Presentation slides - FY2016 Preliminary ... - Gruppo Telecom Italia

TELECOM ITALIA GROUP FY’16 Preliminary Results + 2017-’19 Plan February 6, 2017

FY’16 and New Plan: A Transforming Company

Giuseppe Recchi - Flavio Cattaneo – Stefano De Angelis - Piergiorgio Peluso

Safe Harbour 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 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. 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, TIM 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. TIM undertakes no obligation to release publicly 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 TIM 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 periodic filings made 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 2016 preliminary financial results of the TIM Group and the data of the previous years provided for comparison purposes, were drafted in accordance with the International Financial Reporting Standards issued by the International Accounting Standards Board and endorsed by the European Union (designated as “IFRS”). The accounting policies and consolidation principles adopted in the preparation of the preliminary financial results for 2016 FY and the 2017-2019 Industrial Plan have been applied on a basis consistent with those adopted in the Annual Consolidated Financial Statements at 31 December 2015, to which reference should be made, except for the new standards and interpretations adopted by the TIM Group starting from 1 January 2016 which had no effects on the 2016 preliminary financial results and the 2017-2019 Industrial Plan. Therefore, the latter financial information doesn’t take into account the new following standards that are not yet in force: IFRS 15 Revenue from Contracts with Customers, IFRS 9 Financial Instruments and IFRS 16 Leases. In addition, the 2016 preliminary financial results have not been verified by the independent auditors. Within the Brazil Business Unit, TIM Brasil's Management during 2016 identified that incorrect accounting entries were made in prior years in connection with the recognition of service revenue from the sale of prepaid traffic. Such incorrect accounting entries, resulted in the early recognition of revenues and consequently the underestimation of deferred revenue liabilities for prepaid traffic not yet consumed. The incorrect accounting entries did not have any impact either in terms of net financial position nor on cash and cash equivalents. In light of the above, the comparative financial information as of 31 December 2015 have been revised, segment information included. Segment information is consistent with the prior periods under comparison with the exception of the Media Business Unit that, starting from 1 January 2016, as a result of the change in the operational mission of Persidera, is included in the Domestic Business Unit. Furthermore, the Sofora - Telecom Argentina group, which was disposed of on 8 March 2016, is classified as Discontinued operations. Telecom Italia Group Results – Preliminary FY’16 + 2017-’19 Plan Giuseppe Recchi - Flavio Cattaneo – Stefano De Angelis - Piergiorgio Peluso

2

Agenda

Opening Remarks - Giuseppe Recchi

A Transforming Company - Flavio Cattaneo

Turning around TIM Brasil - Stefano De Angelis

Financial Empowerment - Piergiorgio Peluso

Wrap-up - Flavio Cattaneo

Back-up Telecom Italia Group Results – Preliminary FY’16 + 2017-’19 Plan Giuseppe Recchi - Flavio Cattaneo – Stefano De Angelis - Piergiorgio Peluso

3

Agenda






Back-up Telecom Italia Group Results – Preliminary FY’16 + 2017-’19 Plan Giuseppe Recchi - Flavio Cattaneo – Stefano De Angelis - Piergiorgio Peluso

4

Group FY2016 Highlights: Recovery in All Main Metrics Crash Phase Started in April and acted as a Game Changer in only 3 quarters Organic data, YoY

Revenues

+0.8%

New Management Team -3.1%

-3.5%

1Q'15

3Q'15

New Management Team

FY’16 -2.5%

-1.2%

-1.8% -4.4%

-5.6% -6.7%

2Q'15

+6.6%

-4.3%

-5.1%

FY’15 -4.6%

EBITDA

4Q'15

2Q'16

3Q'16

+5.9% FY’16 +2.4%

-3.6% -7.5%

+6.4pp 1Q'16

+4.0%

-8.1%

4Q'16

1Q'15

+13.4pp

FY’15 -4.5% 2Q'15

3Q'15

Net Cash Flow

4Q'15

1Q'16

2Q'16

3Q'16

4Q'16

Net Debt €Bln

€mln, reported data

FY’16 2,159

+2,786* YoY

FY’15 -627

27.4

27.0

27.3 26.8

27.1

27.5 26.7

+1,616 +140

-779

+438

+188

-474

1Q'15

2Q15

3Q'15

4Q'15

= Crash Phase

1Q'16

-376

2Q'16

25.1

+779

-2.2 Bln€ YoY* 3Q'16

4Q'16

* including 1.3 Bln€ Mandatory Convertible Bond

1Q'15

2Q'15

3Q'15

4Q'15

1Q'16

2Q'16

3Q'16

4Q'16

Telecom Italia Group Results – Preliminary FY’16 + 2017-’19 Plan Flavio Cattaneo

5

Group 4Q’16: Robust Delivery in Italy and Brazil Trend Uplift continued

Domestic

Organic data, YoY

Revenues

+2.7%

New Management Team

-1.6% -2.6% 1Q'15

+1.0%

-2.3%

-2.3%

4Q'15

1Q'16

-3.8%

+5.0pp 2Q'16

FY’16 +4.5%

3Q'16

4Q'16

1Q'15

-4.4%

-5.2%

4Q'15

1Q'16

2Q'15

3Q'15

-5.2%

+1.6%

Brazil

-5.2%

-12.4%

1Q'15

2Q'15

-15.3% -20.2%

3Q'15

4Q'15

2Q'16

3Q'16

4Q'16

Organic: before non-recurring items and excluding exchange rate fluctuations

= Crash Phase

-3.4%

FY’15 -2.3%

+13.6pp 1Q'16

3Q'16

1Q'15

4Q'16

+2.8%

+0.5%

FY’16 -8.9%

-8.8%

FY’15 -12.1%

2Q'16

New Brazil CEO

-1.7%

-15.2%

+13.6pp

FY’15 -4.9%

New Brazil CEO -3.3%

+8.4%

-0.9%

-10.4%

3Q'15

+7.8%

+6.9%

New Management Team

FY’16 +0.1%

-1.1%

-1.4%

FY’15 -2.0% 2Q'15

Organic EBITDA

2Q'15

-2.4%

-6.7%

-15.0%

3Q'15

4Q'15

FY’16 -4.4%

1Q'16

+17.8pp 2Q'16

3Q'16

4Q'16


6

4Q’16 Domestic: Better Results, KPIs and Operational Trends Good set of KPIs and improving trends on core business

4Q’16

KPIs

Service Revenues Trends YoY

Mobile

Fixed

New Commercial approach is delivering excellent results: • Boosting Service revenue performance: +3.1% YoY • Increasing penetration of LTE and upselling on CB

Fixed Top Line turns positive: • 4Q’16 Total revenues +1.5% YoY vs -3.9% YoY in 4Q’15, supported by the new flow of enabling device sales • Flat performance in fixed service revenues, notwithstanding the negative effect of retroactive wholesale repricing

 ARPU up to 13.3€ vs 12.8€ in 4Q’15  LTE penetration increases to 62% in MBB Customer Base  Positive MNP Balance at +26k (vs -44k in 3Q’16)  Best-in-class Churn rate, confirmed at 22.8% on FY basis  New record-low line losses performance at -83k  BB Net Adds +47K  BB ARPU up to € 22.3 (vs 4Q’15 21.2€)  Fiber Net Adds +125k in 4Q’16, currently reaching over 1 mln Retail NGN customers  Wholesale included, fiber lines now stand at about 1.4 mln

+3.1%

FY’16 +1.4% +1.1% +0.6%

+0.7%

1Q'16

2Q'16

3Q'16

4Q'16

-3.6%

-3.6%

3Q'16

4Q'16

FY’16 -4.1%

-4.3% -4.8% 1Q'16

2Q'16


7

The 2017-’19 Transformation Plan Pervasive Quality across the whole Company to drive Results

Extreme Quality: No Compromises to fully exploit Business Opportunities Change in Corporate Culture: from Complex to Agile, from Pondered to Fast and Effective

BEST INFRASTRUCTURES AND COVERAGE SUPERIOR COMMERCIAL APPROACH ENABLING EFFICIENCY

• CASH FLOW • DELEVERAGE • VALUE CREATION

SUBSIDIARIES RE-LAUNCH


8

Infrastructure: Ultra BroadBand Leadership Everywhere in Italy Enhancing Network Reliability, Coverage, Speed and Capacity to Provide Superior Customer Experience

Taking Fiber to Maximum Coverage

HH passed

Fixed

~80%

~86%

~95%

•

84%

~60% 42%

56%

2015

2016

•

75%

• 2017

2018

2019

~99%

>99%

•

4G outdoor population coverage

~98%

Mobile

>96%

98%

Best 4G & 3G Everywhere

• •

Wider coverage and more capacity for LTE

•

Inwit operates as a strategic asset, synergic and strongly integrated with TIM

• •

Spectrum to support commercial evolution

95%

88%

91%

2015

2016

New Plan

2017

2018

Old Plan

2019

Accelerated UBB roll out to further enable Commercial effectiveness and beat competition both at commercial and infrastructural level, also in selected C and D areas FTTC Expansion and Enhancement via eVDSL to deeply expand 200 Mbit/s coverage in 2017, increasing to 300 Mbit/s with further future enhancements FTTH/FTTB Acceleration in 30 main cities in 2017. Our market-driven approach increases target to 50 main cities by 2019 IP Core Network Evolution, Platform Modernization and New National Photonic Network with links up to 400 Gbps

Voice Quality increase on 3G technology, also for tactical/commercial needs

Focus also on FWA technology Telecom Italia Group Results – Preliminary FY’16 + 2017-’19 Plan Flavio Cattaneo

9

Attack Mode on Domestic Implementing an Attacker Approach and Returning to Growth 

TIM adopts an attacker approach to defend market share and focuses on the business basics, customers’ needs and quality to increase Ultra BroadBand take-up



Second brand ready to protect TIM premium positioning and exploit opportunities in the low-end segment



Lock-in clients with connected devices, leverage on billing for convenience of payment and develop a solid content strategy to enlarge addressable markets % NGN Accesses* on BB Fixed

Fixed Retail Line Losses** (mln) 2015

8% 2015

14%

2016

4x

2016

2018

2019

Lines losses reduced at parity by 2018 -0.5

2019

62%

Voice/BB/Video

pp

0.5 2016

pp

10%

~+20

14%

9%

12%

pp

Mobile****

2016

2019

Lock in Business CB (mln)

~+30

38%

2015

Consumer 3Play CB (mln)

~+30

Fixed ***

2015

-0.7

% LTE Customers on Mobile BB

Lock in Consumer CB (%)

2019

* “Fiber Ready” Accesses Included ** Including VoIP lines, excluding Consip impact

2015

0.9

2016

*** on total fixed CB **** on mobile calling

>3x

>5x 2019

0.1

0.2

2015

2016

2019


10

Turning the Corner: Domestic Revenues and Ebitda Growth Growing on Total Revenues and Ebitda, Stabilizing Service Revenues

Transforming Domestic performance already from 2017 €bln

Total Revenues

15.0

15.0

Service Revenues

14.0

13.9

New Total Opex

+~0.3

8.1

7.9

Total Opex

8.4

Run rate ‘15-’18 -0.8 bln€

7.6

Growing Total Revenues Stable Service Revenues

Stable Service Revenues Trend

+~0.3

@ stable Volume Driven Costs

+~0.5

8.0 Additional Volume Driven Costs Run rate ‘18-’19 -0.1 bln€

+~0.5

7.5

Volume Driven Costs

3.3

3.3

3.3

3.3

Opex net of Volume Driven Costs

5.1

4.8

4.3

4.2

2015

2016

2018

2019

EBITDA YoY Low-single digit Growth


11

Further Efficiencies in Cash Costs Opex and Capex Optimization €bln

New Total Opex

Opex 8.4

8.1

Capex 8.0

7.9

Capex on 26% Revenues

25%

Capital Intensity to drop below 20% in 2019

Excluding Licence

Volume Driven Costs

Opex net of Volume Driven Costs

3.3

3.3

3.8

3.6

3.9 5.1

4.8

4.3

-0.8 2015

2016

-0.1 -

2018

3.8 3.1

4.2

-0.8 2019

2015

2016

2.9

-0.2 -

2018

2019

Run Rate Total Cash Cost Efficiencies: Opex*+Capex Original Plan ‘16-’18 (February 2016)

Efficiency ‘18vs’15 ~0.6 bln€

Target reached within 3 quarters

Plan Revised ‘16-’18 (May 2016)

+

New Plan ‘17-’19

+

*Net of Volume driven Costs

1.6 bln€

D Efficiency ‘18vs’15 +1.0 bln€

+

D Efficiency ‘19vs’15 +0.3 bln€

1.9 bln€


12

Agenda






Back-up Telecom Italia Group Results – Preliminary FY’16 + 2017-’19 Plan Stefano De Angelis

13

A Strong Start Towards 2019 After 2016, Turnaround continues

2016 Turnaround Evidences Leader in

4G

2017-19 New Positioning

coverage (1,255 cities)

23.5%

+20%

(+3 pp YoY)

YoY

ARPU (in 4Q16)

R$19.2 (+9% YoY)

Price

Price

2017-19

2008

EBITDA Margin (in FY2016)

Today

33.5%

2012

Quality

(+2 pp YoY)

Quality

Develop a Convergent n-Play offer expanding the existing TIM Live FTTX coverage in Rio and São Paulo, exploiting the 700MHz LTE/WTTx coverage and also establishing partnerships to create 4P convergent offers (e.g. SKY)

Improve our brand positioning in order to become the preferred option for Postpaid customers and confirming our leadership on prepaid leveraging on the quality of our Network and new offer schemes Introduction of digital services bundled in the offers through the development of strategic partnerships with OTTs and content players

To be: 2017-2019

As is: 2008-2016

Postpaid Innovative Revs. (% of total base) (in FY2016)

Commercial Turnaround Adapt commercial strategy to implement a regional approach exploiting our different market position and redesign go to market

Financial figures compliant with TIM Participações consolidated accounting standards for FY 2016 Results and FY 2017-19 Plan

Telecom Italia Group Results – Preliminary FY’16 + 2017-’19 Plan Stefano De Angelis

14

Deploying a Faster and Wider Broadband Network Expanding 4G and 3G coverage

Population covered (%)

4G

3G

2016-2018 Plan (Feb 2016)

2017-2019 Plan

2016-2018 Plan (Feb 2016) 95% ~90%

2017-2019 Plan

92%

89% 82%

74%

59%

72%

2015

2016

84%

2017e

2018e

Cities covered

2019e

2015

2016

2017e

2018e

2019e ~3,200

~3,600 2,833

(# of cities)

>2,000

700MHZ

1,839

1,255 411

2015

2016

2017e

2018e

2019e

South and southeast: additional 1,800MHz spectrum availability in 2017 to boost speed and improve customer experience North, northeast and middle east: beginning of the 700MHz frequency roll out will guarantee more capacity and better coverage Financial figures compliant with TIM Participações consolidated accounting standards for FY 2016 Results and FY 2017-19 Plan

2015

2016

2017e

2018e

2019e

3G coverage evolution will support customers adopting data services and customers that are not using 4G yet


15

Mobile Market Scenario & TIM Revenue Share Evolution A Better “value for money” positioning

Convergence in SP/RJ and Selected Regions

Mobile

Customer base mix Customers

66.2 mln

Fixed Voice

Messaging

Voice On + Off

(SMS + WhatsApp)

>60 mln

Prepaid

Mobile Postpaid mix

Data

2015

ARPU Trend

2016

2017e

2018e

2019e

Mobile Market & TIM Revenue Share*

R$

Mobile Service Net Revenues; R$ bln; %

16.7

>35%

Postpaid

21%

18.0

~25%

~23% ~23% TIM Revenue Share -3.4%

Best “value for money” positioning will support Revenue Share rebound

63.8

2015

2016

2017e

2018e

2019e

Innovative Revenues will support total ARPU growth

Mobile Market Revenues

61.6 CAGR ~+3%

2015a

*TIM Revenue Share and Mobile Market Revenues consider Revenues from top 5 players, including SMEs Financial figures compliant with TIM Participações consolidated accounting standards for FY 2016 Results and FY 2017-19 Plan

2016e

2017e

2018e

2019e


16

Efficiency: Executing the Plan Ensuring Delivery and Furthering Efficiency

Efficiency Plan Evolution vs 2015FY

R$ bln

Flat

A High delivery 1.7

-1.1

C

B Improving efficiency

-0.5

11.7

-1.2

-0.6

~11.7

10.4 2.0

2.3 0.3

0.3

1.0 1.7 0.7

0.7

Old Plan 18 vs 15

July Plan Update 18 vs 15

New Plan 18 vs 15

2019 Additional Efficiency

New Plan 19 vs 15

2015FY

Inflation & Structural Growth

Volume Driven

Savings

Normalized OPEX Evolution R$ bln

2016FY

Inflation & Structural Growth

Volume Driven

Completion Added in of 2016-2018 2017-2019 Plan Plan

2019FY

Efficiency Plan Highlights

2016-2018 Plan (Feb 2016) 2017-2019 Plan

>12

11.7

~11.7

10.4

2015

2016

2017e

2018e

A

High delivery: from R$1.7 bln to R$2.0 bln in savings (2016-18)

B

Continuous efficiency: expanding target to R$2.3 bln at 2019

C

Flat Opex 2019 vs. 2015 despite inflation

2019e

Normalized by non-organic events Financial figures compliant with TIM Participações consolidated accounting standards for FY 2016 Results and FY 2017-19 Plan


17

Improving Profitability and Cash Generation Reshaping the Financial Profile

Normalized EBITDA Margin

%

>36%

•

33.5% 31.5%

2015

• •

2016

2017e

2018e

Consistent Growth in Profitability: improving EBITDA Margin and Free Cash Flow Run Rate Cash Cost Reduction supported by efficiency program, offsetting Inflation and Structural Growth Impacts Significant Capex Reduction alongside a Strong Upside in Network Coverage: Capex optimization and contracts negotiations

2019e

Capex Plan R$ bln

EBITDA-Capex

2016-2018 Plan (Feb 2016)

R$ bln

2017-2019 Plan

EBITDA 2016-18 ~12.5 bln

4.7

2017-19 36% in 2019

EBITDA

-3%

Capex

4.5 bln

~R$4 bln

< R$12 bln 2017-19 period 3G/4G Coverage >92%

EBITDA-Capex (% on revenues)

~4%

High single digit

> 15%

Financial figures compliant with TIM Participações consolidated accounting standards for FY 2016 Results and FY 2017-19 Plan


19

Agenda






Back-up Telecom Italia Group Results – Preliminary FY’16 + 2017-’19 Plan Piergiorgio Peluso

20

Opex Efficiencies continue to Accrue 4Q’16 Domestic Opex Breakdown Organic*, €mln

1Q’16 vs 1Q’15 Total Opex

2Q’16 vs 2Q’15

2,021

2,020

-1

2,115

699

736

+37

781

1,322

1,284

-38

1,334

Labour Costs

734

691

736

Process Driven & other

346

327

Market Driven

242 1Q'15

Volume Driven Opex net of Volume Driven

Process Driven Market Driven

1,960

-155

2,020

809

+28

804

1,151

-183

1,216

1,922

-98

781

-23

1,141

-75

-82

272

240

310

3Q'15

3Q'16

4Q'15

4Q'16

266

268

238

1Q'16

2Q'15

2Q'16

ΔYoY by destination Labour Costs Process Driven Market Driven

-11 -1.8% -32 -10.1% -32 -11.7%

-1 ~flat o/w Billing & Bad Debt -15 o/w Expo Spons. -16

o/w Comm. Levers **

*Organic: before non-recurring items and excluding exchange rate fluctuations ** Commercial levers include Sales, Caring & Advertising

1,192

237 274

318

-15.0% -13.0% -11.2%

+52

283

287

-110 Process Driven -42 -30 Market Driven

1,274

-30

1,029

286

330

Labour Costs

977

681

615

ΔYoY by destination

2,221

681

626

-43 -5.8% -19 -5.5% +24 +9.8%

4Q’16 vs 4Q’15 2,251

626

ΔYoY by destination Labour Costs

3Q’16 vs 3Q’15

ΔYoY by destination Labour Cost Process Driven Market Driven o/w Comm.Levers**

flat -46 -16.3% -36 -11.7% -5 ~flat

o/w Billing & Bad Debt -20 o/w Expo Spons. & -11 re-branding

Telecom Italia Group Results – Preliminary FY’16 + 2017-’19 Plan Piergiorgio Peluso

21

Up in OpFCF Generation Strong Operating Free Cash Flow Generation Performance €mln, Reported, % YoY

FY Group OpFCF

Domestic Reported +14.4% YoY Organic* +2.4% YoY

EBITDA

Capex

EBITDA

7,006

+1,012

8,018

DWC

OpFCF

6,712

5,567

+1,145

(3,900)

+191

(3,709)

603

-1,061

(458)

2,270

+275

2,545

FY'15

Reported +20.6% YoY Organic* +4.5% YoY

FY'16

Brazil Capex DWC

OpFCF

(5,197)

+321

(4,876)

EBITDA -451

165

1,974

+882

FY'15

+45% YoY

(286)

2,856 FY'16

Capex DWC

OpFCF

1,451

-123

1,328

( 1,289)

+122

( 1,167 )

(434 )

+604

(272) FY'15

* Organic: before non-recurring items and excluding exchange rate fluctuations

+603

Reported -8.5% YoY Organic* -4.4% YoY

170

331 FY'16


22

New Domestic Cash Cost Efficiency Dashboard 2015

2016

YoY

Efficiency ‘18-’15 May’16

D Efficiency ‘19-’15 Feb’17

New Efficiency ‘19-’15 Target

Total Opex

8.41

8.12

-0.28

-0.8

+0.4

-0.4

Volume Driven

3.26

3.36

+0.09

-0.05

+0.5

Opex net of Volume Driven

5.15

4.77

-0.38

-0.8

-0.1

Process Driven

1.28

1.14

-0.14

-0.32

-0.2

Market Driven

1.09

1.02

-0.07

-0.23

Labour Costs

2.78

2.61

-0.16

-0.2

+0.1

Total Capex

3.90

3.71

-0.19

-0.8

-0.2

Traditional

1.99

1.65

-0.35

-0.5

-0.2

NGN

1.70

1.92

+0.22

-0.15

Real Estate

0.20

0.14

-0.06

-0.15

Total Cash Costs

12.31

11.83

-0.48

-1.6

Run rate, €bln

-0.3

-0.9

-1.0

-1.9


23

Group Cash Flow Generation and Deleverage Cash Flow Generation Driven by Operations Combined with a Sustainable Dividend Policy

 Deleverage through Operating Cash Flow generation is a priority, supported by operational and financial discipline  2017-2018 Free Cash Flow: ~700 €mln per annum on average including spectrum*  No need for divestiture to pursue debt reduction  Dividends payment confirmed on Savings Shares according to statutory obligations. No Dividend on Ordinary Shares paid in Plan years

 2018 Net Debt/ Reported EBITDA confirmed below 2.7x and further improvement in 2019 Net Debt/ Reported EBITDA Ratio

3.9x Target Confirmed

3.1x

Further Improvement in Net Debt/ Reported EBITDA Ratio

96% YE’16 and from 96% to 98% YE’17 YE’18 Target moves up from 98% to ~99%; YE’19 one is set > 99%  YE’18 NGN Customers target increased 10%, from 5mln to 5.5mln Further Total Fiber Customers growth into 2019  Lines losses reduced at parity by 2018  Increase in Total Domestic Efficiency Target: from 1.6 Bln€ ‘15-’18 run–rate to 1.9 Bln€ ‘15-’19 run-rate

TIM Group

 Cumulative ’17-’19 Capex: ~11 Bln€*  Group Capital Intensity to drop below 20%* in 2019, in line with coverage targets fulfillment. Target includes additional investments in Italy in selected C and D areas

 Operational and Financial Discipline fully support 96% of Population in 6,704 Cities

 Revenues: € 4.0 bln

 4G: 1,255 Cities with 74% of urban population covered

 EBITDA*: € 1.3 bln

 3G: 2,883 Cities with 89% of urban population covered

 Revenues: € 333.5 mln

 Tenancy Ratio: 1.72x

 EBITDA*: € 163.6 mln

 EBITDA Growth: +13% YoY

* Organic: before non-recurring items

Telecom Italia Group Results – Preliminary FY’16 + 2017-’19 Plan Giuseppe Recchi - Flavio Cattaneo – Stefano De Angelis - Piergiorgio Peluso

28

Strategic Plan: Business Opportunities Convergence & Customers Lock in Demand Evolution

Entertainment & Pay TV

Georeferenced Marketing

Adjacent Markets ICT & Industry 4.0 Telecom Italia Group Results – Preliminary FY’16 + 2017-’19 Plan Giuseppe Recchi - Flavio Cattaneo – Stefano De Angelis - Piergiorgio Peluso

29

Consumer Commercial Approach

Value Protection

Focus on Convergence

Market Share Protection

Mobile   

Lock-in through devices and  payments Second brand is Ready  New Stores with Adjacent & Enabling products, and Best Quality



Full speed on convergence and innovation, including contents digital services and all devices (I.o.T)



Strong growth of bundles, combined with selected tariff/offers Dynamic pricing (on/off peak, local, etc.) to exploit capacity and other features; Omnichannel caring and upselling





Fixed Lock-in through devices/goods, contents, hyper-convergence Attack on strategic area; strong upsell to UBB; content as a driver



Building differentiation going over 4-Play: video, gaming, smart home, IoT, devices



Sustain ARPU, leveraging on high value devices, launch selected tariff/offers New CRM System to reinforce cross & upselling, enriching offer



Multimedia  Exclusive portfolio to differentiate offer  New approach on Content streaming  Gain Loyalty  Maximize share of household spending New Steps:  Exclusive deal with RAI (National TV) on Premium Italian Movies  Negotiations ongoing on Sport  Working on Simulcast + Interactivity with linear channel  Moving ahead with Original projects 



A unique, simple and attractive gateway to access all contents and services at Home Cutting-edge devices to access contents anytime and everywhere

Total Quality, exclusive Contents and Features to grow Fixed and Mobile Top Line, underpin UBB Take-Up and Maximize Household Spending Telecom Italia Group Results – Preliminary FY’16 + 2017-’19 Plan Giuseppe Recchi - Flavio Cattaneo – Stefano De Angelis - Piergiorgio Peluso

30

Business Commercial Approach

Enhance Distinctivness

Defend Traditional Revenues

Small Enterprises  Leveraging ultra broadband infrastructure and strong brand

Large Enterprises  Further invest in ultra broadband and ICT infrastructure (i.e. datacenter)

 Locking customer base (i.e. “value”, financial mechanisms)

Build a distinctive positioning vs. global OTT into IaaS and PaaS:

Extend leadership to ICT environment:

 Leveraging sales and caring proximity model

 Building service/data oriented “over-thenetwork” portfolio

 Focusing on “managed” services and guaranteeing full compliance to EU rules (e.g. local data storage)

 Creating open environment, maintaining delivery and management control

 Adopting a cooperative approach with local developers

 Reinforcing IT skills in commercial and operation

Stabilization of market share also on Business, Locking-in Customers for a stable Top Line Telecom Italia Group Results – Preliminary FY’16 + 2017-’19 Plan Giuseppe Recchi - Flavio Cattaneo – Stefano De Angelis - Piergiorgio Peluso

31

Taking Efficiencies to the Heart of the Organization An Efficiency Program based on three synergic layers, aimed at enhancing Cash Flow generation through the reduction of Total Cost of Ownership, while supporting Commercial Approach leveraging on improved flexibility and time to market

COSTS OPTIMIZATION

LEAN ORGANIZATION

   

Structural cash costs efficiency: cash cost reduction Run Rate ’19 vs ’15 of 1.9 Bln€ Sharp reduction of Opex not directly generating business Start of decommissioning program with initial benefits on TCO Vendor Consolidation

  

Simplification of organizational structure and Rightsizing Reconversion of personnel via Job Center to increase internalization: more than 4k people involved Further Revenue support



Processes & Procedures “Safari”:

PROCESSES RE-ENGINEERING AND TRANSFORMATION







mapping of business core processes to be concluded by 2017, involving ~400 core processes out of 700 internal ones; updating/definition of 1,300 procedural documents, and updating/elimination of 190k operating documents

Current processes optimization and re-engineering: a new transformation program has been started to quickly address and fix processes inefficiencies optimizing current procedures. The plan is rolling and includes over 150 actions, with significant benefits in terms of churn reduction, revenues increase, cost saving and customer satisfaction improvement Telecom Italia Group Results – Preliminary FY’16 + 2017-’19 Plan Giuseppe Recchi - Flavio Cattaneo – Stefano De Angelis - Piergiorgio Peluso

32

Re-launch of Subsidiaries

• Keeping control of Inwit

• TI Sparkle in a re-launch

• Olivetti can have a new life,

and exploting synergies with TIM roll out plans, instead of asset’s sale

phase; exploit synergies with Business division on Multi-National Clients

focusing on partnerships to launch cutting edge devices and ICT Digital Solutions


33

Group 4Q’16: Organic Revenues and EBITDA Organic*, €mln, % YoY

Group Revenues Equipment

403

4,655

+0.8% +23.3%

-1.2%

5,097 497

Total

4,600

4Q’15 3Q'15

Equipment Service

3,579

Equipment Service

40.8%

4Q’15 3Q'15

74

1,079

3,981 438

+48.0% -1.0%

3,543

-1.7%

1,125

-18.3% -0.7%

1,069

56

4Q’16 2Q'16

2,184

Domestic

EBITDA Breakdown 1,624 EBITDA Margin

42.8%

4Q’16 3Q'16

* Before non-recurring items and excluding exchange rate fluctuations

EBITDA Margin

+8.4%

1,760 44.2%

41.9%

419 Brazil

EBITDA Margin

+5.9%

1,153

+2.7%

4Q’15 2Q'15

4Q’16 3Q'16

Group EBITDA 2,062

3,875 296

Total Brazil

Service

5,058

Domestic

Total

Revenue Breakdown

+2.8%

429

36.8%

38.5%

4Q’15 2Q'15

4Q’16 2Q'16


34

Group FY’16: Capex and Net Debt €mln, % YoY

Group Organic* Capex Total** Brazil

Domestic

5,152 1,234

3,900

-5.2%

4,876

-5.5%

1,167

-4.9%

Capex Highlights 

Adjusted Net Debt 27,278

-2,159

26,651

25,119

YE’16 9M'16

YE'15

+627

YE’14 * excluding exchange rate fluctuations ** Other activities & eliminations included



Efficiencies also from lower procurement costs despite higher Investments on Innovative Services in Brazil



More investment in Italy mainly driven by UBB Network roll-out & Transformational Projects

3,709

9M’16 FY’16 1H'16

9M’15 FY’15 1H'15

Group Capex reduction due to different dynamics:

Net Debt Highlights 

The FY’16 Net Cash Flow at the Group level was 2,159 €million due to the strong OpFCF generation (2,856 €mln) and the benefit coming from the conversion of Mandatory Convertible Bond occurred in November ’16 (1,300 €mln)

27,278 YE’15 Telecom Italia Group Results – Preliminary FY’16 + 2017-’19 Plan Giuseppe Recchi - Flavio Cattaneo – Stefano De Angelis - Piergiorgio Peluso

35

Mobile and Fixed Performance 000, €mln, % YoY

Total Handsets

Service

Domestic Mobile Revenues 1,378

+4.0%

194

+9.3%

1,184

+3.1%

4Q’15 3Q'15

1,433 212

1,221

Domestic Fixed Revenues Total Equipment & Other

Service

% Calling

30,007

-390

29,617

86.3%

+0.3pp

86.6%

437

12.8 4Q’15 3Q'15

+147%

-3.6%

2,705 227

2,478

3Q'16 4Q’16

+8.2%

473 €22.3

€/month

+4.2%

2,572

+1.5%

Domestic BB Service Revenues

BB ARPU ARPU €/month

92

3Q'15 4Q’15

4Q’16 3Q'16

Customer Base and ARPU Dynamics Total Customer Base

2,664

€21.2

+5.5%

13.3 4Q’16 3Q'16

3Q'15 4Q’15

3Q'16 4Q’16


36

Mobile and Fixed Dashboard 4Q’16 Domestic Overview 000, % YoY

Mobile Service Revenue Trend

Fixed Line Losses +3.1%

+0.1% 1Q'15

2Q'15

3Q'15

4Q'15

+0.6% 1Q'16

+0.7% 2Q'16

+1.1%

3Q'16

FY’16 +1.4%

Business

1Q'15

2Q'15

-58

-58

11,217 10,480

o/w 4G

17%

1Q'15

10,754

25%

2Q'15

31%

3Q'15

38%

4Q'15

43%

11,775 49%

Total

2Q'16

-50

-56

-55

-52

3Q'16

4Q'16

-32

-39

-196

-173

-109

-165

-140

-82

-68

-100

12,082

51%

12,208 62%

1Q'15

Fiber

3Q'16

4Q16

Total

+59 -50

+10

-83

-134

-204

FY‘16 Fiber Net Adds +459k lines

Fixed BB Net Adds

BB Traditional

1Q'16

2Q'16

-123 -146

Mobile Broadband Users

11,648

1Q'16

-85 -139

+3.0 pp YoY

11,513

4Q'15

-44

Consumer

-4.2%

3Q'15

4Q'16

-1.5% -2.5%

Line Losses FY’16: -38% YoY

2Q'15

3Q'15

+84

+61

-58

-56

+26

+5

4Q'15

+103

1Q'16

2Q'16

+134

+118

+82

4Q'16

+125

-45

-56

+47

3Q'16

-91

-82

+43

+35

-79

+37

+47


37

Domestic Mobile in Detail 000, % YoY

Total

Mobile Service Revenues Trend -4.2%

-2.5%

-1.5%

+0.1%

+0.6%

+0.7%

+1.1%

D ARPU/Mix DCB

Mobile BB Service Revenues Trend Total

+3.1%

+16.0%

+2.6%

4.0% -0.8%

-0.4% -2.0%

+0.2% -1.7%

+0.3% -0.2%

+0.3% +0.3%

+0.9% -0.2%

1.9% -0.8%

DUsers -0.9%

-3.4%

1Q'15

+21.1%

18.0%

+6.3%

+17.5%

+5.9%

+4.7%

2Q'15

3Q'15

4Q'15

1Q'16

2Q'16

3Q'16

4Q'16

1Q'15

+2.5% YoY

+1.5% YoY

+14.5% +11.6% +10.1%

+2.4% YoY

+4.2% YoY

€/month

11.6

1Q'15 1Q'16

12.1

2Q'15 2Q'16

+8.2%

+7.1%

-2.8%

2Q'15

3Q'15

4Q'15

1Q'16

2Q'16

3Q'16

4Q'16

Mobile BB Customer Base

ARPU reported

11.9

+7.9%

+1.3%

DARPU/Mix -5.1%

ARPU

11.3

+20.7% +23.8% +20.5% +16.3% +11.4% +5.4% +15.0%

12.5

12.8

3Q'15 3Q'16

12.8

13.3

4Q'15 4Q'16

Total (mln)

10,5

4G Users

1,803

Internet Users

8,677

1Q'15

10,8

11,2

11,5

11,6

11,8

12,1

2,663

3,434

4,396

4,958

5,745

6,153

8,091

7,782

7,117

6,690

6,029

5,929

1Q'16

2Q'16

3Q'16

2Q'15

3Q'15

4Q'15

12,2 4G 62% of MBB 7,613

4,595

4Q'16


38

Domestic Fixed in Detail Fixed BB Service Revenues Trend

000, % YoY

Total

+5.7%

+6.8%

+3.9%

+5.8%

+6.9%

+6.2% +10.2% +8.2%

+8.3%

DARPU/Mix +6.0% DCB

+6.7%

+4.5%

+1.7%

+1.8%

+1.9%

+2.5%

1Q'16

2Q'16

3Q'16

4Q'16

+5.0%

-0.3%

+0.3%

+0.8%

1Q'15

2Q'15

3Q'15

4Q'15

+5.7%

+5.3% +3.7%

+0.1%

Fixed BB Customer Base Total

7,191

6,945

6,971

6,984

7,023

7,067

7,088

7,123

440

416

396

379

363

Free Total Flat

534

492

468

6,411

6,479

6,516

6,583

6,652

6,692

6,744

6,828

Flat ADSL

6,121

6,105

6,081

6,045

5,980

5,902

5,872

5,831

Fiber

290 1Q'15

374

435

538

672

790

872

997

2Q'15

3Q'15

4Q'15

1Q'16

2Q'16

3Q'16

4Q'16

Fixed BB ARPU

Focus on Fiber Users

€/month

22.4

20.9 20.4

21.2

21.5

21.9

NGN Wholesale

20.7

+5.2 pp YoY 1Q'15

2Q'15

3Q'15

353

22.3

4Q'15

1Q'16

2Q'16

TI Fiber Retail 3Q'16

4Q'16

39

76

105

139

290

374

435

538

1Q'15

2Q'15

3Q'15

4Q'15

170

672 1Q'16

199

247

790

872

2Q'16

3Q'16

997

4Q'16


39

TIM Brasil: 4Q’16 Results Revenues

R$mln, % YoY

Total

4,115

-1.7%

246

-18.3%

Equipment

Focus on Mobile Service Revenues YoY 4,043

-1.5%

201

-3.1% Service

3,869

3,842

-0.7%

-8.5%

-9.2%

4Q'15

1Q'16

-6.7% 2Q'16

3Q'16

4Q'16

Mobile Service Revenues (YoY%) confirm their rebound 4Q'15

4Q'16

Organic* EBITDA EBITDA Margin

36.8%

+1.7pp

38.5%

1,516

+2.8%

1,558

4Q'15 +0.5%

+2.8%

-15.0% 2Q'16

3Q'16

% on revenues

36.2%

+5.7pp

1,488

+13.9%

41.9%

1,695

4Q'16

-6.7% 1Q'16

Capex

4Q'16

EBITDA and margins improvements backed by: • Well executed efficiency plan • Lighter impacts from MTR • Improved revenues mix (more data and less handsets)

* Organic: before non-recurring items.

4Q'15

4Q'16


40

Maturities and Liquidity Margin €mln

Liquidity Margin

16,384

30,510(1)

14,175 22,417

12,483

Covered until 2020

5,483

3,296 2,757

7,000

2,049 708 FY 2017

Undrawn portions of committed

C&CE

2,126 4,574 2,546

1,267 859

1,373 563 810

2,209

2,028

1,817 1,479 FY 2018

Drawn bank facility(2)

8,093

FY 2019

FY 2020

Bonds

FY 2021

Beyond 2021

Total M/L Term Debt

Loans (of which long-term rent, financial and operating lease payable €mln 2,576)

(1) € 30,510 mln is the nominal amount of outstanding medium-long term debt. By adding IAS adjustments (€ 1,464 mln) and current financial liabilities (€ 598 mln), the gross debt figure of € 32,572 mln is reached. (2) Committed Bank lines are undrawn Telecom Italia Group Results – Preliminary FY’16 + 2017-’19 Plan Giuseppe Recchi - Flavio Cattaneo – Stefano De Angelis - Piergiorgio Peluso

41

Well Diversified and Hedged Debt €mln

6,533 Banks & EIB Op. leases and long rent 2,636

3.2% 20.0%

Average m/l term maturity: 8.02 years (bond only 8.44 years)

8.1%

2.3%

Other

Maturities and Risk Management

749

Fixed rate portion on gross debt approximately 70.7% 69.6%

22,656 Bonds Gross debt Financial Assets of which C&CE and marketable securities

32,574

denominated in USD and GBP and is fully hedged

(7,455) (5,483)

- C & CE

(3,964)

- Marketable securities

(1,519)

- Government Securities

(806)

- Other

(713)

Net financial position

Around 40% of outstanding bonds (nominal amount)

Cost of debt: ~5.1 %

25,119

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 1.951 €/mln (of which 308 €/mln on bonds) - the impact on Financial Assets is equal to 1.115 €/mln. Therefore, the Net Financial Indebtedness is adjusted by 836 €/mln. N.B. The difference between total financial assets (€ 7.455 mln) and C&CE and marketable securities (€ 5.483 mln) is equal to € 1.972 mln and refers to positive MTM derivatives (accrued interests and exchange rate) for € 1.635 mln, financial receivables for lease for € 160 mln, deposits beyond 3 months for € 100 mln and other credits for € 77 mln.


42

Domestic Fiber and LTE Coverage Trend Fiber Coverage*

32% 1Q'15

37%

40%

42%

45%

51%

55%

~60%

Coverage

+15pp YoY 1H'15

9M'15

FY'15

1Q'16

1H'16

9M'16

today

2019

>60%

~95%

today

2019

>96%

>99%

FY'16

Today 4G Coverage

81% 1Q'15

83%

86%

88%

92%

94%

95%

96%

Population

+8pp YoY 1H'15

9M'15

* Household passed

FY'15

1Q'16

1H'16

9M'16

FY'16


43

Domestic Fiber: More for the Same •

Increase coverage plans both FTTC and FTTH based on profitability. In non-profitable areas synergies with public tenders

•

Expansion and evolution of FTTC: Expansion of coverage, introduction of e-VDSL to support access speeds of 300 Mbit/s. Improving quality

•

FTTH acceleration: confirming the approach on 30 targeted cities (+59 municipalities of EuroSUD tender) in synergy with Flash Fiber

•

By 2019 additional development of 20 cities

Coverage accelerators

•

Agreements with third parties: • Agreement with Fastweb ( "Step up" in the FTTH coverage, joint development, market protection) • Possible agreements with local utilities to optimize investments (eg .. A2A, Hera)

5G

•

Access to Fiber will be a strategic asset for the development of 5G networks

More Fibre More Speed

First Mover


44

Focus on Domestic Opex Driven by Including Compensation Real Estate Recalibration and G&A and Solidarity

€mln, % YoY

(1,028)

+94

(74)

(140)

Mainly charges and provisions for employee reduction plan

+182

(164)

Net of Volume Driven: -378 €mln, -7.3% YoY 9,434

8,407

8,305

8,123

Organic -284 €mln, -3.4% YoY

FY'15 reported

non recurring items

FY'15 net of non recurring items

Volume Driven

Market Driven Process Driven & Other

Labour Costs

FY'16 net of non recurring items

non recurring items

FY'16 reported

Reported -1,129 €mln, -12.0% YoY Telecom Italia Group Results – Preliminary FY’16 + 2017-’19 Plan Giuseppe Recchi - Flavio Cattaneo – Stefano De Angelis - Piergiorgio Peluso

45

FY’16 Domestic: Focus on Investments €mln

Total Domestic Capex Total

-191

3,900

3,709

Innovative Capex Breakdown Innovative on total

52%

Innovative

Traditional*

1,704

+215

2,196

-406 -58 net of 2015 license

1,919

82% of Innovative Capex

169

1,790

Traditional Capex Breakdown 26

385

Real Estate

* Including 347 €mln for license

Comm. & Others

Real Estate

Comm. & Others

Total

 Innovative Investments (+215 €mln YoY) driven by a faster pace in LTE, NGN and Cloud Services

321

1,058 IT

IT

Domestic Capex Highlights

1,790

Network

1,919

1,403

FY'16

81% of Traditional Capex

229

+8pp YoY

Network FY'15

118

 82% of Innovative Capex and 81% of Traditional Capex are Network and IT, indicating strong focus on Infrastructure

Total


46

Open Access - Delivery and Assurance for all Retail and Wholesale Customers Delivery

Assurance

Focus on the Improvement of the Customer Experience:

Focus on Improving the Efficiency and the Customer Experience:

57 on going activities

33 on going activities

• Schedule appointments with customers even on weekends • Extension of the call period for appointment set-up • Courtesy SMS • Delivery Center to support customer continously • Availability of a Virtual Agent to choose date / time appointment • Recovery actions on customers who refuse the activation or are unavailable (4th representative) • App to increase the autonomy of the technicians during the intervention. • Advanced assistance with fee on configuration and customer plant

• Advanced assistance with fee on products • Extension of digital channels and self caring strengthening, also for fiber services • On-line diagnostic improvement to increase first call resolution • Proactive intervention on customers (modem) to prevent the occurrence of faults • New Work Force Optimization System and ticket allocation on the basis of the skills


47

For further questions please contact the IR Team

Investor Relations Contact Details Phone +39 02 8595 4131

IR Webpage www.telecomitalia.com/investors

Contact details for all IR representatives:

E-mail [email protected]

TIM Twitter Account www.twitter.com/telecomitaliatw

www.telecomitalia.com/ircontacts

TIM Slideshare Account http://www.slideshare.net/telecomitaliacorporate


48