04 December 2008

Telecom Italia focuses on debt, plans 4,000 new job cuts

03 December 2008 - Total Telecom

Telecom Italia SpA Wednesday unveiled a long-awaited business plan that targets debt reduction and cost containment through a further 4,000 job cuts and disposals of non-core assets of up to EUR3 billion.

n a package of broadly expected measures, Italy's largest telecommunications company focused on its core domestic and international markets, Italy and Brazil, but stopped short of announcing any aggressive move due to financial constraints.

The company pledged to reduce its debt to earnings before interest, tax, depreciation and amortization, or Ebitda, ratio to 2.9 times by the end of 2009, and to 2.3 times by the end of 2011, from about 3 times at the end of 2008. Telecom Italia's net debt was EUR35.77 billion at end-September. The phone operator has repeatedly said it has enough liquidity for two years without having to resort to raising fresh capital.

Italy's former monopoly said it will finance EUR4.8 billion in investments in 2009. It targets average revenue annual growth of over 2% over the plan's time span, with Ebitda margin above 39% by 2011.

The new business plan has been hotly anticipated for months, as Telecom Italia shares have halved in value from a year ago, partly over doubts related to its strategy.

It faces falling margins and stiffening competition at home and abroad, while the Italian communications regulator has sought additional pledges from the company to make its fixed-line network more open to rivals.

Third-quarter results, however, beat expectations and the group confirmed its forecasts in a sign that the new management's cost-cutting strategy has started to pay off.

Analysts have noted that shedding key assets, such as Brazilian unit TIM Participacoes SA, in which Telecom Italia has a 68% stake, or the Italian fixed-line network, were unrealistic options in the short term.

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