MILAN (Thomson Financial) - Telecom Italia SpA CEO Franco Bernabe promised
hard work to relaunch the Italian telecommunications company and ruled out
"miracles and fireworks" to regain ground on its domestic market and expand
abroad.
In a meeting with analysts to present the group's 2008-2010 business plan,
Bernabe said that "the company I found, is different to the one I left".
Bernabe left Telecom Italia in 1999 after it was taken over by Olivetti and
was reappointed to his previous job in Dec 2007 after Telefonica SA and a group
of Italian investors bought a controlling stake from Pirelli & C SpA, which in
2001 had taken control of the incumbent.
Due to debt accumulated by Olivetti and Pirelli to take over the company,
Telecom Italia has been heavily leveraged and had to sell foreign assets. In the
meantime, it has suffered from stronger competition and lower prices in Italy.
At the end of 2007, the group's net debt totaled 35.701 bln eur compared
with a market capitalisation of about 28.7 bln.
"There will be no miracles, no fireworks" to change the situation in the
short-term, he said.
The company's debt pile hinders its international expansion, while there is
limited opportunity to deleverage the company or finance growth opportunities
through disposals, he added.
"It isn't an exciting situation," he said.
He pledged to relaunch the company through hard work and rigorous financial
management.
Nevertheless, the group is ready to use its shares to finance possible
future deals and that its core shareholders are open to having their stakes
diluted if the right acquisition opportunity arises, he said.
But, the company does not plan to use now its shares, which are trading at
"depressed prices", to finance acquisitions, he said.
"This is something we can do when markets are back to normal" and the stock
reflects the company's value, Bernabe said.
He added that he does not plan to dilute the company's earnings per share
with "an expensive acquisition".
Telefonica SA and a group of Italian investors have a combined 23.6 pct in
the telecommunications company's ordinary capital.
Telecom Italia also intends to exercise an option to increase its stake in
Telecom Argentina, Bernabe said.
The company has an option to increase its stake in Sofora
Telecomunicaciones, a holding company owning 55 pct of Telecom Argentina, to 52
pct from 50 pct in 2009 for 7 mln usd.
Bernabe also promised to provide a "fair" remuneration to shareholders based
on the average distribution of net profits in dividends paid in the
telecommunications industry and on the company's financial situation.
He added that the cut of the dividend to 0.08 eur per ordinary share on its
2007 results, from 0.14 eur the previous year, has to be considered "a floor"
and that the company hopes to increase the payment in the future.
In the 2008-2010 business plan, Telecom Italia forecast revenues of around
31 bln eur in 2008, in line with the 31.290 bln it reported for the previous
year, with an organic EBITDA margin of around 38.5 pct.
The 2008 forecast does not include the group's French broadband operations
which are among disposal assets. Without the French business, Telecom Italia's
2007 sales were 30.9 bln.
In the period 2009-2010, the company said it sees revenues growing between
1-2 pct per year thanks to the growth of its international business and
stabilisation or recovery of domestic sales, with an EBITDA margin of around 39
pct.
The sales forecast is in line with the guidance of the group's previous
2007-2009 plan released in March last year.
Unveiling its business plan 2008-2010, Telecom Italia said it sees its net
debt/EBITDA ratio below 3 at the end of 2008 and about 2.5 at the end of 2010.
Investments are seen at around 5.4 bln eur in 2008, including 500 mln eur
for the acquisition of a 3G mobile license in Brazil.
Overall investments in the period 2008-2010 will be about 15 bln eur,
gradually declining each year.
Investments in Italy will reach around 11.0 bln eur in the three-year
period, about 3.0 bln in Brazil and about 0.7 bln in Germany.
Telecom Italia added that it has an efficiency programme that will enable it
to trim costs and investment outlays by about 1.2 bln eur in 2008-2010.
The figure includes an estimated 0.7 bln eur in synergies with Telefonica.
CEO Bernabe said that the collaboration with the Spanish group has "started
on a very good footing".
He added that the group is open to collaborate with other investors to
develop its business.
Telecom Italia is cash strapped but "some people have money and we have the
skills, we could do something together," Bernabe said.
He also pledged to cooperate with the authorities and competitors obtain a
"quiet (business) environment" to develop the company.
Telecom Italia said its industrial strategy is to start from its core assets
on the domestic market, in Brazil, in Germany and in Argentina.
It aims for gradual international expansion, including strengthening its
mobile and other business in Brazil, growing in Germany and possibly increasing
its exposure in Argentina.
In Italy, the company expects its revenues to fall to about 23 bln eur from
24.2 bln in 2007 but intends to reverse the trend in 2010.
Bernabe said the company did a "good work" to draft the business plan and
the targets are not preliminary ones.
Nevertheless, Telecom Italia will present a new business plan ready before
the end of the year, he said, adding that the new plan should be "more
aggressive".
He also said that the company does not have any plans to convert its savings
shares into ordinary shares.
In a recent note, Deutsche Bank estimated that Telecom Italia could raise
1.5 bln eur by asking holders of saving shares to pay 0.25 eur in cash to
convert the share into common stock.
Savings shares have restricted voting rights and hence usually trade at a
discount relative to common shares. However, they generally yield higher
dividends.
At 12.06 pm, Telecom Italia's ordinary shares were down 6.23 pct at 1.49
eur.
philip.webster@thomson.com
pw/lht
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