Ladies and gentlemen, good morning and welcome to Telecom Italia Q3 2023 Results Conference Call. Paolo Lesbo, Head of Investor Relations, will introduce the event.

Ladies and gentlemen, good morning and welcome to TIM Q3 2023 results presentation. I am here with the CEO, Pietro Labriola; the CFO, Adrian Calaza; and the rest of the management team. The review of Q3 results will be the first topic Pietro and Adrian will cover today, followed by an update on the delayering plan and the Q&A session. Pointing out our safe harbor disclaimer on page two, let me hand it over to Pietro. Pietro, the floor is yours. Thank you.

Thank you, Paolo. Good morning, everyone. As you all will know, last weekend our board of directors took a milestone decision. We believe that not only will structurally solve the leverage issue the company has been dragging since more than 20 years, but will also allow us to transform it in a sustainable group with a lighter regulatory profile in the domestic unit, and with the ability to allocate resources on growing businesses in Italy and in Brazil. Moreover, we are delivering the main goal that was defined only one year ago when we presented our delayering plan approved unanimously, and I repeat, unanimously by the board of directors at the time, reaching on a like-for-like basis the stated target of leverage with macro conditions that have been worsening since then. But you will excuse us if we intentionally start with the results and not with the update on delayering plan, which is clearly the hot topic of today. As we mentioned many times, we’ll be carrying out two jobs at the same time, so we want to give the right emphasis to the performance in the third quarter, which fully confirms the positive trends of the first half, something of which we are really proud of, given the outstanding effort and commitment of each of our colleagues. While in Brazil continue to perform in line or better than expected, domestic revenues and EBITDA grew for the second consecutive quarter as we promised. In the nine months, both group and domestic performance support full year guidance. At group level, service revenue are up 2.1% year-on-year in line with low single digit growth target and EBITDA is up 5.3% year-on-year in line with mid-single digit growth. At domestic level, we were not used to, service revenue are trending towards stabilization while EBITDA is up 0.5% year-on-year in line with flat to low single digit growth target. Considering the positive drivers that so far have unfolded as expected and will accelerate in Q4 at domestic level, the full year guidance is confirmed. It will be the second consecutive year we deliver what we promised, something never happened in several years. Let’s go to the next slide with a deep dive on Italy. In Q3, all metrics in domestic businesses significantly improve both year-on-year and sequentially. Growth in total revenues accelerates. Service revenue are on track towards stabilization. Net of activation fees drag the underlying year-on-year growth is positive 0.9%. EBITDA is up for the second consecutive quarter with a robust plus 3.6% year-on-year driven by the tailwinds in Q3 and the new commercial agreement with Open Fiber in gray areas. Net of activation fees drag the underlying year-on-year growth is over 7%. Nine months into 2023, the direction of travel is clear. We can clearly state it, Italian operation are steadily improving towards structural growth. Furthermore, in Q4, we expect easier comps on energy and labor, the ongoing effect of repricing of high wholesale tariffs and of customer base stabilization while the drag on activation fee will fade away. Let’s move to Slide 6. Now the update on the four entities starting from TIM consumer where trends are improving quarter-after-quarter. I want to focus on the price action we have taken so far. After nine months, we have enough data points to make a balance and the conclusion is that price ups are working as expected. This year, we have targeted around 50% of wireline and 70% of mobile consumer customers with a 10% average increase. While ARPU is growing, churn has been remarkably stable regardless of the number of customer we have targeted in any given month. Indeed, churn in September is slightly lower than in March when we started to increase prices, credit to our team, who is managing this effort very effectively. Clearly, there is ground to carry on also next year. Furthermore, TIM consumer confirms the leadership in FTTH market share for the fifth consecutive quarter. Slide 7. TIM Enterprise posts another quarter of growth with a faster pace versus Q2. Cloud and security keep growing while connectivity is declining, an industry-wide trend, however, improving sequentially. The pipeline is very, very strong with more than €1.8 billion from ongoing negotiation out of which the contribution from the National Strategic Hub is running ahead of expectation with over €400 million in pipeline, even if with some delays as we commented last quarter. Considering the average duration of contract signed around three years, a significant portion of future revenues is secured. In the bottom half of the slide, we have NetCo that confirms the positive revenue trends, thanks to the new regulated prices, the improved technology mix, and the extension into gray areas of the commercial deal with Open Fiber, accounting for around €50 million this quarter. NRRP tenders now run at full speed. We expect to achieve the year-end target on 5G coverage and 5G backhauling, while we will progressively close the gap on Italia 1 Giga. However, in Sardinia, we face scarcity of specialized workforce, and this affects the pace of fiber rollout. Anyhow, we have one year to recover the gap versus the target, hence we don’t expect any penalties. Always on the NRRP we have a big positive news. As Infratel win anticipate in 2023, 30% of the total funds we are entitled over the coming years. This corresponds to approximately €700 million instead of €500 million we originally indicated and will be cashed by year-end. Let’s now move to Slide 8. Last but not least, TIM Brasil. Q3 results are again very strong despite the full lapping of Oi this quarter. Revenue growth is driven by better customer mix in mobile with a shift from low ARPU prepaid to high ARPU postpaid customers. EBITDA grows double digit, driven by a very solid business performance. At the same time, EBITDA after lease is very strong, also thanks to accelerated decommissioning of mobile sites. It is worth mentioning that Team Brasil performance is so strong, thanks to a well-executed strategy all around. Improvement in customer service, bad network quality, and clever customer base management, coupled to a solid expansion in FTTH, all these in a much better environment due to the market consolidation. The end game is a robust cash generation. This is the background leading to 45% increase in dividend announced two days ago. The new level, over R$2.9 billion, corresponds to a solid 8% dividend yield on current share price, represents the floor for future distribution. But I want to remember, as stated several times, this is not a coincidence, but the result of a journey started in 2015, initially with the turnaround of the operation and then with the investment on quality and growth. We want to replicate this journey in Italy. Let’s now move to Slide 9. On the transformation plan, we are on track with around 27% of incremental full year target achieved in the third quarter and 77% in the ninth months. Main contributors are real estate, the reduction of energy consumption and labor cost. In Q3, we also pushed on digital projects, for example, with the launch of new activation process based on client digital ID and eSIM. We are also making our customer care more efficient where we are on track to achieve 10% year-on-year cost reduction. On energy, we secured 10% of consumption saving and signed nine-year PPA extension for additional 200 gigawatt per year of green energy. Our 2023 needs are almost entirely hedged, including pass-through. Furthermore, we have hedged 75% of 2024 needs. I close this slide with an update on the commissioning. We are on track to dismantle 15,000 public payphone by year end, around 7,500 have been already removed. We are also on track to shut down 6,700 central offices by 2028. We received from the national watchdog AGCOM the approval to close 1,300 by 2025. Let me now hand it over to Adrian for the Q3 financial results. Please, Adrian.

Thank you, Pietro. And good morning, everyone. Q3 was a very good quarter for TIM with positive trends both in Italy and Brazil as Pietro already anticipated in his section. Growth is accelerating in Italy with total revenues up 2.2% year-on-year and EBITDA up 3.6% year-on-year and Brazil continuing to deliver solid performance with total revenues up 7.9% year-on-year and EBITDA 12.1% year-on-year. The nine months trajectory is fully in line with the 2023 full year guidance that we are today reiterating. If we now look at OpEx, they slightly increased year-on-year in Q3 mainly due to revenue-driven costs, however, labor and energy start to be a tailwind. In detail, variable costs are up 5% year-on-year. The increase in COGS due both to ICT revenues dynamic and costs related to other goods sold is not fully offset by the reduction of interconnection, 3% down for low volumes and cost rationalization. And equipment 13% down due to the reduction of mobile devices sold. Commercial costs are also up year-on-year mainly driven by higher content and VAS due to higher multimedia revenues and higher commissioning costs only for accounting effects, but reducing year-on-year in cash terms, partially counterbalanced by the reduction in customer management costs. Industrial costs are down 4% year-on-year thanks to lower network maintenance and energy, partially offset by industrial building costs linked to inflation. Concerning energy, down 9% year-on-year, the reduction is due both to lower prices and volume efficiencies despite no fiscal benefits received in Q3 this year. G&A and IT are both down, the former 4% year-on-year for the reduction in professional services and the later down 17% year-on-year mainly due to lower managed service revenues. Finally, labor costs continue the sequential decrease year-on-year down 5% in Q3, thanks to solidarity and lower FTEs. Now on Slide 12, we see that CapEx are a touch higher year-on-year in Q3, driven by Italy where FTTH and 5G, including NRRP projects, are gaining traction. Additionally, we are still focused on CapEx prioritization and rationalization, especially in IT that is down 20% year-on-year. In our Brazilian unit, the extension of 5G coverage with the standalone technology is on track and represents a significant part of the total Brazilian CapEx. Equity free cash flow after lease in Q3 is negative mainly for working capital, higher financial expenses and lower dividends from Inwit. On working capital, due to specific effects both in Italy and Brazil, the contribution is negative since we did some unwinding of some seasonal items. Nonetheless, you should expect equity free cash flow to be neutral on a full year basis considering the anticipation of the €7.7 billion from the NRRP funds. Net debt is a touch higher versus Q2 to €21.2 billion after lease. But considering what we just said, you should expect net debt after lease at year end to be aligned to consensus, and we can commit on that. Next slide. In this Slide 13 you have a recap of all the work we have done on refinancing. We work hard to enforce our liquidity position, especially considering the tough market conditions. We have raised more than €4 billion since the beginning of the year with TIM being amongst the largest issuer in the European high yield market. It is worth mentioning that if you look at the last two years, the trend of TIM’s yield is strongly correlated to the Italian BTP that for the five-year tenor is now sitting above 4%, compared to below 1% at the beginning of 2022. And especially yield on Italian BTP was 2.4% back in July 2022 at the time of the Capital Market Day and 3.5% in June this year at the time of the last non-binding offer from KKR. In the bottom half of this slide you have the usual chart on liquid margin and debt maturities. As you can see, we have a strong liquidity margin which fully covers the upcoming maturities until 2025, especially considering debt between June 2024 and April 2025 there will be no maturities and clearly this before analyzing any situation through the deal of NetCo. With this, I hand over to Pietro.

Thank you, Adrian. Let’s now focus on the delayering plan. First, I want to recap where we stand in the process. The plan now envisage two separate and independent streams, the disposal of NetCo and the potential disposal of Sparkle. On NetCo, the decision taken by the Board on November the 5 was based on several independent legal opinions indicating that the matter clearly falls within the exclusive competence of the Board itself. It is not possible under the Italian law to transfer such competence to the shareholders. On this basis, the transaction was approved. Signing up last Monday and closing will be in the summer of next year. There are no deviation from the indicative timetable we indicated previously since we don’t foresee any [indiscernible] on the approvals. Indeed there are only two condition precedents, antitrust and golden power on which we believe execution risk is manageable. I want to stress the significant improvement of KKR’s offer during the competitive process. NetCo-based enterprise value has increased by €3 billion from €15.8 billion in the first non-binding submitted in February, to €18.8 billion in the binding offer. This improvement came despite the worsening of the macro conditions. Sparkle was originally included in the NetCo’s perimeter, but we are now running a separate process. The Board considered the non-binding offer unsatisfactory and have been mandated to verify the possibility of receiving a binding offer at a higher value once the due diligence is completed. The deadline for which has been extended to the 5 of December. We are confident in a positive outcome. Let’s move to Slide 16. I will now review the key terms of the binding offer. Before we start, let me remind you that to understand whether the offer is value-accretive, we must jointly consider two components, the street value attributed to NetCo together with the terms of the master service agreement. Let’s start from the first component. I will run the numbers step by step trying to be as clear as possible. KKR’s offer is equal to €22 billion with earnouts and conditional items. Earnouts subject to a total or partial merge or combination with Open Fiber. I repeat, total or partial merge or combination with Open Fiber and regulatory relief within 30 months from closing amount to €2.5 billion. Considering the comments that we all have heard in the last month in terms of having a single fiber network in the country, they potentially represent an additional driver of value creation in soft deleverage for ServiceCo. Net of these earnouts now NetCo EV is €19.5 billion. Taking out two conditional elements, the additional earn out related to benefit on energy and the profit from the liability management exercise, we derive a base EV of €18.8 billion. Additionally, at closing, TIM will get IRU free of charge for a value of €0.6 billion. So the real base EV will be €19.4 billion. Deducting FiberCop minorities and debt-like items, but adding back the benefit of the liability management debt will be completed before closing will reach estimated €14.2 billion. I repeat €14.2 billion. This is the key number because it represent the level of the leverage we expect to obtain at closing. It is worth mentioning that €14.2 billion does not include Sparkle. Therefore, the deleverage will increase in case we successfully complete its disposal. The additional component will be known if and when we receive the binding offer. As said, the process is ongoing and we are confident in a swift and positive outcome. Now let’s go back to the key number of €14.2 billion. At the Capital Market Day, we said that the deleverage could be made up of various components. Specifically we mentioned a potential scenario with the full disposal of NetCo, including Sparkle, plus the disposal of a minority stake of TIM Enterprise. This will lead to a deleverage target of approximately €16 billion. Comparing the KKR’s offer with the scenario envisaged at the Capital Market Day there are two key differences. The first is that NetCo disposal is only one of the components considered back then. The second is that NetCo no longer includes Sparkle. Therefore, on a like-for-like basis, NetCo deal enables a deleverage which we expect to be better compared to the Capital Market Day despite worsened macro condition. I now had over to Adrian who will explain the implication of the deleverage for ServiceCo.

So let’s continue to run the numbers and focus on ServiceCo. Taking year-end 2023 consensus net debt after lease of €20.6 billion and deducting the €14.2 billion of the leverage at the closing ServiceCo is left with pro forma net debt after lease of €6.4 billion, of which approximately €1 billion correspond to the debenture issued in Brazil. This amount is consistent or even better compared to the target of below €5 billion as indicated in the Capital Market Day that included Sparkle and the disposal of a minority stake in TIM Enterprise. So €14.2 billion deleverage will be achieved through two components. First, the cash-in and second, pushing down existing debt. With regards to the debt, we will run a liability management that will be as market friendly as possible. In particular, up to €8.5 billion debt could be pushed down, including €1.5 billion of intercompany FiberCop loan. We envisage an exchange offer of outstanding TIM notes due in 2026 and onwards, denominated both in euro and U.S. dollars and timing will be in the second quarter of 2024. With this, ServiceCo will be left with a leverage below 2x net debt EBITDA after lease, and we’ll have sufficient liquidity to cover upcoming maturities until 2029. And again, this before considering Sparkle and NetCo earn-outs, positioning the company at almost the same level of our best-in-class peer’s average. Now back to Pietro who will review the conditions regulating the future relation between NetCo and ServiceCo and some financials of ServiceCo.

Let’s move to Slide 18. The master service agreement represents the second component to understand whether the offer is value-accretive. The first message is that the MSA generates an expected positive impact versus the Capital Market Day plan. The second message is that the MSA is a pure commercial agreement, not financially committing ServiceCo differently from FiberCop. This because a minimum guarantee in terms of fees or volumes is not contemplated. This is a fundamental element to ensure ServiceCo is sustainable in the future. To be precise, ServiceCo will only grant the acquisition of a minimum quantity of certain engineering services, consistent or below its business plan, but will also provide, among others, cloud services to NetCo on exclusivity basis for a period of time. At the same time, while benefiting from most favored client closed on a nondiscriminatory basis, ServiceCo has granted exclusivity to NetCo. Let’s now take a high-level review of ServiceCo financial. ServiceCo will be financially strong to compete as a as a limited down customer-focused service company in Italy and Brazil. TIM will no longer be vertically integrated, and this will translate into the same regulation being applied to all market players, including TIM itself. In addition, it will still leverage significant infrastructure. TIM Brazil already is the most profitable Telco in Latin America with clear leadership among its peers in margin and free cash flow yield. It is set to outgrow the market and to deliver superior and sustainable value with the strong shareholder remuneration as announced two days ago. In 2003, we expect ServiceCo to generate revenues at around €13.5 billion, growing at the CAGR of around 3% in 2003, 2006. EBITDA after lease of around €3.2 billion, growing at a CAGR of around 10%. CapEx of around €2 billion, substantially stable over time and landing at around 14% of revenues in 2026. EBITDA after lease minus CapEx of around €1.1 billion, doubling by 2026. ServiceCo 2023 financial, which are based on 2023-2025 plan do not consider year-to-date actual results, while the 2023-2026 CAGR do not constitute a guidance. We will provide it during the Investor Day in March next year. In the bottom half of the slide you also find Sparkle’s financial that are not included in the ServiceCo numbers I’ve just presented. Before moving to closing remarks, one final but extremely important message. Post NetCo, ServiceCo will still be the most infrastructure player in the Italian market. It will own and operate the mobile network coupled to the best spectrum portfolio, the largest data center infrastructure, the IP backbone, higher use at the carve-out for the P2P, transport and backhauling. This represents a strong competitive advantage. Now my closing remarks. In 2022 we delivered what we promised, the guidance. Nine months in 2023, we are delivering again what we promised. TIM Brazil continued to perform better than expected, while the acceleration of TIM domestic is materializing. Full year guidance is confirmed, even in a worse context. We presented a plan in July, showing how to solve the debt issue that was approved, I repeat, unanimously by the Board. The NetCo transaction jump starting delaying plan, restoring full financial flexibility as a result of a sizable deleverage. The MSA generates an expected positive impact versus the Capital Market Day plan and does not contemplate minimum guarantees in terms of fees or volume. ServiceCo is expected to generate a combined pro forma EBITDA after lease of approximately €3.2 billion and EBITDA after lease minus CapEx of approximately €1.1 billion in 2023 with cash generation set on a strong growth trajectory. Now that all the ingredients are in the right place, we will build the new team. Let’s put the plan into action. With this, I open the Q&A session.

Ladies and gentlemen, the Q&A session is now open. [Operator Instructions] Thank you. The first question comes from Mr. Tavolini Giorgio of Intermonte SIM. Mr. Tavolini, please.

Good morning, gentlemen. Thanks for taking my questions. Couple of I may. The first one is about the authorization process for the NetCo sale. Can you explain the path taken by the team Board of Directors, which led to preferring the direct sale of NetCo without a shareholder meeting rather than an alternative authorization process? And the second one is on the domestic guidance. Given your nine months performance, I was wondering if you see scope to achieve the current EBITDA guidance for the high end of the indicated range. Many thanks.

So let’s start from the second one that it easier. Yes. We will reach the high part of the guidance, but I’ll try also to give a better view about the first question that is related to the process. First, let me say that I’m not a lawyer, but I come to learn quite well these matters. I base my conclusion on positive law, that is on the existing and actual Italian corporate rules rather than interpretation or speculation. And under the Italian law, the contribution of a going concern and the sale of the shares of the resulting company is a typical Board of Directors decision. There is no rule at law stating the contrary. It is something which is the domain of the Board and cannot be delegated to shareholders. This is true regardless the size of the transaction. The only exception to this fundamental rule is when the company by law lists expressly the situation where it is required the prior authorization of the shareholder meeting. But teams by law does not include such provision nor it requires such authorization. I also understand that someone might say or is saying that the transaction changed team’s corporate purpose and as such as to be decided by the extraordinary shareholder meeting. I don’t understand on which basis one could reach such conclusion since we made a very careful and deep analysis of this transaction based on the effective parameters of team’s network before and after the contribution, always taking into account the way team is currently operated, which is far different from its monopolistic origin and considering the language of the bylaw, obviously this analysis has been conducted with the support of eminent legal experts who have been asked to render a truly independent and BS opinion based on the large information we have been providing to them. Both factually and legally, they all concluded that the corporate purpose of team providing with any means communication services to the end user and for these purposes exercising communication network in all possible manner will remain unaffected. I have heard many speculation on this point, but I’m not aware of any analysis having been made with full knowledge of teams activities and networks before and after the transaction. Without it, it’s impossible to come to any reliable conclusions. More than that, let me remind once again that this transaction is no more than the strict execution of the delaying plan approved in July 2022. The plan was approved unanimously and at that time we engaged with all investor by way of a very comprehensive Investor Day and neither then nor during the following month we have been receiving negative comments on the proposed strategy. We have signed the bonding contract last Monday and our responsibility now is to implement all the execution actions. The closing is foreseen between end of May and end of July. Of course, we will explain to shareholders, which believes that the Board was not empowered to execute the transaction, why they are wrong and should it be the case, we are ready to do it in court where we are confident that the conclusion of our board will be confirmed. And even in the worst case, we do not envisage the risk of the transaction being delayed or blocked. I hope and that there was enough clear.

Many thanks, Pietro, very clear.

The next question comes from Mr. David Wright of Bank of America. Mr. Wright, please.

Yes, thank you for taking questions. So just maybe a clarification there. If there was a legal challenge to your board approval, does that stop the clock on the deal or does the deal go ahead regardless, especially and/or if there is a shareholder vote commissioned? And my second question, I think it’s maybe answered by the slides, but just to confirm, Pietro and Adrian, the earnout looks like it accrues entirely to Telecom Italia. There is no minority participation in the earnout. Is that correct? Those two questions. Thank you so much.

So let me answer to the easiest one. There is no minority leakage. So the earnout, it’s all on us. Then as I stated before, I’m not a lawyer, so I think that for the first question I asked the help of Agostino Nuzzolo, our Legal Counsel, to give some more colors.

So thank you for the question. It is not easy to imagine what the actions can be, anyhow, the only – as we said, in terms of execution of the transaction, we don’t foresee delays, events, unless we have an interim injunction from the Court of Milan stating that on a precautionary level, not the final decision, we had to stop, because there was incorrect authorization process. So far we have not received any notification. So four days after the transaction and before designing, we didn’t get any notification of such an interim measure. Maybe – but again, let me state again that we have based our conclusions on a legal and technical deep analysis of the network. And we are sure that we will go on exercising network either fix and mobile. As Pietro was mentioning, we will retain the strategic part of the fixed-line network, so we are not giving up the full network. There is nothing in our bylaws asking for the ownership of the network. And so frankly, we are quite confident that our vision of the transaction will be confirmed even in court.

Maybe I could just follow-up with a – and I feel hesitant to present what ifs, but here is a what if. If there was a shareholders extraordinary meeting called with a motion of no confidence in the board following the decision. Would that stop the clock or not?

First of all, I don’t know if he find this correctly. If you are asking, if there is the way to revoke the board, by way of an ordinary shareholders meeting, not an extraordinary. So in the ordinary shareholder having more than 5% of shares asks the board to convene a shareholder’s ordinary meeting. So without any special majority asking to revoke the board, again, there would be – even though the board would be revoked, there will be no impact on the execution of the transaction. The deal has been signed. It is binding. The only situation where we can imagine an impact on the transaction is where the court will decide that the authorization process was not correct. And to do that, it has to release an injunction against the company. This is the only situation where the transaction can be blocked, clearly, waiting for the final decision on the merit. Was I clear or not?

Yes, that is clear. And yes, I appreciate you being available on the call. Thank you for that.

My pleasure. But again, David, we have three legal opinions that confirm the position that Agostino was mentioned. Let’s remember that we have the [indiscernible] that have to – have the supervision on respect of the process of the board and they approved the process.

And are you allowed to release any of the information on the board voting? For instance, did the independent members all vote for the deal or is that private information?

No, David, we cannot.

Okay, thank you so much, Pietro.

David, sorry, just to compliment David on that question, because as you know, we had 11 votes on favor. So you know how many dependents we have. So you can do the math.

Yes, useful. Thanks again, gentlemen.

The next question comes from Mr. Ghilotti, Domenico of Equita. Mr. Ghilotti, please.

Good morning. First question on the NetCo deal, can you give us a sense of if there is a capital gain in transaction or there is any fiscal impact from the transaction that we have to add into the leverage calculation that you give us? And second question, still on the slide that has been presented, so can you give a sense of what the EBITDA contribution is coming from consumer and enterprise? And last but not least, on the earnouts, and particularly on the energy intensive earnout, do you have any discussion ongoing or in general the sector discussion ongoing with the government. So do you have any sense of visibility on potential decision on that front?

Hi, Domenico. Let’s start from the last one. The earnouts on energy. Yes. If you remember, we started also with the previous Italian government when Giancarlo Giorgetti, the actual MEF minister was also the Minister of Economic Development. It started a working team – a working table to work on the main activity to be put in place to give to the EdTech industry in Italy something to help the profitability of the industry. If you remember, we were talking about electromagnetic limits. We were talking about incentive for the switch off in the digitalization. We will always been talking about energy, because let’s remember the team and so also the other telco are among the highest consumer of energy. But we are not considered energy on the company. So we are unable to exploit fiscal incentive on that. So what we refer to in this kind of earnouts is exactly incentive related to all the industry and is not a company specific item. Related to the consumer, the enterprise, without going details, I can give you also some more help. If you remember, in the 7 July of 2022, we presented the level of EBITDA in 2025 of consumer enterprise. So the number were stated, that number were built on the 2022-2024 plan. I remember to everybody that we reached the target of 2022 or better. We over perform on EBITDA. The 2023-2025 plan, it’s better than the previous one, so you can do an easy calculation about the numbers.

Yes. Domenico, hi. On your first question, regarding the capital gain or the fiscal impact. On the capital gain, it’s clearly too soon to say, because we will have the final curve out with the last perimeter that was negotiated probably in the coming months. But even though we run already an analysis of how this deal could impact on our goodwill, the level of goodwill that we have, because it’s disclosed on our financials. So we will see by the time of the closing, clearly there could be a small capital gain. We will have cleared the number by the closing. On the second part on the taxation, clearly, this is a contribution on a company, so it has no fiscal impact at all.

Domenico, sorry, I don’t want to appear impolite in my answer, but again, at Page 17 of the presentation of the Capital Market Day, you have the team enterprise numbers, and on Page 23 you have the team consumer. I’m telling that not because I don’t want to answer, but to show to everybody that what we told, we are delivering. So we are doing exactly what we told in July the 7, 2022.

Okay, thank you.

The next question comes from Mr. Minerva, Luigi of HSBC. Mr. Minerva, please.

Yes, good morning. Thanks for taking my questions. The first one is about the future earnouts related to regulation. Do you still aim for a rub style regulation for the NetCo, which I think is technically not achievable, or do you refer to something else there? The second question is on the savers, whether as a result of the deal, can you think or plan for a savers conversion? And if so, what is the timing and the process? And finally, if I may just get one data point if possible, on Slide 19, could you tell us the ServiceCo EBITDA before leases? Thank you.

Luigi, about the first question, future not – it’s important to remember that differently from the non-binding offer where the earn-outs were €2 billion, but was just €1 billion for synergy and €1 billion on RAP. During the negotiation, we were able to negotiate an increase from €2 billion to €2.5 billion and to have a unique basket. So if the RAP, that’s exactly what you mentioned, will not succeed, while the merge or the combination and stress the word combination with Open Fiber will happen, we are able to arrive to get all the €2.5 billion. So it’s a basket and is not separated by the two parts. About the savers, I’ll leave it to Adrian.

Well, clearly, as we answered many times, we are always analyzing what the evolution of the saving shares and what we may do, considering also that this will be probably the second year that we won’t be paying dividends to the saving shares due to the net result of the company. But clearly we are one of the only four companies in Italy that have yet saving shares. And ServiceCo should be a more lighter company also in terms of the capital structure. We will see in the future, this is something that we are working on, but there is not clear decision yet. Probably when we disclose next year the new plan 2024, 2026, maybe we can have a decision. We’ll see. This is something clearly that will need to be treated at the Board level. And then if it happens, proposed to shareholders meeting. So it’s too soon to say, but clearly it is under analysis. And I think that you had a question about the EBITDA IFRS 16 on Slide 19, corresponding to the 3.2%. That was your question, Luigi?

Yes, so the 3.2% is the EBITDA after lease. What is the EBITDA before leases? Please.

We are not disclosing yet that number. You will for sure have it with the full year numbers. But consider that proportionally the impact of the leasing is much higher in Brazil than in the domestic business, proportionally speaking. So you have probably the numbers of the nine months. It’s something that should come up with some calculation.

Okay. Thank you.

Luigi, but it’s important to remember that as stated by the EU law, NetCo will become an sale-only player. It means that there will be no more cost oriented. So it could be also an RAB model. But what I was trying to stress is that now we have an overall basket that can be used for both assumptions. So combination of merge with Open Fiber and RAB, we just would one of that. And so it is possible to reach that amount. Before there were two separate baskets, so, for example, the possibility to have the Open Fiber deal and not the RAB should have only €1 billion. While in this case, for example, if the Open Fiber combination of merge that has a level of probability that could be considered higher than the RAB will happen. We are able to reach up to €2.5 billion.

Sorry, Luigi, just complimenting on the EBITDA of 2023, it is an information that is already in the slide, but it’s important to consider. It is that the MSA between NetCo and SerCo will have no impact at IFRS 16 level. So this is also important when you considerate what the level of EBITDA after IFRS 16 of circa will be. Okay.

Okay. Thank you both for clarifying. Thank you.

The next question comes from Mr. Robilliard, Mathieu of Barclays. Mr. Robilliard, please.

Yes. Good morning. Thank you for the presentation. I had a few questions, if I may. The first one was about the debt push down. You talk about €8.5 billion. Could you give us maybe a little bit more details into what you’re expecting to push down? Is it in terms of maturity, would it be short-term debt, long-term debt or mix? I don’t know if you can give clarifications there. Then, considering the slide on the MSA, you say that the MSA sign is better than what was included in the CMD plan. Now, I understand a lot of the conditions that you explain in the slide. But should I also understand that from a wholesale price point of view, you got to a deal that is more positive than what you were expecting back at the CMD? Then I had one on EBITDA. When you talk about the Slide 19 and you show EBITDA after leave, I assume this is organic EBITDA. And my question was, historically you’ve had a lot of restructuring costs. And so the organic and reported EBITDA is quite different. And I was wondering if we look forward, should we continue to expect a high level of restructuring one offs at SerCo or will that be kind of split between SerCo and NetCo if my question is clear? Then that’s about it.

Yes, Mathieu, I’m going to answer the first one and then Pietro clearly will answer the second one. In terms of maturities, clearly will be the mid and long maturities 2026 and onwards, especially in terms of bonds. The push down there will be for sure also some loans and additionally the intercompany loan that we have today between team and FiberCop. But in terms of bonds, clearly will be maturities on 2026 and onwards, both euro dominated and also U.S. dollar. So we will be, as we mentioned, as friendly. We won’t be discriminating any kind of bond, any kind of maturity above 2026. Why 2026, because clearly the 2024 and the 2025 are around the corner and especially since until between June 2024 and May 2025, we will have no maturity. So this only will include the second half of 2025. So again, that’s probably the outcome of the liability management.

Okay. So if I can just clarify, because it’s quite clear on your slide Page 17, that you were talking about 2026 and onward bonds, but that was under the caption of exchange offer. So the exchange offer relates to bonds that will be transferred to NetCo is what you’re kind of saying?

Yes, clearly, the ones that we will be traveling to NetCo.

Mathieu, related to the MSA, as you can see in Page 18, there’s not just one point that is the part that makes this MSA better compared to the capital market diversion. Just to give you an idea, as we stated also during the speech, for example, we will buy from NetCo some engineering activity and services with the transfer of the people to the NetCo perimeter. So there are some of these things that are better than what was stated in the Capital Market Day. Then there are also some regulatory assumptions that are quite aligned with what is happening today in the market analysis of the national watchdog that are reflected also in this new MSA. So there are several details, but what is important to highlight is what exactly we stated since the beginning. We didn’t want to take any kind of long-term commitment in terms of volume. Just to be clear, the – and when this decision was taken at that time, perhaps was the right decision. Compared with the FiberCop contract, we have no obligation of migration of customers to the FTTH. We have no specific commitment. These are those [ph], I mean, the FiberCop one that if we should continue in an integrated – vertical integrated vision could be more difficult to give us flexibility to manage the industrial company view and the financial company view.

Thank you. And on the EBITDA question.

Yes. Clearly, Mathieu it s organic EBITDA. Then we will need to understand that this will be clearly disclosing the new plan if we will continue with the agreements that the company did for many years today. So it will depend. It will depend on what the discussions with the unions will be. Then even if you won’t find it in the EBITDA 2024 and onwards, clearly there will be still the drag in terms of cash out due to the previous agreements. But clearly it is organic EBITDA.

And so sorry if I follow up on that, but I assume part of the employees will be migrated to NetCo. And so anything that NetCo does in terms of the cost cutting, if it means restructuring cost payments that would be under the responsibility and NetCo, it won’t impact TI ServCo for the employees and the structure that has been moved to NetCo, right?

Clearly we will sustain the cost only on the actions that the company decided until 2023. The new agreements that NetCo will decide will be on NetCo expenses.

Very clear. Thank you very much.

The next question comes from Mr. Lee, Andrew of Goldman Sachs. Mr. Andrew, please.

Hi, I just had a question just around the MSA again, and just wanted to get an understanding of your confidence in the agreement in terms of pricing for wholesale access in light of kind of the regulatory competition authority views on that. How confident are you that what you’re looking at in terms of economics as of ServCo sustainable over the coming years? Thank you.

Lee, we are confident also because while we were defining this MSA, we were always checking what could be the rules. And as we stated during the call, we built something that is not discriminatory because it’s clear that it is the main driver. So we are confident. And as I mentioned before, if you try to look at the actual market analysis that we are facing today, for example, there is the liberal – the proposal of the liberalization for 58 cities of the wholesale prices. It means no more cost-oriented. There are some proposals related to volume discount that is exactly the way which today Open Fiber is working. So we try to do all the best to be very compliant with all the rules. So we are quite confident.

Thank you.

The next question comes from Mr. Khiroya, Keval of Deutsche Bank. Mr. Khiroya, please.

Thank you for taking the questions, and I have two, please. So firstly, you made very good efforts in pricing up with the consumer in that fund [ph], but price increases catch up with that change as well? And then secondly, I understand you obviously can’t talk about future headcount reduction in ServCo. But can you highlight how we should think about the cash out within the cash flow at ServCo from working capital and existing headcount reductions already struck. Thank you.

Thank you. For the first question, I will ask to Andrea Rossini to answer, so I can take some rest. For the second there is Adrian.

Thank you for the question. Can you kindly repeat the question because we didn’t maybe perhaps catch up?

Yes. So within consumer, you’ve seen quite a good impact from price increases. Can you talk a little bit about where the front book price changes and then back book price changes that kept up in a similar way?

All right. So, yes, we – indeed we did a pretty extensive price increase, as you can see in the Chart Number 6. We have of course, not the entire results because as you see, there are about 3.7 million customers that were starting build of price-ups in September. Therefore the evidence of that price-up will unfold in Q4. We actually had pretty positive results better than expectation, better than planned on the price-ups. We also see a general trend in the market of price-ups also by other players. So in general, the activity has been pretty good. What is actually coming is an evidence of a relatively low churn. On the front book and back book pricing, there is still some delta, but that delta is leaning down.

Thank you.

But for everybody, Andrea is also able to smile also if he has a monotone approach.

Okay. Keval, on the second – on your second question, in terms of free cash also [indiscernible] as you would understand on the previous question, ServiceCo will carry the cash-out of the agreements that we did with the union of the people of Guarto [ph] and this – and cash-outs until they expire. So this is an impact that we already stated that in the Capital Market Day of last year, and this will be the case. Then obviously, this will be probably the main impact in terms of working capital. But the working capital will probably be different in terms of seasonality compared to the actual one because ServiceCo [ph] will maintain mainly the credit position and we have lower payment stock would work with the vendors because those will probably flow to most of it to NetCo. So we are not expecting the clear impact in terms of working capital or cash absorption in the first half of the year and will probably be more equilibrated in between the quarters. But those are the main assumptions. We will work this month in order to be more precise in terms of the working capital effect. And for sure we’ll give more information when we present the plan. Okay.

That’s very clear. Thank you.

The next question comes from Mr. Rickett Ben of New Street Research. Mr. Rickett, please.

Hi. Thank you. I had two questions. Firstly, just a clarification. On the NetCo MSA, when you say it’s nondiscriminatory, does that mean that ServiceCo is paying the same prices that other broadband retailers are paying, or is there some sort of preferential treatment for ServiceCo? And then second question, just on your financial expenses, which stepped up in Q3, presumably that is your floating rate debt sort of repricing up to the higher rate? I was just wondering, has that process now finished or should we expect financial expenses to increase again in the fourth quarter? Thank you.

Ben, if I may, if there should be preferred price, there should be discriminatory. So if we stated non-discriminatory, is because all these prices are available also to the market. Then about the second question.

Yes. On the financial expenses on the fourth quarter, clearly, the average interest rate that we have has been going slightly compared to last year, obviously because of the new financing that is entering into a higher interest rate compared to the ones of the previous year. But going forward, since we are not planning any additional issue, and since the initial net financial position of the fourth quarter, it’s slightly above the one over the third quarter. We are not seeing additional impacts in terms of financial expenses on the fourth quarter. So probably will be aligned between the fourth and the third quarter.

That’s very helpful. Thank you.

The next question comes from Mr. Brian O’Brien of UBS. Mr. O’Brien, please. Brian O’Brien: Hi. Good morning. Thanks for taking my questions. Can you hear me okay?

Yes. Brian O’Brien: Just two quick ones. First, have you given any thoughts around what kind of credit rating you might target for ServiceCo post this transaction? And then my second question was just in relation to the existing European Investment bank and bilateral term loans, would they be included in the 8.5 billion of push down to NetCo? Thanks.

Yes. On the rating of the company, even if we mentioned many times that wasn’t a target or a specific target, but clearly it is on our interest, it is on the interest of the Board to have a better credit rating. I think everybody wants to have a better credit rating. As you know, we run an assessment with the three rating agencies that we work with. This was performed during the summer. I think that you can see the outcome of one of it that was released on Monday I think – it was Monday. That already gives a sense of notion of what we can expect. Probably you will find the other ones issuing the reports [ph] these days and we will see. If you look at the numbers and considering that the assessment that we run with them was with the previous version of the MSA. And as we stated today, the final MSA is slightly better than the first one. We should be on a very comfortable area in terms of rating. But anyway, this will take time. It’s clear that the company still needs to regain some credibility, some trust. We think that we are doing that, delivering what we promised, but this is a long road. So that’s why probably it wasn’t an initial target, a specific rating, but going forward, hopefully the outcome will be positive. On the other question was regarding the – sorry. Yes. In terms of the bilateral loans, yes, there are some of it included. Not the main value of this push down, but there is a couple of bilateral loans that will be included in the push down, yes. Brian O’Brien: Okay. Many thanks. Thank you.

Next question comes from Mr. Watts Mark of Citi. Mr. Watts, please.

Hi, guys. How are you? Just a couple of questions here. So in terms of the NetCo setup, obviously, it’s not necessarily you guys now, but would you mind just confirming, has there been any kind of explicit supports or guarantees implied in that set up, i.e., assuming the government is a 20% owner of that asset, are there any direct or explicit support that structure? I guess the second question is, in terms of rating agencies, have you had much dialogue with them post release? I just wondered what the expectations were from you guys? Or do you have any expectations around where the ServiceCo might be rated versus the NetCo? And just for the allegiance of any doubt there on the 2024 and 2025, I guess, they’re staying in the ServiceCo. But just so unclear, you’re essentially looking to tender those bonds. Did you say in Q2, is that the target Q2 2024? Those are my three questions. Thank you.

Mark. I got your second question, but the line is not very good. So can you rephrase the first one, please?

Yes. The first question was just regarding the NetCo and ownership. So one, I just wanted to clarify what are you – what’s the intention in terms of the ownership split, because it’s not exactly clear based on financial press. But second of all, assuming the government owns roughly 20%, has there been any indications that they would look to explicitly support the structure? I think this is obviously relevant for ratings implications. I just wondered if you had a view on that.

Okay, I will start with the second one. In terms of the 2024 and 2025 maturities, clearly those are already there. The 2024 maturities will mature again before the closing because there are the ones that are due in May of next year. So will be clearly repaid by us on the assist situation, and then the 2025, I think it’s not clearly they will be repaid at maturity. So that’s why we worked with maturities on 2026 and beyond. There are also, yes, a couple of loans, if you remember we did in 2022, the loan with the SACE guarantee that clearly has an important step up in terms of interest rate by the third year. So probably also this one will be somehow repaid. But this is something that we are working on. But the thing that we defined is that maturities to be pushed down the 2026 and beyond.

About the first question, what we know is that we have all the equity commitment letter of the different investors that will participate. And then – and we know because this is part of the contract with KKR, that they will keep the control until the closing under the antitrust rules and the civil law. So these are the information that we have that are what is important in our decision making process. Then what will be after the closing? The way in which they will reorganize the company is not in our hands, but the receivability is that everything is fully funded. We have the equity commitment letter and we know that until the closing there will be the absolute control of KKR.

Okay. And just your expectations from rating agencies around the ServiceCo rating being less than 2 times levered, do you have an expectation as to where it should be rated?

Well, as I answered before, I think that the initial rating won’t be aligned to those metrics. It’s clear the rating agencies will like to understand if we can deliver what we mentioned in terms of the trends of Serco. They will need some time to align their rating to the specific metrics. But anyway, you will see these days, you can see from the one that was published on Monday that there is already a forecast of what could be the rating. The average of our peers in terms of leverage is around 1.7, 1.8 and you know that between those peers there are many of them that are investment grade. I won’t say clearly that that will be our initial target. Clearly we will need to work. We will need to see a couple of years but if we deliver what we think that the numbers will be, clearly we should be there in a couple of years.

Got you. So the ServiceCo target for rating is actually within the next couple of years?

No, I think that there will be an initial upside. I know if you read the Moody’s report issued the other day, and so there will be an initial upside. One, to not probably, we’ll see. But then the trend should improve going forward, okay.

Got it. Thank you.

Next question comes from Mr. Fabio Pavan of Mediobanca. Mr. Pavan, please.

Yes. Hi, good morning, and thank you for taking my two questions. First one is on regulation. So yesterday, Telefônica also did Capital Market Day and management was very clear in calling for the regulation for the space. They said it’s hard for telecom operators to meet the targets in terms of investments at a time when regulation is so high, competition is so high. So was wondering if you have any comment on this. Also, when it comes to fair share contribution here again, Telefônica was saying it’s time to give money back to telecom operators? And second question, eventually a follow up on the questions which were asked again on the ServiceCo post deal, maybe for Adrian. I suppose you’ve already done some exercise and was wondering if you can help us in having a better understanding on what we should expect is financing cost for ServiceCo considering that, yes, that pile will go down at some point in this rate environment, you will be managing increased number of liquidity. So that’s helping us in better-understanding what could help us [ph]? Thank you.

Thank you, Fabio. I have heard my friend Ángel Vilá, COO of Telefônica yesterday stating we want our money back and I cannot do any other thing that repeat exactly what he told related to the fair share. We want our money back. We did some simulation. If you image that all the customer move towards 4K and using TV screen of more than 50-inch, there is case that in three, four years we can have the volume of the data that we have to transport that could be multiplied by three, four times. And this is something unsustainable in our numbers, but not in the TIM numbers. In the numbers of all the telco player, this is not the case that is something on which there are several telco players or all the telco player in Europe that are stating the same thing. Then I participated also to an event where a representative of the OTT told us that they have good idea in how to manage the networks and do not have this kind of volume increase. And they told him that they are more than welcome to come here and explain how to do that. Because we don’t want to multiply by two or three times our investment. Related differently on the regulation and understand very well the Spain situation, because it’s not far from our situation. Let me say that our situation is also worst. But I think that the European level, everybody have to understand that if we want a digital Europe, we must have digital network, 5G and FTTH. 5G and FTTH as for investment. We are not doing charity. We must have return on investment. And in the actual market condition, the risk is that these investments do not have a return on investment. And to avoid to be considered, let me say, a kind of telco union representative, but putting on the table always facts, look at Brazil. There were the country with the worst mobile network until 2015. Then they move from five to three players. Then they changed some rules that they allow to the telco player to buy the 5G frequencies for a lower price, taking a commitment. And now are you seeing what is happening in Brazil? The best 5G network really existing, so the real 5G and not the fake 5G compared to all the other countries, and they did it not in 10 years, they did it in two years. So if the operator are able to have the right return on investment, they can invest on the network. And investing on the network they can allow to the GDP of the country to be back to grow because all the new technology requires this kind of technology. So I think that what Telefônica told is 100% agreed also by us, and it’s not only a matter of fair share. It’s a matter that we cannot continue with rules and laws that reflect the past and are not the same to everybody. Just to give you an idea, I’m on a social network. And yes, they receive – I receive a pop-up saying, if you want to continue to use the service, you have to start to pay €12, or differently, you have to agree on the fact that you can use your data. If I try to ask €12 of increase, I have to go through what in Italian language is called [Foreign Language]. So I have to go through several steps that are not acceptable if my competitor because the telco market is no more only telco, have different rules. So I don’t – I’m not asking and the telco in Europe are not asking for more rules for the others, but we are asking for equal rules for everybody. About the second question, I leave the stage to Adrian.

Yes, sure, Fabio, the second question would be much easier. But, yes, clearly, in terms of the impact of the deleverage that we will have, and we disclosed which portion is between domestic and in Brazil. Initially, the average cost of the debt won’t be different to the actual one that we have, around 4%. But going forward, it will depend. It will depend on mainly what our strategy post deal will be because even after the liability management, we will have a significant cash position in gross debt. We will decide what to do going forward, depending on the opportunities that we may have. But consider that going forward, we expect positive cash flows from the operations that – so this should go down in the following years. But I think that you have the initial net financial position that we should have before you know the average cost that we have today. So you know that it’s – it should be around or below €400 million initially. And then going forward, should improve.

Thank you both. Very clear answers.

The last question comes from Mr. Gladstone David of Millennium. Mr. Gladstone, please.

Hi. Just to clarify on an earlier question. You mentioned there were a couple of bilats that would also move as part of the debt push down of the €8.5 billion. Can you confirm how much that is? And does that include the EIB loan?

Yes. On the bilat of the EIB, it’s around initially 250, if I’m not mistake, but we can give you the right numbers after the call, okay?

Okay. And so the remainder will be, I guess, the maximum amount of bonds that could be exchanged.

Yes. It will depend. It will depend on – we need to go a step backwards. The offer is fully financed, as Pietro was mentioning. So it will depend the level of push down on the liability management exercise. And considering what we mentioned that we will include in this exercise maturities 2026 and beyond. Then depending on the result of the exercise, we will need to then announce what would be the second step. But that’s – those are the initial definitions that we have today.

Okay. Understood. Thanks very much. And well-done on the – NetCo deal almost done.

Thank you.

If I may, I will have some closing remarks. I think that the results that we show today with an improvement year-over-year at group level of €300 million on the EBITDA completely, let me use this word, destroyed by the increase of the interest rate show exactly what we stated since the beginning. We can improve the operation as much as possible. But if we don’t solve the debt issue, will be difficult to give to this company a strategic and industrial option for the future. This is what we stated the 7th of July 2022. And we are here in less than two years later to deliver exactly what we promised. The number are exactly the number that we show at that time. This is the real possibility for TIM to be back to have the opportunity to compete in the market. And I don’t think that will be the only one to go through this kind of approach. So again, I really appreciate the opportunity today to share with you this view. I think that we are giving to TIM the opportunity to be back to compete and stay in the market. And we will go through our road show to give all the further details. Our IR team is always available for any question. See you for sure in the middle of February for the preliminary results, and in March for our Capital Market Day. Last but not least, I want to thank you all the team because it’s really important to explain as we were driving a rebound on the operation while we were putting in place the largest deal in Italy on the TMT [ph] in the last five years, the six at European level and the 31 at worldwide level in five years in a period of time where the interest rate is completely different. Thank you to everybody.