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Flavio Cattaneo - Piergiorgio Peluso
TELECOM ITALIA GROUP
2Q’16 Results
Milan - July 27, 2016
2Q’16 Update
2
Safe Harbour
Flavio Cattaneo – Piergiorgio Peluso
Telecom Italia Group Results - 2Q’16
This presentation contains statements that constitute forward looking statements within the meaning of the Private Securities Litigation Reform Act of
1995. These statements appear in a number of places in this presentation and include statements regarding the intent, belief or current expectations,
estimates regarding future growth in the different business lines and the global business, financial results and other aspects of the activities and
situation relating to the Telecom Italia 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.
Consequently, Telecom Italia makes no representation, whether expressed or implied, as to the conformity of the actual results with those projected in
the forward looking statements.
Forward-looking information is based on certain key assumptions which we believe to be reasonable as of the date hereof, but forward looking
information by its nature involves risks and uncertainties, which are outside our control, and could significantly affect expected results. Analysts and
investors are cautioned not to place undue reliance on those forward looking statements, which speak only as of the date of this presentation. Telecom
Italia undertakes no obligation to publicly release the results of any revisions to these forward looking statements which may be made to reflect events
and circumstances after the date of this presentation, including, without limitation, changes in Telecom Italia business or acquisition strategy or
planned capital expenditures or to reflect the occurrence of unanticipated events. Analysts and investors should consult the Company's Annual Report
on Form 20-F as well as filings made from time to time on Form 6-K, which are on file with the United States Securities and Exchange Commission
which may identify factors that affect the forward looking statements included herein.
The financial and operating data, with the exception of some data, have been extracted or derived from the Condensed Consolidated Financial
Statements as of and for the six months ended 30 June 2016 which have 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
on the Telecom Italia Group Half-Year Condensed Consolidated Financial Statements at 30 June 2016 has not yet been completed.
The comparative financial information as of 31 December 2015 and for the six months period ended 30 June 2015 have been revised (segment
information included) as a result of the prior years’ incorrect accounting entries, already disclosed to the market, identified by the TIM Brasil's
Management in connection with the recognition of service revenue from the sale of prepaid traffic. Such revision did not have any material impact on
the consolidated income statement for the six month period ended 30 June 2015.
Persidera, as a result of the change in its operational mission, is included, starting from 1 January 2016, in the Domestic Business Unit.
Furthermore, the Sofora - Telecom Argentina group, which was disposed of on 8 March 2016, is classified as Discontinued operations.
3
Agenda
Action Plan Progress and Outlook - Flavio Cattaneo
2Q’16 Results - Piergiorgio Peluso
Flavio Cattaneo – Piergiorgio Peluso
Back-up
Take-Aways - Flavio Cattaneo
Telecom Italia Group Results - 2Q’16
4
+0,7%
<-- 1Q'13 2Q'13 3Q'13 4Q'13 1Q'14 2Q'14 3Q'14 4Q'14 1Q'15 2Q'15 3Q'15 4Q'15 1Q'16 2Q'16
+18,2%
<-- 1Q'13 2Q'13 3Q'13 4Q'13 1Q'14 2Q'14 3Q'14 4Q'14 1Q'15 2Q'15 3Q'15 4Q'15 1Q'16 2Q'16
-1,1%
<-- 1Q'13 2Q'13 3Q'13 4Q'13 1Q'14 2Q'14 3Q'14 4Q'14 1Q'15 2Q'15 3Q'15 4Q'15 1Q'16 2Q'16
-9.5%
-6.6%
-16%
-10%
-2.0%
+6,9%
<-- 1Q'13 2Q'13 3Q'13 4Q'13 1Q'14 2Q'14 3Q'14 4Q'14 1Q'15 2Q'15 3Q'15 4Q'15 1Q'16 2Q'16
-10%
-13%
-4.8%
-14%
-16%
-27%
FY
TIMPrime launched at the end of June
with limited impact on 2Q results
The Best Quarterly YoY Domestic Performance Since 2009
Organic* EBITDA
-2.0%
Mobile Service Revenues EBITDA-CAPEX**
Telecom Italia Group Results - 2Q’16
Organic*, % YoY
Total Revenues
* Organic: before non-recurring items and excluding exchange rate fluctuations
**Excl. license Flavio Cattaneo
5
• High-quality LTE services
support further revenue
growth
• TIM Prime, Summer and
Back-to-School Campaigns
Service revenue
growth confirmed
Domestic: Solid Performance in 2Q’16
2Q’16 FY’16 Outlook
Fixed
Mobile
Resilient Top Line
performance while
fiber is driving the
business
Autumn Campaign,
improved delivery across
the customer base to lift
Top Line trend
KPIs
• ARPU up to 12.1€
• Best-in-class Churn at 21.2%
• LTE penetration increased
to 49%*
• Lower line losses at 134k
(best performance since 2010)
• Fiber lines +118K
• BB ARPU up to € 21.9
• TI Fiber covers 51% of the
Country
• 1 million NGN customers
KPIs building up, Positive Outlook for 2H
Flavio Cattaneo* On Mobile BB Customer Base
Telecom Italia Group Results - 2Q’16
6
Domestic: Upgrading FY’16 EBITDA Target
Flavio Cattaneo
EBITDA
Upward Revision of FY’16
Guidance
Cost-cutting plan
launched in April
already gained strong
momentum, with no
adverse impact on
revenues
FY’16 Domestic EBITDA*
YoY guidance increased
to positive low-single
digit growth
Given results
already achieved
and improved
Top Line outlook:
* Organic: before non-recurring items and excluding exchange rate fluctuations
Record 2Q’16 EBITDA*
up +6.9% YoY
Telecom Italia Group Results - 2Q’16
2Q’16
Positive 1H’16 YoY
EBITDA* : +0.9%
First Quarter
negative performance
totally offset;
1H EBITDA margin*
at 45%
1H’16
7
Italy: Ultra BroadBand Roll-Out more than on-track
Flavio Cattaneo
Technology
During August / September, work extended
to all of the 30 1st- wave cities. At YE,
coverage increased to 900,000
households**
FttH/B
up to 1Gbps
LTE
up to 150 Mbps*
• 13,600,000 households passed
• Sellable in 1,600 cities
FttC
up to 200 Mbps
Current coverage
93.7% population coverage
in 6,285 cities
528,000 households, optical cable
being deployed to and beyond
the building in 14 cities
• 12,529,000 households passed
• Sellable in 1,250 cities
YE’16 Target
TI is moving on with its fiber plan, while broadening and improving its LTE footprint
Coverage increased to 94.5%, reaching
6,350 cities
4,000 Construction Sites in operation
Telecom Italia Group Results - 2Q’16* Shared
** Before Commercial Agreement with Fastweb
8
FTTH: a «Faster and Deeper» Combination
Flavio Cattaneo
Telecom Italia Group Results - 2Q’16
 No overbuild
 Significant Roll-out
Synergies
 Higher Return on Capital
 Quicker Time-to-Market
 Superior Fiber
Infrastructure
 €1.2bln FTTH Plan
 Double-digit IRR
TIM acquires FTTH connections to 650k
households in 6 cities at ~ €200 per unit
 No change in TIM
FTTH-related Capex
 FTTH targets reached
earlier
80% 20%
*Excluding Milan and areas already covered by TIM and FastWeb with FTTH
Co-Investment Agreement
Commercial Agreement
FTTH
Wholesale
Joint Venture
 A New Special Purpose entity acting as
exclusive vehicle to Develop Secondary
and Vertical segments in 29 cities*
 Related deployment will be outsourced
to TIM and to FastWeb at market price
9
Δ Vs Previous Inwit 3-yr Plan
More Infrastructure for Wireless Expansion
At Domestic level, No incremental Capex /
No change in 2018 Capex Efficiency run rate of € 800mln
Value for Inwit and TIM
1) >500
New 4G Sites
+ 400 New 4G Sites
including accretive site-replacements
where TI is on third-parties’ towers
€ 150mln of Inwit quick-win,
double-digit IRR Capex*
+ 3,500 Small Cells Deployment
to boost a Multi-Operator business
development model
2) >4,000
Remote units
Supporting TIM leadership
in Quality and Top Line
3) > 1,000
Fiber to Sites
>1,000 Fiber to Sites
Inwit to operate fiber backhauling for
new towers and to complete service
for existing ones
Improving Inwit infrastructure
and raising its expected 2018
EBITDA growth from high
single-digit to low teens
* Cum. over 3 yrs Flavio Cattaneo
Telecom Italia Group Results - 2Q’16
Total 3-yr
Build out:
10
2018 Cash Costs
Efficiency Target
increased by R$1.6bln*
 Cumulated 2016-’18
cash costs savings vs
previous Plan: R$4.5bln
 Organization rightsizing
 Improve E2E processes
& systems
 Digital penetration in
key commercial
processes
Maintain
Focus
on Mobile
Faster and Wider
Mobile BroadBand
Coverage**
 Expand 4G coverage
leadership (1H’16: 64%;
cities: 579 1H’16 ~1.000
YE’16)
 Fast upgrade of 3G
coverage (1H’16: 83%;
cities: 1,963 1H’16
~3.000 YE’16)
 Better use of
infrastructure and
spectrum
 Ahead with FTTS plan
Innovative &
Differentiated
Offers
TIM Brasil 2016-’18 Plan Update: Resetting for Growth
Flavio Cattaneo
 Data at core of offers
 Multimedia & digital
service hub strategy
 “Mass customization”
 Data content delivery
optimization platform
 Pay per use vs. recurring
 Bundle segmentation
 Data-only plans
 Improved Customer
Experience as key factor
in Postpaid
 Fully exploit Tim
Mobile positioning
 Operate in line with a
more rational market,
ready to seize a
rebound
 Effective and efficient
Quality
 Selective roll-out of
residential wireline
UBB: focus on MSAN
occupancy
**urban population
*Improvement of 2018 Cash Costs Efficiency Run-Rate vs Old Plan communicated in February Telecom Italia Group Results - 2Q’16
11
27,3
1,3
Net Debt 2015 MCB NCF '16/'18 Net Debt 2018
Improved
FCF generation
Updated 2018 Leverage projection after Group Cost Efficiency Program
and no Sale of Inwit
Net Debt/EBITDA* Ratio
€bln
Flavio Cattaneo
* EBITDA Reported
** Excluding Spectrum and considering the same exchange rate of 2016-’18 Plan presented in February 2016
2016 - 2018 Plan Horizon
Average Debt reduction of
about 700€mln per year
before 1.3 €bln Mandatory
Convertible (Nov.‘16)
Mandatory
Convertible Bond
~€2.1bln cum. 3-yr Organic FCF supported by Efficiencies and Top Line Outlook
Telecom Italia Group Results - 2Q’16
Below 2.7x in 2018**
12
Agenda
Action Plan Progress and Outlook - Flavio Cattaneo
2Q’16 Results - Piergiorgio Peluso
Piergiorgio Peluso
Back-up
Take-Aways - Flavio Cattaneo
Telecom Italia Group Results - 2Q’16
13
2Q’16 - TI Group Results Overview
Piergiorgio Peluso
 Revenues: € 4.7 bln
 EBITDA*: € 2.0 bln
 Capex: € 1.0 bln
 Net Debt: € 27.5 bln
 Revenues: € 3.7 bln
 EBITDA*: € 1.7 bln
 NGN: 51% Households in 1,250 Cities
 4G: 93.7% of Population in 6,285 Cities (350 4G Plus)
* Organic: before non-recurring items
 Revenues: € 1.0 bln
EBITDA*: € 0.3 bln
 4G: 64% Coverage, 579 Cities
 3G: 83% Coverage, 1,963 Cities
 Business Plan enriched
with > € 0.15 bln
mobile infrastructure
Capex in 2016-’18
 Stepping ahead in Italian Mobile Infrastructure
Leadership
Telecom Italia Group Results - 2Q’16
Inwit
Brazil
Domestic
Group
14
3,505 3,468
239 231
2Q'15 2Q'16
1.236 1.261
2Q'15 2Q'16
2.688 2.578
2Q’16 Domestic: Revenues & EBITDA
Total Reported Revenues Total Domestic Revenue Breakdown
EBITDA Highlights
000, €mln, % YoY
Equipment
Service
Total 3,744 3,699-1.2%
-1.1%
-3.4% Total
Fixed
Total
Mobile
-4.1%
+2.0%
Organic* +6.9%
Reported +39.4%
 Positive Organic EBITDA performance
with a significant trend reversal in 2Q:
+6.9% YoY
 Incorporating last year 2Q non-recurring
items (mainly provisions for litigations),
reported performance of 2Q’16 EBITDA
was +39.4% YoY
 Organic EBITDA in 1H’16 + 0.9% YoY
Non-recurring
items 16391
Piergiorgio Peluso
1,627 1.739
1.236
1.723
2Q'15 2Q'16 Reported 1H’16
+11.9% YoY
Organic 1H’16
+0.9% YoY
Telecom Italia Group Results - 2Q’16
Organic
2Q’16 -1.1% YoY
1H’16 -1.7% YoY
Domestic EBITDA: Organic* & Reported
* Organic: before non-recurring items and excluding exchange rate fluctuations
Organic
2Q’16 -1.1% YoY
1H’16 -1.7% YoY
15
1.109 1.117
127 144
2Q'15 2Q'16
2Q'15 2Q'16
Domestic Mobile Performance
Piergiorgio Peluso
Domestic Mobile Revenues
Customer Base & ARPU Dynamics
Domestic Mobile Service Revenue Trend
Mobile Broadband Users
000, €mln, % YoY
Handsets
Service
Total 1,236 1,261+2.0%
+0.7%
+13.7%
Total
Customer Base 30,075 29,742
% Calling
-333
+0.6pp
-2,5%
-1,5%
+0,1%
+0,6% +0,7%
2Q'15 3Q'15 4Q'15 1Q'16 2Q'16
85.5% 86.1%
10.480
10.754
11.217
11.513 11.648 11,775
17,2%
24,8%
30,6%
38,2%
42,6%
48,8%
1Q'15 2Q'15 3Q'15 4Q'15 1Q'16 2Q'16
o/w 4G
ARPU
€11,9
€12,1
2Q'15 2Q'16
+1.5%
Telecom Italia Group Results - 2Q’16
+3.2pp YoY
16
-58 -56 -56
-91 -82
+84
+61
+103
+134 +118
2Q'15 3Q'15 4Q'15 1Q'16 2Q'16
2Q'15 2Q'16
€20,9
€21,9
Domestic Fixed Performance
Piergiorgio Peluso
Domestic Fixed Revenues
Domestic BB Service Revenues
Domestic Fixed Access
Domestic BB Net Adds
Equipment
Service
Total 2,688 2,578-4.1%
-4.8%
+20.7%
Business
Consumer
Total
+6.2%
BB
Traditional
Fiber
Total +26 +5 +47 +43
BB ARPU
€/month
430 457
+4.4%
000, €mln, % YoY
-204 -173 -165 -140 -134
-146
-123
-109
-85 -82
-58 -50 -56 -55 -52
2Q'15 3Q'15 4Q'15 1Q'16 2Q'16
2.614 2.488
74 90
2Q'15 2Q'16
+35
Telecom Italia Group Results - 2Q’16
17
913 798
593 777
1H'15 1H'16
1H’16 Domestic: Focus on Investments
Piergiorgio Peluso
Total Domestic Capex Innovative Capex Breakdown
€mln
Total 1,506 +69
1,575
Innovative
Traditional*
-115
+2 net of
2015 license
+184
(+31%)
Innovative
on total
49%
+10pp YoY
* Including 117 €mln for 2G license renewal in 2015
Domestic Capex Highlights
 Innovative Investments (+184 €mln YoY)
driven by a faster pace in core NGN &
LTE components and additional Capex
in Cloud Services
 77% Innovative and 83% Traditional
Capex are Network and IT, indicating
strong focus on Infrastructure
514
777
82
101
80
Network IT Real
Estate
Comm. &
Others
Total
466
798
199
7
126
Network IT Real
Estate
Comm. &
Others
Total
Telecom Italia Group Results - 2Q’16
Traditional Capex Breakdown
18
Including Real
Estate and
Energy
4.529
4.136 4.134 3.980 4.063
(393)
+65 (6) (61) (153)
+83
1H'15
reported
non recurring
items
1H'15
net of non
recurring items
Volume Driven Market Driven Process Driven &
Other
Labour
Costs
1H'16
net of non
recurring items
non recurring
items
1H'16
reported
Focus on Domestic Opex
Piergiorgio Peluso
€mln, % YoY
Organic
-156 mln€, -3.8% YoY
Net of Volume Driven:
-221 mln€, -8.3% YoY
Reported
-466 mln€, -10.3% YoY
Handset
sales
Mainly charges and
provisions for employee
reduction plan
Driven by
Compensation
Recalibration
and Solidarity
Telecom Italia Group Results - 2Q’16
19
27.278 (671)
(685) +649 +104 +227 +116
+496 27.514
Net Debt
Adjusted
FY2015
OpFCF M&A Cash Financial
Expenses &
Financial
Accruals
Cash
Taxes
Dividends IAS 17
Leaseback
Other
Impacts
Net Debt
Adjusted
1H16
1H’16 Net Debt Evolution
€mln, % YoY
+236 vs YE’15
Piergiorgio Peluso
Exchange Rate Impact: +165
Telecom Italia Group Results - 2Q’16
o/w Argentina (665)
Cash-in (544)
Debt deconsolidation (121)
+341 1H’15
vs YE’14
20
Agenda
Action Plan Progress and Outlook - Flavio Cattaneo
2Q’16 Results - Piergiorgio Peluso
Flavio Cattaneo – Piergiorgio Peluso
Back-up
Take-Aways - Flavio Cattaneo
Telecom Italia Group Results - 2Q’16
21
Take-Aways
Flavio Cattaneo
Telecom Italia Group Results - 2Q’16
22
Agenda
Action Plan Progress and Outlook - Flavio Cattaneo
2Q’16 Results - Piergiorgio Peluso
Back-up
Take-Aways - Flavio Cattaneo
Telecom Italia Group Results - 2Q’16
23
29,3% 31.2%
2Q'15 2Q'16
955 898
144 63
2Q'15 2Q'16
3,503 3,468
239 231
1.951 2.030
2Q'15 2Q'16
Group 2Q’16: Organic Revenues & EBITDA
Group Revenues Revenue Breakdown
Organic*, €mln, % YoY
Equipment
Service
4,865 4,656
-2.7%
-22.7%
-4,3%Total
DomesticBrazil
Total
Equipment
Service
Total
Equipment
Service
1,099 961
-5.9%
-56.1%
-12.4%
-1.0%
-3.4%
-1.1%3,742 3,699
+4.0%
DomesticBrazil
322 298-6.7%
+6.9%1,627 1,739
EBITDA
Margin
EBITDA
Margin
44.4% 43.1%
* Before non-recurring items and excluding exchange rate fluctuations
4.482 4.360
383 296
2Q'15 2Q'16
43,5% 47,0%
Telecom Italia Group Results - 2Q’16
Group EBITDA EBITDA Breakdown
24
YE'15 1H'16
1.506 1.575
510 408
1H'15 1H'16
Group 1H’16: Capex & Net Debt
Group Organic* Capex
€mln, % YoY
Capex Highlights
Adjusted Net Debt Net Debt Highlights
Total** 2,019 1,983-1.8%
* Before non-recurring items and excluding exchange rate fluctuations
** Other activities & eliminations included
Brazil
Domestic
+4.6%
-20.1%
27,278 27,514+236
YE’14 1H’15
26,651 26,992+341
 Group Capex reduction due to different
dynamics:
 Efficiencies and better negotiation despite
higher Investments on Innovative Services
in Brazil
 More investment in Italy mainly driven by
UBB Network roll-out & Transformational
Projects
 OpFCF and M&A more than offset Cash
Financial Expenses, Cash Taxes and
Dividends
 Net Debt variation vs YE’15 mainly due to
exchange rate effect and non cash impact
related to IAS 17 (lease-back)
Telecom Italia Group Results - 2Q’16
25
1.208 896
(132) (713)
(1,506) (1,575)
2.846
3.184
1H'15 1H'16
EBITDA
Capex
OpFCF Generation in 1H’16
€mln, Reported, % YoY
EBITDA
Capex
DWC
OpFCF
1H Group OpFCF
701 671
(792) (1,072)
(2,146) (1,983)
3.639 3.726
1H'15 1H'16
Domestic
Brazil
+87
+163
-280
-30
DWC
OpFCF
+338
-69
-581
-312
EBITDA
Capex
DWC
OpFCF (496)
(203)
(649) (351)
(637)
(408)
790
556
1H'15 1H'16
-234
+229
+298
+293
Telecom Italia Group Results - 2Q’16
Reported
+2.4% YoY
Organic*
-1.7% YoY
Reported
+11.9% YoY
Organic*
+0.9% YoY
Reported
-29.6% YoY
Organic*
-11.0% YoY
• Settlements cash out
• Cash out for higher capex in 4Q15 vs. 4Q14
* Organic: before non-recurring items and excluding exchange rate fluctuations
26
Maturities & Liquidity Margin
Bonds
Undrawn
portions of
committed
C&CE
Covered until 2019
€mln
(1) € 29,931 mln is the nominal amount of outstanding medium-long term debt. By adding Mandatory Convertible Bond (€ 1,300 mln), IAS adjustments (€ 1,100 mln) and current financial liabilities (€ 589 mln),
the gross debt figure of € 32,290 mln is reached
(2) Committed Bank lines are undrawn
Drawn bank
facility(2)
1,190
1,408
2,059
782
466
2,637
8,7657,000
2,080
1,784
2,545
1,267
564
12,926
21,166
3,790
10,790
223
3,270
3,192
4,604
2,049
1,030
15,563 29,931(1)
Liquidity margin Within 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 Beyond 2021 Total M/L Term
Debt
Loans (of which long-term rent, financial and
operating lease payable € 2,407 mln)
Telecom Italia Group Results - 2Q’16
Liquidity Margin
27
Gross debt 32,290
Financial Assets (5,406)
of which C&CE and marketable securities (3,790)
- C & CE (2,707)
- Marketable securities (1,083)
- Government Securities (390)
- Other (693)
Net financial position 27,514
22,546
935
2,558
6,881
€mln
Average m/l term maturity:
7.94 years (bond only 8.35 years)
Fixed rate portion on gross debt approximately 69.9%
Around 38% of outstanding bonds (nominal amount)
denominated in USD and GBP and is fully hedged
Cost of debt: ~5.1 %
Banks & EIB
Op. leases and long rent
Bonds
Maturities and Risk Management
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 2,316 €/mln (of which 392 €/mln on bonds)
- the impact on Financial Assets is equal to 1,760 €/mln.
Therefore, the Net Financial Indebtedness is adjusted by 556 €/mln.
The difference between total financial assets (€ 5,406 mln) and C&CE and marketable securities (€ 3,790 mln) is equal to € 1,616 mln and refers to positive
MTM derivatives (accrued interests and exchange rate) for € 1,430 mln, financial receivables for lease for € 112 mln and other credits for € 74 mln.
3.2%
Other
68.5%
2.8%
7.8%
20.9%
Well Diversified and Hedged Debt
Telecom Italia Group Results - 2Q’16
28
8.677 8.091 7.792 7.117 6.690 6.029
1.803 2.663 3.434 4.396 4.958 5.745
1Q'15 2Q'15 3Q'15 4Q'15 1Q'16 2Q'16
11,3
11,9
12,5 12,8
11,6 12,1
+21,1% 18,0% +17,5% +14,5% +11,6% +10.1%
-5,1%
2,6% 6,3%
5,9%
4,7%
1.3%
1Q'15 2Q'15 3Q'15 4Q'15 1Q'16 2Q'16
Domestic Mobile Details
Mobile Service Revenues Trend
000, €mln, % YoY
Mobile BB Service Revenues Trend
ARPU & Churn Rate Mobile BB Customer Base
DCB
DARPU/Mix
Total
Total +16.0% +20.7% +23.8% +20.5% +16.3%
DUsers
DARPU/Mix
1Q’15 1Q’16 2Q’15 2Q’16 3Q’15 3Q’16 4Q’15 4Q’16
+1.5%
YoY
ARPU
reported
€/month
Annualized
Churn
Rate (%)
1Q’15 1Q’16 2Q’15 2Q’16 3Q’15 3Q’16 4Q’15 4Q’16
Total 10,480 10,754 11,217 11,513 11,648
4G Users
Internet
Users
-0,8% -0,4% +0,2% +0,3%
+0,3% -0,2%
-3,4%
-2,0%
-1,7% -0,2%
+0.3%
+0,9%
1Q'15 2Q'15 3Q'15 4Q'15 1Q'16 2Q'16
-4.2% -2.5% -1.5% +0.1% +0.6% +0.7%
+11.4%
25,6 22,0 23,2 22,822,4 21,2
11,775
+2.5%
YoY
Telecom Italia Group Results - 2Q’16
29
20,4
20,9
20,7
21,2
21,5
21,9
1Q'15 2Q'15 3Q'15 4Q'15 1Q'16 2Q'16
290 374 435 538 672 790
6.121 6.105 6.081 6.045 5.980 5.902
534 492 468 440 416 396
1Q'15 2Q'15 3Q'15 4Q'15 1Q'16 2Q'16
Domestic Fixed Details
Fixed BB Service Revenues Trend
000, €mln, % YoY
Fixed BB Customer Base
Fixed BB ARPU Focus on Fiber Users
Total +5.7% +6.8% +3.9% +5.8% +6.9%
DCB
DARPU/Mix
Total 6,945 6,971 6,984 7,023 7,067
Flat ADSL
Fiber
Total Flat 6,411 6,479 6,516 6,583 6,652
€/month
+4.4% YoY
TI Fiber Retail
NGN Wholesale
Free
+6.2% 7,088
6,692
290 374 435
538
672
790
39 76
105
139
170
199
1Q'15 2Q'15 3Q'15 4Q'15 1Q'16 2Q'16
-0,3% +0,1% +0,3% +0,8%
+1.7% +1,8%
+6,0%
+6,7%
+3,7%
+5,0%
+5.3% 4,5%
1Q'15 2Q'15 3Q'15 4Q'15 1Q'16 2Q'16
Telecom Italia Group Results - 2Q’16
30
Domestic Fiber & LTE Coverage Trend
Today Fiber Coverage*
Today 4G Coverage
+14pp YoY
+11pp YoY
* Household passed
Coverage ~84%51%
Population 98%94%
today 2018
today 201881% 83%
86% 88%
92%
94%
1Q'15 2Q'15 3Q'15 4Q'15 1Q'16 2Q'16
32%
37%
40% 42%
45%
51%
1Q'15 2Q'15 3Q'15 4Q'15 1Q'16 2Q'16
Telecom Italia Group Results - 2Q’16
31
699 736 781 809
242 266 268 238
346 327 330 287
734 691 736
626
2.021 2.020 2.115
1.960
IQ15 IQ16 IIQ15 IIQ16
1Q’16 vs 1Q’15
Labour Cost
Commercial
Industrial,
G&A & other
COGs
-1 mln
Flat YoY
-155 mln
-7.3%
Labour Cost
Commercial
Industrial,
G&A & other
COGs
2Q’16 vs 2Q’15
Domestic cost program fully on track with strong improvement in efficiency and
profitability
Telecom Italia Group Results - 2Q’16
ΔYoY by destination
COGs
Commercial
Industrial & G&A
Labour Cost
Other
+37
+24
-9
-43
-10
+5.3%
+9.8%
-2.0%
-5.8%
+28
-30
-67
-110
+25
+3.5%
-11.2%
-14.1%
-15.0%
ΔYoY by destination
COGs
Commercial
Industrial & G&A
Labour Cost
Other
Organic*
* Organic: before non-recurring items and excluding exchange rate fluctuations
32
Domestic - Cash Cost Efficiency Dashboard
Original ‘16-’18
Efficiency Target
Additional Efficiency
‘16-’18 Target
New Efficiency
‘16-’18 TargetRun rate @2018
Process Driven
Costs
Market Driven
Costs
Labour Costs
Total Opex
0.2 bln€
0.1 bln€
0.1 bln€
0.4 bln€
Total Cash Cost
Efficiency
0.2 bln€
0.6 bln€
+0.4 bln€
+0.6 bln€
+1.0 bln€
0.8 bln€
0.8 bln€
1.6 bln€
NGN Optimization
Real Estate & Other
Total Capex
Other Costs
Traditional
-
0.2 bln€
-
-
+0.12 bln€
+0.13 bln€
+0.1 bln€
+0.05 bln €
+0.3 bln€
+0.15 bln€
+0.15 bln€
0.32 bln€
0.23 bln€
0.2 bln€
0.05 bln€
0.5 bln€
0.15 bln€
0.15 bln€
Telecom Italia Group Results - 2Q’16
33
Telecom Italia Group Results - 2Q’16
TIM Brasil - Cash Cost Efficiency Dashboard*
* Including 2018-2015 inflation & other structural changes
** After R$1.7bn 2018 run rate Efficiency Actions (Volume-Driven excluded) to offset Inflation & other structural changes
New Plan
CAPEX R$ 0.5bln
TOTAL R$ -0.1bln
R$ 0.9bln
R$ 1.5bln
Run rate
2018 vs 2015
Δ NEW vs OLD
OPEX R$ -0.6bln R$ 0.6bln** R$ +1.2bln
R$ +0.4bln
R$ +1.6bln
Old Plan
34
1.184
975
2Q'15 2Q'16
2Q'15 2Q'16
3.792 3.570
569 250
2Q'15 2Q'16
Revenues
Organic EBITDA**
Focus on Mobile Service Revenues*
Capex
R$mln, % YoY
4,361
3,820
Mobile Service Net Revenues (YoY%) show first
signs of recovery
1,276 1,190
29.3% 31.2%+1.9pp
-6.7%
EBITDA
Margin
% on
revenues
27.1% 25.5%-1.6pp
TIM Brasil: 2Q’16 Results
-5.9%
-56.1%
-12.4%
-17.7%
Equipment
Service
Total
Important EBITDA
improvement vs 1Q’16 also
supported by Efficiencies
-15,0%
-6.7%
1Q'16 2Q'16
-5.7%
-7.1%
-8.5% -9,1%
-6.5%
2Q'15 3Q'15 4Q'15 1Q'16 2Q'16
Telecom Italia Group Results - 2Q’16
* Data do not include revision related to prepaid revenues in 2015
** Before non-recurring items
35
For further questions please contact the IR Team
IR Webpage TIM Twitter Account TIM Slideshare Account
www.telecomitalia.com/investors
+39 02 8595 4131
www.twitter.com/telecomitaliatw http://www.slideshare.net/telecomitaliacorporate
Phone E-mail
Investor_relations@telecomitalia.it
Contact details for all
IR representatives:
www.telecomitalia.com/ircontacts
Investor Relations Contact details
Telecom Italia Group Results - 2Q’16

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TIM 2Q'16 Results

  • 1. Flavio Cattaneo - Piergiorgio Peluso TELECOM ITALIA GROUP 2Q’16 Results Milan - July 27, 2016 2Q’16 Update
  • 2. 2 Safe Harbour Flavio Cattaneo – Piergiorgio Peluso Telecom Italia Group Results - 2Q’16 This presentation contains statements that constitute forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements appear in a number of places in this presentation and include statements regarding the intent, belief or current expectations, estimates regarding future growth in the different business lines and the global business, financial results and other aspects of the activities and situation relating to the Telecom Italia 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. Consequently, Telecom Italia makes no representation, whether expressed or implied, as to the conformity of the actual results with those projected in the forward looking statements. Forward-looking information is based on certain key assumptions which we believe to be reasonable as of the date hereof, but forward looking information by its nature involves risks and uncertainties, which are outside our control, and could significantly affect expected results. Analysts and investors are cautioned not to place undue reliance on those forward looking statements, which speak only as of the date of this presentation. Telecom Italia undertakes no obligation to publicly release the results of any revisions to these forward looking statements which may be made to reflect events and circumstances after the date of this presentation, including, without limitation, changes in Telecom Italia business or acquisition strategy or planned capital expenditures or to reflect the occurrence of unanticipated events. Analysts and investors should consult the Company's Annual Report on Form 20-F as well as filings made from time to time on Form 6-K, which are on file with the United States Securities and Exchange Commission which may identify factors that affect the forward looking statements included herein. The financial and operating data, with the exception of some data, have been extracted or derived from the Condensed Consolidated Financial Statements as of and for the six months ended 30 June 2016 which have 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 on the Telecom Italia Group Half-Year Condensed Consolidated Financial Statements at 30 June 2016 has not yet been completed. The comparative financial information as of 31 December 2015 and for the six months period ended 30 June 2015 have been revised (segment information included) as a result of the prior years’ incorrect accounting entries, already disclosed to the market, identified by the TIM Brasil's Management in connection with the recognition of service revenue from the sale of prepaid traffic. Such revision did not have any material impact on the consolidated income statement for the six month period ended 30 June 2015. Persidera, as a result of the change in its operational mission, is included, starting from 1 January 2016, in the Domestic Business Unit. Furthermore, the Sofora - Telecom Argentina group, which was disposed of on 8 March 2016, is classified as Discontinued operations.
  • 3. 3 Agenda Action Plan Progress and Outlook - Flavio Cattaneo 2Q’16 Results - Piergiorgio Peluso Flavio Cattaneo – Piergiorgio Peluso Back-up Take-Aways - Flavio Cattaneo Telecom Italia Group Results - 2Q’16
  • 4. 4 +0,7% <-- 1Q'13 2Q'13 3Q'13 4Q'13 1Q'14 2Q'14 3Q'14 4Q'14 1Q'15 2Q'15 3Q'15 4Q'15 1Q'16 2Q'16 +18,2% <-- 1Q'13 2Q'13 3Q'13 4Q'13 1Q'14 2Q'14 3Q'14 4Q'14 1Q'15 2Q'15 3Q'15 4Q'15 1Q'16 2Q'16 -1,1% <-- 1Q'13 2Q'13 3Q'13 4Q'13 1Q'14 2Q'14 3Q'14 4Q'14 1Q'15 2Q'15 3Q'15 4Q'15 1Q'16 2Q'16 -9.5% -6.6% -16% -10% -2.0% +6,9% <-- 1Q'13 2Q'13 3Q'13 4Q'13 1Q'14 2Q'14 3Q'14 4Q'14 1Q'15 2Q'15 3Q'15 4Q'15 1Q'16 2Q'16 -10% -13% -4.8% -14% -16% -27% FY TIMPrime launched at the end of June with limited impact on 2Q results The Best Quarterly YoY Domestic Performance Since 2009 Organic* EBITDA -2.0% Mobile Service Revenues EBITDA-CAPEX** Telecom Italia Group Results - 2Q’16 Organic*, % YoY Total Revenues * Organic: before non-recurring items and excluding exchange rate fluctuations **Excl. license Flavio Cattaneo
  • 5. 5 • High-quality LTE services support further revenue growth • TIM Prime, Summer and Back-to-School Campaigns Service revenue growth confirmed Domestic: Solid Performance in 2Q’16 2Q’16 FY’16 Outlook Fixed Mobile Resilient Top Line performance while fiber is driving the business Autumn Campaign, improved delivery across the customer base to lift Top Line trend KPIs • ARPU up to 12.1€ • Best-in-class Churn at 21.2% • LTE penetration increased to 49%* • Lower line losses at 134k (best performance since 2010) • Fiber lines +118K • BB ARPU up to € 21.9 • TI Fiber covers 51% of the Country • 1 million NGN customers KPIs building up, Positive Outlook for 2H Flavio Cattaneo* On Mobile BB Customer Base Telecom Italia Group Results - 2Q’16
  • 6. 6 Domestic: Upgrading FY’16 EBITDA Target Flavio Cattaneo EBITDA Upward Revision of FY’16 Guidance Cost-cutting plan launched in April already gained strong momentum, with no adverse impact on revenues FY’16 Domestic EBITDA* YoY guidance increased to positive low-single digit growth Given results already achieved and improved Top Line outlook: * Organic: before non-recurring items and excluding exchange rate fluctuations Record 2Q’16 EBITDA* up +6.9% YoY Telecom Italia Group Results - 2Q’16 2Q’16 Positive 1H’16 YoY EBITDA* : +0.9% First Quarter negative performance totally offset; 1H EBITDA margin* at 45% 1H’16
  • 7. 7 Italy: Ultra BroadBand Roll-Out more than on-track Flavio Cattaneo Technology During August / September, work extended to all of the 30 1st- wave cities. At YE, coverage increased to 900,000 households** FttH/B up to 1Gbps LTE up to 150 Mbps* • 13,600,000 households passed • Sellable in 1,600 cities FttC up to 200 Mbps Current coverage 93.7% population coverage in 6,285 cities 528,000 households, optical cable being deployed to and beyond the building in 14 cities • 12,529,000 households passed • Sellable in 1,250 cities YE’16 Target TI is moving on with its fiber plan, while broadening and improving its LTE footprint Coverage increased to 94.5%, reaching 6,350 cities 4,000 Construction Sites in operation Telecom Italia Group Results - 2Q’16* Shared ** Before Commercial Agreement with Fastweb
  • 8. 8 FTTH: a «Faster and Deeper» Combination Flavio Cattaneo Telecom Italia Group Results - 2Q’16  No overbuild  Significant Roll-out Synergies  Higher Return on Capital  Quicker Time-to-Market  Superior Fiber Infrastructure  €1.2bln FTTH Plan  Double-digit IRR TIM acquires FTTH connections to 650k households in 6 cities at ~ €200 per unit  No change in TIM FTTH-related Capex  FTTH targets reached earlier 80% 20% *Excluding Milan and areas already covered by TIM and FastWeb with FTTH Co-Investment Agreement Commercial Agreement FTTH Wholesale Joint Venture  A New Special Purpose entity acting as exclusive vehicle to Develop Secondary and Vertical segments in 29 cities*  Related deployment will be outsourced to TIM and to FastWeb at market price
  • 9. 9 Δ Vs Previous Inwit 3-yr Plan More Infrastructure for Wireless Expansion At Domestic level, No incremental Capex / No change in 2018 Capex Efficiency run rate of € 800mln Value for Inwit and TIM 1) >500 New 4G Sites + 400 New 4G Sites including accretive site-replacements where TI is on third-parties’ towers € 150mln of Inwit quick-win, double-digit IRR Capex* + 3,500 Small Cells Deployment to boost a Multi-Operator business development model 2) >4,000 Remote units Supporting TIM leadership in Quality and Top Line 3) > 1,000 Fiber to Sites >1,000 Fiber to Sites Inwit to operate fiber backhauling for new towers and to complete service for existing ones Improving Inwit infrastructure and raising its expected 2018 EBITDA growth from high single-digit to low teens * Cum. over 3 yrs Flavio Cattaneo Telecom Italia Group Results - 2Q’16 Total 3-yr Build out:
  • 10. 10 2018 Cash Costs Efficiency Target increased by R$1.6bln*  Cumulated 2016-’18 cash costs savings vs previous Plan: R$4.5bln  Organization rightsizing  Improve E2E processes & systems  Digital penetration in key commercial processes Maintain Focus on Mobile Faster and Wider Mobile BroadBand Coverage**  Expand 4G coverage leadership (1H’16: 64%; cities: 579 1H’16 ~1.000 YE’16)  Fast upgrade of 3G coverage (1H’16: 83%; cities: 1,963 1H’16 ~3.000 YE’16)  Better use of infrastructure and spectrum  Ahead with FTTS plan Innovative & Differentiated Offers TIM Brasil 2016-’18 Plan Update: Resetting for Growth Flavio Cattaneo  Data at core of offers  Multimedia & digital service hub strategy  “Mass customization”  Data content delivery optimization platform  Pay per use vs. recurring  Bundle segmentation  Data-only plans  Improved Customer Experience as key factor in Postpaid  Fully exploit Tim Mobile positioning  Operate in line with a more rational market, ready to seize a rebound  Effective and efficient Quality  Selective roll-out of residential wireline UBB: focus on MSAN occupancy **urban population *Improvement of 2018 Cash Costs Efficiency Run-Rate vs Old Plan communicated in February Telecom Italia Group Results - 2Q’16
  • 11. 11 27,3 1,3 Net Debt 2015 MCB NCF '16/'18 Net Debt 2018 Improved FCF generation Updated 2018 Leverage projection after Group Cost Efficiency Program and no Sale of Inwit Net Debt/EBITDA* Ratio €bln Flavio Cattaneo * EBITDA Reported ** Excluding Spectrum and considering the same exchange rate of 2016-’18 Plan presented in February 2016 2016 - 2018 Plan Horizon Average Debt reduction of about 700€mln per year before 1.3 €bln Mandatory Convertible (Nov.‘16) Mandatory Convertible Bond ~€2.1bln cum. 3-yr Organic FCF supported by Efficiencies and Top Line Outlook Telecom Italia Group Results - 2Q’16 Below 2.7x in 2018**
  • 12. 12 Agenda Action Plan Progress and Outlook - Flavio Cattaneo 2Q’16 Results - Piergiorgio Peluso Piergiorgio Peluso Back-up Take-Aways - Flavio Cattaneo Telecom Italia Group Results - 2Q’16
  • 13. 13 2Q’16 - TI Group Results Overview Piergiorgio Peluso  Revenues: € 4.7 bln  EBITDA*: € 2.0 bln  Capex: € 1.0 bln  Net Debt: € 27.5 bln  Revenues: € 3.7 bln  EBITDA*: € 1.7 bln  NGN: 51% Households in 1,250 Cities  4G: 93.7% of Population in 6,285 Cities (350 4G Plus) * Organic: before non-recurring items  Revenues: € 1.0 bln EBITDA*: € 0.3 bln  4G: 64% Coverage, 579 Cities  3G: 83% Coverage, 1,963 Cities  Business Plan enriched with > € 0.15 bln mobile infrastructure Capex in 2016-’18  Stepping ahead in Italian Mobile Infrastructure Leadership Telecom Italia Group Results - 2Q’16 Inwit Brazil Domestic Group
  • 14. 14 3,505 3,468 239 231 2Q'15 2Q'16 1.236 1.261 2Q'15 2Q'16 2.688 2.578 2Q’16 Domestic: Revenues & EBITDA Total Reported Revenues Total Domestic Revenue Breakdown EBITDA Highlights 000, €mln, % YoY Equipment Service Total 3,744 3,699-1.2% -1.1% -3.4% Total Fixed Total Mobile -4.1% +2.0% Organic* +6.9% Reported +39.4%  Positive Organic EBITDA performance with a significant trend reversal in 2Q: +6.9% YoY  Incorporating last year 2Q non-recurring items (mainly provisions for litigations), reported performance of 2Q’16 EBITDA was +39.4% YoY  Organic EBITDA in 1H’16 + 0.9% YoY Non-recurring items 16391 Piergiorgio Peluso 1,627 1.739 1.236 1.723 2Q'15 2Q'16 Reported 1H’16 +11.9% YoY Organic 1H’16 +0.9% YoY Telecom Italia Group Results - 2Q’16 Organic 2Q’16 -1.1% YoY 1H’16 -1.7% YoY Domestic EBITDA: Organic* & Reported * Organic: before non-recurring items and excluding exchange rate fluctuations Organic 2Q’16 -1.1% YoY 1H’16 -1.7% YoY
  • 15. 15 1.109 1.117 127 144 2Q'15 2Q'16 2Q'15 2Q'16 Domestic Mobile Performance Piergiorgio Peluso Domestic Mobile Revenues Customer Base & ARPU Dynamics Domestic Mobile Service Revenue Trend Mobile Broadband Users 000, €mln, % YoY Handsets Service Total 1,236 1,261+2.0% +0.7% +13.7% Total Customer Base 30,075 29,742 % Calling -333 +0.6pp -2,5% -1,5% +0,1% +0,6% +0,7% 2Q'15 3Q'15 4Q'15 1Q'16 2Q'16 85.5% 86.1% 10.480 10.754 11.217 11.513 11.648 11,775 17,2% 24,8% 30,6% 38,2% 42,6% 48,8% 1Q'15 2Q'15 3Q'15 4Q'15 1Q'16 2Q'16 o/w 4G ARPU €11,9 €12,1 2Q'15 2Q'16 +1.5% Telecom Italia Group Results - 2Q’16 +3.2pp YoY
  • 16. 16 -58 -56 -56 -91 -82 +84 +61 +103 +134 +118 2Q'15 3Q'15 4Q'15 1Q'16 2Q'16 2Q'15 2Q'16 €20,9 €21,9 Domestic Fixed Performance Piergiorgio Peluso Domestic Fixed Revenues Domestic BB Service Revenues Domestic Fixed Access Domestic BB Net Adds Equipment Service Total 2,688 2,578-4.1% -4.8% +20.7% Business Consumer Total +6.2% BB Traditional Fiber Total +26 +5 +47 +43 BB ARPU €/month 430 457 +4.4% 000, €mln, % YoY -204 -173 -165 -140 -134 -146 -123 -109 -85 -82 -58 -50 -56 -55 -52 2Q'15 3Q'15 4Q'15 1Q'16 2Q'16 2.614 2.488 74 90 2Q'15 2Q'16 +35 Telecom Italia Group Results - 2Q’16
  • 17. 17 913 798 593 777 1H'15 1H'16 1H’16 Domestic: Focus on Investments Piergiorgio Peluso Total Domestic Capex Innovative Capex Breakdown €mln Total 1,506 +69 1,575 Innovative Traditional* -115 +2 net of 2015 license +184 (+31%) Innovative on total 49% +10pp YoY * Including 117 €mln for 2G license renewal in 2015 Domestic Capex Highlights  Innovative Investments (+184 €mln YoY) driven by a faster pace in core NGN & LTE components and additional Capex in Cloud Services  77% Innovative and 83% Traditional Capex are Network and IT, indicating strong focus on Infrastructure 514 777 82 101 80 Network IT Real Estate Comm. & Others Total 466 798 199 7 126 Network IT Real Estate Comm. & Others Total Telecom Italia Group Results - 2Q’16 Traditional Capex Breakdown
  • 18. 18 Including Real Estate and Energy 4.529 4.136 4.134 3.980 4.063 (393) +65 (6) (61) (153) +83 1H'15 reported non recurring items 1H'15 net of non recurring items Volume Driven Market Driven Process Driven & Other Labour Costs 1H'16 net of non recurring items non recurring items 1H'16 reported Focus on Domestic Opex Piergiorgio Peluso €mln, % YoY Organic -156 mln€, -3.8% YoY Net of Volume Driven: -221 mln€, -8.3% YoY Reported -466 mln€, -10.3% YoY Handset sales Mainly charges and provisions for employee reduction plan Driven by Compensation Recalibration and Solidarity Telecom Italia Group Results - 2Q’16
  • 19. 19 27.278 (671) (685) +649 +104 +227 +116 +496 27.514 Net Debt Adjusted FY2015 OpFCF M&A Cash Financial Expenses & Financial Accruals Cash Taxes Dividends IAS 17 Leaseback Other Impacts Net Debt Adjusted 1H16 1H’16 Net Debt Evolution €mln, % YoY +236 vs YE’15 Piergiorgio Peluso Exchange Rate Impact: +165 Telecom Italia Group Results - 2Q’16 o/w Argentina (665) Cash-in (544) Debt deconsolidation (121) +341 1H’15 vs YE’14
  • 20. 20 Agenda Action Plan Progress and Outlook - Flavio Cattaneo 2Q’16 Results - Piergiorgio Peluso Flavio Cattaneo – Piergiorgio Peluso Back-up Take-Aways - Flavio Cattaneo Telecom Italia Group Results - 2Q’16
  • 22. 22 Agenda Action Plan Progress and Outlook - Flavio Cattaneo 2Q’16 Results - Piergiorgio Peluso Back-up Take-Aways - Flavio Cattaneo Telecom Italia Group Results - 2Q’16
  • 23. 23 29,3% 31.2% 2Q'15 2Q'16 955 898 144 63 2Q'15 2Q'16 3,503 3,468 239 231 1.951 2.030 2Q'15 2Q'16 Group 2Q’16: Organic Revenues & EBITDA Group Revenues Revenue Breakdown Organic*, €mln, % YoY Equipment Service 4,865 4,656 -2.7% -22.7% -4,3%Total DomesticBrazil Total Equipment Service Total Equipment Service 1,099 961 -5.9% -56.1% -12.4% -1.0% -3.4% -1.1%3,742 3,699 +4.0% DomesticBrazil 322 298-6.7% +6.9%1,627 1,739 EBITDA Margin EBITDA Margin 44.4% 43.1% * Before non-recurring items and excluding exchange rate fluctuations 4.482 4.360 383 296 2Q'15 2Q'16 43,5% 47,0% Telecom Italia Group Results - 2Q’16 Group EBITDA EBITDA Breakdown
  • 24. 24 YE'15 1H'16 1.506 1.575 510 408 1H'15 1H'16 Group 1H’16: Capex & Net Debt Group Organic* Capex €mln, % YoY Capex Highlights Adjusted Net Debt Net Debt Highlights Total** 2,019 1,983-1.8% * Before non-recurring items and excluding exchange rate fluctuations ** Other activities & eliminations included Brazil Domestic +4.6% -20.1% 27,278 27,514+236 YE’14 1H’15 26,651 26,992+341  Group Capex reduction due to different dynamics:  Efficiencies and better negotiation despite higher Investments on Innovative Services in Brazil  More investment in Italy mainly driven by UBB Network roll-out & Transformational Projects  OpFCF and M&A more than offset Cash Financial Expenses, Cash Taxes and Dividends  Net Debt variation vs YE’15 mainly due to exchange rate effect and non cash impact related to IAS 17 (lease-back) Telecom Italia Group Results - 2Q’16
  • 25. 25 1.208 896 (132) (713) (1,506) (1,575) 2.846 3.184 1H'15 1H'16 EBITDA Capex OpFCF Generation in 1H’16 €mln, Reported, % YoY EBITDA Capex DWC OpFCF 1H Group OpFCF 701 671 (792) (1,072) (2,146) (1,983) 3.639 3.726 1H'15 1H'16 Domestic Brazil +87 +163 -280 -30 DWC OpFCF +338 -69 -581 -312 EBITDA Capex DWC OpFCF (496) (203) (649) (351) (637) (408) 790 556 1H'15 1H'16 -234 +229 +298 +293 Telecom Italia Group Results - 2Q’16 Reported +2.4% YoY Organic* -1.7% YoY Reported +11.9% YoY Organic* +0.9% YoY Reported -29.6% YoY Organic* -11.0% YoY • Settlements cash out • Cash out for higher capex in 4Q15 vs. 4Q14 * Organic: before non-recurring items and excluding exchange rate fluctuations
  • 26. 26 Maturities & Liquidity Margin Bonds Undrawn portions of committed C&CE Covered until 2019 €mln (1) € 29,931 mln is the nominal amount of outstanding medium-long term debt. By adding Mandatory Convertible Bond (€ 1,300 mln), IAS adjustments (€ 1,100 mln) and current financial liabilities (€ 589 mln), the gross debt figure of € 32,290 mln is reached (2) Committed Bank lines are undrawn Drawn bank facility(2) 1,190 1,408 2,059 782 466 2,637 8,7657,000 2,080 1,784 2,545 1,267 564 12,926 21,166 3,790 10,790 223 3,270 3,192 4,604 2,049 1,030 15,563 29,931(1) Liquidity margin Within 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 Beyond 2021 Total M/L Term Debt Loans (of which long-term rent, financial and operating lease payable € 2,407 mln) Telecom Italia Group Results - 2Q’16 Liquidity Margin
  • 27. 27 Gross debt 32,290 Financial Assets (5,406) of which C&CE and marketable securities (3,790) - C & CE (2,707) - Marketable securities (1,083) - Government Securities (390) - Other (693) Net financial position 27,514 22,546 935 2,558 6,881 €mln Average m/l term maturity: 7.94 years (bond only 8.35 years) Fixed rate portion on gross debt approximately 69.9% Around 38% of outstanding bonds (nominal amount) denominated in USD and GBP and is fully hedged Cost of debt: ~5.1 % Banks & EIB Op. leases and long rent Bonds Maturities and Risk Management 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 2,316 €/mln (of which 392 €/mln on bonds) - the impact on Financial Assets is equal to 1,760 €/mln. Therefore, the Net Financial Indebtedness is adjusted by 556 €/mln. The difference between total financial assets (€ 5,406 mln) and C&CE and marketable securities (€ 3,790 mln) is equal to € 1,616 mln and refers to positive MTM derivatives (accrued interests and exchange rate) for € 1,430 mln, financial receivables for lease for € 112 mln and other credits for € 74 mln. 3.2% Other 68.5% 2.8% 7.8% 20.9% Well Diversified and Hedged Debt Telecom Italia Group Results - 2Q’16
  • 28. 28 8.677 8.091 7.792 7.117 6.690 6.029 1.803 2.663 3.434 4.396 4.958 5.745 1Q'15 2Q'15 3Q'15 4Q'15 1Q'16 2Q'16 11,3 11,9 12,5 12,8 11,6 12,1 +21,1% 18,0% +17,5% +14,5% +11,6% +10.1% -5,1% 2,6% 6,3% 5,9% 4,7% 1.3% 1Q'15 2Q'15 3Q'15 4Q'15 1Q'16 2Q'16 Domestic Mobile Details Mobile Service Revenues Trend 000, €mln, % YoY Mobile BB Service Revenues Trend ARPU & Churn Rate Mobile BB Customer Base DCB DARPU/Mix Total Total +16.0% +20.7% +23.8% +20.5% +16.3% DUsers DARPU/Mix 1Q’15 1Q’16 2Q’15 2Q’16 3Q’15 3Q’16 4Q’15 4Q’16 +1.5% YoY ARPU reported €/month Annualized Churn Rate (%) 1Q’15 1Q’16 2Q’15 2Q’16 3Q’15 3Q’16 4Q’15 4Q’16 Total 10,480 10,754 11,217 11,513 11,648 4G Users Internet Users -0,8% -0,4% +0,2% +0,3% +0,3% -0,2% -3,4% -2,0% -1,7% -0,2% +0.3% +0,9% 1Q'15 2Q'15 3Q'15 4Q'15 1Q'16 2Q'16 -4.2% -2.5% -1.5% +0.1% +0.6% +0.7% +11.4% 25,6 22,0 23,2 22,822,4 21,2 11,775 +2.5% YoY Telecom Italia Group Results - 2Q’16
  • 29. 29 20,4 20,9 20,7 21,2 21,5 21,9 1Q'15 2Q'15 3Q'15 4Q'15 1Q'16 2Q'16 290 374 435 538 672 790 6.121 6.105 6.081 6.045 5.980 5.902 534 492 468 440 416 396 1Q'15 2Q'15 3Q'15 4Q'15 1Q'16 2Q'16 Domestic Fixed Details Fixed BB Service Revenues Trend 000, €mln, % YoY Fixed BB Customer Base Fixed BB ARPU Focus on Fiber Users Total +5.7% +6.8% +3.9% +5.8% +6.9% DCB DARPU/Mix Total 6,945 6,971 6,984 7,023 7,067 Flat ADSL Fiber Total Flat 6,411 6,479 6,516 6,583 6,652 €/month +4.4% YoY TI Fiber Retail NGN Wholesale Free +6.2% 7,088 6,692 290 374 435 538 672 790 39 76 105 139 170 199 1Q'15 2Q'15 3Q'15 4Q'15 1Q'16 2Q'16 -0,3% +0,1% +0,3% +0,8% +1.7% +1,8% +6,0% +6,7% +3,7% +5,0% +5.3% 4,5% 1Q'15 2Q'15 3Q'15 4Q'15 1Q'16 2Q'16 Telecom Italia Group Results - 2Q’16
  • 30. 30 Domestic Fiber & LTE Coverage Trend Today Fiber Coverage* Today 4G Coverage +14pp YoY +11pp YoY * Household passed Coverage ~84%51% Population 98%94% today 2018 today 201881% 83% 86% 88% 92% 94% 1Q'15 2Q'15 3Q'15 4Q'15 1Q'16 2Q'16 32% 37% 40% 42% 45% 51% 1Q'15 2Q'15 3Q'15 4Q'15 1Q'16 2Q'16 Telecom Italia Group Results - 2Q’16
  • 31. 31 699 736 781 809 242 266 268 238 346 327 330 287 734 691 736 626 2.021 2.020 2.115 1.960 IQ15 IQ16 IIQ15 IIQ16 1Q’16 vs 1Q’15 Labour Cost Commercial Industrial, G&A & other COGs -1 mln Flat YoY -155 mln -7.3% Labour Cost Commercial Industrial, G&A & other COGs 2Q’16 vs 2Q’15 Domestic cost program fully on track with strong improvement in efficiency and profitability Telecom Italia Group Results - 2Q’16 ΔYoY by destination COGs Commercial Industrial & G&A Labour Cost Other +37 +24 -9 -43 -10 +5.3% +9.8% -2.0% -5.8% +28 -30 -67 -110 +25 +3.5% -11.2% -14.1% -15.0% ΔYoY by destination COGs Commercial Industrial & G&A Labour Cost Other Organic* * Organic: before non-recurring items and excluding exchange rate fluctuations
  • 32. 32 Domestic - Cash Cost Efficiency Dashboard Original ‘16-’18 Efficiency Target Additional Efficiency ‘16-’18 Target New Efficiency ‘16-’18 TargetRun rate @2018 Process Driven Costs Market Driven Costs Labour Costs Total Opex 0.2 bln€ 0.1 bln€ 0.1 bln€ 0.4 bln€ Total Cash Cost Efficiency 0.2 bln€ 0.6 bln€ +0.4 bln€ +0.6 bln€ +1.0 bln€ 0.8 bln€ 0.8 bln€ 1.6 bln€ NGN Optimization Real Estate & Other Total Capex Other Costs Traditional - 0.2 bln€ - - +0.12 bln€ +0.13 bln€ +0.1 bln€ +0.05 bln € +0.3 bln€ +0.15 bln€ +0.15 bln€ 0.32 bln€ 0.23 bln€ 0.2 bln€ 0.05 bln€ 0.5 bln€ 0.15 bln€ 0.15 bln€ Telecom Italia Group Results - 2Q’16
  • 33. 33 Telecom Italia Group Results - 2Q’16 TIM Brasil - Cash Cost Efficiency Dashboard* * Including 2018-2015 inflation & other structural changes ** After R$1.7bn 2018 run rate Efficiency Actions (Volume-Driven excluded) to offset Inflation & other structural changes New Plan CAPEX R$ 0.5bln TOTAL R$ -0.1bln R$ 0.9bln R$ 1.5bln Run rate 2018 vs 2015 Δ NEW vs OLD OPEX R$ -0.6bln R$ 0.6bln** R$ +1.2bln R$ +0.4bln R$ +1.6bln Old Plan
  • 34. 34 1.184 975 2Q'15 2Q'16 2Q'15 2Q'16 3.792 3.570 569 250 2Q'15 2Q'16 Revenues Organic EBITDA** Focus on Mobile Service Revenues* Capex R$mln, % YoY 4,361 3,820 Mobile Service Net Revenues (YoY%) show first signs of recovery 1,276 1,190 29.3% 31.2%+1.9pp -6.7% EBITDA Margin % on revenues 27.1% 25.5%-1.6pp TIM Brasil: 2Q’16 Results -5.9% -56.1% -12.4% -17.7% Equipment Service Total Important EBITDA improvement vs 1Q’16 also supported by Efficiencies -15,0% -6.7% 1Q'16 2Q'16 -5.7% -7.1% -8.5% -9,1% -6.5% 2Q'15 3Q'15 4Q'15 1Q'16 2Q'16 Telecom Italia Group Results - 2Q’16 * Data do not include revision related to prepaid revenues in 2015 ** Before non-recurring items
  • 35. 35 For further questions please contact the IR Team IR Webpage TIM Twitter Account TIM Slideshare Account www.telecomitalia.com/investors +39 02 8595 4131 www.twitter.com/telecomitaliatw http://www.slideshare.net/telecomitaliacorporate Phone E-mail Investor_relations@telecomitalia.it Contact details for all IR representatives: www.telecomitalia.com/ircontacts Investor Relations Contact details Telecom Italia Group Results - 2Q’16