PRESS RELEASE
TELECOM ITALIA SHAREHOLDERS' MEETING HELD 2011 FINANCIAL STATEMENTS
APPROVED DIRECTORS LUCIA CALVOSA AND MASSIMO EGIDI CONFIRMED BOARD
OF STATUTORY AUDITORS APPOINTED FOR THE THREE YEARS 2012-2014
REPORT ON 2012 REMUNERATION POLICY APPROVED 2012 LONG TERM
INCENTIVE PLAN AND SERVICING CAPITAL INCREASE APPROVED AMENDMENTS
APPROVED TO THE COMPANY BYLAWS ON GENDER DIVERSITY
Rozzano (MI), 15 May 2012 The shareholders of Telecom Italia met
today in ordinary and extraordinary session, chaired by Franco
Bernabè. The Ordinary Shareholders' Meeting: approved the Telecom
Italia S.p.A. 2011 financial statements, voting to fully cover the
loss resulting from the goodwill write-down, and approved the
distribution of a dividend of 4.3 euro cents per ordinary share and
5.4 euro cents per savings share, via the utilisation of 2010
retained earnings. The dividend shall be paid out from 24 May,
2012, ex-coupon on 21 May, 2012; approved section one of the
remuneration report which sets out the company's policy, for FY
2012, on the remuneration of board members and management with
strategic responsibilities; confirmed in their position as
Directors Lucia Calvosa and Massimo Egidi, already co-opted by the
Board on 4 August and 1 December 2011 respectively. The directors
appointed by the Shareholders will, like the other board members,
hold the position until the approval of the financial statements at
31 December 2013. The curricula vitae of the Directors are
available on the Telecom Italia web site at
www.telecomitalia.com/assemblea;
re-elected the Statutory Board of Auditors who will hold the
position until the approval of the financial statements at 31
December 2014. The following auditors were appointed on the basis
of lists presented by the shareholders: from Telco S.p.A. list
Gianluca Ponzellini, Salvatore Spiniello and Ferdinando Superti
Furga; from the list presented by a group of asset management
companies and international institutional investors Enrico Maria
Bignami and Sabrina Bruno Ugo Rock and Vittorio Mariani (from the
Telco S.p.A. list); Roberto Capone and Franco Patti (from the list
presented by a group of asset management companies and
international institutional investors) were appointed as alternate
auditors. The Meeting also determined the compensation for the
Statutory Auditors and appointed as Chairman of the controlling
body Enrico Maria Bignami. The curricula of the newly appointed
auditors are available on the Telecom Italia web site at
www.telecomitalia.com/assemblea.
approved the 2012 Long Term Incentive Plan for top management and
selected managers. The plan foresees premiums based on the fixed
component of annual salary and subject to reaching predetermined
performance targets over the period 2012-2014.
The Extraordinary Shareholders' Meeting: approved amendments to
articles 9 and 17 of the Company Bylaws ("female quotas") governing
appointments to the Board of Directors and Statutory Board of
Auditors to ensure greater balance between the sexes, as required
by law; granted the Board of Directors powers to increase the share
capital to finance the Long Term Incentives Plan 2012 for a
maximum total amount of 15,000,000, part in cash and part without
charge via the allocation of profits.
Telecom Italia Press Office
+39 06 3688 2610 http://www.telecomitalia.com/media
Telecom Italia Investor Relations
+39 02 8595 4131 http://www.telecomitalia.com/investorrelations
ATTACHMENT TO THE PRESS RELEASE
In response to the request of Consob pursuant to Article 114,
paragraph 5, of Leg. Dec. 58/1998 (Protocol no. 12038495 of 9 May
2012), we provide the following information. Consob has requested
information on the Kroll case, on relations with the Consultant
Naji Nahas and on two areas of inquiry already covered in the
Greenfield Project - Security and Prepaid Cards. It is worth
recalling that the decision to launch the Greenfield Project in
2010 was taken unilaterally by the Company. As regards the object
of the review, it was decided at the time to restrict the field of
inquiry to those areas in which evidence of acknowledged, clearly
identifiable technical and legal issues had emerged from criminal
investigations or internal controls. The areas of inquiry
identified by the Court investigations were Sparkle, Prepaid Cards
with irregular account name and Security. On 24 November 2011, the
Company learned for the first time from newspaper reports that
former Chairman of Telecom Italia Marco Tronchetti Provera was
under investigation in relation to: data illicitly obtained in 2004
from Kroll in Brazil by members of the so called Tiger Team;
certain agreements with the consultant Naji Nahas. Just one week
after the first reports of the issue came to light, on 1 December
2011 the Board of Directors of Telecom Italia faced with the news
that Dott. Tronchetti Provera was under investigation in relation
to events regarding the Company, in the same spirit of transparency
that has distinguished the Company in relation to other questions
that have attracted the attention of the judiciary, approved a
special internal inquiry, to be carried out under the direction of
the Chairman of the Internal Control and Corporate Governance
Committee with the assistance of Deloitte Financial Advisory
Services, into events under investigation which had not previously
been examined during the Greenfield Project: i.e., relations with
Naji Nahas and the presumed Kroll hacking. In 2010 neither question
were under investigation, and as such were not included in the
Security stream. Deloitte has only recently concluded its work and
shared its findings with the Internal Control and Corporate
Governance Committee, which presented its considerations to the
Board of Directors on 9 May 2012. The report summing up the
conclusions of the internal inquiry was subsequently transmitted to
Consob.
At this point the Company, during the period for the closure of the
preliminary investigations, when it will be allowed to access the
findings of the Public Prosecutor and properly consider any
eventual defense, sought legal opinion on the outcome of the review
from the law firm Davis Polk & Wardwell and Avvocato Santa
Maria. On the basis of these opinions and the information acquired,
we will in due course make the necessary considerations, economic
and non, and take appropriate steps, including eventual claims for
damages against former directors, through the available channels.
It would be untimely to anticipate here what these steps might be
or quantify their expected or possible economic effects. For the
sake of completeness, we note that, on the basis of the information
available to the Company concerning the seizures at our offices in
February, the charges behind the investigations are criminal
association, receiving "and other offences" (citing the documents
received by the Company).
***
Turning to the Security case (trial currently being heard at the
Milan Court of Assizes), the Supreme Court of Appeal, in its
sentence of 20 September 2011, no. 1265/11, whose reasonings were
only deposited at the beginning of May 2012, found that the
decision of the Milan Preliminary Hearing Judge that the charges of
improper appropriation initially laid by the Public Prosecutor were
without foundation, was free of logical or juridical error.
Specifically the Court found that the verdict of the Preliminary
Hearing Judge that the charges were unfounded was correct.
Essentially, Security did not act without the knowledge of the
other corporate Functions or of the Top Management of first Pirelli
and subsequently Telecom Italia (the same individuals). Again faced
with these circumstances, the Board of Directors on 9 May 2012
decided to present the former executive director Carlo Orazio Buora
with an act interrupting the limitation period (due to expire on 3
December 2012), in preparation for a corporate responsibility
lawsuit, to be included on the agenda at a special Shareholders'
Meeting, taking all necessary and appropriate measures to that end.
What is more, the Company has already applied to Pirelli for
reimbursement of costs unduly borne in relation to the Security
case, as announced to the Shareholders' Meeting last year. In
formulating such application, we examined in detail all
investigative activities billed to Telecom Italia by Worldwide
Consultant Security Ltd, Security Research Advisory Ltd and Polis
D'Istinto S.r.l., attributable to Emanuele Cipriani, a defendant in
the trial pending with the Court of Assizes of Milan.
Among these investigative activities Telecom Italia identified
those objectively ascribable to Pirelli, under the following
criteria: files found in Cipriani's archives bearing the Pirelli
"customer code, inquiries initially billed to Pirelli, later
cancelled and re-billed to Telecom Italia when Pirelli became a
major shareholder of Telecom Italia; inquiries commissioned by
Pirelli personnel, as emerged during the trial. The total amount
paid for the activities thus identified is around 1.2 million, for
which Telecom Italia has asked Pirelli for reimbursement. Again
regarding compensation for damages in connection with the Security
case caused by activities unrelated to the Company's interest, we
have taken the following additional measures: we applied to be
included among the civil claimants against the defendants currently
before the Milan Court of Assizes. This application was upheld.
Telecom Italia therefore requested: (i) reimbursement of costs
borne in the tax dispute for the years 2003 and 2004 of around 15.4
million, (ii) reimbursement of the 750,000 settlement paid to the
public administrations involved in the trial, (iii) reimbursement
of the sums paid to "dossiered" employees as a gesture of
solidarity amounting to around 1.8 million, (iv) further damages
(including to corporate image and commercial reputation) as
determined by the judge. against Emanuele Cipriani, a defendant in
the criminal proceedings, we obtained a preventive seizure of 2.6
million. The executive procedures are ongoing; following Deloitte's
investigations within the Greenfield Project, the Company has
requested a refund of a sum totalling around 5.5 million from
certain former suppliers of the Security Office.
***
On another front, on 20 April 2012 the Public Prosecutor of Milan
notified Riccardo Ruggiero, Luca Luciani, Massimo Castelli and
Telecom Italia of the conclusion of its investigations. As to the
individuals, it is alleged, among other things, that, via prior
agreement and in collusion with others, they obstructed the proper
business of the authorities in the following manner: "in order to
inflate Telecom Italia S.p.A.'s apparent market share in mobile
telephony, they adopted a technical-accounting technique to
artificially increase the number of customers. This involved
ensuring that SIM cards which had either expired or were shortly
due to expire and which were to be deactivated after
thirteen months had elapsed from the last top-up, remained active
by falsely accrediting a sum of one euro cent on each card"; they
communicated the manipulated data to the Communications Protection
Authority in order to alter the size of the company's customer base
and market share; These offences, it is alleged, were committed in
the interest, and to the advantage of, Telecom, which in this way
benefited from a "total of 5,130,000 falsely topped up cards" and
an effective increase in the market share of 0.19% in 2006, 1.88%
in 2007 and 1.64% in 2008. It is worth noting that this phenomenon
was picked up during the Greenfield Project and disclosed in the
appendix to the corporate governance report for 2010. According to
the notice of the conclusion of investigations, between April 2006
and 31 March 2009 the suspects also communicated to AGCOM a total
"1,042,447 cards not topped up in the twelve months following
activation" and considered improperly activated, according to the
Public Prosecutor, in the interest and to the advantage of Telecom
Italia. As regards the Company, the allegations pursuant to
Legislative Decree 231/2001 consist in "not having adopted and
effectively adopted organisational and management procedures
designed to prevent offences of the type committed." The notice of
the conclusion of investigations makes no reference to any economic
gain that Telecom Italia might have obtained from the alleged
behaviour. The Company has no knowledge of any inquires by the
Communications Protection Authority in relation to the events under
investigation. We are currently examining the documentation
received from the Public Prosecutor. Once this is complete and in
the eventual continuation of criminal proceedings Telecom Italia
will either within the said proceedings or by civil action take
all appropriate steps to protect itself, in its position as injured
party, including action for restitution of any sums paid to the
defendants as incentives. We should point out that, as a result of
the Greenfield Project, Human Resources and Organization examined
the question of the bonus paid to Luca Luciani for the number of
SIM cards activated. Summing up: for 2005 no targets appear to be
correlated to the number of mobile subscribers acquired for 2006
there was a goal ("Mobile Sales Performance") which included the
TIM market share, but in reality this was not reached; in 2007 for
the "TIM SIM Portfolio" target (weight 10%) a bonus of 45,000 was
improperly paid. In effect Luca Luciani voluntarily and
spontaneously repaid the company this amount, recovered by
deductions from the manager's subsequent salaries;
for 2008 no sales targets were directly correlated to the increased
number of SIM cards. Beginning in 2009 Mr. Luciani was assigned
targets as Diretor Presidente of TimPart with reference to
performance in Brazil. We would remind you that in the Greenfield
Report Deloitte estimated the costs to the Company of the SIM cards
with irregular account name as between 19.9 and 27 million. This
estimate may be revised in the light of the outcome of the trial.
Meanwhile the Board of Directors on 9 May 2012 decided to present
the former executive director Riccardo Ruggiero with an act
interrupting the limitation period (due to expire on 3 December
2012), in preparation for a corporate responsibility lawsuit, to be
included on the agenda at a special Shareholders' Meeting, taking
all necessary and appropriate measures to that end. For the moment
no further measures have been considered against the recipients of
the notice of conclusion of investigations. Of the three
defendants, all of whom were Telecom Italia employees at the time
of the alleged offences, only Mr. Luciani still held office at the
date of notification, and in particular on 20 April 2012 held the
position of Chief Executive Officer of TIM Brasil. Mr Luciani has
subsequently resigned, giving up all the positions he held within
companies of the Group. On his transfer to Brazil in 2008 a
severance payout of 2.9 million was agreed in the event of
termination of the employment contract. This clause came into
effect in the specific case. Moreover, it was decided to stipulate
a non competition agreement covering the whole of South America,
for which he received a payment of 1.5 million for 2013. On handing
in his resignation Mr. Luciani forfeited his rights to any stock
options for TIM Partecipações S.A., described in the financial
statements (apart from options relating to 2011 performance). No
further benefits are foreseen following his leaving the position of
CEO of TIM Brasil. The Company has made no surety or indemnity
undertakings with regard to Mr. Luciani's responsibilities.
However, such an undertaking was made when Mr. Ruggiero left the
Company (employee and, at the time, Managing Director of the
Company). In particular the settlement agreement by which his
employment was terminated, signed by the pro tempore Executive Vice
President, Carlo Orazio Buora, holds harmless Mr. Ruggiero from any
liability in relation to his activities as executive of Telecom
Italia and contains the undertaking to extend the protection
foreseen by collective employment agreements for industrial company
executives in relation to positions held. There has been no waiver
of corporate responsibility by the Company, in conformity with the
law. No similar undertakings have been taken for other directors,
also who have left the Company.
***
With regard to prepaid cards, under investigation by the Public
Prosecutor of Milan, Consob also requested information for Brazil
(where Telecom Italia controls the TIM Brasil group) and Argentina
(where Telecom Italia controls the Telecom Argentina group), on
internal audits or any further measures taken or foreseen to verify
the existence of such phenomena in the two Latin American countries
on incentive mechanisms linked to the management of prepaid
services. As regards the audits, it should be made clear that local
regulations on the registration, and above all identification, of
customers are different from those in Italy. That said, in Brazil
(where TIM Brasil is historically a mobile only operator)
management of prepaid cards was the subject of specific focus
during the 2009-2011 audit programme, which already examined the
registration and cessation on expiry of SIM cards. Right now two
audits are ongoing concerning statistical accounting methods, the
monitoring of subscriptions and the management and control of
multiple subscriptions. However, in order to give effective
continuity to the internal control process, at least two annual
audits are scheduled, to be conducted by mixed Italo-Brazilian
teams. The audits carried out within the programme revealed
opportunities for improvement in the controls and processes and
resulted in a major update to internal procedures, formalised in
March 2012. Furthermore, Tim Brasil has just concluded an internal
limited review of internal controls over financial reporting, in
view of the 2011 20-F filings for both Tim Participações and
Telecom Italia, filed yesterday. No significant new findings
emerged from the review regarding the process of
registration/cancellation of prepaid SIM cards. In Argentina the
criteria for the management of sales of SIM cards and the current
monitoring and control procedures were found during tests on the
internal control system to be adequate in presenting an accurate
picture of the economic/financial position of Telecom Argentina. At
Telecom Argentina incentives do not involve the activation of
prepaid lines or market share, but are instead based on net annual
revenue share and the activation of high value agreements. In
Brazil in 2011 the MBO system assigned targets for all incentive
recipients (excluding the CEO, Top Management and managers of the
fixed network) for the activation of post-paid lines and mobile
market share. Among the targets assigned to sales were Gross
Pre-paid Adds and Gross Post-paid Adds, distinguished by region and
channel. Moreover, the prepaid target was subject to reaching a
percentage of lines with second top-up card. Among the targets
assigned to marketing were customer base, distinguished by business
or prepaid.
ATTACHMENT TO THE PRESS RELEASE
Statutory Auditors Report to the Shareholders' Meeting of Telecom
Italia S.p.A. in response to Consob's request for information
pursuant to Article 114, paragraph 5, of Leg. Dec. 58/1998
Mssrs Shareholders, with the communication of 9 May 2012, protocol
12038495, Consob among other things invited the Board of
Statutory Auditors of Telecom Italia S.p.A. to provide the
Shareholders' Meeting with certain details and information
regarding the "Security" and "Prepaid Cards" affairs. Here below
are the responses of the Statutory Auditors to the Commission's
requests, taking into account the statements made to the
Shareholders by the Chairman of the Board in response to the same
Consob request.
Security Subsequent to the filing of the report pursuant to article
153 of Legislative Decree 58/98 concerning FY 2011, the reasonings
behind the Supreme Court of Appeal sentence no. 1265/11 of 20
September 2011 were deposited, which sentence rejected any appeals
against the decision of the Preliminary Hearing Judge of Milan, who
found that the charges of improper appropriation initially laid by
the Public Prosecutor were without foundation. In the light of such
reasoning, Consob has asked the Statutory Board of Auditors for its
observations regarding any actions for liability and the
interruption of the relative limitation periods, and equally with
regard to the complaint brought by one of the shareholders on 14
December 2011 denouncing a violation pursuant to article 2408 of
the Civil Code, regarding "costs for unlawful espionage activities
initially paid by Pirelli in 2003 [...] and subsequently charged to
Telecom Italia". As a preliminary point, the Board of Statutory
Auditors notes that the Supreme Court of Appeal sentence contains
an acknowledgement that the espionage activities by Security, while
unlawful, were carried out also in the interests of the Company.
The Board of Statutory Auditors notes that, taking into account the
decision of the Supreme Court, the Telecom Italia Board of
Directors on 9 May 2012 "decided to serve writ on the former
executive director Carlo Orazio Buora interrupting the limitation
period (due to expire on 3 December 2012), in preparation for an
action for corporate liability, to be placed on the agenda at a
special Shareholders' Meeting, taking all necessary and appropriate
measures to that end". The Auditors concur with the Board of
Directors' decision to interrupt the period of limitation for the
former executive Director Carlo Orazio Buora and will carefully
monitor any measures that the Company might take in this regard,
also bearing in mind the Statutory Auditors' independent powers to
take action for liability against the directors.
The Board of Statutory Auditors will also monitor the evolution of
the ongoing criminal proceedings against former Chairman M.
Tronchetti Provera and any eventual measures taken by the Company.
Finally, noting that from the Supreme Court of Appeal sentence
there emerge no new elements on the question of "costs for unlawful
espionage activities" under the aforementioned denunciation
pursuant to article 2408, the Board of Statutory Auditors confirms
the remarks included in its Report on the Financial Statements as
of 31 December 2011, published on 12 April 2012. The lack of new
elements also regards the quantification of the amounts claimed by
the Company from Pirelli in relation to operations attributable
exclusively to the latter, billed to and paid by Telecom Italia,
regarding which Consob has asked the Statutory Board of Auditors
for further opinion. On this question, the Auditors further
examined and verified to the extent necessary [italiano: "per
quanto potesse occorrere"] the methods and criteria used to
calculate the sum of around 1.2 million claimed from Pirelli,
reported by the Company to today's Shareholders' Meeting, bearing
in mind the sentence of the Preliminary Hearing Judge of Milan and
the findings of the "Greenfield Project". After repeated
investigations we can confirm that there is no basis to the
statement contained in the article 2408 denunciation brought by a
shareholder on 14 December 2011, that the total value of operations
to the benefit of Pirelli, though paid by Telecom Italia, comes to
around 40 million. The Chairman of the Company in his report to
today's Meeting also furnished clarification regarding further
claims by the Company against third parties for damages caused by
activities outside the Company's interests. In particular the
Meeting was informed that the Company has been admitted as civil
claimant against the defendants in the trial currently being heard
by the Court of Assizes of Milan for reimbursement of damages
suffered as a consequence of unlawful conduct by the said
defendants; has obtained from the Court of Assizes (and begun
procedures for the execution of) a court order for preventive
seizure of 2.6 million from Emanuele Cipriani, defendant in the
same trial pending with the same Court; has requested payment of a
total amount of around 5.5 million from certain former suppliers of
the Security Office, following investigations carried out by
Deloitte within the remit of the Greenfield Project. The Board of
Statutory Auditors reiterates that it will continue to carefully
monitor any action the Company might take (and any others that it
might advise the Company to take) to remedy the damages caused by
activities outside the Company's interests.
2
Prepaid cards Consob has asked the Statutory Auditors to express
its view on the Notices of Conclusion of Investigations received
from the Public Prosecutor of Milan on 21 March 2012 and 20 April
2012. Regarding the first of the two notices, informing the company
that it is under investigation by the Public Prosecutor of Milan
pursuant to Legislative Decree 231/2001 for the offences of
receiving (article 648 of the Criminal Code) and counterfeit
(article 491-bis of the Criminal Code) allegedly committed by
fourteen Telecom Italia employees from the so called "ethnic
channel" in collusion with certain dealers, the Board of Statutory
Auditors had already carried out its own inquiries and found (i)
that the employees involved in the affair, none of which holding
managerial positions, were promptly suspended by the Company as
soon as the investigations came to light, (ii) that the aspects
relevant to the internal control system, which emerge from the
notice of conclusion of investigations, had already been deal with,
referring essentially to the question of the irregular registration
of the SIM cards, which the Board of Statutory Auditors has already
addressed in its report pursuant to article 153 TUF for FY 2011.
The Board of Statutory Auditors will monitor with attention any
developments in the situation, the emergence of any further
significant problems and any action taken by the company against
those responsible. Regarding the notice of conclusion of
preliminary investigations served on 20 April 2012, involving
Riccardo Ruggiero, Managing Director of the Company at the time of
the alleged offences, two managers Massimo Castelli and Luca
Luciani (only the latter being still in office at the date of the
notice) and Telecom Italia pursuant to Legislative Decree no.
231/2001 whose content was presented to the Shareholders' Meeting
by the Chairman of the Board the Board of Statutory Auditors in
relation to the measures taken so far by the Company: concurs with
the Board of Directors' decision of 9 May 2012 "to serve writ on
the former Executive Director Riccardo Ruggiero to interrupt the
limitation period (due to expire on 3 December 2012), in
preparation for an action for corporate liability, to be placed on
the agenda at a special Shareholders' Meeting, taking all necessary
and appropriate measures to that end" and will monitor any action
taken on this matter, bearing in mind the independent powers of the
Statutory Board of Auditors to bring action for liability against
the directors; has taken note of the resignation of Luca Luciani,
and his surrender of any positions held within the Group, including
that of Chief Executive Officer of TIM Brasil, on the terms
described by the Chairman of the Board of Directors of the Company,
and considers the discontinuation of relations with the same a
necessary measure in order to maintain an adequate "situation of
control" within the Group. The Statutory Board of Auditors has also
taken note that the Company has made no undertakings of hold
harmless or of indemnity with regard to Mr. Luciani's
responsibilities. The Board of Statutory Auditors will monitor any
action taken by the Company to protect its interests, including the
evaluation of any action for restitution of the sums paid and not
as yet refunded as incentives.
3
As regards measures taken by the Company to verify whether similar
phenomena might occur at its subsidiaries in Brazil and Argentina,
the Auditors: regarding TIM Brasil Group 1. have monitored the
internal audit of the process to correct the weaknesses in controls
and procedures in the management of prepaid SIM cards, the
subsequent update to internal procedures formalised in March 2012,
and will continue to oversee its implementation and the outcome of
ongoing audits and 2. have taken note of the internal limited
review of internal controls over financial reporting conducted in
view of the 2011 20-F filings for Tim Partecipações and Telecom
Italia, which produced no significant findings, including on the
process of registration/cancellation of prepaid SIM cards;
regarding Telecom Argentina, noted the report by the Chairman of
the Board of Directors of the Company who stated that "the criteria
for the management of sales of SIM cards and the current monitoring
and control procedures were found during tests on the internal
control system to be adequate in presenting an accurate picture of
the economic/financial position of Telecom Argentina" The Statutory
Board of Auditors has no further observations to make at this time,
while reserving the right to carry out any additional
investigations as it sees fit.
4
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