Ladies and gentlemen, good morning and welcome to Telecom Italia Q2 ‘22 Results Conference Call. Manuela Carra, Head of Investor Relations will introduce the event.

Ladies and gentlemen, good morning, and welcome to our Q2 2022 results presentation. I’m here with our CEO, Pietro Labriola; our CFO, Adrian Calaza, and the rest of our management team. Pietro will provide an overview of last quarter’s main achievements, and Adrian will illustrate our financial results. A Q&A session will follow after the presentation. Pointing now to you our Safe Harbor Disclaimer on Page 2, let me hand it over to Pietro. Pietro, the floor is yours.

Thank you, Manuela, and good morning, everyone. After our Capital Market Day in July, where we outlined the strategic priorities we want to pursue in the near future, today, we are coming back to our usual quarter call on Q2 results. I want to try to make a balance of the first 6 month of my work here at TIM I see a lot of strategic and operational results already achieved in such a short period of time. And we see three main challenges ahead of us that we need to keep addressing as a management team. The first one is ensuring business continuity by improving the operational activity that was deteriorating, putting the operations under control. The second is activating these continuities to structurally solve the constraints of the present high leverage. And finally, the third, managing the compass in these difficult times of high inflation and economic and political instability. Point one corresponds to the continuity plan. This plan is not the structural solution for TIM, but it is key for both the operation of the company and as a test for the management towards its stakeholders. We are a company that in the past often missed the guidance and therefore it is key for us to show that we are on track with the targets we have provided to you back in March. I think Q2 results show today that we are on track or even ahead of our target. And the transformation plan we are putting in place that is outlined in the next few slides is something that will allow us to better secure our target. Point two, instead correspond to delayering plan. Having explained the plan in more detail, there has been an increasing awareness among the financial community of the different business dynamics we have within TIM. Of course, we will have to provide a full set of financial results for the four entities in order to show that we are proceeding according to the trajectories presented on July 7, and this will come in the quarters ahead of us. In the delayering plan, we have also shown that we have different options to reach a sustainable leverage. But clearly, now you want to see the execution of it. And I can assure you, we are working hard to match your expectations. Point three refers to the need to face this present very different macro conditions. When I say very different, I refer to the fact that at the beginning of the year, no one was projecting such an inflation and interest rates level or the present macro environment in Europe or such specific political situation in Italy. In such a context, we need to improve our continuity plan in a more and more cash-driven logic. Let’s now crack on into our quarterly results, starting from Slide 4 with the main highlights. Trends are improving year-on-year in Q2. Group service revenues are increasing plus 1% year-over-year, with growth accelerating in Brazil, where we have started to integrate Oi from end of April and with better trends in domestic. In particular, on domestic, in the Fixed segment, we have reported better service revenue trend, both year-on-year and quarter-on-quarter with higher ARPU and lower churn. In Mobile, market is cooling down. We’ve improved the trend on human lines with churn at the lowest level of the last 16 years. The next spot is Enterprise, that is growing around 9% year-on-year on service revenue in the first half 2022, differently from what’s append for Europe. Finally, on EBITDA at domestic level, efficiencies are starting to kick in, and you will see more visible impact on financial numbers in the second part of the year. On this latest point, what we are trying to give you today is a bit more color on what we are doing at the efficiency level. Indeed, in the following slide, we outlined our transformation plan where we are targeting profit and loss cost cut of 20% of our addressable base, as you know. But on top of it, what we are communicating is an extra effort at cash level, OpEx and CapEx, that will bring us to save €1.5 billion in 2024. Key to this regard is the signing with the unions of the agreement on the expansion plan, occurred just 1 week ago. Thanks to this agreement, around 30% of the 2023 profit and loss OpEx target is already secured. In the first half, out of the 6% of OpEx reduction versus 2021 addressable base, we are targeting for the full year 2022. We have already achieved around €200 million. In the meanwhile, as far as government recovery fund initiatives are concerned, all tenders were fixed and mobile ultra broadband have been assigned with TIM awarded lots in each of them. Additionally, we have exercised the right to match for the National Strategic Hub. Importantly, I want to remind you that the majority of the recovery fund CapEx impact in 2022, 2024 will be absorbed, thanks to the transformation program. On the network side, things are going smoothly. FTTH rollout is on track. Ultra broadband coverage is now above 94% of families and ultra broadband take-up improved almost 3 percentage points year-over-year, landing above 47% of technical households. Lastly, equity free cash flow was slightly positive in first half 2022, negatively affected by the DAZN payment in Q1, compensated by a different phasing of substitute tax payment this year versus last year. I remind you, we are sitting on a sound liquidity position, further strengthened by such a financing that has been cashed in at the end of July and by the INWIT proceeds that should come in these very days. Let’s now move to Slide 5, where we are outlining our ambition for TIM in terms of the transformation plan we envisage in the coming quarters and years. The plan is to rethink processes and achieve an improved operating model with a more sustainable cost structure. This will be reached by a mix of four pillars that are shown in Slide 6. In terms of numbers, we expect in 2024 to save from all these initiatives around €1.5 billion as a cash cost. This is made of around €1 billion of profit and loss addressable cost reduction that represent a 20% target we have already provided to you in May. And let me say that this is already going as expected. Around €250 million of extra cash cost savings, mainly related to leases. Lastly, around €300 million of CapEx savings already starting from 2023, that will help us to mainly absorb the increase in gross CapEx we are having from recovery fund initiatives. The transformation plan will take us to structurally think about the way we spend money at the CapEx level. And what we foresee is to reach these savings already from the next year. We want to have a rightsized and sustainable cost structure. And what you see here in Slide 6 are the pillars we will work on in order to transform our cost base. In the low part of the slide, you can already see some example of activity we have launched in the first half that helped us achieving around 70% of our full year 2022 savings, while setting the ground for reaching our midterm goals. As you can see, what we are doing is not only traditional cost cutting, but a deeper transformation of TIM into a linear company. Digitalization will be key in this process, not only in terms of cost savings, but also in terms of customer experience. Since today, customer are always be – are always more digitalized. There is a significant room for improvement here. Cost structure must be simplified also to unlock internal synergies and to improve productivity. And on the workforce side, not only the right-sizing is key re-skilling is necessary in order to support areas and businesses that we sustain the future growth of the top line, especially on TIM Enterprise. On labor costs, I already commented the important news regarding the signing of the agreement with unions. Here the transformation path is not only set, but also partially secured. Now through a continued and relentless review and execution of project, we will achieve the foreseen restructuring of the cost base in the midterm. Let me now hand over to Adrian, who will guide you through our financial results. Adrian, please?

Thank you, Pietro, and good morning, everyone. Slide 8, if we look at our key financials, in Q2 we reported better trends versus Q1. Group service revenues year-on-year trend was positive at 1% from minus 2.5% year-on-year in Q1. And Group EBITDA was in the high single-digit decrease area at minus 8.5% year-on-year from minus 13.3% in Q1. We work hard during these first two quarters of the year in order to improve our results versus our own projections. And we succeeded despite the present tough macro environment that, as Pietro also underlined, was not predictable at the time we presented our 3 years plan only 4 months ago. We will continue along this path for the rest of the year, keeping the commitment we made with all our stakeholders to do better. This is a long journey, and we just took the first steps that are in the right direction, but we have to keep going quarter after quarter. Equity free cash flow was slightly positive, and after lease was negative since as usual, the second quarter is the highest in terms of working capital absorption due to payments of CapEx done in the last quarter of the previous year. Both equity free cash flows present positive figures in the first half. Net debt after lease increased in the quarter, mainly due to the cash out for the acquisition of Oi Mobile and for the remaining payment of the 5G license in Brazil. Let’s now have a look at the quarterly trends in the next slide. Slide 9, as you can see, Group service revenues grew 1% year-on-year with an improving trend versus Q1, thanks to high contribution of Brazil after Oi integration and also a better trend at domestic level that was down 4.8% year-on-year versus the minus 5.3% year-on-year in Q1. It’s worth mentioning that domestic service revenues year-on-year performance is impacted by tough comparison with 2021 that enjoyed the tailwind coming from vouchers on retail and some non-repeatable overperformance on National wholesale. Group EBITDA after lease was down 12.3% year-on-year, with domestic minus 18, improving quarter-on-quarter. Net of non-repeatable transactions last year, the decline for Q1 would have been only just low single digit. CapEx overall flat year-on-year, notwithstanding the push on growth investments, mainly in FTTH over 400,000 households passed in the quarter, in line with Q1 2022. Moving to fixed in the next slide. Fixed service revenues were down minus 5% year-on-year with around half of the contribution to the decline explained by tough comparisons versus 2021 on National Wholesale, which last year benefited from non-repeated transactions, and this quarter is impacted by a change in regulated prices. Retail was down year-on-year as well, but with an improving trend versus Q1, thanks to a better performance at ARPU level. Indeed, ARPU was up 5.5%, driven by broadband and content revenues and by ICT that keeps increasing double-digit. In terms of market, we are seeing 2022 stabilizing after 2020 and 2021 growth, fueled by vouchers and COVID, supporting lines and broadband net additions. For these reasons, retail KPIs are weaker, but with an improving trend quarter-on-quarter with the highlight being the churn level trend. For the same reason, equipment was significantly down year-on-year this quarter, given that 2021 benefited from equipment sold, thanks to vouchers. I remind you that this is neutral in terms of cash. Moving to mobile in Slide 11. Mobile service revenues were down 4.1%, overall in line with the previous quarter. The negative contribution from retail revenues coming from the lower customer base has been partially compensated by the positive contribution coming from the wholesale revenues for higher roamers and MVNO revenues. In terms of market dynamics, mobile number portability decreased again with TIM’s MNP balance improving, notwithstanding a small and selective price increase done on our customer base in June. We have started this as a good practice also to counterbalance the recent inflational process and additional actions are already in place in the third quarter. TIM’s strategy remains clear in mobile as well, pursuing value versus volume. This could affect KPS in the short term, but will benefit revenues in the long run, bringing more rationality into the market. On this regard, we are already starting to see positive moves in the market. Next slide. On Slide 12, you have details on OpEx that were slightly down year-on-year for Q2. As you can appreciate, we keep working hard to address our cost base and the first results of our transformation plan are already visible. As we mentioned, this is mandatory in order to counterbalance the increasing cost for ICT and cloud revenue, both coming from the shift in our revenue mix. Variable costs were down year-on-year, mainly for lower equipment, partially compensated by higher COGS related to ICT growth. Commercial cost increased 16% in the quarter, mainly for high commissioning due to the extension of the useful life of customer base on fixed from 7 years to 8 years and mobiles from 3 years to 4 years done last year. Net of this effect, commercial cost would have been flat year-on-year. Industrial cost up year-on-year for high provisioning costs. Net of this, it would have been minus 3.9%. It is worth mentioning that energy costs were almost flat year-on-year, thanks to our hedging policy and mitigation coming from the government’s measures, Decreto Sostegni. G&A were flat year-on-year and labor minus 10% year-on-year, mainly for positive contribution from solidarity and FTE reduction. Next slide. On Slide 13, you have details on TIM Brasil. The company reported another strong quarter, and you can find many details in the company’s disclosure done on Tuesday. But it’s important to highlight the main achievements of this quarter. Top line expanded 22% year-on-year in the quarter, with EBITDA growing at 18%, after the consolidation of Oi numbers at the beginning of May. Furthermore, the company continues to post significant levels of cash flows with EBITDA CapEx on revenue, EBITDA minus CapEx on revenues at 27% this quarter. As you can see from the numbers, TIM Brasil is starting to benefit from Oi mobile integration and posted a strong organic performance, focused on customer value strategy that continues to pay off. The last 6 months have been transformational for Brazil with important achievements, and we believe the company will continue to deliver high levels of profitability, creating value for its shareholders. Next slide. Net debt after lease increased by €1.7 billion from December 2021, 2.5% on IFRS view, mainly due to the payment for the acquisition of Oi Mobile and for the payment of the 5G license in Brazil, effects already anticipated on our plan as presented in March. As said, we are enjoying a robust liquidity position of €7.9 billion at the end of June that has already been further reinforced with €2 billion from the State guaranteed loan cashed in on July 27. Additionally, we will receive these days the €1.5 billion proceeds of the INWIT stake sale. With this, I will hand over to Pietro for his final remarks.

Thanks, Adrian. Now the closing remarks, TIM continuity plan is proceeding. We promised to do better than forecasted, and we are keeping this promise despite a tougher macroeconomic environment. The first half 2022 results give us the confidence to upgrade our EBITDA guidance for 2022 to high single-digit decrease from low teens decrease. On the other hand, the present overall macro context calls for a conservative stand on our side for the years to come. So for the time being, we are not reflecting the improved 2022 exit speed into our 2023-2024 forecast, that are therefore confirmed. We achieved all our goals in terms of participation to the Recovery Fund and National Strategic Hub app. Actively contributing to the country’s digital evolution, confirming TIM’s strategic position. The transformation plan is ongoing with a target increase to €1.5 billion in 2024. In Brazil, integration with Oi started with positive impacts on revenues and EBITDA already visible. We secured our liquidity position, thanks to the cash-in of such financing and the forthcoming proceeds of the unit sale. At the same time, we set the ground for our delayering plan in order to overcome leverage constraints. With this, we have completed our presentation. Let me now hand it over to the operator for the Q&A session. Please, operator.

[Operator Instructions] First question comes from Mr. Fabio Pavan of Mediobanca. Mr. Pavan, please.

Yes. Hello, thank you for taking my question. I would love to have more color please on the performance of your enterprise business. It seems you are performing better than European peers on lease. So potentially, what are the reasons behind this performance and what we could expect for the next quarter? Thank you very much.

Thank you, Fabio. As we promised, starting from the following quarters, we promised we took this commitment during the Capital Market Day, we will start to share with all the market, the number related to the different activities of NetCo, TIM Enterprise – sorry, because they continue to talk about these things with the NIM that we use for the project, TIM Enterprise, TIM Consumer and TIM Network in Brazil. Just to give you some light because I understand also your question because the other player in these days release a number that were not so nice, let me use this objective on the Enterprise business. It is important, then I will leave the stage to Adrian to give some more color that the TIM Enterprise situation is quite different from the other player. First of all, let’s keep in mind that differently from the other player today we have already 51% of our revenues that are coming from ICT. And so it gives us a different approach compared to the other. In terms of service revenue – in terms of service revenue, what’s happened, I think in the first half, we performed an 8.8% year-over-year growth compared to the market that was 4%. And in any case, we are also proceeding very well in the cloud. Compared always to the other player, what is happening that we are a peculiar animal, let me use this word because today, we are the only player in Europe with 16 data center when you are trying to compare us with other telco player. As I mentioned, the weight of ICT is 51%. And in terms of revenue, 50% of our revenue are coming from public administration. So the fact that we were awarded for the PSN is a good starting point to further accelerate on our project. But again, I’ll leave a couple of minutes to Adrian to talk about the Enterprise.

Hi, Fabio. Good morning. Thanks for your question. I think that Pietro covered part of the answer with the numbers, but let me give you some color about the picture that we are trying to paint here. So, we basically operate in a market that is buying five things, connectivity, colocation, cloud both infrastructure and applications, IoT and cybersecurity. And what is interesting about our positioning is that we are the only platform in the country, most probably in Europe, serving our customers, covering the entire span of products and services, because as you can imagine, we have a strong value proposition on connectivity. We have 16 data center with a limited capacity of colocation. We have a solid partnership with all the major episcaler, all the long players at a global level. As you probably know, we have a very strong partnership with Google that is powering both our cloud value proposition and the co-location services as well. And as Pietro said, we have a business that is heavily splitted in public and private, which makes our value proposition very sustainable because this helps both in increasing the order of per single customers, but most importantly, to keep them loyal. So the killer application of our business today, which makes our position very, very strong is the fact that we have a multi-year contracts that links our value proposition to the market, which basically helps us to secure most of the business going forward and up-sell or cross-sell when we have the opportunity. Just to give just a bit of more detailed information about the cloud, which is another unique asset, I think, for the country. We have a very balanced split of revenues in the cloud infrastructure and cloud application, because if you take 100% of our cloud revenues, which are growing 62% on a year-to-year basis, we have a 43% on cloud infrastructure, 41% on cloud applications and 16% on co-location, which is the value proposition of connected with 16 data center we own. I hope I answered your question, if there is anything more we can enter into more details.

Fantastic. Thank you. Thank you for a busy day. Thank you.

Next question comes from Mr. Giorgio Tavolini of Intermonte. Mr. Tavolini, please.

Good morning, everyone. Just three questions from my side and more specifically on the guidance upgrade. I was wondering if you can elaborate more on the top line outlook for this year, if you see any room for the improvement of the top line target at the Group level? The second one is on the Zone contract, if you can clarify if the savings from these new contracts are embedded in the new EBITDA guidance? And the third one is on the domestic EBITDA outlook, if it’s still fair to assume a high-teen decline given the good visibility you have on the cost cutting? Thank you.

Hi, Giorgio. Thank you. About the top line outlook target, I will exploit your questions also to give an answer on the possible following question related to our guidance for 2023, 2024. If today, I should come here telling that, based on the improvement of the guidance for 2022, I should upgrade the guidance for 2023, 2024, I should receive a lot of question related in fact that due to all the communication of all the telco player in Europe related to the uncertainty for inflation for the war, so and so forth. I should receive a lot of questions related to the fact that if we should be comfortable in improving the guidance for 2023, 2024. What we are doing is to keep a confident and trustable and conservative approach, because it’s clear that the exit speed that we’ll be able to reach with the improvement of the guidance for 2022 should put us in a better condition for 2023 and 2024. But nevertheless, the environment context leave us a more confident approach to wait the end of the third quarter and the preparation of the new plan to do all this kind of evaluation. The same thing is for the top line. If I look at the split of the first half, there could be room for, let me say, a better trend. But due to the condition and the environment, we want to keep and to stay on a safe side and so we’ll see after the third quarter, what will happen. About the DAZN contract the upgrade of the guidance do not consider any kind of improvement on the DAZN cost. What we did is just signed an agreement that put us in a stop-loss mode and put us in a condition to follow the things without risk of further worsening. This is something that we clearly stated also in the press office that we released yesterday when we commented the so-called contracted complexity. Last but not least, domestic EBITDA Again, you give me the opportunity to clarify also a further point. The improvement of the guidance is driven by the domestic improvement. You can do an easy math for that. First of all, Brazil communicated that they didn’t change their guidance. Second, we didn’t use the improvement in the exchange rate of Brazil to improve our guidance because in the comparison, we keep the same exchange currency rate. So if you do an easy math, if we improve the guidance, Brazil didn’t improve their guidance, and we keep the same exchange currency rate in the comparison year-over-year, it’s quite easy that we can confirm that we have improved mainly the domestic EBITDA guidance. And it’s easy also to another map because if you will consider the exchange currency rate changes, the guidance should be further improved. I hope that it was more clear here, and we eliminate any kind of misunderstanding.

It’s very clear. Thank you very much, Pietro.

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

Thank you so much for taking my question. I’m afraid it’s not so clear to me, particularly DAZN. Could you just outline exactly what the contract change means? I assume the previous contract had some kind of minimum cost guarantee, the weight on the guidance. As you’re now moving out of exclusivity, are you moving to pure wholesale cost basis, no fixed cost, when does that apply? I think you guys talked about €300 million or so of weight on this year’s net debt from the DAZN provision. Is that still the case? How should we think about the kind of OpEx impact in 2022 versus the OpEx impact under the new contract? Any color would be appreciated. Thank you.

Thank you, David. Then I will leave to Adrian to give more colors related to the accounting rules. But what is important is, it’s clear that we have a confidential agreement with the counterparty that do not allow us to go into much details. What is important, that in some way we have to reach as the sum of the part, a certain amount of customers that could allow to cover the cost. While in the previous contract, this is what – this was mainly on our side, the use of Sky will allow to reach in an easier way this target. Then keep in mind that from the accounting point of view, it’s clear that in the first year, the impact was higher than the previous one because we started from August with zero customer base, and then we reached now something that is more closer to more than 0.5 million customers, DAZN customer. Why? For the next year, you start from 0.5 billion. And so just in matter of comparables, there are some differences and improvement in the number. But what is important is that we didn’t change the provision, because it’s like that – like it was. We didn’t included any further improvement in the guidance. So this guidance are coming from the transformation cost savings that we did on the other costs. Then I don’t know Adrian want to give some more color?

No, the other part of the question was regarding the cash out. The cash out will be this year as it was already communicated on our side. And we will see next year, as Pietro was mentioning, we put also on the safe side, the cash flows of the contract going forward. So it will depend on the commercial side and then it will depend on the additional discounts. But for this year, in terms of cash impact, nothing changes.

Okay. So could I just follow-up. Why is this agreement better? This year, it makes no difference. Next year, it should drive a reduced OpEx. Is that correct? Or am I just thinking about this the wrong way?

David, the main issue is that, we have a confidentially agreement with the counterparty. And so we cannot go in the details that allow us to give the details that allowed to explain why it is better. Keep in mind that in any case, exactly, and this is our obligation, we put in the press office, all the element that is related to the way in which it will be treated. But again, at the end of the day, what was happening is that and we have to reach a specific amount of customers to reach a break-even in some way. And with the new agreement, the reach of this, let me say, break-even is also related to the performance of the new players that come in the market. And so it’s easy to understand that if Sky get a piece of the exclusivity, they will do that for sure to have more customers. Then I can assure you that there are a lot of closes that put us on the safe side in case of cannibalization. But I cannot enter in all these details because I should be in breach of the confidentiality agreement.

Yes, I think that’s useful details. Thank you very much.

Next question comes from Mr. Mathieu Robilliard of Barclays. Mr. Robilliard, please.

Yes. Good morning. Thank you for the presentation. I have three questions, please. The first one is about the competitive environment, because I did see that the churn in mobile went down a lot, which was very impressive. But at the same time, it feels that competition remains quite tough. So maybe if you could give a little bit of color both on fixed and mobile. And second, I look at the labor cost trajectory, they are down significantly in Q2 as they were in Q1. And I was wondering if we should expect the same trend. I’m talking domestic here for the second half? And lastly, in terms of your discussion with Open Fiber, I realize that you had a deadline on 31st of October. But I guess there are some intermediary steps in that process. And I wanted to know if there was any update since our Capital Market Day presentation and also if the political uncertainty was affecting in any way, shape or form the discussions? Thank you.

Thank you, Mathieu. I will start from the third question that is related to the Open Fiber deal. Thanks to God, yes, there was on la Repubblica, and it’s the deal with the representative of Cassa Depositi e Prestiti, Dario Scannapieco, that is the person in-charge of the deal, that allow me to report exactly what he mentioned. The things are proceeding. The political environment is not blocking the activity, beating that a unique network continue to be the best scenario for all the party that they will try to do their – they will do an offer before an unbinding offer and then a binding offer and that all the company will do the evaluation based on this offer. So, this is not Pietro Labriola or TIM statement, it’s Cassa Depositi e Prestiti’s statement. Then I will ask to our IR team to send you the article. About the competitive – about the labor costs, we will go to three to one. About labor costs, we leave Adrian in the stage. Every time that we look at the trend, we have to consider also what’s happened in the third quarter of the last year, when we do the comparison year-over-year in the third quarter. What’s happened last year, I think that you remember that we had a profit warning – related to the profit warning, what’s happened was that we put at zero, the value of the MBO and the so-called primary production that is the incentive that had to be paid to all our employees. And so automatically, when we will see the comparison in the third quarter, we will suffer. But in this case, for a good thing, because we are restated that we will do our guidance, so we will have to pay to our employee, the bonus. And in the comparison year-over-year we will suffer the most. It’s – this is the reason for which we are discussing with Adrian every time, it’s really important to give the outlook of the year because the comparison of some voices of the cost quarter-on-quarter cannot give you the idea of the real trend of the business. This is true for some lines, and this is not completely true for other lines. But Adrian, I don’t know on the second point, if you want?

[Foreign Language] Clearly, as Pietro was mentioning, these OpEx lines is better to follow it on a yearly basis. Anyway, in this second quarter in particular, there was a reversal of a provision that affects possibly affects the OpEx line. So going forward, you shouldn’t project the same year-on-year of this quarter. Anyway, we are still looking for the savings. You know that last week, we signed an agreement with the unions that assures us almost the total of the savings that we were projecting in terms of labor cost. This also gave us a lot of confidence for next year in terms of savings on labor. So again, it’s always useful to follow it on a yearly basis. But in particular, this quarter, it was positively affected for the reversal of this provision.

Thank you. If I can follow-up, but we should still expect a decline for the full year on that cost line as a whole? Is that a sensible assumption?

Probably, yes.

Thank you.

But Mathieu, then we will elaborate also on the first question. What is important that, until a few weeks ago, there were a lot of concerns about the possibility to sign an agreement with the unions in a so difficult period of time, and we achieved. I think that is important for the management team to allow that we are delivering all the things that we promised. And the fact that we were able to sign the agreement on the – with the union is a good sign of our trust. And again, another point that is important, if you remember, we started in March when we presented the plan with an overall amount of savings in our transformation plan that was €700 million. And now in terms of overall cash costs, we progressively quarter-by-quarter increase our target to €1.5 billion about the market, the competitive environment. Now I leave the stage to Andrea to give some more details about what we are experiencing that other telco players are already starting to do, price up on the customer base because I think that has happened in other European country, everybody are understanding that we have to find a way to recover the pressure that we have on the cost base on the price. Back again, Adrian?

Thank you, Pietro. Good morning, Mathieu. Yes, I will refer to three key elements to give you a snapshot on the competitive environment. The first is volume of customers that are migrating, you refer to the mobile market. We clearly see in the last year, a deflation of volumes in the portability market or migration from operator to operator. To give you a clear example, pre-pandemic volumes were around 3 million portabilities per quarter. That was the figure in 2019. During pandemic, it was about 2.5 million. And in the second quarter of 2022, the market was around 2.15 million. So it’s a significant deflation even versus pre-pandemic volume. So that is a very clear example. We see the same trend also in volume of activation and migration in fixed line and therefore, a reduction of net adds. So the volume of transaction and people migrating from operator to operator in the market is reducing. In that context, I have to highlight that the team did particularly well quarter-on-quarter and also comparatively to other operators. So we reduced significantly the net balance on portability. The second element is pricing. So pricing of acquisition, we see some of the most aggressive offer in the market, promotional offer were progressively removed or taken out both on fixed and on mobile. And this is a promising signal also inside of what Pietro is saying. And the third element are repricing. So pricing on customer base, I would say most of the main player did some repricing activities on mobile and some also on fixed. So we see a trend towards an increase of price for the customer base as well.

Thank you very much.

Next question comes from Mr. James Ratzer of New Street Research. Mr. Ratzer, please.

Yes. Good morning, Pietro and Adrian. Two questions, please. The first one, it would be great if you could just give us an update on the process with CVC around the offer they made for your enterprise business? I think CVC disclosed that obviously they made a proposal to you back on the 25th of March. So now about just over 4 months ago, I was wondering if you could give us an update on that process? What – is there anything kind of holding up that process? Do you expect that sale to go through? And secondly, I was interested in the AGCOM data that was published a couple of days ago. I mean this is just for Q1 2022. But now we’ve got the whole market data in, it looks as if overall broadband market growth slowed quite sharply year-on-year in the first quarter. And based on your data, it looks like it might have slowed a bit further again in Q2. So could you comment on what you’re seeing in terms of overall market broadband growth? Do you see slowing demand at the moment? If so, what’s driving that, please? Thank you.

Hi, James, what was not really a surprise, but once we had the opportunity on the Capital Market Day to show to everybody the number related to TIM Enterprise, we are experiencing the interest of several other players on the TIM Enterprise. So now we are working to try to understand how we can exploit the most from this area. There were also some questions as I’ll explain, because there is no real comparable in Europe on this area of business. And so now what we are evaluating is the way to maximize. So, we don’t want to run back just to one possible partner, but we want to understand if there is a possibility, and we think that there is to further improve the evaluation of TIM Enterprise. Related to your second question on the market, I think that what we are experiencing is something similar to what is happening through Europe. After the COVID period, there is a slowdown in terms of new lines that are coming in the market. And in the meantime, there is also a slowdown in the migration to the FTTH. It’s important to remember to everybody that Italy is different from the rest of Europe. We have more than 94% of coverage on FTTC. The FTTC quality of the line is the best in Europe. More than 64% of the lines are able to reach a speed above 50 megabits per second and above 50% of the lines are able to reach a speed that is above 100 megabits per second. So, the FTTH for sure is the future, but a slowdown in the migration to the FTTH is not necessary a bad news for us, because, as you remember, the migration from FTTC to FTTH has no ARPU increase, but only an investment of €400 per customer. So there are some news that sometimes can be read for us as an opportunity of efficiency.

Thank you, Pietro. On the enterprise business, a potential time line, obviously, you’ve given a time table on the net core discussions with Open Fiber. Is there any timeline in your enterprise, when that process might conclude?

James, what we are doing is that we are preparing also a kind of pro forma balance sheet with also one of the four major advisor, because we want to be ready without the element to further accelerate the process. So, we expect in the month of October to have some more details on that.

Great. Thank you.

Next question comes from Mr. Jerry Dellis of Jefferies. Mr. Dellis, please.

Yes. Good morning. Thank you for taking my questions. I have one question related to the Open Fiber situation. It was reported in the press that you visited Brussels in the month of July. And I just wondered what you can tell us about the context of those discussions and whether they raised further issues that need to be thought about before the signing of a non-binding – of a binding agreement? And then secondly, just thinking in terms of liquidity options, the 6-year €2 billion facility that you put in place in July, would there be opportunity, if necessary, to upscale that? And then in Brazil, TIM Brasil has BRL6.5 billion of distributable reserves. Is there any obstacle to utilizing those more aggressively if it becomes necessary? Thank you.

Hi Jerry. About the discussion with the Antitrust Authority, we had a general discussion because at this stage, we cannot go in detail, because we don’t have all the detail to discuss about that. But it’s important to share with you that there is a new wave in Europe about a different view for the market consolidation. What’s happened, if I am not wrong in Spain last week will be a kind of test to see if there is a change in the Antitrust Authority at European level to see in a different way what is the market consolidation within Europe. I don’t have to share with you that U.S. has three player, Brazil has three player, Europe, that is a continent, with the size quite similar to U.S. and Brazil as an amount of player that is much higher. If you consider it, with 60 million people we have five mobile players to consider faster too. So, again, I think that there is also a discussion that was highlighted also by the ETNO at the Antitrust level about the need to review the European industrial policy on the consolidation. About liquidity, Adrian?

Yes. Jerry, as a matter of fact, yes, we closed in the third week of July, the agreement of the loan guaranteed by SACE of €2 billion. But the other important cash in that we have is the one coming from the sale of the Daphne participation that we have, Daphne that controls INWIT, and that will happen today and literally today because this morning happened the closing, that will bring additional €1.5 billion to our cash. So, if you consider that we were at almost €8 billion by the end of June, and we will have this additional €2 billion and then the additional €1.5 million coming from the INWIT sale. We think we are on a comfortable area in terms of cash, because even considering the payment that we will need to do for the 5G frequencies in September, we will end the year something above €8 billion in terms of cash. And that will cover at least until 2024 of debt maturity. So, honestly, today, we feel that with this level of cash and with the actions that we took and there will be probably some additional actions until the end of the year, we are comfortable in terms of cash. On the last – on your last question regarding Brazil, and thank you for the question, it’s important. The company already announced, I think it was two months ago in their team day session that they will upgrade the dividends payments almost doubling the normal level. I think that this is – it’s healthy for the company, and we always try to take the decision inwards, the benefit for TIM Brasil in this case. Again, it’s healthy because the levels of cash flows that TIM Brasil is delivering are probably one of the highest between the peers in Latin America. So, it’s a – again, a healthy decision. This will probably be confirmed in the shareholders’ meeting of next year, but they are already doing these additional payments as anticipation. You know that there is a mechanism down in Brazil called interest on equity that allows you to do that. So, again, we think that it has been already important to double this level of dividends. Going forward, we will see because if you see their numbers, they are going better every year in terms of cash flow levels. But again, we think that the decision that the company took a couple of months ago was the right one.

Okay. Thank you very much.

Next question comes from Mr. Domenico Ghilotti of Equita. Mr. Ghilotti, please.

Good morning. First question is on the wholesale line in the fixed market that were weaker quarter-on-quarter. If you can comment on that and what is the trend that we could expect? Second is a follow-up on the labor cost environment. So, can you give us a sense of how much would have been the decline in the second quarter, excluding the reversal of the provision, just to understand with the underlying trend? And third question is on net debt. So, you didn’t provide guidance on net debt. Now, we are already saying first half was already down and some moving parts now are clearer. So, do you think more comfortable to provide an indication on net debt by year-end? And last is on the Daphne transaction. You are closing the transaction, can you guide – can you provide the capital gain that you are doing at holding level from this transaction?

Thank you, Domenico. The trend on the wholesale line, we understood that there was a slight acceleration in the second quarter in terms of migration from our wholesale to the other player wholesale for some specific elements related to a kind of target or the way in which a contract is built in terms of commitment to reach the volume. So, it’s a kind of spike that is not related to the real pace. But what we are experiencing is that there is a slowdown in the migration from FTTC to FTTH that we had to follow during the following quarter to be sure about the trend. Related to labor cost, guidance of net debt, and Daphne transaction capital gain, I will leave to Adrian to answer.

Yes. On the labor cost, even without these reversal that we need, the number gives a slight reduction, just considered probably low to mid-single digit on a guidance mode. So, yes, we are already seeing labor cost reduction, organic. In terms of guidance of net debt that we mentioned already a couple of times that we won’t be giving guidance both for cash flows and for net debt because we are working a lot also on this side. So, it’s – on this side of the business, it wouldn’t be useful, honestly, to give you a guidance because there are also many elements that could change during the year. This year, especially our equity free cash flow and the evolution of the net financial position has been impacted for several extraordinary items. If you remember the slide that we disclosed in March, the number of extraordinary items accounted for something below €4 billion, €3.7 billion to be exactly. So, these are many different items that can work on one side on the other. The second thing, important thing is that for the net financial position, you know that as we need to do, we use the report and this is affected by the exchange rate of Brazil. If you follow the evolution of the exchange rate of Brazil was kind of around the cost this year in comparison. So, giving a guidance of net financial position, at least on our behalf, we think that it’s not useful anyway. There is a consensus. We are working on that side. We think that somehow, we will be below our internal projections than anyway. And for these different factors, it’s difficult to give you a guidance then. Regarding the Daphne capital gain, again, clearly the number in terms of capital gain is not the one that you cannot think that it’s at the level of the cash-in that we will do, it’s well below, it’s something probably a couple of hundred of million of euros, probably something about we are finalizing all the analysis on the side, and this will be accounted on the third quarter.

Okay. Thank you.

Next question comes from Mr. Alex Pound of Arete Research. Mr. Pound, please.

Right. Yes. Thanks for taking my question. Just a very quick follow-up on DAZN agreement and the provisioning. It’s slightly backward looking in a way given the commercial agreement has not changed. But could you just talk us through the €329 million use of the €548 million provision for complex contracts in the first half after only €15 million was used in the first quarter. Just to understand why the negative margin seems to be baked mainly in the second quarter? Obviously, a large part relate to CRA and definitely at the end of the season, I guess. But I thought the provision covered all the duration of all the contracts, which, if I am not mistaken, was 3 years for DAZN. And yes, I appreciate that’s changed, but it just seems to have used a lot of that provision already if it should cover a 3-year contract. Thanks.

Yes, regarding the use of the provision, it’s because it’s how the contract was contracted. At the end, we need to book the impact at the end of each football season, exactly season thing. So, that happened in June. That’s why we accounted this impact on the provision. You shouldn’t project the same level of impact this year. The next impact will come in June of next year. The second part of your question is, I think it’s – your assumption if the provision is still enough. Well, that’s why we will reach this agreement. This agreement at the end what – as Pietro mentioned before, what brings to us is some assurance that the provision that we have or the rest of the provision that we have for the next years is enough that this contract ends by mid of 2024. So, we have yet to see two football seasons. But again, this put us on a comfortable zone also in terms of the provision that we have. So again, this is probably for us, at least from my side, the most valuable thing of this new agreement.

Fine. Thanks.

Our last question comes from Mr. Carl Murdock Smith from Berenberg. Mr. Murdock Smith, please.

Two questions from me. Firstly, kind of following up on the questions about headcount costs. I just noticed that headcount in Italy has actually increased in Q1 and in Q2. So, some commentary on kind of your expectations for headcount numbers going forward? And then secondly, I was wondering if you could also comment on the increase in leases in the quarter. Can you just talk a bit about your expectations going forward? How much of that is in relation to onboarding Oi in Brazil versus how much is due to inflation – inflators in your leads contracts with INWIT? And how should we expect that to increase going forward, given where inflation currently is? Thank you.

Okay. About the second question, Adrian on the leases?

Yes. Okay. I will start with the second question. Clearly, yes, your assumption is right. The main impact of the leases come from Brazil, especially because the company closed the deal with Oi starting at the beginning of May. So, you have these two months impact comparing with last year. And this – you will probably have these on the company for the – for next quarters. There will be a very important effort in terms of the commissioning of the towers down in Brazil because with these agreements, there are some – there is some overlap in terms of what we have and what they used to have in terms of network. So, you should expect a reduction in the following years. So, yes, the impact in terms of leasing mainly comes from Brazil and especially the deal with Oi. On the domestic side, the impact in terms of leasing is marginal, also considering the inflation. And on the headcount cost, on the labor cost, we will put it this way, in terms of labor costs. What – we are working hard. This is an area, as we disclosed a couple of times already, where a big portion of the savings over transformation plan should come. We gave – we think that we gave enough information in terms of headcount this time, yes, on our July 7th presentation with the evolution of the different businesses in terms of headcount, so in terms of FTEs. So, you should project a reduction in terms of labor costs. As I mentioned before, the savings for this year is already secured. And you should expect a reduction compared with 2021. And this should be the trend going forward.

That’s great. Thank you.

Thank you to everybody, and we will follow-up in the following days with our IR team, and see you in the third quarter results. Thank you.