives, has classified the main categories of partners to develop an optimised approach, consisting of negotiations and collaborations. In this context, the Group oversees the various areas of digital services, including:
1 Acronym for Over The Top – AGCOM defines them as businesses that provide, through the Internet, services, content (above all video) and "rich media" applications (for example adverts that appear "over" a website page while it is viewed and disappear after a set time). OTTs obtain revenue, for the most part, from the sale of content and services to end users or from advertising space. As they do not have a proper infrastructure, they operate over the top of the network, hence the term over-the-top.
2 www.nest.city
Competence Center that will aim to train the internal competences and scout and search for new Big Data technologies and applications, working in an open logic with the industry's main players. Moreover, during the first few months of 2016, additional initiatives were also started, aimed in particular at aggregating different industry players and managers of large quantities of data to construct data partnership models with the aim of developing innovative applications intended for both digital cities (Living Lab project with Turin municipality) and to create innovative services to support private businesses in different fields (e.g. from the insurance world to that of the connected car).
The technological developments the Group is pursuing for the transmission network (like FTTCab, LTE, OPM/EDGE/OPB) and the new installations on the domestic and external market in the IT area entail a significant increase in energy consumption in both fixed and mobile, estimated, for this year, at around 190 GWh (equal to an increase of 9% of overall electricity consumption in Italy compared to 2015), of which approximately 90% is linked to network developments. During the first half a number of previously launched actions were completed and new actions were taken regarding energy efficiency, with the aim of reducing the said growth to zero and, in the meantime, cutting down on the increase in consumption.
The self-generation of electricity accounts for a small, but not negligible, percentage of the total demand. The first half of 2016 was characterised by an increase in self-generation of around 10% as compared with the same period of 2015, as a consequence of the coming into full operation of certain plants of a significant size.
Cogeneration and trigeneration systems use around 30% less energy than traditional electricity generation systems, and play an increasingly important role for the Group, particularly in industrial sites, typically data processing centres (DPCs), which have notable energy requirements and high heating/cooling requirements, allowing losses due to transfer from production site to consumption site to be minimised.
During the first half of the year, a number of efficiency measures were taken while work continues on previously launched multiannual projects. At the same time, new action has been taken to reduce energy consumption.
In the industrial area, we note:
The SuperSGU plan also continues; it was launched in 2015 and envisages the disposal of the Urban Group Stages1 (SGU), by means of their grouping together in order to significantly reduce electricity consumption. In 2016, 25 SGUs will be affected.
Mobile network: the projects for the technological modernisation and increased efficiency of the systems used by the telephone exchanges and radio base stations, continue. In addition to the solutions that have already been launched to ensure increased energy efficiency for the GSM radio base stations installed on the network, during the second part of the half-year, the activity was increased to include solutions for 3G and 4G, for all the suppliers of the Group. The modernisation of the nodes of the mobile access network also continues, through the adoption of new, multi-standard technologies with integrated stations.
1 SGUs are Area Exchanges that represent level 2 of TIM's switching hierarchy and are positioned between the Group Transit Stage (SGT, intercity network) and the Main Exchanges (MEs, which include the users through the distribution network).
In the offices, the following action was carried out:
The analyses also continue aimed at identifying new areas of energy efficiency.
During the first six months, 2 of the 4 solar cooling plants envisaged for 2016 in Apulia were developed with the aim of covering the entire thermal demand, in terms of cooling, of the plants using a combination of solar panels and cooling machines, in this case lithium bromide absorption chillers.
On a European level, the Group is involved in various projects and standardisation entities aiming to reduce the consumption and environmental impact of the fixed and mobile telecommunications networks. The general aim of these participations is to speed up the availability of lower energy consumption equipment and systems, while allowing suppliers to achieve greater economies of scale thanks to common energy efficiency requirements, no longer differentiated by country.
Finally, in order to promote renewed sensibility with respect to the natural environment, the Group is the technical partner of the Italian Limes project, which analyses the effects of climatic change on the melting of the Alpine glaciers and the consequent shift of the watersheds which defined the national boundaries. The project includes an interactive installation at the ZKM museum in Karlsruhe, Germany,
1 UPS (Uninterruptible Power Supplies) are energy storage systems that ensure the continued operation of equipment to which they are connected in the event of a power cut. Compared to static ones, dynamic uninterruptible power supplies ensure high performance and are particularly suitable where power requirements are high but the available space is small.
which provides a real time representation of the shifting boundaries, and an online platform with the complete documentation of the research.
The Group is participating, as the Founding Sponsor partner, in Programme the Future, a MIUR initiative that favours the introduction of computational thought and coding in the educational programmes of schools of all levels. The project is implemented by CINI (Consorzio Interuniversitario Nazionale per Informatica - National Inter-University Consortium for Information Technology) and supports all the activities in three ways: economic support, communication and company volunteering, with over 400 voluntary employees offering support and tutoring to teachers and students. The TIM Ambassadors are also key figures in TIM4Coding, an additional initiative promoted directly by the Group, which sees voluntary employees supporting teachers from all over Italy to implement "Hour of Code" and contribute to the training of the professionals of the future.
Programme the Future and TIM4Coding are part of the broader national project EducaTI, which actively contributes to the achievement of the objectives of the government's "Good Schooling" plan. All the initiatives are in fact carried out in collaboration with the Ministry of Education, Universities and Research (MIUR) and with some Institutional Partners of excellence.
The digital culture is also the scope of projects aimed at bringing high quality cultural content and digital languages together, making the most of the interaction opportunities offered by the Web. In so doing, the Company is asserting itself as an innovative partner in the Italian cultural and artistic world, assuming a role recognised by stakeholders who work alongside it in the various cultural sectors in which digital dissemination initiatives are run.
The partnership with Accademia Nazionale di Santa Cecilia takes the form of the PappanoinWeb project. Conceived for the purpose of bringing great classical music to the Internet audiences. The initiative, now in its 6th edition in 2016, is enriched this year by the experience of WebArena, a space technologically equipped by TIM for young people under 30. Over the six years of the programme, the concerts offered have been watched by over 200,000 users in streaming on telecomitalia.com/pappanoinweb, thanks to the listening guides, exclusive interviews and the opportunities to interact with an expert musicologist at the Accademia during direct broadcasts. A big open air rehearsal also allowed around 2,000 employees to experience the excitement backstage, with the protagonists, and to view the real difficulties of a high level musical performance.
As part of the "storytelling & performing arts," note the partnership with Scuola Holden of Turin, founded by Alessandro Baricco, which tests new ways of teaching and sharing ideas, knowledge, and creativity through digital technology. The Web becomes a vehicle for providing lessons with great masters and special events happening in the school. The collaboration has allowed a pioneering multimedia laboratory to be set up, and it also supports, with a working group comprised of the best students, the communication of some of the Group's sustainability projects.
At the start of June 2016, as part of the actions aimed at containing the costs and improving corporate efficiency and productivity, which can even be achieved through the streamlining of organizational structures, the People Value Function has be renamed Human Resources & Organizational Development.
On this basis, some of the initiatives planned by the previous People Strategy may be altered in the second part of the year.
In the first half of 2016 the following initiatives were continued:
In Rome, TIM Factory continued its activities as a physical as well as conceptual place dedicated to sharing views which, almost every day, hosts various types of events on diversity: book presentations, training, working groups, performances, and seminars. It is also a site where programmes and memorandums of understanding with the local authorities and municipalities can be arranged. Over 60 events dedicated to diversity were organised during the six months.
Updating of our policies on permits, leave, use of benefits and welfare services available on an equal basis for LGBTI and heterosexual couples, and the extension to children in the employee's household of services aimed at children and teenagers.
To promote psychological and physical well-being, the People Caring Centre (PCC) counselling service continued, provided by professional psychologists across the Country. Since the service began to operate (January 2011), 420 employees have asked for information on how the service works, either by telephone or email. In total, 370 people have used the CPC service: 300 have started a counselling process and 70 have been put in contact with the People Caring department manager and their cases have been taken over by the HR department.
Through the integration of all the assessment processes (recruiting, performance, potential, motivation, knowledge), the Model aims to ensure accurate knowledge of people in order to create individual development plans fine-tuned to the characteristics of each person and aimed at managerial and professional improvement and growth. The Development Model (starting with the Leadership Model) is constantly updated and takes account of the evolution of our business strategy keeping its ultimate purpose unvaried, namely to improve the "enterprise contribution" of each person.
The model mainly focuses on the following areas:
professional experience of the people, supports managers in defining an individual development plan for each collaborator comprised of training initiatives, in-the-field actions and job rotation. The development plans are currently in the launch phase.
With regard to training, the most significant event in the first half of 2016 was the launch of the Corporate University: TIM Academy, set up with the objective of facilitating the digital transformation process and developing an innovative approach to learning and the sharing of know-how.
TIM Academy:
As a whole, Telecom Italia's training activities have the following main purposes:
They are divided into four macro-categories:
For each of the above mentioned areas the main activities carried out in the first half of 2016 are set out below.
Training on the managerial target is essential for the deployment of the corporate strategic guidelines and for the implementation of technological and organizational change processes.
Training to develop role-based and specialized skills as well as new capabilities is essential for the implementation of the strategic drivers, and therefore occupies a central role in Telecom Italia's training investments plan.
This type of education allows people to enhance their capacities in relation to the evolution of the skills required by the business and by the organizational context.
This training aims at supporting the transformation of the organization culture in line with the evolution of the social, environmental and economic context and at disseminating knowledge of the contents required by the legal formalities.
The training initiatives promoted by the following functions and departments are included as part of this activity : Compliance (aimed at increasing knowledge and respect for the Group's value, improving the skills in processes and procedures, as well as in the methodologies and the tools used for Compliance purposes), Health, Safety & Environment (aimed at ensuring compliance with the reference regulations on Safety in the workplace), and Regulatory and Equivalence (for topics relating to the Antitrust and Equivalence).
Moreover, the following activities were carried out:
In 2016 the deployment of Telecom Italia's Knowledge Management Model, which was launched in the early months of 2015 was strengthened and improved.
The model guided the creation of a platform that ensures and supports:
In particular the model is comprised of a learning matrix, a governance system and a set of social and inperson collaboration tools that allow the mapping and dynamic enhancement of knowledge.
Moreover, at the same time as the launch of the TIM Academy's technological platform, a social collaboration area was opened for training courses that allow teachers and participants of the individual courses to share materials, content and conversations on the topics covered in the training. This space will include interaction with participants external to the company who make up part of the ecosystem of business processes (e.g. retail partners, external contact centres, PhD students, etc.).
The Group has started a new relationship model with leading universities and national and international research centres, which emphasizes the enhancement of talent to transfer innovation to the Company. The goal is to strengthen and accelerate the Group's ability to innovate while at the same time contributing to the development of young people by offering them the opportunity to gain new skills and experiences.
Initiatives include:
collaboration with postgraduate study courses: through 4 Master's courses closely linked to business, with which a close partnership with great added value was formed:
Master in Digital Life and Smart Living and Master in Management, Innovation and Engineering of Services – MAINS, with the Scuola Superiore Sant'Anna di Pisa
The internal communication process undertaken, in line with the constantly evolving reference context, has led to a shift from conventional communication channels towards more innovative forms based on web-centric logic, in order to foster bilateralism and the exchange of ideas and discussion among all members of the corporate community.
The preferred environment (web-centric) chosen to provide formal and informal opportunities for people to meet and listen is confirmed as the company Intranet and portal: fundamental tools for providing information and creating opportunities for open dialogue.
The guiding criterion continues to be engaging people in order to count on their energy, motivation and creativity. And to promote "positive stories" and new styles of storytelling (positive tellers, Archimede project, Values contest).
The specific communication objectives achieved in the first half of 2016 are as follows:
During the first half of 2016, the main areas of action in the field of health and safety at work related to planning and developing a series of information and awareness-building initiatives to strengthen safety culture in the Company.
In particular, the contents of a communication campaign were defined that provides for initiatives to reduce accidents, particularly by making improvements aimed at changing individual behaviour and the work process.
Campaigns of targeted measures related to vibrations, noise, electromagnetic fields and micro-climates continue to ensure accurate monitoring of risk control measures.
Also in the first half of 2016, the Company continued to provide safety training to its staff: in this context it implemented safe driving courses for staff who drive company cars.
A programme of "safety moments" continues in the presence of staff from the Health, Safety & Environment department, during which managers and employees deal with issues regarding accidents that have occurred, health monitoring, equipment and PPE1, for which possible improvement actions are defined. 60 meetings are planned for 2016, 15 for each local area and involving all the company's departments and functions.
As regards strengthening awareness of health and safety matters, particularly in the supply chain, 16 checks on principal suppliers were carried out during the first half of 2016.
During the first half of the year, benchmarking activities on health and safety promoted by Telecom Italia with the involvement of the main Italian network companies (Enel, Poste Italiane, Ferrovie dello Stato, Terna, Anas, Autostrade per l'Italia, Vodafone, etc.) continued with regular meetings, in addition to workshops, organised by each company, with the participation of sector experts and institutional entities. In particular, the issues tackled during the first half of the year related to measures for monitoring and reducing accidents at work and specific aspects of health checks.
The first half of 2016 was characterised by numerous sessions of comparison of ideas and information with the trade union parties, regarding various company departments.
During these meetings, the Company and the trade union representatives identified agreed solutions for the introduction of new work shifts for people working in the Fraud Operations area, which will contribute to manning the service more intensively and fulfilling the needs of the relevant customers.
Significant discussions with the trade union parties also regarded the company departments in charge of supervising the network platforms and services, as well as technical service, to establish hours of operation that were in line with the organisational changes and the desire to offer better services and quality to customers.
More specifically, for the Network department, agreements have been stipulated relating to the shifts of the newly-established "Single Front End", which concentrated the activities up to that point assured by several territorial units, in just the two poles of Rome and Milan, with the entire baggage of competences having been recovered by means of a structured professional reconversion manoeuvre that guaranteed the re-use of all resources.
1 Personal Protective Equipment.
Moreover, both nationally and locally, specific agreements have been signed to allow the staff concerned to take a day's paid leave as an alternative to the payment awarded under their contract for national holidays and patron saint days falling on a Sunday in 2016.
In June, the Company and trade union organisations renewed, in signing a specific protocol, the structure of the Telecom Industrial Relations model, in order to further optimise the discussions in the area of information, consultation and negotiation, both on a national and local level.
In line with the relations model developed over time, aimed at seeking dialogue and a constructive comparison of ideas, the importance of the company office has been confirmed, as the perfect place within which to identify solutions able to accompany the organisational evolution processes, including through a greater involvement of local representatives.
The unitary trade union representatives, recently re-elected, are present in a capillary fashion throughout all regions of Italy; with the new Protocol, the basis is laid to further develop relations on a local level, seeking suitable opportunities for a decentralised discussion in order to better grasp and combine, in respect of the reciprocal roles, the specific needs and opportunities marking the various territorial contexts.
The Group remuneration policy is established in such a way as to guarantee the necessary levels of competitiveness of the Company on the employment market. Competitiveness translates into supporting the strategic objectives, pursuing sustainability of results in the long-term and striking a correct balance between the unitary needs of the Group and the differentiation of the various reference markets. The result is a remuneration structure that seeks to guarantee the correct balance between fixed and variable components, both short and long-term, alongside benefit and welfare systems with Total Rewarding in mind.
More specifically, the fixed component reflects the breadth and strategic nature of the position held and is dictated by performance in the reference markets.
The short term variable remuneration (MBO) on the other hand aims to establish a transparent link between pay and the degree of fulfilment of annual targets. To this end, the targets are fixed according to qualitative and quantitative indicators that represent and are consistent with the strategic priorities and business plan, measured according to pre-established and objective criteria. In 2015, the "gate" mechanism was the threshold applied only to the Company's macro objectives: if the "gate" objective is not achieved, this mechanism prevented the bonus associated with the company's other macro targets being accrued.
In 2016, the mechanism's operation was changed:
The long-term variable component aimed at achieving consistency between the interests of management and those of shareholders, by sharing in the business risk, with positive effects on the 2014-2016 stock option plan, which involved the Chief Executive Officer, the top management and a selection of managers.
With Total Rewarding in mind, the traditional monetary instruments have been combined with nonmonetary instruments, including benefits and welfare, financed by moving economic resources from the monetary remuneration components without any change in the total cost to the Company.
When the current CEO, Flavio Cattaneo, was appointed on 30 March 2016, a decision was taken to introduce a new, additional bonus aimed at pursuing the aim of corporate discontinuity and turnaround.
The Special Award provides for the CEO and some of the executives selected by him, based on overperformance in some defined economic and financial KPIs, to accrue a bonus consisting of 80% shares and 20% cash.
The first half of 2016 was a very important period for FTIM, full of changes and activities. The "Lessons on progress" continued in 2016: a project involving 9 stages (3 in 2015) intended to introduce young people to scientific culture. The idea for this format arose from a desire to create a new way of talking about science in a more accessible way, contrasting the technical explanations of a scientist with the more direct ones of a person far removed from the academic world and able to bring scientific subjects and messages closer to a young target audience. The themes chosen for the lessons are among the most topical, delicate and hotly debated in the scientific and technological field, in particular, the first six of 2016 were the following:
At the start of 2016, Fondazione TIM launched the Dyslexia 2.0 Digital Solution project: an innovative integrated digital project for the creation of technological tools in response to specific requirements for dyslexia, accessible to families, teachers, students and paediatricians via a single portal.
Fondazione TIM has been a leader in Dyslexia since 2009, with a multi-year programme which has allowed the creation of screening protocols, IT campuses, digital books and the dissemination of a more inclusive approach in schools.
The project is formed of three initiatives developed by the Fondazione TIM in collaboration with the National Institute of Health, the Bambino Gesù Children's Hospital and the Italian Dyslexia Association (AID):
In addition to the specific issue of dyslexia, Fondazione TIM is heavily committed in the broader context of communication and neurodevelopment disorders. In the first half of 2016 the results of two important projects for autism were presented to the community: "SI DO RE MI", set up with the ISTI1 CNR [Information Science and Technology Institute - National Research Council] of Pisa, and Tecnologia fa breccia [Technology Makes Inroads], set up with the "Una breccia nel muro" [An Opening in the Wall] association. Further details on the two projects are set out below.
Autism affects 1 in 150 children in Italy. There are over 6.2 million children currently between the ages of 1 and 12 years old. The number of children interested by the project is therefore estimated to be more than 41,000. The project provides for the development of a system that uses cloud computing to control sound and music generated by the gestures of children affected by autism. The acoustic feedback thus created is intended to emphasise and stimulate interaction with the surrounding world. The data related to children interacting with the system is monitored remotely by specialists to analyse trends in the disorder.
Software was created to allow parents to send information relating to the development of their autistic child in a natural environment (home, school, etc) in real time to the supervision centre in order to facilitate and increase communication between families and children affected by autism, therapists and supervisors. Moreover, a set of 80 Apps was created to supplement the therapeutic work done every day. The use of the Apps on a tablet increases autistic children's motivation to learn some skills that are typically in deficit due to the syndrome (communication, social interaction, sphere of interests). The data collected will be analysed and used to refine the therapeutic treatment of individual children, offering them increasingly efficient individualized stimuli.
Furthermore, during the first half of the year, two important projects were completed in the field of education: Curriculum Mapping and I linguaggi della contemporaneità (Contemporary languages).
The Curriculum Mapping project involves the creation of a platform to map curricula: a useful tool to facilitate the sharing of programmes between teachers of the same subject and between schools in the same education network, their supervision by head teachers, the orderly and integrated use of digital educational content by students, as well as the monitoring, updating and adapting of disciplinary planning in real time.
Mapping the curriculum means making the school curriculum and its component parts intelligible, shareable and transparent.
Curriculum Mapping provides a synoptic view of the school's fundamental educational values, the relevant skills and their application in different cultural contexts and at different levels or grades of
1 Institute of Science and Information Technologies.
education, annual planning for every education year and cycle, the structuring of education units forming the programme. Originating as an innovative approach in the USA, where it is widespread, Curriculum Mapping is combined with the skill-based programme launched in Italian and European schools.
The I linguaggi della contemporaneità (Contemporary languages) project is intended to reinvigorate and update the teaching of contemporary history in secondary schools, moving beyond the combination of text book and classroom lesson to integrate narrative strategies drawn from sources including television, cinema, theatre, photography and literature.
TELECOM ITALIA GROUP HALF-YEAR CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AT JUNE 30, 2016
| FINANCIAL STATEMENTS AT JUNE 30, 2016 | |
|---|---|
| Consolidated Statements of Financial Position ______ |
77 |
| Separate Consolidated Income Statements _________ |
79 |
| Consolidated Statements of Comprehensive Income _______ |
80 |
| Consolidated Statements of Changes in Equity ______ |
81 |
| Consolidated Statements of Cash Flows______ | 82 |
| Note 1 Form, content and other general information ________ 84 | |
| Note 2 Accounting policies __________ 88 | |
| Note 3 Scope of consolidation ________ 92 | |
| Note 4 Goodwill _____________ 94 | |
| Note 5 Intangible assets with a finite useful life ______ 96 | |
| Note 6 Tangible assets (owned and under finance leases) _________ 97 | |
| Note 7 Investments __________ 99 | |
| Note 8 Financial assets (non-current and current) _________ 100 | |
| Note 9 Trade and miscellaneous receivables and other current assets ____ 102 | |
| Note 10 Discontinued operations/Non-current assets held for sale _______ 104 | |
| Note 11 Equity _____________ 107 | |
| Note 12 Financial liabilities (non-current and current) _____ 109 | |
| Note 13 Net financial debt __________ 117 | |
| Note 14 Derivatives _________ 118 | |
| Note 15 Supplementary disclosures on financial instruments _____ 119 | |
| Note 16 Employee benefits _________ 121 | |
| Note 17 Provisions __________ 122 | |
| Note 18 Trade and miscellaneous payables and other current liabilities ___ 123 | |
| Note 19 Contingent liabilities, other information, commitments and guarantees __ 124 | |
| Note 20 Finance income and expenses ___________ 131 | |
| Note 21 Profit (loss) for the period _________ 134 | |
| Note 22 Earnings per share _________ 135 | |
| Note 23 Segment reporting _________ 138 | |
| Note 24 Related party transactions ________ 143 | |
| Note 25 Equity compensation plans ________ 156 | |
| Note 26 Significant non-recurring events and transactions________ 158 | |
| Note 27 Positions or transactions resulting from atypical and/or unusual operations ____ 160 | |
| Note 28 Other information __________ 161 | |
| Note 29 Events subsequent to June 30, 2016 ______ 163 | |
| Note 30 List of companies of the Telecom Italia Group _____ 165 |
Assets
| (millions of euros) | note | 6/30/2016 | of which related parties |
12/31/2015 | of which related parties |
1/1/2015 | of which related parties |
|---|---|---|---|---|---|---|---|
| Revised | Revised | ||||||
| Non-current assets | |||||||
| Intangible assets | |||||||
| Goodwill | 4) | 29,566 | 29,383 | 29,943 | |||
| Intangible assets with a finite useful life | 5) | 6,777 | 6,480 | 6,827 | |||
| 36,343 | 35,863 | 36,770 | |||||
| Tangible assets | 6) | ||||||
| Property, plant and equipment owned | 13,211 | 12,659 | 12,544 | ||||
| Assets held under finance leases | 2,298 | 2,208 | 843 | ||||
| 15,509 | 14,867 | 13,387 | |||||
| Other non-current assets | |||||||
| Investments in associates and joint | |||||||
| ventures accounted for using the equity method |
7) | 39 | 41 | 36 | |||
| Other investments | 7) | 38 | 45 | 43 | |||
| Non-current financial assets | 8) | 3,129 | 601 | 2,989 | 549 | 2,445 | 374 |
| Miscellaneous receivables and other non | |||||||
| current assets | 2,048 | 1,778 | 1,614 | ||||
| Deferred tax assets | 735 | 853 | 1,118 | ||||
| 5,989 | 5,706 | 5,256 | |||||
| Total Non-current assets | (a) | 57,841 | 56,436 | 55,413 | |||
| Current assets | |||||||
| Inventories | 294 | 254 | 313 | ||||
| Trade and miscellaneous receivables and other current assets |
9) | 5,683 | 140 | 5,112 | 137 | 5,617 | 152 |
| Current income tax receivables | 69 | 163 | 101 | ||||
| Current financial assets | 8) | ||||||
| Securities other than investments, financial receivables and other |
|||||||
| current financial assets | 1,330 | 65 | 1,840 | 63 | 1,611 | 66 | |
| Cash and cash equivalents | 2,707 | 255 | 3,559 | 72 | 4,812 | 174 | |
| 4,037 | 320 | 5,399 | 135 | 6,423 | 240 | ||
| Current assets sub-total | 10,083 | 10,928 | 12,454 | ||||
| Discontinued operations/Non-current assets held for sale |
10) | ||||||
| of a financial nature | − | 227 | 165 | ||||
| of a non-financial nature | − | 3,677 | 23 | 3,564 | 19 | ||
| − | 3,904 | 3,729 | |||||
| Total Current assets | (b) | 10,083 | 14,832 | 16,183 | |||
| Total Assets | (a+b) | 67,924 | 71,268 | 71,596 |
| (millions of euros) | note | 6/30/2016 | of which related parties |
12/31/2015 Revised |
of which related parties |
1/1/2015 Revised |
of which related parties |
|---|---|---|---|---|---|---|---|
| Equity | 11) | ||||||
| Share capital issued | 10,740 | 10,740 | 10,723 | ||||
| less: Treasury shares | (90) | (90) | (89) | ||||
| Share capital | 10,650 | 10,650 | 10,634 | ||||
| Additional Paid-in capital | 1,731 | 1,731 | 1,725 | ||||
| Other reserves and retained earnings (accumulated losses), including profit (loss) for the period |
6,725 | 5,173 | 5,709 | ||||
| Equity attributable to Owners of the Parent |
19,106 | 17,554 | 18,068 | ||||
| Non-controlling interests | 2,221 | 3,695 | 3,516 | ||||
| Total Equity | (c) | 21,327 | 21,249 | 21,584 | |||
| Non-current liabilities | |||||||
| Non-current financial liabilities | 12) | 31,027 | 1,047 | 30,518 | 937 | 32,325 | 469 |
| Employee benefits | 16) | 1,580 | 1,420 | 1,056 | |||
| Deferred tax liabilities | 434 | 323 | 438 | ||||
| Provisions | 17) | 569 | 551 | 720 | |||
| Miscellaneous payables and other non current liabilities |
1,207 | 1,110 | 697 | 1 | |||
| Total Non-current liabilities | (d) | 34,817 | 33,922 | 35,236 | |||
| Current liabilities | |||||||
| Current financial liabilities | 12) | 4,209 | 70 | 6,224 | 168 | 4,686 | 107 |
| Trade and miscellaneous payables and other current liabilities |
18) | 7,445 | 204 | 7,882 | 217 | 8,536 | 213 |
| Current income tax payables | 126 | 110 | 36 | ||||
| Current liabilities sub-total | 11,780 | 14,216 | 13,258 | ||||
| Liabilities directly associated with Discontinued operations/Non-current assets held for sale |
10) | ||||||
| of a financial nature | − | 348 | 43 | ||||
| of a non-financial nature | − | 1,533 | 16 | 1,475 | 16 | ||
| − | 1,881 | 1,518 | |||||
| Total Current Liabilities | (e) | 11,780 | 16,097 | 14,776 | |||
| Total Liabilities | (f=d+e) | 46,597 | 50,019 | 50,012 | |||
| Total Equity and Liabilities | (c+f) | 67,924 | 71,268 | 71,596 |
| note | 1st Half | of which: | 1st Half | of which: | |
|---|---|---|---|---|---|
| (millions of euros) | 2016 | with | 2015 | with | |
| related | Revised | related | |||
| parties | parties | ||||
| Revenues | 9,096 | 164 | 10,101 | 234 | |
| Other income | 107 | 2 | 131 | ||
| Total operating revenues and other income | 9,203 | 10,232 | |||
| Acquisition of goods and services | (3,783) | (110) | (4,372) | (143) | |
| Employee benefits expenses | (1,551) | (66) | (1,705) | (54) | |
| Other operating expenses | (501) | (888) | |||
| Change in inventories | 33 | 58 | |||
| Internally generated assets | 325 | 314 | |||
| Operating profit before depreciation and amortization, capital gains (losses) and impairment |
|||||
| reversals (losses) on non-current assets (EBITDA) | 3,726 | 3,639 | |||
| of which: impact of non-recurring items | 26) | (91) | (399) | ||
| Depreciation and amortization | (2,047) | (2,130) | |||
| Gains/(losses) on disposals of non-current assets | 13 | 279 | |||
| Impairment reversals (losses) on non-current assets | (5) | − | |||
| Operating profit (loss) (EBIT) | 1,687 | 1,788 | |||
| of which: impact of non-recurring items | 26) | (82) | (122) | ||
| Share of losses (profits) of associates and joint ventures accounted for using the equity method |
(2) | − | |||
| Other income (expenses) from investments | 7 | 4 | |||
| Finance income | 20) | 2,012 | 60 | 1,581 | 72 |
| Finance expenses | 20) | (2,157) | (67) | (3,063) | (47) |
| Profit (loss) before tax from continuing operations | 1,547 | 310 | |||
| of which: impact of non-recurring items | 26) | (93) | (139) | ||
| Income tax expense | (489) | (195) | |||
| Profit (loss) from continuing operations | 1,058 | 115 | |||
| Profit (loss) from Discontinued operations/Non-current | |||||
| assets held for sale | 10) | 47 | 9 | 330 | 39 |
| Profit (loss) for the period | 21) | 1,105 | 445 | ||
| of which: impact of non-recurring items | 26) | (78) | (111) | ||
| Attributable to: | |||||
| Owners of the Parent | 1,018 | 33 | |||
| Non-controlling interests | 87 | 412 | |||
| (euros) | 1st Half | 1st Half | |||
| 2016 | 2015 | ||||
| Revised | |||||
| Earnings per share: Earnings per share (Basic) |
22) | ||||
| Ordinary Share | 0.05 | 0.00 | |||
| Savings Share | 0.06 | 0.00 | |||
| of which: | |||||
| from Continuing operations attributable to Owners of the Parent | |||||
| Ordinary Share | 0.05 | 0.00 | |||
| Savings Share | 0.06 | 0.00 | |||
| Earnings per share (Diluted) | |||||
| Ordinary Share | 0.03 | 0.00 | |||
| Savings Share | 0.04 | 0.00 | |||
| of which: | |||||
| from Continuing operations attributable to Owners of the Parent | |||||
| Ordinary Share | 0.03 | 0.00 | |||
| Savings Share | 0.04 | 0.00 |
| (millions of euros) | 1st Half 2016 |
1st Half 2015 Revised |
|---|---|---|
| Profit (loss) for the period | (a) 1,105 |
445 |
| Other components of the Consolidated Statements of Comprehensive Income |
||
| Other components that subsequently will not be reclassified in the Separate Consolidated Income Statements |
||
| Remeasurements of employee defined benefit plans (IAS 19): | ||
| Actuarial gains (losses) | (118) | 56 |
| Income tax effect | 32 | (15) |
| (b) (86) |
41 | |
| Share of other profits (losses) of associates and joint ventures accounted for using the equity method: |
||
| Profit (loss) | − | − |
| Income tax effect | − | − |
| (c) − |
− | |
| Total other components that subsequently will not be reclassified in the Separate Consolidated Income Statements (d=b+c) |
(86) | 41 |
| Other components that subsequently will be reclassified in the Separate Consolidated Income Statements |
||
| Available-for-sale financial assets: | ||
| Profit (loss) from fair value adjustments | 76 | (21) |
| Loss (profit) transferred to the Separate Consolidated Income Statements | (69) | (63) |
| Income tax effect | (4) | 18 |
| (e) 3 |
(66) | |
| Hedging instruments: | ||
| Profit (loss) from fair value adjustments | (327) | 1,168 |
| Loss (profit) transferred to the Separate Consolidated Income Statements | 245 | (812) |
| Income tax effect | (2) | (98) |
| (f) (84) |
258 | |
| Exchange differences on translating foreign operations: | ||
| Profit (loss) on translating foreign operations | 618 | (380) |
| Loss (profit) on translating foreign operations transferred to the Separate Consolidated Income Statements |
304 | (1) |
| Income tax effect | − | − |
| (g) 922 |
(381) | |
| Share of other profits (losses) of associates and joint ventures accounted for using the equity method: |
||
| Profit (loss) | − | − |
| Loss (profit) transferred to the Separate Consolidated Income Statements | − | − |
| Income tax effect | − | − |
| (h) − |
− | |
| Total other components that subsequently will be reclassified to the Separate Consolidated Income Statements (i=e+f+g+h) |
841 | (189) |
| Total other components of the Consolidated Statements of Comprehensive Income |
(k=d+i) 755 |
(148) |
| Total comprehensive income (loss) for the period | (a+k) 1,860 |
297 |
| Attributable to: | ||
| Owners of the Parent | 1,726 | (13) |
| Non-controlling interests | 134 | 310 |
| Equity attributable to Owners of the Parent | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| (millions of euros) | Total Non-controlling interests |
Total equity |
|||||||||
| Balance at December 31, 2014 |
10,634 | 1,725 | 75 | (637) | (350) | (96) | − | 6,794 | 18,145 | 3,554 | 21,699 |
| (77) | (115) | ||||||||||
| Adjusted Balance at December 31, 2014 |
10,634 | 1,725 | 75 | (637) | (322) | (96) | − | 6,689 | 18,068 | 3,516 | 21,584 |
| Changes in equity during the period: |
|||||||||||
| (166) | (250) | ||||||||||
| (13) | 297 | ||||||||||
| 253 | 762 | ||||||||||
| 186 | 186 | ||||||||||
| 17 | 17 | ||||||||||
| (1) | (4) | ||||||||||
| Balance at June 30, 2015 | 10,634 | 1,725 | 9 | (379) | (601) | (55) | − | 7,011 | 18,344 | 4,248 | 22,592 |
| Changes from January 1, 2016 to June 30, 2016 | Note 11 |
| Equity attributable to Owners of the Parent | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| (millions of euros) | Total | Non controlling interests |
Total equity |
||||||||
| Balance at December 31, 2015 |
10,650 | 1,731 | 32 | (249) | (1,459) | (87) | − | 6,992 | 17,610 | 3,723 | 21,333 |
| (56) | (84) | ||||||||||
| Adjusted Balance at December 31, 2015 |
10,650 | 1,731 | 32 | (249) | (1,413) | (87) | − | 6,890 | 17,554 | 3,695 | 21,249 |
| Changes in equity during the period: |
|||||||||||
| (166) | (192) | ||||||||||
| 1,726 | 1,860 | ||||||||||
| − | (1,582) | ||||||||||
| 3 | 3 | ||||||||||
| (11) | (11) | ||||||||||
| Balance at June 30, 2016 | 10,650 | 1,731 | 35 | (333) | (538) | (173) | − | 7,734 | 19,106 | 2,221 | 21,327 |
| note (millions of euros) |
1st Half 2016 |
1st Half 2015 Revised |
|---|---|---|
| Cash flows from operating activities: | ||
| Profit (loss) from continuing operations | 1,058 | 115 |
| Adjustments for: | ||
| Depreciation and amortization | 2,047 | 2,130 |
| Impairment losses (reversals) on non-current assets (including investments) | 5 | 4 |
| Net change in deferred tax assets and liabilities | 257 | 3 |
| Losses (gains) realized on disposals of non-current assets (including investments) |
(13) | (279) |
| Share of losses (profits) of associates and joint ventures accounted for using the equity method |
2 | − |
| Change in employee benefits | 40 | 19 |
| Change in inventories | (40) | (54) |
| Change in trade receivables and net amounts due from customers on construction contracts |
(130) | (128) |
| Change in trade payables | (141) | (564) |
| Net change in current income tax receivables/payables | 95 | 132 |
| Net change in miscellaneous receivables/payables and other assets/liabilities | (687) | 390 |
| Cash flows from (used in) operating activities (a) |
2,493 | 1,768 |
| Cash flows from investing activities: | ||
| Purchase of intangible assets 5) |
(709) | (879) |
| Purchase of tangible assets 6) |
(1,397) | (2,251) |
| Total purchase of intangible and tangible assets on an accrual basis (*) | (2,106) | (3,130) |
| Change in amounts due for purchases of intangible and tangible assets | (371) | 637 |
| Total purchase of intangible and tangible assets on a cash basis | (2,477) | (2,493) |
| Acquisition of control in subsidiaries or other businesses, net of cash acquired | (6) | − |
| Acquisitions/disposals of other investments | (3) | (24) |
| Change in financial receivables and other financial assets | 364 | (639) |
| Proceeds from sale that result in a loss of control of subsidiaries or other businesses, net of cash disposed of |
492 | − |
| Proceeds from sale/repayment of intangible, tangible and other non-current assets |
29 | 595 |
| Cash flows from (used in) investing activities (b) |
(1,601) | (2,561) |
| Cash flows from financing activities: | ||
| Change in current financial liabilities and other | (262) | 696 |
| Proceeds from non-current financial liabilities (including current portion) | 2,061 | 3,325 |
| Repayments of non-current financial liabilities (including current portion) | (3,094) | (3,931) |
| Share capital proceeds/reimbursements (including subsidiaries) | − | 186 |
| Dividends paid (*) | (227) | (204) |
| Changes in ownership interests in consolidated subsidiaries | − | 784 |
| Cash flows from (used in) financing activities (c) |
(1,522) | 856 |
| Cash flows from (used in) Discontinued operations/Non-current assets held for 10) |
||
| sale (d) |
(45) | 21 |
| Aggregate cash flows (e=a+b+c+d) |
(675) | 84 |
| Net cash and cash equivalents at beginning of the period (f) |
3,216 | 4,910 |
| Net foreign exchange differences on net cash and cash equivalents (g) |
159 | (106) |
| Net cash and cash equivalents at end of the period (h=e+f+g) |
2,700 | 4,888 |
| (*) of which related parties | ||
| Total purchase of intangible and tangible assets on an accrual basis Dividends paid |
63 − |
69 − |
| (millions of euros) | 1st Half 2016 |
1st Half 2015 Revised |
|---|---|---|
| Income taxes (paid) received | (104) | (33) |
| Interest expense paid | (1,327) | (1,485) |
| Interest income received | 516 | 573 |
| Dividends received | 7 | 2 |
| (millions of euros) | 1st Half 2016 |
1st Half 2015 |
|---|---|---|
| Revised | ||
| Net cash and cash equivalents at beginning of the period | ||
| Cash and cash equivalents - from continuing operations | 3,559 | 4,812 |
| Bank overdrafts repayable on demand – from continuing operations | (441) | (19) |
| Cash and cash equivalents - from Discontinued operations/Non-current assets held for | ||
| sale | 98 | 117 |
| Bank overdrafts repayable on demand – from Discontinued operations/Non-current | ||
| assets held for sale | − | − |
| 3,216 | 4,910 | |
| Net cash and cash equivalents at end of the period | ||
| Cash and cash equivalents - from continuing operations | 2,707 | 4,752 |
| Bank overdrafts repayable on demand – from continuing operations | (7) | (2) |
| Cash and cash equivalents - from Discontinued operations/Non-current assets held for | ||
| sale | − | 138 |
| Bank overdrafts repayable on demand – from Discontinued operations/Non-current | ||
| assets held for sale | − | − |
| 2,700 | 4,888 |
Telecom Italia S.p.A. (the "Parent") and its subsidiaries form the "Telecom Italia Group" or the "Group". Telecom Italia is a joint-stock company (S.p.A.) organized under the laws of the Republic of Italy.
The registered offices of the Parent, Telecom Italia, are located in Milan, Italy at Via Gaetano Negri 1.
The duration of Telecom Italia S.p.A., as stated in the company's bylaws, extends until December 31, 2100.
The Telecom Italia Group operates mainly in Europe, the Mediterranean Basin and South America.
The Group is engaged principally in the communications sector and, particularly, the fixed and mobile national and international telecommunications sector.
The Telecom Italia Group half-year condensed consolidated financial statements at June 30, 2016 have been prepared on a going concern basis (further details are provided in the Note "Accounting policies") and in accordance with the International Financial Reporting Standards issued by the International Accounting Standards Board and endorsed by the European Union (designated as "IFRS"), as well as the laws and regulations in force in Italy.
In particular, the Telecom Italia Group half-year condensed consolidated financial statements at June 30, 2016 have been prepared in accordance with IAS 34 (Interim Financial Reporting) and, as permitted by that standard, do not include all the information that would be required in annual financial statements; accordingly, these financial statements should be read together with the 2015 Telecom Italia Group consolidated financial statements.
For purposes of comparison, the consolidated statement of financial position at December 31, 2015 and the separate consolidated income statements, the consolidated statements of comprehensive income, the consolidated statements of cash flows, as well as the consolidated statements of changes in equity for the first half of 2015.
The Telecom Italia Group half-year condensed consolidated financial statements at June 30, 2016 are expressed in euro (rounded to the nearest million unless otherwise indicated).
Publication of the Telecom Italia Group half-year condensed consolidated financial statements at June 30, 2016 was approved by resolution of the Board of Directors' meeting held on July 26, 2016.
Within the Brazil Business Unit, Tim Brasil's Management recently identified that incorrect accounting entries were made in prior years in connection with the recognition of service revenues from the sale of prepaid traffic.
Such incorrect accounting entries, which were attributable to the business model used in Brazil for recognizing prepaid traffic revenues in non-recent years, resulted in the early recognition of revenues and consequently the underestimation of deferred revenue liabilities for prepaid traffic not yet consumed. The incorrect accounting entries did not have any impact either in terms of net financial position nor on cash and cash equivalents.
In assessing the level of significance of the error for the purposes of the related financial statement presentation in accordance with IAS 8 (Accounting Policies, Changes in Accounting Estimates and Errors), Management also considered US accounting standards and related guidance.
In particular, this analysis indicated that the impact of the error was not material with respect to consolidated results of operations for each of the years ended December 31, 2015, 2014 and 2013 but the correction of the cumulative error as of December 31, 2015 would have a material impact on full-year consolidated results of operations for 2016, if entirely recognized at charge of such year.
In light of the above and for the purposes of the Half-Year Financial Report as of June 30, 2016, the Company's Management decided to revise the comparative financial information as of December 31, 2015 and for the first half of 2015, segment reporting included. In accordance with IAS 1 and IAS 8, the revised consolidated statements of financial position as of January 1, 2015 are also presented.
Impacts of correction of errors are detailed below:
| (millions of euros) | 1st Half | Adjustments | 1st Half |
|---|---|---|---|
| 2015 | 2015 | ||
| Historical | Revised | ||
| (a) | (b) | (a+b) | |
| Revenues | 10,097 | 4 | 10,101 |
| Acquisition of goods and services | (4,374) | 2 | (4,372) |
| Operating profit before depreciation and amortization, capital gains (losses) and impairment reversals (losses) on non-current assets |
|||
| (EBITDA) | 3,633 | 6 | 3,639 |
| Operating profit (loss) (EBIT) | 1,782 | 6 | 1,788 |
| Finance income | 1,579 | 2 | 1,581 |
| Profit (loss) before tax from continuing operations | 302 | 8 | 310 |
| Income tax expense | (193) | (2) | (195) |
| Profit (loss) from continuing operations | 109 | 6 | 115 |
| Profit (loss) for the period | 439 | 6 | 445 |
| Attributable to: | |||
| Owners of the Parent | 29 | 4 | 33 |
| Non-controlling interests | 410 | 2 | 412 |
The correction of errors did not have any impact on the calculation of the Basic and Diluted Earnings Per Share.
| (millions of euros) | 1st Half | Adjustments | 1st Half |
|---|---|---|---|
| 2015 | 2015 | ||
| Historical | Revised | ||
| (a) | (b) | (a+b) | |
| Profit (loss) for the period | 439 | 6 | 445 |
| Exchange differences on translating foreign operations: | |||
| Profit (loss) on translating foreign operations | (389) | 9 | (380) |
| Loss (profit) on translating foreign operations transferred to the Separate Consolidated Income Statements |
(1) | (1) | |
| Income tax effect | − | − | |
| Total comprehensive income (loss) for the period | 282 | 15 | 297 |
| Attributable to: | |||
| Owners of the Parent | (23) | 10 | (13) |
| Non-controlling interests | 305 | 5 | 310 |
| (millions of euros) | 12/31/2015 | 12/31/2015 | 1/1/2015 | 1/1/2015 | ||
|---|---|---|---|---|---|---|
| Historical | Adjustments | Revised | Historical | Adjustments | Revised | |
| (a) | (b) | (a+b) | (a) | (b) | (a+b) | |
| Assets | ||||||
| Non-current assets | ||||||
| Miscellaneous receivables and other | ||||||
| non-current assets | 1,744 | 34 | 1,778 | 1,571 | 43 | 1,614 |
| Current assets | ||||||
| Trade and miscellaneous receivables | ||||||
| and other current assets | 5,110 | 2 | 5,112 | 5,615 | 2 | 5,617 |
| Total Assets | 71,232 | 36 | 71,268 | 71,551 | 45 | 71,596 |
| Equity and Liabilities | ||||||
| Equity | ||||||
| Equity attributable to Owners of the | ||||||
| Parent | 17,610 | (56) | 17,554 | 18,145 | (77) | 18,068 |
| Non-controlling interests | 3,723 | (28) | 3,695 | 3,554 | (38) | 3,516 |
| Total Equity | 21,333 | (84) | 21,249 | 21,699 | (115) | 21,584 |
| Current liabilities | ||||||
| Trade and miscellaneous payables and | ||||||
| other current liabilities | 7,762 | 120 | 7,882 | 8,376 | 160 | 8,536 |
| Total Equity and Liabilities | 71,232 | 36 | 71,268 | 71,551 | 45 | 71,596 |
The increase in the item "Trade and miscellaneous payables and other current liabilities" was mainly attributable to the higher liability for prepaid traffic not yet used recorded to correct the error resulting from the early recognition of that traffic within revenues. In addition, the related changes in indirect and direct taxes have been taken into account and costs for commissions and associated liabilities have also been recalculated.
The correction of errors did not have any impact on the "Aggregate cash flows" of the Telecom Italia Group Consolidated Statements of Cash Flows and, in particular, on the "Cash flows from (used in) operating activities".
The financial statement formats adopted are consistent with those indicated in IAS 1. In particular:
In addition to EBIT or Operating profit (loss), the separate consolidated income statements include the alternative performance measure of EBITDA or Operating profit (loss) before depreciation and amortization, Capital gains (losses) and Impairment reversals (losses) on non-current assets.
In particular, besides EBIT, EBITDA is used by Telecom Italia as the financial target in internal presentations (business plans) and in external presentations (to analysts and investors). It represents a useful unit of measurement for the evaluation of the operating performance of the Group (as a whole and at the Business Unit level). EBIT and EBITDA are calculated as follows:
+/- Share of losses (profits) of associates and joint ventures accounted for using the equity method
+/- Impairment losses (reversals) on non-current assets
+/- Losses (gains) on disposals of non-current assets
EBITDA - Operating profit (loss) before depreciation and amortization, Capital gains (losses) and Impairment reversals (losses) on noncurrent assets
Furthermore, as required by Consob Resolution 15519 of July 27, 2006, in the separate consolidated income statements, income and expenses relating to transactions which by nature do not occur during normal operation (non-recurring transactions) have been specifically identified and their impacts on the main intermediate levels have been shown separately, when they are significant. Specifically, non-recurring income/(expenses) include, for instance: income/expenses arising from the sale of properties, plant and equipment, business segments and investments; expenses stemming from company reorganization and streamlining processes and projects, also in connection with corporate transactions (mergers, spin-offs, etc.); expenses resulting from litigation and regulatory fines and related liabilities; other provisions and related reversals; costs for the settlement of disputes; and impairment losses on goodwill and/or other intangible and tangible assets).
Also in reference to the above Consob resolution, the amounts of the balances or transactions with related parties have been shown separately in the consolidated financial statements.
An operating segment is a component of an entity:
In particular, the operating segments of the Telecom Italia Group are organized according to the relative geographical location for the telecommunications business (Domestic and Brazil).
The Sofora - Telecom Argentina group, which was sold on March 8, 2016, has been recognized under Discontinued operations.
The term "operating segment" is considered synonymous with "Business Unit".
The operating segments of the Telecom Italia Group are as follows:
• Domestic: includes operations in Italy for voice and data services on fixed and mobile networks for final customers (retail) and other operators (wholesale), the operations of the Telecom Italia Sparkle group (International wholesale), the operations of Olivetti (products and services for Information Technology), as well as INWIT S.p.A. (a company operating in the electronic communications infrastructure business) and the units supporting the Domestic sector.
Following the change in Persidera's business mission, the Media Business Unit was incorporated into the Domestic Business Unit as of January 1, 2016. See the section "Financial and Operating Highlights of the Business Units of the Telecom Italia Group – Domestic Business Unit" of the Interim Management Report for more details.
The half-year condensed consolidated financial statements at June 30, 2016 have been prepared on a going concern basis as there is the reasonable expectation that Telecom Italia will continue its operational activities in the foreseeable future (and in any event with a time horizon of more than 12 months).
In particular, the following factors have been taken into consideration:
Based on these factors, the Management believes that, at the present time, there are no elements of uncertainty regarding the Group's ability to continue as a going concern.
The accounting policies and principles of consolidation adopted in the preparation of the half-year condensed consolidated financial statements at June 30, 2016 have been applied on a basis consistent with those used for the annual consolidated financial statements at December 31, 2015, to which reference should be made, except for:
Furthermore, in the half-year condensed consolidated financial statements at June 30, 2016, income taxes for the period of the individual consolidated companies are calculated according to the best possible estimate based on available information and on a reasonable forecast of performance up to the end of the tax period. Conventionally, the income tax liabilities (current and deferred) on the profit for the interim period of the individual consolidated companies are recorded net of advances and tax receivables (excluding receivables for which refunds have been requested) as well as deferred tax assets, and classified as an adjustment to "Deferred tax liabilities"; if the balance between deferred tax assets and deferred tax liabilities is an asset it is conventionally recognized in "Deferred tax assets".
The preparation of the half-year condensed consolidated financial statements at June 30, 2016 and related disclosure requires management to make estimates and assumptions based also on subjective judgments, past experience and hypotheses considered reasonable and realistic in relation to the information known at the time of the estimate. Such estimates have an effect on the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the amount of revenues and costs during the period. Actual results could differ, even significantly, from those estimates owing to possible changes in the factors considered in the determination of such estimates. Estimates are reviewed periodically.
With regard to the most important accounting estimates, please refer to those illustrated in the annual consolidated financial statements at December 31, 2015.
As required by IAS 8 (Accounting Policies, Changes in Accounting Estimates and Errors), the following is a brief description of the IFRS in force from January 1, 2016.
On November 24, 2015, Regulation EC 2015/2173 was issued, applying some minor amendments to IAS 11 (Joint Arrangements) at EU level.
IFRS 11 addresses the accounting for interests in Joint Ventures and Joint Operations. These amendments add new guidance on how to account for the acquisition of an interest in a Joint Operation that constitutes a business (as defined in IFRS 3 - Business Combinations).
These amendments specify the appropriate accounting treatment for such acquisitions.
The adoption of these amendments had no impact on the half-year condensed consolidated financial statements at June 30, 2016.
On December 2, 2015, Regulation EC 2015/2231 was issued, applying some minor amendments to IAS 16 (Property, plant and equipment) and IAS 38 (Intangible assets) at EU level.
IAS 16 and IAS 38 both establish the principle of the expected pattern of consumption of the future economic benefits of an asset as the basis for depreciation and amortization.
The amendment clarifies that the use of revenue-based methods to calculate the depreciation of an asset is not appropriate. For intangible assets, this indication is considered as a relative assumption, that may only be overcome in one of the following circumstances: (i) the right to use an intangible asset is related to the achievement of a set revenue threshold; or (ii) when it can be demonstrated that the generation of the revenues and the use of the economic benefits of the asset are highly correlated.
The adoption of these amendments had no impact on the half-year condensed consolidated financial statements at June 30, 2016.
On December 15, 2015, Regulation EC 2015/2343 was issued, applying several improvements to the IFRS for the 2012-2014 cycle, at EU level. These amendments included:
The adoption of these amendments had no impact on the half-year condensed consolidated financial statements at June 30, 2016.
On December 18, 2015, Regulation EC 2015/2406 was issued, applying some amendments to IAS 1 (Presentation of Financial Statements - Disclosure Initiative) at EU level.
In particular, the amendments, which are part of a wider initiative to improve the presentation and disclosure of financial statements, include updates in the following areas:
The adoption of these amendments had no impact on the half-year condensed consolidated financial statements at June 30, 2016.
There are no new IFRS adopted by the EU that are not yet in force.
At the date of preparation of the accompanying half-year condensed consolidated financial statements, the following new standards and interpretations had been issued by IASB but not yet endorsed by the EU.
| Mandatory application starting from |
|
|---|---|
| Amendments to IAS 12 (Income taxes) – Recognition of Deferred Tax Assets for Unrealized Losses |
1/1/2017 |
| Amendments to IAS 7 (Cash flow statement) - Disclosure Initiative | 1/1/2017 |
| IFRS 9 (Financial Instruments) | 1/1/2018 |
| IFRS 15 (Revenue from Contracts with Customers, including amendments) | 1/1/2018 |
| IFRS 16 (Leases) | 1/1/2019 |
| Amendments to IFRS 10 (Consolidated Financial Statements) and to IAS 28 (Investments in Associates and Joint Ventures): Sale or contribution of assets between an investor and its associate/joint venture |
Deferred application date to be set |
| Clarification on IFRS 15 (Revenue from Contracts with Customers) | 1/1/2018 |
| Amendments to IFRS 2 (Classification and measurement of share-based payment transactions) |
1/1/2018 |
The potential impacts on the consolidated financial statements from application of these amendments are currently being assessed.
The changes in the scope of consolidation at June 30, 2016 compared to December 31, 2015 are listed below.
Entry/merger of subsidiaries into the scope of consolidation:
| Company | Business Unit | Month | |
|---|---|---|---|
| Entry: | |||
| GESTIONE DUE S.r.l. | New acquisition | Domestic | January 2016 |
| GESTIONE IMMOBILI S.r.l. | New acquisition | Domestic | January 2016 |
| REVI IMMOBILI S.r.l. | New acquisition | Domestic | January 2016 |
| Merger: | |||
| TELECOM ITALIA DIGITAL SOLUTIONS S.p.A. | Merged into Olivetti S.p.A. | Domestic | January 2016 |
| EMSA SERVIZI S.p.A. | Merged into Telecom Italia S.p.A. |
Domestic | April 2016 |
| OFI CONSULTING S.r.l. | Merged into Telecom Italia S.p.A. |
Domestic | April 2016 |
Companies exiting the scope of consolidation, already classified as discontinued operations:
| Company | Month | ||
|---|---|---|---|
| Exit: | |||
| MICRO SISTEMAS S.A. | Sold | Sofora – Telecom Argentina Group | March 2016 |
| NORTEL INVERSORA S.A. | Sold | Sofora – Telecom Argentina Group | March 2016 |
| NUCLEO S.A. | Sold | Sofora – Telecom Argentina Group | March 2016 |
| PERSONAL ENVIOS S.A. | Sold | Sofora – Telecom Argentina Group | March 2016 |
| SOFORA TELECOMUNICACIONES S.A. | Sold | Sofora – Telecom Argentina Group | March 2016 |
| TELECOM ARGENTINA S.A. | Sold | Sofora – Telecom Argentina Group | March 2016 |
| TELECOM ARGENTINA USA Inc. | Sold | Sofora – Telecom Argentina Group | March 2016 |
| TELECOM PERSONAL S.A. | Sold | Sofora – Telecom Argentina Group | March 2016 |
In addition to that noted above, the changes in the scope of consolidation at June 30, 2016 compared to June 30, 2015 are listed below:
| Company | Business Unit | Month | |
|---|---|---|---|
| Entry: | |||
| ALFABOOK S.r.l. | New acquisition | Domestic | July 2015 |
| TIM Caring S.r.l. | New company | Domestic | July 2015 |
| TIM REAL ESTATE S.r.l. | New company | Domestic | November 2015 |
| Merger: | |||
| TELECOM ITALIA MEDIA S.p.A. | Merged into Telecom Italia S.p.A. |
Domestic | September 2015 |
The breakdown by number of subsidiaries and associates of the Telecom Italia Group is as follows:
| 6/30/2016 | |||
|---|---|---|---|
| Companies: | Italy | Outside Italy | Total |
| subsidiaries consolidated line-by-line | 26 | 50 | 76 |
| joint ventures accounted for using the equity method | 1 | - | 1 |
| associates accounted for using the equity method | 18 | - | 18 |
| Total companies | 45 | 50 | 95 |
| 12/31/2015 | |||
| Companies: | Italy | Outside Italy | Total |
| subsidiaries consolidated line-by-line(*) | 26 | 58 | 84 |
|---|---|---|---|
| joint ventures accounted for using the equity method | 1 | - | 1 |
| associates accounted for using the equity method | 18 | - | 18 |
| Total companies | 45 | 58 | 103 |
6/30/2015 Companies: Italy Outside Italy Total subsidiaries consolidated line-by-line(*) 24 58 82 joint ventures accounted for using the equity method 1 - 1 associates accounted for using the equity method 18 - 18 Total companies 43 58 101
The breakdown and the changes in Goodwill during the first six months of 2016 were as follows:
| (millions of euros) | 12/31/2015 | 6/30/2016 | |||||
|---|---|---|---|---|---|---|---|
| 28,447 | 29 | 8 | 28,484 | ||||
| 907 | 175 | 1,082 | |||||
| 29 | (29) | − | |||||
| − | − | ||||||
| Total | 29,383 | − | 8 | − | − | 175 | 29,566 |
The following is noted in particular:
With regard to the acquisition of the company Alfabook on July 1, 2015, the goodwill provisionally recognized in 2015, amounting to 4 million euros, was confirmed following the completion of the price allocation process required by IFRS 3.
In accordance with IAS 36, goodwill is not subject to amortization, but is tested for impairment annually or more frequently, whenever specific events or circumstances occur that may indicate an impairment.
At June 30, 2016, Telecom Italia's market capitalization was less than the value of its equity. Accordingly, the Group carried out an impairment test for the Core Domestic Cash Generating Unit. This process did not identify any impairment, as the recoverable amount of the CGU estimated was higher than its carrying amount.
With regard to the other Cash Generating Units, at June 30, 2016 no events were identified that could result in significant changes with respect to their recoverable amount determined for the annual financial statements at December 31, 2015, and it was therefore not considered necessary to conduct a new impairment test.
The value used to determine the recoverable amount of the Core Domestic CGU is the value in use. The estimate of the recoverable amount was made using the same methods as the previous annual impairment test at December 2015, by updating the related inputs (earning flows at June 30, 2016, cost of capital, long-term growth rate, and capital expenditure rate). The analytical forecasts of plan cash flows cover the second half of the 2016-2020 period and are based on the 2016 Budget, the 2017-2018 Plan, and the extrapolation of figures for 2019-2020. Moreover, for the appraisal of the value in use, the plan figures were adjusted according to the expected financial flows approach, on the basis of information reasonably available, when pejorative, in order to give higher weight to observable parameters and to information from external sources which are deemed important from the market operator perspective.
The cost of capital used to discount the future cash flows in the estimate of the value in use has been determined as follows:
Details are provided below of the weighted average cost of capital (WACC rate) used to discount the future cash flows, the equivalent rate before tax, the growth rate used to estimate the remaining value after the explicit forecast period (g rates) and, lastly, the implicit capitalization rate resulting from the difference between the cost of capital, after tax, and the g rate.
| WACC | 6.6% |
|---|---|
| WACC before tax | 8.8% |
| Growth rate beyond the explicit period (g) | 0.5% |
| Capitalization rate (WACC-g) | 8.3% |
| Capex/Revenues, % perpetual | 19% |
The growth rate of the terminal value "g" is within the range of growth rates applied by the analysts who monitor Telecom Italia shares. The level of capital expenditure required to sustain the perpetual generation of cash flows in the period after the explicit forecast period has been taken from the market.
The difference between the value in use and the net carrying amount was in line with the figure indicated in the 2015 financial statements and therefore greater than 4 billion euros.
For the estimate of value in use, simulations were conducted on the results with respect to changes in the relevant rate parameters. Details are provided below of the variables that, when considered individually, are needed to make the recoverable amount of the respective Core Domestic CGU equal to its net carrying amount.
| WACC before tax | 9.5% |
|---|---|
| Capitalization rate (WACC-g) | 9.0% |
| Capex/Revenues, % perpetual | 22% |
Intangible assets with a finite useful life increased by 297 million euros compared to December 31, 2015. Details of the breakdown and movements are as follows:
| (millions of euros) | 12/31/2015 | 6/30/2016 | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 2,070 | 315 | 7 | (597) | − | − | 160 | − | 286 | 2,241 | |
| 2,829 | 23 | (192) | 63 | 240 | 2,963 | |||||
| 83 | 52 | (54) | 3 | 3 | 87 | |||||
| 1,498 | 312 | (1) | 166 | 34 | (523) | 1,486 | ||||
| Total | 6,480 | 702 | 7 | (843) | − | (1) | 392 | 34 | 6 | 6,777 |
Additions in the first six months of 2016 included 147 million euros of internally generated assets (149 million euros in the first six months of 2015).
The changes in financial leasing contracts related entirely to the Brazil Business Unit.
Industrial patents and intellectual property rights at June 30, 2016 essentially consist of applications software purchased outright and user license rights of unlimited duration acquired, and relate to Telecom Italia S.p.A. (1,216 million euros) and the Brazil Business Unit (988 million euros).
Concessions, licenses, trademarks and similar rights at June 30, 2016 mainly refer to:
Other intangible assets with a finite useful life at June 30, 2016 essentially consisted of 73 million euros of capitalized subscriber acquisition costs (SACs) (57 million euros for the Parent and 16 million euros for the Brazil Business Unit), mainly related to commissions for the sales network, for a number of commercial deals that lock in customers for a set period.
Work in progress and advance payments decreased, primarily due to the already mentioned activation of the user rights for the L Band frequencies (1452-1492 MHz).
You are reminded that this item includes the user rights for the 700 MHz frequencies, acquired in 2014 by the Tim Brasil group for a total of 2.9 billion reais. Since the assets require a period of more than 12 months to be ready for use, again in the first half of 2016, borrowing costs of 34 million euros were capitalized, as they were directly attributable to the acquisition. The yearly rate used for the capitalization of borrowing costs is 13.30%. Capitalized borrowing costs in reais have been recorded as a direct reduction of the income statement item "Finance expenses - Interest expenses to banks".
Property, plant and equipment owned increased by 552 million euros compared to December 31, 2015. The breakdown and movements are as follows:
| (millions of euros) | 12/31/2015 | 6/30/2016 | ||||||
|---|---|---|---|---|---|---|---|---|
| 171 | 16 | 2 | 10 | 199 | ||||
| 444 | 79 | (24) | 3 | 22 | 524 | |||
| 10,909 | 771 | (1,023) | (7) | 360 | 346 | 11,356 | ||
| 41 | 4 | (8) | 2 | 39 | ||||
| 378 | 18 | (74) | (2) | 22 | 44 | 386 | ||
| 716 | 377 | (5) | (1) | 26 | (406) | 707 | ||
| Total | 12,659 | 1,265 | (1,129) | (5) | (10) | 413 | 18 | 13,211 |
Additions in the first six months of 2016 included 178 million euros of internally generated assets (165 million euros in the first six months of 2015).
With regard to the Real Estate Project initiated at the end of 2014, during the first half of 2016 two more properties plus the related land, previously leased under financial leases, were purchased for a total outlay of 114 million euros; the purchase resulted in additions of 77 million euros under the item "Buildings (civil and industrial)" and of 13 million euros under the item "Land". In addition, the column "Other changes" includes 25 million euros for the reclassification of the remaining value of these properties and the related improvements made from the assets held under finance leases.
Assets held under finance leases increased by 90 million euros compared to December 31, 2015. The breakdown and movements are as follows:
| (millions of euros) | 12/31/2015 | 6/30/2016 | |||||
|---|---|---|---|---|---|---|---|
| 16 | 16 | ||||||
| 1,880 | 7 | 32 | (62) | (15) | 1,842 | ||
| 284 | 18 | (8) | 57 | 351 | |||
| 7 | 66 | (5) | 1 | 69 | |||
| 21 | 9 | (10) | 20 | ||||
| Total | 2,208 | 16 | 116 | (75) | 57 | (24) | 2,298 |
The additions consisted of improvements and incremental expenses incurred for movable and immovable third-party assets used on the basis of finance lease agreements.
The item Buildings (civil and industrial) includes buildings under long rent contracts and related building adaptations, almost exclusively attributable to Telecom Italia S.p.A..
With regard to the Real Estate Project, the following took place in the first half of 2016:
The item Plant and equipment includes the recognition of the value of the telecommunications towers sold by the Tim Brasil group to American Tower do Brasil and subsequently repurchased in the form of finance lease; the sale of the fourth tranche, which took place during the first half of 2016, resulted in leasebacks amounting to 74 million reais (around 18 million euros).
The item Other includes the effects of the renegotiation of the operating leases for motor vehicles, which resulted in their recognition as finance leases. In same way as described above, this reclassification also resulted in an overall impact on the balance sheet at June 30, 2016 of 66 million euros in terms of higher fixed assets and related payables for financial leases.
| (millions of euros) | 6/30/2016 | 12/31/2015 |
|---|---|---|
| Tiglio I | 7 | 8 |
| NordCom | 5 | 4 |
| W.A.Y. | 3 | 3 |
| Other | 2 | 3 |
| Total Associates | 17 | 18 |
| Alfiere | 22 | 23 |
| Total Joint Ventures | 22 | 23 |
| Total investments accounted for using the equity method | 39 | 41 |
The list of investments accounted for using the equity method is presented in the Note "List of companies of the Telecom Italia Group".
| (millions of euros) | 6/30/2016 | 12/31/2015 |
|---|---|---|
| Assicurazioni Generali | 2 | 3 |
| Fin.Priv. | 11 | 19 |
| Northgate Telecom Innovations Partners L.P. | 11 | 9 |
| Other | 14 | 14 |
| Total | 38 | 45 |
Telecom Italia Group does not hold investments in structured entities.
| (millions of euros) | 6/30/2016 | 12/31/2015 |
|---|---|---|
| Non-current financial assets | ||
| Securities, financial receivables and other non-current financial assets | ||
| Securities other than investments | 1 | 3 |
| Financial receivables for lease contracts | 79 | 70 |
| Hedging derivatives relating to hedged items classified as non-current assets/liabilities of a financial nature |
2,949 | 2,755 |
| Receivables from employees | 46 | 39 |
| Non-hedging derivatives | 44 | 115 |
| Other financial receivables | 10 | 7 |
| Total non-current financial assets (a) |
3,129 | 2,989 |
| Current financial assets | ||
| Securities other than investments | ||
| Held for trading | 138 | 491 |
| Held-to-maturity | − | − |
| Available-for-sale | 945 | 997 |
| 1,083 | 1,488 | |
| Financial receivables and other current financial assets | ||
| Liquid assets with banks, financial institutions and post offices (with maturity over 3 months) |
− | − |
| Receivables from employees | 14 | 14 |
| Financial receivables for lease contracts | 33 | 35 |
| Hedging derivatives relating to hedged items classified as current assets/liabilities of a financial nature |
121 | 152 |
| Non-hedging derivatives | 77 | 150 |
| Other short-term financial receivables | 2 | 1 |
| 247 | 352 | |
| Cash and cash equivalents | 2,707 | 3,559 |
| Total current financial assets (b) |
4,037 | 5,399 |
| Financial assets relating to Discontinued operations/Non-current assets held for sale (c) |
− | 227 |
| Total non-current and current financial assets (a+b+c) |
7,166 | 8,615 |
Hedging derivatives relating to hedged items classified as non-current assets/liabilities of a financial nature refer mainly to the mark-to-market spot valuation component of the hedging derivatives, whereas Hedging derivatives relating to hedged items classified as current assets/liabilities of a financial nature mainly consist of accrued income on derivative contracts.
Non-hedging derivatives consist of the mark-to-market spot valuation component of the non-hedging derivatives of the Brazil Business Unit and of 55 million euros for the value of the embedded option in the mandatory convertible bond of 1.3 billion euros issued by Telecom Italia Finance S.A. ("Guaranteed Subordinated Mandatory Convertible Bonds due 2016 convertible into ordinary shares of Telecom Italia S.p.A."), which at December 31, 2015 was instead recorded under current financial liabilities (565 million euros). At June 30, 2016, the measurement of the embedded option resulted in the recognition in the income statement of an income of 620 million euros. Further details are provided in the Note "Derivatives".
Securities other than investments included in current assets relate to:
Cash and cash equivalents decreased by 852 million euros compared to December 31, 2015 and were broken down as follows:
| (millions of euros) | 6/30/2016 | 12/31/2015 |
|---|---|---|
| Liquid assets with banks, financial institutions and post offices | 1,789 | 2,048 |
| Checks, cash and other receivables and deposits for cash flexibility | 1 | 1 |
| Securities other than investments (due within 3 months) | 917 | 1,510 |
| Total | 2,707 | 3,559 |
The different technical forms used for the investment of liquidity as of June 30, 2016 can be analyzed as follows:
Securities other than investments (due within 3 months) included 916 million euros (1,414 million euros at December 31, 2015) of Brazilian bank certificates of deposit (Certificado de Depósito Bancário) held by the Brazil Business Unit with premier local banking and financial institutions.
Trade and miscellaneous receivables and other current assets increased by 571 million euros compared to December 31, 2015 and were broken down as follows:
| (millions of euros) | 6/30/2016 | 12/31/2015 |
|---|---|---|
| Amounts due on construction contracts | 38 | 42 |
| Trade receivables: | ||
| Receivables from customers | 2,951 | 2,893 |
| Receivables from other telecommunications operators |
827 | 767 |
| 3,778 | 3,660 | |
| Miscellaneous receivables and other current assets: |
||
| Other receivables | 1,006 | 816 |
| Trade and miscellaneous prepaid expenses | 861 | 594 |
| 1,867 | 1,410 | |
| Total | 5,683 | 5,112 |
Trade receivables amount to 3,778 million euros (3,660 million euros at December 31, 2015) and are net of the provision for bad debts of 631 million euros (614 million euros at December 31, 2015). Trade receivables mainly related to Telecom Italia S.p.A. (2,528 million euros) and the Brazil Business Unit (780 million euros). They also included 87 million euros (107 million euros at December 31, 2015) of medium/long-term receivables, principally in respect of agreements for the sale of Indefeasible Rights
Other receivables amounted to 1,006 million euros (816 million euros at December 31, 2015) and were net of a provision for bad debts of 91 million euros (93 million euros at December 31, 2015). Details are as follows:
| (millions of euros) | 6/30/2016 | 12/31/2015 |
|---|---|---|
| Advances to suppliers | 55 | 24 |
| Receivables from employees | 31 | 24 |
| Tax receivables | 307 | 300 |
| Receivables for grants from the government and public entities | 296 | 233 |
| Sundry receivables | 317 | 235 |
| Total | 1,006 | 816 |
Tax receivables included, among others, 278 million euros relating to the Brazil Business Unit, largely with reference to local indirect taxes, and 13 million euros relating to Telecom Italia S.p.A., partly represented by credits resulting from tax returns, other taxes and also the VAT receivable on the purchase of cars and related accessories for which refunds were requested under Italian Legislative Decree 258/2006, converted with amendments by Italian Law 278/2006.
of Use (IRU).
Sundry receivables mainly included:
Trade and miscellaneous prepaid expenses mainly related to building leases, rent and maintenance payments, as well as the deferral of costs related to contracts for the activation of telecommunications services. In particular, trade and miscellaneous prepaid expenses included 627 million euros attributable to the Parent Telecom Italia and mainly related to: the deferral of costs connected to the activation of new contracts (385 million euros), building leases (33 million euros), rent and maintenance (82 million euros), insurance premiums (18 million euros).
On March 8, 2016, following the approval by the Enacom, the Argentinian communications regulatory authority, the Telecom Italia Group completed the sale of the entire remaining interest in Sofora - Telecom Argentina.
The total amount from entire transaction was over 960 million USD, including:
— • —
A summary is provided below of the income statement impacts from the Sofora - Telecom Argentina group and its sale; the figures for the first half of 2016 have been translated at the average exchange rate for the period January 1 – March 8 (15.7981 pesos per euro), whereas the figures for the first half of 2015 have been translated at the related average exchange rate (9.83978 pesos per euro).
| (millions of euros) | 1/1–3/8 | 1st Half |
|---|---|---|
| 2016 | 2015 | |
| Income statement effects from Discontinued operations/Non-current assets held for sale: |
||
| Revenues | 504 | 1,880 |
| Other income | 1 | 1 |
| Operating expenses | (372) | (1,361) |
| Gains/(losses) on disposal of non-current assets | − | − |
| Operating profit (loss) (EBIT) | 133 | 520 |
| Finance income (expenses), net | (42) | (7) |
| Profit (loss) before tax from Discontinued operations/Non-current assets held for sale |
91 | 513 |
| Income tax expense | (32) | (179) |
| Profit (loss) after tax from Discontinued operations/Non-current assets held for sale (a) |
59 | 334 |
| Other minor entries (b) |
(4) | |
| Profit (loss) from Discontinued operations/Non-current assets held for (c= sale a+b) |
59 | 330 |
| Income statement effects on the selling entities: | ||
| Net gains on disposal | 307 | |
| Transfer to the separate consolidated income statement of the Reserve for exchange differences on translating foreign operations |
(304) | |
| Income tax expense relating to the disposal | (15) | |
| (d) | (12) | |
| Profit (loss) from Discontinued operations/Non-current assets held for sale (c+d) |
47 | 330 |
| Attributable to: | ||
| Owners of the Parent | (3) | 48 |
| Non-controlling interests | 50 | 282 |
The earnings per share from Discontinued operations/Non-current assets held for sale, for the first half of 2016 and the first half of 2015 are shown in the table below:
| (euros) | 1/1–3/8 | 1st Half |
|---|---|---|
| 2016 | 2015 | |
| Earnings per share from Discontinued operations/Non-current assets held for sale |
||
| (Basic=Diluted) | ||
| Ordinary Share | 0.00 | 0.02 |
| Savings Share | 0.00 | 0.02 |
— • —
Telecom Italia Group Half-year Condensed Consolidated Financial Statements at June 30, 2016
Within the consolidated statements of cash flows the net impacts, expressed in terms of contribution to the consolidation, of the "Discontinued operations/Non-current assets held for sale" are broken down as follows:
| (millions of euros) | 1/1–3/8 2016 |
1st Half 2015 |
|---|---|---|
| Discontinued operations/Non-current assets held for sale: | ||
| Cash flows from (used in) operating activities | 130 | 388 |
| Cash flows from (used in) investing activities | (117) | (541) |
| Cash flows from (used in) financing activities | (58) | 174 |
| Total | (45) | 21 |
| (millions of euros) | 6/30/2016 | 12/31/2015 |
|---|---|---|
| Equity attributable to owners of the Parent | 19,106 | 17,554 |
| Non-controlling interests | 2,221 | 3,695 |
| Total | 21,327 | 21,249 |
The breakdown of Equity attributable to Owners of the Parent is provided below:
| (millions of euros) | 6/30/2016 | 12/31/2015 | ||
|---|---|---|---|---|
| Share capital | 10,650 | 10,650 | ||
| Additional Paid-in capital | 1,731 | 1,731 | ||
| Other reserves and retained earnings (accumulated losses), including profit (loss) for the period |
6,725 | 5,173 | ||
| Reserve for available-for-sale financial assets | 35 | 32 | ||
| Reserve for cash flow hedges | (333) | (249) | ||
| Reserve for exchange differences on translating foreign operations | (538) | (1,413) | ||
| Reserve for remeasurements of employee defined benefit plans (IAS 19) |
(173) | (87) | ||
| Share of other profits (losses) of associates and joint ventures accounted for using the equity method |
− | − | ||
| Sundry reserves and retained earnings (accumulated losses), including profit (loss) for the period |
7,734 | 6,890 | ||
| Total | 19,106 | 17,554 |
On the basis of the resolution passed by the Shareholders' Meeting held on May 25, 2016, the loss for the year 2015 reported in the financial statements of the Parent Telecom Italia S.p.A. was covered by using retained earnings (363 million euros) and reserves (93 million euros).
A total of 166 million euros was withdrawn from reserves to pay a preferred dividend to Savings Shareholders of 0.0275 euros for each savings share, gross of withholdings required by law.
Movements in Share Capital during the first half of 2016, amounting to 10,650 million euros, and already net of treasury shares of 90 million euros, are shown in the tables below:
| (number of shares) | at 12/31/2015 | Share issues | at 6/30/2016 | % of share capital |
|
|---|---|---|---|---|---|
| Ordinary shares issued | (a) | 13,499,911,771 | − | 13,499,911,771 | 69.13% |
| less: treasury shares | (b) | (163,754,388) | − | (163,754,388) | |
| Ordinary shares outstanding | (c) | 13,336,157,383 | − | 13,336,157,383 | |
| Savings shares issued and outstanding |
(d) | 6,027,791,699 | − | 6,027,791,699 | 30.87% |
| Total Telecom Italia S.p.A. shares issued |
(a+d) | 19,527,703,470 | − | 19,527,703,470 | 100.00% |
| Total Telecom Italia S.p.A. shares outstanding |
(c+d) | 19,363,949,082 | − | 19,363,949,082 |
| (millions of euros) | Share capital at 12/31/2015 |
Change in share capital |
Share capital at 6/30/2016 |
|
|---|---|---|---|---|
| Ordinary shares issued | (a) | 7,425 | − | 7,425 |
| less: treasury shares | (b) | (90) | − | (90) |
| Ordinary shares outstanding | (c) | 7,335 | − | 7,335 |
| Savings shares issued and outstanding | (d) | 3,315 | − | 3,315 |
| Total Telecom Italia S.p.A. shares capital issued | (a+d) | 10,740 | − | 10,740 |
| Total Telecom Italia S.p.A. shares capital outstanding | (c+d) | 10,650 | − | 10,650 |
Details of "Future potential changes in share capital" are presented in the Note "Earnings per share".
Non-current and current financial liabilities (gross financial debt) were broken down as follows:
| (millions of euros) | 6/30/2016 | 12/31/2015 | |
|---|---|---|---|
| Financial payables (medium/long-term): | |||
| Bonds | 18,875 | 18,081 | |
| Convertible bonds | 1,817 | 1,802 | |
| Amounts due to banks | 5,398 | 5,778 | |
| Other financial payables | 338 | 991 | |
| 26,428 | 26,652 | ||
| Finance lease liabilities (medium/long-term) | 2,391 | 2,271 | |
| Other financial liabilities (medium/long-term): | |||
| Hedging derivatives relating to hedged items classified as non-current assets/liabilities of a financial nature |
2,190 | 1,595 | |
| Non-hedging derivatives | 18 | − | |
| Other liabilities | − | − | |
| 2,208 | 1,595 | ||
| Total non-current financial liabilities | (a) | 31,027 | 30,518 |
| Financial payables (short-term): | |||
| Bonds | 870 | 2,318 | |
| Convertible bonds | 1,376 | 1,363 | |
| Amounts due to banks | 1,483 | 1,482 | |
| Other financial payables | 217 | 233 | |
| 3,946 | 5,396 | ||
| Finance lease liabilities (short-term) | 167 | 153 | |
| Other financial liabilities (short-term): | |||
| Hedging derivatives relating to hedged items classified as current assets/liabilities of a financial nature |
77 | 84 | |
| Non-hedging derivatives | 19 | 591 | |
| Other liabilities | − | − | |
| 96 | 675 | ||
| Total current financial liabilities | (b) | 4,209 | 6,224 |
| Financial liabilities directly associated with Discontinued operations/Non-current assets held for sale |
(c) | − | 348 |
| Total Financial liabilities (Gross financial debt) | (a+b+c) | 35,236 | 37,090 |
| 6/30/2016 12/31/2015 |
||||
|---|---|---|---|---|
| (millions of foreign currency) |
(millions of euros) | (millions of foreign currency) |
(millions of euros) | |
| USD | 7,579 | 6,826 | 8,463 | 7,774 |
| GBP | 2,003 | 2,424 | 2,041 | 2,781 |
| BRL | 6,460 | 1,813 | 6,442 | 1,515 |
| JPY | 20,855 | 183 | 20,036 | 153 |
| EURO | 23,990 | 24,519 | ||
| Total excluding Discontinued Operations |
35,236 | 36,742 | ||
| Discontinued operations | − | 348 | ||
| Total | 35,236 | 37,090 |
The breakdown of gross financial debt by effective interest rate bracket, excluding the effect of any hedging instruments, is provided below:
| (millions of euros) | 6/30/2016 | 12/31/2015 |
|---|---|---|
| Up to 2.5% | 5,740 | 7,165 |
| From 2.5% to 5% | 8,204 | 6,536 |
| From 5% to 7.5% | 13,785 | 14,719 |
| From 7.5% to 10% | 3,786 | 4,542 |
| Over 10% | 556 | 483 |
| Accruals/deferrals, MTM and derivatives | 3,165 | 3,297 |
| Total excluding Discontinued Operations | 35,236 | 36,742 |
| Discontinued operations | − | 348 |
| Total | 35,236 | 37,090 |
Following the use of derivative hedging instruments, on the other hand, the gross financial debt by nominal interest rate bracket is:
| (millions of euros) | 6/30/2016 | 12/31/2015 |
|---|---|---|
| Up to 2.5% | 10,672 | 9,835 |
| From 2.5% to 5% | 7,723 | 6,760 |
| From 5% to 7.5% | 10,191 | 12,617 |
| From 7.5% to 10% | 1,396 | 2,371 |
| Over 10% | 2,089 | 1,862 |
| Accruals/deferrals, MTM and derivatives | 3,165 | 3,297 |
| Total excluding Discontinued Operations | 35,236 | 36,742 |
| Discontinued operations | − | 348 |
| Total | 35,236 | 37,090 |
The maturities of financial liabilities according to the expected nominal repayment amount, as defined by contract, are the following:
| Details of the maturities of financial liabilities – at nominal repayment amount: | ||
|---|---|---|
| ----------------------------------------------------------------------------------- | -- | -- |
| maturing by 6/30 of the year: | ||||||||
|---|---|---|---|---|---|---|---|---|
| (millions of euros) | 2017 | 2018 | 2019 | 2020 | 2021 | After 2021 |
Total | |
| Bonds (*) | 545 | 2,738 | 3,127 | 719 | 1,111 | 12,926 | 21,166 | |
| Loans and other financial liabilities | 1,113 | 537 | 1,936 | 1,392 | 328 | 952 | 6,258 | |
| Finance lease liabilities | 124 | 101 | 91 | 86 | 86 | 2,019 | 2,507 | |
| Total | 1,782 | 3,376 | 5,154 | 2,197 | 1,525 | 15,897 | 29,931 | |
| Current financial liabilities | 587 | − | − | − | − | − | 587 | |
| Total | 2,369 | 3,376 | 5,154 | 2,197 | 1,525 | 15,897 | 30,518 |
(*) With regard to the Mandatory Convertible Bond issued at the end of 2013, and maturing in 2016, classified under "Convertible bonds", the cash repayment has not been considered because its settlement will take place together with the mandatory conversion into Telecom Italia S.p.A. ordinary shares.
| (millions of euros) | 6/30/2016 | 12/31/2015 |
|---|---|---|
| Non-current portion | 18,875 | 18,081 |
| Current portion | 870 | 2,318 |
| Total carrying amount | 19,745 | 20,399 |
| Fair value adjustment and measurements at amortized cost | (579) | (752) |
| Total nominal repayment amount | 19,166 | 19,647 |
This item was broken down as follows:
| (millions of euros) | 6/30/2016 | 12/31/2015 |
|---|---|---|
| Non-current portion | 1,817 | 1,802 |
| Current portion | 1,376 | 1,363 |
| Total carrying amount | 3,193 | 3,165 |
| Fair value adjustment and measurements at amortized cost | 107 | 135 |
| Total nominal repayment amount (*) | 3,300 | 3,300 |
(*) For the Mandatory Convertible Bond, the repayment on maturity will take place upon delivery of Telecom Italia S.p.A. ordinary shares.
The nominal repayment amount of the bonds and convertible bonds totaled 22,466 million euros and was down 481 million euros compared to December 31, 2015 (22,947 million euros), as a result of the new issues and repayments in the first half of 2016.
The following table lists the bonds issued by companies of the Telecom Italia Group, by issuing company, expressed at the nominal repayment amount, net of bond repurchases, and also at market value:
| Currency | Amount | Nominal repayment amount |
Coupon | Issue date Maturity date | Issue price | Market price at 6/30/16 |
Market value at 6/30/16 |
|---|---|---|---|---|---|---|---|
(a) Weighted average issue price for bonds issued with more than one tranche.
(b) Reserved for employees.
(c) Mandatory Convertible Bond.
(d) Bond convertible into newly-issued Telecom Italia S.p.A. ordinary treasury shares.
(e) Net of the securities bought back by Telecom Italia S.p.A. on July 20, 2015.
The regulations and/or Offering Circulars relating to the bonds of the Telecom Italia Group described above are available on the corporate website www.telecomitalia.com.
| (millions of original currency) | Currency | Amount | Issue date |
|---|---|---|---|
| Telecom Italia S.p.A. 750 million euros 3.625% maturing 1/19/2024 | Euro | 750 | 1/20/2016 |
| Telecom Italia S.p.A. 1,000 million euros 3.625% maturing 5/25/2026 | Euro | 1,000 | 5/25/2016 |
| (millions of original currency) | Currency | Amount | Repayment date |
|---|---|---|---|
| Telecom Italia S.p.A. 663 million euros 5.125% (1) | Euro | 663 | 1/25/2016 |
| Telecom Italia S.p.A. 708 million euros 8.250% (2) | Euro | 708 | 3/21/2016 |
| Telecom Italia S.p.A. 400 million euros, Euribor 3M+ 0.79% | Euro | 400 | 6/7/2016 |
(1) Net of buybacks by the Company of 337 million euros during 2014 and 2015.
(2) Net of buybacks by the Company of 142 million euros during 2014.
| Bond Name | Outstanding nominal | Repurchased | Buyback price | Buyback date |
|---|---|---|---|---|
| amount prior to the | nominal | |||
| buyback | amount | |||
| (GBP) | ||||
| (GBP) | ||||
| Telecom Italia S.p.A. - 400 million British pounds, | ||||
| maturing May 2023, coupon 5.875% | 400,000,000 | 25,000,000 | 111.000% | 6/29/2016 |
Medium/long-term amounts due to banks of 5,398 million euros (5,778 million euros at December 31, 2015) decreased by 380 million euros. Short-term amounts due to banks totaled 1,483 million euros (1,482 million euros at December 31, 2015) and included 1,004 million euros of the current portion of medium/long-term amounts due to banks.
Medium/long-term other financial payables amounted to 338 million euros (991 million euros at December 31, 2015) and decreased by 653 million euros. They included:
Short-term other financial payables amounted to 217 million euros (233 million euros at December 31, 2015), down 16 million euros. They included 107 million euros of the current portion of the medium/long-term other financial payables, of which 93 million euros relating to the remaining payable from the loan taken out by Telecom Italia S.p.A. with the Ministry of Economic Development for the purchase of the rights of use for the 800, 1800 and 2600 MHz frequencies due in October 2016.
Medium/long-term finance lease liabilities totaled 2,391 million euros (2,271 million euros at December 31, 2015) and mainly related to property leases accounted for using the financial method established by IAS 17.
Short-term finance lease liabilities amounted to 167 million euros (153 million euros at December 31, 2015).
Hedging derivatives relating to items classified as non-current liabilities of a financial nature amounted to 2,190 million euros (1,595 million euros at December 31, 2015). Hedging derivatives relating to items classified as current liabilities of a financial nature totaled 77 million euros (84 million euros at December 31, 2015).
Non-hedging derivatives classified under non-current financial liabilities totaled 18 million euros (zero at December 31, 2015), while non-hedging derivatives classified under current financial liabilities amounted to 19 million euros (591 million euros at December 31, 2015, of which 565 million euros relating to the value of the embedded option in the mandatory convertible bond of 1.3 billion euros issued by Telecom Italia Finance S.A. – "Guaranteed Subordinated Mandatory Convertible Bonds due 2016 convertible into ordinary shares of Telecom Italia S.p.A."). These include the measurement of derivatives which, although put into place for hedging purposes, do not possess the formal requisites to be considered as such under IFRS.
The bonds issued by the Telecom Italia Group do not contain financial covenants (e.g. ratios such as Debt/EBITDA, EBITDA/Interest, etc.) or clauses that would force the early redemption of the bonds in relation to events other than the insolvency of the Telecom Italia Group. Furthermore, the repayment of the bonds and the payment of interest are not covered by specific guarantees nor are there commitments provided relative to the assumption of future guarantees, except for the full and unconditional guarantees provided by Telecom Italia S.p.A. for the bonds issued by Telecom Italia Finance S.A. and Telecom Italia Capital S.A..
Since these bonds have been placed principally with institutional investors in major world capital markets (Euromarket and the U.S.A.), the terms which regulate the bonds are in line with market practice for similar transactions effected on these same markets. Consequently, for example, there are commitments not to use the company's assets as collateral for loans ("negative pledges").
With regard to the loans taken out by Telecom Italia S.p.A. ("Telecom Italia") with the European Investment Bank ("EIB"), at June 30, 2016, the nominal amount of outstanding loans amounted to 2,550 million euros, of which 1,100 million euros at direct risk and 1,450 million euros secured.
EIB loans not secured by bank guarantees for a nominal amount equal to 1,100 million euros need to apply the following covenants:
EIB loans secured by banks or entities approved by the EIB for a total nominal amount of 1,450 million euros, and direct risk loans, respectively for 300 million euros, signed on July 30, 2014 and 500 million euros, signed on December 14, 2015, must apply the following covenants:
• "Inclusion clause", covering a total of 1,650 million euros of loans, under which, in the event Telecom Italia commits to uphold financial covenants in other loan contracts (and even more restrictive clauses for 2014 and 2015 direct risk loans, including, for instance, cross default clauses and commitments restricting the sale of goods) that are not present in or are stricter than those granted to the EIB, the EIB will have the right – if, in its reasonable opinion, it considers that such changes may have a negative impact on Telecom Italia's financial capacity – to request the provision of guarantees or the modification of the loan contract in order to establish an equivalent provision in favor of the EIB;
• "Network Event", covering a total of 1,350 million euros of loans, under which, in the event of the disposal of the entire fixed network or of a substantial part (in any case more than half in quantitative terms) to third parties or in the event of disposal of the controlling interest in the company in which the network or a substantial part of it has previously been transferred, Telecom Italia must immediately inform EIB, which shall have the option of requiring the establishment of guarantees or amendment of the loan contract or an alternative solution.
The loan agreements of Telecom Italia S.p.A. do not contain financial covenants (e.g. ratios such as Debt/EBITDA, EBITDA/Interests, etc.) which would oblige the Company to repay the outstanding loan if the covenants are not observed.
The loan agreements contain the usual other types of covenants, including the commitment not to use the Company's assets as collateral for loans (negative pledges), the commitment not to change the business purpose or sell the assets of the Company unless specific conditions exist (e.g. the sale takes place at fair market value). Covenants with basically the same content are also found in the export credit loan agreement.
In the Loan Agreements and the Bonds, Telecom Italia is required to provide notification of change of control. Identification of the occurrence of a change of control and the applicable consequences – including the establishment of guarantees or the early repayment of the amount paid and the cancellation of the commitment in the absence of agreements to the contrary – are specifically covered in the individual agreements.
In addition, the outstanding loans generally contain a commitment by Telecom Italia, whose breach is an Event of Default, not to implement mergers, demergers or transfer of business, involving entities outside the Group. Such Event of Default may entail, upon request of the Lender, the early redemption of the drawn amounts and/or the annulment of the undrawn commitment amounts.
In the documentation of the loans granted to certain companies of the Tim Brasil group, the companies must generally respect certain financial ratios (e.g. capitalization ratios, ratios for servicing debt and debt ratios) as well as the usual other covenants, under pain of a request for the early repayment of the loan.
Finally, as of June 30, 2016, no covenant, negative pledge clause or other clause relating to the abovedescribed debt position, has in any way been breached or violated.
The following table shows the composition and the drawdown of the committed credit lines available at June 30, 2016:
| (billions of euros) | 6/30/2016 | 12/31/2015 | ||
|---|---|---|---|---|
| Agreed | Drawn down | Agreed | Drawn down | |
| Revolving Credit Facility – expiring May 2019 | 4.0 | - | 4.0 | - |
| Revolving Credit Facility – expiring March 2020 | 3.0 | - | 3.0 | - |
| Total | 7.0 | - | 7.0 | - |
Telecom Italia has two syndicated Revolving Credit Facilities for amounts of 4 billion euros and 3 billion euros expiring May 24, 2019 and March 25, 2020 respectively, both not yet drawn down. The beneficial changes to the economic terms of the Revolving Credit Facilities took effect from January 4, 2016, together with the two-year extension to those facilities.
Telecom Italia also has access to:
• a bilateral Term Loan from Banca Regionale Europea expiring July 2019 for 200 million euros, drawn down for the full amount;
At June 30, 2016, the three rating agencies — Standard & Poor's, Moody's and Fitch Ratings — rated Telecom Italia as follows:
| Rating | Outlook | |
|---|---|---|
| STANDARD & POOR'S | BB+ | Stable |
| MOODY'S | Ba1 | Negative |
| FITCH RATINGS | BBB- | Stable |
The following table shows the net financial debt at June 30, 2016 and December 31, 2015, calculated in accordance with the criteria indicated in the "Recommendations for the Consistent Implementation of the European Commission Regulation on Prospectuses", issued on February 10, 2005 by the European Securities & Markets Authority (ESMA), and adopted by Consob.
For the purpose of determining such figure, the amount of financial liabilities has been adjusted by the effect of the relative hedging derivatives recorded in assets and the receivables arising from financial subleasing.
This table also shows the reconciliation of net financial debt determined according to the criteria indicated by ESMA and net financial debt calculated according to the criteria of the Telecom Italia Group.
| (millions of euros) | 6/30/2016 | 12/31/2015 | |
|---|---|---|---|
| Non-current financial liabilities | 31,027 | 30,518 | |
| Current financial liabilities | 4,209 | 6,224 | |
| Financial liabilities directly associated with Discontinued operations/Non-current assets held for sale |
− | 348 | |
| Total Gross financial debt | (a) | 35,236 | 37,090 |
| Non-current financial assets (°) | |||
| Non-current financial receivables for lease contract | (79) | (70) | |
| Non-current hedging derivatives | (2,949) | (2,755) | |
| (b) | (3,028) | (2,825) | |
| Current financial assets | |||
| Securities other than investments | (1,083) | (1,488) | |
| Financial receivables and other current financial assets | (247) | (352) | |
| Cash and cash equivalents | (2,707) | (3,559) | |
| Financial assets relating to Discontinued operations/Non-current assets held for sale |
− | (227) | |
| (c) | (4,037) | (5,626) | |
| Net financial debt as per Consob communication DEM/6064293/2006 (ESMA) |
(d=a+b+c) | 28,171 | 28,639 |
| Non-current financial assets (°) | |||
| Securities other than investments | (1) | (3) | |
| Other financial receivables and other non-current financial assets | (100) | (161) | |
| (e) | (101) | (164) | |
| Net financial debt(*) | (f=d+e) | 28,070 | 28,475 |
| Reversal of fair value measurement of derivatives and related financial assets/liabilities |
(g) | (556) | (1,197) |
| Adjusted net financial debt | (f+g) | 27,514 | 27,278 |
(°) At June 30, 2016 and at December 31, 2015, "Non-current financial assets" (b+e) amounted to 3,129 million euros and 2,989 million euros, respectively.
(*) For details of the effects of related party transactions on net financial debt, see the specific table in the Note "Related party transactions".
Derivative financial instruments are used by the Telecom Italia Group to hedge its exposure to foreign exchange rate risk, to manage interest rate risk and to diversify the parameters of debt so that costs and volatility can be reduced to within predetermined operational limits.
Derivative financial instruments in place at June 30, 2016 are principally used to manage debt positions. They include interest rate swaps (IRSs) to reduce interest rate exposure on fixed-rate and variable-rate bank loans and bonds, as well as cross currency and interest rate swaps (CCIRSs), and currency forwards to convert the loans/receivables secured in currencies different from the functional currencies of the various Group companies.
IRS transactions, provide for or may entail, at specified maturity dates, the exchange of flows of interest, calculated on the notional amount, at the agreed fixed or variable rates.
The same also applies to CCIRS transactions which, in addition to the settlement of periodic interest flows, may provide for the exchange of principal, in the respective currencies of denomination, at maturity and possibly spot.
| Type (millions of euros) |
Hedged risk | Notional amount at 6/30/2016 |
Notional amount at 12/31/2015 |
Spot (*) Mark-to Market (Clean Price) at 6/30/2016 |
Spot* Mark-to Market (Clean Price) at 12/31/2015 |
|---|---|---|---|---|---|
| Interest rate swaps | Interest rate risk | 3,239 | 2,889 | 112 | 35 |
| Cross Currency and Interest Rate Swaps |
Interest rate risk and currency exchange rate risk |
851 | 851 | 91 | 215 |
| Total Fair Value Hedge Derivatives ** | 4,090 | 3,740 | 203 | 250 | |
| Interest rate swaps | Interest rate risk | - | 800 | - | (8) |
| Cross Currency and Interest Rate Swaps |
Interest rate risk and currency exchange rate risk |
7,996 | 8,521 | 529 | 889 |
| Forward and FX Options |
Currency exchange rate risk |
- | 455 | - | - |
| Total Cash Flow Hedge Derivatives ** | 7,996 | 9,776 | 529 | 881 | |
| Total Non-Hedge Accounting Derivatives | 1,786 | 2,319 | 92 | (316) | |
| Total Telecom Italia Group Derivatives | 13,872 | 15,835 | 824 | 815 |
The following tables present the derivative financial instruments of the Telecom Italia Group at June 30, 2016 and at December 31, 2015, by type:
* Spot Mark-to-market above represents the market measurement of the derivative net of the accrued portion of the flow in progress.
** On the 2009 issue in GBP there are two hedges, in FVH and CFH; accordingly, although it is a single issue, the notional amount of the hedge is included in both the FVH and CFH groupings.
The category "Non-Hedge Accounting Derivatives" also includes the embedded option of the mandatory convertible bond issued by the subsidiary Telecom Italia Finance S.A. amounting to 1.3 billion euros. This component, embedded in the financial instrument, has a notional amount equal to the amount of the loan.
The fair value measurement of the financial instruments of the Group is classified according to the three levels set out in IFRS 7. In particular, the fair value hierarchy introduces three levels of input:
The tables below provide additional information on the financial instruments, including the table relating to the hierarchy level for each class of financial asset/liability measured at fair value at June 30, 2016.
| Acronym | |
|---|---|
| Loans and Receivables | LaR |
| Financial assets Held-to-Maturity | HtM |
| Available-for-Sale financial assets | AfS |
| Financial Assets/Liabilities Held for Trading | FAHfT/FLHfT |
| Financial Liabilities at Amortized Cost | FLAC |
| Hedging Derivatives | HD |
| Not applicable | n.a. |
| Hierarchy Levels | |||||||
|---|---|---|---|---|---|---|---|
| (millions of euros) | IAS 39 Categories |
Note | Carrying amount in financial statements at 6/30/2016 |
Level 1 (*) | Level 2 (*) | Level 3 (*) | |
| ASSETS | |||||||
| Non-current assets | |||||||
| Other investments | |||||||
| Securities, financial receivables and other non-current financial assets |
|||||||
| (a) | 3,032 | 3 | 3,004 | - | |||
| Current assets | |||||||
| Securities | |||||||
| Financial receivables and other current financial assets | |||||||
| (b) | 1,281 | 1,083 | 198 | - | |||
| Total | (a+b) | 4,313 | 1,086 | 3,202 | - | ||
| LIABILITIES | |||||||
| Non-current liabilities | |||||||
| (c) | 2,208 | - | 2,208 | - | |||
| Current liabilities | |||||||
| (d) | 96 | - | 96 | - | |||
| Total | (c+d) | 2,304 | - | 2,304 | - |
(*) Level 1: quoted prices in active markets.
Level 2: prices calculated using observable market inputs.
Level 3: prices calculated using inputs that are not based on observable market data.
Employee benefits increased by 177 million euros compared to December 31, 2015 and were broken down as follows:
| (millions of euros) | 12/31/2015 | 6/30/2016 | |||
|---|---|---|---|---|---|
| Provision for employee severance indemnities |
(a) | 1,018 | 128 | (8) | 1,138 |
| Provision for pension plans | 23 | 2 | (1) | 24 | |
| Provision for termination benefit incentives |
413 | 59 | (3) | 469 | |
| Total other provisions for employee benefits |
(b) | 436 | 61 | (4) | 493 |
| Total | (a+b) | 1,454 | 189 | (12) | 1,631 |
| of which: | |||||
| non-current portion | 1,420 | 1,580 | |||
| current portion (*) | 34 | 51 |
(*) The current portion refers only to Other provisions for employee benefits.
The Provision for employee severance indemnities only refers to Italian companies and increased overall by 120 million euros. The reduction of 8 million euros under "Decreases" refers to indemnities paid during the period to employees who terminated employment or for advances. The increase of 128 million euros in the column "Increases/Present value" consists of the following:
| (millions of euros) | 1st half 2016 |
1st half 2015 |
||
|---|---|---|---|---|
| Current service cost (*) | - | - | ||
| Finance expenses | 10 | 10 | ||
| Net actuarial (gains) losses for the period | 118 | (56) | ||
| Total | 128 | (46) | ||
| Effective return on plan assets | there are no assets servicing the plan |
(*) Following the social security reform in 2007, the portions intended for the INPS Treasury Fund or for the supplementary pension funds have been recorded under "Employee benefits expenses", in "Social security expenses", and not as "Employee severance indemnities expenses". The latter account will continue to be used only for the severance indemnity expenses of companies with less than 50 employees.
The net actuarial losses recognized at June 30, 2016, totaling 118 million euros (net actuarial gains of 56 million euros for the first half of 2015), are essentially related to the change in the discount rate down to 1.05% from 2.03% used at December 31, 2015, while the inflation rates used in the individual years remained unchanged.
Provision for pension plans principally refer to pension plans operating in foreign companies of the Group.
The Provision for termination benefit incentives increased by a total of 56 million euros following the recognition – in the amount of 59 million euros – of the impact from the application of the restructuring plan for management personnel initiated by the Parent and the agreements signed during 2016 by Telecom Italia Information Technology and Olivetti S.p.A. with the Trade Unions, as part of the process of dialog between the parties, aimed at managing surplus personnel, and due to the streamlining processes affecting all the companies operating in the TLC sector.
Provisions decreased by 21 million euros compared to December 31, 2015 and were broken down as follows:
| (millions of euros) | 12/31/2015 | Increase | Taken to income |
Used directly | Exchange differences and other changes |
6/30/2016 |
|---|---|---|---|---|---|---|
| Provision for taxation and tax risks |
119 | − | (1) | (2) | 10 | 126 |
| Provision for restoration costs | 332 | 4 | − | (4) | (1) | 331 |
| Provision for legal disputes | 472 | 65 | − | (98) | 10 | 449 |
| Provision for commercial risks | 15 | 10 | − | (2) | − | 23 |
| Provision for risks and charges on investments and corporate-related transactions |
40 | − | (10) | (1) | − | 29 |
| Other provisions | 19 | 2 | − | (1) | (2) | 18 |
| Total | 997 | 81 | (11) | (108) | 17 | 976 |
| of which: | ||||||
| non-current portion | 551 | 569 | ||||
| current portion | 446 | 407 |
The provision for taxation and tax risks increased by 7 million euros compared to December 31, 2015. The figure at June 30, 2016 mainly refers to companies in the Domestic Business Unit (62 million euros) and companies in the Brazil Business Unit (60 million euros).
The provision for restoration costs related to the provision for the estimated cost of dismantling tangible assets (in particular: batteries, wooden poles and equipment) and for the restoration of the sites used for mobile telephony mainly by companies belonging to the Domestic Business Unit (324 million euros).
The provision for legal disputes included the provision for litigation with employees, social security entities, regulatory authorities and other counterparties.
The figure at June 30, 2016 includes 394 million euros essentially for the Domestic Business Unit and 54 million euros for the Brazil Business Unit. The uses consisted of 40 million euros for the Brazil Business Unit and 58 million euros for the Domestic Business Unit and mainly resulted from settlement agreements reached.
The provision for commercial risks, increased by 8 million euros and was essentially attributable to the companies of the Domestic Business Unit (22 million euros).
The provision for risks and charges on investments and corporate-related transactions decreased by 11 million euros essentially as a result of releases to the income statement.
Other provisions were unchanged compared to the end of 2015.
This item decreased by 437 million euros compared to December 31, 2015 and was broken down as follows:
| (millions of euros) | 6/30/2016 | 12/31/2015 |
|---|---|---|
| Payables on construction work (a) |
25 | 29 |
| Trade payables | ||
| Payables to suppliers | 3,400 | 4,000 |
| Payables to other telecommunication operators | 374 | 409 |
| (b) | 3,774 | 4,409 |
| Tax payables (c) |
616 | 265 |
| Miscellaneous payables and other current liabilities | ||
| Payables for employee compensation | 426 | 317 |
| Payables to social security agencies | 118 | 172 |
| Trade and miscellaneous deferred income | 829 | 790 |
| Advances received | 23 | 41 |
| Customer-related items | 870 | 920 |
| Payables for TLC operating fee | 15 | 24 |
| Dividends approved, but not yet paid to shareholders | 20 | 53 |
| Other current liabilities | 271 | 382 |
| Employee benefits (except for employee severance indemnities) for the current portion expected to be settled within 1 year |
51 | 34 |
| Provisions for risks and charges for the current portion expected to be settled within 1 year |
407 | 446 |
| (d) | 3,030 | 3,179 |
| Total (a+b+c+d) |
7,445 | 7,882 |
Trade payables amounting to 3,774 million euros (4,409 million euros at December 31, 2015), mainly refer to Telecom Italia S.p.A. (2,223 million euros) and to companies belonging to the Brazil Business Unit (1,014 million euros).
Tax payables refer in particular to Telecom Italia S.p.A. and relate to the VAT payable (372 million euros), the payable for the government concession tax (33 million euros) and the withholding tax payables to the tax authorities as withholding agent (38 million euros). They also included other tax payables of the Brazil Business Unit of 151 million euros.
Within miscellaneous payables and other current liabilities it is noted in particular that:
A description is provided below of the most significant judicial, arbitration and tax disputes in which Telecom Italia Group companies are involved as of June, 30 2016, as well as those that came to an end during the period.
The Telecom Italia Group has posted liabilities totalling 393 million euros for those disputes described below where the risk of losing the case has been considered probable.
For the following disputes and pending legal actions no significant facts have emerged with respect to what was published in the 2015 Annual Report:
The Rome Public Prosecutor's Office has challenged the judgement of the Court of Rome of October 2013 with which the three former managers of Telecom Italia Sparkle were fully acquitted from the charges of transnational conspiracy for the purpose of tax evasion and false declarations through the use of invoices or other documents for non-existent transactions ("carousel fraud"), also in relation to the position of the Telecom Italia Sparkle employees; the hearings of the appeal are, at present, scheduled until December 2016.
Telecom Italia Sparkle is still being investigated for the administrative offence pursuant to Legislative Decree 231/2001, with the predicate offence of conspiracy and translational money laundering.
Following the outcome of the immediate trial, the Company fully released the provisions for risk in the profit and loss account during 2014 and obtained from the Judicial Authority the release and return of all the sums issued to guarantee any obligations deriving from the application of Legislative Decree 231/2001; the sum of 1,549,000 euros, which corresponds to the maximum fine applicable for the administrative offence, still remains under seizure.
As for risks of a fiscal nature, you are reminded that in February 2014 the Agenzia delle Entrate (Lazio Regional Office) served three formal notifications of fines for the years 2005, 2006 and 2007, based on the assumption that the telephone traffic in the "carousel fraud" did not exist. The amount of the fines – 25% of the "crime related costs" unduly deducted – total 280 million euros. In this respect the Company has filed an appeal to the Provincial Tax Commission in April 2014. The Commission rejected the appeal with a decision filed on May 30, 2016.
The Company, also supported by the opinion of established professionals, believes that there are many solid reasons to challenge the decision and is preparing an appeal to the Regional Tax Commission of Lazio.
For these reasons, and considering the favourable outcome of the associated criminal proceedings, the risk is believed to be only potential, so no provisions were made in the financial statements.
─ ● ─
It should be noted that for some disputes described below, on the basis of the information available at the closing date of the present document and with particular reference to the complexity of the proceedings, to their progress, and to elements of uncertainty of a technical-trial nature, it was not possible to make a reliable estimate of the size and/or times of possible payments, if any. Moreover, in the case in which the disclosure of information relative to the dispute could seriously jeopardise the position of Telecom Italia or its subsidiaries, only the general nature of the dispute is described.
Of the disputes with the aforementioned characteristics, no significant facts have emerged for those listed below with respect to what was published in the 2015 Annual Report:
With a writ of summons before the Court of Milan, Wind has claimed compensation of 57 million euros for damages arising from alleged anti-competitive conduct censured in the AGCM proceedings I-761 (on corrective maintenance) referring to the period 2012-2015. According to the other party, this conduct delayed and hindered its ability to obtain more favourable conditions in the unbundled purchase of service to repair faults on the LLU access lines, and their effects were allegedly protracted to December 2015. The first hearing is scheduled for the month of September 2016. Telecom Italia will file an appearance challenging the claims made by the other party.
The criminal proceedings regarding a number of transactions for the leasing and/or sale of goods are currently pending before the Court of Monza with a first trial hearing scheduled for May 2017.
At the end of the preliminary hearing the judge for the preliminary hearing issued a decree that ordered the judgement for the hypothesis of aggravated fraud and tax crimes against a former employee of the Company.
As part of these proceedings Telecom Italia, which filed a formal complaint against persons unknown in 2011, joined the proceedings as a civil party as the person injured and damaged by the offence.
With a writ of summons in June 2015, BT Italia has advanced, before the Milan Court, claims for compensation for approximately 638.6 million euros against Telecom Italia referring to alleged damages suffered in the period from 2009 to 2014 for technical boycotting and margin squeezing (these claims refer to the known AGCM A428 case). The other party, assuming that the unlawful conduct of Telecom Italia is still in course, also proposes to update the claim for damages up to the month of May 2015, recalculating the total to be 662.9 million euros. Telecom Italia filed an appearance, challenging the claims of the other party.
As part of a structured agreement between the Parties, the case was recently settled.
With a writ of summons issued by the Rome Court, KPNQ West Italia has sued Telecom Italia, claiming damages quantified as totalling 38 million euros for alleged abusive and anti-competitive conduct in the period 2009-2011, through technical boycotting (KOs and refusals to activate wholesale services); these claims were based on the content of the Italian Competition Authority ruling that settled the A428 case. The first hearing took place in May 2016. Telecom Italia filed an appearance challenging the claims of the other party.
In a decision published in July 2015, the Council of State rejected the appeal lodged by AGCom and Telecom Italia against the judgement of the Lazio Administrative Court (TAR) on the financing of the universal service obligations for the period 1999-2003; with such judgement the administrative judge granted the appeals by Vodafone, annulling AGCom decisions 106, 107, 109/11/CONS on the renewal of the related proceedings, adding Vodafone to the list of subjects required to contribute, for a sum of approximately 38 million euros. Essentially, the judgement confirms that the Authority has not demonstrated the particular degree of "replaceability" between fixed and mobile telephony for mobile operators to be included among the subjects required to repay the cost of the universal service, which means that AGCom needs to issue a new ruling.
Telecom has filed an application to AGCom to renew the proceedings, and an appeal to the Court of Cassation against the judgement of the Council of State on the grounds that it exceeded its jurisdiction.
In April 2016 Vodafone appealed against the Ministry of Economic Development and Telecom Italia to the Council of State, for non-compliance with the judgement of the Council of States that had already been appealed by Telecom Italia. This appeal referred to AGCom decision 109/11/CONS (2003 yearly payment, on the basis of which Vodafone had paid the sum of approximately 9 million euros as contribution, restitution of which was requested).
In September 2014 the Ivrea Public Prosecutor's Office closed the investigations into the alleged exposure to asbestos of 15 former employees of the company "Ing. C. Olivetti S.p.A." (now Telecom Italia S.p.A.), "Olivetti Controllo Numerico S.p.A", "Olivetti Peripheral Equipment S.p.A.", "Sixtel S.p.A." and "Olteco S.p.A" and served notice that the investigations had been concluded on the 39 people investigated (who include former Directors of the aforementioned companies).
On December 2014 the Ivrea Public Prosecutor's Office formulated a request for 33 of the 39 people originally investigated to be committed for trial, and at the same time asked that 6 investigations be archived.
During the preliminary hearing, which started in April 2015, Telecom Italia assumed the role of civilly liable party, after being formally summonsed by all 26 civil parties (institutions and natural persons) joined in the proceedings. At the end of the preliminary hearing, 18 of the original 33 persons accused were committed for trial. The trial started in November 2015, and, as the party liable for damages, the Company has reached a settlement agreement with 12 of the 18 individuals (heirs/injured persons/family members) who are civil parties to the dispute and they have, therefore, withdrawn the claim for damages against Telecom Italia.
At the outcome of the judgement of first instance, which concluded in July 13, 2016 of the 17 accused natural persons were convicted with penalties ranging from 1 year to 5 years of imprisonment. The defendants were also sentenced to compensate, jointly and severally with the party liable for damages Telecom Italia with an overall sum of approximately 1.9 million euros as a provisional payment in favour of INAIL and 6 heirs who were not part of the proposed settlement. Vice versa a general judgement was imposed to pay compensation for damages to the remaining damaged parties (entities/unions/associations), who must in any case contact the civil court for the quantification of the damages. The reasons for the judgement have not yet been made available.
Despite the initial dismissal of the case by the Public Prosecutor's Office of Bologna in 2011, in September 2013 the Public Prosecutor's Office of Forlì filed notice of the conclusion of the investigation on the sale of handsets to companies in San Marino in the years 2007-2009 in which, among others, one employee and three former employees of the Company were investigated.
According to the Forlì prosecutor's office the facts being investigated would have included the crimes of criminal conspiracy aimed at committing "false declaration through the use of invoices or other documents for non-existent transactions" and the "issuing of invoices or other documents for nonexistent transactions" and the respective target offences, as well as the offence of "preventing Public Supervisory Authorities from performing their functions", relative to the communications transmitted to CONSOB.
The same Public Prosecutor's Office also transmitted the official investigation documents to the Public Prosecutor's Office at the Court of Milan, deemed to be territorially competent.
It is specified that the same facts were previously the subject of a specific audit and of the so called Greenfield Project, as a result of which the Company took steps to independently regularise some invoices for which the fiscal obligations laid down had not been fully discharged.
The Public Prosecutor's Office of Milan asked that the investigation be closed, deeming that some of the alleged offences were inexistent and pointing out the statute of limitation for the events dating further back.
In June 2016 the judge in the preliminary investigation (GIP) at the Court of Milan permanently closed the case.
In March 2013, the Brazilian companies Docas Investimentos S.A. (Docas) and JVCO Participações Ltda. (JVCO) started arbitration proceedings against Tim Brasil Serviços e Participações S.A. (Tim Brasil), Tim Participações S.A. (Tim Participações) and Intelig Telecomunicações Ltda. (Intelig) requesting the restitution of the Tim Participações shares held by the Tim group as guarantee ("Alienaçao Fiduciaria") for the indemnity obligations undertaken by the Docas group upon acquisition of Intelig (a Docas group subsidiary) by the merger by incorporation of its controlling company into Tim Participações, as well as compensation for damages for alleged breach of the merger agreement and alleged offences by Tim Participações in determining the exchange ratio between Tim Participações shares and Intelig shares,
for an amount not yet specified and to be paid during the proceedings. After the Arbitration Board had been constituted in May 2013, Tim Brasil, Tim Participações and Intelig filed their response, including a counterclaim against the Docas Group for compensation for damages.
In October 2013, in order to preserve the status quo until the arbitration decision is made, the Court of Arbitration ordered that the guarantee represented by the aforementioned Tim Participações shares could not be enforced and that they would remain in "Alienaçao Fiduciaria" in the custody of Banco Bradesco. The voting rights connected to the Shares are "frozen" and future dividends must be paid into an escrow account.
In December 2013, Docas and JVCO filed their Statement of Claim. In March 2014, the counterclaim by Tim Brasil, Tim Participações and Intelig was filed, and the discovery phase started. In February 2015 the Statements of Defence of all the parties were filed, in view of the examination hearing.
In September 2015 there was an examination hearing in Rio de Janeiro, in which the witnesses were cross-examined and legal and financial experts gave evidence.
In the month of December 2015, the parties filed their final arguments. The TIM group also asked that the JVCO's application for the appointment of an expert by the Court be rejected.
The statements of costs were filed in January 2016. In June 2016 the Court issued a judgement, with which it rejected the application of Docas and JVCO relating to the adjustment of the exchange ratio for the Intelig merger, as well as the expert's request to verify alleged offences in the preparation of the financial statements for the merger. Moreover, the Court sentenced Docas and JVCO, in addition to payment of part of the legal costs incurred by TIM, to compensate TIM for part of the losses actually suffered (amounting to over 5.8 million reais, plus interests and penalties) and ruled that TIM was entitled to withhold shares of TIM Participações (in "Alienação Fiduciaria") as guarantee of these losses, as well as of the potential losses deriving from some specific liabilities identified by the Court (for an overall countervalue of around 169.6 million reais plus interest and penalties). The court ruled that Docas and JVCO were entitled to receive the payment of dividends on shares held as guarantee for the period December 2012 - April 10, 2014, plus interest. The Court's decision is immediately enforceable.
In September 2015, JVCO Participações Ltda filed an application for arbitration before the Camara de Arbitragem do Mercado (CAM), based in Rio de Janeiro, against Telecom Italia, Telecom Italia International, Tim Brasil Serviços e Participações S.A. and Tim Participações S.A., claiming compensation for damages due to an alleged abuse of controlling power over Tim Participações. In the following October, all the companies entered appearances and filed statements of defence.
Thereafter an Arbitration Board was set up and in May 2016 the first preliminary hearing was held, at which the Terms of Reference were signed. After the hearing, the Court of Arbitration issued a procedural order, accepting the Group's request on the preliminary examination of the matter of JVCO/Docas's active entitlement and establishing a provisional schedule for the arbitration. In June 2016 the parties exchanged their briefs and in their defence Telecom Italia, Telecom Italia International, Tim Brasil Serviços, Participações S.A. and Tim Participações S.A. contested the active entitlement of the counterparty and disputed the existence of the abuse of power. In the month of July, the parties filed their responses.
With reference to the cases listed below no significant facts have emerged with respect to that published in the 2015 Annual Report:
In March 2012 Telecom Italia was served notice of the conclusion of the preliminary enquiries, which showed that the Company was being investigated by the Public Prosecutor of Milan pursuant to the Legislative Decree n. 231/2001, for the offences of handling stolen goods and counterfeiting committed, according to the alleged allegations, by fourteen employees of the so-called "ethnic channel", with the participation of a number of dealers, for the purpose of obtaining undeserved commissions from Telecom Italia.
The Company, as the injured party damaged by such conduct, had brought two legal actions in 2008 and 2009 and had proceeded to suspend the employees involved in the criminal proceedings (suspension later followed by dismissal). It has also filed an initial statement of defence, together with a technical report by its own expert, requesting that the proceedings against it be suspended, and that charges of aggravated fraud against the Company be brought against the other defendants. In December 2012, the Public Prosecutor's Office filed a request for 89 defendants and the Company itself to be committed for trial.
During the preliminary hearing, the Company was admitted as civil party to the trial and, in November 2013, the conclusions in the interest of the civil party were filed, reaffirming Telecom Italia's total lack of involvement in the offences claimed.
At the end of the preliminary hearing, which took place in March 2014, the Judge for the Preliminary Hearing committed for trial all the defendants (including Telecom Italia) who had not asked for their situation to be settled with alternative procedures, on the grounds that "examination in a trial" was needed. In April 2016, at the end of the trial, the Public Prosecutor asked for Telecom Italia to be sentenced to pay an administrative fine of 900 thousand euros, but decided not to ask for any of the presumed profits of the offences to be confiscated (quantified in the committal proceedings as totalling several million euros), based on the assumption that Telecom Italia had in any event remedied the presumed organisational inadequacies. While acknowledging the notable redimensioning of the accusations, the Company will argue in the trial for the Court to recognise its total non-involvement in the facts at issue.
Guarantees, net of back-to-back guarantees received, amounted to 10 million euros.
The guarantees provided by third parties to Group companies, amounting to 5,269 million euros, consisted of guarantees for loans received (1,982 million euros) and of performance under outstanding contracts (3,287 million euros).
The guarantees provided by third parties for Telecom Italia S.p.A. obligations include two guarantees in favor of the Ministry of Economic Development for the auction to assign the rights of use for the 800, 1800 and 2600 MHz frequencies. The guarantees amount, respectively, to 182 million euros (for the request to pay back the total amount owed over a period of 5 years) and 38 million euros (for the commitment undertaken by the Company to build equipment networks according to eco-sustainability characteristics). In particular, the Company has made a commitment to achieve energy savings in the new LTE technologies of approximately 10% on infrastructure and 20% on transmission devices over a period of 5 years (compared to energy consumed by current technology).
In March 2014, the Interior Ministry issued a bank guarantee of 26 million euros to Fastweb, as a jointly obliged party with Telecom Italia, following the judgment from the Consiglio di Stato – which suspended the effects, on appeal by Fastweb, of the ruling of the Lazio Administrative Court that had declared the invalidity of the "Master Agreement" for the supply of all the electronic communication services – ordering the issue of a bank guarantee (or other equivalent guarantee) equal to 5% of the financial value of the Agreement. This guarantee covers the potential payment of the amounts that the Consiglio di Stato could award to Fastweb in the appeal proceedings.
The Interior Ministry and Telecom Italia are obliged, jointly, to provide the security (or establish another form of guarantee), on the understanding that the fulfillment of this obligation by one of the parties will exempt the other from having to establish a second identical guarantee and that if the guarantee is enforced against the main obliged party, that party shall retain the possibility of acting by way of recourse against the other party.
| Amount (millions of euros)(1) |
|
|---|---|
| BBVA - Banco Bilbao Vizcaya Argentaria | 420 |
| SACE | 368 |
| Intesa Sanpaolo | 220 |
| Cassa Depositi e Prestiti | 158 |
| Barclays Bank | 105 |
| Ing | 105 |
| Commerzbank | 57 |
| Banco Santander | 52 |
| Bank of Tokyo - Mitsubishi UFJ | 52 |
There are also surety bonds on the telecommunication services in Brazil for 949 million euros.
The contracts for low-rate loans granted by the Brazilian development bank BNDES (Banco Nacional de Desenvolvimento Econômico e Social) to Tim Celular for a total equivalent amount of 1,302 million euros are covered by specific covenants. In the event of non-compliance with the covenant obligations, BNDES will have a right to the receipts which transit on the bank accounts of the company.
Finance income increased by 431 million euros, compared to the first half of 2015, and is broken down as follows:
| (millions of euros) | 1st Half | 1st Half |
|---|---|---|
| 2016 | 2015 | |
| Interest income and other finance income: | ||
| Income from financial receivables, recorded in Non-current assets | − | − |
| Income from securities other than investments, recorded in Non-current assets |
− | 1 |
| Income from securities other than investments, recorded in Current assets |
8 | 14 |
| Income other than the above: | ||
| Interest income | 62 | 97 |
| Exchange gains | 613 | 691 |
| Income from fair value hedge derivatives | 31 | 58 |
| Reversal of the Reserve for cash flow hedge derivatives to the income statement (interest rate component) |
344 | 370 |
| Income from non-hedging derivatives | 6 | 7 |
| Miscellaneous finance income | 25 | 86 |
| (a) | 1,089 | 1,324 |
| Positive fair value adjustments to: | ||
| Fair value hedge derivatives | 77 | 149 |
| Underlying financial assets and liabilities of fair value hedge derivatives | 124 | 38 |
| Non-hedging derivatives | 722 | 70 |
| (b) | 923 | 257 |
| Reversal of impairment loss on financial assets other than investments (c) |
− | − |
| Total (a+b+c) |
2,012 | 1,581 |
This item decreased by 906 million euros compared to first half of 2015, and was broken down as follows:
| 1st Half | 1st Half | |
|---|---|---|
| (millions of euros) | 2016 | 2015 |
| Interest expenses and other finance expenses: | ||
| Interest expenses and other costs relating to bonds | 566 | 939 |
| Interest expenses to banks | 57 | 71 |
| Interest expenses to others | 122 | 122 |
| 745 | 1,132 | |
| Commissions | 49 | 68 |
| Exchange losses | 382 | 706 |
| Charges from fair value hedge derivatives | − | 8 |
| Reversal of the Reserve for cash flow hedge derivatives to the income statement (interest rate component) |
304 | 299 |
| Charges from non-hedging derivatives | 34 | 43 |
| Miscellaneous finance expenses | 113 | 174 |
| (a) | 1,627 | 2,430 |
| Negative fair value adjustments to: | ||
| Fair value hedge derivatives | 124 | 40 |
| Underlying financial assets and liabilities of fair value hedge derivatives | 75 | 156 |
| Non-hedging derivatives | 331 | 437 |
| (b) | 530 | 633 |
| Impairment losses on financial assets other than investments (c) |
− | − |
| Total (a+b+c) |
2,157 | 3,063 |
For greater clarity of presentation, the net effects relating to derivative financial instruments are summarized in the following table:
| 1st Half | 1st Half | ||
|---|---|---|---|
| (millions of euros) | 2016 | 2015 | |
| Exchange gains | 613 | 691 | |
| Exchange losses | (382) | (706) | |
| Net exchange gains and losses | 231 | (15) | |
| Income from fair value hedge derivatives | 31 | 58 | |
| Charges from fair value hedge derivatives | − | (8) | |
| Net result from fair value hedge derivatives | (a) | 31 | 50 |
| Positive effect of the reversal of the Reserve of cash flow hedge derivatives to the income statement (interest rate component) |
344 | 370 | |
| Negative effect of the reversal of the Reserve of cash flow hedge derivatives to the income statement (interest rate component) |
(304) | (299) | |
| Net effect of the Reversal of the Reserve of cash flow hedge derivatives to the income statement (interest rate component) |
(b) | 40 | 71 |
| Income from non-hedging derivatives | 6 | 7 | |
| Charges from non-hedging derivatives | (34) | (43) | |
| Net result from non-hedging derivatives | (c) | (28) | (36) |
| Net result from derivatives (a+b+c) |
43 | 85 | |
| Positive fair value adjustments to fair value hedge derivatives | 77 | 149 | |
| Negative fair value adjustments to Underlying financial assets and liabilities of fair value hedge derivatives |
(75) | (156) | |
| Net fair value adjustments | (d) | 2 | (7) |
| Positive fair value adjustments to Underlying financial assets and liabilities of fair value hedge derivatives |
124 | 38 | |
| Negative fair value adjustments to fair value hedge derivatives | (124) | (40) | |
| Net fair value adjustments | (e) | − | (2) |
| Net fair value adjustments to fair value hedge derivatives and underlyings |
(d+e) | 2 | (9) |
| Positive fair value to non-hedging derivatives | (f) | 722 | 70 |
| Negative fair value adjustments to non-hedging derivatives | (g) | (331) | (437) |
| Net fair value adjustments to non-hedging derivatives | (f+g) | 391 | (367) |
Profit for the period increased 660 million euros compared to first half of 2015 and may be broken down as follows:
| 1st Half | 1st Half | |
|---|---|---|
| (millions of euros) | 2016 | 2015 |
| Profit (loss) for the period | 1,105 | 445 |
| Attributable to: | ||
| Owners of the Parent: | ||
| Profit (loss) from continuing operations | 1,021 | (15) |
| Profit (loss) from Discontinued operations/Non-current assets held for sale | (3) | 48 |
| Profit (loss) for the period attributable to owners of the Parent | 1,018 | 33 |
| Non-controlling interests: | ||
| Profit (loss) from continuing operations | 37 | 130 |
| Profit (loss) from Discontinued operations/Non-current assets held for sale | 50 | 282 |
| Profit (loss) for the period attributable to non-controlling interests | 87 | 412 |
| 1st Half 2016 | 1st Half 2015 | ||
|---|---|---|---|
| Basic earnings per share | |||
| Profit (loss) for the period attributable to owners of the Parent | 1,018 | 33 | |
| Less: additional dividends for the savings shares (0.011 euros per share and up to capacity) |
(66) | (33) | |
| (millions of euros) |
952 | − | |
| Average number of ordinary and savings shares | (millions) | 21,126 | 20,913 |
| Basic earnings per share – Ordinary shares | (euros) | 0.05 | − |
| Plus: additional dividends per savings share | 0.01 | − | |
| Basic earnings per share – Savings shares | (euros) | 0.06 | − |
| Basic earnings per share from continuing operations | |||
| Profit (loss) from continuing operations attributable to Owners of the Parent |
1,021 | (15) | |
| Less: additional dividends for the savings shares | (66) | − | |
| (millions of euros) |
955 | (15) | |
| Average number of ordinary and savings shares | (millions) | 21,126 | 20,913 |
| Basic earnings per share from continuing operations – Ordinary shares |
(euros) | 0.05 | − |
| Plus: additional dividends per savings share | 0.01 | − | |
| Basic earnings per share from continuing operations – Savings shares |
(euros) | 0.06 | − |
| Basic earnings per share from Discontinued operations/Non current assets held for sale |
|||
| Profit (loss) from Discontinued operations/Non-current assets held for sale |
(millions of euros) |
47 | 330 |
| Average number of ordinary and savings shares | (millions) | 21,126 | 20,913 |
| Basic earnings per share from Discontinued operations/Non current assets held for sale – Ordinary shares |
(euros) | − | 0.02 |
| Basic earnings per share from Discontinued operations/Non current assets held for sale – Savings shares |
(euros) | − | 0.02 |
| 1st Half 2016 | 1st Half 2015 | ||
| Average number of ordinary shares | 15,098,152,504 | 14,887,325,076 | |
| Average number of savings shares | 6,027,791,699 | 6,026,120,661 | |
| Total | 21,125,944,203 | 20,913,445,737 |
For the calculation of the "Earnings per share - basic":
| 1st Half 2016 | 1st Half 2015 | ||
|---|---|---|---|
| Diluted earnings per share | |||
| Profit (loss) for the period attributable to owners of the Parent | 1,018 | 33 | |
| Dilution effect of stock option plans and convertible bonds | (437) | − | |
| Less: additional dividends for the savings shares (0.011 euros per share and up to capacity) |
(66) | (33) | |
| (millions of euros) |
515 | − | |
| Average number of ordinary and savings shares | (millions) | 19,364 | 20,913 |
| Diluted earnings per share – Ordinary shares | (euros) | 0.03 | − |
| Plus: additional dividends per savings share | 0.01 | − | |
| Diluted earnings per share – Savings shares | (euros) | 0.04 | − |
| Diluted earnings per share from continuing operations | |||
| Profit (loss) from continuing operations attributable to Owners of the Parent |
1,021 | (15) | |
| Dilution effect of stock option plans and convertible bonds | (437) | − | |
| Less: additional dividends for the savings shares | (66) | − | |
| (millions of euros) |
518 | (15) | |
| Average number of ordinary and savings shares | (millions) | 19,364 | 20,913 |
| Diluted earnings per share from continuing operations – Ordinary shares |
(euros) | 0.03 | − |
| Plus: additional dividends per savings share | 0.01 | − | |
| Diluted earnings per share from continuing operations – Savings shares |
(euros) | 0.04 | − |
| Diluted earnings per share from Discontinued operations/Non current assets held for sale |
|||
| Profit (loss) from Discontinued operations/Non-current assets held for sale |
(millions of euros) |
47 | 330 |
| Dilution effect of stock option plans and convertible bonds | − | − | |
| Average number of ordinary and savings shares | (millions) | 19,364 | 20,913 |
| Diluted earnings per share from Discontinued operations/Non current assets held for sale – Ordinary shares |
(euros) | − | 0.02 |
| Diluted earnings per share from Discontinued operations/Non current assets held for sale – Savings shares |
(euros) | − | 0.02 |
| 1st Half 2016 | 1st Half 2015 | ||
| Average number of ordinary shares | 13,336,157,383 | 14,887,325,076 | |
| Average number of savings shares | 6,027,791,699 | 6,026,120,661 | |
| Total | 19,363,949,082 | 20,913,445,737 |
For the calculation of the "Earnings per share - diluted":
The table below shows future potential changes in share capital, based on: the issuance of the "Guaranteed Subordinated Mandatory Convertible Bonds due 2016, convertible into ordinary shares of Telecom Italia S.p.A." by Telecom Italia Finance S.A. in November 2013; the issuance of the convertible bond by Telecom Italia S.p.A. in March 2015; the authorizations to increase the share capital in place at June 30, 2016; and the options and rights granted under equity compensation plans, still outstanding at June 30, 2016.
| Number of maximum shares issuable |
Share capital (thousands of euros)(*) |
Additional Paid-in capital (thousands of euros) |
Subscription price per share (euros) |
|
|---|---|---|---|---|
| Additional capital increases not yet approved (ordinary shares) |
||||
| 2014-2016 Stock Option Plan | 196,000,000 | 107,800 | n.a. | 0.94 |
| Total additional capital increases not yet approved (ordinary shares) |
107,800 | |||
| Capital increases already approved (ordinary shares) |
||||
| 2013 Guaranteed Subordinated Mandatory Convertible Bonds (ordinary shares) |
||||
| – principal | n.a. | 1,300,000 | n.a. | n.a. |
| – interest portion | n.a. | 79,625 | n.a. | n.a. |
| 2015 Convertible Bond (ordinary shares)(**) | 1,082,485,386 | 2,000,000 | n.a. | n.a. |
| Convertible bonds | 3,379,625 | |||
| Total | 3,487,425 |
(*) Amounts stated for capital increases connected with equity compensation plans and the "Guaranteed Subordinated Mandatory Convertible Bonds due 2016, convertible into ordinary shares of Telecom Italia S.p.A." are the "total estimated value" inclusive, where applicable, of any premiums.
(**) The number of shares potentially issuable shown may be subject to adjustments.
Further information is provided in the Notes "Financial liabilities (non-current and current)" and "Equity compensation plans".
Segment reporting is based on the following operating segments:
The Media Business Unit was incorporated into the Domestic Business Unit as of January 1, 2016.
One of the key strategic drivers for growth identified in the Telecom Italia Group 2016–2018 Industrial Plan is the development of 4 Play convergent services through the offer of a rich range of diversified video content, to be realized both in partnership with key content providers and through Tim Vision, the Group's own platform of services. Within this framework, Persidera plays and will play an important role in supporting the development of Tim Vision services, building on its distinctive Head End expertise (management and distribution of TV signals via cable platform) and Play Out experience (television program broadcasting operations). Other key synergies to help guarantee the medium-term stability/growth of revenues from bandwidth rental for Persidera will come from the development of strategic partnerships between Telecom Italia and content providers that do not have proprietary broadcasting channels (multiplexes) for free-to-air television broadcasting and which instead pursue a multi-platform distribution strategy.
The framework of the 2016–2018 Industrial Plan and the new governance structure of Persidera are consistent with this future scenario, based on the increasingly closer link between the TLC industry and Media/Content providers to underpin the growth of ultra-broadband services in the Consumer segment.
| (millions of euros) | Domestic | Brazil | Media | Other Operations | Adjustments and eliminations |
Consolidated Total |
||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 1st Half 2016 |
1st Half 2015 |
1st Half 2016 |
1st Half 2015 |
1st Half 2016 |
1st Half 2015 |
1st Half 2016 |
1st Half 2015 |
1st Half 2016 |
1st Half 2015 |
1st Half 2016 |
1st Half 2015 |
|
| Revenues by operating segment | 7,247 | 7,375 | 1,858 | 2,691 | − | 42 | 9 | 15 | (18) | (22) | 9,096 | 10,101 |
| Total operating revenues and other income | 7,345 | 7,486 | 1,868 | 2,702 | − | 50 | 10 | 16 | (20) | (22) | 9,203 | 10,232 |
| EBITDA | 3,184 | 2,846 | 556 | 790 | − | 20 | (11) | (18) | (3) | 1 | 3,726 | 3,639 |
| EBIT | 1,581 | 1,222 | 121 | 574 | − | 9 | (11) | (18) | (4) | 1 | 1,687 | 1,788 |
| Profit (loss) before tax from continuing operations | 1,547 | 310 | ||||||||||
| Profit (loss) from continuing operations | 1,058 | 115 | ||||||||||
| Profit (loss) for the period | 1,105 | 445 | ||||||||||
| Owners of the Parent | 1,018 | 33 | ||||||||||
The table below shows the results of the Domestic Business Unit on a like-for-like basis against the first half of 2015.
| (millions of euros) | Domestic | ||||
|---|---|---|---|---|---|
| 1st Half 2016 | 1st Half 2015 | ||||
| Revenues by operating segment | 7,210 | 7,375 | |||
| Total operating revenues and other income | 7,307 | 7,486 | |||
| EBITDA | 3,164 | 2,846 | |||
| EBIT | 1,571 | 1,222 | |||
| (millions of euros) | Domestic | Brazil | Media | Other Operations | eliminations | Adjustments and | Total | Consolidated | ||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 1st Half 2016 |
1st Half 2015 |
1st Half 2016 |
1st Half 2015 |
1st Half 2016 |
1st Half 2015 |
1st Half 2016 |
1st Half 2015 |
1st Half 2016 |
1st Half 2015 |
1st Half 2016 |
1st Half 2015 |
|
| Total revenues from equipment sales | 430 | 434 | 118 | 355 | − | − | 9 | 1 | (1) | − | 556 | 790 |
| Total revenues from services | 6,820 | 6,940 | 1,740 | 2,336 | − | 42 | − | 14 | (17) | (22) | 8,543 | 9,310 |
| Total revenues on construction contracts | (3) | 1 | − | − | − | − | − | − | − | − | (3) | 1 |
| Total revenues by operating segment | 7,247 | 7,375 | 1,858 | 2,691 | − | 42 | 9 | 15 | (18) | (22) | 9,096 | 10,101 |
The table below shows the results of the Domestic Business Unit on a like-for-like basis against the first half of 2015.
| (millions of euros) | Domestic | |
|---|---|---|
| 1st Half 2016 |
1st Half 2015 |
|
| Total revenues from equipment sales | 430 | 434 |
| Total revenues from services | 6,783 | 6,940 |
| Total revenues on construction contracts | (3) | 1 |
| Total revenues by operating segment | 7,210 | 7,375 |
| (millions of euros) | Domestic Brazil |
Media Other Operations |
Adjustments and eliminations |
Consolidated Total |
||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 1st Half 2016 |
1st Half 2015 |
1st Half 2016 |
1st Half 2015 |
1st Half 2016 |
1st Half 2015 |
1st Half 2016 |
1st Half 2015 |
1st Half 2016 |
1st Half 2015 |
1st Half 2016 |
1st Half 2015 |
|
| Total purchase of intangible and tangible assets |
1,673 | 2,189 | 433 | 938 | − | 3 | − | − | − | − | 2,106 | 3,130 |
| of which: capital expenditures | 1,575 | 1,506 | 408 | 637 | − | 3 | − | − | − | − | 1,983 | 2,146 |
| of which: change in financial leasing contracts |
98 | 683 | 25 | 301 | − | − | − | − | − | − | 123 | 984 |
The table below shows the results of the Domestic Business Unit on a like-for-like basis against the first half of 2015.
| (millions of euros) | Domestic | |||||
|---|---|---|---|---|---|---|
| 1st Half 2016 |
1st Half 2015 |
|||||
| Total purchase of intangible and tangible assets |
1,670 | 2,189 | ||||
| of which: capital expenditures | 1,572 | 1,506 | ||||
| of which: change in financial leasing contracts |
98 | 683 |
| (number) | Domestic (*) | Brazil | Media | Other Operations | Consolidated Total | |||||
|---|---|---|---|---|---|---|---|---|---|---|
| 6/30/2016 | 12/31/2015 | 6/30/2016 | 12/31/2015 | 6/30/2016 | 12/31/2015 | 6/30/2016 | 12/31/2015 | 6/30/2016 | 12/31/2015 | |
| Headcount (**) | 52,622 | 52,644 | 12,087 | 13,042 | − | 64 | 143 | 117 | 64,852 | 65,867 |
(*) Following the change in its mission, Persidera became part of the Domestic Business Unit as of January 1, 2016; without that change, the headcount of the Domestic Business Unit at the end of the first half of 2016 would have been 52,559.
(**) The number of personnel at the end of 2015 does not include the headcount relating to Discontinued operations/Non-current assets held for sale.
| (millions of euros) | Domestic | Brazil | Media | Other Operations | Adjustments and eliminations |
Consolidated Total | ||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 6/30/2016 12/31/2015 | 6/30/2016 | 12/31/2015 6/30/2016 | 12/31/2015 | 6/30/2016 12/31/2015 | 6/30/2016 12/31/2015 | 6/30/2016 12/31/2015 | ||||||
| Total Assets | 67,924 | 71,268 | ||||||||||
| Total Equity and Liabilities | 67,924 | 71,268 |
The table below shows the results of the Domestic Business Unit on a like-for-like basis against the first half of 2015.
| (millions of euros) | Domestic | ||||
|---|---|---|---|---|---|
| 6/30/2016 | 12/31/2015 | ||||
| Revenues | Non-current operating assets | |||||||
|---|---|---|---|---|---|---|---|---|
| (millions of euros) | Breakdown by location of operations | Breakdown by location of customers | Breakdown by location of operations | |||||
| 1st Half 2016 | 1st Half 2015 | 1st Half 2016 | 1st Half 2015 | 06/30/ 2016 | 12/31/ 2015 | |||
| Total | (a+b) | 9,096 | 10,101 | 9,096 | 10,101 | 53,900 | 52,508 |
None of the Telecom Italia Group's customers exceeds 10% of consolidated revenues.
The following tables show the figures relating to related party transactions and the impact of those amounts on the separate consolidated income statements, consolidated statements of financial position and consolidated statements of cash flows.
The procedure adopted by the Company for the management of related party transactions expressly applies "also to the participants in significant shareholder agreements pursuant to Article 122 of the Consolidated Law on Finance that govern the candidature to the office of Board Director of the Company, when the majority of the Directors appointed are drawn from the resulting list submitted". Accordingly, since the majority of the members of the Board of Directors of Telecom Italia in office (appointed by the Ordinary Shareholders' Meeting of April 16, 2014 and subsequently supplemented by the Ordinary Shareholders' Meeting of December 15, 2015) were drawn from the list submitted then by the shareholder Telco, whose shareholders (Generali group, Mediobanca S.P.A., Intesa Sanpaolo S.p.A. and Telefonica S.A.) were bound at the time by a significant shareholder agreement pursuant to Article 122 of Italian Legislative Decree 58/1998, the participants in that shareholder agreement and the companies controlled by them continue to be considered as related parties of Telecom Italia (even though that shareholder agreement has been terminated in the meantime).
Related party transactions, when not dictated by specific laws, were conducted at arm's length. The transactions were subject to the above-mentioned internal procedure (available for consultation on the Company's website at the following address: www.telecomitalia.com, section Group – channel governance system) which establishes procedures and time scales for verification and monitoring.
On November 13, 2013, the Telecom Italia Group accepted the offer for the purchase of the entire controlling interest held in the Sofora – Telecom Argentina group; as a result, from the 2013 consolidated financial statements, the investment has been classified as Discontinued Operations (Discontinued operations/Non-current assets held for sale). The sale was completed on March 8, 2016.
The effects on the individual line items of the separate consolidated income statements for the first half of 2016 and 2015 are as follows:
| (millions of euros) | Total | Related Parties | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Total related parties |
Total related parties net of Disc. Op. |
||||||||||
| (a) | (b) | (b/a) | |||||||||
| 9,096 | 2 | 185 | 187 | (23) | 164 | 1.8 | |||||
| 107 | 2 | 2 | 2 | 1.9 | |||||||
| 3,783 | 11 | 113 | 124 | (14) | 110 | 2.9 | |||||
| 1,551 | 1 | 41 | 24 | 66 | 66 | 4.3 | |||||
| 2,012 | 60 | 60 | 60 | 3.0 | |||||||
| 2,157 | 67 | 67 | 67 | 3.1 | |||||||
| 47 | (1) | 10 | 9 |
| (millions of euros) | Total | Related Parties | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Total related parties |
Total related parties net of Disc. Op. |
|||||||||
| (a) | (b) | (b/a) | ||||||||
| 10,101 | 3 | 326 | 329 | (95) | 234 | 2.3 | ||||
| 4,372 | 17 | 177 | 194 | (51) | 143 | 3.3 | ||||
| 1,705 | 7 | 43 | 9 | 59 | (5) | 54 | 3.2 | |||
| 1,581 | 72 | 72 | 72 | 4.6 | ||||||
| 3,063 | 3 | 44 | 47 | 47 | 1.5 | |||||
| 330 | (3) | 42 | 39 |
The effects on the individual line items of the consolidated statements of financial position of the Group at June 30, 2016 and at December 31, 2015 are as follows:
| (millions of euros) | Total | Related Parties | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Total related parties |
Total related parties net of Disc. Op. |
|||||||||
| (a) | (b) | (b/a) | ||||||||
| Net financial debt | ||||||||||
| Non-current financial assets |
(3,129) | (10) | (591) | (601) | (601) | 19.2 | ||||
| (1,083) | (45) | (45) | (45) | 4.2 | ||||||
| (247) | (20) | (20) | (20) | 8.1 | ||||||
| (2,707) | (255) | (255) | (255) | 9.4 | ||||||
| Current financial assets | (4,037) | (320) | (320) | (320) | 7.9 | |||||
| Non-current financial liabilities |
31,027 | 1,047 | 1,047 | 1,047 | 3.4 | |||||
| Current financial liabilities |
4,209 | 70 | 70 | 70 | 1.7 | |||||
| Total net financial debt | 28,070 | (10) | 206 | 196 | 196 | 0.7 | ||||
| Other statement of financial position line items |
||||||||||
| 5,683 | 5 | 135 | 140 | 140 | 2.5 | |||||
| 7,445 | 16 | 160 | 28 | 204 | 204 | 2.7 |
| (millions of euros) | Total | Related Parties | ||||||
|---|---|---|---|---|---|---|---|---|
| Total related parties |
Total related parties net of Disc. Op. |
|||||||
| (a) | (b) | (b/a) | ||||||
| Net financial debt | ||||||||
| Non-current financial assets |
(2,989) | (7) | (542) | (549) | (549) | 18.4 | ||
| (1,488) | (47) | (47) | (47) | 3.2 | ||||
| (352) | (16) | (16) | (16) | 4.5 | ||||
| (3,559) | (72) | (72) | (72) | 2.0 | ||||
| Current financial assets | (5,399) | (135) | (135) | (135) | 2.5 | |||
| (227) | ||||||||
| Non-current financial liabilities |
30,518 | 937 | 937 | 937 | 3.1 | |||
| Current financial liabilities |
6,224 | 168 | 168 | 168 | 2.7 | |||
| 348 | ||||||||
| Total net financial debt | 28,475 | (7) | 428 | 421 | 421 | 1.5 | ||
| Other statement of financial position line items |
||||||||
| 5,112 | 2 | 158 | 160 | (23) | 137 | 2.7 | ||
| 3,677 | 23 | 23 | ||||||
| 7,882 | 32 | 176 | 25 | 233 | (16) | 217 | 2.8 | |
| 1,533 | 11 | 5 | 16 |
The effects on the individual line items of the consolidated statements of cash flows for the first half of 2016 and 2015 are as follows:
| (millions of euros) | Total | Related Parties | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Total related parties |
Total related parties net of Disc. Op. |
|||||||||
| (a) | (b) | (b/a) | ||||||||
| 2,106 | 63 | 63 | 63 | 3.0 |
| (millions of euros) | Total | Related Parties | ||||
|---|---|---|---|---|---|---|
| Total related parties |
Total related parties net of Disc. Op. |
|||||
| (a) | (b) | (b/a) | ||||
| 3,130 | 69 | 69 | 69 | 2.2 |
The most significant amounts are summarized as follows:
| (millions of euros) | 1st Half | 1st Half | |
|---|---|---|---|
| 2016 | 2015 | TYPE OF CONTRACT | |
| Revenues | |||
| Italtel group | 1 | 1 | Provision of equipment rental, fixed and mobile telephone and outsourced communication services. |
| NordCom S.p.A. | 1 | 1 | Fixed and mobile voice services, data network connections and outsourced ICT products and services. |
| Teleleasing S.p.A. (in liquidation) | 1 Equipment sale and maintenance services. | ||
| Total revenues | 2 | 3 | |
| Acquisition of goods and services | |||
| Italtel group | 9 | 16 | Supply and maintenance of switching equipment, software development and platforms upgrading, and customized products and services, as part of Telecom Italia offerings to the Italtel group customers. |
| NordCom S.p.A. | 1 | Supply and development of IT solutions, provision of customized services as part of Telecom Italia offerings to end customers, and rental expense for base transceiver station housing. |
|
| W.A.Y. S.r.l. | 1 | Supply of geolocation equipment and related technical support services within the Telecom Italia customer offering. |
|
| Other minor companies | 1 | ||
| Total acquisition of goods and services |
11 | 17 | |
| Finance expenses | 3 | Interest expenses for equipment lease and finance leases with Teleleasing S.p.A |
| (millions of euros) | 6/30/2016 | 12/31/2015 | TYPE OF CONTRACT |
|---|---|---|---|
| Net financial debt | |||
| Non-current financial assets | 10 | 7 | Shareholder loans and management fees with Alfiere S.p.A. |
| Other statement of financial position line items |
|||
| Trade and miscellaneous receivables and other current assets |
|||
| Italtel group | 3 | Provision of equipment rental, fixed and mobile telephone and outsourced communication services. |
|
| W.A.Y. S.r.l. | 1 | Supply of fixed-line telephony, ICT and mobile services. | |
| Other minor companies | 1 | 2 | |
| Total trade and miscellaneous receivables and other current assets |
5 | 2 | |
| Trade and miscellaneous payables and other current liabilities |
|||
| Italtel group | 13 | 28 | Supply transactions connected with investment and operations activities. |
| Movenda S.p.A. | 1 | Supply and specialist support for the development of SIM cards, functional development of IT platforms, and software development. |
|
| NordCom S.p.A. | 1 | Supply and development of IT solutions, provision of customized services as part of Telecom Italia offerings to end customers, and rental expense for base transceiver station housing. |
|
| W.A.Y. S.r.l. | 2 | 2 | Supply of geolocation equipment and related technical support services within the Telecom Italia customer offering. |
| Other minor companies | 1 | ||
| Total trade and miscellaneous payables and other current liabilities |
16 | 32 |
| (millions of euros) | 1st Half 2016 |
1st Half 2015 |
TYPE OF CONTRACT |
|---|---|---|---|
| Purchase of intangible and tangible assets on an accrual basis |
|||
| Italtel group | 63 | 68 Purchases of telecommunications equipment. | |
| Movenda S.p.A. | 1 | Information technology services, licenses for GSMA Mobile Connect Application. |
|
| Total purchase of intangible and tangible assets on an accrual basis |
63 | 69 |
At June 30, 2016, Telecom Italia S.p.A. had provided guarantees on behalf of the joint venture Alfiere S.p.A. for a total of 1 million euros.
The "Procedure for carrying out transactions with related parties" – pursuant to the Regulation containing the provisions on related party transactions adopted by Consob under Resolution 17221 of March 12, 2010, as amended – provides that the procedure should be applied also to parties who, regardless of whether they qualify as related parties according to the accounting principles, participate in significant shareholder agreements according to Article 122 of the Consolidated Law on Finance, which govern the candidacy to the position of director of Telecom Italia, where the slate presented is the slate where the majority of the Directors nominated have been drawn from.
The most significant amounts are summarized as follows:
| (millions of euros) | 1st Half | 1st Half | |
|---|---|---|---|
| 2016 | 2015 | TYPE OF CONTRACT | |
| Revenues | |||
| Generali group | 25 | 54 | Supply of telephone and data transmission services, peripheral data networks, connections, storage, and telecommunications products and services. |
| Intesa Sanpaolo group | 34 | 32 | Telephone services, MPLS data and international network, ICT services and Microsoft licenses, Internet connectivity and high-speed connections. |
| Mediobanca group | 3 | 3 | Telephone and MPLS data network services and marketing of data devices and sale of equipment for fixed and mobile networks. |
| RCS group | 2 | Fixed-line telephony and outsourcing services. | |
| Telefónica group | 121 | 237 | Interconnection services, roaming, broadband access fees, supply of "IRU" transmission capacity and software. |
| Total revenues | 185 | 326 | |
| Other income | 2 | Generali group damage compensation. | |
| Acquisition of goods and services | |||
| Commissions on collections and top-up services for | |||
| CartaSì group | 3 | prepaid mobile users. | |
| Generali group | 11 | 13 Insurance premiums and property leases. | |
| Intesa Sanpaolo group | 6 | 5 | Factoring fees, fees for smart card top-ups/activation and commissions for payment of telephone bills by direct debit and collections via credit cards. |
| Mediobanca group | 1 | 1 Credit recovery activities. | |
| RCS group | 1 | Provision of content and digital publishing services and fees for telephone top-up services. |
|
| Telefónica group | 91 | 155 | Interconnection and roaming services, site sharing, co billing agreements, broadband linesharing and unbundling. |
| Vivendi group | 3 | Purchase of musical digital content (TIM MUSIC) and devising of advertising campaigns. |
|
| Total acquisition of goods and services |
113 | 177 | |
| Employee benefits expenses | 1 | 7 | Generali group insurance related to the work of personnel. |
| Finance income | |||
| Intesa Sanpaolo group | 47 | 59 Bank accounts, deposits and hedging derivatives. | |
| Mediobanca group | 10 | 9 Bank accounts, deposits and hedging derivatives. | |
| Telefónica group | 3 | 4 Finance lease. | |
| Total finance income | 60 | 72 | |
| Finance expenses | |||
| Intesa Sanpaolo group | 54 | 32 | Term Loan Facility, Revolving Credit Facility, hedging derivatives, loans and bank accounts. |
| Mediobanca group | 13 | 12 | Term Loan Facility and Revolving Credit Facility and hedging derivatives. |
| Total finance expenses | 67 | 44 |
| (millions of euros) | 6/30/2016 | 12/31/2015 | TYPE OF CONTRACT |
|---|---|---|---|
| Net financial debt | |||
| Non-current financial assets | |||
| Intesa Sanpaolo group | 478 | 424 Hedging derivatives. | |
| Mediobanca group | 57 | 71 Hedging derivatives. | |
| Telefónica group | 56 | 47 Finance lease. | |
| Total non-current financial assets | 591 | 542 | |
| Securities other than investments (current assets) |
|||
| Intesa Sanpaolo group | 9 | 10 Bonds. | |
| Mediobanca group | 18 | 24 Bonds. | |
| Vivendi group | 5 | Bonds. | |
| Telefónica group | 13 | 13 Bonds. | |
| Total Securities other than investments (current assets) |
45 | 47 | |
| Financial receivables and other current financial assets |
|||
| Intesa Sanpaolo group | 18 | 14 Hedging derivatives. | |
| Mediobanca group | 1 | 1 Hedging derivatives. | |
| Telefónica group | 1 | 1 Finance lease. | |
| Total financial receivables and other current financial assets |
20 | 16 | |
| Cash and cash equivalents | |||
| Intesa Sanpaolo group | 255 | 67 Bank accounts and deposits. | |
| Mediobanca group | 5 Bank accounts and deposits. | ||
| Total cash and cash equivalents | 255 | 72 | |
| Non-current financial liabilities | |||
| Intesa Sanpaolo group | 600 | 497 Hedging derivatives and loans. | |
| Mediobanca group | 447 | 440 Hedging derivatives, loans and financial payables. | |
| Total non-current financial liabilities |
1,047 | 937 | |
| Current financial liabilities | |||
| Intesa Sanpaolo group | 42 | 136 | Current accounts, hedging derivatives and payables to other lenders. |
| Mediobanca group | 28 | 32 Hedging derivatives and financial payables. | |
| Total current financial liabilities | 70 | 168 |
| (millions of euros) | 6/30/2016 | 12/31/2015 | TYPE OF CONTRACT |
|---|---|---|---|
| Other statement of financial position line items |
|||
| Trade and miscellaneous receivables and other current assets |
|||
| Generali group | 29 | 28 | Supply of telephone and data transmission services, peripheral data networks, connections, storage, and telecommunications products and services. |
| Intesa Sanpaolo group | 79 | 64 | Factoring services, supply of telephone, MPLS and international data network services, ICT services, Microsoft licenses, Internet connectivity and high speed connections. |
| Mediobanca group | 1 | Voice and MPLS data network services and marketing of data devices, sale of equipment for fixed and mobile networks, receivables from Teleleasing sold to the Mediobanca group. |
|
| RCS group | 1 | 2 Fixed-line telephony and outsourcing services. | |
| Telefónica group | 26 | 63 | Interconnection services, roaming, broadband access fees, supply of "IRU" transmission capacity and software. |
| Total trade and miscellaneous receivables and other current assets |
135 | 158 | |
| Trade and miscellaneous payables and other current liabilities |
|||
| Generali group | 5 | 8 | Deferred income relating to outsourcing of data networks and centralized and peripheral telephony systems. |
| Factoring fees, payable resulting from the collection of receivables sold, fees for smart card top ups/activation and commissions for payment of telephone bills by direct debit and collections via credit |
|||
| Intesa Sanpaolo group | 111 | 121 | cards. |
| Mediobanca group | 14 | 7 Credit recovery activities. | |
| Telefónica group | 26 | 37 | Interconnection and roaming services, site sharing, co billing agreements, broadband line sharing and unbundling. |
| Vivendi group | 4 | 3 Purchase of musical digital content (TIM MUSIC). | |
| Total trade and miscellaneous payables and other current liabilities |
160 | 176 |
The most significant amounts are summarized as follows:
| (millions of euros) | 1st Half 2016 |
1st Half 2015 |
TYPE OF CONTRACT |
|---|---|---|---|
| Employee benefits expenses | Contributions to pension funds. | ||
| Fontedir | 6 | 6 | |
| Telemaco | 34 | 35 | |
| Other pension funds | 1 | 2 | |
| Total employee benefits expenses | 41 | 43 |
| (millions of euros) | 6/30/2016 | 12/31/2015 | TYPE OF CONTRACT |
|---|---|---|---|
| Trade and miscellaneous payables and other current liabilities |
Payables for contributions to pension funds. | ||
| Fontedir | 4 | 4 | |
| Telemaco | 23 | 21 | |
| Other pension funds | 1 | ||
| Trade and miscellaneous payables and other current liabilities |
28 | 25 |
In the first half of 2016, the total remuneration recorded on an accrual basis by Telecom Italia S.p.A. or by subsidiaries of the Group in respect of key managers amounted to 23.6 million euros (8.8 million euros in the first half of 2015), broken down as follows:
| (millions of euros) | 1st Half | 1st Half |
|---|---|---|
| 2016 | 2015 | |
| Short-term remuneration | 7.6 | 5.2 |
| Long-term remuneration | 0.5 | |
| Employment termination benefit incentives | 12.5 | |
| Share-based payments (*) | 3.0 | 3.6 |
| 23.6 | 8.8 |
(*) These refer to the fair value of the rights, accrued to June 30, under the share-based incentive plans of Telecom Italia S.p.A. and its subsidiaries (2014/2016 SOP plan and SOP plans of the South American subsidiaries, and Special Award and deferred MBO plans).
Short-term remuneration is paid during the period it pertains to, and, at the latest, within the six months following the end of that period.
The amounts for the first half of 2016 shown in the table do not include the effects of the reversal of the accruals for the 2014/2016 Stock Option Plan. The related amounts are broken down below:
| (millions of euros) | 1st Half 2016 |
1st Half 2015 |
|---|---|---|
| 2014/2016 Stock Option Plan, 2014 verifications – share-based payments | (1.6) | - |
In the first half of 2016, the contributions paid in to defined contribution plans (Assida and Fontedir) by Telecom Italia S.p.A. or by subsidiaries of the Group on behalf of key managers amounted to 46,000 euros (65,000 euros in the first half of 2015).
In the first half of 2016, "key managers", that is those who have the power and responsibility, directly or indirectly, for the planning, management and control of the operations of the Telecom Italia Group, including directors, consisted of:
| Directors: | |
|---|---|
| Managers: | |
Equity compensation plans in effect at June 30, 2016 are used for retention purposes and as a longterm incentive for the managers and employees of the Group.
However, it should be noted that these plans do not have any significant effect on the economic result or on the financial position or on cash flows at June 30, 2016.
For a description of the:
already in place at December 31, 2015, see the consolidated financial statements of the Telecom Italia Group at that date.
For a description of the equity compensation plans of Telecom Italia S.p.A. listed below and already in place at December 31, 2015, see the consolidated financial statements of the Telecom Italia Group at that date:
A description is provided below of the equity compensation plans awarded during the first half of 2016:
The Plan was approved by the Company's Board of Directors on March 30, 2016, and by the Shareholders' Meeting of May 25, 2016, for the part to be paid in shares.
The beneficiaries of the Plan are the Chief Executive Officer and other managers to be selected by him.
The Plan was awarded to the Chief Executive Officer by the Board of Directors in its meeting of March 30, 2016; at June 30, 2016 no additional beneficiaries had been identified.
The Special Award has three performance conditions, consisting of the over-performance achieved with respect to the Group targets set in the 2016 – 2018 Industrial Plan (for the year 2019 the amounts set in the plan for 2018 will be used):
With respect to each of the years subject to the incentive, the bonus will consist for its 80% of Telecom Italia ordinary shares (the number of shares will be calculated by dividing 80% of the bonus accrued in the year by the normal value of the shares at the performance verification date) and 20% will be in cash.
The result achieved will be calculated on the same company perimeter and using the accounting, fiscal, tax, economic and financial criteria applicable when the 2016-2018 Strategic Plan was approved, net of non-foreseeable payments resulting from operations prior to March 30, 2016 or from share capital changes affecting the results of the calculation parameters.
Following the board approval of the 2019 annual report and accounts (year 2020), all the annual bonuses accrued for the entire incentive period shall be paid, subject to the ceiling (referring to the entire four-year period and relating to 5.5% of the over-performance) of 55 million euros gross total (of which 40 million euros gross reserved for the Chief Executive Officer, corresponding to 4% of the overperformance).
The bonus actually paid, both for the cash and equity component, will be subject to the clawback mechanisms in force at the time.
The Board of Directors shall have the option to pay the bonus expressed in shares, in whole or in part, by equivalent, based on the normal value of the shares at the time of payment of the bonus.
The actual payment of the Special Award is subject to the position being maintained and the continuation of the employment relationship with the a company of the Telecom Italia Group for the entire incentive period.
The Chief Executive Officer, in the event of termination of the office as a good leaver before the award is made (also as a result of not being appointed as a Board Director when the board is re-elected), shall be paid the annual bonuses already accrued, as well as the Special Award that he would have been entitled to based on a linear projection up to the end of the incentive period of the average results already achieved, or, in his first year of office and in the absence of historical data, based on the results contained in the latest approved quarterly report.
For more details, see the information document prepared according to the format laid down in the Issuer Regulations and available on the website www.telecomitalia.com.
The effect of non-recurring events and transactions of the first half of 2016 on equity, profit, net financial debt and cash flows of the Telecom Italia Group is set out below in accordance with Consob Communication DEM/6064293 of July 28, 2006. The non-recurring effects on Equity and Profit (loss) for the period are shown net of tax effects.
| (millions of euros) | Equity | Profit (loss) for the period |
Net financial debt |
Cash flows | |
|---|---|---|---|---|---|
| carrying amount |
(*) | ||||
| Amount – financial statements | (a) | 21,327 | 1,105 | 28,070 | (675) |
| Acquisition of goods and services - Expenses related to agreements and the development of non-recurring projects |
− | − | 32 | (32) | |
| Employee benefits expenses - Expenses related to restructuring and rationalization |
(53) | (53) | 19 | (19) | |
| Other operating expenses - Expenses related to disputes and regulatory penalties and liabilities related to those expenses, and expenses related to disputes with former |
|||||
| employees and liabilities with customers and/or suppliers | (11) | (11) | 151 | (151) | |
| Gains on disposals of non-current assets | 6 | 6 | (9) | 27 | |
| Finance expenses – Other finance expenses related to litigations |
(8) | (8) | − | − | |
| Total non-recurring effects | (b) | (66) | (66) | 193 | (175) |
| Income/(Expenses) relating to Discontinued operations | (c) | (12) | (12) | (704) | 492 |
| Figurative amount – financial statements | (a-b-c) | 21,405 | 1,183 | 28,581 | (992) |
(*) Cash flows refer to the increase (decrease) in Cash and Cash equivalents during the period.
The impact of non-recurring items on the separate consolidated income statement line items is as follows:
| (millions of euros) | 1st Half | 1st Half |
|---|---|---|
| 2016 | 2015 | |
| Employee benefits expenses: | ||
| Expenses related to restructuring and rationalization | (75) | (30) |
| Other operating expenses: | ||
| Expenses related to disputes and regulatory penalties and liabilities related to those expenses, and expenses related to disputes with former employees and liabilities with customers and/or suppliers |
(16) | (369) |
| Impact on Operating profit (loss) before depreciation and amortization, capital gains (losses) and impairment reversals (losses) on non-current assets (EBITDA) |
(91) | (399) |
| Gains (losses) on non-current assets: | ||
| Gains on disposals of non-current assets | 9 | 277 |
| Impact on EBIT – Operating profit (loss) | (82) | (122) |
| Finance expenses: | ||
| Interest expenses and miscellaneous finance expenses | (11) | (17) |
| Impact on profit (loss) before tax from continuing operations | (93) | (139) |
| Effect on income taxes on non-recurring items | 27 | 28 |
| Discontinued operations – Effect of the disposal of the Sofora – Telecom Argentina | (12) | − |
| group Impact on profit (loss) for the period |
(78) | (111) |
In accordance with Consob Communication DEM/6064293 of July 28, 2006, a statement is made to the effect that in the first half of 2016 the Telecom Italia Group has not put into place any atypical and/or unusual transactions, as defined by that Communication.
| Period-end exchange rates | Average exchange rates for the period | ||||
|---|---|---|---|---|---|
| (statements of financial position) | (income statements and statements of cash flows) |
||||
| (local currency against 1 euro) | 6/30/2016 | 12/31/2015 | 1st Half 2016 | 1st Half 2015 | |
| Europe | |||||
| BGN | Bulgarian Lev | 1.95580 | 1.95580 | 1.95580 | 1.95580 |
| CZK | Czech koruna | 27.13100 | 27.02300 | 27.03985 | 27.50439 |
| HUF | Hungarian forint | 317.06000 | 315.98000 | 312.76215 | 307.40868 |
| CHF | Swiss franc | 1.08670 | 1.08350 | 1.09582 | 1.05754 |
| TRY | Turkish lira | 3.20600 | 3.17650 | 3.25790 | 2.86259 |
| GBP | Pound sterling | 0.82650 | 0.73395 | 0.77859 | 0.73260 |
| RON | Romanian leu | 4.52340 | 4.52400 | 4.49533 | 4.44749 |
| North America | |||||
| USD | U.S. dollar | 1.11020 | 1.08870 | 1.11572 | 1.11609 |
| Latin America | |||||
| VEF | Venezuelan bolivar | 14.98770 | 14.69745 | 15.02350 | 13.11080 |
| BOB | Bolivian boliviano | 7.67148 | 7.52292 | 7.70963 | 7.71217 |
| PEN | Peruvian nuevo sol | 3.65412 | 3.70833 | 3.77419 | 3.45827 |
| ARS | Argentine peso | 16.58020 | 14.09720 | 15.98614 | 9.83978 |
| CLP | Chilean peso | 735.50000 | 772.71300 | 769.03591 | 693.19708 |
| COP | Colombian peso | 3,244.47000 | 3,456.01000 | 3,481.92257 | 2,773.10550 |
| MXN | Mexican peso | 20.63470 | 18.91450 | 20.15629 | 16.88979 |
| BRL | Brazilian real | 3.56352 | 4.25116 | 4.13001 | 3.31144 |
| PYG | Paraguayan guarani | 6,233.43000 | 6,321.98000 | 6,359.76716 | 5,467.45773 |
| UYU | Uruguayan peso | 33.84780 | 32.60440 | 35.03297 | 28.63802 |
| Other countries | |||||
| ILS | Israeli shekel | 4.27610 | 4.24810 | 4.30633 | 4.36471 |
(*) Source: data processed by the European Central Bank, Reuters and major Central Banks.
Expenditures for research and development activities are represented by external costs, labor costs of dedicated staff and depreciation and amortization. Details are as follows:
| (millions of euros) | 1st Half 2016 |
1st Half 2015 |
|---|---|---|
| Research and development costs expensed during the period | 25 | 27 |
| Development costs capitalized | 722 | 676 |
| Total research and development costs (expensed and capitalized) | 747 | 703 |
Moreover, in the separate consolidated income statements for the first half of 2016, amortization charges are recorded for development costs, capitalized during the period and in prior years, for an amount of 332 million euros.
Research and development activities conducted by the Telecom Italia Group are detailed in the Interim Management Report (Sustainability Section) at June 30, 2016.
Telecom Italia and Federmanager RSA Dirigenti signed an agreement on July 25, 2016 to handle a total of 170 redundant management personnel, who will leave the company by December 31, 2018.
It will primarily involve all those who have accrued or will accrue enough contributions to qualify for any form of pension by the end of 2018, or early retirement based on the Fornero law.
The redundancy plan became necessary to cut costs whilst also ensuring generational change, as part of a process initiated by the company to profoundly re-organize and simplify its structures.
The quality and quantity of managers plays a crucial role in this process, and constitutes the foundation for future actions to enhance and develop internal managerial expertise.
The parties have agreed to start a collective procedure pursuant to Italian Law 223/1991, ensuring secure and uniform financial treatment for all the managers involved.
Moreover, during the period the agreement is in force, the company, as an exemption to the Collective Employment Agreement, will pay an incentive related to the years of service to those managers who have not reached pensionable age but who accept it voluntarily.
In addition, if making up social security payment gaps due to studying for a degree or unifying contribution periods is a condition for accessing the retirement package, the company will make a contribution of up to a maximum of 50 thousand euros.
Whereas, if a manager involved in the plan intends to start a business or freelance activity, a contribution of up to 20 thousand euros will be made to their employee severance indemnity.
With this agreement Telecom Italia and Federmanager RSA have together identified measures that will ease the social impact of the necessary change to staffing levels.
On July 25, 2016, Telecom Italia and Fastweb entered into a strategic partnership aimed at speeding up the creation of the ultrabroadband infrastructure with FTTH (Fiber to the Home) technology in 29 Italian cities. The partnership involves the establishment of a joint venture with 80% of the capital held by Telecom Italia and 20% by Fastweb.
Specifically, the new company will handle the creation, on behalf of Telecom Italia and Fastweb, and the subsequent rental to them, of a secondary network and the vertical segments up to user homes. The new company's industrial plan therefore envisages connecting by 2020 around 3 million homes with FTTH technology, which will provide connection speeds of 1 Gigabit per second. The total investment is 1.2 billion euros, which the new company will finance in part with equity and in part with debt. Telecom Italia's share is already included in the capital expenditure envisaged in the 2016-2018 Industrial Plan.
In addition, under the partnership, over the next 18 months Telecom Italia will buy the infrastructure with FTTH technology from Fastweb that will allow around 650 thousand homes in 6 cities to connect to its network one year earlier than envisaged in the Industrial Plan.
The strategic partnership will enable the two companies to create latest generation, extremely high speed infrastructure more rapidly, while also generating synergies in capital expenditure. Telecom Italia and Fastweb intend to combine their efforts to create the ultrabroadband infrastructure that will allow Italy to achieve the objectives of the European Digital Agenda ahead of the deadline set by the EU. Telecom Italia and Fastweb will study the possibility of also extending the partnership to other areas of cooperation in order to jointly develop passive infrastructure and technologies for the rapid spread of ultrabroadband.
In accordance with Consob Communication DEM/6064293 dated July 28, 2006, the list of companies is provided herein. The list is divided by type of investment, consolidation method and operating segment.
The following is indicated for each company: name, head office, country and share capital in the original currency. In addition to the percentage ownership of share capital, the percentage of voting rights in the ordinary shareholders' meeting, if different than the percentage holding of share capital, and which companies hold the investment.
| Company name | Head office | Currency | Share capital | % Ownership | % of voting rights |
Held by |
|---|---|---|---|---|---|---|
| PARENT COMPANY | ||||||
| TELECOM ITALIA S.p.A. | MILAN (ITALY) | EUR | 10,740,236,909 | |||
| SUBSIDIARIES CONSOLIDATED LINE-BY-LINE | ||||||
| DOMESTIC BU | ||||||
| 4G RETAIL S.r.l. | MILAN (ITALY) | EUR | 2,402,241 | 100.0000 | TELECOM ITALIA S.p.A. | |
| (sale of fixed and mobile telecommunications products and services and all analog and digital broadcasting equipment) |
||||||
| ADVANCED CARING CENTER S.r.l. | ROME (ITALY) | EUR | 600,000 | 100.0000 | TELECONTACT CENTER S.p.A. | |
| (telemarketing, market research and surveys activities and development) |
||||||
| ALFABOOK S.r.l. | TURIN (ITALY) | EUR | 100,000 | 100.0000 | OLIVETTI S.p.A. | |
| (on-line sale of digital texts) | ||||||
| BEIGUA S.r.l. | ROME (ITALY) | EUR | 51,480 | 100.0000 | PERSIDERA S.p.A. | |
| (purchase, sale and maintenance of systems for repair work and radio and television broadcasting) |
||||||
| CD FIBER S.r.l. (former TIM CARING S.r.l.) | ROME (ITALY) | EUR | 50,000 | 100.0000 | TELECOM ITALIA S.p.A. | |
| (design, construction, maintenance and management of network infrastructure services and high-speed electronic communication systems) |
||||||
| GESTIONE DUE S.r.l. | MILAN (ITALY) | EUR | 10,000 | 100.0000 | INFRASTRUTTURE WIRELESS ITALIANE S.p.A. | |
| (construction and real estate) | ||||||
| GESTIONE IMMOBILI S.r.l. | MILAN (ITALY) | EUR | 10,000 | 100.0000 | INFRASTRUTTURE WIRELESS ITALIANE S.p.A. | |
| (construction and real estate) | ||||||
| H.R. SERVICES S.r.l. (personnel training and services) |
L'AQUILA (ITALY) | EUR | 500,000 | 100.0000 | TELECOM ITALIA S.p.A. | |
| INFRASTRUTTURE WIRELESS ITALIANE S.p.A. (installation and operation of installations and infrastructure for the management and the sale of telecommunications services) |
MILAN (ITALY) | EUR | 600,000,000 | 60.0333 | TELECOM ITALIA S.p.A. | |
| LAN MED NAUTILUS Ltd | DUBLIN | USD | 1,000,000 | 100.0000 | TELECOM ITALIA SPARKLE S.p.A. | |
| (telecommunications services, installation and maintenance of submarine cable systems for managed bandwidth services) |
(IRELAND) | |||||
| LATIN AMERICAN NAUTILUS ARGENTINA S.A. | BUENOS AIRES | ARS | 9,998,000 | 95.0000 | LAN MED NAUTILUS Ltd | |
| (managed bandwidth services) | (ARGENTINA) | 5.0000 | TELECOM ITALIA SPARKLE S.p.A. | |||
| LATIN AMERICAN NAUTILUS BOLIVIA S.R.L. | LA PAZ | BOB | 1,747,600 | 99.9999 | TELECOM ITALIA SPARKLE S.p.A. | |
| (managed bandwidth services) | (BOLIVIA) | 0.0001 | LATIN AMERICAN NAUTILUS USA Inc. | |||
| LATIN AMERICAN NAUTILUS BRASIL Ltda | RIO DE JANEIRO | BRL | 6,850,598 | 99.9999 | LATIN AMERICAN NAUTILUS BRASIL PARTICIPAÇÕES Ltda |
|
| (managed bandwidth services) | (BRAZIL) | 0.0001 | LATIN AMERICAN NAUTILUS USA Inc. | |||
| LATIN AMERICAN NAUTILUS BRASIL PARTICIPAÇÕES Ltda | RIO DE JANEIRO | BRL | 8,844,866 | 99.9999 | LAN MED NAUTILUS Ltd | |
| (investment holding company) | (BRAZIL) | 0.0001 | TELECOM ITALIA SPARKLE S.p.A. | |||
| LATIN AMERICAN NAUTILUS CHILE S.A. (managed bandwidth services) |
SANTIAGO (CHILE) |
CLP | 5,852,430,960 | 100.0000 | LAN MED NAUTILUS Ltd | |
| LATIN AMERICAN NAUTILUS COLOMBIA Ltda | BOGOTA' | COP | 5,246,906,000 | 99.9999 | LAN MED NAUTILUS Ltd | |
| (managed bandwidth services) | (COLOMBIA) | 0.0001 | LATIN AMERICAN NAUTILUS USA Inc. | |||
| LATIN AMERICAN NAUTILUS PANAMA S.A. | PANAMA | USD | 10,000 | 100.0000 | LAN MED NAUTILUS Ltd | |
| (managed bandwidth services) | ||||||
| LATIN AMERICAN NAUTILUS PERU' S.A. | LIMA | PEN | 16,109,788 | 99.9999 | LAN MED NAUTILUS Ltd | |
| (managed bandwidth services) | (PERU) | 0.0001 | LATIN AMERICAN NAUTILUS USA Inc. | |||
| LATIN AMERICAN NAUTILUS PUERTO RICO LLC (managed bandwidth services) |
SAN JUAN (PUERTO RICO) |
USD | 50,000 | 100.0000 | LAN MED NAUTILUS Ltd | |
| LATIN AMERICAN NAUTILUS ST. CROIX LLC (managed bandwidth services) |
VIRGIN ISLANDS (UNITED STATES) |
USD | 10,000 | 100.0000 | LAN MED NAUTILUS Ltd |
| Company name | Head office | Currency | Share capital | % Ownership | % of voting rights |
Held by |
|---|---|---|---|---|---|---|
| LATIN AMERICAN NAUTILUS USA Inc. (managed bandwidth services) |
MIAMI (UNITED STATES) |
USD | 10,000 | 100.0000 | LAN MED NAUTILUS Ltd | |
| LATIN AMERICAN NAUTILUS VENEZUELA C.A. (managed bandwidth services) |
CARACAS (VENEZUELA) |
VEF | 981,457 | 100.0000 | LAN MED NAUTILUS Ltd | |
| MED 1 SUBMARINE CABLES Ltd (construction and management of the submarine cable lev1) |
RAMAT GAN (ISRAEL) |
ILS | 55,886,866 | 100.0000 | TELECOM ITALIA SPARKLE S.p.A. | |
| MEDITERRANEAN NAUTILUS BULGARIA EOOD (telecommunications) |
SOFIA (BULGARIA) |
BGN | 100,000 | 100.0000 | LAN MED NAUTILUS Ltd | |
| MEDITERRANEAN NAUTILUS GREECE S.A. (telecommunications) |
ATHENS (GREECE) |
EUR | 368,760 | 100.0000 | LAN MED NAUTILUS Ltd | |
| MEDITERRANEAN NAUTILUS ISRAEL Ltd (international wholesale telecommunication services) |
RAMAT GAN (ISRAEL) |
ILS | 1,000 | 100.0000 | LAN MED NAUTILUS Ltd | |
| MEDITERRANEAN NAUTILUS ITALY S.p.A. (installation and management of submarine cable systems) |
ROME (ITALY) | EUR | 3,100,000 | 100.0000 | LAN MED NAUTILUS Ltd | |
| MEDITERRANEAN NAUTILUS TELEKOMÜNIKASYON HIZMETLERI TICARET ANONIM SIRKETI |
YENIBOSNA, ISTANBUL | TRY | 40,600,000 | 100.0000 | LAN MED NAUTILUS Ltd | |
| (telecommunications services) OLIVETTI MULTISERVICES S.p.A. |
(TURKEY) MILAN (ITALY) |
EUR | 20,337,161 | 100.0000 | TELECOM ITALIA S.p.A. | |
| (real estate management) | ||||||
| OLIVETTI S.p.A. (production and sale of office equipment and information technology services) |
IVREA (TURIN) (ITALY) |
EUR | 10,000,000 | 100.0000 | TELECOM ITALIA S.p.A. | |
| PERSIDERA S.p.A. (purchase, sale and maintenance of systems for repair work and radio and television broadcasting) |
ROME (ITALY) | EUR | 21,428,572 | 70.0000 | TELECOM ITALIA S.p.A. | |
| REVI IMMOBILI S.r.l. (construction and real estate) |
MILAN (ITALY) | EUR | 10,000 | 100.0000 | INFRASTRUTTURE WIRELESS ITALIANE S.p.A. | |
| TELECOM ITALIA INFORMATION TECHNOLOGY S.r.l. (planning, design, development and launch of IT services) |
ROME (ITALY) | EUR | 3,400,000 | 100.0000 | TELECOM ITALIA S.p.A. | |
| TELECOM ITALIA NETHERLANDS B.V. (telecommunications services) |
AMSTERDAM (NETHERLANDS) |
EUR | 18,200 | 100.0000 | TELECOM ITALIA SPARKLE S.p.A. | |
| TELECOM ITALIA SAN MARINO S.p.A. (San Marino telecommunications management) |
BORGO MAGGIORE (SAN MARINO) |
EUR | 1,808,000 | 100.0000 | TELECOM ITALIA S.p.A. | |
| TELECOM ITALIA SPAIN SL UNIPERSONAL (telecommunications services) |
MADRID (SPAIN) |
EUR | 1,687,124 | 100.0000 | TELECOM ITALIA SPARKLE S.p.A. | |
| TELECOM ITALIA SPARKLE CZECH S.R.O. (telecommunications services) |
PRAGUE (CZECH REPUBLIC) |
CZK | 6,720,000 | 100.0000 | TELECOM ITALIA SPARKLE S.p.A. | |
| TELECOM ITALIA SPARKLE EST S.R.L. (telecommunications services) |
BUCHAREST (ROMANIA) |
RON | 3,021,560 | 100.0000 | TELECOM ITALIA SPARKLE S.p.A. | |
| TELECOM ITALIA SPARKLE OF NORTH AMERICA, INC. (telecommunications and promotional services) |
NEW YORK (UNITED STATES) |
USD | 15,550,000 | 100.0000 | TELECOM ITALIA SPARKLE S.p.A. | |
| TELECOM ITALIA SPARKLE S.p.A. (completion and management of telecommunications services for public and private use) |
ROME (ITALY) | EUR | 200,000,000 | 100.0000 | TELECOM ITALIA S.p.A. | |
| TELECOM ITALIA SPARKLE SINGAPORE PTE. Ltd (telecommunications services) |
SINGAPORE | USD | 5,121,120 | 99.9999 0.0001 |
TELECOM ITALIA SPARKLE S.p.A. TELECOM ITALIA SPARKLE OF NORTH AMERICA, INC. |
|
| TELECOM ITALIA SPARKLE SLOVAKIA S.R.O. (telecommunications services) |
BRATISLAVA (SLOVAKIA) |
EUR | 300,000 | 100.0000 | TELECOM ITALIA SPARKLE S.p.A. | |
| TELECOM ITALIA TRUST TECHNOLOGIES S.r.l. (other operations related to non-classified IT services) |
POMEZIA ROME (ITALY) |
EUR | 7,000,000 | 100.0000 | TELECOM ITALIA S.p.A. | |
| TELECOM ITALIA VENTURES S.r.l. (investment holding company) |
MILAN (ITALY) | EUR | 10,000 | 100.0000 | TELECOM ITALIA S.p.A. | |
| TELECONTACT CENTER S.p.A. (telemarketing services) |
NAPLES (ITALY) | EUR | 3,000,000 | 100.0000 | TELECOM ITALIA S.p.A. | |
| TELEFONIA MOBILE SAMMARINESE S.p.A. (development and management of mobile telecommunications plants and services) |
BORGO MAGGIORE (SAN MARINO) |
EUR | 78,000 | 51.0000 | TELECOM ITALIA SAN MARINO S.p.A. | |
| TELENERGIA S.r.l. (import, export, purchase, sale and trade of electricity) |
ROME (ITALY) | EUR | 50,000 | 100.0000 | TELECOM ITALIA S.p.A. | |
| TELSY ELETTRONICA E TELECOMUNICAZIONI S.p.A. (production and sale of equipment and systems for crypto telecommunications) |
TURIN (ITALY) | EUR | 390,000 | 100.0000 | TELECOM ITALIA S.p.A. | |
| TI BELGIUM S.P.R.L. - B.V.B.A (telecommunications services) |
BRUSSELS (BELGIUM) |
EUR | 2,200,000 | 100.0000 | TELECOM ITALIA SPARKLE S.p.A. | |
| TI GERMANY GmbH (telecommunications services) |
FRANKFURT (GERMANY) |
EUR | 25,000 | 100.0000 | TELECOM ITALIA SPARKLE S.p.A. | |
| TI SWITZERLAND GmbH (telecommunications services) |
ZURICH (SWITZERLAND) |
CHF | 2,000,000 | 100.0000 | TELECOM ITALIA SPARKLE S.p.A. | |
| TI TELECOM ITALIA (AUSTRIA) TELEKOMMUNIKATIONDIENSTE GmbH (telecommunications services) |
VIENNA (AUSTRIA) |
EUR | 2,735,000 | 100.0000 | TELECOM ITALIA SPARKLE S.p.A. | |
| TIM REAL ESTATE S.r.l. (real estate) |
MILAN (ITALY) | EUR | 50,000 | 100.0000 | TELECOM ITALIA S.p.A. |
| Company name | Head office | Currency | Share capital | % Ownership | % of voting rights |
Held by |
|---|---|---|---|---|---|---|
| TIMB2 S.r.l. (management of television frequency user rights) |
ROME (ITALY) | EUR | 10,000 | 99.0000 1.0000 |
PERSIDERA S.p.A. TELECOM ITALIA S.p.A. |
|
| TIS FRANCE S.A.S. (installation and management of telecommunications services for fixed network and related activities) |
PARIS (FRANCE) |
EUR | 18,295,000 | 100.0000 | TELECOM ITALIA SPARKLE S.p.A. | |
| TMI - TELEMEDIA INTERNATIONAL Ltd (value-added and networking services) |
LONDON (UNITED KINGDOM) |
EUR | 3,983,254 | 100.0000 | TELECOM ITALIA SPARKLE S.p.A. | |
| TMI TELEMEDIA INTERNATIONAL DO BRASIL Ltda | SÃO PAULO | BRL | 8,909,639 | 100.0000 | LATIN AMERICAN NAUTILUS BRASIL PARTICIPAÇÕES Ltda |
|
| (telecommunications services and promotional services) TN FIBER S.r.l. (former TRENTINO NGN S.r.l.) (design, construction, maintenance and supply of optical network access to users in the province of Trento) |
(BRAZIL) TRENTO (ITALY) |
EUR | 55,918,000 | 100.0000 | TELECOM ITALIA S.p.A. | |
| BRAZIL BU | ||||||
| INTELIG TELECOMUNICAÇÕES Ltda (telecommunications services) |
RIO DE JANEIRO (BRAZIL) |
BRL | 4,041,956,045 | 99.9999 0.0001 |
TIM PARTICIPAÇÕES S.A. TIM CELULAR S.A. |
|
| TIM BRASIL SERVIÇOS E PARTICIPAÇÕES S.A. (investment holding company) |
RIO DE JANEIRO (BRAZIL) |
BRL | 7,169,029,859 | 99.9999 0.0001 |
TELECOM ITALIA INTERNATIONAL N.V. TELECOM ITALIA S.p.A. |
|
| TIM CELULAR S.A. (telecommunications services) |
SÃO PAULO (BRAZIL) |
BRL | 9,434,215,720 | 100.0000 | TIM PARTICIPAÇÕES S.A. | |
| TIM PARTICIPAÇÕES S.A. (investment holding company) |
RIO DE JANEIRO (BRAZIL) |
BRL | 9,913,414,422 | 66.5819 0.0329 |
TIM BRASIL SERVIÇOS E PARTICIPAÇÕES S.A. TIM PARTICIPAÇÕES S.A. |
|
| OTHER OPERATIONS | ||||||
| OLIVETTI DEUTSCHLAND GmbH (sale of office equipment and supplies) |
NURENBERG (GERMANY) |
EUR | 25,600,000 | 100.0000 | OLIVETTI S.p.A. | |
| OLIVETTI ESPAÑA S.A. (sale and maintenance of office supplies, consultancy and network management) |
BARCELONA (SPAIN) |
EUR | 1,229,309 | 100.0000 | OLIVETTI S.p.A. | |
| OLIVETTI UK Ltd. (sale of office equipment and supplies) |
NORTHAMPTON (UNITED KINGDOM) |
GBP | 6,295,712 | 100.0000 | OLIVETTI S.p.A. | |
| PURPLE TULIP B.V. (investment holding company) |
AMSTERDAM (NETHERLANDS) |
EUR | 18,000 | 100.0000 | TELECOM ITALIA INTERNATIONAL N.V. | |
| TELECOM ITALIA CAPITAL S.A. (financial company) |
LUXEMBOURG | EUR | 2,336,000 | 100.0000 | TELECOM ITALIA S.p.A. | |
| TELECOM ITALIA DEUTSCHLAND HOLDING GmbH (investment holding company) |
FRANKFURT (GERMANY) |
EUR | 25,000 | 100.0000 | TELECOM ITALIA S.p.A. | |
| TELECOM ITALIA FINANCE IRELAND Ltd (financial company) |
DUBLIN (IRELAND) |
EUR | 1,360,000,000 | 100.0000 | TELECOM ITALIA FINANCE S.A. | |
| TELECOM ITALIA FINANCE S.A. (financial company) |
LUXEMBOURG | EUR | 542,090,241 | 100.0000 | TELECOM ITALIA S.p.A. | |
| TELECOM ITALIA INTERNATIONAL N.V. (investment holding company) |
AMSTERDAM (NETHERLANDS) |
EUR | 2,399,483,000 | 100.0000 | TELECOM ITALIA S.p.A. | |
| TELECOM ITALIA LATAM PARTICIPAÇÕES E GESTÃO ADMINISTRATIVA LTDA |
SÃO PAULO | BRL | 118,925,804 | 100.0000 | TELECOM ITALIA S.p.A. | |
| (telecommunications and promotional services) TIAUDIT COMPLIANCE LATAM S.A. (in liquidation) |
(BRAZIL) RIO DE JANEIRO |
BRL | 1,500,000 | 69.9996 | TELECOM ITALIA S.p.A. | |
| (internal audit services) TIERRA ARGENTEA S.A. (in liquidation) |
(BRAZIL) BUENOS AIRES |
ARS | 11,856,773 | 30.0004 69.3702 |
TIM BRASIL SERVIÇOS E PARTICIPAÇÕES S.A. TELECOM ITALIA INTERNATIONAL N.V. |
|
| (investment holding company) TIESSE S.c.p.A. (installation and assistance for electronic, IT, telematics and telecommunications equipment) |
(ARGENTINA) IVREA (TURIN) (ITALY) |
EUR | 103,292 | 30.6298 61.0000 |
TELECOM ITALIA S.p.A. OLIVETTI S.p.A. |
|
| TIM TANK S.r.l. (fund and securities investments) |
MILAN (ITALY) | EUR | 16,600,000 | 100.0000 | TELECOM ITALIA S.p.A. |
| Company name | Head office | Currency | Share capital | % Ownership | voting Held by rights |
|---|---|---|---|---|---|
| ASSOCIATES AND JOINT VENTURES ACCOUNTED FOR USING THE EQUITY METHOD | |||||
| ALFIERE S.p.A. (*) | ROME (ITALY) | EUR | 9,250,000 | 50.0000 | TELECOM ITALIA S.p.A. |
| (real estate management) | |||||
| AREE URBANE S.r.l. (in liquidation) | MILAN (ITALY) | EUR | 100,000 | 32.6200 | TELECOM ITALIA S.p.A. |
| (real estate management) | |||||
| ASSCOM INSURANCE BROKERS S.r.l. | MILAN (ITALY) | EUR | 100,000 | 20.0000 | TELECOM ITALIA S.p.A. |
| (insurance brokerage) | |||||
| BALTEA S.r.l. (in bankruptcy) | IVREA | EUR | 100,000 | 49.0000 | OLIVETTI S.p.A. |
| (production and sale of office products and telecommunications IT services) |
(TURIN) (ITALY) | ||||
| CLOUDESIRE.COM S.r.l. | PISA (ITALY) | EUR | 10,857 | (**) | TELECOM ITALIA VENTURES S.r.l. |
| (design of a marketplace platform for the sale of software-as-a service applications) |
|||||
| CONSORZIO ANTENNA COLBUCCARO | ASCOLI PICENO (ITALY) | EUR | 200,000 | 20.0000 | PERSIDERA S.p.A. |
| (installation, management and maintenance of metal pylons complete with workstations for device recovery) |
|||||
| CONSORZIO E O (in liquidation) (training services) |
ROME (ITALY) | EUR | 30,987 | 50.0000 | TELECOM ITALIA S.p.A. |
| DONO PERS.C.A.R.L. | ROME (ITALY) | EUR | 30,000 | 33.3333 | TELECOM ITALIA S.p.A. |
| (collection and distribution of funds for charitable purposes or for financing of political parties or political or social movements) |
|||||
| ECO4CLOUD S.r.l. | RENDE | EUR | 19,532 | (**) | TELECOM ITALIA VENTURES S.r.l. |
| (development, production and sale of innovative products or services with high technological value) |
(COSENZA) (ITALY) | ||||
| ITALTEL GROUP S.p.A. | SETTIMO MILANESE | EUR | 825,695 | 34.6845 | 19.3733 TELECOM ITALIA FINANCE S.A. |
| (investment holding company) | (MILAN) (ITALY) | ||||
| ITALTEL S.p.A. | SETTIMO MILANESE | EUR | 2,000,000 | (**) | TELECOM ITALIA S.p.A. |
| (telecommunications systems) | (MILAN) (ITALY) | ||||
| MOVENDA S.p.A. (creation of technological platforms for the development of mobile Internet services) |
ROME (ITALY) | EUR | 133,333 | 24.9998 | TELECOM ITALIA FINANCE S.A. |
| NORDCOM S.p.A. (application service provider) |
MILAN (ITALY) | EUR | 5,000,000 | 42.0000 | TELECOM ITALIA S.p.A. |
| OILPROJECT S.r.l. | MILAN (ITALY) | EUR | 13,556 | (**) | TELECOM ITALIA VENTURES S.r.l. |
| (training) | |||||
| PEDIUS S.r.l. (implementation of specialized telecommunications applications, telecommunications services over telephone connections, VOIP services) |
ROME (ITALY) | EUR | 137 | (**) | TELECOM ITALIA VENTURES S.r.l. |
| TIGLIO I S.r.l. | MILAN (ITALY) | EUR | 5,255,704 | 47.8019 | TELECOM ITALIA S.p.A. |
| (real estate management) | |||||
| TIGLIO II S.r.l. (in liquidation) (real estate management) |
MILAN (ITALY) | EUR | 10,000 | 49.4700 | TELECOM ITALIA S.p.A. |
| W.A.Y. S.r.l. | TURIN (ITALY) | EUR | 136,383 | 39.9999 | OLIVETTI S.p.A. |
| (development and sale of geolocation products and systems for security and logistics) |
|||||
| WIMAN S.r.l. (development, management and implementation of platforms for social-based Wi-Fi authentication) |
MATTINATA (FOGGIA) (ITALY) |
EUR | 19,275 | (**) | TELECOM ITALIA VENTURES S.r.l. |
(*) Joint Venture.
(**) Associate over which Telecom Italia S.p.A., directly or indirectly, exercises significant influence pursuant to IAS 28 (Investments in Associates and Joint Ventures).
% of
CERTIFICATION OF THE HALF-YEAR CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AT JUNE 30, 2016 PURSUANT TO ARTICLE 81-TER OF THE CONSOB REGULATION 11971 DATED MAY 14, 1999, WITH AMENDMENTS AND ADDITIONS.
of the administrative and accounting procedures used in the preparation of the half-year condensed consolidated financial statements for the period January 1 – June 30, 2016.
July 26, 2016
| Chairman | Chief Executive Officer | Manager Responsible for Preparing the Corporate Financial Reports |
||
|---|---|---|---|---|
| _signed______ | _signed_ | __signed____ | ||
| (Giuseppe Recchi) | (Flavio Cattaneo) | (Piergiorgio Peluso) |
To the shareholders of Telecom Italia SpA
We have reviewed the accompanying consolidated condensed interim financial statements of Telecom Italia SpA and its subsidiaries ("Telecom Italia Group") as of and for the six-month period ended 30 June 2016, comprising the statement of financial position, the separate income statement, the statement of comprehensive income, the statement of changes in shareholders' equity, the statement of cash flows and related explanatory notes. The directors of Telecom Italia SpA are responsible for the preparation of the consolidated condensed interim financial statements in accordance with International Accounting Standard 34 applicable to interim financial reporting (IAS 34) as adopted by the European Union. Our responsibility is to express a conclusion on these consolidated condensed interim financial statements based on our review.
We conducted our work in accordance with the criteria for a review recommended by the National Commission for Companies and Stock Exchange (CONSOB) in Resolution No. 10867 of 31 July 1997. A review of consolidated condensed interim financial statements consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than a full-scope audit conducted in accordance with International Standards on Auditing (ISA Italia) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion on the consolidated condensed interim financial statements.
Based on our review, nothing has come to our attention that causes us to believe that the accompanying consolidated condensed interim financial statements of Telecom Italia Group as of and for the six-month period ended 30 June 2016 are not prepared, in all material respects, in accordance with International Accounting Standard 34 applicable to interim financial reporting (IAS 34) as adopted by the European Union.
Without modifying our conclusions, we draw attention of the explanatory note 1 of the financial statements, regarding the restatement of some comparative amounts as at 31 December 2015 and for the six-month period ended 30 June 2015, respect to the amounts previously disclosed, as well as to the presentation of the consolidated statement of financial position as at 1 January 2015.
Milan, 10 August 2016
PricewaterhouseCoopers SpA
Signed by
Francesco Ferrara (Partner)
This report has been translated into English from the Italian original solely for the convenience of international readers
Free copies of this report, can be obtained by:
| Calling | Free Number 800.020.220 (for calls inside Italy) or +39 011 2293603 (for calls outside Italy) providing information and assistance to shareholders |
|---|---|
| [email protected] | |
| Internet | Users can view the Half-Year financial Report at June 30, 2016 by visiting the website telecomitalia.com/Bilanci-Relazioni. They can also obtain information about Telecom Italia at the following URL: www.telecomitalia.com and information about its products and services at the following URL: www.tim.it |
| Investor Relations | +39 02 8595 1 +39 02 85954132 (fax) |
TELECOM ITALIA Registered Office Via G. Negri n. 1 - Milan Headquarters and Secondary Office in Corso d'Italia 41 - Rome PEC (Certified Electronic Mail) box: [email protected] Share Capital 10,740,236,908.50 euros, fully paid up Tax Code/VAT no. and Milan Companies Register file no. 00488410010
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