Telecom Italia S.p.A.

Ladies and gentlemen, good morning, and welcome to TIM First Half 2025 Results Presentation. I am pleased to be here with the CEO, Pietro Labriola; the CFO, Adrian Calaza, and the rest of the management team.

Today, we will walk you through the highlights of the period and review the main operating and financial results. As usual, we will close with the Q&A session.

Before we begin, a quick reminder. As was the case in Q1, Sparkle is classified as a discontinued operation in line with the guidance provided last February.

It is therefore excluded from the perimeter of these results unless otherwise specified. This treatment will remain consistent in the coming quarters.

Please also refer to the safe harbor statement in the appendix for further details on the scope of reporting. And with that, I will now hand over to Pietro to kick off the presentation.

Pietro, the floor is yours.

Thank you, Paolo, and good morning, everyone. Let me begin with the key takeaways from today's presentation.

TIM delivered a solid operational and financial performance in Q2, both in Italy and Brazil. At the halfway point of the year, we are exactly where we plan to be.

Results are fully in line with our budget, and we remain firmly on track to meet full year guidance. In Italy, the competitive environment in the Consumer segment remain stable.

We saw a continued improvement in mobile number portability dynamics and resilience in the Wireline business. The Enterprise segment grew in line with expectation, while Brazil maintained a rational market approach.

On the '98 concession fee, while we await the final court ruling, we have already secured almost the full amount in July through an advanced payment arrangement with 2 leading banks. Also in July, TIM Brazil successfully refinanced and extended the size of the 2023 bond lowering its cost of funding.

This is in line with our broader strategy to strengthen the group's capital structure and enhance the natural hedge on our Brazilian operation by rebalancing the exposure towards the Brazilian real. Lastly, the Board of Directors yesterday acknowledge the resignation of Adrian Calaza, Chief Financial Officer; and Eugenio Santagata Chief Public Affairs Security and International Business Officer.

Adrian will remain in office until November 6 for the presentation of the third quarter results; and in the company until December 31 to ensure the necessary support for the CEO and the new CFO. Eugenio's resignation will be effective August 31.

Effective October 1, Piergiorgio Peluso will return to the group as advisor to the CEO. Piergiorgio will assume the role of Chief Financial Officer immediately following the presentation of the third quarter results.

Thanks to solid execution, strong operational performance and disciplined cash management in Q2, TIM closed the first half fully on track with our plan, both at group and domestic level. TIM continued to rank among the fastest-growing telecom operators in Europe, driven by the stabilization of the consumer segment, robust enterprise growth and the strong contribution from Brazil.

Let me walk you through the key figures for the group in the first half. Total revenues grew by 2.7% year-on-year, Service revenues by 3.3%.

EBITDA after lease increased by 5%. CapEx stood at EUR 0.8 billion, around 13% of total revenues.

As a result, EBITDA after lease minus CapEx rose by 12%, reaching EUR 0.9 billion. Equity free cash flow was slightly negative in the first half at around EUR 0.1 billion, reflecting the usual seasonal impact of working capital.

However, it turned positive in Q2, slightly higher than planned, confirming the structural improvement versus last year when NetCo was still consolidated. Adrian will cover the cash flow dynamics in more detail shortly.

Net debt after lease remains stable at EUR 7.5 billion with a leverage ratio below 2.1x. At domestic level, performance was equally solid in the first half.

Total revenues grew by 1.6% and Service revenue by 2.2%. EBITDA after lease increased by 4.2%.

CapEx amounted to EUR 0.5 billion, around 11% of total revenues. Consequently, EBITDA after lease minus CapEx rose by 10%, reaching EUR 0.5 billion.

The detailed Q2 results are available in the annex. As usual, at the halfway point of the year, we take stock of our position versus the full year targets.

Overall, results are in line with guidance, while EBITDA after lease is slightly below. Let me provide some clarity on this point.

Firstly, EBITDA itself is exactly where we expect it to be, as I mentioned earlier. Moreover, the plan envisage and acceleration of domestic EBITDA in the second half, particularly in Q4 supported by several positive drivers that will progressively come into play.

First, the full effect of the price increases implemented in Q1 and Q2. Second, the seasonality of the TIM Enterprise business, which typically accelerate in Q4.

This year, this effect would be amplified by a stronger contribution from the National Strategic Hub. Third, additional OpEx reduction driven by the cost transformation program.

Fourth, labor cost savings following the renewal in July of the solidarity agreement, which includes a reduction in working hours for TIM employees to the end of 2026. That said, EBITDA acceleration will not immediately translate into significant year-on-year growth.

In Q3, we faced tough comparison since most of the group will be concentrated in Q4, also driven by easier comparison. Regarding cash flow dynamics, we are slightly ahead of plan.

All in all, I'm pleased to say that our full year guidance is confirmed. Let's now move on to review the performance of the 3 entities.

In the first half, TIM Consumer total revenues remained stable at EUR 3 billion with Service revenue growing by 0.3% year-on-year. Revenue performance gained momentum in Q2 with Service revenue increasing by 0.7%.

Price adjustments across both Wireline and mobile customer basis continued during Q2. In 6 months, we repriced 4 million Wireline and 1.7 million mobile consumer customers with a lower-than-expected impact on churn.

The full effect of these price increases on incremental revenues will become fully visible in the second half. The benefits are evident.

Wireline ARPU continued to rise, while mobile ARPU increased for the first time in many quarters. At the same time, churn remains well controlled, a remarkable achievement considering the multiple price adjustment implemented over time.

This confirms the validity of our volume to value strategy launched in 2022. Customers have demonstrated a willingness to accept price increases in exchange for quality services, and we are confident that competitor will eventually adopt a similar approach.

While Wireline net adds remain stable, we maintain our leadership in FTTH net addition averaging 18,000 lines per quarter over the past 12 months. Moreover, this quarter, we finally closed the gap versus competitors in terms of FTTH service coverage.

Mobile net addition showed sequential improvement. More importantly, the number portability balance remain virtually neutral confirming the trend observed in Q1.

It's worth noting that SIM cards acquired through number portability have an average ARPU of around EUR 12, EUR 13, while other SIMs average just about EUR 1. This means that most of the mobile line lost in the first half had a limited impact on service revenues.

We launched 5G fixed wireless access at the end of last year, and in Q2, we saw an acceleration in net addition. We expect this technology to contribute strongly going forward, having expanded service coverage to 70% of the population.

A final point on our customer platform. TIM Vision customer base is growing well with double-digit year-over-year growth.

Q2 marked the 12 consecutive quarter of growth for TIM Enterprise, delivering a strong 6% compound annual growth rate. In the first half, total revenues grew mid-single digit to EUR 1.6 billion, with Service revenue rising over 6%.

Cloud stood out as the key growth driver with service revenue up 25%, reinforcing TIM's position as one of the Italy's leading ICT players. Our distinctive edge lies in the combination of proprietary data center and advanced cloud capabilities setting us apart, particularly in delivering secure and sovereign digital services for the country.

Revenues from other IT declined by 5% reflecting a deliberate portfolio reshaping to phaseout low-margin activities and focus on higher-value solutions. Connectivity showed an expected slight decline.

With the mix, fixed connectivity grew year-on-year, while mobile connectivity declined due to the phaseout of a large contract to the public administration, which we intentionally choose not to renew. This aligns with our strategy to avoid tenders likely to generate very low or negative margins.

I'd like to draw your attention to the bottom right corner of the chart, highlighting the increasing share of revenues generated by TIM factories, namely Noovle for cloud, Telsy for cybersecurity and Olivetti for IoT. These revenues tend to be higher margin as they are primarily driven by internally services rather than external third parties.

TIM enterprise performance stand out in European context. Given the strong interest of the financial community in better understanding our business model, positioning and growth opportunities, we have decided to host a dedicated event in the fourth quarter 2025.

TIM Brazil reported last Thursday, so I won't go into too many details. The markets remain healthy and rational and TIM Brazil delivered another solid performance.

Top line growth was mid-single digit in H1 driven primarily by mobile service revenue. Customer base monetization remains a core focus with successful upselling from prepaid to postpaid, resulting in the highest ARPU in the market.

Efficient operational execution continues to drive a consistent EBITDA growth and margin expansions. OpEx remains below inflation and EBITDA after lease reached nearly 38% of revenues with year-on-year growth of 6%.

TIM Brazil is also outperforming pace on cash flow generation with robust operating free cash flow expanding at a double-digit rate. I now hand over to Adrian for the financial results.

Thank you, Pietro. Good morning, everyone.

Before diving into cash flow and debt, let me share a few comments on CapEx and OpEx. Group CapEx in Q2 was soft, both in Italy and Brazil, totaling around EUR 0.4 billion.

Accordingly, overall CapEx intensity in the first half was below our full year target. This was due to phasing, mainly on mobile access, both on domestic and Brazil and data centers on the domestic business.

We expect CapEx to pick up in the second half as it did in 2024. Group OpEx in Q2 were flat year-on-year.

Brazilian OpEx continued to run below inflation, while in Italy costs were fully under control, thanks to the cost transformation initiatives. It is also clear that the domestic cost structure has become more volume-driven following NetCo disposal.

More details will follow in the next slide. It is worth mentioning that EBITDA after lease margin in the first half is up 0.5 percentage point when compared to the same period of last year, both at group and domestic level, proving that we continue to find efficiencies across the board.

Now a few comments on cash flow and debt. Last May, during the Q1 results call, as said, we expected broadly neutral equity free cash flow in Q2.

In fact, equity free cash flow came positive at approximately EUR 0.1 billion slightly better than anticipated. While working capital absorption was in line with expectations, we benefited from better EBITDA after lease minus CapEx, together with a better evolution of taxes.

Another extremely important factor is that we continued optimizing the debt structure. After lease, the gross debt declined by EUR 0.8 billion in the first half, so financial charges are decreasing, although the average cost of debt remains stable.

We have good visibility on cash generation and may slightly exceed the guidance by year-end. However, as we still have the second half ahead of us, we prefer to maintain a prudent stance.

Below equity free cash flow, there was an outflow mainly related to dividends paid to TIM Brazil minorities. Net debt after lease closed at EUR 7.5 billion with leverage below 2.1x last 12 months organic EBITDA after lease, confirming TIM as the least levered listed telco in Europe.

So at this stage, we are sure that we will reach our year-end target. Let me now provide a bit more detail on domestic cash costs.

Starting with OpEx, we can break it down into 2 nearly equivalent components. Revenue-driven costs are growing based on top line performance and changes in revenue mix with a higher weight of cloud and multimedia services.

In the first half, they accounted for 49% of the domestic OpEx. Addressable costs, representing 51% of domestic OpEx and including labor, industrial, G&A and IT expenses.

As shown in the chart, most of the savings are concentrated on industrial costs, which include the MSA. On the other hand, G&A and IT costs are up due to the journey to cloud since many activities on premises that previously impacted CapEx are now cloud-based and accounted as OpEx.

Regarding labor costs. In the first half, we absorbed higher variable components related to 2024 results and additional phasing effects.

We expect a lower absolute value labor cost in the second half compared to the first half. OpEx and CapEx discipline is ensured by our transformation plan.

Let me remind you that we measure progress against the initial OpEx and CapEx trajectory. That is the cost base we would have incurred without the plan.

We currently have over 70 transformation initiatives underway, which delivered EUR 90 million in incremental benefits in the first half and are expected to deliver even more in the second half. Our efforts are focused on the commissioning of legacy technology, consolidating ICT vendors, adjusting service levels to match actual customer needs and optimizing labor costs through renewed solidarity agreement.

As for CapEx, around 1/3 was customer- driven while the majority was directed toward infrastructure investments, in particular, mobile network, IP backbone and data centers. Let's now briefly touch base on financial metrics and FX.

Following NetCo disposal 1 year ago, TIM financial KPIs have significantly improved. Leverage stands below 2.1x, the lowest among listed European telcos.

We are targeting below 1.9x by year-end, excluding optionalities, especially the concession fee that may arrive yet this year. Interest coverage continues to improve, supported by growing EBITDA after lease minus CapEx and decline in financial expenses, thanks to a EUR 0.8 billion reduction in gross debt in the first half.

Debt to equity is also trending downward. Rating agencies are progressively recognizing our enhanced credit profile even if we honestly expected some additional positive outlook at this stage, considering that we met all our guidance in the last 3 years, and we are full on track this year.

Moody's upgraded team to Ba2, Fitch confirmed its BB rating and raised the outlook from stable to positive and Standard & Poor confirm its BB and stable outlook, but upgraded team business risk profile from fair to satisfactory. Above all, it is important to underline that the market is already ahead of these improvements.

TIM bonds are converging towards those of investment-grade European insurers as you can see on the bottom center graph of the slide. At the same time, with the balance sheet as solid as ever, we remain financially disciplined.

We secured EUR 0.7 billion loan guaranteed by SACE. We monetized the concession fee in July through an advanced payment facility, providing low-cost liquidity for working capital needs.

In Brazil, the local holding company fully owned by the TIM Group issued BRL 5.0 billion in new bonds. After repaying the 2023 issuances net proceeds of BRL 1.7 billion increase our natural hedge and enabled a new FX strategy.

This strategy takes advantage of the favorable U.S. dollar real rate while maintaining U.S.

dollar exposure to naturally hedge the group's dollar-denominated costs, notably those related to [indiscernible]. Today, 75% of Brazil's equity free cash flow in 2025 is hedged.

One final comment from me. As Pietro mentioned, I will remain CFO until the third quarter results are presented and then I'll work alongside the new CFO, Piergiorgio Peluso until the end of the year.

Therefore, today is not my farewell. We need to be fully focused, as always, and we will have several more opportunities to meet between now and then, so please keep your appreciation pause for later.

Now I'll hand it back to Pietro for his closing remarks.

Thank you, Adrian. To wrap up.

First half results are fully on track to meet full year targets, both operationally and financially. We confirm our guidance for the full year.

We monetized the '98 concession fee through an advanced payment from 2 banks. The related dispute is progressing towards a resolution, which we expect by year-end.

When our credit profile continues to improve, TIM bonds are already trading at a spread close to or in line with those of investment-grade companies. Lastly, I want to thank you Eugenio Santagata for his contribution to TIM during these years of deep transformation.

Piergiorgio Peluso will be the new CFO starting in November. Piergiorgio has already served as the group's CFO for several years, so his appointment ensures continuity and stability, both internally and in relation with the financial community.

Adrian and Piergiorgio will work together until the end of the year. Therefore, the handover will be gradual and smooth.

So we remain fully focused on execution, cash generation and unlocking value for our shareholders. There is no time to lose.

We have to proceed. With that, we are ready to take your questions.

Adrian, yes, I will hold off congratulating, thanking you just yet. So a couple of questions for me, please.

Very simply on the concession factoring deal. I assume that is a full recourse transaction such that any issues with the payment then you would have to return all of the cash to the banks?

Or am I wrong? And if you could maybe just give us a little clarity on how we should expect concession to evolves when we could next hear from the courts, et cetera?

And then my second question was on the cash flow. It does look like CapEx a little lower, but yes, that could phase up.

But the balance sheet sort of efficiencies that you guys are achieving, we could come ahead of this year's cash flow target may be, but does that affect not compound a little into the guidance down the road? Should we be thinking a similar message there that we could come ahead of the longer-term targets, but maybe you guys just remaining a little prudent right now?

David, Pietro speaking. I apologize that we are becoming a boring company.

And there's nothing that the market will allow us in terms of mistakes. So we'll continue to try to gain the trust of the market being consistent and avoiding to overshooting.

In the meantime, we already mentioned during the first quarter call that we are optimistic on the fact that our number could be better, but we don't won't release a guidance about that, exactly for what I mentioned to you. We don't want to do any kind of mistake in this path to recover the trust of the market.

And in any case, what is important is that we are not running a 100-meter race, we are running a marathon and we want to bring the company in 2027 exactly as we stated in the plan. Then again, I must be also optimistic and looking at our number and the operational trend, there are, for sure, room of further improvement mainly on the equity free cash flow.

I'll leave to Adrian to give some more comments.

Yes. Thank you, David.

I would appreciate that in the next call. But anyway, I will complement on Pietro's comment on equity free flow, and that's our view.

We are not today in a position to upgrade the guidance. I can tell you that, as we mentioned in the first quarter, we are ahead of our budget.

But there are still 6 months consider that we do not have the final numbers of July, so there are still since 6 months to go. And there is -- the second half of the year is -- normally has a higher weight than the first one.

So that's why we want to be cautious. But what we do know is that we are fully on track that we, for sure, will meet our guidance.

And yes, we have today a small upside. So we'll see in the second half.

On the concession fee in terms of monetization. Clearly, this -- we -- the bank -- we entered into an agreements with the banks, they have today the right of the credit.

The only situation that may happen that we should return the demand to the banks is if the sentence is negative for TIM. That's the only case.

But we factor the full amount of this credit. It brings a significant benefit in terms of financial costs because this -- the cost of the deal is probably 200 basis points below financing the cost that we may find in the market today.

So what -- it's important to highlight that this is a credit that has a value for everybody. We'll see what happens with the final centers.

We still hope that this is something that may happen in the second half of the year, then Pietro can comment on that side. But the positive thing is that it has been a source of financing that has a much lower cost than the normal financing.

Just actually a quick follow-up on the concession. You're expecting it towards the end of the year.

So is that also expecting net profits in this year or do you think they're fall into 2026? On your free cash flow, I think, obviously, both taxes and financial expenses are tracking much better in H1.

So what are your expectations for this for the full year? And I would assume working capital was still minus EUR 500 million for the year.

And then the last one, just on price up. So you've done quite significant amount within fixed and mobile, what is remaining for you guys to do throughout 2025?

Do you have a target number, which you aim to get to for both fixed and mobile?

So about the concession fee, if the sentence will arrive in the second half everything will enter in the net profit of 2025. And so we have all the impact on our target.

And for sure, we'll have all the improvement related to the guidance in such a case. About the second point on the equity free cash flow, I'll leave to Adrian to answer.

Yes. On the equity free cash flow, it's pretty much what we answered in the first question, and it's -- yes, our guidance is EUR 500 million for the full year.

And as I said, for the first half, we are slightly ahead of what we projected. Hopefully, this will be also in the second part of the year, but we still need to see.

In terms of financial expenses -- in terms of cash financial expenses, we ended the second quarter with EUR 140 million in the first quarter and EUR 155 million, but with some specific one-offs. Going forward, probably you can project the number of the second quarter.

And on cash taxes, yes, we had some benefits. There are some other effects that may come in the second quarter.

So again, that's why we are fully confident on the guidance. Is the right time to say something more or upgrade it?

No, probably we still need to work a lot on the second half of the year. And the price ups?

Andrea?

Thank you, Pietro. Yes, on price ups, we did most of the activity in the first half of the year.

We have some targets that are still flowing in the third quarter. And given the positive outcome on the mobile market that you can see, I mean, there is a slight reduction in the churn, but most importantly, the volume of portability in the market has reduced year-over-year by around 10%.

Therefore, our results on the repricing action have been a bit better than in the business case. So we decided to continue, and we will have also some targets in the fourth quarter to continue the activity.

So first, I had a question about B2B. You discussed a bit the change in mix, slightly better or lower decline in connection, which I understand is a high margin, and you've also reduced exposure to some low-margin business.

So I realize you don't publish EBITDA margin on a quarterly basis. But is it fair to say that the trajectory of the EBITDA margin in B2B is progressing well so far this year?

The second question was about customer care. I think that unlike many of your peers in Italy, you have internal call centers to service customers and for marketing.

And I was wondering if AI implementation could be a source of additional savings or is that already embedded in your guidance? And lastly, if I may, I think at the Q1, you had mentioned that maybe you could share some of the revenue synergies or opportunities with your main shareholder now La Poste.

Is that something you intend to address a bit later in the year?

Okay, Mathieu. Let's start from the third question.

For sure, by the end of the year, probably during the third quarter results, we'll give some more guideline related to commercial and industrial potential areas of synergies. About number, we will disclose everything in the call for -- in February or March, when we will present our new plan.

Then about the customer care. If you look in details about the number of our customer care, we did already a huge amount of efficiency starting from 2022.

We have in our plan a further reduction of the cost, but for sure, what can the AI can further help in improving the relationship with the customer? So we can have also indirect synergy or better improvement related to the churn, customer satisfaction, so on and so forth.

Just to give you an idea, today, we are starting to record all the claim of our customer on the customer care to understand the touch point of the most nervous, let me say in this way, customers to review the process. It's a way to address priority based on the return on the investment.

But for sure, this is an area of huge improvement. Then about B2B, I leave to Elio to give an highlight about the trend.

Thanks, Pietro. Thanks for the question.

So the straight question to the -- straight answer to the question is EBITDA directionally getting better? The answer is yes.

And this is a combination of 2 things. The first one is the one you noticed.

So connectivity is trending better if you compare to quarter 1. So the deceleration is slower than it was in quarter 1.

And all in all, let's say, is in line with what we were expecting at the planned level, at the budget level. But more importantly, if you look at the acceleration of the cloud, so if you compare on a year-to-year basis on the first 6 months, we lost EUR 50 million revenues in connectivity at approximately 50% margin.

We won EUR 85 million on cloud at 20% margin. So if you do the math, you can understand that the combination of both KPIs makes our margins better.

A few follow-ups. The first on the equity free cash flow.

I'm trying to understand if the improvement compared to your plan is something, say, structural and then can be so translating into 2026? Or if it is more, let's say, that you are bringing forward some opportunities that we're already planning?

And second follow-up is on the concession fee. So should I assume that there is no more room for a settlement with the government, that you are just waiting for the final ruling?

And just a clarification. So when you say we should give back the money to banks in case of negative ruling is -- so if you go back to the previous sort of the step 1, let's say, so if you have a negative outcome, meaning that you are restarting, let's say, the full trial?

And last on the price hikes. Can you help us understanding what can be the contribution of the already executed price hikes for the second half?

Okay. Let's start from the second about the concession fee.

If there are margins for some negotiation or settlement? We are here, we did whatever we have to do.

We are confident that we are on the right side. So if nothing happened, we'll wait for the final sentence on which we are quite optimistic.

About what's happened about the money that we received from the bank? Adrian?

Yes. On the monetization of the concession fee credit, Domenico, it's clear that if we have a negative sentence or any kind of room in that, that means that the [ credit ] is not more executable, of course, we will need to return the money to the banks.

But until then, especially in the case that if the sentence is favorable, as we expect that is already settlement. So the only case is if the sentence is negative, or if the credit is not more executable.

On the equity free cash flow side, I think it was the first -- your first question. In fact, it is structural.

Remember that our guidance for this year was EUR 0.5 billion. So the guidance for next year in terms of equity free cash flow, it's EUR 0.9 billion.

And the guidance for the third year is EUR 1.1 billion, if I'm not wrong. So definitely, it is structured.

Remember that the [indiscernible] effects or even did that's on last payment of the first agreement the one of 2021. So that's why probably in 2025, it's not at the same level of next year.

So again, and I want to reiterate, it's -- the company is performing very well also in terms of cash flow. So it definitely is structural, yes.

But Domenico, to be clear, because I know that during the call, you try to evaluate also our voice to understand if we are completely assertive on the things or if we have any doubt. So you did -- you asked a question that is related to a remote scenario about the concession fee.

I clearly stated that we are quite optimistic. Then if you want that we define all the possible scenario, it doesn't mean that we believe that, that other one quite optimistic then if you want that we define all the scenario.

It doesn't mean that we believe that, that other one would be the scenarios to be very, very clear. About the equity free cash flow.

As Adrian mentioned, our company is in a path where we'll be back to be a normal company, generating cash and distributing dividend and we got that commitment already in the guidance. About the result for this year, we keep the guidance but we told that we are optimistic that we can do something better, but this is not the guidance.

Why? Because the market do not allow us to do any kind of mistake.

About the price up. The value of the price up overall in the year is in the south of EUR 100 million.

It's clear, and you know you are much better than me to do math. If we did some price up in the first quarter, some price up in the second quarter, the impact on the second quarter by definition will be higher than the impact in the first and the second quarter.

Two questions. The first one is a follow-up on Poste provided you will share with us some first quarter on synergies in Q3.

I was wondering if you have dedicated teams already at work in terms of exploring potential synergies? And the other question is referring to sector consolidation.

We have learned in this reporting season that things are apparently moving in some of Southern Europe countries. Do you think in Italy, we may also have something moving in the coming months, and I'm referring to both consumer and network operators?

Thank you, Fabio. About Poste, as I mentioned during this picture, we are working to finalize in all the details, the agreement with Poste for the MVNO.

That is a kind of commercial agreement and that nothing to do in theory with the fact that they are a shareholder. The second, we are finalizing agreement to develop our customer platform strategy.

And Poste is one of the main players in Italy on energy. And so we are trying to explore the possibility to move on with them with energy at the beginning of the autumn, so during the fall.

And these are the things we are working on. Then before to move on any other aspect, we will wait also for the clearance for the antitrust that was really positive, and now there is a formal step through the national watchdog.

After that, we can see it and we can evaluate further synergy that can be developed. Then it's clear that we have in mind what could be the opportunity.

But again, we will disclose had in the year about that. Today, we want to focus the company, the team and everybody in deliver the number that we give to the market and to surprise everybody with some better results.

About the sector consolidation, it's very useful your question because finally, we have plenty of articles talking about Spain and France. So what we are mentioning 4 years ago in 2022, that this market, European level was needed a market consolidation is no more, let me say, a dream, is something that is becoming a reality.

And for sure, if something happened in France and in Spain that are not a second-tier country in Europe, they will pave the path to have also a better evaluation also in Italy. I always declare that Italy is a country in which in the consumer segment to exploit better result, a consolidation is needed.

And I repeat, we can have 2 kind of consolidation, an M&A consolidation or a network consolidation because also network consolidation, you can add important synergy that can allow us to speed up our path towards a further improvement of our guidance.

Two questions, please. So the first one is that the EU recently launched a consultation on AI giga factories and which obviously got a lot of participants interested.

And I was wondering was, a, did Telecom Italia participate in this consultation? What's your view of it?

And I mean do you see a further opportunity here for you to be investing in AI giga factories? And how might this impact your growth in future?

And if, on the other hand, you're less interested in investing directly, might this bring additional competition into your cloud business in future? And secondly, I was wondering if you could give us any further updates on your views on the likelihood of getting the EUR 2.9 billion potential earnouts from a potential fiber co open fiber combination?

So if you had any updates you could share on likelihoods of receiving anything from that, that would be very helpful.

Thank you, James. Before to talk about AI giga factory, I think that you missed a new trend in Europe that this goes also by the new geopolitical environment between Europe and U.S.

That is the sovereignty of cloud and security. So before to move to the AI giga factory, One of the things that are happening today is that there's the attention, not only in Italy but to all Europe by all the government to understand how to keep under control in a more safer environment the data of the strategic companies.

I have to remember that the PSN is the most successful case in Europe of sovereign cloud. What it means that the cryptography key of the cloud where are stored and where are used, the data of the public administration is in the hand of an Italian entity.

So they are not under the sovereignty of other government out of Italy. I think that this is a point that you have to stress and analyze because it is not like the AI giga factory something that will be future ahead.

I mean when we talk about AI giga factory, we are talking about the day after tomorrow. But we have today and tomorrow that is made by cloud sovereignty and security.

I have to remember to everybody that all these wonderful supercomputing will put out of date all the algorithm by 2030 of cryptography. It means that all the large companies have to move towards quantum security.

And do you know who is the market leader in Italy about that? TIM Enterprise.

So -- but to answer also to your question, yes, we are part of the project for the AI giga factory, but they don't want to distract the attention of everybody for the day after tomorrow, and we have to check what is today. And just to complete about that, everybody are talking about edge computing.

Do you know which is the widest edge computing network in Italy today? TIM.

So if you sum all the pieces, we have 8 Tier 4 data center. And we're the only one with that kind of infrastructure.

If someone wants to replicate, they have to spend between EUR 1 billion and EUR 2 billion of CapEx to build that. We are the only player with sovereign cloud solution today.

If someone wants to replicate, he's more the welcome, but it's a matter of CapEx and know-how and time. The third, today, we are building the widest edge computing infrastructure.

We are investing on that already in the plan, EUR 100 million. Please, everybody are more than welcome to do the same.

And finally, this ecosystem will need a low latency network. And we have a 5G low latency network.

What I mean? If you create a table in putting for each of this element who are the player, perhaps in the column, you will find some other one, but you will not find anyone that is able to stay in each of this component.

I think that is an important element that we'll disclose better in the details in the second half of the year when we'll organize the TIM Enterprise Day. But the answer to your question, sorry, if I take more time, is yes, we are part of the AI giga factory.

Then if I ask also to you, can someone show me the business case of the AI? Today, the business case that they saw are working in U.S.

and in U.K. Why?

Because they are today based on economy and efficiency in the redundancy of people. So we are ready to proceed and to invest on whatever give us the right return on the investment.

About the earnouts, the 2.9, I must be transparent on the energy in theory is becoming -- we will have a low probability. But what is important to disclose is that in the last discussion that we had that in Italy are happening about energy, it seems that finally the data center will be considered a specific category of energy consumer.

And so they could have a specific regime with a lower cost that is not reflected today in our number. While about the network, we set the window, we are trying to understand what will happen but the frequency of the article on the press about the discussion between Open Fiber and FiberCop.

Let us think that the things are moving away ahead and something will happen. In Italian language, we say [Foreign Language].

I will leave the translation to someone that is better than me in English. James, I hope that I answer to both your questions.

If you need more detail, please.

Three questions, please. The first one is on the domestic costs.

I saw 12% decline in the industrial OpEx in the first half. So I was wondering what is driving this reduction?

The second question is if you can add more clarity regarding the hedging strategy on real that is mentioned in the slide? And the third question is regarding the network consolidation you were referring before.

I was wondering if you are really interested in exploring [ RAN ] sharing opportunities to optimize the investment for 5G stand-alone, especially in light of the upcoming spectrum license renewals soon?

Thank you, Giorgio. Then I will leave also to Adrian to elaborate more on that.

But if you look at our OpEx or it's better, cash cost base because we have to continue to talk about cash costs and not only about CapEx because it's important for our cash generation. It's clear that the industrial, I mean, all the network cost is the main component of our cost base.

The second is the labor cost, and then we go through all the different elements also considering the commissioning. So with the transformation TIM, we are working on all of these items.

Then it's clear that about, for example, the MSA with FiberCop, it's quite clear that my competitors started before then us with fixed wireless access. Why?

Because until we were the owner of the network, we are trying to create value also through the network. Now that we can trade off between a variable cost that is the cost that we have with the fixed network and the fixed wireless access that is not a solution for everything, but it's a solution that can complement our strategy.

We are exploiting that, and we have lower cost. Now we are taking a look to all our network cost with more attention compared to the past because they are becoming external costs.

And so we are optimizing that base. It's clear that we'll continue to work on that.

You can divide that kind of cost in 2 different typology. One that is volume driven.

If we have a customer, we pay. If we don't have a customer, we don't pay.

But in that are, we have also the possibility to work better between the different kind of technology, choose the one that has a total cost of ownership that is lower than the other typology, of course. Then we have all the other costs energy, colocation and so on and so forth, on which we are optimizing our component.

We look also to our net -- mobile network cost because it is an area on which in a reasonable and professional way, we will see to understand which are the possibility to have further improvement of that because also having in mind, what can happen with the renewal of the frequencies is something that we have to take under evaluation with a lot of attention. Let's consider that at EU level, EU gave a guidance to all the country to ask or to allow a renewal of the frequencies for 0 or very low cost in exchange of a commitment in terms of investment to increase the coverage of the 5G stand-alone.

And this is something that we support and we are working on. I gave some highlight then I leave to Adrian to elaborate more on the aging, and then if you want to add something about the cost.

Yes. No, nothing to complement on the cost.

I think that Pietro mentioned everything. On the hedging of the Brazilian real.

Giorgio, you know that we've been working since 2022 on this side and we cover the flows that were coming from Brazil normally with some financial instrument and it worked very well as a matter of fact, we have 75% of the full year cash flow of TIM Brasil already hedged. Today, clearly, this instrument is in the money, as you may have seen, but it's also worth to mention that on the first quarter, the exchange rate was mostly aligned with our projection, the spike started with -- in April with the tariff supplied by the U.S.

So we won't expect any kind of impact on the equity free cash flow coming from Brazil. As a matter of fact, the company is performing even better than what we expected.

So 2025 cover. We are working today for the future, and we're working for 2026-'27.

And you know that we have long position of BRL and short in U.S. dollars because part of our costs, especially those of Noovle are related to U.S.

dollar-denominated contracts. And that accounts something around $100 million per year of cost.

So what we are doing is to flow reals to U.S. dollar.

Since today, if you see the issue of the exchange rate is not the direct exchange of the BRL-euro, but it's more a matter between the euro and the dollar. So we will flow reals to U.S.

dollar, and we will cover the position of the OpEx denominated in U.S. dollars of Noovle.

So it works both sides. We think it's pretty smart movement.

And that covers what we are doing today and especially after the issuance that we did in July in our holding company done in Brazil. We will have enough funds to cover 3 years of this novel expenses in U.S.

dollars. So that's how it works.

Then we will see, of course, it's the worst moment to cover as when the curve is on the higher level. So we are sure that this works these days, then we'll see what happens in the coming months if euro-dollar stabilized or the Brazilian real appreciates again to the U.S.

dollar, we can enter into further agreements. But for today, we think that we are covering the needs of '26 and '27.

Basically, it expands from your previous question of my colleague and has to do with your, let's say, broader approach towards wholesale fiber operators and FiberCop. So it's 1 year since the network separation, we have MSA and we have commitments, discussion with the Italia antitrust and commitments.

So I would like to comment a bit on the past year in terms of the benefits that you experienced and the potential developments related to the current, let's say, commitment, you presented to antitrust regarding the relationship with FiberCop and was anything to be marked about Open Fiber, for example? And lastly, I would assume that there is no impact for you coming from this EU commission investigation about potential, let's say, misleading or incorrect or incomplete information by KKR on the deals.

I understand this applies to deals with other operator, if I'm not wrong?

Andrea, about the last part of your question, we have no impact of what is happening at the EU antitrust level about KKR. Then about the commitment that was taken at the antitrust level, they have no impact on us in our profit and loss in our plan are mainly related to FiberCop, so there's no particular impact on us.

And what is important is that if you remember, if we get the time machine and we are back in 2024 when we were releasing the network separation, there were a lot of doubt about the fact that we have no volume commitment, no peculiar commitment differently from what's happened with the previous agreement with FiberCop. There were a lot of doubt on the market that we could be able to optimize.

Some of you was thinking that it was a kind of sales and leaseback. So 1 year later, I think that the number that we are showing and the explanation that we gave -- that we are giving to everybody showed that when we are talking that we are sure about the move and that we are doing, the right move are demonstrated.

And last, but not least, I think that you read the performance of Orange in France on the wholesale, minus 9%. Let's think about if we still be a vertically integrated player, what we are talking today?

Now we are talking about a company that is becoming a benchmark in Europe that is back to generate cash flow that is running towards the confirmation for the fourth year in a row of the guidance that never happened in the history of the company, that we are optimistic that we can do better, and we have plenty of opportunity that are not factorized today. We want to keep the expectation low but we are very optimistic that we can further improve the result of the company.

I had 2, please. Firstly, on capital allocation, the strategic update, you set out your financial flexibility from the cumulative free cash flow you'll generate over the next 3 years with the return to shareholder remuneration starting from fiscal 2026 and selling out other potential uses of cash.

I just wondered 6 months on with leverage heading below 2x, could you set out any further thoughts you have on how you prioritize the use of cash looking forward, including potentially raising your stake in TIM Brazil over time? And then secondly, you mentioned in your prepared remarks around the Italian consumer being more willing to accept price increases with reassurances around quality and customer service with those 2 elements becoming much more important.

Are there any data points you can give us to demonstrate this? Or is it just your observation based on the churn trend over Q2?

And maybe just a little follow-on from that. Is this trend the main reason why you expect your competitors in the consumer market to raise prices going forward?

Before to leave to Andrea about the second question, I think that what's happening is that being a vertical integrated player, we were unable to do all the efficiencies that our competitor would used to do or buying from an external player the asset. So this is giving us the opportunity to further accelerate the efficiency.

The second, we started the price up move in 2022. I have to remember that in the first quarter call of 2022, when we were telling to everybody that our move was to increase price, everybody were thinking that: No, it's impossible.

No one was able to do that. We're doing that.

Now it's quite sure that our competitor looking at our performance at 2 possible trend. The first one that is a no way of return because it will not give any kind of financial return is to create a price war.

But more than 10 years of price war had demonstrated that it's the only way to continue to burn cash and bringing the company to a Chapter 11 solution. The second one is to stay rational.

If you are a listed company or you have a shareholder of specific kind, be rational, increase price, increase the quality of the service and in the meantime, try to move towards the customer platform. This last point is something that sometimes also our competitors started before than us because we have to also be fair in the discussion.

They are more in lead compared to us in the price increase, but they are becoming very rational, if I look at some last merger. So I think that this is a trend with no possible return.

And I leave to Andrea to elaborate more on that.

Thank you, Pietro. Thank you, Paul, for the question.

As you know, we are quite passionate on this topic. We've been actually announcing and commenting on the price ups since the last 4 years.

As a matter of fact, this is the fourth year in a row that we not only implement price ups, but we study and analyze the outcome very closely. So we do have some statistical evidence because we measure the differential churn target by target segment by segment when we do the price ups in the following month.

So we measure that in 2025, we have pretty solid evidence that the churn behavior of customers that are priced up on average is better than before and better than the business case that was based on the previous year. The second element is that, as Pietro commented, we look at segment with different level of, for instance, technology.

So FTTH customer respond better than lower technology or previous technology customers to price up and people that have a higher level of service, for instance, TIM Vision or Convergence respond better to price up. So that is what we modeled.

And that is why we are, let me say, actively explaining also in this conference call that this is the trend that we believe that the market should follow in order to repair some of the dilution effect that are still coming from the price war from the past 10 years.

Paul, let me answer your first question in terms of capital allocation. We are executing our plan.

And if we execute our plan also in '26 and in '27, we will have, for sure, a strong financial flexibility. But in terms of how we will apply it is -- the shareholder remuneration is clear.

We mentioned what the shareholder remuneration will be in '26 and '27. And then we will understand if there are opportunities that can add value to the company.

But that's our view. We need to execute our plan.

Our target is to reach a 1.7, 1.8 at least leverage in the coming years. And then yes, we will have 0.4x EBITDA or 0.6x if there is a final definition of the concession fee for financial flexibility.

But that will be analyzed in terms of opportunities. Then on the specific point that you raised in terms of increasing our stage on TIM Brasil, I think that we are pretty happy with that question because we've been asked constantly since 2022 until already also this year, if we will be thinking of selling a Brazilian entity?

And now you're asking us if we will be open to increase the position? Honestly, we think that our actual ownership of Brazil of 66%, if there is the right weight in terms of participating in the cash flows of the company, and in terms of exposure.

And then we also believe that having minorities in TIM Brasil is the right protection in terms of how we handle the company or how the stakeholders in Brazil consider the company. So for today, we are happy with the actual situation.

We will see what may happen in the future. We still -- we are still very -- and we will be also in the future, we're very happy with how the company is performing.

And you know that today is still a very important source of cash flows for the group. So we think that what we disclosed in the plan is pretty clear in terms of capital allocation for the future.

Inevitably, it's a follow-up from previous ones. A couple of questions for Adrian.

The first is on the factoring. Can you tell us how it's going to be accounted?

You will be -- I think, in working capital, but we'll be feeding in equity free cash flow or not? The one you said about the cost, I appreciate that the cost is less than [indiscernible].

I guess you also have some fee to pay to the banks. Considering that it's a relatively short-term financing, considering that you would expect a resolution by the year-end.

I was wondering why you do that factory now in a way for resolutions or settlement? The second one is on the hedging.

As you stand at the moment, you have a gain. Am I right to say that gain will be accounted in net interest or working capital that will feed into equity free cash flow?

And if that's the case, if the real stands at the current level, how big that gain will be before the year-end or by the year-end? And the third one is for Pietro.

Pietro, when you're talking about potential consolidations, you stress that there are 2 types about operators, but then you talk about potential network consolidations. If you can elaborate a little bit in terms of how that could take place given the caveats that, of course, you have towers -- your towers, mostly your towers and managed by INWIT and the network by FiberCop.

And what sort of synergies we should expect? Similar synergies then merging 2 companies or relatively smaller or significantly smaller?

Let me start with the potential consolidation to elaborate on that. Usually, when you look at the merge between 2 players in the Mobile segment, a good part of the industrial synergy are coming from a reduction of the network cost that is related to the higher level of efficiency if we put together the spectrum because from an engineering point of view, if you do the sum of 2 frequencies is not an addition, 1 plus 1, 2, but it's something amplified, so 1 plus 1 is 3.

It will allow you to collect and gather more data with the lower cost. Then it's clear that you have to start to think, is it in Italy fair enough to have the three 2G network?

I think that makes no more sense. We have several opportunities that are coming also from the discussion and the regulation that can be exploited.

So the rationale is: when you look at traditional merger, you will have synergy that are coming from the industrial component that is the network one, plus other ones that are related to cost of labor, commercial cost because you cannot talk of other things. So these are the main part.

So a good part is the industrial part that means the network one that usually worth 60%, 70% of that kind of efficiency that you can reach not merging to company, but putting together the operation of the 2 companies to reduce the cost, also because differently from the past. Today, the antenna is not a competitive advantage.

In the past, if I had the antenna in San Pietro, just to give you an idea, I will never share this antenna with some other one because it was a kind of mono policy situation. But 30 years later, we have the coverage that is more or less the same among all the players.

So this is something on which we can work. If we can talk about the possibility to extend the 5G stand-alone network also in area that have no return on investment, if you work on a stand-alone basis, this is a further opportunity.

So there are several things on which we are working to have also alternative to the traditional merge activity. Then about the hedging and the factoring, I'll leave to Adrian.

Yes. Thank you, Adorisio for your questions.

On the factoring side, clearly, the accounting is still a financial liability. That's why it didn't impact in the net financial position.

So we will have the credit, and we'll have the financial liability. It's kind of [indiscernible] accounting even if we've been cautious with this approach.

This is already discussed also with [indiscernible]. So that's pretty much it.

And that's why there is no impact yet on the net financial position that make with the final sentence. Then on why now?

Well, it's -- we booked the credit on the first quarter and we were ready to enter into this deal. At the end, it's a source of financing and it's a much cheaper financing that a normal one that we can find in the market if you consider that we will be paying something around 2.2%, 2.3% of the cost we will have on the other side also the ongoing interest of the case.

So it's probably 150 basis points lower that the normal financing that we can than we can have today. And since we have some maturities in the second half of the year, in September, we should -- we will pay EUR 1 billion of the maturity -- of the second maturity 2025.

It's -- that's the reason why we are doing it now because it's much cheaper than other instruments. So -- and I think that there was third question in terms of accounting of the hedge of Brazil.

Clearly, the actual hedge that we have for 2025, it's a financial instrument and is accounting and others on the equity free cash flow. So what arrives from Brazil, it's in the actual exchange rate and then the hedging instrument, if it is positive as it is today, that is in the money for the second quarter, brings the positive on the others and on the equity free cash flow.

Going forward, what we are doing, it's a little bit more structured because you know that we issued debt on a holding company in Brazil in local currency. We will, in the future, bring up dividends in U.S.

dollars at a very favorable exchange rate. And Noovle sustains this cost in dollars on the P&L.

So it's a mix effect that you will find at OpEx and at financial expenses. I hope I covered all your -- all of your questions?

That's fine.

Ottavio, sorry, I just had to say to all the team that they cannot go out for the holidays because reading the headline of the report in line results, but still work to do on growth and gearing. So guy, you have to stay for August in the office to guarantee the result of the year.

I'm joking Ottavio clearly. But this was the last question.

I want to thank you, everybody. We'll follow up in the afternoon with the virtual road show.

I hope to hear you soon also after the summer holiday. Thank you to everybody.

Thank you.