Ladies and gentlemen, good morning and welcome to Telecom Italia Q1 2023 Results Conference Call. Paulo Lezo, Head of Investor Relations will introduce the event.

Ladies and gentlemen, good morning and welcome to TIM Q1 2023 Results Presentation. I am here with our CEO, Pietro Labriola; the CFO, Adrian Calaza; and the rest of the management team. Pietro will provide an overview of Q1 highlights and an update of the delayering plan while Adrian will illustrate the financial results. A Q&A session will follow. Pointing out to our safe harbor disclaimer on Page 2 let me hand it over to Pietro. Pietro the floor is yours.

Thank you, Paolo. Good morning, everyone. Back in February, we published 2022 results showing positive operational trends, I'm pleased to say that Q1 confirms the same direction of travel of last year with a sequential improvement both in Brazil and in Italy. We expect this improvement to further accelerate in coming quarters thanks to positive drivers and actions already in place that will progressively kick in throughout the year. Today, we are very confident to achieve full year guidance. Let's go to slide 4 the mineralize of the quarter. In this slide, you have a map of the topics, I want to cover today, including a focus on the delaying plan and net cost disposal process. We will address each topic in the following slides. So let's start. Slide 5, the improvement of financial trends versus first quarter last year is very clear both at domestic level and in Brazil where we will lap all integration in the second half and where synergies are better than we initially planned. At group level, all metrics are now in positive territory. Quarter-on-quarter trends are also improving. The stabilization of domestic business is ongoing. I point out that, this is the first full quarter where we have stopped to charge activation fee for most of wireline offers in line with the new requirement of the Communication Code. I remind you that, this is an accounting effect with non-cash impact and it is transparent for the client. Therefore in Q1, we see a 1.7 percentage point headwind affecting the year-over-year comparison of domestic service revenue. We expect a similar impact in Q2 a slight decline in Q3 while Q4 will be substantially clean of this effect. All-in-all, we are in line with our internal projections and fully on track to reach our full year guidance with broadly stable domestic service revenue and the potential for domestic EBITDA to slightly grow. Slide 6. Let me now give you a high-level update on each of the four entities. For TIM consumer, the volume-to-value strategy is ongoing with a progressive repositioning as a premium brand. In Q1 TIM has been the best brand in terms of top of mind and awareness. Last year, we were the only established player to increase FTTH market share while our main competitors posted a decline. In Q1, we reached approximately one million active FTTH customers further enhancing our leadership. Re-pricing initiatives are ongoing with a positive impact not yet at full speed in Q1. Despite these price ups this quarter, we have strongly improved the year-over-year net debt trend both in fixed and mobile where we are once again the best infrastructure M&O for mobile number portability. Small medium business is also improving this quarter with better KPIs and ARPU of new customers that for the first time is higher. These achievements led to an improving trend in total service revenue both year-on-year and quarter-on-quarter. We're implementing several cost transformation initiatives as well. In particular, we are significantly reducing the frequency of coal leading to a positive impact on customer care costs and higher efficiencies on sales channel mix. Let's move to TIM Enterprise. TIM Enterprise posted another quarter of growth. I point out that commercial margin increased year-over-year more than service revenue, as we have started to shift the revenue mix towards service generating higher margin. Cash generation also improved as investment for the data center transformation have already reached their peak. We also completed a small acquisition in the cybersecurity space a further step in the consolidation of meter price as Italy's largest ICT platform. Slide 7. Net total revenues increased 3.4% year-over-year also thanks to the commercial deal with Open Fiber in white areas, which we started to book in Q4 2022. There is an improving trend also in service revenue supported by higher fiber activation, representing 70% of total activation in Q1. Overall, we are pleased to see our wholesale revenue share being quite resilient despite open fiber deployment and aggressive commercial promos. The revenue trend will further improve in coming quarters came to 2023, regulated prices which have been finally approved and that will start to book from Q2 with a positive impact of about €30 million versus Q1 considering also the retroactive effect. FTTH rollout is on track at 53% coverage of technical units. We will deep dive on this in slide 9. Finally, TIM Brazil is over delivering on growth targets versus our plan at the time of acquisition, thanks to higher than expected synergies. Our integration is completed. And as you know, from April, we will lap in terms of financial integration benefits. We are very pleased about the route so far, because as I said, synergies are running higher than expected, especially in terms of cash flow generation. Let's now move to slide 8. Let's now focus on the price environment where we have some positive evolutions. Wholesale 2023 regulated assets prices have been finally greenlighted by the EU Commission. Considering that last year prices remained unchanged versus 2021, the new prices can be applied retroactively from January 2023 with a positive impact on service revenue from Q2. These new prices are not fully reflected in our budget. So, we see also a slight upside this year. The gap versus other European markets on copper has been reduced but not completely closed. So there is more to do on this front. On retail, we have almost completed the first wave of 2023 repricing on more than four million fixed line and more than two million mobile lines, and we are seeing a much lower effect on churn than expected. We will do more in coming quarters. We expect low churn and an overall positive impact of about €20 million in Q2 versus Q1. We are pleased to see our competitors to follow the same approach with one operator last week announcing price up on its customer base, also due to the wholesale prices increase. At the same time, AGCOM published the guidelines for CPI price adjustment mechanism from 2024. In particular, on new contracts we can apply CPI without explicit customers' content provided there is no markup. On existing contracts, explicit consent is required means we’ll likely adopt a more-for-more approach. The consultation is still ongoing. So, let's see what the outcome will be. Slide 9. We have good news also in the NRRP. We have obtained the possibility to get 20% Cash-in grants in advance. It means that we'll receive €500 million also this year with a mechanism of proportional reduction in following years, which is still to be finalized. On our preliminary computation, this may translate in a potential upside on our 2025 equity free cash flow after lease guidance of approximately €0.2 billion, €0.3 billion. We'll have more clarity once the mechanism is set. The anticipation of the cash-in grants, we secured the funds already at the beginning of the rollout of the NRRP project, thus safeguarding our cash flow dynamic. In terms of execution, we are working hard on the Italian 1-giga tender connecting building fast wherever possible. However, the working checks we are conducting street-by-street, show a high percentage of not applicable street number in some areas higher than 50% calling for a re-modulation of the milestone targets. 5G backhauling is progressing well ahead of schedule and 5G coverage is on track with no specific issue. Slide 10. On the transformation plan, last year we did slightly better than €0.3 billion OpEx saving target. This year we are raising the bar with incremental €0.8 billion of OpEx plus cash costs and CapEx savings reaching €1.2 billion saving versus the initial plan. In Q1, we are well on track with about 26% of incremental full year target already achieved. I remind you that, back in March, we have signed the agreement with the trade unions for 200 voluntary exits in 2023 that will help achieving our labor cost target reduction. Further savings will come from a strong acceleration of the decommissioning plan, which envisaged the shutdown of public telephone booths and the phase-out of a significant number of central offices. The best is yet to come on this project. So stay tuned. Slide 11. While we are fully focused to improve the group's operational performance, net gross process is ongoing. After having analyzed, the two non-binding offers in that, the Board of Directors last week, being them not yet adequate even if they were improved. Therefore, considering the readiness expressed by at least one of the bidders to improve the offer, the Board decided to explore the business with the perspective of obtaining a final offer by the 9th of June. We believe it's worth taking a few more weeks to explore this final opportunity as NetCo disposal remain the main option to structurally deleverage team. In any case, having in mind that the price must be fair and at market value, the two main elements are time and execution. For this reason, we do not want to have uncertainty and will be key to receive an offer without condition, in particular on antitrust. I want to stress another important point. ServiceCo is a portfolio of three distinct businesses, well balanced in terms of cash generation, market maturity and risk appetite. TIM Brazil is leader in a well-structured and rational market and is exploiting the synergies of OE acquisition beyond our initial expectations. It will generate approximately 43% of 2023-2025 service cost EBITDA after lease on average. And we can consider in Brazil a cash cow. TIM Enterprise is an asset with a unique positioning. If we do well on execution the growth opportunity ahead of us is huge. It will generate approximately 24% of ServiceCo-EBITDA after lease. It is for sure a star. TIM consumer is active in a market where every player is struggling not only in Italy but in Europe. The operational turnaround is on track. It will take time but the direction of travel is clear. For us it's much to be ready for the market opportunities that will come from in market consolidation and from the new business models that will emerge. In any case TIM Consumer will account for just 33% of service costs EBITDA after lease. So the right way to look at ServiceCo is therefore to consider the combination of these three entities. If we take this approach, we see that Service Corp is already sustainable with a combined pro forma EBITDA after lease expected to be significantly above €3 billion and with positive operating free cash flow above €1 billion in 2023. Furthermore, cash generation is set on a strong growth trajectory on the back of EBITDA increase and CapEx reduction. Let me now hand it over to Adam for the Q1 financial results.

Thank you, Pietro and good morning, everyone. Let's start with a summary of group financials. Total revenues and EBITDA improved sequentially versus Q4 with service revenues suffering in Q1 in domestic affected by the drag from activation fees. This drag was factored in our budget. Looking at the trends. Group service revenues were positive at plus 2.8% year-on-year in Q1 from plus 3.6% in Q4. The trend is in line with our full year guidance and we expect an acceleration in the second part of the year. Group EBITDA improved 3.8% year-on-year from a plus 2.7% in Q4. Also here we are in line with our guidance at group level and we expect the domestic business to improve in the second part of the year to positive numbers. CapEx slowed down attached in Q1 compared to last year mainly due to the domestic business. As expected, equity free cash flow was negative in the quarter but slightly better than our own budget. Q1 was affected by higher payments impacting working capital and lower help from FX effect. Implicitly, net debt after lease increased in Q1 landing at €20.5 billion. Let's now have a look at fixed and mobile trends. Slide 14. Domestic fixed service revenues were down 1.8% year-on-year in Q1, a bit below Q4, which was a seasonally strong quarter for revenues coming from enterprise on ICT. The main explanation is retail with revenues affected by approximately €50 million activation fees drag, which is not a cash item as Pietro mentioned. Net of this effect, fixed service revenues would be flat. I remind you that this drug was already anticipated last year and it will continue in Q2. It would also affect Q3 but with lower intensity. Positive news came from National Wholesale that grew slightly despite competition. International wholesale was slightly down due to less voice revenues at low margin. In terms of market following the growth in 2020 and 2021 that was fueled by vouchers and COVID, 2022 stabilized. Q1 has continued with the same trajectory. For these reasons retail KPIs are still negative even if improving this quarter compared to Q4. We reported a significant shared containment now steadily around 1% per month combined with a historic low level of delinquency. Price have been done in previous quarters on our existing customer base with churn impact below expectation. As Pietro explained, we expect to do more in the coming quarters. Equipment was up year-on-year reflecting a positive €50 million recognition in Q1 of the wholesale agreement with Open Fiber in white areas. As you know, we already booked a similar amount in Q4 of last year and we'll finish to recognize the rest in Q2 for a total of €120 million. Moving to mobile on Slide 15. In terms of market dynamics, in Q1 we were once again the best infrastructure MNO in terms of mobile number portability. The market continues to go down and is increasingly rational. And for the first time in several quarters the total volume of MNP has been lower than €2 million. Even if mobile service revenues were down 3.8% year-on-year in Q1 KPIs are starting to show signs of improvement, churn was stable year-on-year and the reduction of human lines was 45% lower compared to Q1 2022, notwithstanding the selective price increases done in recent months that supported consumer ARPU dynamic, which was up year-on-year and stable versus Q4. This evolution together with the efforts already put in place, on the customer value management front give us a more optimistic view on the retail side, of the mobile business. At the same time, wholesale trend continued to be positive with higher revenues coming from roamers and MVNOs. Next slide. OpEx were just a touch higher year-on-year in Q1, on a PL view and overall flat at plus 0.7%, on a cash view. The slight increase was entirely due to volume-driven costs, with all other actionable cost items, down year-on-year. In particular, industrial costs were down 1% thanks to a reduction in network and energy, and even absorbing the inflation effect on the specific contract with INWIT. About energy, the hedging policy applied together with the tax credits defined, by the decrease issued by the government allowed us to maintain under control this energy line. And as a matter of fact, the first quarter sits well below our budget. Additionally, G&A were significantly down on lower IT and consultancies and professional service spendings. More importantly, labor costs were down 2% due to lower FTEs and the solidarity agreement. On this cost line, we expect especially in the second half a better trend also due to better comps. Next slide, TIM Brazil, reported another quarter largely beating the guidance on every line and you can find many details in the company's disclosure down, three days ago. Nonetheless, it is important to highlight the main achievements of this quarter. All integration is 100% delivered, with network integration and client migration, completed during March and April this year. Sites decommissioning is fully on track, with 1,500 sites already this month with positive financial impact this year. The top line expanded 19% year-on-year with EBITDA net of nonrecurring items growing at 22%, following the consolidation of Oi numbers. EBITDA minus CapEx margin stood at a robust level of around 23% on revenues, the highest level among its LatAm peers. As you can see, from the numbers and even considering the discontinuity in the comparison versus the first quarter of last year, TIM Brazil is fully benefiting from Oi mobile integration and posted a strong organic performance, focused on customers by a strategy that continues to pay off. Slide 18. CapEx were down year-on-year, mainly for a different phasing in the domestic business within the year compared to 2022. We continue to invest heavily in ultra-broadband deployment, with a specific focus on RRP initiatives and on the 5G deployment and according in mobile. CapEx team enterprise were attached lower thanks to the peak already reached, on data centers transformation. Equity free cash flow after lease was negative in the first quarter driven by lower operating free cash flow, mainly due to the absorption of working capital related to the significant CapEx level of Q4 2022, and for an additional installment of the DASAN agreement. FX not helping while it was positive support last year, and higher financial expenses. It is worth to mention that equity free cash flow in Q1, was better than our projections and that the total for the next nine months should be positive, if we consider the partial anticipation of the NRRP funds. Net debt was a touch higher versus the full year to €20.5 billion after lease. In Slide 19, you find a summary of our debt maturities and the breakdown between fixed and variable rates. We worked hard since the beginning of the year, to reinforce our liquidity position and we succeeded especially, considering the context. We secured €850 million, with the issuance of a bond in January, plus additional €400 million in April, with the largest tap in the high-yield market since October 2021. The TAP issuance was priced 0.75% above par, thus reducing the cost of the regional issuance. And last week, we signed with the European Investment Bank and guaranteed by such a €360 million loan, with an attractive cost for the financing of the 5G rollout. All these actions show the strength of the group, both operationally and financially, and you will see further initiatives in the coming months. It is worth to mention, that the average cost of debt at the end of the first quarter, was just above 4% in line with the Italian BTP, that stood at 1% only 15 months ago. With this, I hand over to Pietro for his final remarks.

Thanks Adrian. Q1 trends improved versus Q4 and were in line with expectations. As you can see at the bottom of the slide, we expect the improvement to further accelerate in coming quarters. Thanks to several positive drivers that will progressively kick in throughout the year in the domestic business. It's important to remember that they are not a guess. They are largely secured. The effect of repricing will become more visible. The new wholesale tariffs will be booked starting from Q2. The stabilization of the customer base will continue. There will be easier energy and LIBOR comparison in Q3 and Q4, while the drag on activation fee were reduced in Q3 and fade away in Q4. Already for Q2, we aim to be broadly flat on domestic. Also equity free cash flow after lease trajectory is expected to improve throughout the year thanks to better operating cash flow performance. Our full year guidance is, therefore, confirmed and reiterated. But I also want to stress that the management team and all the employees continue to be focused on the operation. Last year, I said that we want to be the first management team in the last 12 years capable to achieve the guidance for two consecutive years and we are on track. And now my closing remarks for today, we are facing two important challenges, keeping the company on track on the operation as it hasn't happened for years and create the opportunity to begin the industrial and strategic option teams shareholders deserve. Let's now move to the Q&A session. Thanks everybody.

Q&A session is now open. [Operator Instructions] First question comes from Mr. Giorgio Tavolini of Intermonte. Mr. Tavolini please.

Good morning, gentlemen. Yes, three very quick questions from side. The first one is on iliad. Do you see any threat to interact from iliad’s entry to the business mobile segment, or do you think the network quality -- your network quality, your consolidated presence in this segment will continue to give you a superior competitive advantage? The second one is on the ServiceCo. Slide 11 highlights that the ServiceCo is a sustainable business based on the portfolio of the three different businesses of which Brazilian TIM Enterprise offering very good growth and cash generation profile. So I was wondering where could further efficiencies to be extracted to turn in consumer around? And the third one is on INWIT. INWIT recently mentioned the possibility for the tower cost to expand the perimeter to management of the active infrastructure. So equipment and things thanks to a greater outsourcing of activities by telecom operators. So I was wondering, if you see opportunities for TIM on this side and in particular to boost the CapEx efficiencies? Many thanks.

Thank you, Giorgio. Let's start with the so-called the extract on the Enterprise segment. It's important to explain that when we talk about Enterprise we mean, which is the perimeter of the -- what we call Enterprise, Tim Enterprise that are the largest company in Italy, the largest 50,000 company in Italy. And then you have the remaining part of the business that is made also by medium company, small business as so. The iliad offer is most -- is targeting much more the low part of this segment, more small office, home office. In this area with all respect with the illiad offer, we think that the result will be quite similar to what happened more on the fixed but not on the mobile of the consumer. Why? First of all this segment has already bought consumer offer because for fiscal issue, it's indifferent for this segment to buy as a company or as a private. Second, in terms of sales channel usually this is a segment where what we call door-to-door or let me say not shops are the main challenge to try to targeting this kind of segment. Last but not least the offer of illiad and that is something that we have to continue to monitor and respect is not so aggressive as the offer that they had in the past. So this in a nutshell is something that we have to monitor and control, but we don't foresee a specific threat out of what we have already planned in our market. Then -- so on the Enterprise segment, the offer of illiad is not targeting the large corporation where it's not just a matter of price, but you have also to put in place building systems that are able to divide the amount of the expenditure by cost centers and so forth. About ServiceCo sustainability. As you have already mentioned it, was important for us to explain what is ServiceCo. Sorry, if I'm back again on this point because sometimes when I read on the press, it seems that ServiceCo, it's only the consumer. ServiceCo, it's a portfolio of business with different level of maturity, cash generation and different challenges. As we have already explained or mentioned, I think that for sure the consumer is of the three business, the one in which we have to be much more focused in terms of restructuring of the business model. It's important to alight this is not only a challenge for team in Italy or for the consumer market, the telco consumer market in Italy. But this is a challenge everywhere to all Europe. What we are doing and we are on track on that is trying to start to put the right level of efficiency, avoid irrational competition model, increase the level of quality of the service that we will supply to the customer and try to manage in a better way what is so-called CVM, Customer Value Management. In this market today, it's really important to be able to manage the customer base because the end-to-end related to the acquisition costs, it's less efficient than to be able to contain, but it doesn't mean that we will not try to foresee an improvement on the main KPIs. Last about the INWIT, I think that in any case it's something that has to be understood, but it's clear that it's quite different also to put in place let's reward in this way, Master Service agreement when you talk about passive activity tower, fiber so on and so forth. When you start to talk about Master Service agreement related to the active part on a medium long term. As you are going to define the way which you will approach for example the change of technology from 5G non stand-alone to 5G stand-alone, how you will manage the migration to the 6G? How will you manage for example some change in technology? This is the reason for which at least for the know-how that you have today about what we are talking about, we don't see immediately an opportunity while on the so-called passive part, we continue to foresee opportunity not for tint generally speaking for the telco player. I hope Georgio that I was able to give you the color you needed.

Many thanks Pietro. I had no particular follow-up.

Thank you, Giorgio. Next question please.

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

Yes. Hi, good morning and thank you for taking my questions. I would like to focus on the new tariff for wholesale. If I guided properly the tariff will have to be applied from January 1 but there was no impact on Q1 numbers. So we may assume some additional contribution could come in Q2 numbers? Second question is, these increase in tariffs are in line with the expectations you were having when you're preparing your budget for this year? And the final question is, do you expect other operators may follow December you were mentioning. So price increases in the retail is just to capture the increasing tariff...

Thank you, Fabio. I think that your question help me also to be back on the Chart 21 because I would like to like the fact that we reiterated and confirmed the guidance not because it is a guess, but because there are some mechanisms that will allow us to increase just to give you an idea, if you do the math, you can easily calculate it to reach our target how much change the amount of revenue and EBITDA that we have to grow on the domestic. How it can happen the growth from the first quarter to the second quarter. It's quite easy. First of all, the tariff for wholesale. As you explained very well, the new tariffs are applicable from 1 the January 2023. But in our number they were not calculated in the closing of the first quarter. So in the second quarter we'll see the new tariff plus the recovery for the first quarter. And this is already a good amount and part of that must be projected also for the following years. On this point, it's important also to remember that the increase of the sales tariff will put pressure also on the other operator to increase price because if not they will file a part of their EBITDA. And if I'm not wrong in the reporting season of one of our competitors they expressly -- they clearly expressed the willingness to increase the price on all the customer base. Another point and we received a letter from EU, just a few minutes ago. It's important also that in the explanation of the approval at EU level, is related to the important to give a premium on the WACC to incentivate investment. That is something we were fighting for, because if you remember, we thought that it's impossible to continue to build network. If you don't have the right, return on investment. And this is I think a real breakthrough compared to the past. Let's remember, that in the last 20 years we were never able to have an increase on the sale price. When we move to the second question that is, the repricing, this is the second element that will allow us to increase revenue EBITDA from Q1 to Q2. What's happened that we have already repriced four million fixed line and two million mobile lines, the communication to the customer base happened in the first quarter the impact on the revenues and on the EBITDA will appear in the second quarter. And we are going slightly above our expectation in terms of churn, because as you have seen nevertheless, the communication to the customer base during the first quarter we were able to have a good level of churn. And it will be a further accelerator and help to reach the target. Last but not least, the third question that you were mentioning that is related to the other operator. I mentioned there are already two operators that expressly declared that they will increase the price on their customer base. So this is a trend in which the markets start to see more rational and mature. And this is something that if you remember, when we started to discuss about that, first quarter 2022, one of the main point was it was declared four years but it never happened. So one year when they are out later, it seems that this is the trajectory also in Italy. But again, let's move on and the number that -- and the fact that we reiterated our guidance is not based on the gas, but on the debt, through the repricing, the wholesale tariff. The comparison compared to the last year we are very safe on the fact that we'll be able to achieve. And finally we hope to post it in the second quarter flattish revenue and EBITDA on the domestic. That could be a real bet compared to the history of our company. Thank you.

Thank you.

Thank you, Fabio. Next one, please.

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

Good morning. Three questions, first is the clarification, just a clarification on a comment from the previous statement. So, when you said that Q2 should be broadly flat at domestic level are you referring to sales or EBITDA? That was not clear to me. And my questions are on the NetCo side, on the NetCo disposal process, because we are any about potential let's say combined off. So something that okay has to be structured. So I wonder, if the deadlines or the -- that the Board set is really something achievable considering the complexity and if you would consider keeping a minority stake. And the last question is referring to the customer base stabilization, when I do your ambition on your guidance. So the area where I see more risk from my side is on the stabilization of the customer base, given the fact that the market is very, very mature. And so I'm trying to understand you aren't raising prices. So there is also this headwind. So what are the levers that you can execute to really get to the stabilization of the customer base?

Domenico, thank you to, have to improve my English, but confirm flattish number on revenue and EBITDA. So this is the answer to the first question.

Okay.

The second, how we foresee a possible combination, as I stated during the call, for us it's important time and execution. So for us it's important to proceed fastly and to have low risk in terms of execution because this is something that is really important. And so these are elements to evaluate the reliability of the offer then, either someone that wants to merge or combined is out of our possibility to be managed while about the minority. It really depends. We always told that. Today we don't want to have Vito Rights in any case, because if not we are unable to explore the vertical this integration that is something important for Netcoa and ServCo, because also for Netco avoid to have a vertical integration allow to have more hens free in the definition of price and return on investment. The same on service ServCo, if you keep a participation, you don't have to iterate so it becomes a kind of financial participation, because you think that you can have a further upside in the future from the evaluation, but it is something that you can have out in terms of earn-out. About the customer base stabilization. Now, I leave the stage to Adrian, but let's remember this is very important. We are working for the stabilization of the customer base but this is one of the driver of our growth because let's remember that we have a portfolio of activity in which you find TIM Enterprise that has continued to grow and we have seen the number and the following quarter will be better than this one. Then we have the same national and international -- so the wholesale national, we have seen with the increase of price will be better. The international will be also better due to a that we are going to face the seasonality period in our favor and then we have the consumer. Today in our number, the consumer is projecting improving number quarter-over-quarter trying to reach a better level of customer base. But as was mentioned also by other players that announced the number before of us, we don't have to look at the customer base stabilization at any cost because it's important to find the right balance between the commercial growth because we have to continue to push and increase our number and the cost for this kind of activity. But if Adrian want to put some more color...

Yes. Thank you, Domenico. A couple of comments and a couple of factors that give credibility to the stabilization of customer base. First of all the market has improved condition over the last 12 months. We see more rationality in pricing, less aggressive offers on portability, for instance, in mobile. And as a matter of fact, the number of rotation in the mobile market has reduced substantially. So, we see a reduction of around 25% in the volume of portability in the market that clearly is helping us to improve our performance, which we improve better than our main competitors. So, our mobile balance for instance improves substantially in Q1 year-over-year. We basically more than half the negative balance, I mean that we do better than a reduction of 50% of the negative bans. Same applies to fixed line. We improved significantly the net negative balance. We are still in the negative, but we improved the numbers versus last year. And this is due to several factors. One is again that we see a bit more rationality in the market -- in a market that is not growing as fast in broadband like it was in 2020 and in 2021 for a pretty understandable reason the pandemic-driven more net adds, but also more aggressiveness by competitors. But the other thing is that we are working day-after-day to improve the mix of technologies in the customer base. We migrate customers to better technology. So, we have a much better mix of technologies in the base. Over the last three quarters we gained leadership in FTTH base. So, that means that now we have a better mix between DSL, FTTC, and FTTH that gives more resilience to our churn.

Okay. Thank you.

Thank you, Domenico. Next question please.

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

Yes, good morning. Thank you for taking the question. Just a couple of questions. The first one just on the NetCo potential disposal process. Could you confirm are the offers that are due in on the 9th of June are you expecting those to be binding offers, or would those still be non-binding? And would you take that to [Foreign Language] Threshold to be at the shareholder vote. I think it depends on what kind of meeting would be called to discuss it? And then secondly just interested in the upside in EBITDA going into the fourth quarter around some of in particular the labor costs that you flagged on the last slide. I think you've signed an agreement with the unions for 2,000 headcount reduction. Is that a lot of the driver that will start to come through in the fourth quarter EBITDA uplift, or is that something that could be kind of further improvement going into 2024 to kind of understand that late agreement with the unions a bit more. Thank you.

Hi James, sorry, we lost the line briefly when you were doing the first question. Can you repeat it please?

Yes sure. Sorry the first question was for the offer you're expecting on the 9th of June are those going to be binding offers? And also if you do then go to a process to sell would this be a shareholder vote? And if so what level of voting threshold would be required at the vote and believe it depends on the type of meeting you call? Thank you.

Hi James. About the offer as we stated in our communication, there will be a final offer will not be yet banning and that depends really from also the counterpart. For us what is important, as I mentioned the speediness of the process of the time. This is the reason for which we thought we asked for final offer. And it's clear that from our understanding, everybody working them to reduce eventually the time for further analysis in terms of data room and due diligence. Related to the second question that is on the shareholder meeting, I live just for a few seconds, the answer to our legal counsel, Agostino that can give you some more color. And then Aaron will answer about the labor cost.

So, going to your question, the Italian makes a clear distinction between the AO management which force which 400 responsibility of the Board of Directors and the transaction which has to be decided by the shareholders' meeting, either ordinary or extraordinary. Now, in our case, we are considering to do a contribution of an undertaking to a company, probably the existing FiberCop and the sale of the shares. And so, according to the law, those actions are actions in the responsibility of the management. Clearly, in our situation, the undertaking we are contributing is huge and makes a difference in terms of company organization. And the question raised by someone is, to what extent this change in the organization could raise a substantial change in the scope of the bylaws, where the change of this [indiscernible] is something that has to be authorized by the extraordinary shareholders' meeting, where you have effectively need to have the two-thirds of the participant to the shareholders' meeting to approve this change. Now, clearly, you need to do an interpretation to come to such a conclusion, which is not the case at the moment. We are studying. And clearly, we can have a final position on this only after demanding offers, where we have a clear picture of the transaction, the perimeter and the impact on the company organization. I hope that was clear.

Thank you. Yes, very clear,

Yes. And on the labor cost effect of the agreement we signed in March of this year. Clearly, this is not yet a cash impact and it will be clearly in the next -- for the next five years, probably half of that during '23 and '24. But in terms in economic terms, the effect will be partial this year. And you see that effect on -- again on slide 21, when we defined the effect on the fourth quarter about the labor cost comps. And then, it will be full on '24 and onwards. Again, this is something that will probably start to have some effect in the third quarter, considering the timing of the exits, but it will be full on 2024 and August then. All these effects were considered on our projections. So, these are already included both on our EBITDA guidance and on the equity figures flow guidance that we gave for the three years. So, it was already considered when we gave the guidance.

Okay. Thank you.

Okay. James, thank you for your questions. We are ready for the next one please.

Next question comes from Mr. Andrea Devita of Banca Arcos. Mr. Devita, please.

Yes, hello. Thank you for taking my question. Just two from my side. One is on your equity free cash flow, whether or not and in case which part of the €400 million provisions for personnel exits are included in this equity free cash flow. And otherwise, when the cash impact will be felt during the year. And the second point, it is peculiar that it has been booked in Q1. So, I wonder, whether and which impact would be in the next few quarters in terms also of economic impact on the P&L. And the second part the second question is on the Polo strategy for [indiscernible]. So the strategic national hub for data centers, whether there is any update if the loss has started when we can have some economic impact on the domestic business. Thanks.

Yes. So, I didn't get clearly the second part of your first question about the economic side of the unit agreement, is it?

Yes. So, the €400 million provision in Q1 -- the question is. The first is from a cash perspective whether or not it is affecting Q1 equity free cash flow and in case when it materializes. The second is whether there are other important material provisions to take place in the next few quarters.

Okay. Yes. In terms of equity free cash flow clearly, this agreement doesn't create an effect. But you need to consider that we are facing the effects of the previous agreements the ones of 2022, 2021, 2020, so you do have some effects in terms of working capital of these kind of agreements. About this one that it's on our reported figures for the first quarter you will have some effect yet this year probably something around €60 million and the rest in the following years. But again this -- all these effects are considered in our projections then you will also need to consider the effect of the anticipation of the contribution for the NRRP projects that will probably be cashed in the third quarter of this year for something around €500 million. So this -- and this one clearly wasn't considered in our guidance. So this is an upside definitely for 2023 and the partial upside for the three years guidance in terms of equity free cash flow. In terms of economics again on this effect, you will have some positive effect on the fourth quarter of this agreement. And again, you see that effect on Slide 21. And you will have the full effect for 2024 and onwards. Then we are not expecting any other provision about this kind of agreements this year that it was fully booked on the first quarter, because it was signed during March. Hope I was clear, then there's the second question about the PSN, yes, and we will hand it…

Yes, sorry. Sorry, I didn't get to the number that the rough impact in Q1 just didn't get the announced figures.

About this 2023 agreement, there is no cash impact on the first quarter of 2023.

No cash impact. Okay, okay.

Yes. And then we have…

About the second question the PSN. Let's remember that in our plan the value of the PSN on this year was marginal around €30 million, but we continue to foresee further opportunity and upside. So I'll leave to Elio to give some more colors on that.

Yes. Thank you for the question. Yes. As Pietro said, we have been very conservative in predicting revenues on the PSN for 2023, because we have only €30 million revenues in our budget, which will begin 62 in 2024 and 81 in 2025. So, meaning that we were expecting a delay that is actually now materializing. We don't see any major risk. Clearly, there will be a phasing in our cloud revenues in -- probably in quarter two, but the effect is very, very small. It's very limited. The positive news is that, let's say, the program overall is registering a bit of delay, but public administration have already submitted the projects in the total number of projects is €669 million, out of which almost 70 are projects where we are already analyzing, so the PSN is already analyzing. And very soon they will translate into actual projects. So we feel very confident that the number is not at risk. Thank you.

Okay. Thank you very much.

Okay, Andrea We are ready for the next one please.

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

Thanks for taking the questions. And I have two please. So first in the event there's no approval on NetCo or it takes a while. What is the potential plan be? You've talked about a potential sale of a minority stake in enterprise. Is that still something you're exploring? And how quickly could you execute on it if need be? And then secondly the ICT service revenue growth was quite a bit lower this quarter, as I understand, you're pushing low-margin revenues less aggressively. So in the context of how you report today should it still be similar to that 11% growth going forward? And is there any comment on the margin contribution from the ICT revenue line as well? Thank you.

Kevin about the big plan, as we always stated we have to keep optionality open in for our company to be able to face different scenario. But I don't want to be misunderstood. It doesn't mean that, we don't have clear idea, but it just have a clear understanding about the fact that there are we must have optionality. And so the enterprise continue to be one of the options that, we put in our plan the 7th of July. If you remember it was the 9th of November when we received the approval from the Board to proceed in the curve in the definition of the carve-out, and we are completely on track in -- on this area. About then time price -- sorry and it's important to say that while we are facing all this kind of discussion on the deleverage and the layering of the company. We are continuing to improve the number of the company. And as we told, we expect a second quarter flattish on revenue and EBITDA at domestic level. About TIM Enterprise, I leave to Elio to elaborate more on that. But first of all, we have to be very clear on the fact that when we look to the number of TIM enterprise is not like the consumer. The view per quarter sometimes can show different path, because this is a business where you can close a big contract and sometimes you can close at the end of the quarter or at the beginning of the new quarter. So we'll have always this kind of seasonality and the real trend cannot be read in this way. Second, as we told since the beginning is that we are trying to do a different approach and to focus our activity and our people more and more on high-margin offer that it doesn't mean that we will not continue to work on some ICT offer with no margin because in any case, it's a kind of triads that allow us to enter in the relationship with the customer and then develop for their activity. But, Elio, if you want to give some more color.

Yes. Thanks Pietro. Well, what I would like to add is that. we do believe that we have a clear strategy and a very crystal-clear view about where we go and how do we want to get there because we made a statement several times that we want to focus on our revenues generating higher margin. And as a matter of fact, let's say, while in quarter one 2022 we registered a growth of 5%. Now, we are at 4% but our EBITDA is significantly increasing. And more importantly, if you reach the level of EBITDA CapEx, is getting even better. So we will keep doing this exercise without let's say losing attention on how to generate growth on the top line but being very surgical in the approach in concentrating our focus on revenues generating higher margin. Thank you.

Okay. Thank you so much.

Thank you, Keval. Next one please.

Next question comes from Mr. Ottavio Adorisio of Societe General. Mr. Adorisio, please.

Hi. Good morning, everyone. Quite a few questions and a some follow-ups. The first one is the segment, there's a lot of talks about growth of comparison. I can see absolute numbers. In the test two financials you said that, IFRS 18 prevent you from giving some detailed financials on NetCo the consumer and the enterprise. I was wondering, if you can at least share some absolute figures on EBITDA CapEx and revenues you make in these three segments. The second is related to that one. And it's basically, you talked about the master service agreement with INWIT. But there is another massive agreement. Is that win between ServiceCO and NetCo. I was just wondering is that part of the negotiations you're currently running for the bidding of the NetCo or the MCA is already finalized. And if so if you can tell us how much a ServiceCO is paid NetCo last year or is basically in new plants pain NetCo and how much we will paying in 2023? And then moving to another one. You're talking about flattish EBITDA growth in the second quarter for the domestic, would be still flattish if you don't have the attractive impact of the wholesale or will be negative. And the fourth I apologize I don't know if you really replied that one, but I wasn't there in the previous call, you had a significant loss of human SIM losses in mobile. That was quite different from previous quarter. Could you tell what's happened there? It was just a specific contract that dropped or something we should expect going forward? Thanks.

Okay. Ottavio let's start from the last question that related to the SIM losses, not only TIM but all the player during the COVID period have deployed and offer specific SIM for university, public administration and so forth with an ARPU that was -- with the value that was flat marginal that makes some sense to continue to keep a live, because in some way they are cannibalized also in the market other services or other SIM with an higher level of ARPU. About the segment Adrian if you want to?

The segment and the MSA in terms of numbers for the different segments clearly as we mentioned in the previous calls, we are not disclosing by this time this kind of information. We did it last year during the during the Capital Market Day, so you can have a sense of where each business stands in terms of marginality, in terms of proxy of operating free cash flow. I think as you know we are under negotiation in these days and it's clearly not our intention to give many details on this. Probably going forward, we'll start to disclose our numbers with that view. And as a matter of fact, we gave a lot of information in terms of revenues these days. So I think that that's for these days an important kind of disclose. Then on the third question…

Yes. The other question I think that you can imagine that release too many cases in a so critical phase of the negotiation can impact. And also when we discuss about the MSA in our business plan, we have our assumption that respect the regulatory constraints that we foresee. Then it's clear that each of the two counterparts can do their own proposal and then we'll understand. But what is important is that from an industrial strategic point of view, we are not looking for a financial deal because what we have to foresee is something that will allow to ServiceCo to be able to compete at the same level of the other player and avoiding any kind of things that can have an impact on the future freedom to compete of ServiceCo. I don't know if I was clear.

And just to complement, the numbers we disclosed in July of last year on the EBITDA of ServiceCo, the MSA with NetCo was already included. With the definition of the perimeter that we presented that day and with regulatory assumptions that we also disclosed that day. So at the end when we talk about the EBITDA of SerCo, it's already considering the MSA with NetCo. Then about the third question, in terms of the EBITDA if it would be the same without considering the wholesale price increases. Pietro mentioned that we'll expect flat both revenues and EBITDA, probably a little bit more optimistic in terms of EBITDA. So again even if it is a very interesting effect, because we will be booking two quarters in the second quarter, because remember that it is retroactive. I think that we’ll be probably also on the flat side without this effect.

Ottavio, but just to be clear until the NetCo is inside our perimeter this is not something that is raining from the sky. This is the result of activity. It's like when someone say that we are growing in Brazil. Brazil wasn't a ticket to won the lottery. Brazil was something on which the company invested. The fact that we were able to increase the wholesale tariff after 20 years means something. And this is an important element, because it will help the rationalization of the consumer. So as Adrian stated, we could be positive on the EBITDA but we have to look at the company as the sum of the part. Thank you.

Thank you, Ottavio. I hope the answers were clear in particular the last one. We have now time for the final question. Thank you.

Our last question comes from Mr. -- just one second please. Our last question comes from Mr. Mark Watts of Citibank. Mr. Watts, please.

Hi, guys. Just a quick clarification point. On your CMD last year, you outlined in the event of a NetCo sale roughly $11 billion of debt was intended to travel to the NetCo structure. Is that still the expectation assuming a deal went through that you would look to do that? And any indication as to what part of the structure in terms of the bonds might travel as in would you look to potentially move some of the dollar debt, some of the retail bonds? Any kind of indication as to how that might work would be very useful.

Yes. Thank you for the question. When we -- again, when we disclosed the figures last year in July that the amount of that that could be pushdown that was our view that by the time a vehicle as NetCo infrastructure what kind of leverage can absorb. And we mentioned that, it could be the case up to €11 billion. Then it will depend on the offer and they have specific hypothesis about this. They can have a different view in terms of what kind of leverage the company can have or they can already start with a specific leverage especially in one of the cases. So, again, it will depend on what's their view and if it happens then. We think that FiberCop, as NetCo a leverage between five or six temps, it's something that it's acceptable. In terms of what kind of that instrument can be pushed down or can be ported to NetCo -- we are running a very deep analysis on this side. We decided clearly there are some bond structures that are -- I won't say easy, but you will need probably a lower level of consent. There are some bonds that you probably need 100% of consent. The thing is we will like to have an equilibrated debt profile, especially on service. It's not in terms of type of bond, in terms of maturities, so that will be a specific analysis depending on what the offer would like to have. Then after the push down of the debt, there will be also a liability management, because we expect a significant gain in terms of equity, if the deal goes forward. So it would be an interesting process.

Okay. So in terms of the debt that's going potentially being ported to the NetCo, as yet you don't have really a firm preference as to whether it might be short dated or long-dated just, because I've heard from certain schools of thought that maybe some of the longer-dated debt would more naturally suit the NetCo type structure given the sort of the asset liability nature of that business just to March. But at the moment there's no kind of plans.

Clearly, this a fair assumption, because the infrastructure kind of vehicle could absorb longer maturities. But again, we would like to have also an equity rated profile of that on debt. But again if this happens at the end the comparable will run a very friendly process. So it will be also in the interest on the bondholders.

Understood.

Okay. Thank you very much for attending today in such a busy morning in terms of reporting season with Telefonica and Deutsche Telekom out with the results. We will be back at the beginning of August with our Q2 results. Thank you. Have a nice day.

Ladies and gentlemen, the conference is now over. Thank you for calling.