Telecom Italia S.p.A. (TIT) Earnings Call Transcript & Summary

Ladies and gentlemen, good morning. It's a great pleasure and an honor to be here today with you. What we'll do today, our Capital Markets Day, it's an important moment, but it's not the only 1 today. What I mean is that today, we will disclose to you the number related to the main KPI, strategic deal perimeter of the 4 entities, we described at the beginning of March when we presented the results of the last year. But there will be another important appointment that is the 4th of August, when we'll share with you the results of the second quarter. So what you can expect for today? With Adrian, our CFO, we will go through the main number, KPIs, strategic view related to our 4 different entities. Then what will come is during the Q&A session with the help of Claudio, our Chief Strategy Officer; Stefano Siragusa, our Chief Network Officer; Andrea Rossini, our Chief Consumer Officer; and Elio Schiavo, our Chief Enterprise Officer, will come with all the answers that you will have on the Capital Market Day numbers, the 4 entities numbers. But again, let's start, and we will answer live at the Q&A session. Thank you. Hi, everybody. Back in March during my first conference call as Chief Executive Officer of TIM. I said that both decisions were required to build a better future for this company and that we have identified a route for strong value creation by picking up the group for separate entities. This meeting today give us the opportunity to better explain our delayering plan and provide more details of the unprecedented actions we're already undertaking. We will briefly recap the reasons why we have decided to go beyond vertical integration, and we'll explain the industrial focus and the economics of each entity, and finally we'll review the strategic options we are currently evaluating and outline our execution strategy. The end of game is to show you that the 4 entities can achieve better results on a stand-alone basis and that remain committed to maintain a sustainable capital structure for each of them post separation. In nutshell, we want to show the eden value of our group, and it's plain the option that we can activate depending on the scenarios, we'll be facing in the following months keeping the necessary flexibility. Before presenting the new TIM, I want to recover all the headwinds we are facing and that we are already addressing in our day-to-day operation. As a management team, our view is quite clear, no better. It's clear. We firmly believe that TIM is a great company with incredibly valuable assets and unique market positioning, but it operates in the most competitive and regulated market in Europe. This is a weakness that could become an upside, not yet embedded in the plan. In recent years, we have seen instead of market consolidation as in other geographies several new rents, both in 1 and mobile. And you all know that price has fallen like in other country. Furthermore, we are the operator with the toughest regulatory obligation, separation, replicability, test in retail and regulation, even on the new generation network in wholesale. At the same time, the cost of 5G frequencies were among the highest and labor rules are among the toughest in the continent. It's not an easy job. The status quo is challenging and call for unprecedented actions. You will hear this word several times in my speech. Therefore, we decided to delay our team in handful of focused units to unleash the strength even in the integrated model. Our driver is fundamentally industrial. We want to unlock growth, achieve better operational result, also focusing on efficiency and fund the investments that will shorten the path to sustainable cash generation. Value creation, asset valuization and financial sustainability, we can because of the successful execution of our plan. While our key priority in the short term is and will continue to be to improve the level of efficiencies. The 4 entities operate in different markets, face different competitive dynamics and each had specific industrial focus and economics. It's clear that they need specific focus. I mean at a different level of inefficiency that we are already addressing. NetCo runs the infrastructure that connects more than 80% of fixed line in Italy. We probably with doubt probably with the best network quality in Europe. After the investment cycle in FTTH, it will be a typical infrastructure company with a stable cash flow generation, benefiting also from the ship from copper to fiber that will improve also the ARPU mix, the operational cost structure and the CapEx in the long run. TIM enterprise, the market leader in large enterprise and public administration segment is the only infrastructure ICT player in Italy and it's uniquely positioned as the natural reference player in a large and growing ICT market securing the clogged business that in other European countries is in the hand of international players, it will continue to grow faster than the market, thanks to an unparalleled asset that will further develop its leading customer base and complete end-to-end offering. In Consumer, TIM consumer has been fighting for years in a crowded and over competitive market. We all know that it has lost momentum. But once the regulatory constraints are gone, it can achieve top line stabilization and even growth, high-quality positioning and strong consumer perception. But we must be solid and efficient to be ready for a future in market consolidation. The name of the game for us is top line stabilization and alignment of the cost structure to the industry best practice. In Brazil, operating a market of over 200 million people, which has just gone from 5 to 3 players. It is delivering strong restart and significant value to shareholders with the highest free cash flow yield among LatAm telco players. And it doesn't stop. It's about to accelerate, thanks to the upside from the old deal. So what are the expected benefits of the layering? It makes sense, first of all from a strategic perspective. For the first time, we have a clear view of the strength and the weakness of each business from strategic economic point of view, each entity will be single minded with focused business model, a clear set of leading KPIs, a CapEx allocation due to its specific investment horizon and the ability to onboard talent in the new businesses. Secondly, potentially breaking vertical integration also in view of extraordinary transaction, will enable to obtain anything of the regulatory constraints that have been locking TIM for years according to the European Communications Code. TIM operator 3, 4 cost orientation, retail will enjoy regulatory relief as well. Therefore, by splitting NetCo and ServCo, we will enable the latter to compete on an equal basis with other players, something impossible today. Lastly, a potential deal will also make sense from a financial perspective and having better capital allocation, higher visibility on the specific assets, and easy to articulate story to investors, which will increase the ability to attract external capital. Let me anticipate that we enjoy a sound liquidity position and by the EUR 2 billion financing with the state guarantee. So in the next quarter, we don't need to tap the capital market as our debt maturities are fully covered until 2024. We've always seen prudent and conservative when it comes to refinancing our debt. Adrian will further elaborate on this in the third section of the presentation. Let's now move to the next section, where we deep dive on the new TIM. The reorganization we announced back in March is confirmed. The new TIM will consist of NetCo, the network company, including national and international wholesale business and assets and 3 service entities, which will form service cost perimeter. The enterprise and the customer businesses, together with the relevant asset. And TIM Brasil, as anticipated, Noovle, Telsy and Olivetti, that operate as separate product factories for the enterprise will be integrated into its perimeter. Thus enabling a fully integrated end-to-end product and service capability, but also releasing efficiency synergies within this framework. Domestic perimeter definition has been finalized. Brand and company will follow their natural allocation and so will customers. TIM consumer will own the mobile network will operate its own service and backbone platform, exactly as the other operators and will preserve offering differentiation on a [indiscernible] also, TIM enterprise will operate its specific service platform, and we retain selective backbone and assess fibers. On top, it will own the data center infrastructure. Focusing a bit more on mobile, the network would be under TIM consumer with TIM enterprise we sell in 2G, 3G, 4G and 5G services as a full MD&O once carved out. We mean that TIM enterprise will have its own mobile core network in order to retain service configuration and manage customers since autonomously. All fixed and network assets will be in the NetCo, including the entire access network, primary and secondary as well as central offices and backbone fibers, Sparkle with its assets will also be part of the NetCo. Let's now deep dive on each of the 4 entities, outlining the market context, the strategic priorities and medium, long-term economics and KPIs. We start from network because separating the fixed infrastructure from the rest of TIM's domestic activities is the single most crucial decision we should take. Despite TIM as considered this idea for many, many years, a strong internal consensus emerged only in recent months when it becomes clear that the advantages of vertical integration has been lost over time and much more freedom is needing to accelerate TIM's LAN. To be clear, this is not the exact condition for other players. So let's share our view of the market. And as we all know, the market is underpenetrated in terms of broadband connection, even more so when it comes to ultra broadband. At the end of 2021, 66% of Italian households have a fixed broadband connection, of which 9%, only 9% were FTTH compared to European average of 78% and 21%, respectively. This is essentially due to structural factors, lack of cable operator and usually high number of mobile-only families still accounting for approximately 50% of the total. And age structure population with nearly quarter age 65 or older. So on the 1 hand, this is a bad news, but we're optimistic. It's also good news on the other. It means that the market is still untapped growth potential. Actually, AGCOM has certified that in 2021, broadband connection increased by more than 500,000 LANs per year. So the market is growing. If the pandemic has been a catalyst over the last 24 months or so, I would rather will support it growth. For example, the strong acceleration in FTTH or the push on the digitalization of public administration services, fund it through the recovery plan. That is why we expect digital LANs to grow 2% CAGR in 2021 to 2030 to reach approximately 24 million. Such growth will be fueled by FTTH pickup, thanks to coverage increase in corporate we show. We estimate that 100% of connection will be ultra broadband in 2030 with FTTH taking the lion's share with 70% plus of total connection, but we do not forget that FTTC is still an important asset, covering 51% of LANs with a good level of quality, 64% higher than 50 megabit per second and 56% higher than 100 megabit per second. Let me present some KPIs to allow that NetCo is the largest, most capillar and advanced telco network in the country. Indeed, it is the infrastructure upon which the digitalization of Italy can progress. NetCo runs more than 80% of fixed connection enabling Italian families, small, medium, large business and public administration to communicate. It's asset portfolio is huge. 94% FTTx and 27% plus FTTH coverage, 21 million kilometers of fiber in the ground, together with 127,000 fiber cabinets deployed nationwide. In terms of execution capability, the agreed of the access network from copper to full fiber is progressing according to FiberCops target we presented in August 2020. Further evidence of net cost and parallel execution capability comes considering that from the pandemic boost in Q1 2020, it has laid down 3 million addition kilometers of fiber deployed 18,000 new fiber cabinet successfully managed 8 million customer activation and mediation and is heading the execution of Infratel school tender as planned last year. NetCo is filling the gap with alternative infrastructure operators, we're gaining market share in the area. Our workforce is a plus that give us the capability to smoothly progress on our project according to schedule without depending on third parties. And this is a really huge strength. Don't forget that within net cost perimeter, we have Sparkle ranked 5th among international care for its IP network that will fully develop through a selective expansion in new geographies. Lastly, our infrastructure DNA and leadership have enabled us to win in every single recovery from infrastructure tenders. To understand the evolution of NetCo economics, let's share some of our assumptions. First of all, the figures are organic and includes Sparkle. The FTTH deployment plan will entail a total footprint of around 16 million technical units for approximately 65% national coverage. Due to the increasing demand of FTTH and inefficient infrastructure competition, we assume that the NetCo's market share will progressively decrease over time. But still maintaining the majority of the market even after projectivity with a change in mix consistent with the market trend. Corporate service will disappear and 100% of NetCo's assets will be ultra broadband, of which, as we mentioned, more than 70% FTTH. NetCo's total revenue are expected to slightly reduce and subset recover as a mix of the loss of volume on 1 side and the evolution of the regulated price that incorporate are linked to inflation, reflecting higher commercial flexibility. No RAB pricing model has been included in these figures. All cost buckets are expected to decrease over time, in particular, personnel with headcount reduction linked to retirement and pre-retirement is already happening today, more than compensating the increase in the annual unitary cost. Network rental and power thanks to the acceleration of the decommissioning of all technology which is expected to be completed by 2028. And the intrinsic efficiency of a full fiber network. Likewise, revenues, EBITDA is expected to slightly reduce and subsequently recovered with margin on revenue at around 50% in 2030. The evolution of CapEx is primarily linked to the investment cycle on FTTH access. This is why investment will peak in 2025. Thereafter, NetCo will continue the FTTH to roll out coupled to the deployment of fiber verticals that will still be significant for few years in line with the takeup. However, overall CapEx intensity will start to slow down, trending below 15% 1-5-percent of revenues in 2030. Considering that assurance and maintenance CapEx, which cover the -- on feed activities for the management of trouble ticket, are expected to decrease with the change of mix in the migration of FTTH. Post 2030, we expect a full reduction with CapEx stabilizing at around 10% of sales. This will be the structural long-term CapEx intensity of Mexico. As a result of the above dynamics, EBITDA minus CapEx will grow 4x, 5x from EUR 0.4 billion in 2021 to EUR 1.9 billion in 2030 with a cash conversion rising from to 22% to 72%. I remind you that NetCo will receive a recovery plan contribution of EUR 2 billion in 2024, 2027 for the Italian 1 giga and the 5G backhauling tenders. This amount is not included in the above figures. Therefore, cash conversion will improve proportionately. Moreover, an acceleration in the [indiscernible] of our central offices could be another upside further improving these numbers. Cash flow will be impacted by nonrecurring items related to personnel resizing, averaging approximately EUR 140 million per year from 2022 to 2030. Let me now present ServCo, starting with TIM enterprise. First of all, we are talking about a large and growing market, driven by increasing customer demand for ICT services. Overall spending, we grew at 4% CAGR from EUR 35 billion in 2021 to over EUR 50 billion in 2030. Such growth will be fueled essentially by convergence between telco entity with core data services provisionally integrated with cloud, IoT and cybersecurity solutions. So while connectivity will remain substantially stable with advanced connectivity compensating the decline of traditional services, cloud, IoT, the cybersecurity will grow high single digit or even double digit until 2025, and it twice in digital after. Not only this is a growing market. It is also healthy. Profitability of the value services range between 20% and 50% also depending on the mix between in-house and outsourced component of the value chain. This is why the winners will be the players capable to offer end-to-end integration solution and TIM enterprise is ideally positioned to be 1 of them. Let me explain what I mean. TIM enterprise is a strong competitor already today and a natural reference player going forward. And I can also add no other telco player in Europe has a such good B2B business. I say so because it has 4 key elements that sets it apart. First of all, it is a leader in the large enterprise segment and uniquely positioned in public administration with a large established customer base counting approximately 85,000 active references. De facto, it already serves all major topical and corporation and public administration with 40% to 50% market share in connectivity and 10% to 15% in the IT. This is a very loyal customer base. Consider that we enjoy more than 20 years of continued relationship on average for the top 10 customers. Furthermore, it enjoys a healthy overall average contract duration of approximately 3 years. Second, it is the only infrastructure-based ICT player, thanks to its asset base spending from telco assets to the largest proprietary data center footprint in the country with 16 data center, of which 7 are Tier 4. I don't say that the second player after TIM is just 1. I remind you that TIM enterprise will own a proprietary backbone in strategic areas. More than 45,000 dedicated customer fiberize and a mobile network to maintain full offer flexibility to match client requirements and respond to top and public administration plan. Third, it has a unique go-to-market capability, including 500 dedicated presales and 1,000 sales will generate more than EUR 3 million service revenues each on an annual basis. It's a pool of expertise not form anywhere else. On top, TIM enterprise leverages a portfolio of strategic partnerships, including Google, Oracle, [ Maxo ] and 1 other were offering best-in-class technologies and joint go-to-market while being key tenants on its data center. Last, it has an unparalleled end-to-end ICT offering, spanning from connectivity to cloud, including professional and managed services, IoT and security. Already today, more than 20% of major clients buy the 4 services. Now these 4 ingredients are not easily replicable by competitors. That is why there are pillars upon which TIM enterprise will build its future. Today, our priority is to change the operational model, adding Noovle, Telsy and Olivetti work as separate product factors, create complex interaction and fragmented offering, which can translate in missed commercial opportunities and at the same time, generating inefficiencies. We want to eliminate these drawbacks. TIM enterprise will become a 360-degree tech company with a fully integrated end-to-end product capability. This represents a huge intrinsic value per se, large bank public administration or industrial manufacturers want to minimize operational complexity, adding 1 single counter party capable to solve any technical issue they may have be it on connectivity or on cloud or even on security in case of cyber attack. It's priceless. TIM enterprise is uniquely positioned to deliver this. Our plan also in phase with killing and competence injection, something we have already started doing. In terms of economics, our ambition are both. We want to develop revenues from EUR 3 billion today to approximately EUR 5 billion by 2030, continue to grow steadily above market. The mix will change into projectivity combined IT services will generate 72% of total revenues compared to 59% in 2031. And cloud would be the single largest top line contributor with almost half of total revenues. Visibility on the top line will increase, thanks to contract duration expanding to up to 7, 10 years, a typical duration in the IT market. It means that today backlog with approximately 60% of revenues till 2025 already secured, will improve further. After business setup costs and higher labor cost due to onboarding of new talent, EBITDA will stabilize well above 50% driven by scale, optimized operating model and increased internal capability to develop proprietary services. CapEx to sales will reach 10% by 2030 from 19% in 2021. There will also be EUR 220 million one-off CapEx between 2023 and 2026 to develop IT systems, backbone and mobile core metro. Cash conversion will be strong, rising from 59% in 2021 to around 70% in 2030, in line with top ICT and tech companies. Additional restructuring costs over the entire plant will support personal rotation a refresh of competence mix. We see multiple possible upside not yet factored in the plan. They include the tender with homeland security for mission-critical communication to law enforcement. The expansion of TIM enterprise go-to-market into the medium segment, and reselling to TIM consumer and other players of proprietary of the shared product. To achieve our ambition, we have a clear time frame, which is articulated into 3 major steps from foundation until the end of 2022 followed by 18, 24 months for the evolution in a stand-alone company with own infrastructure and the CP capability. The steady state will be achieved in 2025, enabling to accelerate growth. Now let's move to TIM consumer. At the beginning of the presentation, I said that the end game today is to show you that the 4 separate entities can achieve better results on a stand-alone basis. This also applies to TIM consumer. I don't tell that this is probably the biggest managerial challenge we are facing. I will be blunt. TIM consumer is at a structuring case. Nonetheless, you can rest assured that it will be an industrial sound business. It will not happen by magic. It will take time, management effort, relentless focus, but we know what to do. And we are committed to do it. There is no doubt in my mind that we'll realize our ambition. Now let's start our journey. In terms of the overall consumer market, the situation is well known. No need to repeat how intense the competition is both in wireline and in mobile. To understand the magnitude of such pressure consider that the combined revenues of all the Italian telco players in 2021 were 54% lower than 2011, while combined CapEx were 50% higher in the last 10 years. The market has lost 85% of its EBITDA CapEx -- EBITDA minus CapEx generation from EUR 10 billion to EUR 1.5 billion last year. This is to say that all players are under pressure, and TIM is no exception. So what is the way forward? First of all, it's important to clearly identify and classify the issue we are facing. Some are company-specific. Some other are market related. The former fall and turning under our control, and we have all the managerial levers to address them. And we'll talk about them in a moment. Here, I want to briefly focus on market-rated issues. Looking ahead, market headwinds will persist. Spectrum cost for 5G frequencies are among the highest in Europe, A significant portion of 5G network is yet to be built. Traffic volume is expected to grow by 20% to 50% per year in the next 5 years, further stretching current capacity. And last but not least, an unprecedented inflationary environment poses new challenges on us. But opportunities are also rising. Increase of FTTH footprint will drive ultra-broadband fixed line growth and the reduction of the mobile-only customers. 5G will strengthen network capacity, sharing of network infrastructure will enable to optimize investment and reduce run costs and, of course, consolidation constitute future market sustainability. But in this context, the recovery plan will further support our 5G coverage expansion as we have been awarded all lots of the 5G tender. And we are also doing our part also to increase the overall sustainability of the market. We are committed to maintain strict price discipline and we have proposed to index all sale prices to inflation as in other European countries. But how we work to turn our consumer business around. TIM consumer has significant potential to uplift its commercial and operational performance. First of all, delayering is an unprecedented opportunity for transparency and push on perform. It will enable to challenge and optimize the cost structure to be significantly leaner which expect to enable higher commercial flexibility by lifting price replicability and allowing a level playing field with competitors. Finally, it will allow to manage the business segment and trend with full accountability. In other words, [indiscernible] will enable to fix the coal, transforming our current consumer and SMB business into an agile, efficient, commercially flexible premium operation. But while pitching the core, we have the best future, leveraging on our distinctive heritage, customer experience as a key differentiator, trusted brand, best network quality, fixed economies also crystal ball to improve how we operate in the market. In recent months, I have often said that TIM must be shipped its commercial model and conduct from volume to value. It's not a slogan. It means to radically change the way we do business on the basis of a few clear principles, incentive scheme based on customer value, digital channel first, store through print vectorization, partnership with retail, multipurpose store to complement digital capillarity. Shop at a point of experience adding products and services of partner and mainly guarantee technical support. Value approach is a must. In this market, if you want to generate an additional EUR 100 million EBITDA, you must gain 15%, 15% market share. And this cannot be done without triggering and our price war. This is not what we tend to do as we want to be a regional player. To kick the core and build the future, we must first stabilize revenue and optimize costs. We target top line stabilization, thanks to customer-based flattering out from 2024 onwards. Gradual ARPU increased through more for more approach and higher FTTH take-up helping to reduce churn. Cost optimization will enter several initiatives. In 2026 versus 2021, our ambition is to reduce scaling cost by 50%, by debt by 55% and advertising expense by 20%. We will also rightsize the organization with a 20% FTE reduction. We don't want to be disruptive. We will leverage the same instrument and to that already in use today. For retirement, Article 4, so on and so forth. FTEs, reduced from around 14,000 in 2021 to around 11,000 in 2026. And full direction are still under evaluation. All in all, TIM consumer addressable OpEx will decrease 34% in 2026 versus 2021. To improve structural efficiency, we also reduce the capital intensity of the business. We tend to implement active sharing agreement on mobile network with the operator to reduce network CapEx by 20% and we'll redesign the architecture with the target to reduce at the cost, which accounts for accessible 18%. TIM consumer CapEx will decrease 27% in 2026 versus 2021. This action will ship the financial KPIs in the coming years. Revenues are expected to decline until 2023 and to grow from 2024 onwards to EUR 6.5 billion in 2026. EBITDA will decline in 2022 and will reaccelerate from 2023 with a margin stabilizing at 22%. In 2026, CapEx to sale will progressively reduce from current 16% to 12% with EBITDA minus CapEx growing to EUR 600 million in 2026 and cash conversion accelerating to 43%. These figures do not factor potential upside such as in market consolidation, new regulation and power limits. We will articulate the transformation in 3 phases. In the next 6 months, we will adopt a restructuring approach focusing on activities that will deliver value in the short term, both in terms of cost and top line with the objective to close the year at 0 balance in terms of EBITDA minus CapEx. For the coming 12, 18 months, we'll focus on a full turnaround of our commercial and operating machine, by implementing a more modern channel structure, improving our quality of service, adopting a new data-driven customer value management and accelerating the organizational rightsizing. Lastly, the company will be ready to capture the full value of the connectivity, but also to scale the platform through a better proposition of digital services for consumers, achieving 10% EBITDA minus CapEx in 2026. The fourth entity is in Brazil. I want to start by recalling what we were able to accomplish in recent years. Our Brazilian operation become the most profitable company in Latin America space with a clear leadership among its peers in margin indicators and free cash flow yield. And looking ahead, cash generation will accelerate even further, leading to a potential stock rerating. Analyst to see this TIM as having 1 of the IS upside versus its consensus target price pointing to a potential enterprise value of approximately BRL 60 billion. We believe this is a recognition that our path to creating value and becoming next-generation team is achievable. Our value proposition is unique and combined cash flow generation with our core business and growth acceleration with beyond connectivity initiatives. We expect to outgrow the market on all fronts as we become the best mobile operator in Brazil and expand our experience in your businesses. Consequently, we will be able to deliver superior and sustainable value with a better shareholder remuneration profile. TIM Brasil's value creation is a function of improvement on multiple fronts. Revenue growth will accelerate from mid-single-digit compound rate to a high single-digit one with a significant contribution coming from the oil transaction and exploiting 5G opportunities. while EBITDA is also increasing speed from mid-single digit to low double-digit compound growth again. All transaction has a profound impact as negative clients and a higher margin than the average of the TIM Brasil based. The additional spectrum coming from Oi together with the opportunity to exchange 4G to 5G investment will help CapEx on revenue to start trending down from mid-20s to mid-teens. All that can be surmised in free cash flow margin we expect Brazil to achieve, EBITDA minus CapEx on revenue will expand from 24% to more than 30% between 2021 and 2027. These strong trends have allowed us to double our remuneration to shareholders, leading TIM Brasil to enter the group of the high dividend yield in LatAm telcos. The potential upside include the reduction in the ICMS, the Brazilian turn over tax from 28 on average to 18 that could bring at least additional consumption elasticity and CapEx saving due to an accelerated [indiscernible] as explained in the company's meeting with investors in June. I mentioned some of the positive impact of the transaction, but let me go into some details of this transformational deal. TIM Brasil will create between BRL 16 billion to BRL 19 billion in value, which start materializing quickly. As a matter of fact, the positive impact already appearing less than 3 months after closing. To this of the value will come from infrastructure with CapEx and OpEx saving in the network. BRL 4 billion to BRL 5 billion come from commercial drivers due to better churn trends, the shift in competitive dynamics and -- on top of that, there is another BRL 1 billion in accelerating the commission of overlap sera site and tax benefit from goodwill amortization. Since the company was preparing itself for this moment for a long time, the BRL 7 plus billion in acquisition cost was well absorbed with the company maintaining a healthy leverage position that should improve over time. Net of the acquisition cost, the value creation of the deal is expected to be more than BRL 9 billion. This contraction is truly transformational for Brazil from our standpoint. Our operation will be able to compete on equal footing for the free stand in several years, again its peers. The country's competitive environment is also improving. And we expect to continue this direction in the coming years. And in Brazil, we'll be able to generate significant additional cash as on the FX part to flow. The future looks bright, also they can healthy regulatory environment, and I'm confident the team in Brazil will maintain its solid track record of delivering outstanding results. Let's now move to the third part and final section of the presentation. Adrian will explain our capital structure strategy and give you highlights on the plan execution.

Good morning, everyone. As Pietro has explained our delayering plan for is, one, a clear separation of NetCo from the rest of the group; two, reorganization of ServCo besides in Brazil into dedicated domestic divisions TIM consumer and TIM enterprise to focus on telecommunications and ICT services. This will not only allow us to be a focus from an operational standpoint, but also to consider strategic options with a flexible and concrete approach. We have started to prepare the separation and many activities are currently on-going. Let me give you more details on what we are doing. As mentioned, several proprietary activities were already launched while we were acquiring an in-depth knowledge of the challenges and significant opportunities in front of us. We have clearly identified perimeter of each entity and the strong dedicated management team is in place. The FTEs initial allocation has been defined together with the short- and mid-term actions required for the rightsizing of its business, and we will finalize details over the next few months. But at the same time, we have identified a detailed allocation of the efficiencies targeted in our transformation plan, presented in our previous communications, of which we will give additional information during the second quarter results conference call at the beginning of August. In terms of financials, we have already appointed consultants to help with the carbon process that is complex and time consuming, but everything is progressing. Moreover, as you have seen in the previous slides, we have developed a dedicated set of financial projections for each business units that we will maintain in the near future. on capital structure, I will give you more details in a few minutes. Let me now walk you through the key pillars of our delayering plan. This slide shows the delayering level, which we think is the target you should and could expect from the execution of the delayering plan considering a potential scenario of vertical disintegration through the full disposal of NetCo and the minority stake in TIM enterprise. De-leverage is and can be made up of different components. This is because we have different levels and we have optionality in the execution. I said, M&A discussions on important assets are ongoing. So it is difficult to predict the exact timing and exact finishing that we will get but we feel comfortable to achieve this level in our delayering plan if such transactions occur. We will come back on this point in a few seconds. We want to pass an important message to both debt holders and shareholders. To bondholders a key objective of the delayering plan and new TIM Group will be the reduction in leverage and strong commitment to improve rating profile. To shareholders, you will benefit from the intrinsic value creation of this sustainable generating plan. However, depending on the final outcomes of the M&A processes, there might be additional financial flexibility, which could be used to accelerate growth and capture market opportunities for net debt remuneration, but only let me stress once again, the amount of cash is such that de-leverage is achieved. As said, this assumes TIM pursues its preferred route, namely overcoming the vertical integration to a NetCo deal. Out of total deleverage, you have conceptually 2 components. First, the consolidation of debt achieved through the NetCo separation. If we were to deconsolidate NetCo, we believe up to around EUR 11 billion of debt can follow NetCo perimeter, given the quality and cash flow generation of the entity. This does not mean that we move this debt as we will explain later. This just clarifies that once TIM did consolidate certain cash flows, the company will also deconsolidate some debt. Exact amount will depend on the outcome of the M&A transactions, negotiations and structures. The second component, the caching from M&A transactions, which include the potential disposal of NetCo, the sale of a stake in TIM enterprise and if needed, opportunistically access any other options on other assets, assuming always that M&A terms are attractive. Let me comment on the first component. The preferred plan is clearly a deal with Open Fiber, not only because of the value of our assets, but also because of the significant synergies that can be created. And that's why we have signed the MOU at the end of May. We continue to work the relentlessly on this front. Going beyond the vertical integration is also linked to the transaction with Open Fiber as we expect a wholesale-only business model to be considered as a positive element in the approval process. As said, successful outcome of the transaction depends on many factors. We will execute the deal only at attractive terms in the best interest of both teams bondholders and shareholders, but it is important to highlight that we have different options to achieve our goals, namely a transaction with Open Fiber with structural separation or disposal to infrastructural funds or other transaction structures and/or business model. The key point is that the deconsolidation of NetCo independently from the structure could bring up to around EUR 11 billion of debt out of TIM's balance sheet. Let me clarify. We are all focused in achieving the preferred plan. We wanted to show that we also have thought about different alternatives, and we have the flexibility to execute. Alternative cases and their viability versus our preferred plan will be concretely assessed when if preferred plan is no longer achievable. Here, it's not about replacing 1 option or the other. It's more to stress the fact that TIM has alternatives to achieve its strategic goals, keeping a sustainable capital structure and appealing equity story. On the cash proceeds, as you can hopefully understand, they are confidential, M&A process is ongoing, and it is difficult and not even in TIM's interest to provide additional details until there is more clarity on this different transactions. On the other side, I do understand you all need some indication to appreciate TIM's story. And that's why we're guiding you towards what we think is a long-term sustainable capital structure to which we are committed to. Because this represents what we want to achieve with the execution of the potential deals included in our delayering plan. We have different levels to achieve such minimum cash in from disposals. We have flexibility to structure M&A transactions in a manner to achieve our goals. The most important message is that we are not in hurry and we have options. Let me show you why. We have discussed about our preferred plan so far, but we also want to show what happens if a preferred plan does not materialize? Or what is the intermediate picture given that the NetCo will take some time to be fully executed. As discussed before, should the NetCo transaction with Open Fiber not be executed for any unforeseeable reasons or execution complexities, not the right value. We have alternative options to de-lever. Of course, it will not be as fast as contemplated in the preferred plan, then we are confident to achieve a sustainable leverage and thus allowing TIM to deliver its business plan. The deleverage plan will be accelerated by some massive monetization such as TIM enterprise minority or potentially a further minority stake on NetCo. At the same time, it's worth noticing that our liquidity position is strong, and we covered until 2024. So we're not in a hurry to execute the plan, and we can articulate it in a way that maximizes value, and we were equipped to navigate this challenging and volatile market conditions. Just a few words here to underline that before committing to any transaction, we intend to pursue a full rating assessment with the rating agencies as their goal is to unlock value targeting a sustainable capital structure. We have done considerable structuring work on the current capital structure to ensure all envisaged transaction structures can be implemented in an efficient way and with an improvement in de-leverage profile. Envisage liability management actions for debt allocation, if any, will be decided once there is full visibility of the final structure, final negotiation of the M&A transactions. So we do not have a final answer that we want to reassure we are prepared to navigate all scenarios. And again, all the concepts shown in these slides should be considered together with the results of this execution on the operations, of which we will be giving more information in less than 1 month. Let's now move to the time level of the potential transaction of NetCo. The NetCo path towards vertical integration is, first of all, defined in the MOU signed at the end of May, which, as everybody knows, target the end of October for the binding documentation. We are getting ready to it, carrying out all the proprietary activity. Execution, including all relevant regulatory corporate approvals will take approximately 15 to 18 months. We'll try to show them this path as much as possible. But in any case, we must all recognize this is indeed a complex project. In time is also dictated by third parties. So not 100% under our control. In parallel, as I said before, we are assessing other strategic options. And now back to Pietro for the closing remarks.

Thank you, Adrian. I'm conscious of time, and they want to give you the opportunity to ask questions. So let me just recap a few messages here. Delayering TIM is an unprecedented opportunity to unleash the strength in the integrated model. We are running a well-balanced portfolio of distinct entities with different characteristics and a different level of maturity. We've identified clear tailor-made strategy for each entity as well as dedicated management team to increase accountability. Our focus will be on execution. I will personally make sure that we'll deliver both in terms of operational results in the short term. And in terms of delayering plan we present today, as we know exactly what to do. We will be guided by the strong commitment to reduce leverage and improve rating profile, having different options that ensure the necessary flexibility vis-a-vis the status quo. So thank you, and let's now open the Q&A session.

[Operator Instructions] First question comes from Mr. Andrew Lee from Goldman Sachs.

Yes. I had 2 questions. One on the NetCo monetization. And then a second question on Enterprise, which we all struggle to understand generally across European Telco and how it can grow. And so just interested in your fairly bullish commentary there. On the NetCo monetization, just wanted to understand what is the actual debate now I mean near-term sale is presumably only if an open fiber solution can be found. So is the debate on what the vehicle you'll sell into looks like in terms of owners' control ETC? Or is it really now just down to the price? So kind of what exactly is taking the time and effort now in terms of negotiations? And then just on -- the second question on enterprise. We've seen enterprise businesses across European government decline for many years. And you -- and that can also be in a growing market. You've identified that the market can grow by 4% annually in terms of revenue growth. Can Telecom Italia's enterprise business really grow within that let alone outgrow the market at the 6% CAGR, I think you suggested? I don't think we've seen that before across Europe or not sustainably. So what's really changed? The question is what's really changed in enterprise such that you believe you can now see growth in that business?

Thank you, Andrew. So let's go from the first question related to NetCo, and then we'll move to the enterprise. Relating to NetCo your question if I'm not wrong is rated in how the negotiations are proceeding and looking the situation right now. And you mentioned why the negotiation took so much time. First of all, the last time that we discussed about the signature of the MOU, memorandum of understanding, our target date was the end of April. For the end of April, we were planning to sign an agreement, an MOU with Cassa depositi e prestiti. Then as we stated in a different situation, we prefer to enlarge the number of the players to be involved in MOU. So the MOUs were signed with Cassa depositi e prestiti, Open Fiber, Macquarie and KKR because sooner or later in this process, we should have involved this player. ServCo makes much more sense to involve them since the beginning to speed up the process. So at the end of the day, we signed the agreement in the second half of May only some [indiscernible]. Now the process is ongoing. There is an agreement about the perimeter of NetCo. There are some small cash related to minority element that doesn't change the sense of the dealer and the economics of the business plan. It's quite clear that in this perimeter, we have all the primary and secondary effort, all the central offices and passive component of the backbone. So the -- we are in a phase where we are sharing some information in a real compliant process because before to share any element, we go through our related party committee. We have a clear understanding about how much is important to be compliant in such new deal and the process is ongoing. As we told the MOU we find a best of the possible banding offered by the 31st of October. And then as Adrian explained in the presentation, we can see the possible rollout. Then about enterprise. I think that there's no other [ case ] in Europe as our enterprise perimeter. And so it's quite difficult to short new -- which are the benchmark. Sometimes -- every time someone -- there's someone that say, what -- which is the benchmark on that, but sometimes it can happen also that you are the first one to do such kind of [ news ]. And then we have to remember also some of the characteristics of the Italian country. So why the market is expecting to grow? I think that it's well known that in Italy, the level of digitalization of the public administration and of all accounts is in lead compared to other countries. Now the [ public ] requirement was putting in place by the current government, as one of the main items, the acceleration of the digitalization of the public administration, but also to try to explore the development of new technology in all the different industries. So it will give us the opportunity to explore this growth rate. In the past, there were much more erosion about connectivity because there were a change moving from voice, traditional voice and with ADSL. Now we are experiencing the situation for a migration towards higher value connectivity. The fact that the enterprise is becoming more and more a segment where the cloudification is becoming really important, means that everybody will ask for a higher capacity bandwidth. The kind of application that the market will request are asking for a better level of latencies. So the use of 5G or an improved level of ultrabroadband are also other elements that allow us to be confident on the fact that we will not expect that we have a reduction on the connectivity. And I think that also when we will see the result of the second quarter, some of these items would be also better, clear and understandable. So I really apologize that we didn't put in a one presentation of the elements related to the 4 entities plant and the second quarter results. It could take 4 hours a day to go much in detail. But let me repeat again. It will be very important to take a look at what we are discussing about in 2 different sets. Today, it's important to share the strategic view, the perimeter and the main KPIs and financial of the 4 entities. And then the fourth of August, we will show our results and now is proceeding our plan of cost transformation of the company that is going in a very positive way. I hope that I was able to explain to you what you asked.

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

Yes. Thank you for the presentation and the event. My question is, first of all, a very simple one, just, are the job currently agreed with unions? Or will they require any additional restructuring expenditure? And my second question is does the enterprise do the enterprise targets? Do they include winning the government infrastructure contract? And if you don't win that, are you still comfortable outgrowing the market? And then my final question is just on leverage. I know you said that you would have detailed conversations with the agencies, et cetera. But I wondered if you had any early thoughts on what leverage a ServiceCo should be able to carry to maintain an investment-grade rating? What level of net debt to EBITDA we could potentially imagine that you would need. And then we can obviously think about how there could be an ad hoc remuneration, for example, and a NetCo sell. So 3 questions from me.

David, I will answer to the first 2, and I will leave the stage to Adrian for the third one. About job cuts, it's important to remember that we stated when we did the presentation, we plan that in our plan, we continue to apply the same tool and routes we've used in the last 8 years. Sorry to repeat that, but I think that it's important for our management team to guarantee to everybody that we stay coherent with what we say because we have to gain the trust of the market about our capacity of execution and our approach that is transparent and direct. So what we included in the existing plan is the use of the so-called Article 4, this is a kind of early retirement approach that, let me say, it's less aggressive in terms of guarantee, also the employment -- level of employment stability. So this is the main tool. It's something that we already did in the past. We have some discussion today with the unions that have a clear understanding about the situation and what is important to entity to all our colleagues because just remember, we have a discussion about our colleagues -- people that are sit on the right side of my desk. So we have to take care of them, having in mind also our responsibility relating to the profit and loss of the company. We have to guarantee also that the result of the company will always improve. So the job cuts are sounding that we already applied in the last 8 to 10 years. And this is something that we are discussing with unions. But we think that we can also do something more. I hope that you appreciate the fact that on the presentation for each of the entities, we highlighted and also stressed in my speech that we have some upside in the consumer part, where we have, let me say, the ratio of employees on revenues that is the less [ important ] in this world, we clearly stated that there are other activity under evaluation. And so we'll try to work on that to further improve. The second is related to the enterprise, the PSN in these days, the consortium is evaluating the possibility to apply the right match. In our number of the plan is included the PSN, to be clear, for the 2022, 2024, the value are really marginal. But let's keep in mind that also in the plan, the value that we included are, let me say, conservative. And [indiscernible] back in the following days, let's see what will happen. We can confirm something related to that. I'll leave to Adrian on the leverage side.

David. Yes, as you mentioned, yes, we will be performing a patent for sure, before any deal is closed, that we need to understand very well what the profit that we will have. Going directly to your question, what level of leverage we should have? It's hard to say because at the end, it will depend not only on the leverage, but also on the profile of this ServiceCo. That is the time. What we are considering is that with this configuration, we can reach a target of having a net debt of below EUR 5 billion for the ServiceCo perimeter. If that's the final outcome. Then what can we consider in terms of leverage of this EUR 5 billion should be something below 2x EBITDA. But again, I think it's what we should consider to have a specific rating. It's more on the rating agencies and then depending also on the profile of sales.

Okay. Can I just one follow-up, please, on the first question on employee job cuts, because I guess the accounting means you have stripped out the OpEx from the EBITDA guidance, there will be a cash flow out. Is that correct? That's the traditional pre-retiree accounting. So you've taken the benefit in EBITDA, so to speak, there would be a quite significant cash outflow for those retiree payments. Is that correct?

Let's [ divide ] the answer by two. First, what's happened with the other retirement that we had a saving on the cost by 50%. The cash flow will be splitted during the 5 years. So in terms of cash flow, what's happened is it will go through the 5 years or the 7 years related to what's happened. So the accounting rules, Adrian, take that if you want to.

Again, David, you're right. And I think that we gave enough disclosure of the effects of this different -- and you have it on each business, what's the effect below the EBITDA. Yes, you're right. We have the positive at the EBITDA level, but we also consider what are the initial negative effects of this agreement.

Next question comes from Mr. Luigi Minerva from HSBC.

The first one is about the potential combination with Open Fiber. And I was wondering what kind of remedies would you expect? And consequently, I suppose also what kind of regulation, I remember your ambition was for a RAB style regulation for the NetCo eventually. But I suppose that if the remedies involved disposal of some of the overlapping portion of the network then perhaps RAB is no longer achievable because it must assume a natural monopoly or infrastructure? And the second is a clarification on Page 35, when you talk about the alternative scenarios because, I mean, all your presentation, Pietro and Adrian, has been essentially appraised of this monthly vertical integration. But then when you mentioned about the alternative scenarios, you actually include only selling a minority of the NetCo. I just wanted to understand why?

Sure. Thank you. About the combination. As I mentioned before, you know that 4 entities were like a possible upside. And I clearly stated that in this number, for example, is not included any idea of possible application of RAB process. For sure, what we are expecting an improvement in some elements that are not a guess. If I look at the activity of -- at European level, it clearly stated that in case of a pure wholesale player bearing the positively the pricing can be defined based on a reasonable approach, that it means non-cost [ orientation ]. That is something that we are experiencing today. So for example, it's quite easy to understand that there will be the opportunity to recover iteration, it's something that we are experiencing today. Our continent was not [ see ] inflation in the last 20, 25 years. And now we're experiencing a different economic environment. This is some or one of the elements that we're considering that on that. So we weren't aggressive on assumption also because it's a path, and we have to expect the different authorities, and we don't want to start to pull them from the jacket starting to as something. We have to do our job, we have to negotiate. We have a clear understanding of the regulatory environment, let's say, that you can have a fair and reasonable pricing model, and this is what we can expect also if we didn't include that in an aggressive way in our plan. Related to the remedies. Again, I don't want to start to have a discussion about that. It's just my personal opinion. I don't think that will be remedy related to price, then we will see what's happened also based on the configuration because if you start to discuss about what's happening today, 55% of the coverage is in what area, with the concession, then you have the PNRR. So the overlap of the 2 networks are really small are not so big as everybody were intended. And let me say also another important element. The fact that there will be the PNRR areas to be built quickly due to the fine that we could receive if we don't build them, we put in a situation where before we built the PNRR areas and then the other one. So the risk to, let me say, file destroy possible synergies related to the overlap of the building of the infrastructure is something that is postponed in the time frame after 2025. Last, and I want to be clear on this point. Also, in some discussion with some of you, everybody say, but perhaps you don't have clear idea, if we had several scenarios. If I may describe to you that we have several scenarios means that we have a clear understanding of the complexity of this process, and we have announced it for everything. If you ask us, which in the preferred scenario? I don't have to tell you that the best scenario is the sale of the network to open the CVP and get a piece of the synergies if they want to [ best ] tangle, I can invest on a stand-alone basis. So I've also described and tell to my shareholders that a plan B if it doesn't happen, what they can do and they can proceed in any case towards a vertical disintegration with another partner. And then, again, I was [indiscernible] since I was young by my father that you always was just to tell you must have always a B plan. In such a case, we're both a C plan. But it doesn't mean that we don't have a clear understanding about which is the highest level of value generation.

Let me complement it, Luigi, the thing is, as we mentioned, it's a plan of optionalities. And that's why we showed in Slide 35, this possible scenario because at the end, we are committed to be possibly the inhibiting the vertical disintegration it's not -- it's totally linked with the value that we can get on that asset. So there's yet also possible solution. And that's why we're working also on that one. The thing is we are committed to improve our level of leverage, and that's what we wanted to do.

I just have a follow-up because Pietro, you mentioned a very important point, which is inflation. And I think it's crucial that the wholesale access prices can adjust to inflation with an escalator. When I look at the financials of the NetCo, the revenues actually seen broadly flat from '22 until 2030. So should we conclude that inflation escalator is not in that guidance currently?

No, because, Luigi, when we say that we must be realistic, the number of revenues should increase if we were considered to be in a condition where there is no competition. In any case, if you look, for example, I will lose revenue in the [indiscernible] area because once the customer will go to the FTTH from FTTC, we will lose some revenue. So we keep stable just because what will happen is that we will lose in some area, some customers in the competition. But in the meantime, we will offset that also based on the use of the ARPU increase from traditional technology to FTTH and for the application of the recovery of inflation. I hope that it was clear, Luigi.

Next question comes from Mr. Giorgio Tavolini from Intermonte.

I was wondering if you could provide us more color on the DAZN renegotiation. And also another one on the scenario of a deconsolidation of NetCo by 2025, around 50% of the TIM EBITDA will be generated in Brazil. So I was wondering if you are considering in that scenario, any buyback of TIM Brasil minorities to reduce the minority leakage on free cash flow. And the third question is just a final clarification on -- so should we expect you to start providing the new accounting view by business units from the next first half results on top of your traditional accounting structure?

Okay. Thank you, Giorgio. Related to the first question and then Adrian will give you more color on that. When I was discussing with the team about the -- and have to tension my team for the new job that we did because it seems that we are discussing about that since a lot of time. But let's remember that at the beginning of March, just as Adrian and me, [indiscernible] arrived and the remaining team is a volume value. There were people like [ Claudio ] or Stefano, let's say, with me starting from the end of November, but I think that we did a new job in this period. And the -- the most important thing that to reach is to have a much in-depth understanding about weakness and strength of our company in the 4 different entities. I'm telling that to you because the answer is yes. Starting from the last quarter, we are trying to understand if we can do -- just since the third quarter, we were able to show also to the market this number because a lot of you have some difficulty to understand how would be the enterprise business in south of our company. So we have to follow this process, showing new outlets are proceeding. Our numbers are improving. So the answer is, yes, we'll have that, but not just to share with you, but because this is an important tool for us to be able to manage the company. So if you want to drive a car in a city that you don't know, you need a navigator. So we need all this KPI to be able to achieve our target to better understand that we can further improve the level of efficiency. I was discussing this morning there you are looking at the number of Top Co and I'm quite sure that we are still margin to improve the efficiency. I don't want symbolic, but the people that you find this company have a clear understanding and know-how about the company related to the zone we are discussing, we don't finalize anything. I don't want -- sorry, Giorgio, to spend too much time on these things because -- you will see that we have a lot of time for the second quarter results to go in detail and see now our numbers are improving. We will show you that we are a management team that execute. We do what we promise and it will be an important appointment. The last, NetCo the consolidation, I'll leave to Adrian because it's not to say that we speak too much.

Giorgio, the thing is -- for us, that's not the number. What we think is that by 2025, TIM Brasil will account probably something around 35% of the EBITDA of the company. So probably it depends on how you can see the exchange rate, but also how you can see the domestic perimeter in terms of EBITDA level. So Again, I think that it's a different consideration of what we can do with Brazil in terms of our participation. Nothing today on the table. We are working very heavy with them. The results that are coming are really good. You will see much better results going forward. And especially for us, you see in one of the slides, TIM Brasil is extremely important in terms of -- in terms of cash flow levels, the yields that they're having is probably amongst the best ones in between the peers and LatAm. So for us, today is the story of cash flow and growth. So again, nothing on our table today. On the last question regarding the -- if we will show you results dividing in 4 entities. Yes, for sure, we'll give you a lot of information with this view by the end of the year. Probably you will have something already in the next quarters, probably another full accounting view, but yes, some KPIs and some orientation. So at the end, this is how we will be handling the business, the organization to already going towards this view of the businesses. So we should be able to also follow in terms of economics and financials to be that we are showing you today.

Sorry, or, I like to know that I continue to talk about Top Co that was the internal name of the project, Top Co TIM Enterprise, but we apologize, but I don't want to generate more confusion. So TIM Enterprise.

Next question comes from Mr. Andrea Devita from Banca Akros.

The first one is on shareholder remuneration. So I wonder whether your existing plan provides to return to dividend already on FY 2022 results, at least on selling shares? And the second point I see on the presentation, shareholder remuneration when you talk about deleveraging cash in from transactions. So I wonder whether, depending on potential cash in from a disposal, you consider extra dividend. And according to which parameters you did set this extra dividend. So for example, if the residual debt comes below the EUR 5 billion mark or depending on threshold for debt-to-EBITDA of the ServiceCo. And the second question is regarding potential sale of a minority stake in the TIM Participações, well, everyone heard about this nonbinding offer from CVC at the end of March with required 8 weeks exclusive negotiation. I wonder whether that one was a real offer. What was wrong is the price or if you were not ready yet to consider this transaction and what would expect now against debt offer.

Let me start, Andrea from the second one without going in detail because there's a confidentiality on that. We must be proud that a private equity fund at CMC was looking at us on a project that it was on [indiscernible], because today, we don't have yet the company. We are showing you that we want to proceed [indiscernible] the creation of the company that is based on a piece of paper, so trustable and reliable fund. It is intended that this company is a value. It's something that is demonstrating that perhaps -- without perhaps, that's proceeding on the right path. Then we have to understand which is the best way to maximize the value for the shareholders. And this is something that the management is evaluating. And in the next quarter proceeding, we would like to [ analyze ] you in the win on which all the activity of the overall plan is proceeding. Now in the [indiscernible] because I think the town started. Adrian anything you want to?

Yes. Regarding the first question, there were 2 questions in one. The first one is about the possible dividend in 2022, I think that this will be a decision that the Board will take when we approve the full year 2022 results. Obviously, it will depend a lot in terms of net income. It will depend a lot on different situations. So we are not today in a position to answer that part of the question. Regarding the second part of the same question, I think that Slide 33 is probably in the -- is a statement for us. We believe that there is a lot of value on the NetCo with the consolidation of Open Fiber. We believe there is a lot of value on our TIM Enterprise business. So in terms of working on what can be a possible ad hoc remuneration. It will depend if the transactions occur and what value. And at the end, the goal and the target for us is to have a sustainable leverage on the ServiceCo. So it will be depending on that target. If there is space, we are -- we will analyze the situation, obviously, with our Board. And obviously, we hope that there could be an ad hoc remuneration.

So in any case, you would now even below EUR 5 billion. So this is not, let's say, a certain number. So if you got EUR 3 billion [indiscernible] debt, you will be happy with that?

Andrea, can you repeat?

Can you repeat?

If the cash in from any deal would lead to adapt, say, EUR 2 billion because you sell the network in the best possible scenario at EUR 3 billion more. And you will get EUR 2 billion residual debt for ServiceCo, you would be happy with that in -- so keeping this extra cash to debt reduction?

No. Again, our target is to be below EUR 5 billion -- is well below EUR 5 billion. And obviously, we consider that it's healthy to have a leverage, but the leverage needs to be sustainable. So below EUR 5 billion doesn't mean that going to be EUR 2 billion or EUR 3 billion. We accept the leverage level that could be sustainable. So you can do the math on that side. For us, this level that we mentioned of below EUR 5 billion being something around that than 2x EBITDA should be sustainable for a company as service...

Some of the questions, just below from private leakage, we read that the value of the NetCo as well and from, say, 17 to 31 for Vivendi to 25 for obviously an official team. So it was just this question because of inflating by the day the value of the NetCo. But I understand that you cannot comment on that.

So not on the valuation, obviously, thank you for understanding.

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

Yes, and thank you very much indeed for doing the event. There are two questions, please. The first one, just looking at the assumptions you're making for NetCo is that a lot of the growth is really coming from EBITDA margin uplift rather than revenue growth. So I was just interested in what you're thinking of longer term so the ability to shut down your copper network? Is that something that's baked into your plan and essentially then a forced migration to the FTTH network? And secondly, could you just go through again kind of lot of these scenarios in which you might only sell a minority of the NetCo asset rather than a majority stake. I mean I presume if you could agree on the value of the equity would then be keen on selling the whole lot. So I just wanted to try to see what size where it could only be a minority stake that gets sold?

James, about the business plan of NetCo. On the revenue lines, as we stated, we have the migration from all technology to execute with a continuous increasing of the coverage of FTTH. And as you can see in the chart that we are selling now, starting from 2017, the amount of CapEx that we left will strongly be reduced because we completed the coverage of FTTH. So it's much more let me say, installation of vertical network building. On the OpEx side, we have also some efficiency that are related to the progressively shut down of the copper in different areas. Keep in mind that also the Open Fiber -- also without Open Fiber in the case of vertical disintegration -- it will be also much easier to proceed to this switch off, and we can start to look at the number of customers per cabinet because today, the caveats are also one important element of our energy consumption and maintenance costs. So then different cabinets are connecting to the central office, and we are already evaluating today how we can proceed on that. So in the business plan, on the top line, market share loss that is offset by the application of a slight increase of price and ARPU increase related to the use of new technology, FTTH compared to copper and part on FTTC. On the CapEx, we have the progressing reduction on the CapEx. This is related to target, we will start to cover little because once we've covered more or less everything is difficult for me to do for the outside our boundaries. And on the OpEx, we have a progressive reduction of the cost that is related to the switch off some efficiency, also the cost of labor reduction. Let me say [indiscernible] element because on the overall CapEx, I was leaving already, some of the comments coming from the market. Let's remember that we have overall in all the perimeter, but a good part is on the NetCo side, EUR 3.3 billion of CapEx related to the PNRR bidding that we won, let's remember that we are the only player that participated to all the bid and that won for each of the bid component. What will happen in EUR 3.3 billion are entering as CapEx, but then they will be balanced in terms of grants for EUR 2 billion. And on top of that, we'll have also revenues coming from this [ DAZN ] activity. Related to the second question, that is the case. I repeat, I don't want to create misunderstanding. What we are foreseeing is to proceed in the agreement with Cassa Depositi e Prestiti. Second, we always stated that we had a big plan that is to proceed with another industrial financial partner, losing the vertical integration. We put also a remote scenario to better explain to everybody that we are committed to delever the company. So this is the aim of that charter to put everybody on the same condition.

Could I just -- can I just go back to the point on the copper shutdown. The EUR 2.7 billion of EBITDA in 2030 in NetCo. Is that based on the assumption of shutting down copper in all the 65% of the country where you'll roll out FTTH? Or could there be more upside from that if you were to fully shut down copper every way you roll out FTTH?

No, this -- unfortunately, we don't have just one bullet to solve our issue in terms of cost efficiency. So in that OpEx reduction, there are several activities that we're putting in place, just to give you an idea. It's not me to say that in all the world, everybody said that copper has a level of maintenance cost that is higher than FTTH. We have saw a befall trade that is different. So yes, once we enlarge the coverage at FTTH, also the maintenance cost will be reduced independently from the shutdown of the copper. Can we find specific session with our IR to go through the details of the NetCo business plan because I agree with you. It's very interesting. It's one of the first case in Europe of this kind of activity. And you are right that you need some more details to understand better decline. But the logic is there are different clients that allow us to reduce the OpEx, I mentioned the maintenance, I mentioned the shutdown, the efficiency also on the energy because the energy reduction is not only related to the shut down, but use of FTTH is sometimes much more efficient. So, also reduce the reduction of the labor cost. These are all elements that allow us to further reduce our cost base.

Next question comes from Mr. Jakob Bluestone from Credit Suisse.

I've got 2, please. Firstly, just trying to understand your margins a little bit better in the Enterprise segment. So you basically show that your revenues will grow by sort of EUR 500 million plus in TIM Enterprise between '21 and '25, but your EBITDA goes up by about EUR 100 million to the sort of EUR 400 million plus of additional costs. Can you help us, firstly, understand what are those additional costs coming from? And then secondly, if we look at the sort of conversion of revenue into EBITDA initially between '21 and '25, it's very low. It's only about 20%, but then when we look from '25 to '30, there's a very high conversion of that revenue into EBITDA. So you sort of assume EUR 1.5 billion of additional revenues by '30 and EUR 700 million of additional EBITDA. So can you just help us understand a little bit why is your revenue growth? So has it such a low sort of margin impact initially, but longer term, it then has a very large impact on your EBITDA? And then my other question was just briefly on the consumer business. I think you said you expect the low point for revenues to be in 2023 and then you expect growth from '24. When do you see the low point for EBITDA in the Consumer segment?

Okay. Related to the margin in Enterprise, I think that -- it will be also much easier to understand once we disclose the number '25, '26, '27, '28, '29 and 2030, I'm still able to count, because you will see that this is a progressive improvement. Why we have a level of EBITDA that is going to improve. During 2022 to 2025, we will have also some inefficiency needed the fact that we are building a business. So with that, for example, while we continue to sustain part of the cost of the colleague that we started as retirement, we will have twice the people to start to manage the contract with the different players. We are building also data center because there's a component of the TIM Enterprise business that is kind of infrastructure business. So if we are building some data center, it's completely true that our CapEx. But in the meantime, we have some costs that are related beginning for the maintenance, energy, so on and so forth. And it's a kind of start-up business so it's quite usual that if you divide the bits also in the enterprise business, you can see that you have a kind of data center business or cloud business. But we are not only reselling. We are building also our data centers. So it's quite normal if you look at the business that we have the pace of startup that then we start to generate a level of EBITDA that is much better. And this is the answer also related to the commercial rate. As we stated since the beginning also when we present the first quarter result and the new plan, we told that our company is placing a challenge that is quite different from the past because we are speaking today, the farthest. We have to build the application network. We have to spend a lot of CapEx to date for the return in the medium and long term. So if you get just NetCo, you can see that all this CapEx will create a conversion to EBITDA in the front run. It is much higher. A good part of the enterprise business is quite similar. It's a completely [indiscernible] situation, the consumer to point past NetCo, Enterprise. Consumer is something completely different because it's a less infrastructure business, it's something that is not generated long term, then the inflation rate because it was also your question related to the consumer. Let's remember that we explained very well also in the other 2 calls and I repeat, I don't talk to repeat these things because I'm a polemic guy. But just to show you that we are coherent and we continue to say the same things. There were something that in terms of comparison to what is easy to understand because let's remember that we have mainly in the consumer, all the elements that were related to the fact that we are selling 2-year contract on the ultrabroadband with the upfront and the reduction of the ARPU. So as we explained, [indiscernible] is complex, I understand in the different [ call ] that will have a rebound that it's quite massive because once we will finalize the 2-year contract of the customer that signed this 3-year contract, the ARPU will start to grow. Then let's remember again that we told that we don't want to continue to be an engine of the acceleration of the washing machine. And yes, give me 2 minutes because I want to be really clear on that. We can do math. Whoever, not only in -- whoever want to do EUR 100 million EBITDA on the consumer to do that to gain 15% of market share from the other player. Having in mind the other player will say there with the cross-sell looking the other 2. So this is not possible. It could create a kind of reaction from all the players, putting in place again the pricing war. This is the reason for which what we state is that we have to strongly work to increase the quality of our service, the image of our company, adding out other elements because if we compete on price, we are completely right. It's very difficult that we can rebound. But if we don't talk like that, we are able, at the beginning of 2024, if I'm not wrong to start to see the recovery or better to grow above zero, if I'm not wrong, then the recovery is already started. And they hope that the next quarter, because we don't pay before we finalize, we can show you that perhaps our strategy is right. Jakob, hope that I was clear. If I was not, please...

No, that's very helpful. .

Part of the question is regarding, yes, on the consumer, we said that the lowest point in terms of revenues will be 2023, but in terms of EBITDA will be 2022. So we are already foreseeing a growth path starting on 2023, also EBITDA of the consumer.

Jakob, it's clear that we have 4 entities with 4 different stories: consumer in a restructuring. Our team on the consumer must be focused and improve the quality of the service to stabilize the top line, reducing the churn, but we have to work also at the level of efficiency on the cost base. Let's remember to everybody that in the first quarter call, we reiterate and we told that we have a target to improve 15% of our cost base that is a good part on the consumer. And we clearly stated that the target that was distributed inside the company was 20%. So these are completely different scores. Enterprise is a story of growth and I'm sure about the growth of the Enterprise market. NetCo, we are leading today, it's an infrastructure business. And Brazil, fun, and you must remember that our group invested in Brazil until 2015, 2016. Brazil was cash flow negative until 2016. Now it's time to start to recover the investment in [ depot ] TIM Brasil.

Next question comes from Mr. Fabio Pavan from Mediobanca.

Yes. Thank you for the presentation. Just one question, if I may. It's a follow-up on the leverage that you are presenting. Could you work through the -- let's say, the way you should move from around EUR 20 billion to below EUR 5 million -- EUR 5 billion, sorry. And in particular, looking at the presentation, it seems you are retaining kind of financial flexibility. So this means coming back to another question, you have been asked a couple of minutes ago. We cannot say -- talk about dividend coming back, but for sure, these EUR 5 billion is to implement some cash out on top [ decision ] from the potential disposal of the net current potential in the price stake?

Fabio, a little -- you remember me, a colleague of us that when we set please, the presentation, 1 chart because you see 20 chart, you put the 20 charts in 1 power point pages. So you saw that 1 question, I thought it is not [indiscernible].

And well, obviously, I think that we stated in Slide 33 and then Slide 34, where we explain what we are thinking of this scenario at the end is achievable. And for us, at the end, the most important thing is the target of leverage of ServCo. Then there should be different alternatives depending on the value we get and if we decide to go forward. It's obvious that the values -- the business that we read and considering both transactions, they could be a value above the actual level of the debt. And that could bring us financial flexibility. What does it mean this financial flexibility. It will be a dividend [ debt of ] probably. It's something that we'll be deciding if this transaction goes forward and depending on the structure. What we did, yes, is we assess very deeply our debt in every instrument, not only from the financials but also from the legal point of view, we have a very deep knowledge of it, and we know which kind of debt will be better to contribute it to NetCo or to maintain it on our side. Then -- it will also depend on the level of leverage that we can see the network can have. That's why we managed to debt up to EUR 11 billion, so it can be moved somehow to the NetCo. But definitely, if you see on Slide 34 at the end there should be cash proceeds from this transaction because there is a limitation in terms of leverage of NetCo. So that's why we will need to work on top of that, possibly EUR 11 billion that will be moving, I don't know if being clear in the answer, If I am please let me know.

Yes.

Next question comes from Mr. Domenico Ghilotti from Equita.

A few remaining questions. The first is on the NetCo deal. Is it correct to say that the best scenario is having a full disposal of NetCo, so 100% in the case of -- with Open Fiber, clearly, not in plan B? And would you be ready to asset also a partial sales reaching the deconsolidation with the partial cash in? And in the previous call, you were mentioning that the regulatory review will depend also on the structure of the deal. So can you clarify now if it will be a domestic or European Regulatory Authority to review the deal? So that's on the NetCo. Then I have a question on the CapEx side, and you were mentioning that clearly you have raised the CapEx bar, including the P&L funds or investments. But -- so what is -- not clear to me is the timing. So if I look at your comments on the proceeds in terms of cash flow from the recovery plan, it seems that it's coming at later compared to the CapEx. So if you can elaborate on that. And last question is on Brazil. So the peak leverage is in 2022 and then starting to deleverage and you are seeing a good cash generator. So I wonder if you can expect an extra dividend at some point. So after 2022 when TIM Brasil starting to deleverage, would you consider that?

Okay, Domenico. First question is related to NetCo. And -- to be clear, we clearly stated that the most important element is to lose the vertical integration. To lose the vertical integration, it means that we cannot have governance rights, because if we keep governance rights, it means that I'm not losing the vertical integration, and I cannot activate the article 80 that I mentioned in the beginning that tell how to activate the fair and reasonable pricing orientation. So the answer is quite normal. The best scenario should be a complete disposal because to keep a stake of something without broaden on slides, should be something that if you are not satisfied about the price and you would like to keep the stake because you are betting on its future improvement. But we told that we want to do a deal that is -- should be the right price to maximize the value for all our shareholders. About authorities. The rules are clear. If the NetCo should be acquired by a company that is fully controlled by [ Italia 1 ], you can be at Italian level. But if I see that we have an MOU with Macquarie and KKR involved, I think that they would be part of the acquisition process. If they will be part of the acquisition process, it's a kind of conjoint control -- conjoint control with players outside the Italian boundaries, it goes to the European level. I hope that was clear on that. About the CapEx and then Adrian can answer. Let's consider that we have EUR 3.3 billion CapEx, something close to 0, like we said 2022. The remaining to EUR 3.3 billion are from 2023 until the end of 2026, if I'm not wrong, in beginning of 2027. Then based on the different bidding we have different delay to receive the grants that allow us to recover the money on the cash flow. The 1 giga is between 12 and 18 months of delay, while on the other, it's much faster, and it is stay inside 1 year. Then what is important, we are not increasing the guidance. 2022, 2023, 2024, the delta CapEx that will come from that will be absorbed inside our guidance. Adrian, if you can comment.

I think you've answered the first 2 questions regarding the -- the third one, regarding Brazil. Yes, the peak in terms of leverage is 2022 because of the acquisition of [indiscernible] assets. And then we should see be the net debt level going down. The thing is you asked about dividends, we already decided and it was disclosed by the company in Brazil that will be doubling the shareholder remuneration already starting next year or with the results of 2022. So with this new level, we think that Brazil is in the right level in terms of yields compared also with fees. So we are pretty comfortable on that front. It's the right equilibrium in terms of value and in terms of remuneration for the shareholders. And again, it's -- we think that it's more important, the flows rather than the level of leverage. So we'll be equilibrating these things going forward. But again, we already decided to double the shareholder remuneration.

Last question comes from Mr. Carl Murdock-Smith from Berenberg.

I've just got a question on inflation again, but more on the cost side of things, specifically in NetCo, where you obviously have the OpEx going down over the next 3 years. Can you remind us of what the current agreement is with the unions? I think you're in the middle of a 3-year agreement with a 1.5% pay rise every year that expires next year. Can you just confirm if that's correct and kind of update us on how your pay talks are going with the unions? And when the next round of pay talks will occur with the unions? And what kind of pressure you're currently experiencing, given inflation in Italy a presence?

Yes. We had the negotiation -- we are in a running process with the negotiation with the unions because we are discussing about the application of Article 4. I can tell you and I can confirm that unions are showing a great level of responsibility, also doing the job that is to defend the labor and the role. The contract will expire at the end of 2023 if I'm not wrong, but the discussions that we are in today, we are discussing also about that. And in any case, what is important on the inflation that we have to work also on the revenue side to put our company on the safe side too because it's quite difficult to image that these industries unable to pass deflation on price. This is something that we hope can be also an important element to work on. And again, negotiation are running and we expect to finalize in the following weeks, and so we'll be able to disclose better on all the elements I hope already in the first half and second quarter results.

That was great.

So thank you, everybody. I hope that we were clear enough. Our Investor Relations team is at your disposal for all the queries. I understand that we are proceeding towards a journey that is quite complex. We are among perhaps the first one that is proceeding in this delayering process. So we are ready to go more in details. But what is important to remember to [ revalue ] that. This plan shows in a clear way that we have optionalities to be activated to guarantee our main target, which is financial and sustainability and to deleverage our company. From the strategic point of view, we have a well-balanced portfolio of activities. Brazil that is, let me say, a cash cow, that NetCo, that is a business that is becoming infrastructure and will be a future cash cow. Enterprise is a very interesting business. And let me just mention something. Someone can see. But this is achievable in the growth of Enterprise, 60% of the revenues of 2025 are already committed today. So we are not bullish. We are very confident that Enterprise is something that will give a new surprise to everybody. And the consumer is something that is a bid activity to work on the level of efficiency. We are committed to execute. And I think that it's important to already define the next appointment. It will be the 4th of August, because you have to read what we showed today in the Capital Market Day where I understand the main [indiscernible] could be -- should be this management team able to execute once this company has a track record that is not exactly a genius. Let's meet on the 4th of August, and we'll show you that we are able to deliver. Thank you, everybody.

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