and there are covenants which cover the following: in the event
the company becomes the target of a merger, demerger or
contribution of a business segment outside the Group, or sells,
disposes or transfers assets or business segments (except in
certain cases, expressly provided for), it shall immediately inform
the EIB which shall have the right to ask for guarantees to be
provided or changes to be made to the loan contract; "Clause for
inclusion" contemplated in the loan contracted on August 5, 2011
for the amount of 100 million euros: against more restrictive
clauses (i.e. cross default clauses, financial covenants,
16
commitments restricting the sale of goods) granted by the company
in new loan contracts, the EIB will have the right to demand the
constitution of guarantees or the amendment of the loan contract in
order to have an equivalent regulation in favour of the EIB. That
expectation is not applied to the subsidized loans until the total
amount of the outstanding capital financed does not exceed the
amount of 500 million euros; for all loans not secured by
collateral, if the Company's credit rating of unsubordinated and
unsecured medium-long term debt is lower than BBB for Standard
& Poor's, Baa2 for Moody's and BBB for Fitch Ratings, the
company shall immediately inform the EIB, which shall have the
right to ask for suitable guarantees to be provided, indicating a
date for setting up these guarantees; after that date and if
Telecom Italia S.p.A. fails to provide the guarantees, the EIB
shall have the right to demand the immediate repayment of the
disbursed amount. The current ratings (BBB and Baa2) didn't require
new guarantees or repayment of loans. The syndicated bank credit
lines 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. Mechanisms are provided for adjusting
the cost of funding in relation to Telecom Italia's credit rating,
with a spread added to Euribor of between a minimum of 0.0875% and
a maximum of 0.2625% for the line expiring in 2014, and between a
minimum of 0.90% and a maximum of 2.50% for the line expiring in
2013. The two syndicated bank credit lines 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 assets of the
company unless specific conditions exist (e.g. the sale at the fair
market value). Covenants with basically the same content can be
found in the export credit loan agreement. In a series of
agreements in which Telecom Italia is a party, communication must
be provided in case of a change in control: Multi- currency
revolving credit facility (8,000,000,000 euros). The agreement was
signed between Telecom Italia and a syndicate of banks on August 1,
2005 and subsequently modified. In the event of a change in
control, Telecom Italia shall inform the agent within 5 business
days and the agent, on behalf of the lending banks, shall negotiate
in good faith how to continue the relationship. None of the parties
shall be obliged to continue such negotiations beyond the term of
30 days, at the end of which, in the absence of an agreement, the
credit facility shall cease to be effective and Telecom Italia
shall be held to repay any sum eventually disbursed (currently
equal to 1,500,000,000 euros) to the same. Conventionally, no
change in control is held to exist in the event control, pursuant
to art. 2359 of the Italian Civil Code, is acquired (i) by
shareholders who, at the date of signing the agreement held,
directly or indirectly, more than 13% of the voting rights in
shareholders' meetings or (ii) by the investors (Telefónica S.A.,
Assicurazioni Generali S.p.A., Intesa Sanpaolo S.p.A. and
Mediobanca S.p.A.) which had signed a shareholder's agreement on
April 28, 2007 regarding the Telecom Italia shares, or (iii) by a
combination of parties belonging to the above two categories;
Revolving credit facility (1,250,000,000 euros). The agreement was
signed between Telecom Italia and a syndicate of banks on February
12, 2010 and envisages a structure similar to that contained in the
August 1, 2005 credit facility agreement, even though it was
updated to take into account of the October 28, 2009 amendment to
the April 28, 2007shareholder's agreement. Therefore, no change in
control is held to exist in the event control, pursuant to art.
2359 of the Italian Civil Code, is directly or indirectly (through
subsidiaries) acquired by the investors Telefónica S.A.,
Assicurazioni Generali S.p.A., Intesa Sanpaolo S.p.A. and
Mediobanca S.p.A., with the provisions described above remaining
unchanged. Currently the facility is unused; Revolving credit
facility (200,000,000 euros). The agreement was entered into by
Telecom Italia and Unicredit S.p.A. on December 20, 2010 and
envisages a discipline basically similar to that of the February
12, 2010 credit facility agreement. Currently the facility is
unused; Bonds. The regulations covering the bonds issued under the
EMTN Programmes, by both Olivetti and Telecom Italia, and the loans
denominated in US dollars, typically provide that, in the event of
mergers or transfer of all or substantially all of the assets of
the issuing company or the guarantor, the incorporating or
transferee company shall assume all of the obligations of the
merged or transferor company. Non-fulfillment of the obligation,
for which a solution is not found, is an event of default;
Contracts with the European Investment Bank (EIB.) The total
nominal amount is 2.95 billion euros: the contracts signed by
Telecom Italia with the EIB, for the amount of 2.65 billion euros,
carry the obligation of promptly informing the Bank about changes
regarding the Bylaws or the allocation of
17
capital among the shareholders which can bring about a change in
control. Failure to communicate this information to the Bank shall
result in the termination of the contract. Furthermore, when a
shareholder, who at the date of signing the contract does not hold
at least 2% of the share capital, comes to hold more than 50% of
the voting rights in ordinary shareholders' meetings or, in any
case, a number of shares such that it represents more than 50% of
the share capital and, in the bank's reasonable opinion, this fact
could cause a detriment to the Bank or could compromise the
execution of the loan project, the Bank has the right to ask
Telecom Italia to provide guarantees or modify the contract or find
an alternative solution. Should Telecom Italia not comply with the
requests of EIB, the Bank has the right to terminate the contract;
the contracts signed by Telecom Italia with the EIB in 2011, for a
total amount of 300 million euros, carry the obligation of promptly
informing the Bank about any significant changes regarding the
Bylaws or the shareholders. Failure to communicate this information
to the Bank shall result in the termination of the contract.
According to these contracts, there is change in control if a
subject or a group of subjects acting in concert acquire the
control of Telecom Italia, or of the entity controlling it directly
or indirectly. There isn't change in control in case the control is
acquired directly or indirectly by (i) any shareholder of Telecom
Italia that at the date of the contract holds directly or
indirectly at least 13% of the voting rights in the ordinary board
or (ii) by the investors Telefónica S.A., Assicurazioni Generali
S.p.A., Intesa Sanpaolo S.p.A. and Mediobanca S.p.A. or by their
subsidiaries. In case of change in control, the EIB has the right
to demand the repayment in advance of the loan; the three contracts
guaranteed and dated September 26, 2011, for a total amount of 200
million euros, provide the "clause for inclusion" according to
which in case Telecom Italia commits herself to maintain in other
loans financial covenants not present or more restrictive than
those granted to the EIB, the Bank will have the right to demand
the constitution of guarantees or the amendment of the loan
contract in order to have an equivalent clause in favour of the
EIB. That expectation is not applied to the subsidized loans until
the total amount of the outstanding capital financed does not
exceed the amount of 500 million euros; Export Credit Agreement
(nominal outstanding amount of about 12.5 million euros). The
contract was signed in 2004 by Telecom Italia and Société Générale
and provides the repayment of the loan in 2013. It is established
that, in the event of a change in control and subsequent failure to
reach an agreement with the lender bank, Telecom Italia shall repay
the outstanding loan at the first date in which the interest
payment shall be due; Senior Secured Syndicated Facility (nominal
outstanding amount 312,464,000 Argentinean pesos, equal to
approximately 48 million euros). The contract was signed in October
2011 between BBVA Banco Francés and Tierra Argentea S.A. (company
fully-controlled by the Telecom Italia Group) and provides the
repayment of the loan in 2016. The loan (a) is granted by two
pledges set up on (i) 15,533,834 Telecom Argentina's shares and
(ii) 2,351,752 American depositary Shares (ADS) representing of
117,588 preferred B shares of Nortel Inversora S.A. as well (b) it
is assisted by a bank guarantee at first call for a total amount of
about USD 22.8 million (equal to about 17.3 million euros). The
covenants contractually provided, as negative covenants or
financial covenants, are coherent with those of the syndicated
credit facilities and with the local market practice; furthermore,
there is a clause of change of control that comply the total
repayment in advance of the loan in case the Telecom Group holds
less than the 100% of Tierra Argentea S.A. or loses the control of
the other Argentinean subsidiaries. Furthermore, 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 customary negative pledges
clauses, worth the request for the repayment in advance of the
loan. Finally, as of December 31, 2012, no covenants, negative
pledge clauses or other clauses regarding the above described debt
position have been breached or violated in any way.
18
TELECOM ITALIA GROUPEFFECTS OF NON-RECURRING EVENTS AND
TRANSACTIONS ON EACH ITEM OF THE SEPARATE CONSOLIDATED INCOME
STATEMENTS
The effect of non-recurring events and transactions on the separate
consolidated income statements is set out below in accordance with
Consob communication DME/RM/9081707 dated September 16, 2009:
(millions of euros)
2012
2011
Acquisition of goods and services, other operating expenses, change
in inventories: Restructuring expenses Sundry expenses Expenses for
corporate operations Employee benefits expenses: Restructuring
expenses Impact on Operating profit before depreciation and
amortization, capital gains (losses) and impairment reversals
(losses) on non-current assets (EBITDA) Gain (losses) on disposals
of non-current assets: Gains on disposals of non-current assets Net
gain on disposal of Matrix Net gain on disposal of Loquendo
Impairment reversals (losses) on non-current assets: Core Domestic
goodwill impairment charge Media goodwill impairment charge
Argentina goodwill impairment charge Writedown of other intangible
and tangible assets (Argentina and Media) Writedowns of tangible
assets for restructuring Impact on EBIT - Operating profit Other
income (expenses) from investments: Net gain on the disposal of
EtecSA (Cuba) Net losses on disposal of other investments Finance
expenses: Interest expense and other financial expenses on disputes
Impact on profit (loss) before tax from continuing operations
Income taxes on non-recurring items Discontinued operations Impact
on profit (loss) for the year (47) (4,478) 46 2 (4,430) - (7,337) 5
(13) (7,345) - (2) 17 (1) (4,016) (105) (168) (137) (3) (4,429)
(7,307) (57) - - - (7,353) 22 49 - - - 35 (25) (71) (12) (24) (14)
(32) - - (4) (8)
19
TELECOM ITALIA S.p.A. - SEPARATE INCOME STATEMENTS
2012 (millions of euros)
2011 (Restated)
Change amount % (6.1) (2.4) (6.1) (6.1) (7.8) (7.0) ° (3.0)
Revenues Other income Total operating revenues and other income
Acquisition of goods and services Employee benefits expenses Other
operating expenses Changes in inventories Internally generated
assets Operating profit before depreciation and amortization,
capital gains (losses) and impairment reversals (losses) on
non-current assets (EBITDA) Depreciation and amortization Gains
(losses) on disposals of non-current assets Impairment reversals
(losses) on non-current assets Operating profit (loss) (EBIT)
Income (expenses) from investments Finance income Finance expenses
Profit (loss) before tax Income tax expense Profit (loss) for the
year
16,940 241 17,181 (5,940) (2,490) (656) (13) 351
18,045 247 18,292 (6,324) (2,702) (705) 13 362
(1,105) (6) (1,111) 384 212 49 (26) (11)
8,433 (3,492) 20 (4,017) 944 36 2,233 (4,238) (1,025) (796)
(1,821)
8,936 (3,793) (9) (5,380) (246) (147) 2,538 (4,625) (2,480) (1,165)
(3,645)
(503) 301 29 1,363 1,190 183 (305) 387 1,455 369 1,824
(5.6) (7.9) ° ° ° ° (12.0) (8.4) ° 31.7 °
20
TELECOM ITALIA S.p.A. - STATEMENTS OF COMPREHENSIVE INCOME
In accordance with IAS 1 (Presentation of Financial Statements)
here below are presented the Statements of Comprehensive Income,
including the Profit (loss) for the year, as shown in the Separate
Income Statements, and all non-owner changes in equity.
(millions of euros)
2012
2011 (Restated)
Profit (loss) for the year Other components of the Statements of
Comprehensive Income: Available-for-sale financial assets Profit
(loss) from fair value adjustments Net fiscal impact
(a)
(1,821)
(3,645)
44 (12) (b) 32 (458) 324 37 (c) (97) (53) 15 (d) (38) (103) (1,924)
(e=b+c+d) (a+e)
9 (4) 5 (506) 122 106 (278) 102 (28) 74 (199) (3,844)
Hedging instruments: Profit (loss) from fair value adjustments Loss
(profit) transferred to the Separate Income Statement Net fiscal
impact Remeasurements of employee defined benefit plans (IAS 19):
Actuarial gains and losses Net fiscal impact Total Total
comprehensive income (loss) for the year
21
TELECOM ITALIA S.p.A. STATEMENTS OF FINANCIAL POSITION
(millions of euros)
12/31/2012 (a)
12/31/2011 (b)
Change (a-b)
Assets Non-current assets Intangible assets Goodwill Intangible
assets with a finite useful life Tangible assets Property, plant
and equipment owned Assets held under finance leases Other
non-current assets Investments Non-current financial assets
Miscellaneous receivables and other non-current assets Deferred tax
assets Total Non-current assets Current assets Inventories Trade
and miscellaneous receivables and other current assets Current
income tax receivables Current financial assets Securities other
than investments, financial receivables and other current financial
assets Cash and cash equivalents Total Current assets Total assets
Equity and Liabilities Equity Share capital issued Less: treasury
shares Share capital Paid-in capital Other reserves and retained
earnings (accumulated losses), including profit (loss) for the year
Total Equity Non-current liabilities Non-current financial
liabilities Employee benefits Deferred tax liabilities Provisions
for risks and charges Miscellaneous payables and other non-current
liabilities Total Non-current liabilities Current liabilities
Current financial liabilities Trade and miscellaneous payables and
other current liabilities Current income tax payables Total Current
Liabilities Total Liabilities (e) (f=d+e) 5,425 7,003 - 12,428
49,041 7,290 7,527 63 14,880 51,616 (1,865) (524) (63) (2,452)
(2,575) (d) 34,887 728 2 478 518 36,613 34,941 741 1 468 585 36,736
(54) (13) 1 10 (67) (123) (c) 10,694 (21) 10,673 1,704 5,352 17,729
10,694 (21) 10,673 1,704 8,160 20,537 - - - - (2,808) (2,808) (b)
(a+b) 839 2,146 2,985 7,341 66,770 1,343 1,595 2,938 8,110 72,153
(504) 551 47 (769) (5,383) 112 4,189 55 125 5,047 - (13) (858) 55
(a) 9,330 2,449 996 824 13,599 59,429 9,416 2,891 545 882 13,734
64,043 (86) (442) 451 (58) (135) (4,614) 9,488 1,005 10,493 9,726
1,091 10,817 (238) (86) (324) 30,611 4,726 35,337 34,627 4,865
39,492 (4,016) (139) (4,155)
22
Total equity and liabilities
(c+f)
66,770
72,153
(5,383)
TELECOM ITALIA S.p.A. STATEMENTS OF CASH FLOWS
(millions of euros)
2012
2011 (Restated)
Cash flows from operating activities: Profit (loss) for the year
Adjustments for: Depreciation and amortization Impairment losses
(reversals) on non-current assets (including investments) Net
change in deferred tax assets and liabilities Losses (gains)
realized on disposals of non-current assets (including investments)
Change in provisions for employees benefits Changes in inventories
Change in trade receivables and net amounts due from customers on
construction contracts Change in trade payables Net change in
current income tax receivables/payables Net change in miscellaneous
receivables/payables and other assets/liabilities Cash flows from
(used in) operating activities: Cash flows from investing
activities: Purchase of intangible assets on an accrual basis
Purchase of tangible assets on an accrual basis Total purchase of
intangible and tangible assets on an accrual basis Change in
amounts due to fixed asset suppliers Total purchase of intangible
and tangible assets on a cash basis Acquisitions of control of
subsidiaries or other businesses, net of cash acquired
Acquisitions/disposals of other investments Change in financial
receivables and other financial assets Proceeds from
sale/reimbursements of intangible, tangible and other non-current
assets Cash flows from (used in) investing activities Cash flows
from financing activities: Change in current financial liabilities
and other Proceeds from non-current financial liabilities
(including current portion) Repayments of non-current financial
liabilities (including current portion) Share capital
proceeds/reimbursements Dividends paid Cash flows from (used in)
financing activities Aggregate cash flows Net cash and cash
equivalents at beginning of the year Net cash and cash equivalents
at end of the year (c) (d=a+b+c) (e) (f=d+e) (102) 3,940 (6,670) -
(900) (3,732) (372) 1,283 911 788 4,083 (6,391) - (1,190) (2,710)
(853) 2,136 1,283 (b) (1,197) (1,808) (3,005) 217 (2,788) 57 (60)
943 29 (1,819) (2,351) (1,771) (4,122) 510 (3,612) - (42) (313) 60
(3,907) (a) 3,492 4,122 99 (29) (232) 13 818 (571) (451) (261)
5,179 3,793 5,829 110 (31) (158) (13) 132 (196) 29 (86) 5,764
(1,821) (3,645)
23
Additional Cash Flow Information
2012
(millions of euros)
2011 (Restated)
Income taxes (paid) received Interest expense paid Interest income
received Dividends received
(1,097) (3,576) 1,717 132
(1,010) (3,311) 1,440 254
Analysis of Net Cash and Cash Equivalents
(millions of euros)
2012
2011 (Restated)
Net cash and cash equivalents at beginning of the year: Cash and
cash equivalents Bank overdrafts repayable on demand Net cash and
cash equivalents at end of the year: Cash and cash equivalents Bank
overdrafts repayable on demand 2,146 (1,235) 911 1,594 (311) 1,283
1,595 (312) 1,283 2,763 (627) 2,136
24
TELECOM ITALIA S.p.A. NET FINANCIAL DEBT
(millions of euros)
12/31/2012
12/31/2011
Change
Non-current financial liabilities Bonds Amounts due to banks, other
financial payables and liabilities Finance lease liabilities
Current financial liabilities (1) Bonds Amounts due to banks, other
financial payables and liabilities Finance lease liabilities Total
Gross financial debt Non-current financial assets Financial
receivables and other non-current financial assets Current
financial assets Securities other than investments: Financial
receivables and other non-current financial assets Cash and cash
equivalents Total financial assets Net financial debt carrying
amount Reversal of fair value measurement of derivatives and
related financial assets/liabilities Adjusted Net Financial Debt
Breakdown as follows: Total adjusted gross financial debt Total
adjusted financial assets (1) of which current portion of
medium/long -term debt: Bonds Amounts due to banks, other financial
payables and liabilities Finance lease liabilities
1,192 2,301 217 5,327 681 240 (4,135) 1,620 (23) (363) (476)
(2,146) (864) (479) (1,595) 501 3 (551) (2,449) (2,891) 442 1,192
4,016 217 5,327 1,723 240 (4,135) 2,293 (23) 15,138 18,591 1,158
13,131 20,510 1,300 2,007 (1,919) (142)
34,887
34,941
(54)
5,425 40,312
7,290 42,231
(1,865) (1,919)
(2,449)
(2,891)
442
(2,985) (5,434) 34,878
(1,651)
(2,938) (5,829) 36,402
(1,519)
(47) 395 (1,524)
(132)
33,227 37,010 (3,783)
34,883 38,713 (3,830)
(1,656) (1,703) 47
25
TELECOM ITALIA S.p.A. EFFECTS OF NON-RECURRING EVENTS AND
TRANSACTIONS ON
EACH ITEM OF THE SEPARATE INCOME STATEMENTS
The effect of non-recurring events and transactions on equity,
profit, net financial debt and cash flows of Telecom Italia is set
out below in accordance with Consob communication DME/RM/9081707
dated September 16, 2009:
(millions of euros)
2012
2011
Acquisition of goods and services Higher costs for Telecom Italia
Sparkle Other operating expenses Fines Sundry expenses Employee
benefits expenses Expenses for mobility Use of mobility fund Impact
on EBITDA Gains (losses) on disposals of non-current assets Gains
(losses) on non-current assets Impairment reversals (losses) on
non-current assets Goodwill impairment changes Impact on EBIT Other
income (expenses) from investments Net gain on disposal of Loquendo
Loss on disposal of consorzio CRIAI Net gain on disposal of Matrix
Finance expenses Impact on profit (loss) before tax Income taxes on
non-recurring items Impact on profit (loss) for the year (2) 10
(43) (4,029) (2) (4,031) (5,333) (3) (5,336) 41 - (4,016) (3,994)
(5,376) (5,374) 36 15 - 6 (14) (9) - (13) (20) (2) (1) (1)
26
EFFECTS ON KEY FINANCIAL AND OPERATING DATA ARISING FROM THE EARLY
ADOPTION OF THE REVISED IAS 19 (EMPLOYEE BENEFITS)
In June 2012, the EU issued Commission Regulation (EU) 475-2012
that endorsed the revised version of IAS 19 (Employee Benefits)
("IAS 19 (2011)") which is applicable retrospectively, starting
from January 1, 2013 as provided by IAS 8 (Accounting Policies,
Changes in Accounting Estimates and Errors). As permitted, Telecom
Italia decided to early adopt the amendments to IAS 19 starting
from the Half-year Financial Report at June 30, 2012 in order to
reduce the volatility of the values recognized in the separate
income statement. In particular, under IAS 19 (2011), with
reference to the employee defined benefit plans (e.g. employee
severance indemnity), remeasurements of actuarial gains and losses
are recognized in other components of other comprehensive income.
Therefore, other options previously provided were deleted
(including the one adopted by the Telecom Italia Group whereby
these components had been recorded in Employee benefits expenses in
the separate income statement). Service costs as well as interest
expenses related to the "time value" component of the actuarial
calculations (the latter reclassified to Finance expenses), are
still recognized in the separate income statement. The early
adoption of such amendments resulted in the restatement of the
separate income statement and the statement of comprehensive income
of the Telecom Italia Group and Telecom Italia S.p.A. for 2011. The
effects are as follows:
SEPARATE INCOME STATEMENT
2011
(millions of euros)
2011 Telecom Italia S.p.A. (102) 38 (38) 28 (74)
Telecom Italia Group (117) 42 (42) 33 (84)
Employee benefit expensesreversal of actuarial gains and losses
Employee benefit expensesinterest component reclassification
Finance expenses-interest component reclassification Income tax
expenses Impact on Profit (loss ) for the year
The adoption of such amendments had a negative effect of 0.01 euro
on basic and diluted earnings per share of the consolidated
financial statements.
STATEMENT OF COMPREHENSIVE INCOME
2011
(millions of euros)
2011 Telecom Italia S.p.A. (74)
Telecom Italia Group (84)
Impact on Profit (loss) for the year
Remeasurements of employee defined benefit plans (IAS19): Actuarial
gains Net fiscal impact
84 117 (33)
74 102 (28)
Impact on Total profit (loss) for the year
-
-
STATEMENT OF CASH FLOWS
The early adoption of the amendments to IAS 19 did not have an
impact on the "Aggregate cash flows" of the 2011 statement of cash
flows of the Telecom Italia Group and Telecom Italia S.p.A. and, in
particular, on the "Cash flows from (used in) operating
activities".
27
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