Telecom Italia forced to write down €7.3 billion

Telecom Italia saw group revenues increase in 2011 but suffered a €4.7 billion loss following a multi billion write-down.

The operator registered the loss as it was forced to write down €7.3 billion related to the Olivetti takeover in 1999, its subsequent reorganisation in 2003, and the purchase of additional holdings in the company’s mobile business in 2005.

Chairman Franco Bernabé, who last week signed off the operator’s annual figures, said the write-down was necessary due to the deterioration of the macroeconomic outlook and the financial markets.

However, it had “no financial consequences and no impact on the group’s debt reduction plans,” he added.

Indeed, the operator’s underlying business looks stable.

Excluding the write-down, TI made a €2.6 billion profit while revenues increased 8.7 percent year-on-year to €29.9 billion.

Much of the growth was thanks to the operator’s business in Argentina; TI has upped its stake in Sofora/Telecom Argentina and saw revenues on its own balance sheet rise from €798 in 2010 to €3.2 billion last year.

TI was also grateful for the performance of it’s Brazilian business unit, where revenues increased 18.5 percent to €7.3 billion.

Unsurprisingly, the performance of its home market was less impressive; revenues in Italy fell 5.2 percent to €19 billion.

“2011 was a tough year for the global economy and even more so for Italy which was hit by the sovereign debt crisis,” commented Bernabé.

Nevertheless, TI spent €1.2 billion on spectrum for LTE services, which accounted for a 33 percent rise in capex.

Like many of its rivals, TI is relying on growth in markets outside of Europe to drive the company forward.

With Italy expected to continue its downward trend, Argentina and Brazil will be key to the company’s prospects for the foreseeable future.

The two countries accounted for 35.2 percent of TI’s overall revenues last year, up from 25.4 percent in 2010. Revenues from Italy declined from 72.8 percent to 63.5 percent over the same period.

They should deliver in the short term – TI said it expected 2012 to deliver broadly similar financial results to 2011.

However, warning signs are already on the horizon; ARPU in Brazil, for example, is already starting to decline – it fell 10 percent in 2011.

With the group committed to repositioning itself towards growth markets, more deals such as the purchase of Brazil’s AES Communications in October last year could be on the way.

If required, TI has the means to pursue more acquisitions abroad – free cash-flow stood at €5.8 billion last year.

Having been so badly burned, however, deals with the likes of Olivetti look consigned to history for the moment.

Ironically, along with other operators, deals with other non-traditional rivals are coming back into play as telcos look to gain a share of the content and data markets.

TI will tread carefully to avoid the heavy burden it continues to pay.

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