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Telecom Italia - The value of Intangibles

Added on 22-03-2013


Telecom Italia



Business challenge

A common observed problem in financial valuations is the existence of a gap between the intrinsic value and the market value of a Company, mainly due to the difficulty of assessing internally generated intangible assets, which means that financial information is not sufficient to represent the real value of a company.


To cope with this issue, Telecom Italia launched a project in partnership with Bocconi University in Milan called "The intangibles": a bridge between financial and non financial performance in the telecommunications sector".


The project has two different phases: In phase 1 (concluded in 2004) the company investigated the existing links between financial performance and non-financial performance based on a sample of 500 companies included in the Standard & Poors 500 Index. The methodology was to move the price of each company listed in the S&P 500 back to Book Value with the KLD social ratings (14 ratings) and the ROE spread and the growth spread (g-k). It discovered that three ratings help to explain the P-to-BV expressed by Wall Street:

• COM-concerns: score on Community concerns (investment controversies, negative economic impact & other concerns)

• PRO-strengths: score on Product strengths (quality, R&D/innovation, other strengths)

• EMP-strengths: score on Employee Relations strengths (strong union relations, no-layoff policy, cash profit sharing, employee involvement, strong retirement benefits, other strengths)

Telecom Italia's concluded that the non-financial performance, if correctly communicated to the market, has a relevant impact on the financial performance in the medium/long term.


In phase 2 (started at the beginning of 2005) the company developed the metrics that allow for the measurement of the main intangibles created by sustainability, such as brand reputation, customer relations, human capital and innovation. Telecom Italia's is confident that the seven-year history of sustainability in its Group has created a remarkable value through the generation of intangible. Its KPI system should allow it to keep good track of the value created.



• Very few companies in the world link their financial with non-financial performance. It is only recently that financial analysts have become aware of the importance of non-financial performance, but generally accepted standards are not yet available to measure non-financial performance.

Challenges/Lessons learned:

• Bridging the worlds of sustainability and financial markets by communicating financial performance integrated with non-financial performance to the market. At a time of economic uncertainty, this may help to support a Company's reputation and market value.

• Apply the sustainability management model, which is already in place and fully tested, to measure non-financial performance.

• Tailor to a growing demand arising from analysts and the financial community to evaluate a company's ability to generate value accordingly to six areas of competence: Strategic, Financial, Governance & Stakeholders, Customers & Products, Human and Process.


More information

To get an overview of Telecom Italia Group's approach to CSR and of Sustainability reporting, please enter the section "Sustainability" of the web site

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