Telecom Italia 1Q Net Profit Up 4.2%, Beats Forecasts"
MILAN -(Dow Jones)- Telecom Italia, Tuesday said its first-quarter net profit grew 4.2% as growth outside Italy and a lower tax rate offset declining margins and tough competition in its domestic fixed-line and mobile markets.
Italy's largest telecommunications group by market capitalization, whose control was recently secured by an Italo-Spanish consortium after a months-long battle, said its net profit stood at EUR775 million compared with EUR744 million a year earlier. The result was above the EUR630 million average estimate of seven analysts polled by Dow Jones Newswires.
Telecom Italia shares reacted positively to first-quarter results, pulling up from losses with traders noting they beat expectations. They closed down 0.1% to EUR2.11, against an overall negative market.
Two weeks ago, Spain's phone giant Telefonica and a group of Italian financial heavyweights bought control of 23.6% of the former Italian monopoly through a newly formed investment vehicle, in a EUR4.1 billion deal.
Now investors are looking for evidence that Europe's fifth-largest telecommunications group - which has undergone several management shakeups and strategy shifts - has a clear business strategy, in an industry where most operators have been struggling to cope with falling margins.
Telecom Italia shares have underperformed the Dow Jones Euro Stoxx Telecommunications Index by 15.5% in the last six months.
The phone group said its first-quarter revenue rose 0.8% to EUR7.54 billion from EUR7.48 billion a year earlier, mainly driven by European broadband and a strong performance of Brazilian mobile.
Telecom Italia said its closely watched debt figure stood at EUR37.2 billion as of March 31 compared with the EUR37.3 billion reported at the end of 2006.
The company said in a statement its board renewed the authorization to issue up to EUR4 billion of new debt until March 31, 2008.
The Italian group said earnings before interest, taxes, depreciation and amortization, or Ebitda, fell 4.3% to EUR3.2 billion from EUR3.3 billion a year earlier.
Outlining its 2007-2009 plan last March, Telecom Italia said its organic revenue will grow only 1% to 2% annually through 2009 and predicted margins would fall. It also warned it would cut its dividend next year.
The key issues on the horizon for Telecom Italia are how it will place its fixed-line network under separate management and whether that will allow Telefonica to increase its stake in the new holding company that controls the Italian phone group.
Telefonica, together with Italian banks Intesa Sanpaolo and Mediobanca, insurer Generali and Italy's Benetton family, have agreed to buy Olimpia, the holding company that owns 18% of Telecom Italia, from Pirelli and its partners. Telefonica agreed to pay EUR2.31 billion for 42.3% of Telco, the new company which will include 100% of Olimpia.
But analysts have noted that the Spanish group paid "too much for too little" in Telecom Italia, having no real veto powers even on the possible sale of the closely watched TIM Participacoes, Brazil's second-largest mobile operator.
Investors are now bracing to see how the new shareholders' structure, that sees Italian financial institutions firmly in power, will affect the phone group's future management and industrial alliances.
In their pact, the new shareholders said Telefonica and Telecom Italia will be managed "autonomously and independently," but added they are favorable to "any strategic initiative" that the two operators wish to carry out.
In a conference call with analysts, Telecom Italia Chief Executive Riccardo Ruggiero said Tuesday that there are no ongoing negotiations with Telefonica but confirmed he sees "broad areas of synergies" between the two operators, openly citing Brazil and Germany.
Ruggiero also said there were no current or past discussions over a full merger between Brazil's largest cellphone operator, Vivo Participacoes - 50%-owned by Telefonica - and TIM Brazil, which is wholly controlled by Telecom Italia.
Analysts have warned that such a deal, which would give Vivo and TIM together 54% of the Brazilian market, won't be allowed by local regulators.
Analysts also are questioning how long the new Telecom Italia board headed by Chairman Pasquale Pistorio, elected for a one-year mandate after a marathon shareholders' meeting last month, will stay in place after the new investors stepped in.
-By Giada Zampano, Dow Jones Newswires; +39 02 5821 9907; giada.zampano@dowjones.com
(END) Dow Jones Newswires"
Posted to the site on 8th May 2007
