Telecom Italia Rsp

Investor Presentation • Jul 24, 2018

TIM Group

2Q'18 Results

July 25th, 2018

Amos Genish 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 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 at 30 June 2018 which have been prepared in accordance with the International Financial Reporting Standards issued by IASB and endorsed by the EU (IFRS). The limited review on such interim consolidated financial statements by the external auditors (PwC) has not been completed.

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 first half results include the effects arising from the adoption, starting from 1 January 2018, of the new standards IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers. To enable the yearon-year comparison of the economic and financial performance for the 2Q2018 and first half of 2018, this presentation shows "comparable" statement of financial position figures and "comparable" income statement figures, prepared in accordance with the previous accounting standards applied (IAS 39, IAS 18, IAS 11, and relative Interpretation).

2Q'18 Results

12 Highlights and Main Trends

Financial Update

3 DigiTIM Progression

4 Closing Remarks

2Q'18 Main Results: Positive Group Revenues Performance, Solid CF Generation

Organic data(1) , €mln

million of liability reversals. Before this change, Group Organic Ebitda stands at 2,124 mln €, and its YoY performance at -3.4%; Domestic Organic Ebitda stands

(3) Ebitda-Capex including one-offs would have been: € 940 mln in 2Q'17 (+13.8%

at 1,809 mln €, and its YoY performance at -6.4%

(4) Mainly churn due to 30-day free opt-out window after re-pricing

YoY

Ebitda

(5) Organic Domestic Ebitda YoY normalized comparison: -80 mln € abs.delta YoY, o/w -19 mln € Solidarity, -12 mln € 2017 Bitstream prices , -13 mln € Roam like at home, -8 mln € 28-day billing roll-back direct effect, -28 mln € Vendor Rebates

2Q'18 Results

Positive Group Service revenues and double digit EBITDA-CAPEX growth.

Resilient Domestic Service

▪ end of 28-day repricing cycle on fixed (started in April 2017)

▪ direct and indirect (4) effect from 28-day billing roll-back both on fixed and mobile

Net of Operational delays, Regulatory impacts and nonlinear items comparison (5)

Stable Organic Domestic Ebitda

Continued strong performance

growth in Service Revenues and

in Brazil, with impressive

Revenues despite:

Highlights

,

3

2Q'18 TIM Group Service Revenues Breakdown

Organic data(1) , €mln, % YoY

Domestic Mobile: Growth in Lines and Value

(1) Retail excludes WHS, Inwit third-party contribution and Other

(2) ARPU Human: service revenues net of visitors (2Q'17 € mln 1,110, 2Q'18 € mln 1,109) on human lines (2Q'17 23,479k, 2Q'18 23,132k)

(3) Includes M2M and Business–Segment Large Screens (for Inventory & Fleet Management etc.)

Domestic Fixed: Premium Positioning, Resilient Performance, UBB Growth

(1) TIM Vision fixed customers were 1.6 mln in 2Q'18 vs. 1.4 mln in 1Q'18

(3) Active, VoIP included

(2) Internal estimate of total BB accesses enabled by TIM, excluding Full Infrastructured, Wi Max & Other non-TIM, net of market reconciliation.

2Q'18 Results

TIM Brasil: Continued Solid Performance

Organic Performance, R\$mln, Rounded numbers

Net Service Revenues					Total Net Revs.
3.6 +5.0%		4.0 3.8 +5.7%				R\$ 4.2 Bln				+5.8% YoY
							MSR			TIM Live Revs.
							R\$ 3.8 Bln +5.7 %			R\$ 0.09 Bln +41.0 %
2Q'16		2Q'17 2Q'18					YoY			YoY
EBITDA R\$ 1.6 Bln +12.7% YoY	EBITDA Margin 37.2 % (+2.3 p.p YoY)			Capex 1.02 Bln +25.8% YoY				EBITDA – Capex R\$ 0.5 Bln -6.0% YoY (1H18 +17.3 YoY)
Mobile ARPU R\$ 21.9 +13.0% YoY		12M Postpaid Net Adds +3.2 Mln (CB: 19.1 Mln)	TIM Live Arpu R\$ 72.1 +12.7% YoY		12M Fixed UBB Net Adds +75k (CB: 423k)	700 Mhz cities 1,131 +215 vs 4Q'17		FTTH1 HH +519 (000) vs 4Q'17

Highlights

• Strong growth in a weaker macro
• Double digit mobile and fixed UBB ARPU growth
• CAPEX phasing leaves FY outlook unchanged
• 2018 efficiency target achieved, supporting EBITDA margin expansion
• Strong operational and network metrics confirmed

2Q'18 Results

12 Highlights and Main Trends

Financial Update

3 DigiTIM Progression

4 Closing Remarks

Domestic Ebitda Affected by Operational Delays, Regulatory Impacts, Non-linear items and One-offs 2Q'18

Operational Delays

▪ Solidarity labour agreement delay -19.5 mln €

Regulatory Impacts

• WHL Bitstream '17 Retroactive Prices -12.3 mln €
• Roam-like-at-home -12.7 mln €
• 28-day billing roll-back direct effect (1) -7.6 mln €

Non-linear items

▪ Vendor Rebates -27.7 mln €

One-Offs

▪ Liability Reversals (2) -38.6 mln €

Δ EBITDA YOY = -118.4 mln €

Normalized Domestic Ebitda YoY

2H'18

New Solidarity Agreement was implemented from June '18, 19th

Specific on 2Q'18 only

Comparison cycle ended in June '18

Ongoing effect

YoY delta normalizing after peak

In 3Q'18 and 4Q'18 there will be similar impacts to 2Q'18. Effects will terminate YE'18

• (1) € 8 mln Direct Impact of 28 Days billing roll-back (+8.2% on Fixed and +7.8% on Mobile vs +8.6% 2017 Price Effect)
• (2) Now excluded from 2Q'17 Organic Domestic Ebitda
• (3) Adjusted for WHL Bitstream '17 Retroactive Prices, Vendor Rebates and Liability Reversals. The latter relate to the rebasing of past liabilities performed in 2017
• (4) Adjusted for Solidarity, Roam-like-at-home, 28-day billing roll-back direct effect

Domestic OPEX: Positive Addressable Base Performance affected negatively by Other elements

Organic data, €mln

	2Q17		2Q18
Addressable Cost Base	1,816	-1.5%	1,790
Commercial	769	1.4%	780
Industrial	243	-4.5%	232
G&A, IT	131	-5.3%	124
Labour	673	-2.9%	654
Other	254	72	326
Interconnection Credit Cost (1) Bad Debt & Other Capitalized Cost & Other (2)	362 24 24 -156	12 26 22 11	374 50 46 -145
Total Opex	(3) 2,070	2.2%	2,116

• Rigorous Cost discipline driving positive performance on addressable baseline
• Sales-related Costs increased YoY supporting Commercial performance
• Industrial: efficiencies achieved in Real Estate (office space reduction) triggered also Energy savings. Wholesale delivery standards improved, offering better assurance
• Zero-base budget on G&A and IT
• Labour cost savings more than compensated delay in Solidarity Agreement
• Increase in Other due to Credit Costs, Bad Debt, Vendor Rebate Contributions (4) and Interconnection

(1) Associated to sales of receivables

(2) Capitalized costs are essentially those associated with delivery and activation of fixed lines, with directly related IT and Network costs, which are smoothed on an average 5-yr basis

(3) 2Q'17 Organic Domestic Opex is changed to €2,070 mln (€2,031 mln plus €38.6 mln of liability reversals)

(4) Accounted under «Capitalized cost & other»

2Q'18 Results

Domestic CAPEX: Optimization and Smart Allocation support EFCF

Organic data, €mln, Δ YoY

• Coverage improved in line w/ plan
• Fixed Access YoY reduction derives from having reached ~80% FTTC coverage. Fixed Access Expansion now mainly FTTH
• 4G access temporary reduction due to phasing towards up-and-coming VRAN technology
• Heavy traffic growth fully sustained
• Optimization in Procurement

Relevant Debt Reduction YTD

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

2Q'18 Results

12 Highlights and Main Trends

Financial Update

3 DigiTIM Progression

4 Closing Remarks

Key Domestic Commercial Actions

Convergence Step-Up on Consumer

• More than 40% of Fixed BB Consumer customer base are both fixed and mobile TIM customers
• Strong push on new convergent loyalty program (TIM Party) with strong communication plan (TV, digital…): ~ 500k customers joining since launch (May)
• Fixed-to-Mobile convergence reinforced with TIM Connect offer
• Mobile-to-Fixed convergence reinforced with 5GB offer (TIM 100%)
• Additional digital services on wireline: Smart Home and TIM Games

More IT Services for Business

• Evolution towards "ICT company"
• Public cloud and managed services expansion to further grow Large clients base
• Tapping of basic IT opportunity to improve SME's revenues mix
• Fiber and VOIP migration to protect SME's ARPU level

Transformation Drives Productivity

Caring	Automated first set of back office processes	▪ Introduced new lean way of working to improve agents productivity
WHS Infrastructures, Network & Systems	On field technicians productivity	▪ +9% of daily equivalent activities per technician
Opex / Capex efficiencies	Contract renegotiation	▪ ~50% of planned professional services renegotiation completed
Integrated decommissioning	Become lean, fast and agile, embracing Distributed Edge Cloud paradigm and reinforce TIM Technologic leadership	▪ Acceleration of central offices decommissioning; moving toward a full-IP network platform to significantly reduce running costs
Digital & Advanced Analytics (AA)	Advanced Analytics enabled campaign	▪ New wave of loyalty campaigns on Fixed and Mobile launched
Insourcing	Further reduce third party professional services costs, and leverage TIM workforce through re-skilling programs	▪ Systematic cross-BU review effort, training and re-deployment and launch of multiple waves of insourcing

TIM Multi-technology UBB approach

TIM UBB plan is composed of a mix of technologies, fulfilling 2020 Digital Agenda and market requirements, addressing all customers needs everywhere, with a smart-capex approach: @ home, on the move, in the office.

2Q'18 Results

12 Highlights and Main Trends

Financial Update

3 DigiTIM Progression

4 Closing Remarks

Closing Remarks

2Q'18 Operational Achievements:

• Domestic: Premium positioning maintained, Strong KPIs Performance
• Effective cost management and strong increase in Group cash generation

Moving on with extraordinary Projects:

• NetCo
• 5G
• Disposal of non-core assets

Company fully committed to DigiTIM Plan

Thank You

For further questions please contact the IR Team

Annex

1H'18 TIM Group Service Revenues Breakdown

Organic data(1) , €mln, % YoY

Domestic UBB Networks

2Q'18 Update

• ~113 k cabinets passed
• ~325 k FTTH OTB installed
• ~19.4 mln HH passed FTTC in > 3,600 cities, speed up to 200 Mbit/s

• ~2.7 mln HH connected FTTH in 30 main cities, speed up to 1Gbit/s

• >19.7k LTE nodes

• 7,336 cities covered in 4G
• 1,474 cities 4Gplus, speed up to 300 Mbit/s
• 12 cities 4.5G, speed up to 700 Mbit/s

DigiTIM 2018-'20 Strategic Plan

	Domestic
eadership psitioning	$\mathbf{1}$ Consumer Sustain premium base through convergence (data and exclusive content) Extract more value from CB accelerating fiber migration and new avenues of growth Transform customer engagement through Digital journeys and new simplified portfolios	$\overline{2}$ Business Sustain traditional revenue base through convergence, fiber and VOIP migration Accelerate evolution towards an "ICT Company" to capture new growth opportunities (e.g., cloud, ICT on SMEs)		3 Wholesale Sustain traditional revenues through fiber migration (e.g., NetCo) Step-change growth of non-regulated sales by radically improving customer engagement Optimize coverage to improve competitive positioning
	TIM Brasil $\overline{4}$ Win share on affluent segments (e.g., post-paid SMB) leveraging premium infrastructure and improving customer digital engagement Further deliver on fixed and mobile UBB by expanding coverage Accelerate cash generation through smart CAPEX and efficiency program		$\overline{\mathbf{5}}$ Inwit Strengthen leadership on Italian tower market leveraging on new mobile opportunities and leading network densification phase		6 Sparkle Sustain traditional business, expand commercial footprint on new geographies and accelerate data/VAS services
ash-flow: eneration	OPEX efficiency $\boldsymbol{\Omega}$ Create a lean efficient and zero-based cost structure leveraging the digital transformation and data analytics		CAPEX effectiveness 8 Maximize value driven CAPEX deployment leveraging current UBB infrastructure
Agile ganization	9 Digital Enable superior customer engagement and omnichannel experience while unlocking efficiency	10 Advanced Analytics and AI Implement leading capabilities to capture predictive CLM) and cash flow generation (e.g., predictive maintenance)	value both on customer engagement (e.g.,	1 People, culture & organization Drive accountability, transparency and performance based culture via agile organization and high employee engagement
	CD Evenition

TIM 2018-'20 Targets

GOALS	DRIVERS	TARGETS / KPIs
Sustain Top Line & Profitability	• Focus on value maximization via accelerated convergence and new services • Drive digital and analytics as core differentiators (both cost and revenues) • Look for growth in and outside the core (eg. Cloud, IoT, Mobile Advertising, Data Monetization) • In Italy, TIM Fixed UBB lines (Retail + WHS) to grow to ~9 million by 2020 (3x 2017 figure)	• Domestic Service Revenues : Broadly Stable • Domestic EBITDA: Low single digit 2017-'20 CAGR (1) • Brazil & Inwit: Continued Growth in (2) Revenues and Ebitda	O v P e la r 2 n 0 P 1 e 8 ri - 2 o 0 d 2 0
Strong Deleverage and drop in Capex Intensity	• Enhanced cash generation, supported by operational and financial discipline, will lower our Group Net Debt/Ebitda ratio by end 2018 • Domestic Capex / Sales moving back to normal intensity, having now completed catch-up phase	• Group Adj. NFP/EBITDA ~2.7x in 2018, further reducing both in 2019 and 2020 (3) • Domestic Capex/Sales <20% by YE2019	2 0 1 8 a n d 2 0 1 9
Relevant Step-up in 3-Years Cumulated FCF	• Selective growth investments to maximize ROI • Lower capital intensity following network rollout • Reduce costs while improving customer satisfaction through agile customer journey redesign	• 2018-'20 Group Cumulated Equity Free Cash Flow (4) of ~ €4.5bn excluding spectrum and pre-dividend	2 0 2 0

Maturities and Liquidity Margin €mln

2Q'18 Results

Well Diversified and Hedged Debt €mln

Net financial position € 25,141

Banks & EIB Maturities and Risk Management

Average m/l term maturity: 7.87 years (bond only 8.02 years)

Fixed rate portion on gross debt approximately 71.1%

Around 31% of outstanding bonds (nominal amount) denominated in USD and GBP and is fully hedged

Cost of debt: ~4.5 %

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 1,578 €/mln (of which 204 €/mln on bonds)

• the impact on Financial Assets is equal to 678 €/mln

Therefore, the Net Financial Indebtedness is adjusted by 900 €/mln.

N.B. The difference between total financial assets (€ 4,254 mln) and C&CE and marketable securities (€ 3,137 mln) is equal to € 1,117 mln and refers to positive MTM derivatives (accrued interests and exchange rate) for € 808 mln, financial receivables for lease for € 95 mln, deposits beyond 3 months for € 1 mln and other credits for € 213 mln.

2Q'18 Results

TIM Group 2Q'18 – IFRS 9-15 impacts

As from January 1, 2018, IFRS 9 (Financial Instruments) and IFRS 15 (Revenues from Contracts with Customers) have to be applied. In order to allow comparison of the results for 2Q'18 with those for the same period of the previous year, financial statements data are also prepared under previous accounting principles.

IFRS 9

Impacts the determination of expected losses on trade receivables and other financial assets (change from the incurred loss model provided by IAS 39 to the expected credit loss model).

IFRS 15

Impacts the revenue recognition of fixed and mobile offerings as well as the recognition of relevant contractual costs, without any impacts on cash flows.

	Revenues			Service Revenues			EBITDA
Reported data, € mln, Rounded numbers	2Q'18 old IFRS	ΔIFRS 15	2Q'18 new IFRS	2Q'18 old IFRS	ΔIFRS 15	2Q'18 new IFRS	2Q'18 old IFRS	ΔIFRS 9 - 15	2Q'18 new IFRS
TIM Group	4,770	-38	4,732	4,392	-39	4,353	2,025	-79	1,946
Domestic	3,809	-36	3,773	3,480	-39	3,440	1,667	-69	1,598
Brazil	970	-2	968	921	0	922	362	-11	351