Telecom Italia Rsp

Investor Presentation • Aug 1, 2019

Q2 '19 Results Accelerating Deleverage TIM Group

August 2nd, 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 2Q'19 and 1H'19 financial and operating data have been extracted or derived, with the exception of some data, from the TIM Group Half-year Condensed Consolidated Financial Statements as of and for the six months ended 30 June 2019, 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"). 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 2019 has not yet been completed.

The accounting policies and consolidation principles adopted in the preparation of the TIM Group Half-year Condensed Consolidated Financial Statements as of and for the six months ended 30 June 2019 are the same as those adopted in the TIM Group Annual Audited Consolidated Financial Statements as of 31 December 2018, to which reference can be made, except for the adoption of the new accounting principle (IFRS 16 - Lease), adopted starting from 1 January 2019. In particular, TIM adopts IFRS 16, using the simplified retrospective approach, without restatement of prior period comparatives. The implementation of the new standard has not been fully completed; the impact of the adoption of IFRS 16 is unaudited and may be subject to change until the publication of TIM's 2019 Annual Report. It should be noted that, starting from 1 January 2018, the TIM Group adopted IFRS 15 (Revenues from contracts with customers) and IFRS 9 (Financial instruments).

To enable the year-on-year comparison of the economic and financial performance for the first half of 2019, "IFRS 9/15" income statement 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 the end of 2018) and IFRS 16 (applied 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 the end of 2018) and IFRS 16 (applied from 2019).

Such alternative performance measures are unaudited.

Q2 '19 Results

Highlights

1

Main Trends and Financial Update

Closing Remarks

Q&A

Highlights Plan execution at full speed

Highlights Strategic initiatives update

Q2 '19 Results

Highlights

1

Main Trends and Financial Update

Closing Remarks

Q2 '19 Main Results Deleverage accelerating in Q2; €786m Equity FCF in 6 months

All figures based on IFRS 9/15 accounting standards and on a comparable base

Organic data (1), €m

• Service revenues excluding Sparkle -0.4% YoY, with Domestic -1.2% and Brazil +2.4%
• EBITDA -2.6%, with Domestic at -4.4% and Brazil +6.3% YoY. EBITDA margin +0.6p.p. to 42.2% in Q2

Second quarter showing continuous improvement in cashgeneration:

• Net Debt at €24,731m, with a reduction of -€349m from previous quarter and -€539m from FY'18

(1) Excluding exchange rate fluctuations & non recurring items. CAPEX excluding license (2) Total service revenues growth excluding Sparkle's International Wholesale revenues, without any impact on EBITDA. Sparkle's EBITDA growing +17% YoY in Q2 (3) Adjusted Net Debt

Q2 '19 Domestic Mobile ARPU growing QoQ, churn better. First signs of improvement in human calling CB

Churn rate	Customer Base k, Rounded numbers
	-86 31,748 31,662
7.6% 6.2% 6.0%	Not Human 9,492 9,706 +214
5.2% 4.3%	Human -300 22,256 21,956 Calling human -230 vs -289
Q2 '18 Q3 Q4 Q1 '19 Q2	in Q1 Q1 '19 Q2 '19

• ARPU growing 1% QoQ (consumer ARPU +2.1% QoQ). Both new and actual clients ARPU returning to growth thanks to price increases, selective repricing and upselling
• MNP further cooling down
• Churn improving
• Kena net adds halving again QoQ (~50k net adds in Q2)
• Customer base stable compared to Q1 thanks to M2M and reduced churn on calling lines. Human lines were impacted by anniversary of Q2 2018 aggressive promos pre-empting/responding to Iliad. Market stability improving with exception of low end
• Lower sales of handsets with improved marginality

Q2 '19 Domestic Mobile 5G launched in July consistently with quality approach and ROIC enhancing priority

ROIC enhancing approach

Q2 '19 Domestic Mobile TIM - Vodafone partnership ticks all boxes and generates > €150m synergies p.a.

Q2 '19 Domestic Wireline Fixed service revenues +2.2% YoY excluding Sparkle (+1.8% in Q1)

• Retail down -0.5% due to:
• Consumer service revenues down -1.4% as line losses not fully offset by ARPU increase (lower help from activation fees vs. Q1)
• Business service revenues benefitting from premium pricing and unique distribution (+0.7%)
• ICT services steady growth (+15.7% YoY)
• Domestic Wholesale up 11.4% thanks to strong commercial performance and new tariffs approved by AGCOM (1)
• Sparkle's International Wholesale revenues down -29.4% following strategy revision, with positive impact on EBITDA (+16.7% YoY growth in Q2) due to lower bad debt

Q2 '19 Domestic Wireline

ARPU growth benefitting from FTTx conversion; still supported in Q2 by pricing dynamics

Migration to fiber continues: 6.3m lines reached, +5.6% QoQ and Lines x 1,000 +45% YoY although Q2 focus was on migrating voice only to ADSL

• -360 Retail line losses were 346k in Q2 '19, due to higher clean-up activity vs. Q1 (stricter disconnection policy discipline to optimize credit management introduced in Q1)
• Broadband net adds back to growth, thanks to push on voice only customers
• Wholesale lines see continuous migration to fiber (+253k VULA) offsetting disconnections on lower ARPU copper lines (-249k ULL, down QoQ) with strong benefit on revenues (VULA priced >50% above ULL)
• ARPU consumer at 35.7 €/month, growing 8.3% YoY. Continuous growth of broadband ARPU (+17.2% yoy) driven by 2018 repricing and upselling of "beyond connectivity" services
• Market discipline 2019: competitors reducing price gap vs. TIM's premium positioning: repricing of existing client base in July and August by main competitors

Q2 '19 Domestic Wireline Fix the fixed: pulling all levers

• Premium positioning: the best technology at the max speed
• Modular offering with valuable adds-on: security, entertainment, smart home, assistance, voice designed for upselling
• 1 st Year in promo and 2nd year price increase "embedded"
• ARPU from 2nd year, +14/17% vs previous offering
• Bad-debt-proof: bank account direct debit or €100 deposit

Broadband push

Expected improvement in regulatory framework

and incremental sales force

• Back to positive net BB adds in Q2 (+60k)
• Pushing migration of voice only customers to broadband

AGCOM access market analysis envisages:

• Withdrawal of the ban for network technicians to sell to TIM retail customers, leading to additional staff for upselling services and products to the current TIM customer base
• Withdrawal of ex ante test on NGA flagship products
• Reduction of the notice period from 30 to 20 days on offers that remain subject to replicability test ex ante

Geo-marketing approach

FWA launch

Distribution processes tightened

Strong push on premium content

• TIM Flexy: value for money offer targeting 2 nd homes
• Local promos in selected cities
• New FWA offer in Q3-Q4 in municipalities with high market potential and no fiber coverage
• Improving key technical and commercial processes with the aim of enhancing customer satisfaction and reducing churn

Q2 '19 Domestic Wireline TIMVISION content strategy: a new football/sports proposition

Content strategy to increase fixed arpu and decrease churn rate

Q2 '19 Domestic OPEX Cost reduction moving forward, focus remains on cash impact

OPEX on a reduction path at €2,023m, down €129m YoY (-6%)

Net of deferred costs, on a cash view, the reduction reaches €204m (-9% YoY)

• Interconnection & equipment: benefiting from new strategy for Sparkle and for lower mobile subsidies
• Commercial: commissioning costs rationalized (-31% fall YoY), caring optimization through digital channels
• Industrial: increased productivity in assurance and lower energy consumption. However higher YoY energy cost negotiated in 2018 weigh €15m in Q2
• G&A: lower cost of utilities and consulting
• Labour: limited reduction due to one off release of provisions for unused holidays (€23m) adding to lower capitalization
• Other: Q2 2018 benefited from liability reversal and rebates (~€35m)

Q2 '19 TIM Brasil TIM Brasil improves performance amid external challenges

Organic data, R\$m, Rounded numbers

In 2017 Brazilian Supreme Court stated that ICMS (State Tax) cannot be included in the calculation basis of PIS and COFINS (Federal Tax).

PIS/COFINS are levied on revenues and the Supreme Court stated that ICMS cannot be considered a revenue.

R\$ 3,418m (1) Gross tax credits

To be used in ~3/4 years (2) Now booked in NWC it will gradually improve net debt when used

H1 '19 TIM Group Net Debt reduction accelerating: -€539m in H1, o/w -€349m in Q2

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

H1 '19 TIM Group CAPEX and Net Operating Working Capital under control

Q2 '19 TIM Group Liquidity margin – After Lease view – Cost of debt ~3.7%, -0.1pp QoQ, -0.3pp YTD €m

(1) Includes € 490 mln repurchase agreements that will expire within August 2019

(2) €25,139m is the nominal amount of outstanding medium-long term debt. By adding the balance of IAS adjustments and fair value valuations (€514m) and current financial liabilities (€831m), the gross debt figure of €26,484m is reached

Q2 '19 Results

Q2 '19 TIM Group Net Income +19.8% yoy

Reported data, €m, Rounded numbers

Q2 '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 –1.4% YoY
• Domestic EBITDA-AL –3.3% YoY
• Group Net Debt AL at €22,818m with a reduction of €504m from previous quarter

Q2 '19 Results

Highlights

3

1

Main Trends and Financial Update

Closing Remarks

Q&A

Q2 '19 TIM Group Key Take-aways

• We are delivering on time and de-levering fast
• Return on invested capital remains our key priority
• Organic action remains focused on:
• Revenues stabilization
• Cost cutting, including risk
• Stopping NWC outflows
• Invested capital optimisation
• We are committed to provide additional upside through more inorganic action
• Guidance unchanged

Outlook Guidance IFRS 9/15 and After Lease unchanged

	Group		Domestic		Brasil
YoY growth rates	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)	--			--

(1) Domestic revenue growth excluding Sparkle's zero-low margin voice traffic business stopped (no impact on EBITDA; Sparkle EBITDA actually grew 18% YoY in H1) (2) Guidance provided last February under old principles includes debt reduction from finance leases reimbursement, which remains but is not visible in an After Lease view - Figures @ avg. Exchange Rate of 4.31 Reais/Euro

Q2 '19 Results

Q2 '19 Results

Highlights

1

Main Trends and Financial Update

Closing Remarks

Annex Liquidity margin – IFSR 9/15 view – Cost of debt -0.1pp QoQ, -0.4pp YTD €m

(€ 531m) and current financial liabilities (€ 831m), the gross debt figure of € 28,397m is reached

Annex Well diversified and hedged debt

€m

Maturities and Risk Management

Average m/l term maturity: 7.7 years (bond 7.8 years only)*

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

Around 25% of outstanding bonds (nominal amount) denominated in USD and GBP and is 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 € 1,975m (of which € 327 m on bonds);

• the impact on Financial Assets is equal to € 1,279m.

Therefore, the Net Financial Indebtedness is adjusted by € 696m

N.B. The difference between total financial assets (€ 3,675m) and C&CE and marketable securities (€ 2,704m) is equal to € 971m and refers to positive MTM derivatives (accrued interests and exchange rate) for € 798m, financial receivables for lease for € 113m and other credits for € 59m

Annex Change in financial reporting: a reminder of key impacts

New revenues 1 DNewRevs "After reporting Pre Post D DNewRep 2018FY € Bn IFRS 16 D IFRS16 D IAS17 Reporting DIFRS16 IFRS 9/15 IFRS 9/15 IFRS 9/15 lease" no impact on total D IFRS 16 revenues 1 Domestic 15.2 15.0 15.0 15.0 -0.2 o/w Services 13.8 -0.2 13.7 -0.3 13.4 13.4 REVENUES 2 o IFRS16 impacts OPEX Brasil 4.0 3.9 3.9 3.9 -0.0
	1000
(operating leases Group 19.1 18.9 18.9 18.9 -0.2 2 3
removed) and Net Domestic 6.6 6.4 6.7 6.0 -0.3 +0.4 -0.4 -0.3
EBITDA Debt (operating leases Brasil 1.5 1.5 1.8 1.4 -0.0 +0.3 -0.3 -0.1
liabilities added) organic Group 8.1 7.8 8.5 7.4 -0.3 +0.7 -0.7 -0.4
3 o For "After Lease" Domestic 6.2 6.0 6.4 5.6 -0.3 +0.4 -0.4 -0.3
EBITDA view, both IAS17 and Brasil 1.5 1.5 1.8 1.4 -0.0 +0.3 -0.3 -0.1
reported IFRS16 effects are Group 7.7 7.4 8.1 7.0 -0.3 +0.7 -0.7 -0.4
removed and all
Domestic 3.2 3.1 3.1 3.1 -0.1 leases reclassified as CAPEX
Brasil 0.9 -0.0 0.9 0.9 0.9 OPEX. ex spectrum
Group 4.2 4.0 4.0 4.0 -0.1 Net Debt is net of all
lease liabilities Net Debt Net Debt 25.3 25.3 28.9 23.3 +3.6 -3.6 -1.9
Debt / EBITDA (Group) 3.1x 3.2x 3.4x 3.1x

Annex TIM Group - Main Results (IFRS 16)

Reported, €m

		Revenues			Service Revenues		EBITDA
	H1' 19 IFRS 9-15	Δ IFRS 16	H1' 19 IFRS 9-15-16	H1' 19 IFRS 9-15	Δ IFRS 16	H1' 19 IFRS 9-15-16	H1' 19 IFRS 9-15	Δ IFRS 16	H1' 19 IFRS 9-15-16
TIM Group	8,994	-	8,994	8,227	-	8,227	4,065	326	4,391
Domestic	7,069	-	7,069	6,386	-	6,386	2,749	180	2,929
Brazil	1,946	-	1,946	1,862	-	1,862	1,321	146	1,467
	Q2 '19 IFRS 9-15	Δ IFRS 16	Q2 '19 IFRS 9-15-16	Q2 '19 IFRS 9-15	Δ IFRS 16	Q2 '19 IFRS 9-15-16	Q2 '19 IFRS 9-15	Δ IFRS 16	Q2 '19 IFRS 9-15-16
TIM Group	4,523	-	4,523	4,142	-	4,142	2,273	172	2,445
Domestic	3,567	-	3,567	3,231	-	3,231	1,302	93	1,395
Brazil	967	-	967	922	-	922	974	80	1,054

Annex After Lease view shows slightly better trends – H1 view

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

• Group EBITDA-AL -1.6% YoY
• Domestic EBITDA-AL -3.4% YoY
• Group Net Debt AL at €22,818m with a reduction of €504m from previous quarter

Annex TIM Group – P&L (IFRS 16)

Reported, €m

	1 Half
	H1'19 IFRS 9-15	$\triangle$ IFRS 16	H1'19 IFRS 9-15-16
REVENUES	8,994		8,994
Opex	(3,427)	326	(3, 101)
Personnel	(1,502)		(1,502)
EBITDA	4,065	326	4,391
Depreciation and amortization Gains (losses) & writedown	(2, 186) (8)	(310)	(2,496) (8)
EBIT	1,871	16	1,887
Net Financial Income/Expenses	(650)	(104)	(754)
Income/Loss from Equity Invest.	(1)		(1)
Profit/Loss before Tax	1,220	(88)	1,132
Taxes	(422)	30	(392)
Net Income Ante Minorities	798	(58)	740
Minorities	(206)	17	(189)
Net Income Post Minorities	592	(41)	551

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

(€ 547m) and current financial liabilities (€ 831m), the gross debt figure of € 32,003m is reached

For further questions please contact the IR Team