Telecom Italia Rsp

Earnings Release • Aug 5, 2020

Disclaimer

This presentation contains statements that constitute forward looking statements regarding the intent, belief or current expectations of future growth in the different business lines and the global business, financial results and other aspects of the activities and situation relating to the TIM Group. Such forward looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those projected or implied in the forward looking statements as a result of various factors.

The financial results of the TIM Group are prepared in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board and endorsed by the EU (designated as "IFRS").

The accounting policies and consolidation principles adopted in the preparation of the financial results for Q2 '20 and H1 '20 of the TIM Group are the same as those adopted in the TIM Group Annual Audited Consolidated Financial Statements as of 31 December 2019, to which reference can be made, except for the amendments to the standards issued by IASB and adopted starting from January 1, 2020.

Please note that the limited review by the external auditors (E&Y) on the TIM Group Half-year Condensed Consolidated Financial Statements at 30 June 2020 has not yet been completed.

Alternative Performance Measures

The TIM Group, in addition to the conventional financial performance measures established by IFRS, uses certain alternative performance measures for the purposes of enabling a better understanding of the performance of operations and the financial position of the TIM Group. In particular, such alternative performance measures include: EBITDA, EBIT, Organic change and impact of non-recurring items on revenue, EBITDA and EBIT; EBITDA margin and EBIT margin; net financial debt (carrying and adjusted amount) and Equity Free Cash Flow. Moreover, following the adoption of IFRS 16, the TIM Group uses the following additional alternative performance indicators:

* EBITDA adjusted After Lease ("EBITDA-AL"), calculated by adjusting the Organic EBITDA, net of non-recurring items, of the amounts related to the accounting treatment of lease contracts according to IFRS 16 (applied starting from 2019);

* Adjusted Net Financial Debt After Lease, calculated by excluding from the adjusted net financial debt the liabilities related to the accounting treatment of lease contracts according to IFRS 16 (applied starting from 2019).

* Equity Free Cash Flow After Lease, calculated by excluding from the Equity Free Cash Flow the amounts related to lease payments.

Such alternative performance measures are unaudited.

"Operations TIMe": engaging employees, improving CSI and KPIs

	What happened in Q2	KPIs
Culture, engagement and organization	▪ Customer Satisfaction Index/Net Promoter Score growing ▪ New employee shareholding plan launched ▪ Early retirement plan continues at full speed	CSI (1) +3% mobile, +2% fixed CSI wholesale +1% exits in H1 / 3.4k planned in FY(2) 2.8k
Domestic	▪ Positive mobile net adds ▪ Strongly improved fixed KPIs point to H2 FSR YoY better vs. H1 ▪ Enhanced UBB rural coverage and take up ▪ More digital sales channels and direct payments	Mobile calling net adds +87k ~zero Consumer line losses +1.2m UBB HHs, +0.5m FTTx lines Fixed Web sales +138% YoY Direct payment 75% of gross adds
Brazil	▪ Enhanced OPEX saving offset COVID-19 impact on revenues ▪ Strong growth in cash generation	EBITDA +1.0% YoY EBITDA-CAPEX +29% YoY
Cash generation	▪ Organic cash generation continues ▪ Net Debt record level decrease ▪ EFCF guidance confirmed, debt reduction improved	Eq FCF AL € 336m in Q2 Net Debt AL -€ 0.6bn QoQ

Service portfolio enriched; TIM TV now a key differentiating factor

COVID-19 update: Italy gradually back to normality

• Zero new cases in many regions
• Major public intervention for Italian families and businesses (€ 209bn recovery fund)
• New focus and push on digital and connectivity (€ 2.7bn public funding for vouchers and roll out)

Italy post-lockdown Medium/long term COVID-19 impacting top line and EBITDA Short-term impacts on TIM -0.3 -1.7 Q1'20 Q2'20 -1.2 -3.7 Domestic Service Revenue Domestic Organic EBITDA COVID-19 impact (p.p) YoY growth, p.p.

Strategic initiatives update

TIM co-investing with Fastweb & KKR towards the Italian single network

KKR extended its binding offer to 31 August on Government request to create a broader single network		TIM's BoD strongly welcome Government's will to accelerate the single network project and mandated the CEO to interact accordingly with Authorities
FiberCop to be the carve out of TIM's passive secondary network	▪ The largest passive infrastructure wholesaler in Italy, with key customers such as TIM and Fastweb ▪ c.20% of technical units (1) FTTH connecting corresponding to 76% of Black and Grey areas ▪ FTTC connecting c. 85% of technical units for c. 50%, >50Mbps speed for c. 85%)	and all main OLOs (2) , 56% by 2025 , (3) (>100Mbps speed	Carve out and valuation of FiberCop key step towards: ▪ Co-investment with OLOs ▪ Multiples rerating ▪ Creation of Italy's single network
…allowing TIM to complete fiber roll out while deleveraging…	▪ €4.7bn equity value and €1.8bn cash proceeds for TIM the sale of 37.5% to KKR ▪ TIM to be the exclusive builder and technical supplier for FiberCop's network roll out & maintenance	through
…and sharing benefits and risks with strong partners	▪ TIM at 58% ▪ KKR Infrastructure at 37.5% paid in cash ▪ Fastweb at 4.5% through contribution of 20% of Flash Fiber ▪ FiberCop €7.7bn enterprise value at start		Letter received from the Italian Government on commitment to work on the creation of a single network for Italy

Unlocking hidden value and rerating path through FTTH/UBB adoption/deployment

Business rationale

▪ Lead Italy's accelerated adoption and deployment of top-quality UBB networks ✓ Accelerate migration of TIM's customer base from copper to fiber ✓ Equity finance the FTTH roll-out ▪ Co-invest with Fastweb according to EU Telecommunication Code art. 76 (regulation eased): FiberCop supplier to Fastweb for secondary network ▪ Close digital divide, rolling out fiber in grey areas and FTTC in white areas ▪ Consolidate TIM's position in the creation of the National fiber network

Key benefits for TIM

▪ Unlock hidden value ✓ Multiple accretive transaction ✓ Path to rerating for secondary network from shift to fiber from copper whilst retaining strong control ▪ Set-up a partnership with one of the world's most reputable financial investors, with relevant experience in the infrastructure and TLC space ▪ Strongly enhance cash generation profile after the roll-out period (2025), with CAPEX on sales <10% at regime ▪ Accelerate deleverage

Overview of the Transaction structure, as per KKR Infrastructure binding offer

Unlocking rerating opportunity whilst retaining strong control

FiberCop at a glance

Including all of TIM's passive secondary network infrastructure, both copper and fiber, from the cabinet to the home, (ducts, secondary network, sockets, etc. with cabinet excluded)

Simplified FiberCop perimeter FiberCop operating model very lean

• FiberCop to own TIM's secondary network infrastructure
• Complete fiber secondary network roll out in Black & Grey areas
• Provide passive access services to TIM and other OLOs

• Number of employees <100

• TIM to execute all operational activities for FiberCop, from design to network construction, maintenance and assurance

• Perform general services, from corporate affairs to treasury and procurement
• Be customer of FiberCop on equal terms vs. Fastweb and other OLOs

Q2 Highlights: Record quarterly deleverage

Organic data (1), IFRS 16, € m

Impact of COVID-19 on Revenues mitigated by accelerated cost cutting both in Italy and Brazil, leading to Group and domestic EBITDA trend better than Q1

Record high quarterly Net Debt reduction thanks to strong organic and inorganic cash generation (-€616m QoQ After Lease)

Equity Free Cash Flow AL of €336m. In H1 Equity FCF reaches €788m, in line with 2019 excluding FX and one-off payments

Under IFRS16, debt reduction reaches €774m and EFCF €511m in Q2

€3.8bn debt cut in 20 months

Mobile: calling customer base back to growth for the first time in 2 years

CSI improved. Net Promoter Score well above large operators'

Stabilization of customer base (CB) key for turnaround: CB decline explains >5pp of MSR decline in Q2

Mobile revenues: ARPU growth mitigates one off drags

ARPU almost flat YoY; +2.0% underlying (ex. 3pp CSP drag)

MSR: underlying trend -5.1% YoY entirely volume-related

One off items: COVID-19 impact on roaming (ca. -2.2pp) and CSP (content service providers) cleanup (c. -2.5pp)

MTR price reduction explains another -1.3pp drag and the renewal of the mobile Consip contract at lower prices another -0.9pp, both in line with Q1

~6pp drags affecting Q2 and Q3 will disappear from 2021

Lower handsets sales due to the lockdown

Fixed KPIs strong across the board. Line losses close to zero

(1) On TIM infrastructure, retail VoIP excluded (2) FTTx and Fixed Wireless Accesses (FWA)

FSR on an improving path with H2 expected better than H1

Fixed Service Revenues improved QoQ (-8.5% vs. -10.1% in Q1) with better CSI. Further improvement expected for H2

• Better Wholesale performance (+1.3% YoY vs. +0.6% in Q1): lines growing thanks to VULA well above ULL
• Better International Wholesale as revenue repositioning is almost done (-3.9% YoY vs. –8.8% in Q1)
• Retail revenues growth rate in line with Q1. Trend expected to improve in coming quarters thanks to:
• Customer base (CB) YoY fall explains c. 80% of Q2 FSR YoY fall. CB fall YoY expected to halve by YE
• ARPU uplift from new services (more for more)
• Free services (trial & COVID-19 related) start to be paid
• Washing machine clean up annualization

Market discipline in Q2: competitors acquisition prices on an increasing path

Cost reduction accelerating: -13% YoY

Addressable costs down 13.6% vs. -5.6% in Q1

OPEX reduction accelerated in Q2: -13.0% vs. -10.2% in Q1

• Interconnection mirrors new strategy for Sparkle
• Equipment mirrors lower handset sales following lockdown
• CoGS increase related to IT revenue growth
• Commercial costs benefit from stopped CSP services, streamlined wholesale processes and efficiencies in customer care. Lower advertising costs due to shift of sponsorships on sport events (due to COVID-19)
• Industrial costs down thanks to decrease in energy (lower prices and consumption) and industrial spaces cost
• G&A down thanks to lower civil building costs
• Labour positively impacted by Full Time Equivalent reduction (-2k YoY)

(1) Net of deferred costs, on a cash view, the reduction reaches € 268m (-12.6% vs. -11.0% in Q1). Net of deferred costs, total OPEX amounts to € 1,852m in Q2 '20 and € 2,121m in Q2 '19. On a cash view, YoY changes differ in CoGS (+17%), Industrial (-5%), G&A & IT (-11%) and Labour (-12%) (2) Net of capitalized costs

(3) Includes other costs/provision and other income

Strong efficiencies in CAPEX; NWC outflow reduced €492m YoY

CAPEX down 19% YoY for COVID-19 related delays and for efficiency gains both in Italy and Brazil

Group Operating Working Capital +€ 492m YoY despite € 393m of one-offs and non-comparable items(1) offset by a positive exchange rate impact in Brazil (€ 211m) and by postponement of 2020 Fistel payment to August, as allowed post COVID-19 (€ 161m)

Deleverage: €1,697m debt cut in 6 months (€798m After Lease)

€ m; (-) = Cash generated, (+) = Cash absorbed, excluding call-outs

Liquidity margin - After Lease view Cost of debt ~3.4%, flat QoQ, -0.3p.p. YoY

(1) € 24,732m is the nominal amount of outstanding medium-long term debt. By adding the balance of IAS adjustments and reverse fair value valuations (€ 547m) and current financial liabilities (€ 1,365m), the gross debt figure of € 26,644m is reached

²¹ Q2 '20 Results

TIM Brasil

TIM Brasil: improving EBITDA thanks to strong cost efficiencies

Reported data, R\$m

Deleverage guidance improved for INWIT transaction, EqFCF unchanged Estimated COVID-19 impact now reflected

Closing remarks

Executing Operations TIMe plan and extraordinary initiatives at full speed despite COVID-19. Debt cut €3.8bn in 20 months

FiberCop to open the way for new opportunities for TIM, its shareholders and the Country

Letter received from the Italian Government on commitment to work on the creation of the Single Network for Italy

The improvement of KPIs and CSI in both fixed and mobile are early signs of effectiveness of the turnaround started in 2019

2020-22 cumulated Equity FCF confirmed

2021 debt guidance improved €2bn, to <€18bn thanks to INWIT transaction

H1 Net Income +23% YoY

Reported data, € m, Rounded numbers

Liquidity margin - IFRS 16 view Cost of debt ~3.8%*, -0.1p.p. QoQ, -0.5p.p. YoY

* Including cost of all leases

(1) € 29,600m is the nominal amount of outstanding medium-long term debt. By adding the balance of IAS adjustments and reverse fair value valuations (€ 579m) and current financial liabilities (€ 1,365m), the gross debt figure of € 31,544m is reached

²⁸ Q2 '20 Results

Well diversified and hedged debt

	NFP adjusted	Fair value	NFP accounting
GROSS DEBT
Bonds Banks & EIB	20,505 5,699	311	20,816 5,699
Op. leases and long rent Other	4,900 440	1,714	4,900 2,154
TOTAL	31,544	2,025	33,569
FINANCIAL ASSETS
Liquidity position	4,479		4,479
Other (1)	1,094	2,042	3,136
TOTAL	5,573	2,042	7,615
NET FINANCIAL DEBT	25,971	(17)	25,954

* Refers to positive MTM derivatives (accrued interests and exchange rate) for € 944m, financial receivables for lease for € 84m and other credits for € 67m

Average m/l term maturity: 7.8 years (bond 7.1 years only)

Fixed rate portion on medium-long term debt ~70%

Around 26% of outstanding bonds (nominal amount) denominated in USD and GBP and fully hedged

€ m, organic

After Lease view

EBITDA After Lease

Equity Free Cash Flow After Lease

For further questions please contact the IR team

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