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Telecom Italia writedown hits shares after robust results

Telecom Italia writedown hits shares after robust results
FILE PHOTO: The Telecom Italy logo is seen at the headquaters downtown Milan, Italy, March 10, 2016. REUTERS/Stefano Rellandini/File Photo   -   Copyright  Stefano Rellandini(Reuters)
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MILAN (Reuters) – Telecom Italia’s <TLIT.MI> decision to take a 2 billion euro (1.74 billion pounds) writedown on its domestic assets has angered shareholder Vivendi <VIV.PA>, while also taking the shine off results that showed the resilience of the company’s mobile operations.

Italy’s biggest telecoms group also abandoned its 2018 net debt to core earnings target, because of a fine imposed earlier this year, an adverse competitive and regulatory environment at home and a weaker exchange rate in Brazil.

The writedown surprised investors, including Vivendi, which has a 24 percent stake. A Vivendi spokesman said the company’s representatives on the Telecom Italia (TIM) board voted against the decision.

“We found it shocking,” the spokesman said, adding he saw the decision as “very unusual and very destabilising.”

TIM shares fell more than 5 percent on Friday.

The shares are down nearly 30 percent this year. At least 15 brokers have cut their target price on the stock in the last six months, citing pressure from new competition, political headwinds and governance issues.

The Italian company has been facing growing competition at home in both fixed and mobile.

Broadband group Open Fiber is rolling out a rival fibre optic network, while French telecoms group Iliad <ILD.PA> at the end of May launched its low-price mobile offer for Italy that attracted 2 million customers in its first 100 days.

TIM has also been caught in the middle of a struggle between Vivendi and activist fund Elliott, which eventually wrestled board control from the French group at a shareholder meeting in May.

Since May, Vivendi has blamed Elliott for TIM’s falling share price. On Friday, Vivendi pointed to “total disorganisation” and “total lack of governance” at TIM.

Asked whether Vivendi would call a shareholder meeting to push for a board reshuffle, the spokesman said: “Vivendi will not rule out anything to protect its interests.”

Elliott had no immediate comment. The fund has in the past urged Vivendi to work on constructive solutions at board level.

The 2 billion euro writedown overshadowed TIM’s operational results which analysts said were reassuring.

“The mobile business is proving to be much more resilient than we expected,” Bernstein analysts said in a note.

TIM said comparable earnings before interest, tax, depreciation and amortisation (EBITDA) in the first nine months fell 2.9 percent to 6.03 billion euros ($6.85 billion), roughly in line with an analyst consensus provided by the company.

Including the writedown, the company reported a net loss of 800 million euros.

Sales in the period fell 3.1 percent to 14.22 billion euros, in line with expectations, while adjusted net financial debt stood at 25.19 billion euros at the end of September.

The company’s previous guidance on its net debt to EBITDA ratio was around 2.7 times this year. But the former state phone monopoly said late on Thursday it could no longer confirm that.

(Reporting by Agnieszka Flak and Stephen Jewkes. Editing by Jane Merriman)

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