Ladies and gentlemen, good morning, and welcome to Telecom Italia Q2 2023 results conference call. Paolo Roseghini , Head of Investor Relations, will introduce the event.
Ladies and gentlemen, good morning, and welcome to TIM Q2 2023 results presentation. I am here with the CEO, Pietro Labriola, the CFO, Adrian Calaza, and the rest of the management team. Pietro will provide an overview of Q2 highlights and an update of the delivery plan, while Adrian will illustrate the financial results. As usual, a Q&A session will follow. Pointing out our safe harbor disclaimer on page 2, let me hand it over to Pietro. Pietro, the floor is yours.
Thank you, Paolo. Good morning, everyone. These are the topics I will cover today. The focus will be on where we stand against full-year guidance on domestic and TIM Brasil performance. I will also update on the delivery plan and NetCo disposal process. I will address each topic in the following slide. Let's start. While TIM Brasil continues to perform in line or better than expected, I'm pleased to confirm that in Q2, domestic revenues are back to growth and EBITDA is stabilized. In H1, the group performance fully support full-year guidance. Service revenue are up 2%-3% year-on-year, in line with low single-digit growth target. EBITDA is up 4.7% year-on-year, in line with mid-single digit growth target.
Far, the positive drivers and the action taken in prior quarters have unfolded as expected and will support Domestic revenue and EBITDA trends also in Q3 and Q4, as they are largely secure. TIM Brasil's performance will remain strong in coming quarters. Combining Italy and Brasil, we have good visibility on revenue and EBITDA trajectory in H2. I repeat, the full-year guidance is therefore confirmed and reiterated. Let's go to the next slide with a deep dive on Italy. These are Domestic business trends over the past 5 quarters. In Q2, total revenues are finally back to growth after 5 years. Service revenues are on track towards stabilization. EBITDA is positive after 21 quarters, and net of the activation fee headwinds, the underlying year-on-year growth is 5.5%. I point out that 2024 will be without this happening.
Our performance in Q2 is not a sparkle in the night, but the result of the solid and continuous support of the entire company. That's why I point out the sequential improvement. All KPIs are better versus Q1, which was better than Q4, which in turn was better than Q3. In actual, the direction of travel is very clear. Of course, this is not enough. We can and must do better, taking the Domestic business back to structural growth. There is no doubt that Italian operations are steadily improving, and as of the way, in 2023, we are delivering what we promised. Going forward, we'll have easier energy and labor comps in Q3 and Q4.
The effect of the pricing and of higher wholesale tariff will continue, as well as the stabilization of the customer base, while the drag on activation fee will reduce this quarter and finally fade away in Q4. The acceleration of TIM domestic in the second half will contribute more and more to group results. In Q2, easy math, you can see that if we replicate in Q3 and in Q4, the EBITDA performance in absolute terms of Q2, the domestic guidance is in sight. Slide 7. Let me now give you an high-level update on each of the four entities. In TIM Consumer, the volume-to-value strategy is in full swing. Starting from the value component of the equation, we remain focused on price actions across the system.
Selective price ups communicated to the customer this year involve more than 5 million wireline and more than 7.5 million mobile lines, and are expected to generate an overall benefit of almost EUR 70 million this year. The ARPU drop through is visible. Fixed ARPU to consumer is up almost 5% year-over-year, and mobile ARPU to consumer is finally stable. Some improvement also for the volume component, where we see a strong recovery in mobile KPIs. Line losses are down 75% versus Q1, thanks to higher gross adds and significantly lower deactivation. Moreover, TIM this quarter had 1 month with positive mobile number portability net balance after 5 years. Fixed KPIs are softer. Line balance is slightly better year-on-year and broadly in line with the Q1, with lower gross adds, partially compensated by lower churn, thanks to the market cooling down.
In Q2, we passed 1 million active FTTH customers, enhancing our leadership. Customer satisfaction and Net Promoter Score improved year-on-year and sequentially, both in fixed and mobile. As part of our turnaround effort, we improved the credit risk of the customer base. Bad debt is at a record low, and so is the cost of credit. I like this because it is an enabler of our Customer as a platform strategy, building a portfolio of services beyond the core to increase customer stickiness and tapping to new revenue stream to revenue top line growth. We are moving the first step in this direction. In July, we started to sell insurance policies in our shops. Slide eight. TIM Enterprise posted another quarter of growth, however, at lower pace versus Q1, mainly due to the contraction of connectivity volumes.
Due to its nature, TIM Enterprise revenue dynamic is influenced by staging of the contract. Quarter fluctuation in the revenue dynamics are expected. If we expand the time of observation, service revenue in the last twelve months posted a solid 7% year-over-year growth. The pipeline is very strong, with around EUR 1 billion from ongoing negotiation, of which EUR 300 million are related to National Strategic Hub, which is the tender for the migration to cloud for public administration. This is slightly delayed, its overall size of revenues has increased and will more than compensate the SPCoop Cloud, which is about to expire. Considering the three-year average duration of contract signed, a significant portion of future revenues are secured. Regarding our ICT growth strategy, we keep investing in our business and delivery model to stay ahead of the market.
A key area of focus is our cloud services portfolio, where we are adapting to market trends by strengthening our multi-cloud offerings. This complements our strong position in connectivity, colocation, cybersecurity, and IoT, which make our ICT value proposition unique and distinctive. Slide nine. As expected, NetCo is on a positive revenue trend, thanks to 2023 new regulated prices, improved technology mix, and the commercial deal with Open Fiber, which we started to book in Q4 and has expired in Q2. Sparkle posted a strong performance in Q2, with positive revenue and EBITDA growth year-over-year, also thanks to new submarine cables that have come into operation, into operation. While FTTH rollout is on track at 54% coverage of technical units, the cruise speed of some NRRP tenders have been 0.
These are complex projects that require a significant set of time. In addition, we are facing some structural bottlenecks. For example, in Sardinia, there is significant scarcity of specialized workforce, which affect the FTTH rollout. The good news is that we are out of the setup phase. From now on, we will accelerate. On 5G Backhauling, we are in line with the target. On the other thing, we will close the gap. No news on the advanced payment of cash-in grant. It is provided by law. We expect the cash-in in H2. Moreover, we have asked that the advance be recovered at the end of the deployment in 2026, not starting from next year. We will see Infratel's position on this point. Let's now move to Slide 10. Last but not least, TIM Brasil.
Q2 results are rock solid, including an outstanding operational performance with ISS weather on prepaid and postpaid, lowest churn in the last 3 years, Bad debt at the lowest historical level, and an overall NPS improvement. It's clear that the double-digit EBITDA growth is driven by the benefit of M&A. Consider that 1 month ago, it accounts for 2 to 3 percentage points of Group EBITDA, and Q2 last year had only 2 months of integration. TIM Brasil is performing so well, also thanks to a well executed strategy all around. Improvement in customer service, network quality, and clever customer base management mobile, coupled to a solid expansion in FTTH. The end game is a robust cash generation, supporting a better financial position. This is the background leading to the debenture issuance we did few days ago.
The holding company of TIM Brasil, fully owned, give access to a source of funding to a finance groups expanding that at better cost without impacting borrowing capacity of TIM on its reference market. Adrian will deep dive on this topic. Let's now move to Slide 11. On the transformation plan, we are on track with around 25% of incremental full-year target achieved in the second quarter and 50% in H1. One of the new key drivers of cost transformation is copper decommission, on which we have significantly increased our focus in recent months and which will bear fruits in coming years. We expect a reduction of the notice period we must give to holders before switching off copper technologies. This shortens the timeline of project. Our new ambitious target is to complete shutdown of 7,000 central offices by 2022.
This represents around 70% of total exchanges, and we've saved around 25% of our current total energy consumption. We have also anticipated by three years the shutdown of 15,000 public phone booths. This will be completed by the end of this year. On energy, we secured around 10% of energy consumption saving through efficiency, and signed nine-year PPA extension for additional 200 GWh/year supply of green energy. Our needs are hedged at 87%, including past due, and we have hedged 40% of 2024 needs through PPA, purchased the market, and increased their production. Slide 12. While we are fully focused to improve the group's operational performance, NetCo's process is ongoing. The company is working flat out to meet the end of September deadline. The activities are many and very complex.
Honestly, three months for the assignment of the exclusivity criteria and the deadline for the binding offer are just enough to accomplish all necessary tasks. Having said that, we are on track and do not envisage any delay. We expect corporate regulatory approvals nine to 12 months after receiving the binding offer. I take this opportunity to share some additional concept on ServCo sustainability. As I already pointed out in the last call, ServCo is a portfolio of three distinct entities with a well-balanced mix of debt generation, market maturity, and risk profile. The combined pro forma EBITDA After Lease is expected to be significantly above EUR 3 billion, and operating free cash flow above EUR 1 billion already in 2023. The NetCo transaction will jumpstart this delivery plan, restoring full financial flexibility as a result of sizable deleverage.
A less regulated ServCo will be able to compete on a level playing field, will regain full strategic flexibility to accelerate growth initiatives, both organic and inorganic, across all distinct entities that will be fully empowered to implement their distinct roadmaps. Post NetCo disposal, ServCo target leverage after lease will be in the range of 1 to 5 or 2 times. Thereafter, ServCo leverage will have the potential to fall to levels below best-in-class peers in the medium term. Let me now hand it over to Adrian Calaza for the cheaper financial results.
Thank you, Pietro. Good morning, everyone. As Pietro mentioned, group financials in the second quarter are fully aligned with our full-year guidance across the board. Group total revenues are positive 2.8% year-on-year, with Domestic back in positive territory after 5 years. Group service revenues are also positive 1.8% year-on-year, from 2.8% in Q1, with Domestic towards stabilization at -0.9% year-on-year, versus -2.4% in Q1. It is worth to mention that if it wasn't for the negative effect of the activation fee accounting notification, service revenues this quarter would be +1.2% year-on-year.
Group EBITDA improved again at 5.6% year-on-year, from 3.8% in Q1, with Domestic stabilized after 21 quarters, and we expect this to continue in the second half of the year, not only because of the better comps, but also due to the better evolution of the business. On the other side, I remind you, we are lapping this quarter the effect of all integration in Brazil, so the effect of it will fade away already in Q3. Nevertheless, our international unit will continue to contribute to the group's growth and delivering always highest, higher margins. CapEx are overall flat in Q2 compared to last year, with a small increase in Domestic. As expected, equity free cash flow is negative in the quarter due to what's affected by the seasonal outflow of working capital, higher financial expenses year-on-year, and a less favorable FX impact.
Implicitly, net debt after lease increased in Q2, landing at EUR 20.8 billion. Let's move to OpEx in Slide 15. OpEx are a touch higher year-on-year in Q2 on an economic view, but slightly lower on the cash view, thanks to many of the activities considered in the transformation plan. The slight increase on the P&L view is mainly due to volume-driven and industrial costs. In details, variable costs are up 2% year-on-year, with the increase of costs related to ICT revenue growth, not fully offset, but lowering the connection and equipment sold. Furthermore, costs increase reflects a different OpEx, CapEx mix, driven by opportunities on specific deals in enterprise. Commercial costs are also slightly up year-on-year, mainly driven by content and higher commissioning on a P&L view. However, they were down on a cash view.
On the other side, bad debt is down significantly, minus 12% year-on-year. Industrial costs are up 13% year-on-year as expected, with more than half of the increase related to higher energy costs, even if lower than internal projections, and the rest due to the inflationary effect on inwards contract. The increase on energy was expected, and it's mainly related to the lower support measures from the government on system transport charges and tax rates compared to the last year. The phasing will revert in the second half, we expect more favorable outcomes in Q3 and Q4. G&A and IT costs are down, mainly due to lower costs on real estate, and also labor costs are down 1%, driven by solidarity and lower FTEs. Next slide.
CapEx are overall flat year-on-year in Q2, but 6% below last year in the first half, with similar trends in Italy and Brazil. We continued to invest heavily in ultra broadband deployment, with a specific focus on our NRRP initiatives and on the 5G coverage at the Domestic level, with our Brazilian unit accelerating the deployment of the 5G standalone technology. As anticipated, Q2 equity free cash flow after lease is negative, driven by seasonal absorption of working capital, higher financial expenses, and less favorable FX impact. It is worth mentioning that equity free cash flow in the first half was better than our projections, and that we expect to have a flat equity free cash flow in the second half, and positive if we also consider the partial anticipation of the NRRP funds.
Net debt is a touch higher versus Q1 to EUR 20.10 billion after lease. Considering what we just said, we expect net debt after lease at the end of the year to be lower than the current level. Next slide. In Slide 17, we have a recap of all the work we have done so far on refinancing. We worked hard to enforce our liquidity position. We succeeded, especially considering the tough market conditions. We have raised more than EUR 3 billion since the beginning of the year, an overall volume in line with our expectations. With an average blended cost of 6.9%, which is slightly below our budget. TIM has been the largest issuer in the European high-yield market year to date, with each of the 3 bond issuance oversubscribed more than 2 times.
In particular, the two most recent refinancing, so with the debentures issued by our holding in Brazil and the Eurobond, have been done at an average blended cost of around 7%, reflecting the rise in interest rates, but with, with a spread similar to previous ones. More in details, the Brazilian debentures was closed at an attractive cost of CDI plus 2.3 in Brazilian real, equivalent to a theoretical 6.5% in Euro. As we promised in the recent past, it was our goal to explore different geographies for our financing activities, and we are delivering with good decisions. In addition, different actions start to create a natural hedge of TIM Brasil's future cash flows, something that we were pursuing from some time.
The July Eurobond has been issued mainly to proactively address 2024 debt maturities, thus freeing up capacity that can be reinvested in TIM's new debt instruments. Indeed, we have completed a partial repurchase offers on 2024 Eurobonds for around EUR 0.6 billion. The buyback yields north of 4% allow TIM to generate positive net present value returns compared to a short-term placement yielding 3 or 6 months Euro Euribor rates. With these last two initiatives, we have almost completed our refinancing for 2023. As you can see, we are already working to address 2024 maturities. Next slide. This is our usual chart on liquidity margins and debt maturities. This time, we also include a pro forma at the end of July to show the situation following the latest Eurobond, EIB financing, and the Brazilian debenture.
As you can see, we are back to a strong liquidity margin, which fully covers the upcoming maturities until 2025, especially considering that between June 2024 and May 2025, there will be no maturities. With this, I hand over to Pietro for his closing remarks.
Thank you, Adrian Calaza. After we entered 2023, we are delivering what we promised. TIM Brasil continues to perform better than expected, while Domestic revenues are back to growth and EBITDA is stabilized. In H1, the Group performance fully supports full-year guidance. The acceleration of TIM Domestic in H2 will contribute more and more to Group results, and TIM Brasil will continue to support Group's growth, even lasting the effects of integration. Combining Italy and Brazil, we have good visibility on revenue and EBITDA trajectory in H2. Also, equity free cash flow after lease is expected to improve. The full-year guidance is confirmed and reiterated.
Finally, I would like to thank you, all our employees and the management team, who are delivering these results, which less than two years ago were considered out of reach, while the macro environment was becoming the perfect storm. We must be proud of our achievement so far, but this is just the beginning. What we are doing at the operational level is setting the group back to structural growth. We believe we will achieve this goal. Thank you.
Ladies and gentlemen, the Q&A session is now open. I'd like to remind you that if you want to register for your questions, you can do so by pressing star followed by one. To cancel your reservation, press star followed by two. Thank you. The first question comes from Mr. Fabio Pavan of Mediobanca. Mr. Pavan, please? Mr. Pavan, please.
Yes. Hi, good morning. Thank you for taking my question. I would like to come back to the Enterprise business. It seems that numbers were much lighter than expected in Q2. Could you just repeat what could be the expectations for the remaining part of the year? Also, what is the contribution from the Recovery Plan project, and when this could be visible on the numbers? An add-on to this question is related to your recent comments on the strategic options you are evaluating for TIM Enterprise. Which kind of alternatives are you exploring? Thank you very much.
Thank you, Fabio. Good morning, everybody. When we talk about the enterprise business, we are talking about a business that is completely different from the consumer. We cannot evaluate the enterprise business based on commercial KPI, operational KPI, that you can follow on a daily basis, because we are discussing about contract that usually have a duration between 3, 5, up to 7 years. The process to finalizing the contract with our customer, is a process that takes some time. What is important is to look to the trend, and not only on a quarterly basis, but on a larger view. What does it mean? We don't want to say anything bad, but that we have to evaluate in a different way.
For sure, this quarter, we didn't finalize some contract that we were expecting to be closed, but doesn't mean that they will not be closed in the third and in the fourth quarter. Let's remember, for example, the performance that we had in the last quarter for the finalization of some contract that we were planning also to have in the first quarter. Everything is proceeded. We confirm the medium-term view about the TIM Enterprise and this is and continues to be one of the most interesting market in which we will invest. About that, it's we have also to consider that some of these businesses related to public administration bidding, that are not completely under our control in terms of timing, of finalization, and deployment.
The only thing that is defined is that, that amount, that amount of money, sooner or later, will come. The best example is what we try to explain on Slide eight of our presentation, where we show, and so we answer also to your second question related to the PSN, in English, National Strategic Hub. Sorry, because sometimes I forget the acronyms in English. National Strategic Hub, you were discussing about, I think, when you were talking about PNRR. Where you can see that the previous, public administration bidding process, that is SPCoop Cloud, is ending exactly as we planned, while the PSN, National, the NSH new plan is starting a little late compared to what we were planning, but with an amount of money that is much higher than what we are forecasting.
This is reason for which we continue to foresee and for that, in the medium term, the view and the growth of TIM Enterprise will exceed the pace of the market that is around 4%. About the comment on what we are doing in terms of evolution, it's clear that one of the main element that makes us different from everybody is that we do not sell only cloud services, we do not sell only connectivity, we do not sell only cybersecurity, but we offer to the customer, to this kind of customer, a turnkey solution. Quite often, what happens is that when we have to close everything, we become also the front end toward the customer, but we use also some system integrator to complete the offer. In the system integration activities, there is also a good level of margin.
What's happening is that we can work in two different directions. The first one, be the to do an agreement with one of the main player and have them as preferred partner. It will allow us to have a better level of margin, but also in the future, to own or to do something with some of the main player in Italy, mainly local. To increase our share, our portfolio, but in the meantime, to increase the amount of ABV that we can gain in Saudi inside this offer. Elio, I don't know if there for that something, and if you want to complete. Thanks, Pietro, and thanks, Fabio, for, for the question. Just to complement a little bit to what Pietro was saying, what I think the messages were already very clear.
As Pietro was highlighting, in the cloud business, we have simply a phasing recognition revenue issue, which, I guess you can see also from the slide that we have in front of us. Actually, cloud, for us, is a business made up of 2 folds. We have a large presence on private and large companies across the country, and then we have a very relevant piece of it, which is focusing on public administration business. As you can see in this slide, what actually happened is that we knew, and we were expecting the effect on the dark blue layer of the slide on the left, so SPCoop Cloud, which was the previous national bid going down to 0.
We were also expecting the PSN business to take off much earlier, let's say, for the exogenous elements, which are not dependent on our business, there was a delay on the kickoff of that national project. What we see is that number of deals that we were expecting to manage are significantly higher than the forecast that we made 1 year ago. This slide, when you look at the bottom on the right, tells you that we are expecting in the time horizon of 2023, 2025 to generate less than EUR 2 billion, EUR 0.2 billion revenues on PSN, and we have already negotiated contracts for almost EUR 400 million.
There is a facing issue, but let's say, this will not change the trajectory of our expected results on cloud.
Thank you very much.
The next question comes from Mr. David Wright of Bank of America. Mr. Wright, please.
Yeah, thank you very much. Hello, gentlemen, thank you for the call. It is a question for you on the NetCo separation. I guess this one for you, Pietro. When, I, I guess under the discussions with KKR, if you can elaborate, are you guys committed 100% to the NetCo network, or could you choose to take Open Fiber lines, for instance, or maybe even any other fixed line network provider that might be available? Or are you restricted and committed to NetCo in totality? You talked about a potential sort of 12 months or so regulatory period. Do you think that is sensitive to whether the government is involved or not? Do you think it's important to have the government as a potential shareholder in this agreement?
Might be difficult for you to answer, but just any call you can give. Thank you.
David, you are very expert, you know that while in the middle of the negotiation, there are some details that are part of the confidential agreement. What is useful to us is that, as I also stated several times, this will be an industrial deal, so we are not putting in place a kind of sale and lease back. What is always stated that is important, the value of the network, the leverage that we reach, but also the financial industrial sustainability of ServCo. These are the main drivers that we are following in the negotiation of the wholesale contract that will be inside the agreement for NetCo. While related to the time of the approval, it's clear that we put 9-12 months in the presentation. We do not expect specific issue at the antitrust level.
If, as we are reading on the press, there will be a participation of some Italian entities in the KKR offer, also the golden power process will be much easier. Let's remember that is something we are used to work on, because also for Fiber Cop, we did it, and so we have already placed for the golden power rules, some, let me say, remedies inside the Fiber Cop agreement. The timing, we have to keep in mind that we put 9-12 months, also because we have to keep in mind that NetCo today is not yet a company. We have to do a carve-out, and so inside this time, there's also the need to define the spin-off perimeter and to keep it out, except for at least six months, due to the Italian regulation. We foresee that the things are proceeding.
It's clear that we cannot give any kind of further details. Our process is driven by the fact that what stay on the ServCo must be industrial and financially sustainable.
Okay. Is it possible to, to follow up? Can you confirm whether you still intend to take this to a shareholder vote in the event that there is a binding offer, is it still your ambition to take this to shareholders before formally approving? Thank you.
David, this is a decision that must be taken by the board. I certainly that when we let the offer on the table with all the details, as our legal counsel explained in the last call, we will have all the evaluation. For sure, we are working on different scenario, having in mind different possible output related to the binding offer that we receive. Today, it's too early because we must have the final binding offer to do this evaluation.
Thank you, sir.
The next question comes from Mr. Luigi Minerva of HSBC. Mr. Minerva, please.
Yes, good morning, everybody, and thanks for for taking my questions. I, I have 3, if I may. The first one is actually following up on David's previous questions on... Pietro, I would be interested in understanding how are you thinking about the the various trade-offs related to to the NetCo, MSA negotiations? I, I'm not interested in the confidential details, but more into the, you know, the philosophical approach to it. Because the way I see it is that, essentially, if you want to maximize the value of the NetCo, you need to give the NetCo a strong MSA.
At the same time, a strong MSA for the NetCo would imply having the ServCo constrained forever in a, in a, in a framework which is challenging, you know? There is clearly a trade-off, you know, maximizing value of the NetCo or having a ServCo that operates in a strong, in a favorable, MSA agreement. I, I'd be interested in your approach on this. Secondly, in your interview on Il Sole this morning, you mentioned that the key priority for the market in Italy on the consumer side is going from five to three players, and that TIM is ready to take an active role. Yeah, if to the extent in which you can elaborate, I'd be interested in your views.
Thirdly, on Sparkle, there were reports last week that KKR may not be interested in Sparkle after all, and it's probably a very sensitive asset from the government perspective. If eventually Sparkle is out of the NetCo, what happens to Sparkle? Will it go back into the ServCo, or will be put for sale on the market? Thanks.
Thank you, Luigi. I try to summarize the trade-off. First of all, we always be clear, since July 7, 2022, that our goal is not to have a good company and a bad company. We are not putting in place something that will sell the NetCo, and we leave ServCo as a company that is not sustainable, financially and industrially. We underline the two words, financially and industrially, because you can create a company that from a financial point of view, in a short term, is sustainable, but then from an industrial strategic point of view, has no option. This is what is driving, is driving our M&A discussion. I clearly state this, something that sometimes someone compare the NetCo deal to a kind of tower co deal.
We are not going to take commitment in terms of value or quantities, because it could mean exactly go again back. The driver is, the price is fair or is not fair related to the, the value of the NetCo. The second, theoretically, I can receive also an offer of EUR 100 billion for the NetCo, but if it means that they have to get commitment for EUR 95 billion on ServCo, this is not a clever move. For this reason, it is important that the leverage, but in the meantime, what remains in ServCo in terms of commitment, constraint, and so on. This is not a kind of sale and lead back approach, and we must guarantee to ServCo all, exactly as you are mentioning, leverage that they need to be competitive, not in the short, but in the short, medium, and long term.
We can go in detail. Then there's an issue about confidentiality, also technical element. It's important to define, we are discussing about an on-sale contract between NetCo and ServCo that have to proceed. In some way, it's important to remember that there are some goals that are common to NetCo and ServCo. For NetCo, too, makes no sense to have an agreement with ServCo that doesn't make ServCo to be sustainable in the market, because it means that they will have some problem, and exactly the contrary. I think that we are working on an equation based on trade-off that will make everybody satisfied about this case. Life is complex and to manage complexity. Related to the market consolidation, I think that is something that today is a trend through Europe.
If in all the other European countries, everybody are talking about market repair through consolidation. If we consider the Italian market is the most complex and sometimes the most irrational, why we cannot foresee that this will be for sure the next level? If you look at the number that was just released by some of my competitors, I think that looking at the number, no one can be satisfied about the result of this market environment. That is, that is due to this, a condition of overcrowded market, too many, and rules that have to be changed, and this is something that we are working on. It's clear also to better define that. If there is a market repair in Italy, in any case, also, if we are passive, we will have some gain from this process.
To be active allow us to have a better condition and position. To do that, we have to sell the network, because if we don't sell the network, it will be difficult to be active. We should be only passive in this process due to some antitrust concerns. Related to Sparkle, what I can tell you is what we told in the market, that the non-binding offer of KKR talking about Sparkle. I want to follow what I did also in the past calls. I'm not going to running back through all the news that come in the press, because as you have seen in the last quarter, mainly was not exactly the reality. We have a non-binding offer where Sparkle is included in this area. I hope, Luigi, that it was clear.
Okay. That-that's great. Thank you so much, Pietro.
The next question comes from Mr. Giorgio Tavolini of Intermonte. Mr. Tavolini, please.
Good morning, gentlemen. Just two quick questions on my side, if I may. The first one is on the Domestic CapEx, which came at EUR 1.3 billion in the H1, running well behind the full-year target of around EUR 3.1 billion. Should we expect a seasonal catch up in H2, or do you see room to over-deliver the full-year target, thanks to CapEx optimization or better spending? The second one is a follow-up on the NetCo deal. Based on the early visibility you have today, I was wondering if you have any update on the kind of shareholder meeting to approve the deal. Many thanks.
Ciao, Giorgio. On the NetCo deal, as I, I answered also to David, this is a decision that will be taken by the board, and we have to evaluate that when we have the binding offer, because it can define different path. It doesn't mean that we are not prepared to that. We have different scenarios, but we have to wait that moment to disclose and discuss with the board. About the Domestic CapEx, I leave the stage to our optimistic CEO, because you remember, in the last first quarter call, he was more proactive to give good news, so I leave him to give them.
Good morning, Giorgio. Well, clearly, we are finding already some, some optimizations in terms of CapEx. Also, in terms of, in terms of different prices of, of the contracts that we have. Clearly, we, as Pietro mentioned before, when, when we, when we commented about, about the NetCo, side of the business, that we have, some delay on the NRRP projects. We think that we can speed up on the second half. All in all, probably we will be slightly below the guidance for the full year. No, it's not that predictable how you can manage the CapEx in between the quarters. We'll see. We are working hard.
For us, the NRRP projects are a clear target, because, it, it, it's an interesting, investment for, for the company. Anyway, we will probably be, below the, the, the guide, the guidance for the full year on CapEx. We need to understand what will be the size, of the of the gap.
Many thanks, Adrian and Pietro.
The next question comes from Mr. Ottaviano Parisio of Societe Generale. Ottavio, please.
Thank you, and good morning to everyone. The first one is on the top of the day, the NetCo, and the second on prices. On the NetCo, I would like to move a bit away from the semantic and talking a bit about numbers. I know that's difficult to talk about when you're in the middle of negotiation. Therefore, I would like to take on something that you've been reiterating quite a few times, and that is financial sustainability. If you can give us a bit of some color, what you mean with financial sustainability? I mean, I guess, gearing. Therefore, if you can tell us, what's the sort of gearing you reckon sustainable for the ServCo? Bear in mind that the agencies may lower the business risk because you no longer have a fixed line infrastructure.
or the other around, if you prefer, could you tell us which sort of investment or credit rating you're targeting for this financial sustainability of the service goal? On NetCo, you also mentioned about the board will be calling, will decide to call or not, shareholder meeting to approve the deal. Again, I know it's not been decided, but could you tell us if the deal would be approved by an EGM or an ordinary shareholder meeting? I'm asking because of different quorums, so if you can give us a bit of color on that. Moving to the second question is on the prices. There's been a lot of talks in the previous call about price increases. You had, if I remember well, EUR 4 million fixed-line price increases in Q1, EUR 2 million.
You were targeting, I looked at the transcript of last call, around EUR 20 million. That was around 1.5% impact on retail revenues. In retail revenues, we only had an improvement of 30 basis points rather than 150 basis points. We're just wondering what went in the retail business that somewhat negated? When I look at net adds, they also improved. Anything else, when I look at the chart where you show the improvement from Q2, Q3, and Q4, when I look on the last quarter, Q2 actually was improving all the fronts, but I haven't seen that improvement. If you can basically give us a bit of an idea. There is another question, but for the sake of time, I will just limit it to this two. Thank you.
Okay, Ottaviano, let's start from the second one that is related to prices. In the telco market, you know better than me that the final result is made by quantity and price. There are some efforts in the middle because the price in the output is made by what happened with the customer that you can get from the market, the customer base, the division process. When we show the impact of the price up, you cannot put an image that you have a stabilized line with this kind of increase. Because, for example, if you look on the mobile, what is happening is that our customer base was reduced compared to the previous quarter.
We have an effect on the customer base that is reducing, partially complicated by an output that is stabilized, while in the past we had both trend negative, customer base and output. Now we were able to stabilize the output, while if you compare with the fixed, we were able to increase the output of the fixed. The next challenge that we have is to increase the level of output on mobile, managing the different efforts, price of the new customer, customer that continue to move to the competition, that sometimes have an output that is higher than the average, and then price up. It's a mix of the things, but without going too many details about the single case, this is something that you can appreciate in terms of trend. If you look at the trends also on the mobile, we are improving.
In the past, we had a customer base that was reducing at a faster pace with an output that was reducing at a faster pace. Now, we've stabilized output, and we are improving the pace of reduction of the customer base. That will be reflected in the following quarters. If you try to make a comparison with the fixed, in the fixed, we were able to grow ahead in terms of output growth. We have an output that is higher, that more than compensate the reduction on the customer base. This is something that we are working on. When we talk about that 2 years ago, to be very clear, first of all, no one was believing on that. We were the first one to move in Europe.
Also looking at the reports of all the players, it seems that everybody talk about from volume to value, price increase. Again, the European market, not Italian market, and not the TIM condition, is the same everywhere. You can start from different points. I continue to be optimistic on the fact that we put the right trend. Again, you are much more expert than me. Telecommunication is something that you read by the trends. It's something that you cannot change quarter by quarter. When you start to see trends that are going down, and someone say that they will rebound completely from a quarter to the other, perhaps there's something that doesn't work. All our trends, quarter by quarter, are improving.
About the first question, that is the financial sustainability, it's important to move again at Slide twelve, I think that we are repeating this chart many times, because this is something quite similar to what we show July 7, 2022. For sure, what's happened is that we are putting a target in terms of post NetCo leverage of 1.5-2 times for the ServCo. Let's remember that we have already discussed about the ServCo, that should be a company that is a portfolio of services with different level of maturity. Here you can see some of the KPI in terms of weight of the different entities in the EBITDA after lease of the ServCo.
The industrial sustainability, and then I leave the stage to Adrian, is based also on the industrial sustainability, and this is the reason for which, is something that we are discussing also with the credit rating agency, with which we are doing a rough draft before to arrive to the final binding offer, because we have to arrive at that moment with everything well defined and prepared, it's not just a claim for political election. What is important is made by the fact that you have three companies, three entities with different business model, with different level of risk. Sometimes the main mistake that all of us are doing is to consider ServCo the consumer. ServCo is not the consumer.
It's made by Brazil, that is growing, by, TIM Enterprise that has huge opportunity in terms of growth, and TIM Consumer that could be a surprise in terms of turnaround. Adrian Calaza, I don't know if you want to give some more details.
Clearly, our view is that we need to understand very well in terms of the future of the company. It's not that we want a picture after a NetCo, a NetCo deal in terms of what the leverage is. We think that the, with this leverage, that is our target in between 1.5 and 2 times EBITDA, we will be probably better than the peers in Europe in terms of leverage. We need to maintain that and improve it maybe in the future, because it we will need to understand, as Pietro always mentioned, what will happen in the Italian market, and we will, we will like to participate in a theoretical consolidation of the market.
It's not a matter of the initial leverage and of the initial rating that we are focusing on. Probably, the initial rating could not be similar to the future one. It's something that we would like to address in these days. Clearly, if the NetCo deal goes over, it because for us, it's worth and makes ServCo sustainable, though the rating should go up consequently. Again, in terms of sustainability, it means that we need to have a good level of leverage. We need to understand what's what the equity that we would like to have with this transaction. It's a matter of leaving ServCo ready for the future.
Thank you.
Ottaviano, you didn't have a third question, too. We thought that perhaps you would ask a third question. I don't want to seem impolite.
It's clear, here?
I had understood that you would like to ask a third question.
Yeah, it's a very straight one. It's basically on some confusion on a press article talking about your coverage on the gray areas, that he was saying that you were running significantly behind the targets. If you can clarify that one?
Sure. No, no, no. Very happy, because again, you know, sometimes in the press... What is happening, I'm sorry if in this case, I have to give some more details, but it's really important, and I have to give also the mechanics. First of all, when this bid was launched, what happened is that the minister gave a theoretical number of units that must be connected. It was based on a database that was not completely reliable. For this reason, they put in the bid that we should do some specific working to verify if for each of these units, there was really a house or there was nothing. Then they clearly stated that what should be happening is that all the theoretical fine and the amount of money should be paid based on the real existing units.
What happened in our case, I don't know the Open Fiber case, that doing all the working, we discover that in the 55% of the cases, there's no units to be connected. Okay? Now, the number that you have read in the press makes reference of the number performance based on the 100, and not on the 45 that are the real units connected. That is the way in which must be calculated, theoretical fine, it will not succeed to proceed. First of all, we have to look not at the 100, but to the 45. Related to the 45, the way in which works the deal is that you have to reach at least for each milestone, the 70% of the target. If you don't reach the 70%, you can have also the revocation of the process.
If you reach the 70%, you have a kind of curing period that is defined in the bid process to recover that. In a nutshell, the amount of fine that you read on the press are wrong. Second, there's a curing period of 1 year. Third, as we stated in the call, we are accelerating the process. Just to give you an idea, and again, you are familiar as me in number. The target was 15% in the first half and 10% in the second half. When you start to run 100 meters, the first 10 meters, you will run slower than the second 90... Again, we are, and we say that we are confident to recover the gap. I hope that it was clear. Sorry if I was in detail, but it allows everybody to be aligned.
Perfect. Thank you.
Thank you, Ottaviano.
The last question comes from Mr. Domenico Ghilotti of Equita. Mr. Gilotti, please.
Good morning. Two questions left. The first, we have been talking the consumer about prices. I wonder if you can comment also on volumes and the competitive environment, because I was surprised by the mobile line losses. I wonder if it is really sustainable, this low level of line losses, and also on the fixed clearly. Second question is a clarification on the down payment. It is not clear to me what is the visibility and the process today on, on, on the possible down payments related to the recovery fund, and if they are in some way linked to these achievements, to the milestones, or totally they disjoined by, by this?
Sorry, I didn't catch the, the details of the second part of the second.
No, I mean, as on the down payments, if, down payments are related to the achievement of the milestones or, not relating at all to this topic, what is your current visibility on, on the possibilities to get the down payments on the recovery fund?
Okay, in terms of the related to the second question, if you refer to the down payment that the Italian government announced, is not related to the part that is already, let me say, award. It's not phase, it's not up, it cannot be applied to our case, on which we are confident to recover, so we don't face any problem. To be clear, to be connected to the answer that I gave to Ottavio, related to the fact that the amount of really slower, in, in our plan, we were already considering this lower amount. Our level of CapEx is aligned with the reality and not with the dream. When we move to, to the prices, I leave to Adrian to give some more details.
Again, is sustainable in the long term to have the line losses and be back to grow? For sure, it's more difficult, because at certain point it will be very difficult to sustain with the price increase, the line losses. In the medium term, this is something that is achievable. This is what we are doing, because we are price sustaining. In the medium long term, this is not what I'm saying, but what all the telco player telling in Europe, this is an overcrowded market. If you look at what's happened in Brazil after the market consolidation, it's something that was useful also for the customer and the country. Because Brazil now is the country with the most advanced 5G network, with the 5G Release 16 standalone. That will be an advantage for the population and the country.
You have to remember that if you have to invest, you have to generate cash. To generate cash, you must have a rational market that doesn't mean to penalize the end user customer, but I leave Adrian to give some more details.
Thank you, Pietro. Thank you, Domenico, for the question. The line losses versus the pricing played out well in Q2 and better than expected. It's important to say that we have run an extensive repricing campaign on a big part of the customer base, and we are continuing in Q3. It's also important to say that in Q2, there was a positive outcome from the competitive point of view, also because of the bankruptcy of a virtual network operator, which is a signal also of the new sustainability of the business model in of some of the MVNOs that are stressed by the increase of data usage, that is also pushing their cost up.
We, we see the competitive environment unfolding in a better direction because the portability market is actually decreasing in absolute volumes, and also because of a mathematical effect, because the, the no-frills operator, easier than MVNO, now have a bigger share of the market. The rotation of customer in the market is also bringing customer back to the main operators. However, I also have to underline the TIM has performed better than competitors, the main competitors in the repricing, churn effect. We were down in churn, despite the extensive repricing campaign, and this contributed to a better calling base performance.
Can you, can you comment also, maybe just to follow up on, on the fixed market, so the same call?
Also, on fixed, our churn performance was better than expected. We improved the net losses performance year-over-year, and this despite a more extensive repricing campaign versus last year. In the competitive environment, we see a stable environment in terms of price aggressiveness, versus also the previous quarter. What is unfolding well is the churn, and the migration towards FTTH, where TIM has improved the solid leadership that now we have, in FTTH market share.
Okay, thank you very much.
Domenico, just to complement on your first question about the anticipation of the NRRP funds, I would like to remember that this anticipation is not only related to the 1 gig project, but also for the backhauling and the 5G coverage. It's the 20% of our total CapEx that we committed on the projects. We expect this to happen in the second half of the year, hopefully, sooner than later. But we do not see any risk considering the actual level of the project. As Pietro mentioned, we always think that we can speed up our process and recover in the coming quarters. This 20% of anticipation shouldn't be at risk. Okay?
Okay, thanks.
We thank you all for attending today's call, and we wish you a nice summer break. We will be back on the ninth of November for Q3 results. Goodbye.
Ladies and gentlemen, the conference is over. Thank you for calling.