Ladies and gentlemen, good morning and welcome to Telecom Italia Q2 2022 results conference call. Manuela Carra, Head of Investor Relations, will introduce the event.
Ladies and gentlemen, good morning, and welcome to our Q2 2022 results presentation. I'm here with our CEO, Pietro Labriola, our CFO, Adrian Calaza, and the rest of our management team. Pietro will provide an overview of last quarter's main achievements, and Adrian will illustrate our financial results. A Q&A session will follow after the presentation. Pointing out to you our safe harbor disclaimer on page two, let me hand it over to Pietro. Pietro, the floor is yours.
Thank you, Manuela, and good morning, everyone. After our Capital Markets Day in July, where we outlined the strategic priorities we want to pursue in the near future, today we are coming back to our usual quarterly call on Q2 results. When I try to make a balance of the first six months of my work here at TIM, I see a lot of strategic and operational results already achieved in such a short period of time. I see three main challenges ahead of us that we need to keep addressing as a management team. The first one is ensuring business continuity by improving the operational activity that was deteriorating, putting the operations under control. The second is activating discontinuities to structurally solve the constraints of the present high leverage.
Finally, the third, managing the context in these difficult times of high inflation and economic and political instability. Point one correspond to the continuity plan. This plan is not the structural solution for TIM, but it is key for both the operation of the company and as a test for the management towards its stakeholders. We're a company that, in the past, often missed the guidance, and therefore, it is key for us to show that we are on track with the targets we have provided to you back in March. I think Q2 results show today that we are on track or even ahead of our target. The transformation plan we are putting in place, that is outlined in the next few slides, is something that will allow us to better secure our target. Point two instead correspond to the layering plan.
Having explained the plan in more detail, there has been an increasing awareness among the financial community of the different businesses dynamics we have within TIM. Of course, we will have to provide a full set of financial results for the four entities in order to show that we are proceeding according to the trajectories presented on July 7th, and this will come in the quarters ahead of us. In the layering plan, we have also shown that we have different option to reach a sustainable leverage. Clearly, now you want to see the execution of it, and I can assure you, we are working hard to match your expectations. Point three refers to the need to face these present very different macro conditions.
When I say very different, I refer to the fact that at the beginning of the year, no one was projecting such an inflation and interest rates level or the present macro environment in Europe or such specific political situation in Italy. In such a context, we need to improve our continuity plan in a more and more cash-driven logic. Let's now crack on into our quarterly results, starting from slide 4 with the main highlights. Trends are improving year-on-year in Q2. Group service revenues are increasing plus 1% year-over-year, with growth accelerating in Brazil, where we have started to integrate Oi from end of April, and with better trends in domestic. In particular, on domestic, in the fixed segment, we have reported better service revenue trend both year-on-year and quarter-on-quarter, with higher ARPU and lower churn.
In mobile, market is cooling down. We've improved the trend on mobile lines with churn at the lowest level of the last 16 years. A nice spot is enterprise that is growing around 9% year-over-year on service revenue in the first half 2022, differently from what's happened through all Europe. Finally, on EBITDA at domestic level, efficiencies are starting to kick in, and you will see more visible impact on financial numbers in the second part of the year. On this latest point, what we are trying to give you today is a bit more color on what we are doing at efficiency level. Indeed, in the following slides, we outline our transformation plan, where we are targeting profit and loss cost cut of 20% of our addressable base, as you know.
On top of it, what we are communicating is an extra effort at cash level, OpEx and CapEx, that will bring us to save EUR 1.5 billion in 2024. Key to this regard is the signing with the unions of the agreement on the expansion plan occurred just one week ago. Thanks to this agreement, around 30% of the 2023 profit and loss OpEx target is already secure. In the first half, out of the 6% of OpEx reduction versus 2021 addressable base, we are targeting for the full year 2022. We've already achieved around EUR 200 million.
In the meanwhile, as far as government recovery fund initiatives are concerned, all tenders for fixed and mobile ultra broadband have been assigned, with TIM awarded lots in each of them. Additionally, we have exercised right to match for the National Strategic Hub. Importantly, I want to remind you that the majority of the recovery fund CapEx impact in 2022, 2024, will be absorbed thanks to the transformation program. On the network side, things are going smoothly. FTTH rollout is on track. Ultra broadband coverage is now above 94% of families, and ultra broadband take-up improved almost 3 percentage points year-over-year, landing above 47% of technical households.
Lastly, equity free cash flow was slightly positive in first half 2022, negatively affected by the DAZN payment in Q1, compensated by a different phasing of substitute tax payment this year versus last year. I remind you, we're sitting on a sound liquidity position, further strengthened by such a financing that has been cashed in at the end of July, and by the bond proceeds that should come in these very days. Let's now move to slide 5, where we are outlining our ambition for TIM in terms of the transformation plan we envisage in the coming quarters and years. The plan is to rethink processes and achieve an improved operating model with a more sustainable cost structure. This will be reached via a mix of 4 pillars that are shown in slide 6.
In terms of numbers, we expect in 2024 to save from all these initiatives around EUR 1.5 billion as a cash cost. This is made of around EUR 1 billion of profit and loss addressable cost reduction that represent the 20% target we have already provided to you in May. Let me say that this is already going as expected. Around EUR 20 million-EUR 50 million of extra cash cost savings, mainly related to leases. Lastly, around EUR 300 million of CapEx savings already starting from 2023 that will help us to mainly absorb the increase in gross CapEx we are having from recovery fund initiatives. The transformation plan will take us to structurally think about the way we spend money at the CapEx level. What we foresee is to reach these savings already from the next year.
We want to have a right size and sustainable cost structure. What you see here in slide 6 are the pillars we will work on in order to transform our cost base. In the lower part of the slide, you can already see some example of activity we have launched in the first half that help us achieving around 70% of our full year 2022 savings, while setting the grounds for reaching our midterm goals. As you can see, what we are doing is not only traditional cost-cutting, but a deeper transformation of TIM into a leaner company. Digitalization will be key in this process, not only in terms of cost saving, but also in terms of customer experience. Since today customer are always more digitalized, there is a significant room for improvement here.
Cost structure must be simplified also to unlock internal synergies and to improve productivity. On the workforce side, not only the right sizing is key. Reskilling is necessary in order to support areas and businesses that will sustain the future growth of the top line, especially on TIM Enterprise. On labor costs, I already commented the important news regarding the signing of the agreement with unions. In the transformation path is not only set, but also partially secured. Now, through a continued and relentless review and execution of project, we will achieve the foreseen restructuring of the cost base in the midterm. Let me now hand over to Adrian, who will guide you through our financial results. Adrian, please.
Thank you, Pietro, and good morning, everyone. Slide 8. If we look at our key financials, in Q2, we reported better trends versus Q1. Group service revenues year-on-year trend was positive at 1% from -2.5% year-on-year in Q1. Group EBITDA was in the high single-digit decrease area at -8.5% year-on-year from -13.3% in Q1. We work hard during these first two quarters of the year in order to improve our results versus our own projections, and we succeeded despite the present tough macro environment that, as Pietro also underlined, was not predictable at the time we presented our three-year plan only four months ago. We will continue along this path for the rest of the year, keeping the commitment we made with all our stakeholders to do better.
This is a long journey, and we just took the first steps that are in the right direction, but we have to keep going quarter after quarter. Equity free cash flow was slightly positive, and after lease was negative, since as usual, the Q2 is the highest in terms of working capital absorption due to payments of CapEx done in the last quarter of the previous year. Both equity free cash flows present positive figures in the first half. Net debt after lease increased in the quarter mainly due to the cash out for the acquisition of Oi Móvel and for the remaining payment of the 5G license in Brazil. Let's now have a look at the quarterly trends in the next slide. Slide 9.
As you can see, group service revenues grew 1% year-on-year with an improving trend versus Q1, thanks to the higher contribution of Brazil after Oi integration, and also better trend at domestic level that was down 4.8% year-on-year, versus the -5.3% year-on-year in Q1. It's worth mentioning that domestic service revenues year-on-year performance is impacted by tough comparison with 2021 that enjoyed the tailwind coming from vouchers on retail and some non-repeatable overperformance on national wholesale. Group EBITDA after lease was down 12.3% year-on-year, with domestic -18% improving quarter-on-quarter. Net of non-repeatable transactions last year, the decline for Q1 would have been only just low single digit. CapEx overall flat year-on-year, notwithstanding the push on growth investments, mainly in FTTH, over 400,000 households passed in the quarter, in line with Q1 2022.
Moving to fixed in the next slide. Fixed service revenues were down -5% year-on-year, with around half of the contribution to the decline explained by tough comparisons versus 2021 on national wholesale, which last year benefited from non-repeated transactions and this quarter is impacted by change in regulated prices. Retail was down year-on-year as well, but with an improving trend versus Q1, thanks to a better performance at ARPU level. Indeed, ARPU was up 5.5%, driven by broadband and content revenues and by ICT that keeps increasing double-digit. In terms of market, we are seeing 2022 stabilizing after 2020 and 2021 growth fueled by vouchers and COVID, supporting lines and broadband net additions. For these reasons, retail KPIs are weaker, but with an improving trend quarter-on-quarter, with the highlight being the churn level trend.
For the same reason, equipment was significantly down year-on-year this quarter, given that 2021 benefited from equipment sold thanks to vouchers. I remind you that this is neutral in terms of cash. Moving to mobile in slide 11. Mobile service revenues were down 4.1%, overall in line with the previous quarter. The negative contribution from retail revenues coming from the lower customer base has been partially compensated by the positive contribution coming from the wholesale revenues for higher roamers and MVNO revenues. In terms of market dynamics, mobile number portability decreased again, with TIM's MNP balance improving, notwithstanding a small and selective price increase done on our customer base in June. We have started this as a good practice also to counterbalance the recent inflationary pressures, and additional actions are already in place in the Q3.
TIM's strategy remains clear in mobile as well, pursuing value versus volume. This could affect KPIs in the short term, but will benefit revenues in the long run, bringing more rationality into the market. In this regard, we are already starting to see positive moves in the market. Next slide. On slide 12, you have details on OpEx that were down slightly year-on-year for Q2. As you can appreciate, we keep working hard to address our cost base, and the first results of our transformation plan are already visible. As we mentioned, this is mandatory in order to counterbalance the increasing cost for ICT and cloud revenue growth coming from the shift in our revenue mix. Variable costs were down year-on-year, mainly for lower equipment, partially compensated by higher costs related to ICT growth.
Commercial costs increased 16% in the quarter, mainly for high commissioning due to the extension of the useful life of customer base on fixed from seven to eight years, and mobiles from three to four years done last year. Net of this effect, commercial cost would have been flat year-on-year. Industrial cost up year-on-year for high provisioning costs. Net of this, it would have been -3.9%. It is worth mentioning that energy costs were almost flat year-on-year, thanks to our hedging policy and mitigation coming from the government's measures, Decreto Sostegni. G&A were flat year-on-year, and labor -10% year-on-year, mainly for positive contribution from solidarity and FTE reduction. Next slide. On slide 13, you have details on TIM Brasil. The company reported another strong quarter, and you can find many details in the company's disclosure done on Tuesday.
It's important to highlight the main achievements of this quarter. Top line expanded 22% year-on-year in the quarter, with EBITDA growing at 18% after the consolidation of Oi numbers at the beginning of May. Furthermore, the company continues to post significant levels of cash flows with EBITDA minus CapEx on revenues at 27% this quarter. As you can see from the numbers, TIM Brasil is starting to benefit from more mobile integration and posted a strong organic performance focused on customer value strategy that continues to pay off. The last six months have been transformational for Brazil with important achievements, and we believe the company will continue to deliver high levels of profitability, creating value for its shareholders. Next slide.
Net debt after lease increased by EUR 1.7 billion from December 2021, 2.5 on IFRS view, mainly due to the payment for the acquisition of Oi Móvel and for the payment of the 5G license in Brazil. Effects already anticipated on our plan as presented in March. We are enjoying a robust liquidity position of EUR 7.9 billion at the end of June that has already been further reinforced with EUR 2 billion from the SACE warranted loan cashed in on July 7th, 2022. Additionally, we will receive these days the EUR 1.5 billion proceeds of the Inwit stake sale. With this, I will hand over to Pietro for his final remarks.
Thanks, Adrian. Now, the closing remarks. TIM continuity plan is proceeding. We promise to do better than forecasted, and we are keeping this promise despite a tougher macroeconomic environment. The first half 2022 results give us the confidence to upgrade our EBITDA guidance for 2022 to high single-digit decrease from low-teens decrease. On the other hand, the present overall macro context calls for a conservative stand on our side for the years to come. For the time being, we are not reflecting the improved 2022 exit speed into our 2023, 2024 forecasts that are therefore confirmed. We achieved all our goals in terms of participation to the recovery fund and National Strategic Hub initiatives, actively contributing to the country's digital evolution, confirming TIM strategic position.
The transformation plan is ongoing with the target increase to EUR 1.5 billion in 2024. In Brazil, integration with Oi started with positive impacts on revenues and EBITDA already visible. We secured our liquidity position thanks to the cash in of SACE financing and the forthcoming proceeds of the Inwit sale. At the same time, we set the ground for our de-levering plan in order to overcome leverage constraints. With this, we have completed our presentation. Let me now hand it over to the operator for the Q&A session. Please, operator.
Ladies and gentlemen, the Q&A session is now open. If you would like to register for your question, press star followed by one. If you would like to cancel your reservation, press star followed by two. First question comes from Mr. Fabio Pavan of Mediobanca. Mr. Pavan, please.
Yes, hello. Thank you for taking my question. I would love to have more color, please, on the performance of your enterprise business. It seems you are performing better than European peers on this. Potentially, what are the reasons behind this performance, and what we could expect for the next quarter? Thank you very much.
Thank you, Fabio. As we promised, starting from the following quarters, we promised we took this commitment during the capital market day, we will start to share with all the market the number related to the different activities. NetCo, Enterprise, TIM Enterprise, sorry, because I continue to talk about these things, with the name that we use for the project, TIM Enterprise, TIM Consumer, and TIM Brasil. Just to give you some highlight, because I understand also your question because the other player in these days released number that were not so nice, let me use this adjective, on the enterprise business. It is important, I will leave the stage to Elio to give some more colors that, the TIM Enterprise situation is quite different from the other player.
First of all, let's keep in mind that differently from the other player, today, we have already 51% of our revenues that are coming from ICT, and so it give us a different approach compared to the other. In terms of service revenue, what's happened that in the first half we perform an 8.8% year-over-year growth compared to the market that was 4%. In any case, we are also proceeding very well in the cloud. Compared always to the other player, what is happening that we are a peculiar animal. Let me use this word because today we are the only player in Europe with 16 data center when you are trying to compare us with the other telco player.
As I mentioned, the weight of ICT is 51%, and in terms of revenue, 50% of our revenue are coming from public administration. The fact that we were awarded for the PSN is a good starting point to further accelerate on our project. Again, I leave a couple of minutes to Elio to talk about the enterprise.
Hi Fabio, good morning. Thanks for your question. I think that Pietro covered part of the answer with the numbers. Let me give you some color about the picture that we are trying to paint here.
We basically operate in a market that is buying five things, connectivity, co-location, cloud, both infrastructure and applications, IoT and cybersecurity. What is interesting about our positioning is that we are the only platform in the country, most probably in Europe, serving our customer, covering the entire span of products and services. Because as you can imagine, we have a strong value proposition on connectivity. We have 16 data centers with unlimited capacity of co-location. We have a solid partnership with all the major hyperscalers, all the relevant players at the global level. As you probably know, we have a very strong partnership with Google that is powering both our cloud value proposition and the co-location services as well.
As Pietro said, we have a business that evenly split in public and private, which makes our value proposition very sustainable because this helps both in increasing the order of per single customers, but most importantly, to keep them loyal. The killer application of our business today, which makes our value proposition very, very strong, is the fact that we have a multi-year contracts that links our value proposition to the market, which basically helps us to secure most of the business going forward, and upsell or cross-sell when we have the opportunity.
Just to give a bit of more detailed information about the cloud, which is another unique asset, I think for the country, we have a very balanced split of revenues in the cloud infrastructure and the cloud application. Because if you take 100% of our cloud revenues, which are growing 62% on a year-over-year basis, we have a 43% on cloud infrastructure, 41% on cloud applications, and 16% on co-location, which is the value proposition connected with 16 data centers we own. I hope I answered your question. If there is anything more, I mean, we can enter into more details.
Fantastic. Thank you. Thank you for all the details. Thank you.
Next question comes from Mr. Giorgio Tavolini of Intermonte. Mr. Tavolini, please.
Good morning, everyone. Just three questions on my side, and more specifically on the guidance upgrade. I was wondering if you can elaborate more on the top line outlook for this year, if you see any room for the improvement of, the top line target at the group level. The second one is on the DAZN contract, if you can clarify if the savings from, the new contracts, new contract are embedded in the new EBITDA guidance. The third one is on the domestic EBITDA outlook, if it's still fair to assume a heightened decline given the good visibility you have on the cost-cutting. Thank you.
Hi, Giorgio. Thank you. About the top line outlook target, I will exploit your question also to give an answer on the possible following question related to our guidance for 2023, 2024. If today I should come here telling that based on the improvement of the guidance for 2022, I should upgrade the guidance for 2023, 2024, I should receive a lot of question related to the fact that due to all the communication of all the telco player in Europe related to the uncertainty for inflation, for the war, so on and so forth, I should receive a lot of questions related to the fact that if we should be comfortable in improving the guidance for 2023, 2024.
What we are doing is to keep a confident and trustable and conservative approach, because it's clear that the exit speed that we'll be able to reach with the improvement of the guidance for 2022 should put us in a better condition for 2023 and 2024. Nevertheless, the environmental context leaves us a more confident approach to wait the end of the Q3 and the preparation of the new plan to do all this kind of evaluation. The same thing is for the top line. If I look at the speed of the first half, there could be room for, let me say, a better trend.
Due to the condition and the environment, we want to keep and to stay on a safe side, and so we'll see after the Q3 what will happen. About the DAZN contract, the guidance, the upgrade of the guidance do not consider any kind of improvement on the DAZN cost. What we did is to sign an agreement that put us in a stop-loss mode, and put us in a condition to follow the things without a risk of further worsening. This is something that we clearly stated also in the press release that we released yesterday when we were commenting the so-called contract complexity. Last but not least, domestic EBITDA. Again, you give me the opportunity to clarify also a further point. The improvement of the guidance is driven by the domestic improvement.
You can do an easy math for that. First of all, Brazil communicated that they didn't change their guidance. Second, we didn't use the improvement in the exchange rate of Brazil to improve our guidance because in the comparison, we keep the same exchange currency rate. If you do an easy math, if we improve the guidance, Brazil didn't improve their guidance, and we keep the same exchange currency rate in the comparison year-over-year, it's quite easy that we can confirm that we have improved mainly the domestic EBITDA guidance. It's easy also to another math because if you will consider the exchange currency rate changes, the guidance should be further improved. I hope that it was more clear here, and we eliminate any kind of misunderstanding.
It's very clear. Thank you very much, Pietro.
Next question comes from Mr. David Wright of Bank of America. Mr. Wright, please.
Thank you so much for taking my question. I'm afraid it's not so clear to me, particularly DAZN. Could you just outline exactly what the contract change means? I assume the previous contract had some kind of minimum cost guarantee that weighed on the guidance. As you're now moving out of exclusivity, are you moving to pure wholesale cost basis, no fixed cost? When does that apply? I think you guys talked about EUR 300 million or so of weight on this year's net debt from the DAZN provision. Is that still the case? How should we think about the kind of OpEx impact in 2022 versus the OpEx impact under the new contract? Any color would be appreciated. Thank you.
Thank you, David. I will leave to Adrian Calaza to give more colors related to the accounting rules. What is important that it's clear that we have a confidentiality agreement with the counterpart that do not allow us to go into much details. What is important that in some way we have to reach as the sum of the part, a certain amount of customer that could allow to cover the cost. While in the previous contract, this was mainly on our side, the use of Sky will allow to reach in an easier way this target.
Keep in mind that from the accounting point of view, it's clear that in the first year, the impact was higher than the previous one, because we started from August with zero customer base, and then we reach now something that is more closer to more than half million customer, DAZN customer. While for the next year, you start from half billion. Just in matter of comparable, there are some differences and improvement in the number. What is important is that we didn't change the provision because it's still like that, like it was. We didn't included any further improvement in the guidance. This guidance are coming from the transformation cost saving that we did on the other cost. I don't know if Adrian Calaza want to give some more color.
No, the other part of the question was regarding the cash out. The cash out will be this year as it was already communicated on our side. We will see next year. As Pietro was mentioning, we put also on the safe side the cash flows of the contract going forward. It will depend on the commercial side, and then it will depend on the additional discounts. For this year, in terms of cash impact, nothing changes.
Okay. Could I just follow up? Why is this agreement better? If this year it makes no difference, next year it should drive a reduced OpEx. Is that correct, or am I just thinking about this the wrong way?
Hi, David. The main issue is that we have a confidentiality agreement with the counterpart, and so we cannot go into the details that allow us to explain why it is better. Keep in mind that in any case, exactly, and this is our obligation, we put in the press office all the element that is related to the way in which it will be treated. Again, at the end of the day, what was happening is that we have to reach a specific amount of customer to reach a break-even in some way. With the new agreement, the reach of this, let me say break-even, is also related to the performance of the new player that come in the market.
Oh, yeah.
It's easy to understand that if Sky get a piece of the exclusivity, they will do that for sure to have more customer. I can assure you that there are a lot of clauses that put us on the safe side in case of cannibalization. I cannot enter in all these details because I should be in breach of the confidentiality agreement.
Yeah. No, I think that's useful detail. Thank you very much.
Next question comes from Mr. Mathieu Robilliard of Barclays. Mr. Robilliard, please.
Yes. Good morning. Thank you for the presentation. I had three questions, please. The first one is about the competitive environment, 'cause I did see that the churn in mobile went down a lot, which was very impressive. At the same time, it feels that competition remains quite tough. Maybe if you could give a little bit of color both on fixed and mobile. Second, a look at the labor cost trajectory, they're down significantly in Q2 as they were in Q1, and I was wondering if we should expect the same trend, I'm talking domestic here, for the H2.
Lastly, in terms of your discussion with Open Fiber, I realize that you have a deadline on thirty-first of October, but I guess there are some intermediary steps in that process, and I wanted to know if there was any update since your Capital Markets Day presentation, and also if the political uncertainty was affecting in any way, shape, or form the discussions. Thank you.
Thank you, Matthew. I will start from the third question that is related to the Open Fiber deal. Thank God that yesterday was on La Repubblica, an interview with the representative of
Cassa Depositi e Prestiti, Pierpaolo Di Stefano, that is the person in charge of the deal, that allows me to report exactly what he mentioned. The things are proceeding. The political environment is not blocking the activity. They think that a unique network continues to be the best scenario for all the parties, they will do a non-binding offer and then a binding offer, and that all the companies will do the evaluation based on this offer. This is not Pietro Labriola or team statement. It's Cassa Depositi e Prestiti statement. I will ask our IR team to send you the article. About the labor cost, we'll go to three, two, one.
About labor cost, we leave Adrian Calaza the stage, but every time that we look at the trend, we have to consider also what's happened in the Q3, you know, of the last year when we do the comparison year-over-year in the Q3. What's happened last year, I think that you remember that we had a profit warning. Related to the profit warning, what's happened was that we put at zero the value of the MBO and the so-called premio di produzione, that is, the incentive that had to be paid to all our employee.
Automatically, when you will see the comparison in the Q3, we suffer, but in this case for a good thing because we are restating that we'll do our guidance, so we will have to pay to our employee the bonus, and in the comparison year-over-year will suffer the most. This is reason for which we're discussing with Adrian Calaza that every time it's really important to give the outlook of the year because the comparison on some items of the cost quarter-on-quarter cannot give you the idea of the real trend of the business. This is true for some lines, and this is not completely true for other lines. Again, I don't know if on the second point, Adrian Calaza want. Yeah. Buongiorno to you.
No, clearly, as Pietro was mentioning, these OpEx lines is better to follow it on a yearly basis. Anyway, in this Q2, in particular, there was a reversal of a provision in that that affects positively the OpEx line. Going forward, you shouldn't project the same year to year of this quarter. Anyway, we are still looking for further savings. You know that last week we signed an agreement with the unions that assures us almost the total of the savings that we were projecting in terms of labor cost. This also give us a lot of confidence for next year in terms of savings on labor. It's always useful to follow it on a yearly basis.
In particular, this quarter, it was positively affected for the reversal of this provision.
Thank you. If I can follow up, but we should still expect a decline for the full year on that cost line as a whole. Is that a sensible assumption?
Probably, yes.
Thank you.
Matthew, then we'll elaborate also on the first question. What is important that, until few weeks ago, there were a lot of concerns about the possibility to sign an agreement with the unions in a so difficult period of time, and we achieved. I think that is important, for the management team to align that, we are delivering, all the things that we promised. The fact that we were able to sign the agreement with the union is a good sign of our trust. Again, another point that is important, if you remember, we started in March when we presented the plan with an overall amount of saving, in our transformation plan that was EUR 700 million.
In terms of overall cash costs, we progressively, quarter by quarter, increase our target to EUR 1.5 billion. About the market, the competitive environment, now I leave the stage to Andrea to give some more details, but what we are experiencing that other telco players are already starting to do price ups on the customer base. Because I think that as happened in other European countries, everybody are understanding that we have to find a way to recover the pressure that we have on the cost base on the price. But again, Andrea? Thank you, Pietro. Good morning, Mathieu. Yes, I will refer to three key elements to give you a snapshot on the competitive environment. The first is volume of customer that are migrating. You refer to the mobile market.
We clearly see in the last year a deflation of volumes in the portability market or migration from from operator to operator. To give you a clear example, pre-pandemic volumes were around 3 million portabilities per quarter. That was the figure in 2019. During pandemic, it was about two point five million. In the Q2 of 2022, the market was around 2.15 million. It's a significant deflation, even versus pre-pandemic volume. That is a very clear example. We see the same trend also in volume of activation and migration in fixed line, and therefore a reduction of net adds. The volume of transaction and people migrating from operator to operator in the market is reducing.
In that context, I have to highlight that the team did particularly well quarter-on-quarter and also comparatively to other operators. We reduced significantly the net balance on portability. The second element is pricing. Pricing of acquisition, we see some of the most aggressive offer in the market, promotional offer, were progressively removed or taken out both on fixed and on mobile. This is a promising signal also inside of what Pietro is saying. The third element are repricing, so pricing on customer base. I would say most of the main player did some repricing activities on mobile and some also on fixed. We see a trend towards an increase of price for the customer base as well.
Thank you very much.
Next question comes from Mr. James Ratzer of New Street Research. Mr. Ratzer, please.
Yes. Good morning, Pietro and Adrian. Two questions, please. The first one was, would be great if you could just give us an update on the process with CVC around the offer they made for your enterprise business. I think CVC disclosed that obviously they made a proposal to you back on the 25th of March. Now about just over four months ago. Was wondering if you give us an update on that process. Is there anything kind of holding up that process? Do you expect that sale to go through? Secondly, was interested in the AGCOM data that was published a couple of days ago. I mean, this is just for Q1 2022, but now we've got the whole market data in.
It looks as if overall broadband market growth slowed quite sharply year on year in the Q1. Based on your data, it looks like it might have slowed a bit further again in Q2. Could you comment on just what you're seeing in terms of overall market broadband growth? Do you see slowing demand at the moment? If so, what's driving that, please? Thank you.
Hi, James. I was not really surprised, but once we had the opportunity on the Capital Markets Day to show to everybody the number related to TIM Enterprise, we are experiencing the interest of several other players on the TIM Enterprise. Now we are working to try to understand how we can exploit the most from this area. There were also some questions as Eli explained, because there's no real comparable in Europe on this area of business. Now what we are evaluating is the way to maximize. We don't want to rush back just to one possible partner, but we want to understand if there is a possibility, and we think that there is, to further improve the valuation of TIM Enterprise.
Related to your second question on the market, I think that what we are experiencing is something similar to what is happening throughout Europe. After the COVID period, there is a slowdown in terms of new lines that are coming in the market. In the meantime, there is also a slowdown in the migration to the FTTH. It's important to remember to everybody that Italy is different from the rest of Europe. We have more than 94% of coverage on FTTC. The FTTC quality of the line, it's the best in Europe. More than 64% of the lines are able to reach a speed above 50 Mbps, and above 50% of the lines are able to reach a speed that is above 100 Mbps.
The FTTH for sure is the future, but a slowdown in the migration to the FTTH is not necessarily a bad news for us, because as you remember, the migration from FTTC to FTTH has no ARPU increase, but only an investment of EUR 400 per customer. There are some news that sometimes can be read for us as an opportunity of efficiency.
Thank you, Pietro. Can I ask on the enterprise business and a potential timeline? Obviously, you've given a timetable on the NetCo discussions with Open Fiber. Is there any timeline for enterprise when that process might conclude?
James, what we are doing is that we are preparing also a kind of pro forma balance sheet, with also one of the four major advisor, because we want to be ready with all the element to further accelerate the process. We expect in the month of October to have some more details on that.
Great. Thank you.
Next question comes from Mr. Jerry Dellis of Jefferies. Mr. Dellis, please.
Yes, good morning. Thank you for taking my questions. I have one question related to the Open Fiber situation. It was reported in the press that you visited Brussels in the month of July. I just wondered what you can tell us about the context of those discussions and whether they raised further issues that need to be thought about before the signing of a binding agreement. Secondly, just thinking in terms of liquidity options, the six-year, EUR 2 billion facility that you put in place in July, would there be opportunity, if necessary, to upscale that? In Brazil, TIM Brasil has BRL 6.5 billion of distributable reserves.
Is there any obstacle to utilizing those more aggressively if it becomes necessary? Thank you.
Hi, Jerry. About discussion with the antitrust authority, we had a general discussion because at this stage we cannot go into detail because we don't have all the details to discuss about that. It's important to share with you that there is a new wave in Europe about a different view for the market consolidation. What's happening, if I'm not wrong, in Spain last week, will be a kind of a test to see if there is a change in the antitrust authority at European level to see in a different way what is the market consolidation need in Europe. I do have to share with you that, U.S. has three players, Brazil has three players, Europe, that is a continent with a size quite similar to U.S. and Brazil, has a number of players that is much higher.
If you consider Italy with 60 million people, we have five mobile player if you consider Fastweb too. Again, I think that there is also a discussion that was highlighted also by the ETNO, E-T-N-O, at the antitrust level about the need to review the European industrial policy on the consolidation. About liquidity, Adrian?
Yes, Gerry. You know, as a matter of fact, yes, we closed in the third week of July the agreement of the loan guaranteed by SACE of EUR 2 billion. The other important cash in that we have is the one coming from the sale of the Daphne participation that we have. Daphne, the that controls Inwit, and that will happen today, literally today, because this morning happened the closing. That will bring additional EUR 1.5 billion to our cash.
If you consider that we were almost EUR 8 billion by the end of June, and we'll have these additional EUR 2 billion, and then the additional EUR 1.5 billion coming from the Inwit sale, we think we are on a comfortable area in terms of cash because even considering the payment that we'll need to do for the 5G frequencies in September, we will end the year with something above EUR 8 billion in terms of cash. That will cover at least until 2024 of that maturity.
Honestly, today we feel that with this level of cash and with the actions that we took, and there will be probably some additional actions until the end of the year, we are comfortable in terms of cash. On your last question regarding Brazil, and thank you for the question, it's important. You know, the company already announced, I think it was two months ago, in their team day session, that they will upgrade their dividends payments, almost doubling the normal level. I think that this is, it's healthy for the company, and we always try to take the decision in what's the benefit for TIM Brasil in this case.
Again, it's healthy because the levels of cash flows that TIM Brasil is delivering are probably among the highest between the peers in Latin America. It's again a healthy decision.
This will probably be confirmed in the shareholders meeting of next year, but they are already doing these additional payments as anticipation. You know that there's a mechanism down in Brazil called Interest on Equity that allows you to do that. Again, we think that it has been already important to double this level of dividends. Going forward, we'll see. Because if you see their numbers, they're going even better every year in terms of cash flows levels. Again, we think that the decision that the company took a couple of months ago was the right one.
Okay. Thank you very much.
Next question comes from Mr. Domenico Ghilotti of Equita. Mr. Ghilotti, please.
Good morning. First question is on the wholesale line in the fixed market that were weaker quarter-over-quarter, if you can comment on that, and what is the trend that we could expect. Second is a follow-up on the labor cost environment. Can you give us a sense of how much would have been the decline in the Q2, excluding the reversal of the provision, just understand, let's say, the underlying trend. Third question is net debt. You didn't provide guidance on net debt. Now, we are already, say, first half is already done and some moving parts are now clearer. Do you think more comfortable to provide indication on net debt by year-end? Last is on the Daphne transaction.
You're closing the transaction. Can you, Guy, provide the capital gain that you are doing at holding level from this transaction?
Thanks, Domenico. The trend on the wholesale line, we understood that there was a slightly acceleration in the Q2 in terms of migration from our wholesale to the other player wholesale for some specific element related to a kind of target or the way in which a contract is built in terms of commitment to reach the volume. It's a kind of spike that is not related to the real pace. What we are experiencing is that there is a slowdown in the migration from FTTC to FTTH that we have to follow during the following quarter to be sure about the trend. Related to labor cost, guidance on net debt and Daphne transaction capital gain, I leave to Adrian to answer.
Yeah. On the labor cost, even without this reversal that we did, the number gives a slight reduction, just consider probably low- to mid-single-digit on a guidance mode. Yes, we are already seeing labor cost reduction organic. In terms of guidance of net debt, you know that we mentioned already a couple of times that we won't be giving guidance both for cash flows and for net debt because we are working a lot also on this side. It's on this side of the business wouldn't be useful, honestly, to give you a guidance, because there are also many elements that could change during the year.
You know, this year, especially, our equity free cash flow and the evolution of the net financial position is being impacted by several extraordinary items. If you remember the slide that we disclose in March, the number of extraordinary items accounted for something below EUR 4 billion, EUR 3.7 billion to be exact. These are many different items that can work on one side, on the other. The second important thing is that for the net financial position, you know that we, as we need to do, we use the reported, and it is affected by the exchange rate of Brazil.
If you follow the evolution of the exchange rate of the Brazilian real was kind of a rollercoaster this year in comparison to last year. Giving a guidance of net financial position, at least on our behalf, we think that it's not useful. Anyway, there is a consensus. You know, we are working on that side. We think that somehow we will be below our internal projections. Anyway, for these different factors, is difficult to give you a guidance then. Regarding the Daphne capital gain, again, clearly, the number in terms of capital gain is not the one that you cannot think that it's at the level of the cash in that we'll do.
It's well below. It's something, probably, couple of hundred million EUR. Probably something about we are finalizing all the analysis on this side, and this will be accounted on the Q3. Okay.
Okay. Thank you.
Next question comes from Mr. Alex Pound of Arete Research. Mr. Pound, please.
Right. Yeah, thanks for taking the question. Just a very quick follow-up on the DAZN agreement and the provision. It's slightly backward-looking in a way, given the commercial agreements now changed. Could you just talk us through the EUR 329 million use of the EUR 548 million provision for complex contracts in the first half, after only EUR 15 million was used in the Q1, just to understand, you know, why the negative margin seems to be being booked mainly in the Q2. Obviously, a large part related to Serie A and definitely at the end of the season, I guess. I thought the provision covered all the duration of all the contracts, which, if I'm not mistaken, was, you know, three years for the DAZN.
Yeah, I appreciate that's changed, but it just seemed to have used a lot of that provision already if it should cover a three-year contract. Thanks.
Yes. Regarding the use of the provision, you know, it's because it's how the contract was contracted. At the end, we need to book the impact at the end of each football
Season.
Season. Exactly. Season thing. So that happened in June. That's why we accounted this impact on the provision. You shouldn't project the same level of impact this year. The next impact will come in June of next year. On the second part of your question, I think it's your assumption if the provision is still enough. Well, that's why we reached this agreement. This agreement at the end would, as Peter mentioned before, what brings to us is some assurance that the provision that we have, or the rest of the provision that we have for the next years, is enough.
You know that this contract ends by mid-2024, so we have yet to see two football seasons. But again, this put us on a comfortable zone also in terms of of the provision that we have. Again, this is probably for us, at least from my side, the most valuable thing of this new agreement.
Fine. Thanks.
Our last question comes from Mr. Carl Murdock-Smith from Berenberg. Mr. Murdock-Smith, please.
Thank you. Two questions from me. Firstly, kind of following up on the questions about headcount costs. I just noticed that headcount in Italy has actually increased in Q1 and in Q2. Some commentary on kind of your expectations for headcount numbers going forward. Then secondly, I was wondering if you could also comment on the increase in leases in the quarter. Can you just talk a bit about your expectations going forward? How much of that is in relation to onboarding Oi in Brazil versus how much is due to inflation, inflationary in your lease contracts with Inwit? How should we expect that to increase going forward given where inflation currently is? Thank you.
Okay. About the second question, around the leases.
Start with the second question. No, clearly, yes, your assumption is right. The main impact of the leases come from Brazil, especially because the company closed the deal with Oi starting at the beginning of May. You have these two months impact comparing with last year. You know, this is. You will probably have this on the company for the next quarters.
There will be a very important effort in terms of the commissioning of the towers down in Brazil because with this agreement there is some overlap in terms of what we have and what they used to have in terms of network. You should expect a reduction in the following years. Yes, the impact in terms of leasing mainly comes from Brazil and especially from the deal with Oi. On the domestic side, the impact in terms of leasing is marginal, also considering the inflation. Okay.
Headcount cost.
On the headcount cost, on the labor cost, let's put it this way, it's better to put it in terms of labor costs. You know, we are working hard. This is an area, as we disclosed a couple of times already, where a big portion of the savings over transformation plan should come. We think that we gave enough information in terms of headcount this time. Yes, on our July 7 presentation with the evolution of the different businesses, in terms of headcount, so in terms of FTEs. So you should project a reduction in terms of labor costs.
As I mentioned before, the savings for this year is already secured, and you should expect a reduction compared with 2021. This should be the trend going forward.
That's great. Thank you.
Thank you.
Thank you to everybody, and we will follow up in the following days with our IR team, and see you in the Q3 result. Thank you.
Ladies and gentlemen, the conference is now over. Thank you for calling.