Telecom Italia Rsp

Investor Presentation • May 20, 2019

Q1 '19 Results Executing Deleverage

May 21st, 2019

Luigi Gubitosi Piergiorgio Peluso

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 Q1 '19 financial and operating data have been extracted or derived, with the exception of some data, from the press release relating to Q1 '19 Financial Results 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 EU (designated as "IFRS"). Such information is unaudited.

The accounting policies and consolidation principles adopted in the preparation of the Q1 '19 Financial Results 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 quarter of 2019, "comparable" financial position figures and "comparable" 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.

Q1 '19 Results

Highlights

1

Main Trends and Financial Update

Closing Remarks

Q&A

Highlights Plan execution is taking-off

Highlights Strategic initiatives update

Q1 '19 Results

Highlights

1

Main Trends and Financial Update

Closing Remarks

Q1 '19 Main Results Deleveraging started in Q1 '19

Organic data (1), €m

• Service revenues -3.0% YoY, with Brazil growing low single digit and domestic down -3.9%, -2.7% excluding Sparkle's International Wholesale business (see slide #9)
• EBITDA down 2.1%, on an improving path vs Q4 '18 (-5.3% adj YoY growth), with Domestic at -4.0% (vs. -7.6% adj YoY growth in Q4). EBITDA margin grew 0.3 p.p. to 40.7% in Q1

First quarter showing material improvements in cashgeneration:

• Net Debt at €25,080m, with a reduction of €190m from previous quarter (+€229m in 2018, +€116m in 2017)
• Equity FCF €216m, +550m vs. Q1 2018, with NWC outflow halving YoY

Q1 '19 Results (1) Excluding exchange rate fluctuations & non recurring items. CAPEX excluding license

(2) Domestic Service Revenue: MSR net of "Prova TIM" (now included in "Handsets and handsets bundle")

(3) Total service revenues growth excluding Sparkle's International Wholesale revenues, net of elimination, with no impact on EBITDA (4) Adjusted Net Debt

Q1 '19 Domestic Mobile Competitive intensity easing in the mobile arena

Q1 '19 Results

Q1 '19 Domestic Mobile

Line losses trend improving; consumer ARPU expected to stabilize from Q2

• Line losses trend now on an improving path with better mix of net adds (Kena net adds halved in Q1 versus Q4)
• Consumer ARPU stabilization QoQ expected from Q2 thanks to new, higher price points
• Lower sales of handsets to improve margins

Q1 '19 Domestic Wireline Fixed service revenues +1.8% YoY excluding Sparkle

• Retail growing +1.5% thanks to
• Consumer service revenues +0.7% YoY with ARPU growth more than offsetting lower lines
• Business service revenues +2.3% YoY benefit from premium pricing offer and unique distribution
• ICT services continuing their strong growth (+16% YoY)
• Domestic Wholesale flat YoY net of one-off repricing(2) : €11m drag YoY, of which ca. -€8m related to 2018
• Sparkle's International Wholesale revenues down 18.2% (€53m) following strategy revision: zero/low-margin voice traffic business stopped (volumes -16%). Impact on EBITDA expected to be positive due to de-risking of Sparkle's activity

Q1 '19 Domestic Wireline Strong ARPU growth from FTTx conversion and higher prices

Strong migration to fiber continues: 6m lines reached, +10% QoQ Lines x 1,000 and +58% YoY

• -243 Retail line losses were 273k in Q1 '19 down from -301k in Q4 '18. Underlying trend improving but Q1/Q2 numbers impacted by clean-up (stricter disconnection policy discipline to optimize credit management)
• Wholesale lines growing yoy (+30k), higher ARPU fiber net adds (+354k VULA) more than offsetting disconnections on lower ARPU copper lines (-294k ULL, down QoQ). Wholesale efficiency and KPIs improving in 2019, impacting positively productivity and customer satisfaction

ARPU consumer at 35.6 €/month, accelerating growth in Q1 (+9.4% YoY vs. +8.7% in Q4) following repricing in 2018 and activation fees introduced in Q2 2018. BB ARPU +16.2% (vs. +15.4%)

Market discipline 2019: competitors' increases in fixed pricing reducing gap vs. TIM's premium positioning. Competitors' repricing of existing client base will occur in July and August

Q1 '19 Domestic OPEX Cost reduction underway, all eyes on cash impact

OPEX on a reduction path at €2,034m, -€86m YoY (-4%). Net of deferred costs, on a cash view, the reduction is higher

• Labour: lower costs driven by solidarity and art. 4 exit
• Commercial: commissioning costs reduced, increased penetration of digital caring
• Industrial: increased productivity in delivery, offset by increase in energy costs due to last year's contracts at unfavorable terms (€12m price headwinds partly offset by lower energy consumption). Lower energy costs, expected from 2020
• G&A: rationalized office space and utilities releasing nonstrategic assets/rents and reducing total square meters (- 5.6% YoY) through promotion of smart working, creation of open spaces and introduction of desk sharing policies. Cost reduction also through contracts renewal
• Other: main impact of worsening from reversal of provisions in Q1 2018 and lower other income in Q1 2019

Q1 '19 Domestic CAPEX CAPEX: doing more spending less, in line with budget

• FTTH take up still slow: customers still have a limited perception of the difference between FTTC and FTTH thanks to exceptionally short loop length average distance between cabinet and homes in Italy (250mt vs France 1km, UK 500mt, Germany 300mt)
• TIM FTTx (thanks to FTTC) is fast and wide: ~45% potential customers can have an average speed in the range 100 – 1000 Mbps, ~ 64% potential customers can experience an average speed over 50 Mbps

CAPEX TIM's key asset is the unbeatable combination of networks

• Fiber coverage ~80% (FTTH+FTTC)
• Mobile coverage 4G ~99%
• ~19.4 mln HH passed FTTC
• ~113,6 k cabinets passed

• ~3.5 mln HH connected FTTH on over 4m HH passed

• ~440 k FTTH OTB installed

• 2,716 cities with commercial active service, o/w: 2,597 cities FTTC, 119 municipalities FTTH and FTTC

Q1 '19 TIM Brasil TIM Brasil posted solid results, guidance confirmed by new management

Organic Performance, R\$m, Rounded numbers

Q1 '19 TIM Group Operating Free-Cash Flow growing €558m yoy and Net Debt falling €190m QoQ

Q1 '19 TIM Group Liquidity margin – After Lease view – Cost of debt ~3.8%, -0.3pp QoQ like for like(1) €m

(2) €26.306m is the nominal amount of outstanding medium-long term debt. By adding the balance of IAS adjustments and fair value valuations (€734m) and current financial liabilities (€694m), the gross debt figure of €27.734m is reached

€m Q1 '19 TIM Group Net operating working capital

Group net working capital +€506m

• Domestic +€660m driven by lower inventories (+€100m), VAT impact from split payment in Q1 '18 (+€378m), change from billing in advance to billing in arrears in Q1 '18 (+€173m)
• TIM Brasil -€154m mainly driven by lower trade payables

Q1 '19 TIM Group New After Lease metric shows slightly better EBITDA trends

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

• Group EBITDA-AL -1.9% YoY
• Domestic EBITDA-AL -3.5% YoY
• Group Net Debt AL at €23,143m with a reduction of €179m from previous quarter

Q1 '19 TIM Group Net Income substantially flat YoY

Reported data, €m, Rounded numbers

(1) Excluding exchange rate fluctuations

Outlook Outlook – Updated guidance post IFRS 9/15 and After Lease

Guidance unchanged, updated to reflect the IFRS 9/15 and the IFRS 16 "After Lease" view adoption

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 (3)	--		--

1) Domestic revenue growth excluding Sparkle's zero-low margin voice traffic business stopped (no impact on EBITDA)

2) Figures @ avg. Exchange Rate actual 4.31 Reais/Euro

3) 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

Q1 '19 Results

Q1 '19 Results

Highlights

3

1

Main Trends and Financial Update

Closing Remarks

Q&A

Q1 '19 TIM Group Key Take-aways: we are on track with our 2019-'21 Strategic Plan

• Deliver and delever remains our motto
• Boost return on invested capital remains our main goal
• Organic action remains paramount:
• stabilize revenues
• cut costs
• stop NWC absorption
• optimize invested capital
• Working hard on inorganic action as well

Q1 '19 Results

Highlights

1

Main Trends and Financial Update

Closing Remarks

Q&A Session

Annex TIM's financial reporting for 2019

New Revenues Segments Reporting Structure (no impact on total revenues)

WIRELINE

• Adapting to organizational and business evolution, with a "Retail" and "Wholesale" view
• Overcoming anachronistic Traditional / Innovative view, with bundled services now being the norm
• Within Retail services, focus on Broadband and content and ICT services remains

MOBILE

• Adapting to organizational and business evolution, with a "Retail" and "Wholesale" view
• Overcoming anachronistic Traditional / Innovative view
• Revenues related to mobile handsets with bundled service promo ("Prova TIM") are now booked in the "Handsets / Handsets bundle" revenue line
• Mobile ARPU calculation has been aligned accordingly

Annex Change in financial reporting: key impacts

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

Annex Well diversified and hedged debt

€m

Maturities and Risk Management

Average m/l term maturity: 7.4 years (bond 7.6 years only)*

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

Around 33% of outstanding bonds (nominal amount) denominated in USD and GBP and is fully hedged

Cost of debt: ~4.1% 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 €1,740m (of which €270m on bonds);

• the impact on Financial Assets is equal to €1,030m.

Therefore, the Net Financial Indebtedness is adjusted by €710m

N.B. The difference between total financial assets (€4,601m) and C&CE and marketable securities (€3,251m) is equal to €1,350m and refers to positive MTM derivatives (accrued interests and exchange rate) for €1,088m, financial receivables for lease for €123m and other credits for €139m

Annex Liquidity margin – IFSR 9/15 view – Cost of debt -0.3pp QoQ €m, IAS 17 included

(1) €28,226m is the nominal amount of outstanding medium-long term debt. By adding the balance of IAS adjustments and fair value valuations (€752m) and current financial liabilities (€694m), the gross debt figure of €29,672m is reached

Q1 '19 Results

(1) €31,723m is the nominal amount of outstanding medium-long term debt. By adding the balance of IAS adjustments and fair value valuations (€767m) and current financial liabilities (€694m), the gross debt figure of €33,184m is reached

Q1 '19 Results

Annex TIM – Vodafone partnership: illustration of expected synergies

Annex Q1 '19 Service Revenues by business segment and technology

• Mobile: service revenues down 11.4% affected by lower ARPU and CB. Competitive pressure cooling down .
• Fixed: service revenues down 1% due to a drag from International Wholesale. Net of this impact, FSR are growing +1.8%.
• Business: positive contribution from ICT (+16% YoY), premium pricing and unique distribution channel
• Consumer: service revenues down until the benefit of the improved competitive scenario will feed through revenues
• National WHS: lower revenues from one-off repricing mostly related to 2018

• Sparkle: service revenues impacted by elimination of activities with zero/low-margin

• Mobile: MSR resilient growth amid tough macro and competition dynamics in prepaid

• Fixed: revenue growth supported by TIM Live Revenues up +34.9% in Q1

For further questions please contact the IR Team