Telecom Italia Rsp

Investor Presentation • Nov 7, 2019

Q3 '19 Results Deleveraging and enhancing value TIM Group

November 8th, 2019

Luigi Gubitosi Giovanni Ronca

Safe Harbour

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.

The Q3'19 and 9M'19 financial and operating data have been extracted or derived, with the exception of some data, from the Financial Information at September 30, 2019 of the TIM Group, which has been prepared in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board and endorsed by the European Union (designated as "IFRS"). Such information is unaudited.

The accounting policies and consolidation principles adopted in the preparation of the Financial Information at September 30, 2019 of the TIM Group are the same as those adopted in the TIM Group Annual Audited Consolidated Financial Statements as of December 31, 2018, to which reference can be made, except for the adoption of the new accounting principle (IFRS 16 - Lease), adopted starting from January 1, 2019. In particular, TIM adopts IFRS 16, using the modified retrospective method, without restatement of prior period comparatives. The adoption of the new standard may be subject to amendments until the issue of 2019 Consolidated Financial Statement of the TIM Group.

Please note that, starting from January 1, 2018, the TIM Group adopted IFRS 15 (Revenues from contracts with customers) and IFRS 9 (Financial instruments).

To enable the comparison of the economic and financial performance for the Q3'19 and 9M'19 with the corresponding period of the previous year, "IFRS 9/15" figures, prepared in accordance with the previous accounting standards applied (IAS 17 and related Interpretations) are provided, for the purposes of the distinction between operating leases and financial leases and the consequent accounting treatment of lease liabilities.

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.

Alternative Performance Measures

The TIM Group, in addition to the conventional financial performance measures established by IFRS, uses certain alternative performance measures in order to present a better understanding of the trend of operations and financial condition. 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 and net financial debt. Moreover, following the adoption of IFRS 16, the TIM Group provides the following further financial indicators:

• EBITDA adjusted After Lease ("EBITDA-AL"), which is calculated by adjusting Organic EBITDA, net of non-recurring items, of the amounts related to the accounting treatment of finance lease contracts in accordance with IAS 17 (applied until year-end 2018) and IFRS 16 (applied starting from 2019);
• Adjusted Net Financial Debt After Lease, which is calculated by excluding from the adjusted net financial deb the liabilities related to the accounting treatment of finance lease contracts in accordance with IAS 17 (applied until year-end 2018) and IFRS 16 (applied starting from 2019).

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Such alternative performance measures are unaudited.

Q3 '19 Results

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Main Trends and Financial Update

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Q3 '19 Results

Closing Remarks

Highlights Plan execution accelerates

Highlights Strategic initiatives update

Highlights Strategic alliance with Google Cloud: transformational for TIM

Strategic alliance on Cloud, Data Centers and Edge Computing Strategic alliance on Cloud, Data Centers and Edge Computing

• MoU signed with Google Cloud
• Cloud is the fastest growth market in Italian TMT
• TIM Cloud presently leader in the Italian fragmented market with "Nuvola Italiana" ("Italian Cloud")
• Google Cloud alongside "Nuvola Italiana" to provide a unique proposition of public, private, hybrid cloud
• Google Cloud in Italy will be hosted by TIM's new hyperscale, state of the art, facilities
• First European Edge computing network will be deployed using selected TIM switches
• Access to Google technologies and services to further enhance TIM's Cloud portfolio
• Transforming TIM infrastructure to optimize spending and free up data center space

TIM's business revenues boosted

Italy to become tech front-runner thanks to TIM's combination of 5G, fiber, cloud and edge computing

Strategic alliance pillars

• Tap cloud growth opportunity
• Leverage unique assets, distribution and readiness for 5G and Edge computing
• Focus on managed services

Highlights Significant value creation expected from Data Center/Cloud NewCo set up

Creation of a NewCo for TIM's Data Centers, Cloud infrastructure and managed services

• TIM will create a new legal entity that will own TIM's data centers
• An infrastructure investor will be invited to enter in the equity to finance expansion and a subsequent potential listing may be considered ("Inwit-like")
• TIM will retain control
• ~€0.5bn 2020e revenues
• 2024 preliminary objectives: revenues ~€1bn, EBITDA ~€0.4bn
• Cloud market growing at >20% CAGR
• No impact on CAPEX guidance

NewCo perimeter

Cloud factory for TIM and Google Cloud

• Assets: market and captive infrastructure (excluding telco core services), real estate
• Services: Cloud services to TIM, Google Cloud and the Italian market
  • Talents: over 800 TIM engineers trained by Google to offer system integration and professional services

TIM DATA CENTERS INFRASTRUCTURE

22 sites in Italy ~40k sqm 36 Pbytes storage 1,235 Tflops of CPU power 8,1k km fiber connections

Highlights

Consumer credit partnership "TIM Presto": framework agreement signed

Q3 '19 Results

Highlights

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Main Trends and Financial Update

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Q3 '19 Results

Closing Remarks

Q&A

Q3 '19 Main Results FY deleverage target already reached; €1.2bn Equity FCF in 9 months

Organic data (1), €m

• Service revenues excluding Sparkle -4.0% YoY, with Domestic 6.1% and Brazil +3.0%
• EBITDA -4.5%, with Domestic at -6.9% and Brazil +6.8% YoY. EBITDA margin +0.7 p.p. to 44.6% in Q3. Net of specific Q3 '18 HR items (3) YoY decline would be -2.6% and -4.6% respectively

3 rd quarter showing strong improvement in cash generation:

• Net Debt at €24,312m, with a reduction of -€419m from Q2 and -€958m from FY'18
• Equity FCF at €444m in Q3 vs. -€39m in Q3'18 (9M'19 to >€1.2bn, ~6x 2018)
• 35% of the plan EFCF target (€3.5bn) delivered in 25% timeframe

(1) Excluding exchange rate fluctuations & non recurring items. Capex excluding licenses

(2) Total service revenues growth excluding Sparkle's International Wholesale revenues, without any impact on EBITDA

(3) YoY difference in bonuses provisioned (€ 25m; no bonus paid on 2018 FY) and solidarity effective only from the end of August in 2019 vs. all three months in Q3 '18 (€15m)

(4) Adjusted Net Debt

Q3 '19 Results

Q3 '19 Domestic Mobile

Second quarter of ARPU growth QoQ drives improvement in MSR YoY performance

Mobile KPIs

Churn rate	Customer Base k, Rounded numbers
	31,662	31,254
7.6% 6.2% 6.0% 5.4% 5.2% 4.3%	Not 9,706 Human +135	9,841
	Human -543 21,956 incl. 0.2bn clean-up	21,413
Q2 Q3 Q4 Q1 Q2 Q3 '18 '19	Q2 '19	Q3 '19

• ARPU growth continues (+3% QoQ) driving +2.7 p.p. in MSR YoY, through higher acquisition prices, selective repricing and upselling
• Market MNP continuous YoY reduction (QoQ affected by seasonality) thanks to improving market conditions in the upper end of the market (MNO's MNP -63% YoY). Low end remains competitive (+10% YoY)
• Churn well below Q3 '18 (5.4% vs. 7.6%) despite cleaning of silent lines. Customer base impacted by lower performance of not human lines (+135k vs. +214k in Q2) in addition to human lines disconnections in the low end of the market and clean up activities (c. 50% of line losses)
• Lower sales of handsets with improved marginality (new strategy benefiting EBITDA)

(1) Source: intra operator database

(2) Underlying growth rate -6.1% YoY excluding mobile termination rates reduction and accounting adjustments for pre-paid cards mismatch

Q3 '19 Domestic Wireline FSR affected by switch to Equipment (no margin impact) and tougher comps QoQ

Total fixed revenues excluding Sparkle -1.4% YoY

• Total revenues 3.4 p.p. better than FSR due to different offer structure in consumer (modem now paid), business (ICT-related sales) and wholesale
• Fixed service revenues (FSR) affected by reduced washing machine effect (lower activation fees) but cash flow strongly benefiting (lower commissions and provisioning)
• Retail affected by the decision not to reprice the existing client base which benefited KPIs:
  • Consumer suffering from tougher comps vs. Q2 (Q3 no longer benefitted from 2018 price increases) and from lower activation fees, partly offset at the equipment and total revenue levels (with marginality in line with FSR)
  • Business services -1.3% YoY (+4.4% including equipment, accelerating vs +2.9% in H1)
  • ICT services growing steadily (+11.4% YoY)
• Domestic Wholesale +1.4% growth vs. +11.4% in Q2 supported by positive performance both in regulated and non regulated services, despite the impact in Q3 by a one-off regulatory decision, the bulk of which related to 2018
• Sparkle's International Wholesale revenues down 27.4% in line with Q2, following strategy revision

Wireline Revenues

Q3 '19 Results

Q3 '19 Domestic Wireline

Significant improvement in line losses and BB net adds, FTTx conversion progressing…

Migration to fiber continues: 6.6m lines reached, +4% QoQ and +36% YoY, thanks to push on conversion and reduced delivery time (FTTx -3.6 days YoY)

• Retail line losses 225k vs. -346k in Q2. Clean-up almost completed and channels refocused on value (-50% QoQ washing machine)
• Back to strong growth in broadband net adds: benefit from new football and FWA offers in rural areas; promotional activities focused on upselling both BB to voice-only customers and fiber to ADSL customers
• Wholesale lines see continuous migration to fiber (+207k VULA) offsetting disconnections on lower ARPU copper lines (-197k ULL) with strong benefit on revenues (VULA priced >50% above ULL)
• Market discipline: competitors reducing price gap vs. TIM: repricing of existing client base in July and August by main competitors. Not by TIM
• Churn rate sequentially improving thanks to retention activities results
• ARPU growth affected by annualization of the July 2018 price increases and lower contribution from activation fees

Q3 '19 Domestic Wireline …and a plan to fill ultra-BB coverage above European average by stimulating demand

and pay TV adoption, higher

mobile penetration

50 Mbps > 100 Mbps

(partnerships with all key content providers)

Q3 '19 Domestic OPEX Cost reduction underway, focus remains on cash impact

OPEX down €191m YoY (-9%)

Net of deferred costs, on a cash view, the reduction reaches €258m (-12% YoY)

• Interconnection & equipment: benefiting from new strategy both for Sparkle and for handset (e.g. ~€30m savings from improved equipment margins in Q3)
• Commercial: -9% YoY net of deferred costs thanks to reduced "washing machine effect"
• Industrial: -5% YoY net of deferred costs thanks to network costs optimization offset by higher energy costs (price negotiated in 2018 weighing €12m in Q3 notwithstanding lower consumption YoY)
• G&A: -16% YoY net of deferred costs thanks to lower costs of consulting and buildings. Increase in IT costs
• Labour: YoY comparison impacted by lower '18 costs for variable components (~€25m: no bonuses in '18) and lower solidarity days in '19 (€15m delta YoY). Net of these discontinuities labour cost would be -8% YoY thanks to FTE reduction

Q3 '19 TIM Brasil TIM Brasil on a sequentially improving path

Organic data, R\$m, Rounded numbers

Gradual and continuous growth acceleration, over-delivery on efficiency plan driving consistent margin evolution, strong cash generation

• Service revenues up 3.0% YoY
• MSR +2.7% YoY thanks to improving prepaid KPIs (ARPU and net adds) through the new plan "Pré TOP" and increasing presence in the high end with an entertainment hub concept
• FSR + 9.0% YoY driven by TIM Live ARPU and CB increase
• EBITDA accelerating growth to 6.8% YoY from 6.3% in Q2. Doing more with less, e.g. increased media presence while reducing marketing expenses 30% YoY. EBITDA margin now standing at 39.2% (+1.6 p.p. YoY)
• Solid network development: FTTH coverage grew 150% in one year, reaching over 1.9m households (1)

TIM Live Revs	Service Revs	Improved Marginality	Network Leadership	NPS	Digital CEX (2)
% of fixed 54% 50% 49% Q1'19 Q2 Q3	% YoY 3.0% 2.4% 1.0% Q1'19 Q2 Q3	p.p. 1,6 1,4 1,2 Q1'19 Q2 Q3	st 1 in 4G Coverage >1.6k cities, +40.3% YoY 5G Initiatives Leadership exploring applications and building readiness	NPS improving +4 p.p. Regaining awareness #1 in prepaid top of mind, back to #2 in mobile market	Unlocking Efficiency through Customer Empowerment

(1) Addressable HH ready to sell (2) Digital Customer Experience

Q3 '19 TIM Group Net Debt reduction accelerating further: -€958m in 9M, o/w -€419m in Q3

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

Q3 '19 TIM Group CAPEX: doing more spending less. Net Operating Working Capital strongly cut

Q3 '19 TIM Group Liquidity margin -After Lease view- Cost of debt ~3.6%, -0.1 p.p. QoQ, -0.4 p.p. YTD €m

Q3 '19 TIM Group After Lease view shows slightly better trends YoY

Under the After Lease view, results show slight improvements vs. the IFRS 9/15 view:

• Group EBITDA-AL –4.3% YoY in Q3 (-2.6% YoY in 9M)
• Domestic EBITDA-AL –6.7% YoY in Q3 (-4.5% YoY in 9M)
• Group Net Debt AL at €22,465m with a reduction of €857m from December 2018, of which €353m in Q3 only

Q3 '19 Results

Highlights

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Main Trends and Financial Update

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Q3 '19 Results

Closing Remarks

Q&A

We announced and delivered organic and inorganic action

€1bn organic deleverage targeted by YE 2019 achieved by Q3

Additional €1.9bn deleverage on the way (INWIT + TIM Presto)

Transformational strategic alliance with Google Cloud paving the way for more revenues and value creation

Guidance unchanged

Q3 '19 TIM Group 2019 the best of last 5 years for organic deleverage. Total of €3bn underway including action taken and paving the way for more to come

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

Q3 '19 Results

Highlights

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Main Trends and Financial Update

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Q3 '19 Results

Closing Remarks

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Outlook Guidance IFRS 9/15 and After Lease unchanged

YoY growth rates	Group		Domestic		Brasil
	2019	2020-'21	2019	2020-'21	2019	2020-'21
Organic Service revenues	Low single digit decrease	Low single digit growth	Low single digit decrease1	Almost stable	+3% - +5% (YoY)	Mid single digit growth
Organic EBITDA-AL	Low single digit decrease	Low single digit growth	Low to Mid single digit decrease	Low single digit growth	Mid to High single digit growth (YoY)	EBITDA margin ≥ 39% in '20 ≥ 40% pre IFRS 9/15
CAPEX	--		~EUR 2.9 bn / Year ~EUR 3 bn	/ Year pre IFRS 9/15	~R\$ 12 bn cumulated ~R\$ 12.5 bn pre IFRS 9/15
Eq FCF	Cumulated ~EUR 3.5 bn To be enhanced through inorganic actions presently not included		--		--
Adjusted Net Debt AL	~EUR 20.5 bn by 2021 ~EUR 22 bn	pre IFRS 9/15 (2)	--		--

Q3 '19 TIM Group Net Income

Reported data, €m, Rounded numbers

Annex Liquidity margin – IFSR 9/15 view – Cost of debt flat QoQ, -0.4 p.p. YTD €m

(1) € 26,928m is the nominal amount of outstanding medium-long term debt. By adding the balance of IAS adjustments and fair value valuations (€ 700m) and current financial liabilities (€ 1,122m), the gross debt figure of € 28,749m is reached. This includes € 450m repurchase agreements

Q3 '19 Results

Annex Well diversified and hedged debt

€m

Net financial position (with IFRS 16)	27,891
Net finance leases (IFRS 16)	(3,579)
Net financial position	24,312

Maturities and Risk Management

Average m/l term maturity: 7.5 years (bond 7.6 years only)*

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

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

Cost of debt: ~4.0%* including cost of finance leasing

* Without IFRS 16

N.B. The figures are net of the adjustment due to the fair value measurement of derivatives and related financial liabilities/assets, as follows:

• the impact on Gross Financial Debt is equal to € 2,201m (of which € 365 m on bonds);

• the impact on Financial Assets is equal to € 1,645m.

Therefore, the Net Financial Indebtedness is adjusted by € 556m

N.B. The difference between total financial assets (€ 4,447m) and C&CE and marketable securities (€ 3,253m) is equal to € 1,194m and refers to positive MTM derivatives (accrued interests and exchange rate) for € 1,021m, financial receivables for lease for € 114m and other credits for € 59m

Annex TIM Group - Main Results (IFRS 16)

Reported, €m

	Revenues		Service Revenues		EBITDA
	9M' 19 IFRS 9-15	Δ IFRS 16	9M' 19 IFRS 9-15-16	9M' 19 IFRS 9-15	Δ IFRS 16	9M' 19 IFRS 9-15-16	9M' 19 IFRS 9-15	Δ IFRS 16	9M' 19 IFRS 9-15-16
TIM Group	13,423	-	13,423	12,287	-	12,287	6,008	491	6,499
Domestic	10,523	-	10,523	9,513	-	9,513	4,285	269	4,554
Brazil	2,930	-	2,930	2,804	-	2,804	1,730	222	1,952
	Q3 '19 IFRS 9-15	Δ IFRS 16	Q3 '19 IFRS 9-15-16	Q3 '19 IFRS 9-15	Δ IFRS 16	Q3 '19 IFRS 9-15-16	Q3 '19 IFRS 9-15	Δ IFRS 16	Q3 '19 IFRS 9-15-16
TIM Group	4,429	-	4,429	4,060	-	4,060	1,943	165	2,108
Domestic	3,454	-	3,454	3,127	-	3,127	1,536	89	1,625
Brazil	984	-	984	942	-	942	409	76	485

€m, IAS 17 included Annex Liquidity margin – IFRS 16 view – Cost of debt -0.1 p.p. QoQ

(1) € 30,499m is the nominal amount of outstanding medium-long term debt. By adding the balance of IAS adjustments and fair value valuations (€ 717m) and current financial liabilities (€ 1,1122m), the gross debt figure of € 32,338m is reached. This includes € 450m repurchase agreements

Q3 '19 Results

For further questions please contact the IR Team

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