Quarterly Report • May 24, 2016
Quarterly Report
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| The Telecom Italia Group _____________ 3 | |
|---|---|
| Highlights – First Three Months of 2016 ____________ 5 | |
| Consolidated Operating Performance _________ 8 | |
| Financial and Operating Highlights – The Business Units of the Telecom Italia Group _____ 13 | |
| Discontinued operations/Non-current assets held for sale _________ 22 | |
| Consolidated Financial Position and Cash Flows Performance ______ 23 | |
| Consolidated Financial Statements – Telecom Italia Group ________ 31 | |
| Events Subsequent to March 31, 2016 ____________ 40 | |
| Business Outlook for the Year 2016 _________ 40 | |
| Main risks and uncertainties _________ 42 | |
| Corporate Boards at March 31, 2016 ________ 45 | |
| Macro-Organization Chart at March 31, 2016 _______ 47 | |
| Information for Investors ____________ 48 | |
| Significant non-recurring events and transactions __________ 50 | |
| Positions or transactions resulting from atypical and/or unusual operations ______ 50 | |
| Alternative Performance Measures __________ 51 |
| AT MARCH 31, 2016 _________ 53 | |
|---|---|
| Contents _____________ 54 | |
| Consolidated Statements of Financial Position ______ 55 | |
| Separate Consolidated Income Statements _________ 57 | |
| Consolidated Statements of Comprehensive Income _______ 58 | |
| Consolidated Statements of Changes in Equity ______ 59 | |
| Consolidated Statements of Cash Flows ____________ 60 | |
| Notes to the Consolidated Financial Statements ___________ 62 | |
| Declaration by the Manager Responsible for Preparing the Corporate Financial | |
| Reports _____________ 108 |
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 |
|---|---|
| Chief Executive Officer | Flavio Cattaneo |
| Directors | Tarak Ben Ammar |
| Davide Benello (independent) | |
| Lucia Calvosa (independent) | |
| Laura Cioli (independent) | |
| Francesca Cornelli (independent) | |
| Arnaud Roy de Puyfontaine | |
| 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 |
4
In 2015, Telecom Italia initiated a fundamental process of renewal of its identity and corporate structure, aimed at consolidating its leadership and above all supporting the future growth of the Group; that process continued in the first quarter of 2016.
The fixed-mobile convergence, resulting from the increasing diffusion of smart handsets and the development of digital platforms and infrastructure, is at the center of the TLC industry. In response to this phenomenon, Telecom Italia has converged its entire commercial offering under TIM – the single brand of the Group from the beginning of 2016 – which combines Telecom Italia's solidity and TIM's innovation to provide a high quality customer experience through digital services and content.
On the technology side, since 2015, there has been a sharp increase in the development of the mobile and fixed ultra-broadband networks, as a result of overall capital expenditure of 3 billion euros, thanks to which Telecom Italia/TIM has confirmed its status as the lead player in the digitization of Italy.
The base of the capital expenditure program implemented is the diffusion of premium digital content and services with a particular focus on the video sector. This included a strong boost to TIMvision, the integrated platform operated by TIM, which had over 600,000 customers at the end of March 2016, also thanks to the agreement signed with major producers of international content.
A renewed portfolio of offerings has been launched to support the development and diffusion of services and content, with a focus on bundle and lock-up deals aimed at stabilizing the customer base through the steady growth in consumption of fixed and mobile broadband data.
The first quarter of 2016 also witnessed the sale, on March 8, 2016, of the controlling interest still held in the Sofora – Telecom Argentina Group, classified under Discontinued Operations.
The domestic market in the first quarter of 2016 showed a slowdown in negative growth, in line with the trend recorded in previous quarters, driven by a slower decline in traditional services and growth in innovative services. In the Mobile segment in particular, the Group's competitiveness showed further improvement, with revenues posting growth for a second consecutive quarter, driven by the greater penetration of mobile Internet services and the stability of the Group's market share. In the Fixed-line segment, stable growth in revenues was driven by the positive trend in broadband ARPU, steady growth in ADSL customers with premium bundle/flat deals, and growth in ICT services.
In Brazil, the market was affected by a further deterioration in the macroeconomic scenario, which caused a contraction in internal demand, higher inflation and the depreciation of the reais from 3.22 reais per euro for the first quarter of 2015 to 4.30 reais per euro for the first quarter of 2016. These factors contributed to a general slowdown in growth in the mobile market compared to the previous quarters.
In this environment, the TIM Brasil group maintained a substantially steady market share in the Mobile segment, with an increase in the postpaid customer base. However, at the same time, revenues fell as a result of a drop in sales of handsets and lower revenues from services. This latter trend was driven by a faster decline in traditional voice and messaging services, which was only partially offset by growth in revenues from innovation, data and value-added services. Fixed-line revenues posted growth, especially in the wholesale business segment of the subsidiary Intelig and the broadband segment of Tim Live, which, however, only make up a marginal share of total revenues.
In the first quarter of 2016, 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. These include expenses resulting from corporate restructuring and reorganization processes, expenses resulting from regulatory disputes and penalties and the liabilities related to those expenses.
The impacts of non-recurring income/expenses on the main interim results are outlined below in this Report.
In terms of equity and income, for the first quarter of 2016:
| (millions of euros) | 1st Quarter | 1st Quarter | % Change | ||
|---|---|---|---|---|---|
| 2016 | 2015 | Reported | Organic | ||
| Revenues | 4,440 | 5,054 | (12.1) | (5.6) | |
| EBITDA | (1) | 1,712 | 2,033 | (15.8) | (11.3) |
| EBITDA Margin | 38.6% | 40.2% | (1.6)pp | ||
| Organic EBITDA Margin | 38.6% | 41.0% | (2.4)pp | ||
| EBIT | (1) | 704 | 981 | (28.2) | (25.1) |
| EBIT Margin | 15.9% | 19.4% | (3.5)pp | ||
| Organic EBIT Margin | 15.9% | 20.0% | (4.1)pp | ||
| Profit (loss) from Discontinued operations/Non-current assets held for sale |
47 | 169 | (72.2) | ||
| Profit (loss) for the period attributable to owners of the Parent |
433 | 82 | |||
| Capital expenditures (CAPEX) | 944 | 964 | (2.1) | ||
| 3/31/2016 | 12/31/2015 | Change Amount | |||
| Adjusted net financial debt | (1) | 27,139 | 27,278 | (139) |
(*) 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 three-month period ended March 31, 2015, have been therefore revised, with no material impact.
(1) Details are provided under "Alternative Performance Measures".
Revenues amounted to 4,440 million euros in the first quarter of 2016, down 12.1% from 5,054 million euros in the first quarter of 2015. The decrease of 614 million euros was mainly attributable to the Brazil Business Unit (515 million euros) and the Domestic Business Unit (83 million euros).
In terms of organic change, consolidated revenues fell by 5.6% (-263 million euros), and were calculated as follows:
| (millions of euros) | 1st Quarter | 1st Quarter | Change | |
|---|---|---|---|---|
| 2016 | 2015 | amount | % | |
| REPORTED REVENUES | 4,440 | 5,054 | (614) | (12.1) |
| Foreign currency financial statements translation effect | (351) | 351 | ||
| Changes in the scope of consolidation | − | − | ||
| ORGANIC REVENUES | 4,440 | 4,703 | (263) | (5.6) |
Exchange rate fluctuations(1) were attributable to the Brazil Business Unit (-353 million euros) and the Domestic Business Unit (+2 million euros). No changes arose in the scope of consolidation (2) .
| (millions of euros) | 1st Quarter 2016 | 1st Quarter 2015 | Change | ||||
|---|---|---|---|---|---|---|---|
| % of total | % of total | amount | % | % organic | |||
| Domestic (*) | 3,548 | 79.9 | 3,631 | 71.8 | (83) | (2.3) | (2.3) |
| Core Domestic (**) | 3,310 | 74.5 | 3,397 | 67.2 | (87) | (2.6) | (2.6) |
| International Wholesale | 311 | 7.0 | 310 | 6.1 | 1 | 0.3 | (0.3) |
| Brazil | 897 | 20.2 | 1,412 | 27.9 | (515) | (36.5) | (15.3) |
| Other Operations | 6 | 0.1 | 21 | 0.4 | (15) | ||
| Adjustments and eliminations | (11) | (0.2) | (10) | (0.1) | (1) | ||
| Consolidated Total | 4,440 | 100.0 | 5,054 | 100.0 | (614) | (12.1) | (5.6) |
The breakdown of revenues by operating segment is the following:
(*) Following the change in the mission of Persidera, the Media Business Unit was included in the Domestic Business Unit (Core Domestic) as of January 1, 2016; without that change, the revenues of the Domestic Business Unit for the first quarter of 2016 would have totaled 3,530 million euros. (**) From January 1, 2016, this also includes the company Olivetti. Figures for the period under comparison have been changed accordingly.
The Domestic Business Unit (consisting of the Core Domestic and International Wholesale segments) posted a drop in revenues in the first quarter of 2016 of 83 million euros (-2.3%) over the same period of 2015. The trend was in line with the previous quarter (fourth quarter 2015: -2.3%) although positive signs were seen in the Mobile market, in terms of both total revenues (+3.0% on the first quarter of 2015) and revenues from services (+0.6% on the first quarter of 2015).
The improvement was driven by sales campaigns targeted at progressively stabilizing the customer base, with the Mobile market share remaining stable and growth in revenues recorded in the Fixed Broadband, ICT and Mobile Internet segments.
The Brazil Business Unit recorded revenues for the first quarter of 2016 amounting to 3,854 million reais, down 697 million reais over the same period of the prior year (-15.3%). The decrease was attributable to lower revenues from sales of handsets (-371 million reais), which were influenced by a commercial policy less focused on the sale of these items, in addition to lower consumer spending among Brazilian households; the fall in revenues from services fell (-326 million reais) still reflected the latest reduction in the mobile termination rate and lower revenues from traditional voice and SMS services, only partially offset by the increase in revenue generated by the innovative component.
A more detailed analysis of revenue performance by individual Business Unit is provided in the section "Financial and Operating Highlights - The Business Units of the Telecom Italia Group".
EBITDA totaled 1,712 million euros (2,033 million euros in the first quarter of 2015), decreasing by 321 million euros compared to the corresponding period of 2015; the EBITDA margin was 38.6% (40.2% in the first quarter of 2015).
Organic EBITDA was down 218 million euros (-11.3%) compared to the first quarter of 2015; the EBITDA margin fell by 2.4 percentage points, from 41.0% in the first quarter of 2015 to 38.6% in the first quarter of 2016.
EBITDA in the first quarter of 2016 reflected the negative impact of non-recurring expenses totaling 75 million euros. Without these expenses the organic change in EBITDA would have been -7.5%, with an EBITDA margin of 40.2%, down 0.9 percentage points on the first quarter of 2015. Further details are provided in the section "Significant non-recurring events and transactions" in this Interim Management Report.
Organic EBITDA is calculated as follows:
| (millions of euros) | 1st Quarter | 1st Quarter | Change | |
|---|---|---|---|---|
| 2016 | 2015 | amount | % | |
| REPORTED EBITDA | 1,712 | 2,033 | (321) | (15.8) |
| Foreign currency financial statements translation effect | (103) | 103 | ||
| Changes in the scope of consolidation | − | − | ||
| ORGANIC EBITDA | 1,712 | 1,930 | (218) | (11.3) |
| of which non-recurring income/(expenses) | (75) | (1) | (74) | |
| ORGANIC EBITDA excluding non-recurring component | 1,787 | 1,931 | (144) | (7.5) |
Exchange rate fluctuations relate to the Brazil Business Unit (-104 million euros) and the Domestic Business Unit (+ 1 million euros).
| (millions of euros) | 1st Quarter 2016 | 1st Quarter 2015 | Change | ||||
|---|---|---|---|---|---|---|---|
| % of total | % of total | amount | % | % organic | |||
| Domestic (*) | 1,461 | 85.3 | 1,610 | 79.2 | (149) | (9.3) | (9.3) |
| EBITDA Margin | 41.2 | 44.3 | (3.1)pp | (3.1)pp | |||
| Brazil | 258 | 15.1 | 416 | 20.5 | (158) | (38.0) | (17.4) |
| EBITDA Margin | 28.7 | 29.5 | (0.8)pp | (0.7)pp | |||
| Other Operations | (6) | (0.4) | 7 | 0.3 | (13) | ||
| Adjustments and eliminations | (1) | − | − | − | (1) | ||
| Consolidated Total | 1,712 | 100.0 | 2,033 | 100.0 | (321) | (15.8) | (11.3) |
| EBITDA Margin | 38.6 | 40.2 | (1.6)pp | (2.4)pp |
(*) Following the change in the mission of Persidera, the Media Business Unit was included in the Domestic Business Unit (Core Domestic) as of January 1, 2016; without that change the EBITDA of the Domestic Business Unit for the first quarter of 2016 would have totaled 1,451 million euros.
EBITDA was particularly impacted by the change in the line items analyzed below:
• Acquisition of goods and services (1,923 million euros; 2,171 million euros in the first quarter of 2015).
The decrease of 248 million euros was mainly attributable to lower acquisitions of goods and services by the Brazil Business Unit (down by 352 million euros, including a negative exchange rate effect of 207 million euros), partially offset by higher acquisitions of goods and services by the Domestic Business Unit (109 million euros), mainly due to higher purchases of equipment and handsets.
16 average employees (+207 average employees related to "Solidarity Contracts": the solidarity contracts of the Parent and Telecom Italia Information Technology of the first three months of 2015 were offset by a new contract started in January 2016 in the only Parent, former agreement of October 27, 2015).
In particular:
Details are as follows:
| (millions of euros) | 1st Quarter 2016 |
1st Quarter 2015 |
Change |
|---|---|---|---|
| Amortization of intangible assets with a finite useful life | 418 | 463 | (45) |
| Depreciation of property, plant and equipment – owned and | |||
| leased | 591 | 589 | 2 |
| Total | 1,009 | 1,052 | (43) |
The decrease of 43 million euros was mainly attributable to the Brazil Business Unit (-40 million euros, net of a negative exchange rate effect of 63 million euros). Without this exchange rate effect, the depreciation and amortization of the Brazil Business Unit would have increased by 23 million euros.
In the first quarter of 2016, this item amounted to 3 million euros (zero in the first quarter of 2015).
In the first quarter of 2016, this item amounted to 2 million euros (zero in the first quarter of 2015). In accordance with IAS 36, goodwill is not subject to amortization, but is tested for impairment annually. At March 31, 2016, no external or internal events were identified giving reason to believe a new impairment test was required and amounts of goodwill allocated to the individual Cash Generating Units were therefore confirmed.
EBIT totaled 704 million euros (981 million euros in the first quarter of 2015), decreasing by 277 million euros (-28.2%) compared to the first quarter of 2015; the EBIT margin was 15.9% (19.4% in the first quarter of 2015).
Organic EBIT was down 236 million euros, with an organic EBIT margin of 15.9% (20.0% in the first quarter of 2015).
EBIT in the first quarter of 2016 reflected the negative impact of non-recurring net expenses totaling 74 million euros; without these non-recurring net expenses, the organic change in EBIT would have been -17.3%, with an EBIT margin of 17.5%. Further details are provided in the section "Significant nonrecurring events and transactions" in this Interim Management Report.
| (millions of euros) | 1st Quarter | 1st Quarter | Change | |
|---|---|---|---|---|
| 2016 | 2015 | amount | % | |
| REPORTED EBIT | 704 | 981 | (277) | (28.2) |
| Foreign currency financial statements translation effect | (41) | 41 | ||
| Changes in the scope of consolidation | − | − | ||
| ORGANIC EBIT | 704 | 940 | (236) | (25.1) |
| of which non-recurring income/(expenses) | (74) | (1) | (73) | |
| ORGANIC EBIT excluding non-recurring component | 778 | 941 | (163) | (17.3) |
Exchange rate fluctuations were attributable to the Brazil Business Unit.
Finance income (expenses) showed a decrease in net expenses of 791 million euros, from 817 million euros in March 2015 to 26 million euros in March 2016. This change reflected:
Income tax expense amounted to 221 million euros, up 147 million euros on the first quarter of 2015 (74 million euros), largely due to the higher taxable base of the Parent Telecom Italia and partially offset
by lower taxes on the Brazil Business Unit, which benefited from investment incentives in the north-east of the country.
In the first quarter of 2016 this item was positive by 47 million euros (169 million euros in the first quarter 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 taxes totaling 12 million euros.
More details are provided in the section "Discontinued operations/Non-current assets held for sale" of this Report on Operations and in the Note "Discontinued operations/Non-current assets held for sale" in the Condensed Consolidated Financial Statements at March 31, 2016 of the Telecom Italia Group.
This item was broken down as follows:
| (millions of euros) | 1st Quarter | 1st Quarter |
|---|---|---|
| 2016 | 2015 | |
| Profit (loss) for the period | 504 | 261 |
| Attributable to: | ||
| Owners of the Parent: | ||
| Profit (loss) from continuing operations | 436 | 58 |
| Profit (loss) from Discontinued operations/Non-current assets held for sale | (3) | 24 |
| Profit (loss) for the period attributable to owners of the Parent | 433 | 82 |
| Non-controlling interests: | ||
| Profit (loss) from continuing operations | 21 | 34 |
| Profit (loss) from Discontinued operations/Non-current assets held for sale | 50 | 145 |
| Profit (loss) for the period attributable to non-controlling interests | 71 | 179 |
Profit for the first quarter of 2016 attributable to Owners of the Parent amounted to 433 million euros (82 million euros in the first quarter of 2015), impacted by non-recurring net expenses of 64 million euros. A positive effect was instead had from a series of items tied to accounting valuations that generate no financial settlement, connected in particular with the measurement at fair value of the embedded option in the three-year mandatory convertible bond issued at the end of 2013. Without those items, profit for the first quarter of 2016 attributable to Owners of the Parent would have totaled approximately 260 million euros, showing substantially no change on the figure for the first quarter of 2015.
| (millions of euros) | 1st Quarter 2016 |
1st Quarter 2015 |
Change | |||
|---|---|---|---|---|---|---|
| amount | % | % organic | ||||
| Revenues | 3,548 | 3,631 | (83) | (2.3) | (2.3) | |
| EBITDA | 1,461 | 1,610 | (149) | (9.3) | (9.3) | |
| EBITDA Margin | 41.2 | 44.3 | (3.1)pp | (3.1)pp | ||
| EBIT | 662 | 814 | (152) | (18.7) | (18.7) | |
| EBIT Margin | 18.7 | 22.4 | (3.7)pp | (3.7)pp | ||
| Headcount at period end (number) | 52,713 | (1) 52,644 | 69 | 0.1 |
| 3/31/2016 12/31/2015 | 3/31/2015 | ||
|---|---|---|---|
| Physical accesses at period end (thousands) | 19,145 | 19,209 | 19,581 |
| of which Retail physical accesses at period end (thousands) | 11,602 | 11,742 | 12,283 |
| Broadband accesses at period end (thousands) | 8,955 | 8,890 | 8,784 |
| of which Retail broadband accesses at period end (thousands) | 7,067 | 7,023 | 6,945 |
| Network infrastructure in Italy: | |||
| copper access network (millions of km – pair, distribution and connection) |
115.6 | 115.6 | 115.3 |
| access and carrier network in optical fiber (millions of km - fiber) | 10.9 | 10.4 | 8.6 |
| Total traffic: | |||
| Minutes of traffic on fixed-line network (billions): | 18.2 | 76.9 | 20.3 |
| Domestic traffic | 14.8 | 62.5 | 16.7 |
| International traffic | 3.4 | 14.4 | 3.6 |
| Broadband traffic (PBytes) | 1,312 | 4,126 | 947 |
| 3/31/2016 | 12/31/2015 | 3/31/2015 | |
|---|---|---|---|
| Lines at period end (thousands) | 29,846 | 30,007 | 30,140 |
| Change in lines (%) | (0.5) | (1.1) | (0.7) |
| Churn rate (%) | 5.6 | 23.4 | 6.4 |
| Total traffic: | |||
| Outgoing retail traffic (billions of minutes) | 11.0 | 43.6 | 10.8 |
| Incoming and outgoing retail traffic (billions of minutes) | 16.9 | 66.1 | 16.2 |
| Browsing Traffic (PBytes) | 56.6 | 182.6 | 39.4 |
| Average monthly revenues per line (in euros) | 11.6 | 12.1 | 11.3 |
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 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.
Following the change in scope, the table below shows the performance of the Domestic Business Unit in the first quarter 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 Quarter 2016 |
1st Quarter 2015 |
Change | ||
|---|---|---|---|---|---|
| amount | % | % organic | |||
| Revenues | 3,530 | 3,631 | (101) | (2.8) | (2.8) |
| EBITDA | 1,451 | 1,610 | (159) | (9.9) | (9.9) |
| EBITDA Margin | 41.1 | 44.3 | (3.2)pp | (3.2)pp | |
| EBIT | 657 | 814 | (157) | (19.3) | (19.3) |
| EBIT Margin | 18.6 | 22.4 | (3.8)pp | (3.8)pp | |
| Headcount at period end (number) | 52,650 | (1) 52,644 | 6 |
Revenues in the first quarter of 2016 amounted to 3,548 million euros, a drop of 83 million euros (-2.3%) on the first quarter of 2015; the negative performance trend was in line with the figure for the first quarter of 2015 (-2.3%). Compared to the same period of 2015, revenues from services showed essentially the same trend as total revenues (-83 million euros, -2.4%), but with weaker signs of recovery, due in particular to the worsening performance of the Fixed-line segment; the solid, structural recovery of Mobile revenues was instead reconfirmed, thanks to market share regained and the stabilization of ARPU levels.
In detail:
Revenues from product sales, including the change in work in progress, amounted to 196 million euros in the first quarter of 2016, in line with the first quarter of 2015.
EBITDA for the Domestic Business Unit totaled 1,461 million euros at March 31, 2016, decreasing by 149 million euros compared to the first quarter of 2015 (-9.3%), with an EBITDA margin of 41.2% (-3.1 percentage points compared to the same period of the previous year). The first quarter 2016 figure reflected the negative impact of non-recurring net expenses – as already described in the Highlights section of this Report – totaling 67 million euros. Without these expenses the organic change in EBITDA would have been -5.2%, with an EBITDA margin of 43.1%, down 1.3 percentage points on the figure at March 31, 2015.
Organic EBITDA is calculated as follows:
| (millions of euros) | 1st Quarter 2016 |
1st Quarter 2015 |
Change | |
|---|---|---|---|---|
| amount | % | |||
| REPORTED EBITDA | 1,461 | 1,610 | (149) | (9.3) |
| Foreign currency financial statements translation effect | - | 1 | (1) | |
| Changes in the scope of consolidation | - | - | - | |
| ORGANIC EBITDA | 1,461 | 1,611 | (150) | (9.3) |
| of which non-recurring income/(expenses) | (67) | (1) | (66) | |
| ORGANIC EBITDA excluding non-recurring component | 1,528 | 1,612 | (84) | (5.2) |
With regard to the change in the main costs, the following is noted:
| (millions of euros) | 1st Quarter 2016 |
1st Quarter 2015 |
Change |
|---|---|---|---|
| Acquisition of goods and services | 1,450 | 1,341 | 109 |
| Employee benefits expenses | 756 | 734 | 22 |
| Other operating expenses | 138 | 123 | 15 |
| (millions of euros) | 1st Quarter 2016 |
1st Quarter 2015 |
Change |
|---|---|---|---|
| Write-downs and expenses in connection with credit management | 68 | 59 | 9 |
| Provision charges | 6 | 6 | - |
| TLC operating fees and charges | 12 | 11 | 1 |
| Indirect duties and taxes | 23 | 25 | (2) |
| Sundry expenses | 29 | 22 | 7 |
| Total | 138 | 123 | 15 |
EBIT for the first quarter of 2016 came to 662 million euros (814 million euros in the same period of 2015), down 152 million euros (-18.7%), with an EBIT margin of 18.7% (22.4% in the first quarter of 2015). The EBIT performance reflected the reduction in EBITDA described above.
EBIT for the first quarter of 2016 was pulled down by a total of 67 million euros in non-recurring expenses, without which the organic change in EBIT would have been -10.6%, with an EBIT margin of 20.5%.
| (millions of euros) | 1st Quarter 2016 |
1st Quarter 2015 |
Change | |
|---|---|---|---|---|
| amount | % | |||
| REPORTED EBIT | 662 | 814 | (152) | (18.7) |
| Foreign currency financial statements translation effect | - | - | - | |
| Changes in the scope of consolidation | - | - | - | |
| ORGANIC EBIT | 662 | 814 | (152) | (18.7) |
| of which non-recurring income/(expenses) | (67) | (1) | (66) | |
| ORGANIC EBIT excluding non-recurring component | 729 | 815 | (86) | (10.6) |
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 quarter of 2016 for the Domestic Business Unit are presented in the following tables, broken down by market/business segment and compared to the first quarter of 2015.
| (millions of euros) | 1st Quarter 2016 |
1st Quarter 2015 |
Change | |
|---|---|---|---|---|
| amount | % | |||
| Revenues (1) | 3,310 | 3,397 | (87) | (2.6) |
| Consumer | 1,758 | 1,724 | 34 | 2.0 |
| Business (2) | 1,085 | 1,181 | (96) | (8.1) |
| Wholesale | 433 | 457 | (24) | (5.3) |
| Other | 35 | 35 | - | - |
| EBITDA | 1,422 | 1,570 | (148) | (9.4) |
| EBITDA Margin | 43.0 | 46.2 | (3.2)pp | |
| EBIT | 648 | 797 | (149) | (18.7) |
| EBIT Margin | 19.6 | 23.5 | (3.9)pp | |
| Headcount at period end (number)(*) | 52,039 | (3) 51,741 | 298 | 0.6 |
• Consumer: revenues for the Consumer segment for the first quarter of 2016 amounted to a total of 1,758 million euros, an increase of 34 million euros compared to the same period of 2015 (+2.0%). The trend confirms the recovery already witnessed in 2015, driven in particular by the solid, structural improvement in the Mobile segment, underpinned by market share regained and the stabilization of ARPU levels.
In particular:
revenues from the Fixed-line segment totaled 890 million euros, showing a drop of 57 million euros on the first quarter of 2015 (-6.0%) and continuing the slowdown witnessed in the last quarter of 2015 (-6.7%), driven down by the loss of voice-only accesses and greater pressures on ARPU levels, which were only partially offset by growth in innovative services, in particular positive growth in the Broadband customer base.
Business: revenues for the Business segment amounted to 1,085 million euros, decreasing by 96 million euros compared to the first quarter of 2015 (-8.1%), of which -58 million euros (-5.5%) were attributable to the services component. In detail:
| (millions of euros) | 1st Quarter 2016 |
1st Quarter 2015 |
Change | ||
|---|---|---|---|---|---|
| amount | % | % organic | |||
| Revenues | 311 | 310 | 1 | 0.3 | (0.3) |
| of which third party | 255 | 247 | 8 | 3.2 | 2.4 |
| EBITDA | 42 | 43 | (1) | (2.3) | (4.5) |
| EBITDA Margin | 13.5 | 13.9 | (0.4)pp | (0.6)pp | |
| EBIT | 14 | 17 | (3) | (17.6) | (17.6) |
| EBIT Margin | 4.5 | 5.5 | (1.0)pp | (0.9)pp | |
| Headcount at period end (number)(*) | 674 | (1) 645 | 29 | 4.5 |
Revenues for the Telecom Italia Sparkle group – International Wholesale in the first quarter 2016 totaled 311 million euros, substantially in line with the 2015 first quarter figure (+1 million euros, +0.3%). The result was shaped by growth in revenues from IP/Data services (+2 million euros, +2.8%) and the decline in revenues from Voice services (-1 million euros, -0.5%). All other business lines remained substantially stable.
| (millions of euros) | (millions of reais) | |||||
|---|---|---|---|---|---|---|
| 1st Quarter 2016 |
1st Quarter 2015 |
1st Quarter 2016 |
1st Quarter 2015 |
Change | ||
| Revised | Revised | amount | % | |||
| (a) | (b) | (c) | (d) | (c-d) | (c-d)/d | |
| Revenues | 897 | 1,412 | 3,854 | 4,551 | (697) | (15.3) |
| EBITDA | 258 | 416 | 1,107 | 1,341 | (234) | (17.4) |
| EBITDA Margin | 28.7 | 29.5 | 28.7 | 29.5 | (0.8)pp | |
| EBIT | 49 | 165 | 210 | 531 | (321) | (60.5) |
| EBIT Margin | 5.4 | 11.7 | 5.4 | 11.7 | (6.3)pp | |
| Headcount at period end (number) | 12,280 | (1)13,042 | (762) | (5.8) |
| 1st Quarter 2016 |
1st Quarter 2015 |
|
|---|---|---|
| Lines at period end (thousands) | 67,269 | (1)66,234 |
| MOU (minutes/month) | 118.6 | 120.3 |
| ARPU (reais) | 17.2 | 16.7 |
Revenues for the first quarter of 2016 amounted to 3,854 million reais and were down 697 million reais (-15.3%) year-on-year. Service revenues totaled 3,618 million reais, a decrease of 326 million reais compared to 3,944 million reais for the first quarter of 2015 (-8.3%). Mobile Average Revenue Per User (ARPU) was 17.2 reais in the first quarter of 2016 compared to 16.7 reais in the same period of the previous year (+3%).
Revenues from product sales came to 236 million reais (607 million reais in the first quarter of 2015, -61.1%), 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 total number of lines at March 31, 2016 amounted to 67,269 thousand, a slight increase compared to December 31, 2015, and corresponding to a market share of approximately 26.1% (25.7% at December 31, 2015).
EBITDA amounted to 1,107 million reais, down 234 million reais on the first quarter of 2015 (-17.4%). The decline in EBITDA was attributable to the fall in revenues, which was only partially offset by the deployment of efficiency measures on cost items and the reduction in costs for revenues due to other operators and the cost of sales; employee benefits expenses, on the other hand, increased also due to the salary inflation adjustment, in addition to other net non-recurring costs for termination benefits of 33 million reais.
The EBITDA margin stood at 28.7%, 0.8 percentage points lower than in the first quarter of 2015.
With regard to the change in the main costs, the following is noted:
| (millions of euros) | (millions of reais) | |||||
|---|---|---|---|---|---|---|
| 1st Quarter 1st Quarter 2016 2015 |
1st Quarter 2016 |
1st Quarter 2015 |
Change | |||
| (a) | (b) | (c) | (d) | (c-d) | ||
| Acquisition of goods and services |
475 | 827 | 2,043 | 2,666 | (623) | |
| Employee benefits expenses | 88 | 97 | 379 | 313 | 66 | |
| Other operating expenses | 111 | 140 | 479 | 449 | 30 | |
| Change in inventories | (9) | (38) | (40) | (122) | 82 |
| (millions of reais) | 1st Quarter 2016 |
1st Quarter 2015 |
Change |
|---|---|---|---|
| Write-downs and expenses in connection with credit management | 71 | 56 | 15 |
| Provision charges | 63 | 57 | 6 |
| TLC operating fees and charges | 324 | 308 | 16 |
| Indirect duties and taxes | 6 | 15 | (9) |
| Sundry expenses | 15 | 13 | 2 |
| Total | 479 | 449 | 30 |
EBIT came to 210 million reais, down 321 million reais compared to the first quarter of 2015. In addition to the lower contribution of EBITDA, this result reflected the higher depreciation and amortization of +98 million reais due to greater capital expenditure.
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.
The sales of the first three blocks were completed in 2015, as described in the Consolidated Financial Statements of the Telecom Italia Group at December 31, 2015; no further sales were completed during the first quarter of 2016.
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 the first quarter 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 quarter 2015 have been translated at the related average exchange rate (9.78805 pesos per euro):
| (millions of euros) | 1/1–3/8 | 1st Quarter |
|---|---|---|
| 2016 | 2015 | |
| Income statement effects from Discontinued operations/Non-current assets held for sale: |
||
| Revenues | 504 | 906 |
| EBITDA | 133 | 268 |
| EBITDA Margin | 26.4 | 29.6 |
| Operating profit (loss) (EBIT) | 133 | 269 |
| EBIT Margin | 26.4 | 29.6 |
| Finance income (expenses), net | (42) | (7) |
| Profit (loss) before tax from Discontinued operations/Non-current assets held for sale |
91 | 262 |
| Income tax expense | (32) | (91) |
| Profit (loss) after tax from Discontinued operations/Non-current assets held for sale (a) |
59 | 171 |
| Other minor entries (b) |
(2) | |
| Profit (loss) from Discontinued operations/Non-current assets held for (c= sale a+b) |
59 | 169 |
| 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 | 169 |
| Attributable to: | ||
| Owners of the Parent | (3) | 24 |
| Non-controlling interests | 50 | 145 |
For more details, see the Note "Discontinued operations/Non-current assets held for sale" in the Condensed Consolidated Financial Statements of the Telecom Italia Group at March 31, 2016.
Consolidated equity amounted to 20,216 million euros (21,249 million euros at December 31, 2015), of which 18,181 million euros attributable to Owners of the Parent (17,554 million euros at December 31, 2015) and 2,035 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) | 3/31/2016 |
|---|---|
| At the beginning of the period | 21,333 |
| Revised for errors | (84) |
| At the beginning of the adjusted period | 21,249 |
| Total comprehensive income (loss) for the period | 746 |
| Dividends approved by: | − |
| Telecom Italia S.p.A. | − |
| Other Group companies | − |
| INWIT - effect of sale of the non-controlling interest | − |
| Merger of TI Media S.p.A. into Telecom Italia S.p.A. | − |
| Convertible bond issue maturing 2022 - equity component | − |
| Issue of equity instruments | − |
| Disposal of the Sofora – Telecom Argentina group | (1,795) |
| Other changes | 16 |
| At the end of the period | 20,216 |
Adjusted net financial debt stood at 27,139 million euros, down 139 million euros compared to December 31, 2015 (27,278 million euros). The decrease 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 quarter of 2016:
| (millions of euros) | 1st Quarter | 1st Quarter | Change |
|---|---|---|---|
| 2016 | 2015 | ||
| EBITDA | 1,712 | 2,033 | (321) |
| Capital expenditures on an accrual basis | (944) | (964) | 20 |
| Change in net operating working capital: | (750) | (1,502) | 752 |
| Change in inventories | (87) | (40) | (47) |
| Change in trade receivables and net amounts due from customers on construction contracts |
30 | (345) | 375 |
| Change in trade payables (*) | (566) | (979) | 413 |
| Other changes in operating receivables/payables | (127) | (138) | 11 |
| Change in employee benefits | 59 | (6) | 65 |
| Change in operating provisions and Other changes | (52) | (16) | (36) |
| Net operating free cash flow | 25 | (455) | 480 |
| % of Revenues | 0.6 | (9.0) | 9.6 pp |
| Sale of investments and other disposals flow | 707 | 3 | 704 |
| Share capital increases/reimbursements, including incidental costs |
− | 186 | (186) |
| Financial investments flow | (9) | − | (9) |
| Dividends payment | − | (3) | 3 |
| Change in financial leasing contracts | (46) | − | (46) |
| Finance expenses, income taxes and other net non-operating requirements flow |
(500) | (486) | (14) |
| Reduction/(Increase) in adjusted net financial debt from continuing operations |
177 | (755) | 932 |
| Reduction/(Increase) in net financial debt from Discontinued operations/Non-current assets held for sale |
(38) | (24) | (14) |
| Reduction/(Increase) in adjusted net financial debt | 139 | (779) | 918 |
In addition to what has already been illustrated with reference to EBITDA, adjusted net financial debt in the first quarter of 2016 was particularly impacted by the following:
The breakdown of capital expenditures by operating segment is as follows:
| (millions of euros) | 1st Quarter 2016 | % of total | 1st Quarter 2015 | % of total | Change |
|---|---|---|---|---|---|
| Domestic (*) | 778 | 82.4 | 676 | 70.1 | 102 |
| Brazil | 166 | 17.6 | 287 | 29.8 | (121) |
| Other Operations | − | − | 1 | 0.1 | (1) |
| Adjustments and eliminations | − | − | − | − | − |
| Consolidated Total | 944 | 100.0 | 964 | 100.0 | (20) |
| % of Revenues | 21.3 | 19.1 | 2.2 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 quarter of 2016 would have been 777 million euros.
Capital expenditure in the first quarter of 2016 totaled 944 million euros, down 20 million euros (-2.1%) on the first quarter of 2015. In particular:
The change in net operating working capital for the first quarter 2016 was a decrease of 750 million euros (decrease of 1,502 million euros in the first quarter 2015). In particular:
The change in employee benefits mainly reflected the non-recurring provisions for risk made during the first quarter of 2016.
This was positive by 707 million euros in the first quarter of 2016 (3 million euros in the first quarter of 2015) 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 quarter of 2016 this item amounted to zero.
In the first quarter 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 quarter of 2016 this item amounted to 9 million euros (zero in the first quarter of 2015) 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.
This item, amounting to 46 million euros, 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 quarter of 2016 within the real estate transformation project and the renegotiation of the car rental agreements.
Further details are provided in the Note "Tangible assets (owned and under finance leases)" of the Condensed Consolidated Financial Statements at March 31, 2016 of the Telecom Italia Group.
The item amounted to 500 millions euros and mainly included the payment, during the first quarter 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 quarter of 2015, this item amounted to a negative 24 million euros.
Net financial debt is composed as follows:
| (millions of euros) | 3/31/2016 | 12/31/2015 | Change |
|---|---|---|---|
| (a) | (b) | (a-b) | |
| Non-current financial liabilities | |||
| Bonds | 19,653 | 19,883 | (230) |
| Amounts due to banks, other financial payables and liabilities | 8,410 | 8,364 | 46 |
| Finance lease liabilities | 2,291 | 2,271 | 20 |
| 30,354 | 30,518 | (164) | |
| Current financial liabilities (*) | |||
| Bonds | 2,640 | 3,681 | (1,041) |
| Amounts due to banks, other financial payables and liabilities | 1,644 | 2,390 | (746) |
| Finance lease liabilities | 156 | 153 | 3 |
| 4,440 | 6,224 | (1,784) | |
| Financial liabilities directly associated with Discontinued operations/Non-current assets held for sale |
− | 348 | (348) |
| Total Gross financial debt | 34,794 | 37,090 | (2,296) |
| Non-current financial assets | |||
| Securities other than investments | (2) | (3) | 1 |
| Financial receivables and other non-current financial assets | (2,764) | (2,986) | 222 |
| (2,766) | (2,989) | 223 | |
| Current financial assets | |||
| Securities other than investments | (735) | (1,488) | 753 |
| Financial receivables and other current financial assets | (395) | (352) | (43) |
| Cash and cash equivalents | (2,665) | (3,559) | 894 |
| (3,795) | (5,399) | 1,604 | |
| Financial assets relating to Discontinued operations/Non current assets held for sale |
− | (227) | 227 |
| Total financial assets | (6,561) | (8,615) | 2,054 |
| Net financial debt carrying amount | 28,233 | 28,475 | (242) |
| Reversal of fair value measurement of derivatives and related financial assets/liabilities |
(1,094) | (1,197) | 103 |
| Adjusted net financial debt | 27,139 | 27,278 | (139) |
| Breakdown as follows: | |||
| Total adjusted gross financial debt | 32,296 | 34,602 | (2,306) |
| Total adjusted financial assets | (5,157) | (7,324) | 2,167 |
| (*) of which current portion of medium/long-term debt: | |||
| Bonds | 2,640 | 3,681 | (1,041) |
| Amounts due to banks, other financial payables and liabilities | 1,047 | 1,482 | (435) |
| Finance lease liabilities | 156 | 153 | 3 |
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 finalized during the first quarter of 2016 resulted in a positive effect on net financial debt at March 31, 2016 of 777 million euros (1,106 million euros at December 31, 2015).
Bonds at March 31, 2016 were recorded for a total of 22,293 million euros (23,564 million euros at December 31, 2015). Their nominal repayment amount was 21,848 million euros, down 1,099 million euros compared to December 31, 2015 (22,947 million euros).
Changes in bonds over the first quarter 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 |
| (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 |
| 3/21/2016 |
(2) Net of buybacks by the Company of 142 million euros during 2014.
With reference to the Telecom Italia S.p.A. 2002-2022 bonds, reserved for subscription by employees of the Group, at March 31, 2016, the nominal amount was equal to 200 million euros and was unchanged compared to December 31, 2015.
The following table shows the composition and the draw down of the committed credit lines available at March 31, 2016:
| (billions of euros) | 3/31/2016 | 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 5.3%.
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 Condensed Consolidated Financial Statements at March 31, 2016 of the Telecom Italia Group.
The Telecom Italia Group's available liquidity margin amounted to 10,400 million euros at March 31, 2016, corresponding to the sum of "Cash and cash equivalents" and "Current securities other than investments", totaling 3,400 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 2,665 million euros (3,559 million euros at December 31, 2015). The different technical forms of investing available cash at March 31, 2016 can be analyzed as follows:
Current securities other than investments amounted to 735 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., 6 million euros of Italian Treasury Certificates (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 335 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 replacement of the previous policies in force. In addition, the Brazil Business Unit made an investment for an equivalent value of 135 million euros in a monetary fund that invests almost entirely in instruments in US dollars.
Following the adoption into Italian legislation of the changes to the Transparency Directive, the requirement, established in Article 154-ter (Financial reports) of Italian Legislative Decree 58/1998 (Consolidated Law on Finance), for listed Issuers, with Italy as their Member State of origin, to prepare interim financial reports for the first and third quarter of the year, has been removed. However, Consob has been given the power to order the publication, through specific regulations and after having verified their impact, of periodic financial disclosures in addition to the annual and half-year financial reports.
Pending the regulatory developments on this matter, and in order to ensure adequate continuity of information to the market, Telecom Italia shall continue – on a transitional and voluntary basis – to prepare and publish its interim management reports for the first and third quarter of the year. The Interim Report also includes the Condensed Consolidated Financial Statements at March 31, 2016, prepared in compliance with the IFRS issued by the IASB and endorsed by the EU and, specifically, IAS 34 Interim Reports. The Condensed Consolidated Financial Statements at March 31, 2016 have not been audited.
The accounting policies and consolidation principles adopted in the preparation of the condensed consolidated financial statements at March 31, 2016 are the same as those adopted in the Telecom Italia Group annual consolidated financial statements at December 31, 2015, to which reference can be made, except for the application of the new Standards/Interpretations adopted by the Group from January 1, 2016. However, as described in the notes to the condensed consolidated financial statements at March 31, 2016, the new Standards/Interpretations had no effects on the consolidated financial statements of the Group.
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 three-month period ended March 31, 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; 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 present Interim Report are reminded not to place undue reliance on forwardlooking 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 quarter of 2016:
The following changes in the scope of consolidation occurred during 2015:
| (millions of euros) | 1st Quarter 2016 |
1st Quarter 2015 Revised |
Change (a-b) |
|
|---|---|---|---|---|
| (a) | (b) | amount | % | |
| Revenues | 4,440 | 5,054 | (614) | (12.1) |
| Other income | 47 | 53 | (6) | (11.3) |
| Total operating revenues and other income | 4,487 | 5,107 | (620) | (12.1) |
| Acquisition of goods and services | (1,923) | (2,171) | 248 | 11.4 |
| Employee benefits expenses | (848) | (833) | (15) | (1.8) |
| Other operating expenses | (247) | (265) | 18 | 6.8 |
| Change in inventories | 85 | 47 | 38 | 80.9 |
| Internally generated assets | 158 | 148 | 10 | 6.8 |
| Operating profit before depreciation and amortization, capital gains (losses) and impairment reversals (losses) on non-current assets (EBITDA) |
1,712 | 2,033 | (321) | (15.8) |
| Depreciation and amortization | (1,009) | (1,052) | 43 | 4.1 |
| Gains/(losses) on disposals of non-current assets | 3 | − | 3 | − |
| Impairment reversals (losses) on non-current assets | (2) | − | (2) | − |
| Operating profit (loss) (EBIT) | 704 | 981 | (277) | (28.2) |
| Share of losses (profits) of associates and joint ventures accounted for using the equity method |
− | − | − | − |
| Other income (expenses) from investments | − | 2 | (2) | − |
| Finance income | 1,120 | 1,512 | (392) | (25.9) |
| Finance expenses | (1,146) | (2,329) | 1,183 | 50.8 |
| Profit (loss) before tax from continuing operations | 678 | 166 | 512 | − |
| Income tax expense | (221) | (74) | (147) | − |
| Profit (loss) from continuing operations | 457 | 92 | 365 | − |
| Profit (loss) from Discontinued operations/Non-current assets held for sale |
47 | 169 | (122) | (72.2) |
| Profit (loss) for the period | 504 | 261 | 243 | 93.1 |
| Attributable to: | ||||
| Owners of the Parent | 433 | 82 | 351 | − |
| Non-controlling interests | 71 | 179 | (108) | (60.3) |
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 Quarter | 1st Quarter |
|---|---|---|
| 2016 | 2015 | |
| Revised | ||
| Profit (loss) for the period (a) |
504 | 261 |
| 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) | − | − |
| Income tax effect | − | − |
| (b) | − | − |
| 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) |
− | − |
| Other components that subsequently will be reclassified in the Separate Consolidated Income Statements |
||
| Available-for-sale financial assets: | ||
| Profit (loss) from fair value adjustments | 87 | 39 |
| Loss (profit) transferred to the Separate Consolidated Income Statements | (82) | (4) |
| Income tax effect | (4) | (7) |
| (e) | 1 | 28 |
| Hedging instruments: | ||
| Profit (loss) from fair value adjustments | (679) | 539 |
| Loss (profit) transferred to the Separate Consolidated Income Statements | 382 | (455) |
| Income tax effect | 88 | (22) |
| (f) | (209) | 62 |
| Exchange differences on translating foreign operations: | ||
| Profit (loss) on translating foreign operations | 146 | (158) |
| Loss (profit) on translating foreign operations transferred to the Separate Consolidated Income Statements |
304 | − |
| Income tax effect | − | − |
| (g) | 450 | (158) |
| 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) |
242 | (68) |
| Total other components of the Consolidated Statements of Comprehensive Income (k=d+i) |
242 | (68) |
| Total comprehensive income (loss) for the period (a+k) |
746 | 193 |
| Attributable to: | ||
| Owners of the Parent | 638 | (44) |
| Non-controlling interests | 108 | 237 |
| (millions of euros) | 3/31/2016 | 12/31/2015 Revised |
Change | 1.1.2015 Revised |
|
|---|---|---|---|---|---|
| (a) | (b) | (a-b) | |||
| Assets | |||||
| Non-current assets | |||||
| Intangible assets | |||||
| Goodwill | 29,436 | 29,383 | 53 | 29,943 | |
| Intangible assets with a finite useful life | 6,516 | 6,480 | 36 | 6,827 | |
| 35,952 | 35,863 | 89 | 36,770 | ||
| Tangible assets | |||||
| Property, plant and equipment owned | 12,816 | 12,659 | 157 | 12,544 | |
| Assets held under finance leases | 2,210 | 2,208 | 2 | 843 | |
| 15,026 | 14,867 | 159 | 13,387 | ||
| Other non-current assets | |||||
| Investments in associates and joint ventures accounted for using the equity method |
41 | 41 | − | 36 | |
| Other investments | 41 | 45 | (4) | 43 | |
| Non-current financial assets | 2,766 | 2,989 | (223) | 2,445 | |
| Miscellaneous receivables and other non-current assets | 1,899 | 1,778 | 121 | 1,614 | |
| Deferred tax assets | 894 | 853 | 41 | 1,118 | |
| 5,641 | 5,706 | (65) | 5,256 | ||
| Total Non-current assets | (a) | 56,619 | 56,436 | 183 | 55,413 |
| Current assets | |||||
| Inventories | 341 | 254 | 87 | 313 | |
| Trade and miscellaneous receivables and other current assets |
5,534 | 5,112 | 422 | 5,617 | |
| Current income tax receivables | 26 | 163 | (137) | 101 | |
| Current financial assets | |||||
| Securities other than investments, financial receivables and other current financial assets |
1,130 | 1,840 | (710) | 1,611 | |
| Cash and cash equivalents | 2,665 | 3,559 | (894) | 4,812 | |
| 3,795 | 5,399 | (1,604) | 6,423 | ||
| Current assets sub-total | 9,696 | 10,928 | (1,232) | 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) | 9,696 | 14,832 | (5,136) | 16,183 |
| Total Assets | (a+b) | 66,315 | 71,268 | (4,953) | 71,596 |
| (millions of euros) | 3/31/2016 | 12/31/2015 | Change | 1.1.2015 | |
|---|---|---|---|---|---|
| Revised | Revised | ||||
| (a) | (b) | (a-b) | |||
| Equity and Liabilities | |||||
| Equity | |||||
| Equity attributable to Owners of the Parent | 18,181 | 17,554 | 627 | 18,068 | |
| Non-controlling interests | 2,035 | 3,695 | (1,660) | 3,516 | |
| Total Equity | (c) | 20,216 | 21,249 | (1,033) | 21,584 |
| Non-current liabilities | |||||
| Non-current financial liabilities | 30,354 | 30,518 | (164) | 32,325 | |
| Employee benefits | 1,459 | 1,420 | 39 | 1,056 | |
| Deferred tax liabilities | 367 | 323 | 44 | 438 | |
| Provisions | 551 | 551 | − | 720 | |
| Miscellaneous payables and other non-current liabilities | 1,140 | 1,110 | 30 | 697 | |
| Total Non-current liabilities | (d) | 33,871 | 33,922 | (51) | 35,236 |
| Current liabilities | |||||
| Current financial liabilities | 4,440 | 6,224 | (1,784) | 4,686 | |
| Trade and miscellaneous payables and other current liabilities |
7,701 | 7,882 | (181) | 8,536 | |
| Current income tax payables | 87 | 110 | (23) | 36 | |
| Current liabilities sub-total | 12,228 | 14,216 | (1,988) | 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) | 12,228 | 16,097 | (3,869) | 14,776 |
| Total Liabilities | (f=d+e) | 46,099 | 50,019 | (3,920) | 50,012 |
| Total Equity and Liabilities | (c+f) | 66,315 | 71,268 | (4,953) | 71,596 |
| (millions of euros) | 1st Quarter 2016 |
1st Quarter 2015 Revised |
|
|---|---|---|---|
| Cash flows from operating activities: | |||
| Profit (loss) from continuing operations | 457 | 92 | |
| Adjustments for: | |||
| Depreciation and amortization | 1,009 | 1,052 | |
| Impairment losses (reversals) on non-current assets (including investments) | 2 | 3 | |
| Net change in deferred tax assets and liabilities | 90 | (11) | |
| Losses (gains) realized on disposals of non-current assets (including investments) |
(4) | − | |
| Share of losses (profits) of associates and joint ventures accounted for using the equity method |
− | − | |
| Change in employee benefits | 59 | (6) | |
| Change in inventories | (87) | (40) | |
| Change in trade receivables and net amounts due from customers on construction contracts |
30 | (345) | |
| Change in trade payables | (25) | (605) | |
| Net change in current income tax receivables/payables | 96 | 51 | |
| Net change in miscellaneous receivables/payables and other assets/liabilities |
(279) | (45) | |
| Cash flows from (used in) operating activities | (a) | 1,348 | 146 |
| Cash flows from investing activities: | |||
| Purchase of intangible assets | (342) | (429) | |
| Purchase of tangible assets | (648) | (535) | |
| Total purchase of intangible and tangible assets on an accrual basis | (990) | (964) | |
| Change in amounts due for purchases of intangible and tangible assets | (494) | (374) | |
| Total purchase of intangible and tangible assets on a cash basis | (1,484) | (1,338) | |
| Acquisition of control in subsidiaries or other businesses, net of cash acquired |
(6) | − | |
| Acquisitions/disposals of other investments | (3) | − | |
| Change in financial receivables and other financial assets | 862 | (1,631) | |
| 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 |
3 | 3 | |
| Cash flows from (used in) investing activities | (b) | (136) | (2,966) |
| Cash flows from financing activities: | |||
| Change in current financial liabilities and other | (522) | 1,327 | |
| Proceeds from non-current financial liabilities (including current portion) | 931 | 3,015 | |
| Repayments of non-current financial liabilities (including current portion) | (2,157) | (965) | |
| Share capital proceeds/reimbursements (including subsidiaries) | − | 186 | |
| Dividends paid | − | (3) | |
| Changes in ownership interests in consolidated subsidiaries | − | − | |
| Cash flows from (used in) financing activities | (c) | (1,748) | 3,560 |
| Cash flows from (used in) Discontinued operations/Non-current assets held for sale |
(d) | (45) | 9 |
| Aggregate cash flows | (e=a+b+c+d) | (581) | 749 |
| 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) | 26 | (57) |
| Net cash and cash equivalents at end of the period | (h=e+f+g) | 2,661 | 5,602 |
| (millions of euros) | 1st Quarter 2016 |
1st Quarter 2015 Revised |
|---|---|---|
| Income taxes (paid) received | (26) | (18) |
| Interest expense paid | (721) | (771) |
| Interest income received | 165 | 149 |
| Dividends received | − | − |
| (millions of euros) | 1st Quarter | 1st Quarter |
|---|---|---|
| 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 | 2,665 | 5,507 |
| Bank overdrafts repayable on demand – from continuing operations | (4) | (31) |
| Cash and cash equivalents - from Discontinued operations/Non-current assets held for sale |
− | 126 |
| Bank overdrafts repayable on demand – from Discontinued operations/Non current assets held for sale |
− | − |
| 2,661 | 5,602 |
| (millions of euros) | 1st Quarter 2016 |
1st Quarter 2015 |
Change |
|---|---|---|---|
| Purchases of goods | 420 | 486 | (66) |
| Revenues due to other TLC operators and interconnection costs |
478 | 557 | (79) |
| Commercial and advertising costs | 289 | 351 | (62) |
| Power, maintenance and outsourced services | 305 | 322 | (17) |
| Rent and leases | 166 | 177 | (11) |
| Other service expenses | 265 | 278 | (13) |
| Total acquisition of goods and services | 1,923 | 2,171 | (248) |
| % of Revenues | 43.3 | 43.0 | 0.3 pp |
| (millions of euros) | 1st Quarter 2016 |
1st Quarter 2015 |
Change |
|---|---|---|---|
| Employee benefits expenses - Italy | 753 | 729 | 24 |
| Ordinary employee expenses and costs | 688 | 729 | (41) |
| Restructuring and other expenses | 65 | - | 65 |
| Employee benefits expenses – Outside Italy | 95 | 104 | (9) |
| Ordinary employee expenses and costs | 87 | 104 | (17) |
| Restructuring and other expenses | 8 | - | 8 |
| Total employee benefits expenses | 848 | 833 | 15 |
| % of Revenues | 19.1 | 16.5 | 2.6 pp |
| (equivalent number) | 1st Quarter 2016 |
1st Quarter 2015 |
Change |
|---|---|---|---|
| Average salaried workforce – Italy | 47,444 | 47,428 | 16 |
| Average salaried workforce – Outside Italy | 11,925 | 12,009 | (84) |
| Total average salaried workforce (1) | 59,369 | 59,437 | (68) |
| Non-current assets held for sale - Sofora - Telecom Argentina group |
10,322 | 15,541 | (5,219) |
| Total average salaried workforce - including Non-current assets held for sale |
69,691 | 74,978 | (5,287) |
| (number) | 3/31/2016 | 12/31/2015 | Change |
|---|---|---|---|
| Headcount – Italy | 52,554 | 52,555 | (1) |
| Headcount – Outside Italy | 12,553 | 13,312 | (759) |
| Total headcount at period end (1) | 65,107 | 65,867 | (760) |
| 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 |
65,107 | 82,095 | (16,988) |
| (number) | 3/31/2016 | 12/31/2015 | Change |
|---|---|---|---|
| Domestic (*) | 52,713 | 52,644 | 69 |
| Brazil | 12,280 | 13,042 | (762) |
| Media | - | 64 | (64) |
| Other Operations | 114 | 117 | (3) |
| Total | 65,107 | 65,867 | (760) |
| (millions of euros) | 1st Quarter 2016 |
1st Quarter 2015 |
Change |
|---|---|---|---|
| Write-downs and expenses in connection with credit management |
85 | 77 | 8 |
| Provision charges | 21 | 24 | (3) |
| TLC operating fees and charges | 88 | 106 | (18) |
| Indirect duties and taxes | 25 | 31 | (6) |
| Penalties, settlement compensation and administrative fines | 15 | 15 | − |
| Association dues and fees, donations, scholarships and traineeships |
4 | 5 | (1) |
| Sundry expenses | 9 | 7 | 2 |
| Total | 247 | 265 | (18) |
For details of subsequent events see the specific Note "Events Subsequent to March 31, 2016" in the Telecom Italia Group condensed consolidated financial statements at March 31, 2016.
As forecast in the Business 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) and the sale of the residual stake of Telecom Argentina (completed on 8 March 2016). By the end 2018, the company expects that the Net Adjusted Debt/reported EBITDA ratio will be below 3x.
TIM continues 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.
More specifically, in the Domestic Mobile segment, in a competitive context where there has been a progressive cooling of the pricing lever, greater attention paid to level of service and strong, continuous growth in data consumption, TIM will be focussing on the ever-greater adoption of 4G by its customers, fostered by the growing penetration of smartphones and bundle offers with distinctive digital contents. This will enable the Company to increase ARPU and strengthen its market leadership.
In the Domestic Fixed segment, TIM expects to reduce the decline in the number of customers as from 2016, thanks to the acceleration in the dissemination of fibre, convergence and the strengthening of the positioning of services with digital content (Video, Music, Gaming and Publishing). TIM will also continue to work with Italian businesses in their digital transformation process, with its ICT and Cloud services, taking a differentiated approach depending on customer base characteristics, aiming to achieve a distinctive positioning in the vertical markets deemed to be of greatest interest.
These dynamics of commercial and business development, accompanied by a strengthening of the efficiency programme and cost cutting, represent the basis for a further improvement in operating performance, with the aim of stabilising EBITDA as early as 2016.
In Brazil, the Plan considers and suffers the major changes to the macroeconomic, political and market context seen in recent months.
The latest forecasts on the economic outlook in fact show a further, progressive deterioration for the whole of 2016 of its main indicators. More specifically, 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 reais/USD in 2015, with growth forecast during the Plan up to 4.20 reais/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.
Moreover, a trend is being seen in Brazil of constant, strong growth in data use, with an intensity that is even greater than that recorded 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 optimising and reducing customer spending, as customers privilege use of the services offered by the OTTs as an alternative to traditional methods of using services.
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.
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 objectives of the Group 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 numerous 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 markets 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 hacker 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. 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:
In 2015, in order to further enhance the guarantees of equality of treatment between retail customers and wholesale customers, Telecom Italia initiated a project aimed at intervening on both the equivalence model and the instruments used to assess the supply of 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. There may be some necessary time lags in making the processes compliant when nonconformity has been identified.
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.
As a result, the Board of Directors of the Company at March 31, 2016 was composed as follows:
| Chairman | Giuseppe Recchi |
|---|---|
| Chief Executive Officer | Flavio Cattaneo |
| Directors | Tarak Ben Ammar |
| Davide Benello (independent) | |
| Lucia Calvosa (independent) | |
| Laura Cioli (independent) | |
| Francesca Cornelli (independent) | |
| Arnaud Roy de Puyfontaine | |
| 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 March 31, 2016:
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.
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.
| The Board of Statutory Auditors of the Company is now composed as follows: | |||
|---|---|---|---|
| -- | -- | -- | ---------------------------------------------------------------------------- |
| 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 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.
On April 1, 2016, as a result of Carlotta Ventura having left the Group, Giuseppe Recchi assumed responsibility ad interim for the Brand Strategy & Media Function.
On April 15, 2016, as a result of Paolo Vantellini having left the Group, Piergiorgio Peluso assumed responsibility ad interim for the Business Support Office Function.
On April 20, 2016, the Chief Pricing Office was established and assigned to Massimo Arciulo.
On May 2, 2016 the Special Projects Function of the Group was established and assigned to Francesco Micheli.
On May 11, 2016, Stefano De Angelis was appointed Chairman of TIM Brasil and Flavio Cattaneo assumed responsibility ad interim for the Consumer & Small Enterprise Market Function.
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 March 2016 average prices) | 18,346 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 according to the Shareholders Book at March 31, 2016, 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 March 31, 2016, taking into account the entries in the Shareholders Book, communications sent to Consob and the Company pursuant to Article 120 of Italian Legislative Decree 58 of February 24, 1998, and other available sources of information, the relevant holdings of Telecom Italia S.p.A.'s ordinary share capital are as follows:
| Holder | Type of ownership | Percentage of ownership |
|---|---|---|
| Vivendi S.A. | Direct/Indirect | 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 at March 31, 2016.
At March 31, 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.
The effect of significant non-recurring events and transactions on the results of the Telecom Italia Group is reported below.
| (millions of euros) | 1st Quarter | 1st Quarter |
|---|---|---|
| 2016 | 2015 | |
| Employee benefits expenses: | ||
| Expenses related to restructuring and rationalization | (73) | − |
| Other operating expenses: | ||
| Sundry expenses | (2) | (1) |
| Impact on Operating profit (loss) before depreciation and amortization, capital gains (losses) and impairment reversals (losses) on non-current assets (EBITDA) |
(75) | (1) |
| Gains (losses) on non-current assets: | ||
| Gains on disposals of non-current assets | 1 | − |
| Impact on EBIT – Operating profit (loss) | (74) | (1) |
| Finance expenses: | ||
| Interest expenses and miscellaneous finance expenses | (5) | − |
| Impact on profit (loss) before tax from continuing operations | (79) | (1) |
| Effect on income taxes on non-recurring items | 24 | − |
| Discontinued operations – Effect of the disposal of the Sofora – Telecom Argentina | (12) | − |
| group Impact on profit (loss) for the period |
(67) | (1) |
In the first quarter of 2016, the Telecom Italia Group did not undertake any atypical and/or unusual transactions, as defined in Consob Communication DEM/6064293 of July 28, 2006.
In this Interim Report at March 31, 2016 of the Telecom Italia Group, in addition to the conventional financial performance measures required by IFRS, a series of alternative performance measures are presented for the purposes of providing a better understanding of results from operations and the financial position. 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 Interim Report provides a reconciliation between the "accounting or reported" figure and the "organic" figure.
• Net Financial Debt: Telecom Italia believes that Net Financial Debt represents an accurate indicator of its ability to meet its financial obligations. It is represented by Gross Financial Debt less Cash and Cash Equivalents and other Financial Assets. This Interim Report includes a table showing the amounts taken from the statement of financial position and used to calculate the Net Financial Debt of the Group.
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 |
TELECOM ITALIA GROUP CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AT MARCH 31, 2016
Assets
| (millions of euros) | note | 3/31/2016 | 12/31/2015 | 1/1/2015 |
|---|---|---|---|---|
| Revised | Revised | |||
| Non-current assets | ||||
| Intangible assets | ||||
| Goodwill | 4) | 29,436 | 29,383 | 29,943 |
| Intangible assets with a finite useful life | 5) | 6,516 | 6,480 | 6,827 |
| 35,952 | 35,863 | 36,770 | ||
| Tangible assets | 6) | |||
| Property, plant and equipment owned | 12,816 | 12,659 | 12,544 | |
| Assets held under finance leases | 2,210 | 2,208 | 843 | |
| 15,026 | 14,867 | 13,387 | ||
| Other non-current assets | ||||
| Investments in associates and joint ventures accounted for using the equity method |
41 | 41 | 36 | |
| Other investments | 41 | 45 | 43 | |
| Non-current financial assets | 2,766 | 2,989 | 2,445 | |
| Miscellaneous receivables and other non-current assets | 1,899 | 1,778 | 1,614 | |
| Deferred tax assets | 894 | 853 | 1,118 | |
| 5,641 | 5,706 | 5,256 | ||
| Total Non-current assets | (a) | 56,619 | 56,436 | 55,413 |
| Current assets | ||||
| Inventories | 341 | 254 | 313 | |
| Trade and miscellaneous receivables and other current assets | 5,534 | 5,112 | 5,617 | |
| Current income tax receivables | 26 | 163 | 101 | |
| Current financial assets | ||||
| Securities other than investments, financial receivables and other current financial assets |
1,130 | 1,840 | 1,611 | |
| Cash and cash equivalents | 2,665 | 3,559 | 4,812 | |
| 3,795 | 5,399 | 6,423 | ||
| Current assets sub-total | 9,696 | 10,928 | 12,454 | |
| Discontinued operations/Non-current assets held for sale | 7) | |||
| of a financial nature | − | 227 | 165 | |
| of a non-financial nature | − | 3,677 | 3,564 | |
| − | 3,904 | 3,729 | ||
| Total Current assets | (b) | 9,696 | 14,832 | 16,183 |
| Total Assets | (a+b) | 66,315 | 71,268 | 71,596 |
| (millions of euros) | note | 3/31/2016 | 12/31/2015 | 1.1.2015 |
|---|---|---|---|---|
| Revised | Revised | |||
| Equity | 8) | |||
| 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 |
5,800 | 5,173 | 5,709 | |
| Equity attributable to Owners of the Parent | 18,181 | 17,554 | 18,068 | |
| Non-controlling interests | 2,035 | 3,695 | 3,516 | |
| Total Equity | (c) | 20,216 | 21,249 | 21,584 |
| Non-current liabilities | ||||
| Non-current financial liabilities | 9) | 30,354 | 30,518 | 32,325 |
| Employee benefits | 1,459 | 1,420 | 1,056 | |
| Deferred tax liabilities | 367 | 323 | 438 | |
| Provisions | 551 | 551 | 720 | |
| Miscellaneous payables and other non-current liabilities | 1,140 | 1,110 | 697 | |
| Total Non-current liabilities | (d) | 33,871 | 33,922 | 35,236 |
| Current liabilities | ||||
| Current financial liabilities | 9) | 4,440 | 6,224 | 4,686 |
| Trade and miscellaneous payables and other current liabilities | 7,701 | 7,882 | 8,536 | |
| Current income tax payables | 87 | 110 | 36 | |
| Current liabilities sub-total | 12,228 | 14,216 | 13,258 | |
| Liabilities directly associated with Discontinued operations/Non current assets held for sale |
7) | |||
| of a financial nature | − | 348 | 43 | |
| of a non-financial nature | − | 1,533 | 1,475 | |
| − | 1,881 | 1,518 | ||
| Total Current Liabilities | (e) | 12,228 | 16,097 | 14,776 |
| Total Liabilities | (f=d+e) | 46,099 | 50,019 | 50,012 |
| Total Equity and Liabilities | (c+f) | 66,315 | 71,268 | 71,596 |
| note | 1st Quarter | 1st Quarter |
|---|---|---|
| (millions of euros) | 2016 | 2015 |
| Revised | ||
| Revenues | 4,440 | 5,054 |
| Other income | 47 | 53 |
| Total operating revenues and other income | 4,487 | 5,107 |
| Acquisition of goods and services | (1,923) | (2,171) |
| Employee benefits expenses | (848) | (833) |
| Other operating expenses | (247) | (265) |
| Change in inventories | 85 | 47 |
| Internally generated assets | 158 | 148 |
| Operating profit before depreciation and amortization, capital | ||
| gains (losses) and impairment reversals (losses) on non-current | ||
| assets (EBITDA) | 1,712 | 2,033 |
| Depreciation and amortization | (1,009) | (1,052) |
| Gains/(losses) on disposals of non-current assets | 3 | − |
| Impairment reversals (losses) on non-current assets | (2) | − |
| Operating profit (loss) (EBIT) | 704 | 981 |
| Share of losses (profits) of associates and joint ventures accounted for using the equity method |
− | − |
| Other income (expenses) from investments | − | 2 |
| Finance income | 1,120 | 1,512 |
| Finance expenses | (1,146) | (2,329) |
| Profit (loss) before tax from continuing operations | 678 | 166 |
| Income tax expense | (221) | (74) |
| Profit (loss) from continuing operations | 457 | 92 |
| Profit (loss) from Discontinued operations/Non-current assets held for sale 7) |
47 | 169 |
| Profit (loss) for the period | 504 | 261 |
| Attributable to: | ||
| Owners of the Parent | 433 | 82 |
| Non-controlling interests | 71 | 179 |
(euros) 1st Quarter 1st Quarter 2016 2015 Revised Earnings per share: Earnings per share (Basic) Ordinary Share 0.02 0.00 Savings Share 0.03 0.01 of which: from Continuing operations attributable to Owners of the Parent Ordinary Share 0.02 0.00 Savings Share 0.03 0.01 Earnings per share (Diluted) Ordinary Share 0.01 0.00 Savings Share 0.02 0.01 of which: from Continuing operations attributable to Owners of the Parent Ordinary Share 0.01 0.00 Savings Share 0.02 0.01
| (millions of euros) | 1st Quarter 2016 |
1st Quarter 2015 Revised |
|
|---|---|---|---|
| Profit (loss) for the period | (a) | 504 | 261 |
| 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) | − | − | |
| Income tax effect | − | − | |
| (b) | − | − | |
| 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) | − | − |
| Other components that subsequently will be reclassified in the Separate Consolidated Income Statements |
|||
| Available-for-sale financial assets: | |||
| Profit (loss) from fair value adjustments | 87 | 39 | |
| Loss (profit) transferred to the Separate Consolidated Income Statements | (82) | (4) | |
| Income tax effect | (4) | (7) | |
| (e) | 1 | 28 | |
| Hedging instruments: | |||
| Profit (loss) from fair value adjustments | (679) | 539 | |
| Loss (profit) transferred to the Separate Consolidated Income Statements | 382 | (455) | |
| Income tax effect | 88 | (22) | |
| (f) | (209) | 62 | |
| Exchange differences on translating foreign operations: | |||
| Profit (loss) on translating foreign operations | 146 | (158) | |
| Loss (profit) on translating foreign operations transferred to the Separate Consolidated Income Statements |
304 | − | |
| Income tax effect | − | − | |
| (g) | 450 | (158) | |
| 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) | 242 | (68) |
| Total other components of the Consolidated Statements of Comprehensive Income |
(k=d+i) | 242 | (68) |
| Total comprehensive income (loss) for the period | (a+k) | 746 | 193 |
| Attributable to: | |||
| Owners of the Parent | 638 | (44) | |
| Non-controlling interests | 108 | 237 |
| 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) | (351) | (96) | − | 6,718 | 18,068 | 3,516 | 21,584 |
| Changes in equity during the period: |
|||||||||||
| − | (17) | ||||||||||
| (44) | 193 | ||||||||||
| 186 | 186 | ||||||||||
| 7 | 7 | ||||||||||
| (5) | (8) | ||||||||||
| Balance at March 31, 2015 | 10,634 | 1,725 | 103 | (575) | (567) | (96) | − | 6,988 | 18,212 | 3,733 | 21,945 |
Changes from January 1, 2016 to March 31, 2016 Note 8
| (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) | (1,516) | (87) | − | 6,993 | 17,554 | 3,695 | 21,249 |
| Changes in equity during the period: |
|||||||||||
| − | − | ||||||||||
| 638 | 746 | ||||||||||
| − | (1,795) | ||||||||||
| (11) | 16 | ||||||||||
| Balance at March 31, 2016 | 10,650 | 1,731 | 33 | (458) | (1,103) | (87) | − | 7,415 | 18,181 | 2,035 | 20,216 |
| (millions of euros) | note | 1st Quarter 2016 |
1st Quarter 2015 Revised |
|---|---|---|---|
| Cash flows from operating activities: | |||
| Profit (loss) from continuing operations | 457 | 92 | |
| Adjustments for: | |||
| Depreciation and amortization | 1,009 | 1,052 | |
| Impairment losses (reversals) on non-current assets (including investments) | 2 | 3 | |
| Net change in deferred tax assets and liabilities | 90 | (11) | |
| Losses (gains) realized on disposals of non-current assets (including investments) | (4) | − | |
| Share of losses (profits) of associates and joint ventures accounted for using the | |||
| equity method | − | − | |
| Change in employee benefits | 59 | (6) | |
| Change in inventories | (87) | (40) | |
| Change in trade receivables and net amounts due from customers on construction | |||
| contracts | 30 | (345) | |
| Change in trade payables | (25) | (605) | |
| Net change in current income tax receivables/payables | 96 | 51 | |
| Net change in miscellaneous receivables/payables and other assets/liabilities | (279) | (45) | |
| Cash flows from (used in) operating activities | (a) | 1,348 | 146 |
| Cash flows from investing activities: | |||
| Purchase of intangible assets | 5) | (342) | (429) |
| Purchase of tangible assets | 6) | (648) | (535) |
| Total purchase of intangible and tangible assets on an accrual basis | (990) | (964) | |
| Change in amounts due for purchases of intangible and tangible assets | (494) | (374) | |
| Total purchase of intangible and tangible assets on a cash basis | (1,484) | (1,338) | |
| Acquisition of control in subsidiaries or other businesses, net of cash acquired | (6) | − | |
| Acquisitions/disposals of other investments | (3) | − | |
| Change in financial receivables and other financial assets | 862 | (1,631) | |
| 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 | 3 | 3 | |
| Cash flows from (used in) investing activities | (b) | (136) | (2,966) |
| Cash flows from financing activities: | |||
| Change in current financial liabilities and other | (522) | 1,327 | |
| Proceeds from non-current financial liabilities (including current portion) | 931 | 3,015 | |
| Repayments of non-current financial liabilities (including current portion) | (2,157) | (965) | |
| Share capital proceeds/reimbursements (including subsidiaries) | − | 186 | |
| Dividends paid | − | (3) | |
| Changes in ownership interests in consolidated subsidiaries | − | − | |
| Cash flows from (used in) financing activities | (c) | (1,748) | 3,560 |
| Cash flows from (used in) Discontinued operations/Non-current assets held for sale | (d) 7) |
(45) | 9 |
| Aggregate cash flows | (e=a+b+c+d) | (581) | 749 |
| 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) | 26 | (57) |
| Net cash and cash equivalents at end of the period | (h=e+f+g) | 2,661 | 5,602 |
| (millions of euros) | 1st Quarter 2016 |
1st Quarter 2015 Revised |
|---|---|---|
| Income taxes (paid) received | (26) | (18) |
| Interest expense paid | (721) | (771) |
| Interest income received | 165 | 149 |
| Dividends received | − | − |
| (millions of euros) | 1st Quarter 2016 |
1st Quarter 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 | 2,665 | 5,507 |
| Bank overdrafts repayable on demand – from continuing operations | (4) | (31) |
| Cash and cash equivalents - from Discontinued operations/Non-current assets held for sale |
− | 126 |
| Bank overdrafts repayable on demand – from Discontinued operations/Non-current assets held for sale |
− | − |
| 2,661 | 5,602 |
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 condensed consolidated financial statements at March 31, 2016 have been prepared on a going concern basis (for further details see the Note "Accounting policies") and in accordance with the International Financial Reporting Standards issued by the International Accounting Standards Board and approved by the European Union (designated as "IFRS"), as well as the laws and regulations in force in Italy.
Specifically, the Telecom Italia Group condensed consolidated financial statements at March 31, 2016 have been prepared in compliance with IAS 34 (Interim Reports) and, as permitted by this standard, do not include all the information required in the annual consolidated 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 statements 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 quarter of 2015 have been presented.
The Telecom Italia Group condensed consolidated financial statements at March 31, 2016 are expressed in euro (rounded to the nearest million unless otherwise indicated).
Publication of the Telecom Italia Group condensed consolidated financial statements for the period ended March 31, 2016
was approved by resolution of the Board of Directors' meeting held on May 13, 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 method used 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 fullyear consolidated results of operations for 2016, if entirely recognized at charge of such year.
In light of the above and for the purposes of Interim Report as of March 31, 2016, the Company's Management decided to revise the comparative financial information as of December 31, 2015 and for the three-month period ended March 31, 2015, segment information included. In accordance with IAS 1 and IAS 8, a revised statement of financial position as of January 1, 2015 is also presented.
Impacts of correction of errors are detailed below:
| (millions of euros) | 1st Quarter 2015 |
Adjustments | 1st Quarter 2015 |
|---|---|---|---|
| Historical | Revised | ||
| (a) | (b) | (a+b) | |
| Revenues | 5,053 | 1 | 5,054 |
| Acquisition of goods and services | (2,172) | 1 | (2,171) |
| Operating profit before depreciation and amortization, capital gains (losses) and impairment reversals (losses) on non-current assets (EBITDA) |
2,031 | 2 | 2,033 |
| Operating profit (loss) (EBIT) | 979 | 2 | 981 |
| Finance income | 1,511 | 1 | 1,512 |
| Profit (loss) before tax from continuing operations | 163 | 3 | 166 |
| Income tax expense | (74) | (74) | |
| Profit (loss) from continuing operations | 89 | 3 | 92 |
| Profit (loss) for the period | 258 | 3 | 261 |
| Attributable to: | |||
| Owners of the Parent | 80 | 2 | 82 |
| Non-controlling interests | 178 | 1 | 179 |
The correction of errors did not have any impact on the calculation of the Basic and Diluted Earnings Per Share.
| (millions of euros) | 1st Quarter 2015 |
Adjustments | 1st Quarter 2015 |
|---|---|---|---|
| Historical | Revised | ||
| (a) | (b) | (a+b) | |
| Profit (loss) for the period | 258 | 3 | 261 |
| Exchange differences on translating foreign operations: | |||
| Profit (loss) on translating foreign operations | (165) | 7 | (158) |
| Loss (profit) on translating foreign operations transferred to the Separate Consolidated Income Statements |
- | - | |
| Income tax effect | - | - | |
| Total comprehensive income (loss) for the period | 183 | 10 | 193 |
| Attributable to: | |||
| Owners of the Parent | (51) | 7 | (44) |
| Non-controlling interests | 234 | 3 | 237 |
| (millions of euros) | 12/31/2015 Historical |
Adjustments | 12/31/2015 Revised |
1.1.2015 Historical |
Adjustments | 1.1.2015 Revised |
|---|---|---|---|---|---|---|
| (a) | (b) | (a+b) | (c) | (d) | (c+d) | |
| 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 line item "Trade and miscellaneous payables and other current liabilities" is mainly due to the higher liability for prepaid traffic not yet consumed recorded to correct the error arising from the early recognition of said traffic as revenues.
Furthermore, the increase in "Miscellaneous receivables and other non-current assets" and "Trade and miscellaneous receivables and other current assets" shows, respectively, the recording of income tax receivables and receivables for indirect duties and taxes due to the above mentioned correction of errors.
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:
EBITDA - Operating profit (loss) before depreciation and amortization, Capital gains (losses) and Impairment reversals (losses) on non-current assets
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) and according to the specific businesses for the other segments.
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 condensed consolidated financial statements at March 31, 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 at least twelve 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 consolidation principles adopted in the preparation of the condensed consolidated financial statements at March 31, 2016 are the same as those adopted in the Telecom Italia Group annual consolidated financial statements at December 31, 2015, to which reference can be made, except for:
Furthermore, in the condensed consolidated financial statements at March 31, 2016, income tax expense 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 condensed consolidated financial statements at March 31, 2016 and related disclosure in conformity with IFRS requires management to make estimates and assumptions based also on subjective judgments, past experience and scenarios 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 amendments are effective prospectively from January 1, 2016.
The adoption of these amendments had no impact on the condensed consolidated financial statements at March 31, 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 amendments are effective prospectively from January 1, 2016.
The adoption of these amendments had no impact on the condensed consolidated financial statements at March 31, 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 amendments are effective prospectively from January 1, 2016.
The adoption of these amendments had no impact on the condensed consolidated financial statements at March 31, 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 amendments are effective from January 1, 2016.
The adoption of these amendments had no impact on the condensed consolidated financial statements at March 31, 2016.
There are no new IFRS adopted by the EU that are not yet in force.
At the date of preparation of the accompanying 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 Unrealised 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 relevant improvements) | 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 |
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 March 31, 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 |
| Company | Business Unit | Month | |
|---|---|---|---|
| Exit: | |||
| MICRO SISTEMAS S.A. | Sold | Discontinued operations | March 2016 |
| NORTEL INVERSORA S.A. | Sold | Discontinued operations | March 2016 |
| NUCLEO S.A. | Sold | Discontinued operations | March 2016 |
| PERSONAL ENVIOS S.A. | Sold | Discontinued operations | March 2016 |
| SOFORA TELECOMUNICACIONES S.A. | Sold | Discontinued operations | March 2016 |
| TELECOM ARGENTINA S.A. | Sold | Discontinued operations | March 2016 |
| TELECOM ARGENTINA USA Inc. | Sold | Discontinued operations | March 2016 |
| TELECOM PERSONAL S.A. | Sold | Discontinued operations | March 2016 |
| Companies: | Italy | Outside Italy | Total |
|---|---|---|---|
| subsidiaries consolidated line-by-line | 28 | 50 | 78 |
| joint ventures accounted for using the equity method | 1 | - | 1 |
| associates accounted for using the equity method | 18 | - | 18 |
| Total companies | 47 | 50 | 97 |
| 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 |
| 3/31/2015 | |||
|---|---|---|---|
| Companies: | Italy | Outside Italy | Total |
| subsidiaries consolidated line-by-line(*) | 25 | 60 | 85 |
| associates accounted for using the equity method | 17 | - | 17 |
| Total companies | 42 | 60 | 102 |
The breakdown and the changes in Goodwill during the first three months of 2016 were as follows:
| (millions of euros) | 12/31/2015 | 3/31/2016 | |||||
|---|---|---|---|---|---|---|---|
| 28,447 | 29 | 8 | 28,484 | ||||
| 907 | 45 | 952 | |||||
| 29 | (29) | − | |||||
| − | − | ||||||
| Total | 29,383 | − | 8 | − | − | 45 | 29,436 |
The following is noted in particular:
In accordance with IAS 36, goodwill is not subject to amortization, but is tested for impairment annually.
At March 31, 2016 no external or internal events were identified giving reason to believe a new impairment test was required, accordingly the amounts of goodwill allocated to the individual Cash Generating Units were confirmed.
Intangible assets with a finite useful life increased by 36 million euros compared to December 31, 2015. Details of the breakdown and movements are as follows:
| (millions of euros) | 12/31/2015 | 3/31/2016 | |||||||
|---|---|---|---|---|---|---|---|---|---|
| 2,070 | 135 | (294) | 41 | 105 | 2,057 | ||||
| 2,829 | 3 | (100) | 8 | 238 | 2,978 | ||||
| 83 | 24 | (24) | 1 | 1 | 85 | ||||
| 1,498 | 180 | − | 41 | 16 | (339) | 1,396 | |||
| Total | 6,480 | 342 | (418) | − | − | 91 | 16 | 5 | 6,516 |
Additions in the first three months of 2016 include 73 million euros of internally generated assets (69 million euros in the first three months of 2015).
Industrial patents and intellectual property rights at March 31, 2016 essentially consisted of software applications purchased outright and user license rights of unlimited duration, relating to Telecom Italia S.p.A. (1,140 million euros) and the Brazil Business Unit (879 million euros).
Concessions, licenses, trademarks and similar rights at March 31, 2016 mainly related to:
Other intangible assets with a finite useful life at March 31, 2016 essentially consisted of 71 million euros of capitalized subscriber acquisition costs (SAC) (57 million euros for the Parent and 14 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, mainly due to the already mentioned activation of the user rights for the L Band (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, in the first quarter of 2016, borrowing costs of 16 million euros were capitalized, as they were directly attributable to the acquisition. The yearly rate used for the capitalization of borrowing costs is 13.23%. 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 157 million euros compared to December 31, 2015. The breakdown and movements are as follows:
| (millions of euros) | 12/31/2015 | 3/31/2016 | ||||||
|---|---|---|---|---|---|---|---|---|
| 171 | 14 | 1 | 9 | 195 | ||||
| 444 | 78 | (11) | 1 | 20 | 532 | |||
| 10,909 | 296 | (502) | 88 | 225 | 11,016 | |||
| 41 | 2 | (4) | 39 | |||||
| 378 | 4 | (36) | 6 | 23 | 375 | |||
| 716 | 204 | (2) | 3 | (262) | 659 | |||
| Total | 12,659 | 598 | (553) | (2) | − | 99 | 15 | 12,816 |
Additions in the first three months of 2016 included 85 million euros of internally generated assets (79 million euros in the first three months of 2015).
As part of the Real Estate Project initiated at the end of 2014, during the first quarter 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 2 million euros compared to December 31, 2015. The breakdown and movements are as follows:
| (millions of euros) | 12/31/2015 | 3/31/2016 | |||||
|---|---|---|---|---|---|---|---|
| 16 | 16 | ||||||
| 1,880 | 2 | 14 | (33) | (20) | 1,843 | ||
| 284 | (4) | 14 | 294 | ||||
| 7 | 32 | (1) | 1 | 39 | |||
| 21 | 2 | (5) | 18 | ||||
| Total | 2,208 | 4 | 46 | (38) | 14 | (24) | 2,210 |
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 quarter of 2016:
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 March 31, 2016 of 32 million euros in terms of higher fixed assets and related payables for financial leases.
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 quarter 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 quarter 2015 have been translated at the related average exchange rate (9.78805 pesos per euro):
| (millions of euros) | 1/1–3/8 2016 |
1st Quarter 2015 |
|---|---|---|
| Income statement effects from Discontinued operations/Non-current assets held for sale: |
||
| Revenues | 504 | 906 |
| Other income | 1 | 1 |
| Operating expenses | (372) | (639) |
| Gains/(losses) on disposal of non-current assets | − | 1 |
| Operating profit (loss) (EBIT) | 133 | 269 |
| Finance income (expenses), net | (42) | (7) |
| Profit (loss) before tax from Discontinued operations/Non-current assets held for sale |
91 | 262 |
| Income tax expense | (32) | (91) |
| Profit (loss) after tax from Discontinued operations/Non-current assets held for sale (a) |
59 | 171 |
| Other minor entries (b) |
(2) | |
| Profit (loss) from Discontinued operations/Non-current assets held for sale (c= a+b) |
59 | 169 |
| 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 | 169 |
| Attributable to: | ||
| Owners of the Parent | (3) | 24 |
| Non-controlling interests | 50 | 145 |
The earnings per share from Discontinued operations/Non-current assets held for sale, for the first quarter of 2016 and the first quarter of 2015 are shown in the table below:
| (euros) | 1/1–3/8 2016 |
1st Quarter 2015 |
|---|---|---|
| Earnings per share from Discontinued operations/Non-current assets held for sale |
||
| (Basic=Diluted) | ||
| Ordinary Share | 0.00 | 0.01 |
| Savings Share | 0.00 | 0.01 |
— • —
Telecom Italia Group Condensed Consolidated Financial Statements at March 31, 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 Quarter 2015 |
|---|---|---|
| Discontinued operations/Non-current assets held for sale: | ||
| Cash flows from (used in) operating activities | 130 | 109 |
| Cash flows from (used in) investing activities | (117) | (126) |
| Cash flows from (used in) financing activities | (58) | 26 |
| Total | (45) | 9 |
| (millions of euros) | 3/31/2016 | 12/31/2015 |
|---|---|---|
| Equity attributable to owners of the Parent | 18,181 | 17,554 |
| Non-controlling interests | 2,035 | 3,695 |
| Total | 20,216 | 21,249 |
| (millions of euros) | 3/31/2016 | 12/31/2015 | ||
|---|---|---|---|---|
| Share capital | 10,650 | 10,650 | ||
| Paid-in capital | 1,731 | 1,731 | ||
| Other reserves and retained earnings (accumulated losses), including profit (loss) for the period |
5,800 | 5,173 | ||
| Reserve for available-for-sale financial assets | 33 | 32 | ||
| Reserve for cash flow hedges | (458) | (249) | ||
| Reserve for exchange differences on translating foreign operations | (1,103) | (1,516) | ||
| Reserve for remeasurements of employee defined benefit plans (IAS 19) |
(87) | (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 |
7,415 | 6,993 | ||
| Total | 18,181 | 17,554 |
The table below shows future potential changes in share capital, based on the issuance by Telecom Italia Finance S.A. in November 2013 of the "Guaranteed Subordinated Mandatory Convertible Bonds due 2016, convertible into ordinary shares of Telecom Italia S.p.A.", on the authorizations to increase the share capital in place at March 31, 2016, and on the options and rights granted under equity compensation plans, still outstanding at March 31, 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 "2013 Guaranteed Subordinated Mandatory Convertible Bonds (ordinary shares)" are the "total estimated value" inclusive, where applicable, of any premiums.
(**) The number of shares potentially issuable shown may be subject to adjustments.
Further details are provided in the Note "Financial liabilities (non-current and current)" and in the Consolidated Financial Statements of the Telecom Italia Group for the year 2015.
Non-current and current financial liabilities (gross financial debt) were broken down as follows:
| (millions of euros) | 3/31/2016 | 12/31/2015 | |
|---|---|---|---|
| Financial payables (medium/long-term): | |||
| Bonds | 17,843 | 18,081 | |
| Convertible bonds | 1,810 | 1,802 | |
| Amounts due to banks | 5,848 | 5,778 | |
| Other financial payables | 467 | 991 | |
| 25,968 | 26,652 | ||
| Finance lease liabilities (medium/long-term) | 2,291 | 2,271 | |
| Other financial liabilities (medium/long-term): | |||
| Hedging derivatives relating to hedged items classified as non-current assets/liabilities of a financial nature |
2,093 | 1,595 | |
| Non-hedging derivatives | 2 | − | |
| Other liabilities | − | − | |
| 2,095 | 1,595 | ||
| Total non-current financial liabilities | (a) | 30,354 | 30,518 |
| Financial payables (short-term): | |||
| Bonds | 1,276 | 2,318 | |
| Convertible bonds | 1,364 | 1,363 | |
| Amounts due to banks | 1,072 | 1,482 | |
| Other financial payables | 206 | 233 | |
| 3,918 | 5,396 | ||
| Finance lease liabilities (short-term) | 156 | 153 | |
| Other financial liabilities (short-term): | |||
| Hedging derivatives relating to hedged items classified as current assets/liabilities of a financial nature |
111 | 84 | |
| Non-hedging derivatives | 255 | 591 | |
| Other liabilities | − | − | |
| 366 | 675 | ||
| Total current financial liabilities | (b) | 4,440 | 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) | 34,794 | 37,090 |
The item Convertible Bonds comprises the bond convertible into ordinary shares corresponding to 2,000 million euros, rate of 1.125%, maturing March 26, 2022 (unsecured equity-linked bond) issued by Telecom Italia S.p.A. on March 26, 2015. On May 20, 2015, Shareholders' Meeting of Telecom Italia S.p.A. approved the authorization for the convertibility of the unsecured equity-linked bond and the share capital increase reserved to servicing its conversion. The initial conversion price is 1.8476 euros, which may be subject to adjustments in line with market practice for this type of financial instrument; the number of Telecom Italia S.p.A. shares issuable for the possible conversion is 1,082,485,386, subject to adjustments.
| 3/31/2016 | 12/31/2015 | |||
|---|---|---|---|---|
| (millions of foreign currency) |
(millions of euros) | (millions of foreign currency) |
(millions of euros) | |
| USD | 7,789 | 6,841 | 8,463 | 7,774 |
| GBP | 2,074 | 2,620 | 2,041 | 2,781 |
| BRL | 6,361 | 1,570 | 6,442 | 1,515 |
| JPY | 20,088 | 157 | 20,036 | 153 |
| EURO | 23,606 | 24,519 | ||
| Total excluding Discontinued Operations |
34,794 | 36,742 | ||
| Discontinued operations | − | 348 | ||
| Total | 34,794 | 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) | 3/31/2016 | 12/31/2015 |
|---|---|---|
| Up to 2.5% | 6,468 | 7,165 |
| From 2.5% to 5% | 7,099 | 6,536 |
| From 5% to 7.5% | 13,681 | 14,719 |
| From 7.5% to 10% | 3,760 | 4,542 |
| Over 10% | 475 | 483 |
| Accruals/deferrals, MTM and derivatives | 3,311 | 3,297 |
| Total excluding Discontinued Operations | 34,794 | 36,742 |
| Discontinued operations | − | 348 |
| Total | 34,794 | 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) | 3/31/2016 | 12/31/2015 |
|---|---|---|
| Up to 2.5% | 10,093 | 9,835 |
| From 2.5% to 5% | 7,228 | 6,760 |
| From 5% to 7.5% | 10,742 | 12,617 |
| From 7.5% to 10% | 1,408 | 2,371 |
| Over 10% | 2,012 | 1,862 |
| Accruals/deferrals, MTM and derivatives | 3,311 | 3,297 |
| Total excluding Discontinued Operations | 34,794 | 36,742 |
| Discontinued operations | − | 348 |
| Total | 34,794 | 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 3/31 of the year: | |||||||
|---|---|---|---|---|---|---|---|
| (millions of euros) | 2017 | 2018 | 2019 | 2020 | 2021 | After 2021 |
Total |
| Bonds (*) | 944 | 1,576 | 2,601 | 2,461 | 1,111 | 11,855 | 20,548 |
| Loans and other financial liabilities | 675 | 1,073 | 1,159 | 2,011 | 583 | 943 | 6,444 |
| Finance lease liabilities | 117 | 104 | 100 | 97 | 98 | 1,887 | 2,403 |
| Total | 1,736 | 2,753 | 3,860 | 4,569 | 1,792 | 14,685 | 29,395 |
| Current financial liabilities | 592 | − | − | − | − | − | 592 |
| Total | 2,328 | 2,753 | 3,860 | 4,569 | 1,792 | 14,685 | 29,987 |
(*) 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) | 3/31/2016 | 12/31/2015 |
|---|---|---|
| Non-current portion | 17,843 | 18,081 |
| Current portion | 1,276 | 2,318 |
| Total carrying amount | 19,119 | 20,399 |
| Fair value adjustment and measurements at amortized cost | (571) | (752) |
| Total nominal repayment amount | 18,548 | 19,647 |
This item was broken down as follows:
| (millions of euros) | 3/31/2016 | 12/31/2015 |
|---|---|---|
| Non-current portion | 1,810 | 1,802 |
| Current portion | 1,364 | 1,363 |
| Total carrying amount | 3,174 | 3,165 |
| Fair value adjustment and measurements at amortized cost | 126 | 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 21,848 million euros and was down 1,099 million euros compared to December 31, 2015 (22,947 million euros), as a result of the new issues and repayments in the first quarter 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 3/31/16 |
Market value at 3/31/16 |
|---|---|---|---|---|---|---|---|---|
(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. On May 20, 2015, Shareholders' Meeting of Telecom Italia S.p.A. approved the authorization for the convertibility of the unsecured equity-linked bond and the share capital increase reserved to servicing its conversion.
(e) Net of the securities bought back by Telecom Italia S.p.A. on July 20, 2015.
| (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 |
| (millions of original currency) | Currenc y |
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 |
(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.
Medium/long-term amounts due to banks of 5,848 million euros (5,778 million euros at December 31, 2015) increased by 70 million euros. Short-term amounts due to banks totaled 1,072 million euros, down 410 million euros (1,482 million euros at December 31, 2015). Short-term amounts due to banks included 570 million euros for the current portion of medium/long-term amounts due to banks.
Medium/long-term other financial payables amounted to 467 million euros (991 million euros at December 31, 2015) and decreased by 524 million euros. They included:
Short-term other financial payables amounted to 206 million euros (233 million euros at December 31, 2015), down 27 million euros. They included 110 million euros of the current portion of the medium/long-term other financial payables, of which 92 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 2,291 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 156 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 2,093 million euros (1,595 million euros at December 31, 2015). Hedging derivatives relating to items classified as current liabilities of a financial nature totaled 111 million euros (84 million euros at December 31, 2015).
Non-hedging derivatives relating to items classified as current and non-current financial liabilities totaled 257 million euros (591 million euros at December 31, 2015) and consisted of 237 million euros (565 million euros at December 31, 2015) 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."). At March 31, 2016, the measurement of the embedded option resulted in the recognition in the income statement of an income of 328 million euros (expense of 454 million euros at December 31, 2015). In addition, these also 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 non-current portion of non-hedging derivatives classified under financial liabilities amounted to 2 million euros (zero at December 31, 2015); the current portion amounted to 255 million euros (591 million euros at December 31, 2015).
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 March 31, 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:
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.
Lastly, at March 31, 2016, no covenant, negative pledge clause, or other clause relating to the aforementioned debt position had in any way been breached or infringed.
The following table shows the composition and the draw down of the committed credit lines available at March 31, 2016:
| (billions of euros) | 3/31/2016 | 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:
At March 31, 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 March 31, 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) | 3/31/2016 | 12/31/2015 | |
|---|---|---|---|
| Non-current financial liabilities | 30,354 | 30,518 | |
| Current financial liabilities | 4,440 | 6,224 | |
| Financial liabilities directly associated with Discontinued operations/Non-current assets held for sale |
− | 348 | |
| Total Gross financial debt | (a) | 34,794 | 37,090 |
| Non-current financial assets (°) | |||
| Non-current financial receivables for lease contract | (74) | (70) | |
| Non-current hedging derivatives | (2,550) | (2,755) | |
| (b) | (2,624) | (2,825) | |
| Current financial assets | |||
| Securities other than investments | (735) | (1,488) | |
| Financial receivables and other current financial assets | (395) | (352) | |
| Cash and cash equivalents | (2,665) | (3,559) | |
| Financial assets relating to Discontinued operations/Non-current assets held for sale |
− | (227) | |
| (c) | (3,795) | (5,626) | |
| Net financial debt as per Consob communication DEM/6064293/2006 (ESMA) |
(d=a+b+c) | 28,375 | 28,639 |
| Non-current financial assets (°) | |||
| Securities other than investments | (2) | (3) | |
| Other financial receivables and other non-current financial assets | (140) | (161) | |
| (e) | (142) | (164) | |
| Net financial debt(*) | (f=d+e) | 28,233 | 28,475 |
| Reversal of fair value measurement of derivatives and related financial assets/liabilities |
(g) | (1,094) | (1,197) |
| Adjusted net financial debt | (f+g) | 27,139 | 27,278 |
(°) At March 31, 2016 and at December 31, 2015, "Non-current financial assets" (b+e) amounted to 2,766 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".
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 March 31, 2016.
| Acronym | ||
|---|---|---|
| Loans and Receivables | Loans and Receivables | LaR |
| Financial assets Held-to-Maturity | Financial assets Held-to-Maturity | HtM |
| Available-for-Sale financial assets | Financial assets Available-for-Sale | AfS |
| Financial Assets/Liabilities Held for Trading | Financial Assets/Liabilities Held for Trading | FAHfT/FLHfT |
| Financial Liabilities at Amortized Cost | Financial Liabilities at Amortized Cost | FLAC |
| Hedging Derivatives | Hedge Derivatives | HD |
| Not applicable | Not applicable | n.a. |
| Hierarchy Levels | ||||||||
|---|---|---|---|---|---|---|---|---|
| (millions of euros) | Categories | IAS 39 | note | Carrying amount in financial statements at 3/31/2016 |
Level 1 (*) | Level 2 (*) | Level 3 (*) | |
| ASSETS | ||||||||
| Non-current assets | ||||||||
| Other investments | ||||||||
| Securities, financial receivables and other non-current financial assets |
||||||||
| (a) | 2,681 | 4 | 2,652 | - | ||||
| Current assets | ||||||||
| Securities | ||||||||
| Financial receivables and other current financial assets | ||||||||
| (b) | 1,078 | 735 | 343 | - | ||||
| Total | (a+b) | 3,759 | 739 | 2,995 | - | |||
| LIABILITIES | ||||||||
| Non-current liabilities | ||||||||
| (c) | 2,095 | - | 2,095 | - | ||||
| Current liabilities | ||||||||
| (d) | 366 | - | 366 | - | ||||
| Total | (c+d) | 2,461 | - | 2,461 | - |
(*) 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.
A description is provided below of the most significant judicial, arbitration and tax disputes in which Telecom Italia Group companies are involved as of 31 March 2016, as well as those that came to an end during the period.
The Telecom Italia Group has posted liabilities totaling 397 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:
─ ● ─
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 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.
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, in which 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).
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 totaling several million euros), based on the assumption that Telecom Italia had in any event remedied the presumed organizational inadequacies. While acknowledging the notable redimensioning of the accusations, the Company will argue in the trial for the Court to recognize its total non-involvement in the facts at issue.
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 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 Quarter 2016 |
1st Quarter 2015 |
1st Quarter 2016 |
1st Quarter 2015 |
1st Quarter 2016 |
1st Quarter 2015 |
1st Quarter 2016 |
1st Quarter 2015 |
1st Quarter 2016 |
1st Quarter 2015 |
1st Quarter 2016 |
1st Quarter 2015 |
|
| Revenues by operating segment | 3.548 | 3.631 | 897 | 1.412 | − | 21 | 6 | − | (11) | (10) | 4.440 | 5.054 |
| Total operating revenues and other income | 3.591 | 3.677 | 901 | 1.418 | − | 23 | 7 | − | (12) | (11) | 4.487 | 5.107 |
| EBITDA | 1.461 | 1.610 | 258 | 416 | − | 9 | (6) | (2) | (1) | − | 1.712 | 2.033 |
| EBIT | 662 | 814 | 49 | 165 | − | 3 | (5) | (2) | (2) | 1 | 704 | 981 |
| Profit (loss) before tax from continuing operations | 678 | 166 | ||||||||||
| Profit (loss) from continuing operations | 457 | 92 | ||||||||||
| Profit (loss) for the period | 504 | 261 | ||||||||||
| Owners of the Parent | 433 | 82 | ||||||||||
The table below shows the results of the Domestic Business Unit on a like-for-like basis against the first quarter of 2015.
| (millions of euros) | Domestic | |
|---|---|---|
| 1st Quarter 2016 |
1st Quarter 2015 |
|
| Revenues by operating segment | 3.530 | 3.631 |
| Total operating revenues and other income | 3.571 | 3.677 |
| EBITDA | 1.451 | 1.610 |
| EBIT | 657 | 814 |
| (millions of euros) | Domestic | Brazil | Media | Other Operations | eliminations | Adjustments and | Consolidated Total | |||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 1st Quarter 2016 |
1st Quarter 2015 |
1st Quarter 2016 |
1st Quarter 2015 |
1st Quarter 2016 |
1st Quarter 2015 |
1st Quarter 2016 |
1st Quarter 2015 |
1st Quarter 2016 |
1st Quarter 2015 |
1st Quarter 2016 |
1st Quarter 2015 |
|
| Total revenues from equipment sales |
195 | 196 | 55 | 188 | − | − | 6 | − | (1) | − | 255 | 384 |
| Total revenues from services | 3,352 | 3,435 | 842 | 1,224 | − | 21 | − | − | (10) | (10) | 4,184 | 4,670 |
| Total revenues on construction contracts |
1 | − | − | − | − | − | − | − | − | − | 1 | − |
| Total revenues by operating segment |
3,548 | 3,631 | 897 | 1,412 | − | 21 | 6 | − | (11) | (10) | 4,440 | 5,054 |
The table below shows the results of the Domestic Business Unit on a like-for-like basis against the first quarter of 2015.
| (millions of euros) | Domestic | |
|---|---|---|
| 1st Quarter 2016 |
1st Quarter 2015 |
|
| Total revenues from equipment sales | 195 | 196 |
| Total revenues from services | 3,334 | 3,435 |
| Total revenues on construction contracts | 1 | − |
| Total revenues by operating segment | 3,530 | 3,631 |
| (millions of euros) | Domestic | Brazil | Media | Other Operations | Adjustments and eliminations |
Consolidated Total | ||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 1st Quarter 2016 |
1st Quarter 2015 |
1st Quarter 2016 |
1st Quarter 2015 |
1st Quarter 2016 |
1st Quarter 2015 |
1st Quarter 2016 |
1st Quarter 2015 |
1st Quarter 2016 |
1st Quarter 2015 |
1st Quarter 2016 |
1st Quarter 2015 |
|
| Total purchase of intangible and tangible assets |
824 | 676 | 166 | 287 | − | 1 | − | − | − | − | 990 | 964 |
| of which: capital expenditures | 778 | 676 | 166 | 287 | − | 1 | − | − | − | − | 944 | 964 |
| of which: change in financial leasing contracts |
46 | − | − | − | − | − | − | − | − | − | 46 | − |
The table below shows the results of the Domestic Business Unit on a like-for-like basis against the first quarter of 2015.
| (millions of euros) | Domestic | ||||||
|---|---|---|---|---|---|---|---|
| 1st Quarter 2016 |
1st Quarter 2015 |
||||||
| Total purchase of intangible and tangible assets |
823 | 676 | |||||
| of which: capital expenditures | 777 | 676 | |||||
| of which: change in financial leasing contracts |
46 | − |
| (number) | Domestic (*) | Brazil | Media | Other Operations | Consolidated Total | ||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 3/31/2016 | 12/31/2015 | 3/31/2016 | 12/31/2015 | 3/31/2016 | 12/31/2015 | 3/31/2016 | 12/31/2015 | 3/31/2016 | 12/31/2015 | ||
| Headcount (**) | 52,713 | 52,644 | 12,280 | 13,042 | − | 64 | 114 | 117 | 65,107 | 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 quarter of 2016 would have been 52,650. (**) 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 | eliminations | Adjustments and | Consolidated Total | |||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 3/31/2016 12/31/2015 | 3/31/2016 12/31/2015 3/31/2016 12/31/2015 3/31/2016 12/31/2015 3/31/2016 12/31/2015 3/31/2016 12/31/2015 | |||||||||||
| Total Assets | 66,315 | 71,268 | ||||||||||
| Total Equity and Liabilities | 66,315 | 71,268 |
The table below shows the results of the Domestic Business Unit on a like-for-like basis against the first quarter of 2015.
| (millions of euros) | Domestic | |
|---|---|---|
| 3/31/2016 | 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 Quarter 2016 | 1st Quarter 2015 | 1st Quarter 2016 | 1st Quarter 2015 | 3/31/ 2016 | 12/31/ 2015 | ||||
| Total | (a+b) | 4,440 | 5,054 | 4,440 | 5,054 | 52,877 | 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) 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 was classified under Discontinued Operations (Discontinued operations/Non-current assets held for sale). The sale was completed on March 8, 2016.
The figures in the consolidated separate income statements and consolidated statements of cash flow for the first quarter 2016 are compared to those for the first quarter 2015 (Revised) while the figures in the consolidated statements of financial position at March 31, 2016 are compared to those of December 31, 2015 (Revised).
The effects on the individual line items of the separate consolidated income statements for the first three months 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) | |||||||||||
| 4,440 | 1 | 102 | 103 | (23) | 80 | 1.8 | |||||||
| 1,923 | 6 | 60 | 66 | (14) | 52 | 2.7 | |||||||
| 848 | 1 | 21 | 9 | 31 | 31 | 3.7 | |||||||
| 1,120 | 29 | 29 | 29 | 2.6 | |||||||||
| 1,146 | 33 | 33 | 33 | 2.9 | |||||||||
| 47 | (1) | 10 | 9 |
| (millions of euros) | Total | Related Parties | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Total related parties |
Total related parties net of Disc. Op. |
||||||||||||
| (a) | (b) | (b/a) | |||||||||||
| 5,054 | 2 | 171 | 173 | (48) | 125 | 2.5 | |||||||
| 2,171 | 5 | 84 | 89 | (14) | 75 | 3.5 | |||||||
| 833 | 4 | 22 | 4 | 30 | (3) | 27 | 3.2 | ||||||
| 1,512 | 47 | 47 | 47 | 3.1 | |||||||||
| 2,329 | 2 | 26 | 28 | 28 | 1.2 | ||||||||
| 169 | 31 | 31 |
The effects on the individual line items of the consolidated statements of financial position at March 31, 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 |
(2,766) | (8) | (492) | (500) | (500) | 18.1 | ||||
| (735) | (38) | (38) | (38) | 5.2 | ||||||
| (395) | (17) | (17) | (17) | 4.3 | ||||||
| (2,665) | (167) | (167) | (167) | 6.3 | ||||||
| Current financial assets | (3,795) | (222) | (222) | (222) | 5.8 | |||||
| Non-current financial liabilities |
30,354 | 990 | 990 | 990 | 3.3 | |||||
| Current financial liabilities |
4,440 | 66 | 66 | 66 | 1.5 | |||||
| Total net financial debt | 28,233 | (8) | 342 | 334 | 334 | 1.2 | ||||
| Other statement of financial position line items |
||||||||||
| 5,534 | 3 | 90 | 93 | 93 | 1.7 | |||||
| 7,701 | 17 | 156 | 26 | 199 | 199 | 2.6 |
| (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 three months of 2016 and 2015 are shown below:
| (millions of euros) | Total | Related Parties | ||||||
|---|---|---|---|---|---|---|---|---|
| Total related parties |
Total related parties net of Disc. Op. |
|||||||
| (a) | (b) | (b/a) | ||||||
| 990 | 34 | 34 | (1) | 33 | 3.3 | |||
| (45) | (1) | (1) |
| (millions of euros) | Total | Related Parties | ||||||
|---|---|---|---|---|---|---|---|---|
| Total related parties |
Total related parties net of Disc. Op. |
|||||||
| (a) | (b) | (b/a) | ||||||
| 964 | 21 | 21 | 21 | 2.2 |
At March 31, 2016, Telecom Italia had issued guarantees in favor of the joint venture Alfiere S.p.A. for 1 million euros.
In the first quarter 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 8.8 million euros (3.9 million euros in the first quarter of 2015), broken down as follows:
| (millions of euros) | 1st Quarter 2016 |
1st Quarter 2015 |
|---|---|---|
| Short-term remuneration | 2.4 | 2.9 |
| Employment termination benefit incentives | 6.0 | |
| Share-based payments (*) | 0.4 | 1.0 |
| 8.8 | 3.9 |
(*) These refer to the fair value of the rights, accrued to March 31, under the share-based incentive plans of Telecom Italia S.p.A. and its subsidiaries (2014/2016 Stock Option Plans and Stock Option Plans of the South American subsidiaries).
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 shown in the table do not include the effects of the cancellation of the assessments pertaining to the previous years, due to the failure to achieve the performance targets and for the updated forecasts of the performances for the 2014/2016 Stock Option Plan. The related amounts are broken down below:
| (millions of euros) | 1st Quarter 2016 |
1st Quarter 2015 |
|---|---|---|
| Share-based payments – 2014/2016 Stock Option Plan, 2014/2015 verifications |
(1,6) | |
| Total | (1,6) |
During the first quarter of 2015 there were no effects resulting from the cancellation of the verifications for the Equity Plans.
In the first quarter 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 29,000 euros (33,000 euros in the first quarter of 2015).
In the first quarter 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, included:
| Giuseppe Recchi | Executive Chairman of Telecom Italia S.p.A. |
|---|---|
| Marco Patuano | (1) Managing Director and Chief Executive Officer of Telecom Italia S.p.A. |
| Flavio Cattaneo | (2) Managing Director and Chief Executive Officer of Telecom Italia S.p.A. |
| (3) General Manager | |
| Managers: | |
| Rodrigo Modesto de Abreu | Diretor Presidente Tim Participações S.A. |
| Simone Battiferri | Head of ICT Solutions & Service Platforms |
| Stefano Ciurli | Head of Wholesale |
| Antonino Cusimano | Head of Corporate Legal Affairs |
| Stefano De Angelis | Head of Consumer & Small Enterprise Market |
| Mario Di Loreto | Head of People Value |
| Cristoforo Morandini | (4) Head of Regulatory Affairs and Equivalence |
| Giuseppe Roberto Opilio | Head of Technology |
| Piergiorgio Peluso | Head of Administration, Finance and Control |
| Paolo Vantellini | Head of Business Support Office |
(1) to March 21, 2016; (2) from March 30, 2016; (3) from April 12, 2016; (4) from March 17, 2016;
On 27 April 2016 the Board of Directors appointed Arnaud de Puyfontaine as Deputy Chairman of the Company. The office does not include any powers.
The manager responsible for preparing the corporate financial reports declares, pursuant to paragraph 2, article 154-bis of the Consolidated Law on Finance, that the accounting disclosures contained in the Interim Report at March 31, 2016 of the Telecom Italia Group correspond to the Company's documents, accounting records and entries.
The Manager Responsible for Preparing the Company's Financial Reports
Piergiorgio Peluso
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