Presentazione Olivetti - telecom Italia, Milano 27 settembre 2 - Pirelli

Strategic Guidelines
September 27th, 2001

DISCLAIMER
An Offer for Shares or Bonds is not being made, and
will not be made, directly or indirectly, in, or by use of
the mails of, or by any means or instrumentality of
interstate or foreign commerce of, or any facilities of a
national securities exchange of, the United States of
America or any other country. This includes, but is not
limited to, facsimile transmission, electronic mail,
telex, telephone and the Internet. Accordingly, copies
are not being, and must not be, mailed or otherwise
transmitted or distributed in or into the United States
of America or other Countries. This is not an offer of
securities for sale in the United States of America or
other Countries
2

AGENDA
Pirelli Investment Rationale
Management Team and Key Values
Strategic Guidelines
Financial Strategy
3

PIRELLI INVESTMENT
RATIONALE
• Strategic “Asset Swap” from optical components and systems to to profitable
telecom services
• Purchased strategic stake in in leading telecom group with high quality assets
and strong growth platform
• Value creation through:
– industrial culture and customer care
– long-term commitment
– management track record
Long-term industrial investment
4

TELECOM ITALIA GROUP
Revenue Breakdown*
Revenues - 1 st Half 2001
EBITDA - 1 st Half 2001
Satellite 1%
Internet & Media
IT Services
Internet & Media
2%
IT Services
Satellite 1%
5%
5%
International
(Wireline+Wireless)
2%
International
(Wireline+Wireless)
Domestic
Wireless
16%
23%
50%
Domestic
Wireline
Domestic
Wireless
13%
29%
53%
Domestic
Wireline
* Gross of eliminations and intercompany revenues
Source: Company Data
Strong Strong Domestic Business
5

TELECOM ITALIA GROUP
Incumbents Financial Performance
Group EBITDA Margin
Average Wireline Rates
€cents/Minute, 2000
1st Half, 2001
5,8 5,8
4,7 4,5
4,1
45.2%
41.5%
37.4%
32.0% 29.7% 28.1%
TEF BT DT FT TI
Mobile to Mobile Rates
EBITDA
€bn
TI TEF PT DT FT KPN
7.1 6.4 1.1 7.2 6.1 1.7
€/Minute, 2001, 3 minute call, peak rates, off-net
1,91 1,85
1,32
0,64 0,5
TEF VOD DT FT TIM
Source: Company Data, Annual Reports, Analysts’Reports
Highest operational profitability in in a very verycompetitive market market
6

TELECOM ITALIA GROUP
Consolidated Cash Flow
€ Billion
Cumulative Cash Flows
25
20.4
20
16.5
15
12.9
10 6.2
5
2.6
4.6 6.9
0
-5 0.6
-10
-6.2
-7.8
1998 1999 2000 2001 - 1st H
€ 14.1 billion of acquisitions
2000 2001
- Jet Multimedia
- Globo.com
- SEAT
- Digitel
- Maxitel
- Tim Perù
- Turkey
- Others
Total 10.8
€ Billion
- Turkey
- Brazil
- Entel Chile
Total 3.3
€ Billion
Operational Cash Flow: EBITDA - ∆ Working Capital – Capex (including italian UMTS licence)
Net Cash Flow = Operational Cash Flow - Debt Service - Taxes – Acquisitions (including foreign UMTS licences) + Disposals
Net Cash Flow without outflows from acquisitions
Source: Company Data
Opportunity to to improve “non “non operational” Cash Cash Flow Flow
7

AGENDA
Pirelli Investment Rationale
Management Team and Key Values
Strategic Guidelines
Financial Strategy
8

MANAGEMENT TEAM
Telecom Italia Group
Chairman
Tronchetti Provera
Vice Chairman
Gilberto Benetton
CEO
Buora
CEO
Bondi
IT & Technology
Finance & Control
& Admin.
Purchasing
International
Domestic
Wireline
Mobile
Internet &
Media
Telespazio
Andreoni
Parazzini
Spreafico
Bonetti
Ruggiero
De Benedetti
Dal Pino
Pinto
Highly Highly Experienced Management Team Team
9

KEY VALUES
• Transparency, responsiveness and and accountability (daily (daily management
report) report)
• Strong Strong central central governance of of investment, purchasing and and compensation
• Maximisation of of intragroup synergies to to respond to to customer needs needs for for
integrated service
• Attract Attract and and retain retain top top talent talent
• Rewards closely linked linked to to value value creation for for shareholders and and customers
10

AGENDA
Pirelli Investment Rationale
Management Team and Key Values
Strategic Guidelines
Financial Strategy
11

• Capitalise on on leadership in in core core businesses (wireline and and wireless) in in Italy Italy
– Develop high high potential segments: broadband access access and and services,
data, data, internet
– Serve Serve top top enterprise customers with with commercially integrated approach
• Portfolio restructuring
STRATEGIC GUIDELINES
Focused Growth Strategy…
– Prioritise investments with with path path to to control
• Rationalise international operations:
– Prioritise current wireless footprint
– No No new new acquisitions in in wireline
• Maintain operational efficiency through capex capexand and cost cost control
Focus Focus on on Italy Italy and and international wireless
12

STRATEGIC GUIDELINES
…Designed to Improve Cash Flow
€ Billion
Capex and
cost control
Up to €5bn of
selected assets at
TI level in the
next 2 years
1998 1999 2000 1H 2001 2003
Operational Cash Flow: EBITDA - ∆ Working Capital - Capex
Net Cash Flow = Operational Cash Flow - Debt Service - Taxes - Acquisitions + Disposals
Source: Company Data
Improve Cash Cash Flow Flow through enhanced control and and divestitures
13

STRATEGIC GUIDELINES
Customer Centric Approach
Customer Value Proposition
• Segmentation & micromarketing
• Faster time to market
• Marketing Excellence
Key areas of improvement
Distribution
• Multichannel coverage
• Strong partner relationship
Domestic Customer Base
Wireline
Mobile
Internet
21m (28m lines)
22.6m lines
5m
Customer Support
• Provisioning
• Retention
Network Excellence
Leading Edge Technology
Client Client empowerment and and network excellence
will will drive drive evolution of of services
Source: Company Data
14

STRATEGIC GUIDELINES
Wireline
• Maintain leadership in in voice voice market market
• “Innovation leader” in in broadband access access and and services, managing cost/value
trade-off for for the the client client
• Continue to to be beleader in in efficiency
• Leverage high high quality quality of of Network
• Further develop Enterprise Data Data Service Unit, Unit, leveraging Group’s
complementary service offering
• No No new newinternational wireline acquisition
Strong Strong cash cash generation based based on on real real competitive advantages
15

STRATEGIC GUIDELINES
Leadership in Broadband Services
Cumulative Number of Broadband Access
March - August 2001
350000
300000
250000
200000
150000
100000
50000
0
Total BB Access: 300.000
2000 April-01 May-01 June-01
• Fiber Fiber for fortop business business customer
• DSL DSL focused focused strategy strategy for formass
market market
• Over Over 80% 80% of ofbroadband consumer
market market addressable via via DSL DSL
• Cost Cost efficient efficientbroadband roll-out roll-out
Source: Company Data
Strong Strong growth growth of of TI TI broadband clients clients in in just just six six months
16

STRATEGIC GUIDELINES
Exploit High Quality of Network
% Copper Cables
• ADSL
ADSL
Access
Access
• proximity
proximity
of
of
access
access
network
network
• section
section
of
of
copper
copper
cable
cable
(0,4-0,6*
(0,4-0,6*
mm)
mm)
• more
more
than
than
45
45
million
million
pairs
pairs
• 2
2
pairs
pairs
available
available
for
for
each
each
customer
customer
• ADSL
ADSL
available
available
for
for
all
all
• development
development
of
of
self
self
install
install
DSL
DSL
solution
solution
• Backbone
Backbone
• One
One
of
of
the
the
most
most
extended
extended
fiber
fiber
network
network
in
in
Europe
Europe
(3
(3
millions
millions
km
km
of
of
fiber)
fiber)
100
80
60
40
20
0
Italy
France
USA
Germany
Japan
UK
2 4 6 8 10 12 14
Km
Network ideal for for providing broadband access and and services
Source: Company Data
* 30% of total
17

STRATEGIC GUIDELINES
Wireless
• Increase Increase revenues revenues per per customer customer through through Value Value Added Added Services Services (VAS) (VAS)
• Maintain Maintain network network excellence excellence and and leverage leverage GPRS GPRS to to roll-out roll-out new new services services
before before launching launching UMTS UMTS
• Become Become leading leading GSM GSM operator operator in in Latin Latin America America
• Rationalise Rationalise European European wireless wireless assets assets
18

STRATEGIC GUIDELINES
Wireless - VAS Revenues
(€ Million, Percent, 1998-1H 2001)
289
226
33
155
133
1H 2000
% of total
revenues
Billion of
Messages
1998 1999 2000 1H 2001
0.5% 2.1% 3.7% ~5.6%
0.3 1.3 2.9 2.0
VAS VAS will will drive drive future future revenue growth
Source: Company Data
19

STRATEGIC GUIDELINES
GSM in Latin America
TIM Perù
Digitel
Entel Bolivia
Entel Chile
Telecom
Argentina
-
-
-
-
Maxitel
Telecelular sul
Telenordeste
Celular
TIM do Brasil
TIM’s subsidiaries
TI’s subsidiaries
GSM Strategy
• Better roaming system,
resulting in in distinctive Pan Pan
South South American offer offer
• Lower cost cost of of terminal, resulting
in in competitive advantage in in
subsidised market
• Reduced cost cost of of equipment
resulting in in lower lower Capex
Create the the leading GSM GSM
continental operator in in Latin Latin America
20

STRATEGIC GUIDELINES
Internet and Media
• Internet
– increase market share and traffic in access market
– develop synergies with fixed and mobile carrier activities
– portfolio restructuring of B-to-C and B-to-B portal business
• Capitalize on Directories cash-flow generation
• TV
– focus on “All news” niche segment
– minimise financial risk and rapidly reach profitability
– possible partnerships
More focused and integrated within the Group
21

STRATEGIC GUIDELINES
Summary
• Long Long term term industrial industrial investment investment
• Focus Focus on on cash cash generation generation and and profitability profitability
• Strong Strong management management team team
• Capitalize Capitalize on on domestic domestic leadership leadership in in fixed fixed and and mobile mobile markets markets
• Continental Continental GSM GSM leadership leadership in in Latin Latin America America
• Domestic Domestic and and International International Portfolio Portfolio Restructuring
Restructuring
22

AGENDA
Pirelli Investment Rationale
Management Team and Key Values
Strategic Guidelines
Financial Strategy
23

FINANCIAL STRATEGY
Key Guidelines
• Build Build long-term shareholder value value
• Consider debt debt at at both both Telecom Italia Italia and and Olivetti
• Improve structural efficiency or or overall overall financing flexibility
• Strengthen the the balance sheet sheet of of Olivetti
• Respect bondholders interests
24

FINANCIAL STRATEGY
Key Topics
ISSUE
Holding Holding company company structure structure
T.I. T.I. saving saving share share conversion plan plan
Capital Capital expenditures
Dividends Dividends
STATUS
No No current current plan plan
Will Will not not be be amended amended
Expires Expires December December 2001 2001
Ensure Ensure level level required required by by
core core businesses strategic strategic plan plan
No No change change planned planned
Non-core Non-core assets assets disposal disposal
Olivetti Olivetti rights rights issue issue
Up Up to to Eur Eur 5bn 5bn at at Telecom Telecom
Italia Italia and and Eur Eur 1bn 1bn at at Olivetti Olivetti
over over the the next next 24 24 months months
Launch Launch after after shareholder
approval approval
25

FINANCIAL STRATEGY
Terms of Rights Issue
• Expected proceeds: up up to toEur Eur4 billion billion
• Pricing
– Issued Issued at at par par (Eur (Eur1.00)
• Structure
– Rights Rights issue issue offered to to all all Olivetti shareholders and and convertible
bondholders
– Ratio Ratio of of 1 to to 2
– Choice Choice of of convertible bond bond or or shares shares
– Timing: immediately after after shareholder approval in in October
Olimpia will will participate pro-quota to to the the offering
26

FINANCIAL STRATEGY
Timing
Now November December 2002 - 2003
• Investor
• Investor
presentation
presentation
on strategic
on strategic
guidelines in Milan
guidelines in Milan
and London
and London
• Shareholder
• Shareholder
meeting for capital
meeting for capital
increase
increase
•
•
Launch
Launch
Olivetti
Olivetti
rights
rights
offering
offering
•
•
Lapse
Lapse
of
of
saving
saving
share
share
conversion
conversion
plan
plan
•
•
Q1
Q1
2002:
2002:
Presentation
Presentation
of
of
plan
plan
and
and
2002
2002
budget
budget
to
to
investors
investors
•
•
Commence
Commence
noncore
noncore
asset
asset
disposals
disposals
27