tel-2021-12-31-en

Table of Contents

Directors’ report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Business Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Key operating Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated financial position and cash flows performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Main commercial developments of the business units of the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Main changes in the regulatory framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Human resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Social Responsibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Events subsequent to December 31, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Business outlook for the year 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Main risks and uncertainties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Information for investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Alternative Performance Measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Corporate Governance Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Statements of Financial Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Equity and Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Separate Consolidated Income Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Statements of Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Statements of Changes in Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Notes to the Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note 1 - Form, content and other general information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note 2 - Accounting Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note 3 - Scope of Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note 4 - Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note 5 - Intangible assets with a finite useful life . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note 6 - Tangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note 7 - Right of use assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note 8 - Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note 9 - Financial assets (non-current and current) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note 10 - Miscellaneous receivables and other non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note 11 - Income taxes (current and deferred) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note 12 - Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note 13 - Trade and miscellaneous receivables and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Financial Statements 2021

Table of Contents

Telecom Italia Finance Group

Note 14 - Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note 15 - Financial liabilities (non-current and current) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note 16 - Net financial debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note 17 - Financial risk management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note 18 - Derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note 19 - Supplementary disclosures on financial instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note 20 - Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note 21 - Miscellaneous payables and other non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note 22 - Trade and miscellaneous payables and other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note 23 - Disputes and pending legal actions, other information, commitments and guarantees . . . . . .

Note 24 - Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note 25 - Other operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note 26 - Purchase of goods and services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note 27 - Employee benefits expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note 28 - Other operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note 29 - Internally generated assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note 30 - Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note 31 - Gains/(losses) on disposals of non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note 33 - Finance income and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note 34 - Segment reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note 35 - Related party transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note 36 - Equity compensation plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note 37 - Other information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note 38 - Events subsequent to December 31, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Note 39 - List of companies of the Telecom Italia Finance Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Certification of the Consolidated Financial Statements pursuant to Luxembourg Transparency Law . . . .

Audit report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Financial Statements 2021

Table of Contents

Telecom Italia Finance Group

Directors’ report

The Business Units

BRAZIL

The Brazil Business Unit (Tim Brasil group) provides mobile

telephone services using UMTS, GSM and LTE technologies.

Moreover, the Tim Brasil group offers fiber optic data

transmission using full IP technology, such as DWDM and

MPLS and residential broadband services.

•TIM BRASIL SERVIÇOS E PARTICIPAÇÕES S.A.

–TIM S.A.

•I-SYSTEM SA

OTHER OPERATIONS

This Business Unit provides financial assistance to TIM

Group companies and the management of liquidity buffer

through money market instruments.

As of December 31, 2021:

•The amount of notes (issued by Telecom Italia Finance

and listed on Bourse of Luxembourg) is 1.015 million

euros.

•The amount of net financial debt is equal to -2.888

million euros.

•TELECOM ITALIA FINANCE

Key operating Financial Data

Consolidated Operating and Financial Data

(million euros)

31/12/2021

31/12/2020

Revenues

2.840

2.933

EBITDA

1.355

1.400

EBIT

466

469

Profit (loss) before tax from continuing operations

476

332

Profit (loss) for the year

437

288

Profit (loss) for the year attributable to Owners of the Parent

282

184

Capital expenditures

1.253

661

Consolidated Financial Position Data

(million euros)

31/12/2021

31/12/2020

Total assets

14.117

12.263

Total equity

7.282

7.303

Attributable to Owners of the Parent

5.937

6.070

Attributable to non-controlling interests

1.345

1.233

Total liabilities

6.835

4.960

Total equity and liabilities

14.117

12.263

Share capital

1.819

Net financial debt carrying amount

-2.382

-2.354

Headcount

31/12/2021

31/12/2020

Number in the Group at year end

9.335

9.420

Average number in the Group

8.869

8.718

Consolidated Financial Statements 2021

Directors’ report

Telecom Italia Finance Group

Highlights

Offer for the purchase of Oi Group's Mobile Business

In December 2020, TIM announced that the offer presented by TIM S.A. (the operating company of the TIM

Brasil Group) together with Telefônica Brasil S.A. (VIVO) and Claro S.A., had been awarded the contract in the

competitive sale process for the purchase of the Oi Group’s mobile business. The completion of the transaction

is in any case subject to the fulfillment of the same conditions precedent provided for in the agreements and

the authorizations of the competent Authorities.

The total value of the transaction amounts to 16,5 billion reais (2,6 billion euros) which is summed with the

consideration offered to the Oi Group, of approximately 819 million reais (129 million euros), as net present

value (NPV) for the Take-or-Pay Data Transmission Capacity Contracts. TIM Brasil will participate in the

transaction with an investment of approximately 7,3 billion reais (1,1 billion euros), to be paid at closing, and

476 million reais (75 million euros) relating to TIM Brasil’s share of the net present value (NPV) of the contracts.

Given the low debt and the favorable market conditions, TIM S.A. believes it can finance the acquisition

through cash and the local debt market. However, in the event of any changes in market conditions, TIM S.A.

will evaluate all available options.

The purchase plan provides for TIM Brasil, Telefônica Brasil and Claro to divide up Oi’s mobile assets and, in

particular, its customers, radio frequencies and mobile access infrastructure.

In particular, TIM Brasil will be allocated:

•approximately 14,5 million customers (corresponding to 40% of UPI Ativos Móveis' total customer

base), according to Anatel’s data of April 2020. The allocation took into consideration criteria that

favor competition among the operators present in the Brazilian market;

•approximately 49 MHz as a national average weighted by population (54% of UPI Ativos Móveis radio

frequencies). The division of frequencies strictly respects the spectrum limits per group established by

Anatel;

•approximately 7,2 thousand mobile access sites (corresponding to 49% of total UPI Ativos Móveis

sites).

On February 01, 2022, ANATEL – Agência Nacional de Telecomunicações unanimously granted prior consent to

the implementation of the corporate transaction referring to the full transfer of control of the three specific

purpose companies (“Mobile Assets SPE” or “SPE”), which correspond to the mobile telephony activities of Oi

Móvel SA – Em Recuperação Judicial (“Oi Móvel”), for the companies TIM, Telefônica Brasil S.A. and Claro S.A.

(“Transaction”).

On February 9, 2022, the offer presented by TIM S.A. (the operating company of the TIM Brasil Group) together

with Telefônica Brasil S.A. (VIVO) and Claro S.A. has been approved by the antitrust Authority CADE (Conselho

Administrativo de Defesa Economica).

The conclusion of the Transaction still depends on the fulfillment of other precedent conditions.

Prior consent provides for certain conditions in line with a transaction of this nature, which mainly aim to

guarantee access by small providers to nationwide networks, maintain commitments linked to the transferred

radio frequencies, establish the minimum parameters of the communication plan linked to the Transaction

and grant users certain rights in the migration steps.

The transaction, as of its completion, will add value not only to its Brazilian subsidiary but to the whole TIM

Group and its shareholders as it will accelerate its growth and increase operating efficiency through relevant

synergies. In addition, positive effects are also expected for customers, since improvements in user experience

and in the quality of the services offered are expected from the transaction. Finally, the transaction is expected

to benefit the entire telecommunications sector in South America, which will be strengthened in its investment

capacity, technological innovation, as well as its competitiveness.

Agreement with IHS for an equity stake in FiberCo

In November 2021, once the process of regulatory authorizations was completed, it was concluded the

agreement between TIM S.A. and IHS Fiber Brasil - Cessão de Infraestruturas Ltda. ("IHS Brasil") with the

purpose of acquiring equity interest in FiberCo Soluções de Infraestrutura S.A. ("FiberCo"), a company

incorporated by TIM for the segregation of its network assets and the provision of infrastructure services.

As a result of the transaction closing, IHS Brasil now holds 51% of FiberCo's share capital and controls the

company; the remaining 49% is owned by TIM S.A. Contextually, FiberCo has been renamed as I-Systems SA.

The relationship between the partners is regulated by a shareholders' agreement.

Consolidated Financial Statements 2021

Directors’ report

Telecom Italia Finance Group

The amount of the Transaction has been equal to 1,68 billion reais (264 million euros) divided into a primary

component of 0,58 billion reais (91 million euros), destined to FiberCo's cash, and a secondary component of

1,10 billion reais (173 million euros) paid to TIM S.A. FiberCo's Enterprise Value was set at 2,71 billion reais (426

million euros) and the equity value after the contribution of the primary component was set at 3,29 billion reais

(517 million euros). The transaction also contemplates possible additional gains derived from an earn-out

component.

Additionally, within the scope of the Transaction, TIM and FiberCo executed an agreement for the

development of Fiber-to-the-Site (FTTS) infrastructure to connect TIM sites in areas where FiberCo will deploy

the new broadband access infrastructure in optical fiber.

Parent's activity

In 2021 the Parent’s activities continue to be segmented into two business: holding of participations and

financial assistance to Telecom Italia Group (“TIM Group”) companies.

On November 23, 2021 the Board of Directors of TI Finance resolved to distribute an interim dividend in the

amount of 384,1 million euros, partly in kind and partly cash by using the non-distributed profit of year 2009 to

2014 . According to such resolution, on November 26, 327,2 million euros were paid cash. The amount in kind

has been paid distributing all the no. 126.082.374 TIM S.p.A. ordinary shares in portfolio, for a countervalue of

56,9 million euros.

THE MARKET

After almost a full year impacted by the pandemic, following the release of several different vaccines, the

world is slowing getting back to pre-COVID19 life. According to the IMF data, during 2021, just after a -3,1%

change in 2020, the world’s GDP has risen 5,9% and is now expected to rise 4,4% in 2022.

Between 2020 and 2021, central banks all over the world have been fueling this rise flooding the world with

liquidity that has been poured in the financial markets. Consequently, 2021 has been a memorable year for the

financial markets. S&P 500 closed the year up by more than 25% and YoY GDP change of many countries were

higher than any of the last 10-15 years.

Real economy has struggled though, the spread of the new variants (Delta, Omicron) has kept offices and

businesses closed or only partially open and spending has been re-directed to services that could be used

remotely or at home.

Most countries have been forced to increase debt to finance aids for small and medium enterprises. EU has

brought the ration between debt and GBP close to 100% from ~85% in pre-pandemic. US lawmakers have

voted in December 2021 an increase of the debt ceiling to borrow enough to finance Biden’s plan for 2022 and

to pay off COVID19 spending.

The macroeconomic context in Brazil during 2021 was characterized by a restart of economic activities after a

year spent between lockdown and social and economic restrictions.

From this point of view, an emerging market (EM) with an economy positioned upstream in many production

chains, with a role as a supplier of raw materials for many markets, was in a perfect position to exploit the

inflation that would have resulted from the mismatch between demand (charged of all consumption

"postponed" during the COVID 19 pandemic) and an offer still in the restart.

During 2021, the hope born with vaccines had to clash, at least initially, with the new variants (Delta, Omicron)

which have limited the possibilities of consumption and spending, decreasing the effects previously described

on the Brazilian economy. Simultaneously with the appearance of these new variants and the wave of risk-offs

that hit the markets, BRL has reached its minimum in terms of value compared to EUR (6,98) or USD (5,87).

During the year, the sentiment on EM, and specifically on Brazil, has changed. In particular, in Brazil, with the

approach of 2022, the interest of the financial markets has shifted from the post-COVID 19 recovery to the

general elections expected for autumn 2022.

Considering the volatility expected for 2022, many foreign players present in Brazil, have hedged their positions

(Expected Flows and/or Net Investment Hedge) more consistently than in previous years. This has bees done, if

not to demonstrate a distrust tout court on Brazil, as confirmation of the expectation of a period of excessive

volatility.

Given the price pressure and the responsiveness of Banco Central do Brasil (BCB), during 2021, SELIC target

rate went from 2,00% to 9,25% in 7 increases. On average, the panel of reference banks for South America

expects a depreciation of the BRL, with some of them testing the maximums reached during the year just

finished.

Consolidated Financial Statements 2021

Directors’ report

Telecom Italia Finance Group

FINANCIAL HIGHLIGHTS

In terms of economic and financial performance in 2021:

•Consolidated revenues amounted to 2,8 billion euros, down by 3,2% on 2020.

•EBITDA amounted to 1,4 billion euros, down by 3,2% on 2020.

•Operating profit (EBIT) was 0,5 billion euros, down by 0,5% compared to 2020.

•The Profit for the year attributable to Owners of the Parent amounted to 282 million euros (184

million euros for 2020).

•Capital expenditures in 2021 amounted to 1.253 million euros (661 million euros in 2020).

•Net financial debt amounts to -2.382 million euros at December 31, 2021, down of 28 million euros

compared to the end of 2020 (-2.354 million euros).

NON-RECURRING EVENTS

In 2021, the Group recognized non-recurring net income connected to events and transactions that by their

nature do not occur continuously in the normal course of operations and have been shown because their

amount is significant.

Net non-recurring income

(millions of euro)

31/12/2021

Purchase of goods and services – Oi acquisition

-6

Impact on EBITDA

-6

Impact on EBIT

-6

Other Income from Investments - Gain on Sale of Fiberco, net of costs

119

Impact on Profit (loss) before tax from continuing operations

113

Non recurrent fiscal impact

Impact on Profit (loss) from continuing operations

119

The non recurring income of 119 million euros is mainly due to the net gain realized following the reduction

from 100% to 49% in the equity stake of I-Systems S.A. (ex Fiberco Soluçoes de Insfrastrutura S.A.), in the

framework of the agreement between TIM S.A. and IHS Fiber Brasil - Cessão de Infraestruturas Ltda. ("IHS

Brasil") described in the highlights of this Directors' Report. The Company had been incorporated by TIM for the

segregation of its network assets and the provision of infrastructure services.

Consolidated operating performance

The operating performance of the Group is almost entirely attributable to the Brazil Business Unit.

Other operations

Brazil Business Unit

(millions of euros)

(millions of reais)

31/12/2021

31/12/2020

31/12/2021

31/12/2020

31/12/2021

31/12/2020

Changes

Amount

(a)

(b)

(a-b)

(a-b)/b

Revenues

—

2.840

2.933

18.058

17.268

790

4,6

EBITDA

-7

1.362

1.407

8.661

8.282

379

4,6

EBITDA Margin

48,0

-0,6 pp

EBIT

-7

473

476

3.010

2.801

209

7,5

EBIT Margin

16,7

16,2

16,7

16,2

0,5 pp

Headcount at year end (number)

9.325

9.409

-84

-0,9

The average exchange rates used for the translation into euro (expressed in terms of units of real per 1 euro) were 6,35936 in 2021 and 5,88806 in 2020.

Consolidated Financial Statements 2021

Directors’ report

Telecom Italia Finance Group

31/12/2021

31/12/2020

Lines at period end (thousands)

52.066

51.433

ARPU (reais)

26,4

24,9

REVENUES

Revenues in 2021 were entirely related to the Brazil Business Unit and amounted to 18.058 million reais (2.840

million euros), up by 4,6% on 2020 accelerating from the levels seen starting from the third quarter of 2020.

The acceleration was driven by Revenues from services that totaled 17.497 million reais (2.751 million euros),

an increase of 832 million reais (-79 million euros) compared to 16.665 million reais (2.830 million euros) in

2020 (+5,0%) with Mobile Services Revenues at +4,7% compared to 2020. This performance is mainly explained

by the continuous recovery of both Prepaid and Postpaid segments. Regarding the Fixed Service Revenues, it

showed a 8,8% growth compared to last year, mostly due to TIM Live’s expansion pace.

Revenues from product sales came to 561 million reais, or 88 million euros (603 million reais, or 102 million

euros in 2020).

Total lines in place at December 31, 2021 amounted to 52,1 million, an increase of 0,7 million compared to

December 31, 2020 (51,4 million). This variation was mainly driven by the postpaid segment (+1,0 million)

partially offset by the performance in the prepaid segment (-0,3 million) , in part due to the consolidation

underway in the market for second SIM cards. At December 2021, postpaid customers accounted for 43,9% of

the customer base, an increase of 1,5 percentage points on December 2020 (42,4%).

TIM Live broadband operation showed positive net adds of 40 thousand new clients, +6,1% compared to

December 31, 2020. The mix of this base continues to concentrate in high speed connections, with more than

50% being above 100Mbps.

Mobile Average Revenue Per User (ARPU) for 2021 was 26,4 reais (4,2 euros), up 6,0% compared to the figure

posted in 2020, thanks to the general repositioning towards the postpaid segment and new commercial

initiatives aimed at promoting data use and the average spend per customer.

31/12/2021

31/12/2020

(millions of reais)

Net revenues

18.058

17.268

Service revenues

17.497

16.665

Mobile services

16.349

15.610

Fixed services

1.148

1.055

Product revenues

561

603

(thousands)

Lines at period end

52.066

51.433

Average Market Lines

51.667

52.252

(reais)

Mobile ARPU (mobile services/average market lines/months)

26,4

24,9

EBITDA

EBITDA in 2021 totaled 1.355 million euros, of which 1.362 million euros attributable to the Brazil BU.

Considering Brazil BU, EBITDA for 2020 amounted to 8.661 million reais (1.362 million euros), up by 379 million

reais (-45 million euros) year-on-year (+4,6%).

EBITDA in 2021 is affected by non-recurring expenses of 36 million reais mainly related to non-recurring

projects.

EBITDA net of the non-recurring component (Organic EBITDA), grew by 4,7% and is calculated as follows:

Consolidated Financial Statements 2021

Directors’ report

Telecom Italia Finance Group

(millions of euros)

(millions of reais)

Change

31/12/2021

31/12/2020

31/12/2021

31/12/2020

Amount

(a)

(b)

(c)

(d)

(c-d)

(c-d)/d

EBITDA

1.362

1.407

8.661

8.282

379

4,6

+/- Non recurring expenses/(income)

= Organic EBITDA

1.368

1.411

8.697

8.309

388

4,7

The growth in EBITDA is attributable to the growth in revenues and the efficiency of cost control.The related

EBITDA margin stood at 48,2%, up in organic terms by 0,04% compared to 2020.

The changes in the main costs for the BU are shown below:

(millions of euros)

(millions of reais)

31/12/2021

31/12/2020

31/12/2021

31/12/2020

Change

(a)

(b)

(c)

(d)

(c-d)

Purchase of goods and services

1.037

1.070

6.592

6.298

294

Employee benefits expenses

237

236

1.506

1.392

114

Other operating expenses

283

318

1.798

1.874

-76

Change in inventories

-7

-43

EBIT

EBIT totaled 466 million euros (469 million euros in 2020), a decrease of 3 million euros.

Considering Brazil BU, EBIT for 2021 amounted to 3.010 million reais (473 million euros).

Organic EBIT, net of the non-recurring component, amounted to 3.046 million reais (479 million euros), with an

EBIT margin of 16,9% (16,4% in 2020), and was calculated as follows:

(millions of euros)

(millions of reais)

Change

31/12/2021

31/12/2020

31/12/2021

31/12/2020

Amount

(a)

(b)

(c)

(d)

(c-d)

(c-d)/d

EBIT

473

476

3.010

2.801

209

7,5

+/- Non recurring expenses/(income)

= Organic EBIT

479

480

3.046

2.828

218

7,7

PROFIT (LOSS) FOR THE YEAR

(million euros)

31/12/2021

31/12/2020

Profit (loss) for the year

437

288

Attributable to

Owners of the Parent

282

184

Non-controlling interests

155

104

CAPITAL EXPENDITURE

All capital expenditure is referred to the Brazil Business Unit. The BU posted capital expenditures in 2021 of

1.253 million euros, increasing by 592 million euros on 2020 (661 million euros). Excluding the impact of

changes in exchange rates (-49 million euros), capital expenditure rose by 641 million euros, targeted mainly at

the expansion of mobile ultra-broadband infrastructure and the development of the fixed broadband business

of TIM Live. In particular, in Brazil the auction for 5G frequencies was completed in December 2021. The capital

expenditure sustained by the Brazil Business Unit for these frequencies and the related obligations amounted

to 564 million euros.

Consolidated Financial Statements 2021

Directors’ report

Telecom Italia Finance Group

Consolidated financial position and cash flows performance

Non-current assets

Non-current assets are mainly referred to the Brazil Business Unit.

•Goodwill decreased by 161 million euros as a result of 165 million euros in connection with the

reduction of an equity stake in I-Systems S.A. (ex Fiberco Soluçoes de Insfrastrutura S.A.) and +4

million euros of changes in foreign exchange rates applicable to the Group's Brazilian operations.

Further details are provided in the Note "Goodwill".

•Other intangible assets increased by 425 million euros representing the balance of the following

items:

–Capex (+682 million euros)

–Amortization charge for the year (-269 million euros)

–Disposals, exchange differences, reclassifications and other changes (for a net balance of +12

million euros), of which +13 related to exchange rate differences.

•Tangible assets decreased by 16 million euros representing the balance of the following items:

–Capex (+570 million euros)

–Depreciation charge for the year (-411 million euros)

–Reduction of 192 million euros in connection with the reduction of an equity stake in I-

Systems S.A. (ex Fiberco Soluçoes de Insfrastrutura S.A.)

–Disposals, exchange differences, reclassifications and other changes for a net balance of +17

million euros almost entirely related to exchange rate differences.

•Rights of use third-party assets: increased by 73 million euros representing the balance of the

following items:

–Investments and increases in finance leasing contracts (+442 million euros)

–Amortization charge for the period (-214 million euros)

–Disposals, exchange differences and other changes (for a net balance of -155 million euros)

of which +11 related to exchange rate difference.

Consolidated equity

Consolidated equity amounted to 7.282 million euros at December 31, 2021 (7.303 million euros at December

31, 2020), of which 5.937 million euros attributable to Owners of the Parent (6.070 million euros at December

31, 2020) and 1.345 million euros attributable to non-controlling interests (1.233 million euros at December 31,

2020).

Cash flows

(million euros)

31/12/2021

31/12/2020

Cash flows from (used in) operating activities

1.420

1.156

Cash flows from (used in) investing activities

-1.811

-594

Cash flows from (used in) financing activities

635

-215

Aggregate cash flows

244

347

Net foreign exchange differences on net cash and cash equivalents

-151

Net cash and cash equivalents at beginning of the year

2.995

2.649

Net cash and cash equivalents at end of the year

3.239

2.995

Net financial debt

(million euros)

Other operations

Brazil Business Unit

31/12/2021

31/12/2020

31/12/2021

31/12/2020

Non-current financial liabilities

1.745

1.782

1.885

1.256

Current financial liabilities

1.220

324

431

Total gross financial debt

2.965

2.106

2.209

1.687

Non-current financial assets

-1.811

-1.845

-116

-62

Current financial assets

-4.042

-3.461

-1.587

-778

Net financial debt carrying amount

-2.888

-3.200

506

847

Further details are provided in the Note "Net Financial Debt".

Consolidated Financial Statements 2021

Directors’ report

Telecom Italia Finance Group

Main commercial developments of the business units of the Group

Brazil

In 2021, we continued to develop and execute our Volume-to-Value strategy, transforming the profile of our

mobile customer base by leveraging plan upgrades and segment migration initiatives. Consequently, the

company was able to sustain a solid ARPU growth in mobile despite the macroeconomic challenges. On the

fixed, our focus remained on residential broadband through FTTH, which led to the creation of a infrastructure

vehicle to accelerate the rollout of our fiber coverage. Additionally, our beyond the core initiatives, both in IoT

and digital services, grew in number of partnerships and contribution to our results.

Marketing and brand positioning: we consolidated the credibility of our brand, and maintained our position of

the best and wider 4G coverage while reinforcing the innovation attribute through the launch of 5G pilots. We

started to recover the brand association with music theme using our mobile offers and sponsorships. In

December 2021, it was announced the most important sponsorship under this new strategy, the 2022 edition of

the Rock in Rio festival. We also developed many initiatives to solidify our institutional positioning as a ESG

leader among the Brazilian companies.

Mobile offers: to accelerate growth beyond connectivity we continue scale up partnerships leveraging our user

base and key assets to expand new businesses. For the pre-paid segment, we develop differentiated offers,

giving more benefits to customers with high recharge value and we consolidated TIM+Vantagens, a benefits

program to retain our customers through prizes such as internet bonuses, discounts with partners,

smartphones and other prizes. Reinforcing our music theme engagement we became the only Brazilian

telecom company to offer prepaid customers a free and ad-free music streaming service: DeezerGo. And

finally, on the post-paid segment, we maintained our effort to consolidate our position as an innovator, by

developing “TIM Black” to have a broader portfolio of entertainment services using OTT partnerships and

premium care services, such as TIM Concierge.

Customer Experience: we are constantly working to improve our customer experience and satisfaction

through the use of technology. In this regard, the evolution of AI solutions and our digital channels are key. In

the 2021 Satisfaction and Quality survey of Anatel (National Telecommunication Agency) TIM Brasil received

the best evaluations by customers, driving the company to the first place in the mobile services ranking. The

quality of our network was also recognized by Ookla Speedtest ranking, as TIM was appointed the best video

and video conference experience while having the highest 4G availability.

Sales channels: we maintained our focus on channel productivity, segmentation, and quality of sales. During

2021, we remodeled our digital channels while reorganizing our structure to increase focus on e-commerce

and in-app purchases.

Residential market: the focus on investing in FTTH (Fiber To The Home) expansion continued, with high speed

offers and optimal connection stability. We executed on the strategy to create an infrastructure vehicle to

accelerate the expansion and development of our fiber coverage. We segregated our last-mile network and

created a neutral player in a partnership with IHS Towers. This company will provide FTTH infrastructure to TIM

Brasil as an anchor customer and to other operators. In this transaction, TIM Brasil sold 51% of the company to

IHS under a valuation of 2,7 billion reais, with a secondary component of 1,1 billion reais.

Corporate: we consolidated our “Leaders with Leaders” strategy in agribusiness and launched the first IoT

marketplace for B2B in Brazil by promoting IoT solutions through partnerships. In addition, we launched the

FCA partnership for connected cars and for industry and mining we are developing a private LTE solution for

business-critical use case management. In 2021, reinforcing the partnership with Embrapa, the main agent of

innovation and research in agribusiness in Brazil and the world, TIM became partner of Embrapa in the

development of the newest innovation hub dedicated to agribusiness.

Main changes in the regulatory framework

Brazil

Revision of the model for the provision of Telecommunications services

In 2019, Law 13.879 was approved and entered into force on October 4, 2019 establishing a new regulatory

environment for the regulation of telecommunications in Brazil. This is the most significant change in 20 years.

The new telecommunications framework allows fixed-line licensees to adapt their contracts from a concession

scheme to an authorization scheme. This transition from concession to authorization must be requested by the

licensee and requires the approval of the Anatel(“Agencia Nacional de Telecomunicações”). In return, licensees

must, among other conditions, make a commitment to investment in expanding fixed broadband telephony

services to areas with no adequate competition for these services, in order to minimize inadequacies and

inequalities between areas of Brazil.

Consolidated Financial Statements 2021

Directors’ report

Telecom Italia Finance Group

The change also affects the roles for authorizing the use of radio frequencies, establishing subsequent

renewals (currently limited to only one) and allows the exchange of radio frequencies between operators

(secondary spectrum market).

In June 2020, Decree 10.402 was published, which governs the procedure for adapting the concession to the

authorization regime, as well as the definition of the criteria for calculating investment commitments. The

Decree also established guidelines for the extension of radio frequency authorization, which will be held by

Anatel to guarantee greater security for investments in the sector.

Public policies applicable to telecommunications sector

Decree 9.612/2018 (“Connectivity Plan”) established important rules with a series of guidelines for the

adaptation of conduct terms, the onerous concession of spectrum authorization and regulatory acts in general,

including: (i) expansion of high capacity telecommunications transport networks; (ii) increased coverage of

mobile broadband access networks; and (iii) broadening the coverage of fixed broadband access network in

areas with no Internet access through this type of infrastructure. This Decree also establishes that the network

resulting from the commitments must be shared from the moment it enters into service, except where there is

adequate competition in the relative reference market.

In relation to the deadlines for the development of pipelines not compliant with current regulations,

authorizations for user licenses to radio frequencies, and the introduction of other statutory provisions

generally, planned investments (as identified by Anatel and approved by the MCTI-Ministério da Ciência,

Tecnologia e Inovações) will focus primarily on the expansion of mobile and fixed-line broadband networks

and on specific areas of the country. Telecommunications networks built under the investment plan will have

shared access.

The Decree was amended by Decree 10.799/2021, which included priorities for public policy coverage, including

coverage of “census sectors with public schools”; coverage of villages not served with cell phone telephony and

expansion of fixed broadband access in locations without access.

The decree also provides for the allocation of funds for the approval of approved projects of the Connected

Cities and for the temporary provision of fixed or mobile broadband. In addition, it deals with the private

federal network that may be implemented by other public or private bodies or entities and the criteria for the

use and governance of the network will be defined by the Federal Government under the terms set out in an

act of the Minister of State for Communications.

In 2020, the decree No. 10.480/2020 was published by the federal government, which regulates the antennas

law (law 13.116/2015) with the purpose of stimulating the development of the telecommunications network

infrastructure. This decree fosters development of telecom network infrastructure and is a major step towards

unlocking historical problems in the sector preventing its development (free right of way on highways and

railways, positive silence, small cells, dig once are some of the examples of such regulatory removal of

historical problems).

In the same year, law 14.109/2020 granted the use of FUST (“Fundo de Universalização dos Serviços de

Telecomunicação“), including by the private sector, to expand connectivity in rural or urban areas with a low

human development Index (HDI) as well as policies for education and tech innovation of services in rural areas.

In June 15, 2021, Provisional Measure 1.018/2020 was transformed into Law No. 14.173/2021, reducing charges

for satellite internet terrestrial stations and changing some of FUST application rules.

The law reduces FUST collection between 2022 and 2026, to telecommunications operators that run

universalization programs approved by the management council with their own resources. The benefit will be

valid for five years from January 1, 2022 and will be progressive: 10% in the first year; 25% in the second year;

40% in the third year; and 50% from the fourth year onwards.

In addition, the new legislation removes the obligation to share towers within a distance of less than 500

meters from each other. The elimination of this obligation is essential for the deployment of 5G in Brazil,

including to ensure the densification scenario expected for the new technology.

Revision of Service Quality Regulation

In December 2019, Anatel approved the new Telecommunication Services Quality Regulation (RQUAL), based

on a reactive regulation. In this new model, quality is measured on the basis of three main indicators – a

Service Quality Index, a Perceived Quality Index and a User Complaints Index – and operators are classified

into five categories (A to E). Based on this reactive regulation, Anatel will be able to take measures according

to specific cases, such as consumer compensation, the adoption of an action plan or the adoption of

precautionary measures to ensure quality standard improvements.

After a joint work by Anatel, operators and the Quality Assurance Support Authority (ESAQ) to define the

objectives, criteria and reference values of indicators, recently, at the end of November 2021, Anatel’s Board of

Directors formalized the reference documents that supports this regulation: the Operational Manual and the

Reference Values; and stipulated the entry into operational effectiveness in March 1, 2022, as well as the

disclosure of official indexes, and the Quality Seal (inducing competition for quality) at the beginning of 2023,

considering the results of the new monitored indicators in the 2nd semester of 2022.

Until then, Anatel will continue to monitor the old indicators that maintain similarity to the new ones

established in the new RQUAL.

Consolidated Financial Statements 2021

Directors’ report

Telecom Italia Finance Group

Data protection

In August 14, 2018, the General Data Protection Law (Law 13.709/2018 – “LGPD”) promulgated.

In December 2018, Provisional Measure 869/2018 was converted into Law 13,709 to create the National Data

Protection Authority (ANPD), also extended the entry into force of the Law to 24 months (August 2020).

In June 2020, Law 14.010/2020, postponed the entry into force of the LGPD, only for the provisions related to

fines and penalties, to August 2021. The other provisions of the Law took effect in September 2020. In addition,

Decree 10.474/2020 (National Data Protection Authority) came into force in August 2020, establishing the

ANPD (“Autoridade Nacional de Dados Pessoais”), which is responsible for, among other things: developing

guidelines for the National Data Protection Policy; supervising companies and applying sanctions; and issuing

regulations and procedures on personal data protection.

In January, ANPD published the biannual regulatory agenda (2021-2022) listing the following stand out:

ANPD's internal regulations, the establishment of norms for the application of art. 52 et seq. of the law, Data

Subject Rights, Data Breach Reporting, among other topics.

In August 2021, the articles related to the supervisory and sanction activities of the National Authority (ANPD)

entered into force.

In October 2021, were approved the regulation (CD/ANPD nº. 1 of October, 2021) for the Supervisory Process

and the Sanctioning Administrative Process, within the scope of the ANPD.

Strategic Digital Transformation and the Internet of Things

In March 2018, the E-Digital Decree (9.319/2018 Decree) was published, in order to identify about 100 strategic

actions to encourage competition and the country’s level of online productivity, while increasing connectivity

and digital inclusion levels. These actions seek to address the digital economy’s main strategic questions,

including connectivity infrastructure, data use and protection, the IoT and IT security.

In December 2021, the MCTI started its revision and is expected to be approved in the first half of 2022.

The Decree on the National Plan for the Internet of Things (Decree 9.854/2019) was published in June 2019, to

regulate and promote this technology in Brazil. The IoT is referred to as the “infrastructure integrating the

provision of value-added services with the ability to physically or virtually connect things using devices based

on existing information and communication technology and their evolution, with interoperability”. The Decree

lists the following topics, defining them as necessary to further support the National Plan for the Internet of

Things: (i) science, technology and innovation; (ii) international integration; (iii) education and professional

training; (iv) connectivity and interoperability infrastructure; (v) regulation, security and privacy; (vi) economic

feasibility.

In order to develop an IoT environment in the country, Law 14.108/2020 was passed. This law exempts base

stations and equipment that integrate machine-to-machine (M2M) ecosystems from FISTEL (an administrative

tax collected by Anatel) for 5 years and, in addition, extinguishes the previous license. The definition and

regulation of M2M communication systems are established by Anatel.

5G Auction

In February 2020, the Ministry of science, technology, innovations and communications published ordinance

No 418 with guidelines for the 5G auction, concerning radiofrequency bands of 700 MHz, 2,3 GHz, 3,5 GHz and

26 GHz, requiring Anatel to define technical criteria for mobile operation on 3,5 GHz in order to avoid harm

from a TVRO signal offered by satellite dishes in Band C. It also established that the auction should considered

coverage commitments to (i) mobile service on 4G technology or higher to cities, small villages and isolated

urban and rural areas with more than 600 habitants; (ii) mobile broadband on federal highways; and (iii) fiber

to the city (FTTC) on municipalities without this backhaul.

Also in February 2020, Anatel issued the public consultation No 9 in order to discuss the draft of the Public

Notice for the 5G Auction. Anatel proposed bidding for the 700 MHz, 2,3 GHz, 3,5 GHz and 26 GHz bands and

includes another 100 MHz in the 3,5 GHz band. It was expected that investment commitments would enable

more infrastructure and a higher level of services to users, such as is outlined in the structural plan for

telecommunications networks (PERT).

Regarding the possible interference caused by 5G in the reception of open satellite TV, the approved proposal

addresses the solution through a model similar to that adopted for the 700 MHz band, with the creation of a

group coordinated by Anatel and an independent third party to operationalize the solution.

In February 2021, Anatel’s board of directors approved the public notice for the 5G Auction. After that, there

was an evaluation by Brazilian federal court of auditors (TCU) that was completed on August 25, 2021. Auction

returned to Anatel for analysis, which approved the Notice on September 24, 2021. The auction expected to be

held in the second half of 2021, occurred in November 2021. TIM acquired 11 lots, with a total value offered of

1,05 billion reais, in 3 frequency bands 3,5 GHz, 2,3 GHz and 26 GHz. The acquired bands have a set of

obligations that must be met with financial contributions or the construction of mobile and fixed network

infrastructure. As a result, TIM guarantees the necessary spectrum capacity to follow its growth journey in the

mobile telephony market nationwide, being prepared for its customers’ demands and to explore new

applications and develop innovative solutions that demand high-speed connectivity and capacity.

Consolidated Financial Statements 2021

Directors’ report

Telecom Italia Finance Group

Main commitments associated with each band:

•2,3 GHz: 4G coverage in some municipalities and localities (South and Southeast Regions);

•3,5 GHz: 5G coverage in all municipalities with a population equal to or greater than 30.000

inhabitants + fiber backhaul obligations in 138 municipaties + additional contributions to a new entity

(EAF) to carry out the following projects: clean-up 3,5 GHz, deployment of fibre-optic in Amazonia and

building a private network for exclusive federal government use;

•26 GHz: contributions to a new entity (EACE) to carry out connectivity schools’ projects.

Competition

Brazil

In 2021, the macroeconomic scenario started recovery compared with 2020 covid-19 pandemic year. As in

many countries, the lock-down protocols had a negative impact on the economy in 2020, increasing

uncertainty, postponing investments, reducing income and employment in a bid to prevent the loss of human

lives. On the other hand, the digital transformation had reached another level, putting telecommunications

companies firmly in the spotlight, offering up new possibilities and bringing people into contact with each

other, driving on advanced services like food and drug deliveries, the streaming of contents and video calls. As

people get vaccinated and physical commerce reopen, we see some habits going back to pre covid-19, but

some of these changed behaviors continued in some level even after people are able to go to streets again.

The economic recovery in Brazil started 2021 faster than expected, but lost some momentum during the year,

with accelerated growth of inflation mainly due to food and energy prices. Important reforms as

administrative and tax did not happen in the year as expected. Besides that, political scenario is full of

uncertainty with presidential election getting closer and political polarization still in place. Employment rate

started to grow up in 2021, which is a good signal for recovery perspectives. For 2022 the GDP growth is

expected to decelerate sharply, but inflation should go back to target levels. Since interest rates were

increased as a measure to hold back inflation, it is expected a movement from investors to bank investments

getting away from stock market.

Despite the improvement in financial performance indicators, economic conditions are still difficult, with the

budget deficit and increasing debts (for central governments, federal states and municipalities) carrying a risk

that can only be managed with more structural reform, for which Congress' approval is needed. The approval

of changes in spending policy, enabling the postpone of government negotiable bonds payment, in order to

open budget to increase spending with social assistance “Auxilio Brasil” has increased concerns about public

financial management.

The mobile telecommunications sector has seen some rationality prevail in the market and in competition,

with service providers staying focused on developing their offers on the characteristics and service range of

their commercial offers, rather than pursuing aggressive pricing policies. The operator with most aggressive

price offer is Oi, that will be out of mobile market in 2022. Finally, but no less important, the reduction from 4 to

3 main mobile players and the increase in infrastructure companies can lead to a better allocation of capital

and return on investments.

In the prepaid segment, the main objective of market players has been to raise the percentage for the use of

services by leveraging the ongoing SIM card consolidation process in the market, by encouraging migration to

weekly (and monthly) plans or hybrid plans (Controle postpaid) by offering a range of bundled service packages

on the basis of the different needs of customers (unlimited voice calls or data packages). The strategy’s aim is

to improve the mix of the customer base and guarantee greater stability (together with reducing the churn

rate) and growth of the ARPU. Despite the last years trend of customer base decrease, in 2021 the market’s

prepaid customer base is increasing 3,6% YoY in November 2021.

The postpaid mobile segment records an increase in the customer base, mainly supported by the hybrid

Controle segment (in particular by migrations of prepaid customers), although “pure” postpaid lines have also

recorded a certain degree of growth. This growth is based on offer segmentation strategies, through the

introduction of distinctive characteristics in the use of data services (e.g. unlimited use of data on specific apps

such as WhatsApp, Facebook, Twitter, Netflix, etc.) in pursuing a “More for More” policy logic that aims to

guarantee a greater stability of prices and an effective repositioning of the customer base on higher value

offers (voice + data + contents). The total market postpaid customer base (excluding M2M) had grown by

+11,7% YoY in November 2021.

Service quality is still an element of differentiation. Telecommunication providers that have invested more in

the development of 4G networks (coverage and capacity) and in the improvement of processes shaping

customers’ experience will have a greater ability to apply premium prices, as customers raise their

expectations and place growing importance on the quality of data services and higher value content. The main

mobile operators already provide 4G coverage for 99,4% of the Brazilian population (up to December 2021),

with the three main players offering average 4G availability in excess of 77% (according to the January 2022

Opensignal report).

Consolidated Financial Statements 2021

Directors’ report

Telecom Italia Finance Group

On November 2021 the 5G auction took place. As expected, the 3 major operators won blocks in 3,5GHz,

2,3GHz an 26GHz. Some smaller regional operators have also won some regional blocks mainly in 3,5GHz. The

main highlight can be considered the value paid by Brisanet in northeast 3,5GHz block (more than R$ 1 billion)

and the winner of 700MHz reminiscent block, Winity, that will play as a neutral mobile network player, what it

a completely new approach in Brazilian market.

The fixed broadband market recorded a growth of +11,7% on an annual basis in November 2021, mainly driven

by smaller market operators (+30,6% YoY), which tend to offer cheaper services, particularly in areas where

traditional operators have limited infrastructures. There is an intense M&A environment among smaller

internet service providers (ISPs), with highlight for 3 ISPs that have made IPOs in order to capitalize themselves

to finance their expansion strategy: Brisanet in northeast region, Unifique in south region, and Desktop in SP

state (the most populate and richest state). As a result, traditional incumbent operators are suffering sharp

downturns to their customer base. Penetration rates across the population are still quite low (approximately

56% of houses) when compared to several countries, which means there are good opportunities for medium-

term growth, underpinned by the improving macroeconomic situation.

In this context, since 2017, TIM adopted a business strategy for TIM Live to expand coverage, offering ultra-

broadband Internet services, mainly through FTTH, not only in some of the largest cities of Brazil, but also in

cities where opportunities arise for such high-quality service. TIM Live has a customer base of more than 683

thousand users in November 2021 (growth of 6,5% YoY). In order to achieve faster, smarter growth of the

footprint, TIM sold 51% of new FiberCo company (now I-Systems) that will have the infrastructure for Fixed

Fiber Broadband offer and will act as a neutral network player.

Research and development

Brazil

The Architecture & Innovation Technology department is responsible for Research and Development (R&D)

activities; its main tasks are to define technological innovation for the network and information technology, to

identify evolutionary needs for new technologies and devices, converging architectonic guidelines and

strategic alliances in order to use the new business models and guarantee that the network infrastructure

evolution is in line with the corporate strategy.

In 2021, the Architecture & Innovation Technology department was made up of 52 people, including

telecommunications, electrical and electronic, IT and other specialists with professional skills and experience,

which cover all areas of network knowledge, meeting the need to innovate and support research and

development activities.

TIM Lab is the multifunction environment focused on innovation, which also plays a strategic role in supporting

credibility tests and trials, as well as PoCs (proofs of concepts), collaborating with the main suppliers and

technology partners through knowledge sharing, technological infrastructure for interoperability tests, staff

assessment and the definition of technical requirements; in synergy with the R&D department, it facilitates

innovation activities and promotes collaborations with universities and research institutes.

The TIM Lab Innovation Center in Barra da Tijuca, in the State of Rio de Janeiro, has a surface area of 650 m2

and can also be used as an innovation space open to new opportunities, guiding innovation on the Brazilian

telecommunications market and acting as national point of reference for R&D.

To strengthen the validation capacity regarding new software, features, solutions, technologies, services and

d.evices, in 2020-2022, TIM S.A. has planned additional investments for over 10 million reais.

The Architecture & Innovation Technology Department has continued to work on projects and initiatives for

the evolution of the business of TIM, which can be grouped into the macro groups:

•next generation network;

•with positive impact on t/he environment and society;

•future Internet applications;

•Open Lab Initiatives.

Next generation network projects

The reassignment of the 1.800 MHz, 850 MHz and 2.100 MHz bands from 2G/3G to 4G, with a multilayer

distribution configuration gives TIM SA three important competitive advantages:

•a reduction in costs for LTE implementation, the extension of the LTE coverage area and the

activation of the carrier aggregation strategy, improving the customer experience through a higher

throughput;

•the best indoor coverage. In addition to the expansion of coverage, use of the 850/1.800/2.100 MHz

bandwidths could increase the capacity in cities already covered by the LTE bandwidth at 2,6 GHz, at

limited additional cost.

In this scenario, over 99% of current LTE terminals are compatible with the 1.800 MHz, 2.600 MHz bands and

other available bands. Therefore, the implementation of the multilayer LTE continues to be an excellent

strategy that benefits from the spread of devices.

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The implementation of the 700 MHz LTE layer has continued to significantly improve coverage expansion and

indoor penetration, promoting the presence of LTE on a national level and consolidating TIM S.A.’s leadership

in LTE. 89% of TIM S.A.'s current user base of LTE devices is 700 MHz enabled (December 2021).

At the end of December 2021, 3.900 cities had 700 MHz LTE coverage, namely over 93% of the urban

population; spectrum cleaning was completed in June 2019 in all cities of Brazil, enabling a bandwidth of 700

MHz. At end 2022, the total number of cities covered by TIM S.A. with a 700 MHz bandwidth should be 4.100, as

envisaged by the 2021-2024 Business Plan.

Projects entailing a reduction of energy consumption

The expansion of "RAN Sharing 4G", in partnership with other mobile operators in Brazil, aims to define the

architectural requirements, technical assumptions and specifications for the "LTE RAN sharing" solution,

optimizing network resources and costsAt present, this is the largest agreement for RAN sharing worldwide

and it supplies 5G services to the main cities of Brazil.

The RAN sharing agreement allows TIM S.A. to promote the spread of LTE in the Brazilian campaign,

effectively sharing access and backhaul. At present, 4G RAN Sharing is based on three national partners,

expanding the benefits and efficiency of this technical model. The energy consumption recorded for the site,

dependent on the access technology and coverage conditions, showed a reduction of up to 10%.

In December 2019, TIM S.A. and Telefónica stipulated new sharing contracts aimed at increasing the network

cost efficiency through the following initiatives:

•Single network: sharing of the 3G and 4G networks in cities with fewer than 30 thousand inhabitants

in which both operators provide their services. The underlying idea is to have, in the cities included in

the agreement, a single telecommunications infrastructure that is entirely shared by the operators,

thereby allowing them to switch off redundant sites and save on energy, rent and maintenance costs.

This also allows for greater efficiency in future investments thanks to the sharing of the spectrum in

MOCN mode.

•Switching off of the 2G: nationwide sharing of the 2G network using GWCN technology, enabling both

operators to switch off part (approximately 50%) of its network with the same technology,

consequently saving on energy and maintenance costs.

Next generation network projects, future Internet applications, positive impact on the environment and society

Internet of Things - It was back in 2018 that TIM S.A. launched the very first commercial NB-IoT network in

South America, to develop innovative services, aware that the mass introduction of the IoT can change the

mobile telephony market considerably, because it leverages the creation of services and - amongst others - is a

potential tool for agricultural uses, the connection of cars, traceability solutions and social-health care. In 2020,

access to the NB-IoT network was extended.

Agrobusiness - Since 2018, together with Nokia and BR Digital, TIM S.A. has been focusing on agro-food

potential in Brazil, offering connections in rural areas (not only for business applications but also for the digital

inclusion of agrobusiness employees and residents of small towns). Since 2020, TIM has strengthened its

position in relation to vertical agriculture, with the creation of the ConnectarAgro ecosystem (https://

conectaragro.com.br/) which brings together TIM S.A., solution providers for the agro segment and

telecommunication solution providers.

5G -The commercial launch was announced by TIM S.A.’s CEO early 2020, during an on-line event attended by

approximately 20,000 colleagues; the launch in Brazil involved three cities: Bento Gonçalves (RS), Itajubá (MG)

and Três Lagoas (MS). The technology will be used to supply wireless residential broadband with FWA (Fixed

Wireless Access) technology, exploiting the old frequencies of the 2G, 3G and 4G networks through dynamic

spectrum sharing (DSS).

Connected Car - In 2021, the telemetry and connectivity solutions for Connected Car user services were

developed for FCA (Fiat Chrysler Automotive), designed to support the advanced telemetry and FCA assistance

services for its vehicles, as well as Wi-Fi connectivity and other added value services for FCA car owners. These

are the first full digital services for connected cars available in Brazil.

Open Lab initiatives

TIM S.A. joined the Telecom Infra Project (TIP) in 2017, an initiative founded by Facebook, SK Telecom,

Deutsche Telekom, Nokia, Intel and other companies, which aims to create a new approach to building and

implementing the telecommunications network infrastructure. TIM S.A. transformed TIM Lab into the first TIP

Community Lab in Latin America, available to TIP members to create universal standards for solutions (initially

transport networks, Open Optical Packet Transport working group), to overcome the challenges related to

interoperability of different supplier products.

In 2018, TIM S.A. also joined a new working group within the TIP, together with Vodafone and Telefonica, called

DCSG (Disaggregated Cell Site Gateway). This project is an opportunity to define a common set of operator

requirements and coordinate with companies that manufacture devices, which have wider and more flexible

capacities and are cheaper; in June this year, the main functions of the solution were demonstrated with the

help of Facebook, core EDGE suppliers and TIP members.

Consolidated Financial Statements 2021

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Telecom Italia Finance Group

Finally, in 2020, TIM S.A. and the TIP partners completed their validation of the TSS (Total Site Solution), an

inexpensive, unrestricted 4G NodeB solution, powered by solar energy and connected by satellite to the core

TIM S.A. network, to be used in remote zones with low population density. During the year, TIM also adhered to

the OpenRAN initiative with the OpenField project, to validate OpenRAN 4G and 5G solutions focused on the

separation of hardware and software at a RAN level.

Human resources

Brazil

The Human Resources Department is structured in such a way as to ensure the best practices related to

people management to support the Company’s evolution process, in line with technological transformations

and business challenges, which include commitment to sustainability and valuing diversity and inclusion.

Having an engaged team is essential to overcoming challenges and achieving better results. At TIM, the

relationship of transparency and respect with all levels of the company strengthens our pride and sense of

belonging, as well as a clarity as to the direction we are heading. These factors are differentiators in the

development of our employer brand.

In 2021, we had a (97%) participation in the Climate and Engagement Survey, confirming the consistency of

this process as one of the most important means of listening to people and providing the opportunity to

contribute toward the evolution of our company.

The result of the 2021 Climate and Engagement Survey was 83% (down 1% from 2020), placing TIM 10% above

the Global Telecom Market established by Mercer, a consulting partner responsible for the methodology and

application of the survey.

The main highlights are the consistency in the Diversity & Inclusion acculturation program (which remained at

95%), the increase in leadership performance in team development through feedback (84% | +3%), error

tolerance (85% | +2%), consistency in performance evaluation (83% | +3%) and practice of financial and non-

financial recognition (71% | +2%), in line with the review of Skills and Performance.

In 2022, it will be necessary to focus more on structured well-being actions and to evolve in our agility and

readiness for change, to maintain our stance of caring for people and improving processes for innovation.

The culture of integrity and attractive careers also stand out among the factors most widely recognized by our

team, reflecting the high engagement and success of actions such as the “TIM Talks Experience 2021” and

“Diversity & Inclusion” campaigns, aimed at the five pillars developed at the company: gender, race, people

with disabilities, LGBTI+ people, and generations.

People

The Brazil BU ended the year 2021 with 9.337 employees across Brazil. These employees – with their histories

and knowledge – represent the Company’s intellectual capital and act as engines for business development.

Around 70,4% of our employees have a college degree or are currently attending college, and 9,9% have

postgraduate degrees. The numbers and results show that TIM has a diversified and highly qualified staff to

meet the Company’s challenges. The workforce is rounded out by 216 interns and 128 young apprentices.

Development and Training

The Group employees have access to a well-structured training and development offer, in order to evolve

within the company and build a successful career. TIM invested more than R$ 10 million in the training and

development of its employees in 2021.

To guide the careers of its employees, TIM identifies and monitors individual performance to guide activities

more assertively. The Company evaluates the dedication and outstanding performance of its professionals

through different performance management tools, as well as encourages and provides opportunities for

development and learning.

Here at TIM, throughout 2021, as a continuation of the plan started in 2020, we focused on supporting the

evolution and transformation of the company towards the TELCO digital model, with a specific focus on the

development of new capabilities, necessary to achieve the goals of the company’s strategic and industrial plan.

Also, throughout 2021, TIM implemented several programs and initiatives to manage and support people

development in the skills necessary to achieve business strategies:

•New Performance Management Process: TIM completed its 2020/2021 performance management

cycle, involving more than 7,700 employees with several major innovations, such as the inclusion of

new groups (Sales and Service team, Interns) with a thoroughly customized approach. The focus of

the assessment is related to the competency model, as well as the ability to make things happen. The

implementation of a new Performance Management platform, customized to provide the best digital

experience for employees, was also a new development.

•Digital Solutions for the Development of Leadership: During this year, TIM launched two innovative

solutions to develop our leaders: the E-Coaching and Executive Mentoring Program, more than 350

leaders experienced a digital development solution tailored to their own needs.

Consolidated Financial Statements 2021

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•Succession Management: Succession mapping continued this year, to ensure accelerated

development and readiness for more critical senior management and executive positions.

•Inter-company Mentoring for Women: In July 2021, TIM, together with a growing number of major

companies, created an initiative to accelerate women’s career development. The initiative is part of

the “Mulheres Positivas” (“Positive Women”) Project, which has the broader scope of enabling

women’s access to the Brazilian labor market. In 2021, two waves of mentoring were developed,

involving 149 women.

The main training programs and initiatives are listed below:

•Main Institutional and Compliance Issues: all employees take part in courses on the main

institutional and compliance issues, such as ethics, human rights, sustainability and environmental

policies, health and safety, information security, and anti-corruption, in line with the Group’s

guidelines as well as international and Brazilian laws.

•Digital Learning Roadmap: the new online training platform called “Talent Hub Learning” includes

individual and collective itineraries for digital learning. The roadmap focuses on strategic issues such

as digital mindset, new capabilities, innovation, accountability, customer experience, execution,

collaborative networking, change management.

•TIM Talks: TIM Brasil’s annual Training, Development and Communication Program. As in 2020, the

event was attended not only by members of our internal workforce but also by members of the public.

TIM Talks began in November with an Opening event, and lasted through late December, through a

program of workshops focused on strategic issues in the sector, such as 5G, Cloud, AI, Privacy, etc. The

workshop was attended by representatives of the market, academia, and institutions in general, and

for the first time ever, also involved international guests.

•Support Plan in the Context of the COVID 19 Pandemic: Throughout 2020 and 2021, due to the novel

coronavirus pandemic, TIM carried out training actions geared toward wide-ranging health and safety

topics, such as mental health, self-care, ergonomics, well-being in its most varied dimensions (e.g.:

nutrition, physical exercise, etc.), including online classes (e.g.: meditation) and COVID-19 prevention,

and we also make the integration content available in digital format. Additionally, we transformed

100% of our training actions to the distance-education methodology, and even the “Internal Week for

the Prevention of Occupational Accidents” (known by the Portuguese-language acronym “SIPAT”)

also migrated online, integrated into the Health & Well-being Journey, with some of the events open

to the general public.

•Onboarding: Considering the digital transformation processes that TIM started a few years ago, a new

100% digital Onboarding program was designed to engage and prepare new employees for their daily

work routines.

•Vertical Journeys: TIM Brasil created personalized learning journeys for the different areas, based on

different needs related to the scope of activities.

•Journey to Cloud and Agile Journey: In line with its digital transformation and innovation plan, TIM

implemented a structured upskilling plan for all employees involved in migrating infrastructure into a

multi-cloud environment and for users of new data and analytics technologies. Since 2020, more than

500 people have been involved in the program. In 2021, a training program was implemented, called

“Agile Journey,” with the aim of disseminating the culture as well as the methods and tools of Agile

Methodologies. The Journey now involves the teams that work in the service creation processes, to

bring incremental gains to the business, reduce risks, and make ongoing improvements. More than

170 employees have already started the journey.

•Sales Force Initiatives (Consumer and Corporate Evolution Program): a learning journey for TIM

stores and Sales Force, created and developed in an innovative way based on the principle of

gamification, which translated into greater involvement, new knowledge with a different “footprint,”

and greater value for the company. A unique, personalized and humanized experience. The online

training model was maintained and improved in 2021.

Because we believe that diversity and inclusion are essential for valuing and engaging people, and play a

fundamental role in the innovation process, we reinforce our positioning and commitment to this issue by

creating policies, programs and initiatives regarding diversity and inclusion, aligned with the business strategy,

organizational culture, and appreciation of the contribution of each employee at TIM.

In 2021, the Diversity & Inclusion Program continued with the annual calendar of actions, based on the UN

calendar and other nationally recognized dates; strategic monitoring of the issue by the Diversity & Inclusion

Committee, formed by senior executives; and the performance of affinity groups, made up of employees from

all levels, areas and regions, who worked together in the design and deployment of inclusive actions for the

pillars of gender, LGBTI+, race, generations, and people with disabilities.

Among the initiatives introduced, we have the Inclusive Internship Program, which gave greater flexibility to

the profile and prerequisites of the selection process to expand access to minority social groups, in addition to

having no restrictions on age, courses or educational institution; the program set aside 50% of the openings for

black people. Regarding the gender pillar, we launched the “Positive Women” Project, aimed at increasing the

Consolidated Financial Statements 2021

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Telecom Italia Finance Group

participation of women in the labor market. The project uses the “Positive Women” (“Mulheres Positivas”) app

as a digital platform to support the personal and professional development of women. The movement,

spearheaded by TIM, started in July with 10 companies and closed out 2021 with 47 partner companies, which

together offer free access to job openings and training courses, as well as intercompany mentoring for women.

Reinforcing the commitment and concrete action focused on the Social pillar of the ESG Plan, TIM established

the target of having 35% of leadership positions occupied by women, and 40% of the workforce composed of

black people, by 2023. We have also become a signatory to the main ecosystems of pacts and associations.

Between March and December, we signed the Women’s Empowerment Principles, issued by UN Women; the

Business Coalition for Race and Gender Equity; the Business Network for Social Inclusion; the Business and

LGBTI+ Rights Forum, the Forum on Generations and Future of Work, and the Business Coalition to End

Violence against Women and Girls.

As part of the commitment to promote an environment that is increasingly inclusive, safe, and free from

discrimination, in November TIM launched the “Respeito Gera Respeito” (“Respect Generates Respect”)

Program, with new guidelines and policy for the prevention, deterrence, and management of workplace

harassment, in addition to educational actions as well as internal and external initiatives to promote

environments and relationships free from discrimination and violence.

We kept the Integrated Communication and Training Plan in the program, with more than 40 actions in all,

and over 3,900 employees trained. “TIM Convida” (“TIM Invites”), a 100% digital event open to society with the

aim of generating dialogue and reflection on diversity and inclusion, presented seven editions throughout the

year, totaling more than 386,000 views on YouTube.

With the consistency of the Diversity & Inclusion Program, TIM has become one of the leaders in promoting

diversity and inclusion. In 2021 we were the first telco worldwide to receive GSMA’s Diversity in Tech award,

which recognizes companies that promote equality and diversity in the technology sector, and the only

Brazilian company to be part of and to lead the Refinitiv Diversity & Inclusion Index, which globally measures

the performance of companies in diversity and inclusion initiatives.

Environmental, Social & Governance

Brazil

ESG Journey

The Brazil BU is a pioneer in ESG (Environmental, Social & Governance) topics in the Telecommunications

sector in Brazil. The Company has been part of the B3 Sustainability Index Portfolio (ISE-B3) for 14 years, being

the company in the sector that has been part of the Index for the longest time. In February 2022, TIM was

recognized as one of the most sustainable companies in the world by S&P Global ESG, the organization

responsible for the Dow Jones Sustainability Index (DJSI). The company was included in the Sustainability

Yearbook 2022 for the evolution of its performance in the DJSI submission process, with a growth of 24%.

Since 2011, TIM has voluntarily been part of the Novo Mercado (New Market), the highest level of corporate

governance on the Brazilian Stock Exchange, in addition to being the first and only telecommunications

operator named as a Pro-Ethic (Pró-Ética Seal) company by the Brazilian Office of the Comptroller General

(CGU).

As a signatory of the UN Global Compact since 2008 and UN Women since 2021, TIM develops projects

connected to the Sustainable Development Goals (SDGs) and recognizes the rights to data privacy, secure

internet, access to information and freedom of speech as essential and non-negotiable.

TIM has become one of the leaders in fostering diversity and inclusion, with goals, commitments and joining

various initiatives related to gender, race, LGBTI+, age, among others. The Company became the first Brazilian

operator to integrate the Refinitiv Diversity & Inclusion Index in 2021, becoming the Brazilian and telecom

benchmark worldwide. It also became part of the Bloomberg Gender Equality Index in 2022, which brings

together 418 companies from 45 countries, 13 of which are from Brazil.

Recognized with the Top Employers certification seal, TIM is also consolidated as one of the companies with

the best HR practices. The certification is the result of an independent audit by the Top Employer Institute, an

international institute with 30 years of experience in 120 countries.

TIM responds to the Carbon Disclosure Project (CDP) – the world’s largest database on Greenhouse Gases

related to Climate Change – since 2010 and records its emissions in the Public Emissions Registry of the

Brazilian GHG Protocol Program.

Since 2004, TIM has been presenting its sustainability performance and it has been publishing reports in

accordance with the guidelines of the Global Reporting Initiative (GRI) for 13 years. As of 2021, the Company

started calling this publication the ESG Report and continues with its commitment to transparency and

accountability to its stakeholders, organizing the report in the three pillars: Environmental, Social and

Governance. The Report is also assured by an independent third party.

Our Policies on Social Responsibility, Human Rights, Diversity, Environment, Climate Change Management,

Corporate Risk Management, Anti-Corruption, Relationship with Suppliers, Occupational Health and Safety,

Privacy, among others, are publicly available for free consultation by our stakeholders.

Consolidated Financial Statements 2021

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Telecom Italia Finance Group

TIM Institute

In 2013, TIM founded the TIM Institute with the mission of democratizing access to science, technology and

innovation to foster human development in Brazil. Over 700,000 people from all states and the Federal District

have already benefited from the Institute’s education and inclusion projects, including internationally awarded

prizes (Governorte Award – IDB 2015).

Due to its sound performance in ESG, TIM integrates national and international indices and ratings, such as the

Corporate Sustainability Index (ISE-B3), Carbon Efficient Index (ICO2-B3), Brazil ESG Index (S&P/B3), CDP Brazil

Index of Climate Resilience (ICDPR-70), Refinitiv Diversity & Inclusion, Bloomberg’s Gender Equality Index (GEI),

FTSE4GOOD Emerging Markets, FTSE4GOOD Latin America, MSCI ACWI ESG Leaders, MSCI Emerging Markets

ESG Leaders, Teva Indices ESG Women on the Board, Women on Board seal, among others, in addition to

being ISO 9001 (since 2000), ISO 14001 (since 2010) and ISO 37001 (since 2021) certified.

Events subsequent to December 31, 2021

Payment of Interest on Equity

In January 2022, TIM S.A paid Interest on Capital (IOC) related to the fiscal year ending on December 31, 2021

and approved on December 15, 2021 according to the following schedule:

Payment Date

Reais per share

25/01/2022

0,231366129

Anatel grants prior consent for transfer of control of OI's mobile activities

TIM became aware that in an extraordinary public meeting held at the date of 31st January 2022 by its Board

of Directors, ANATEL – Agência Nacional de Telecomunicações unanimously granted prior consent to the

implementation of the corporate transaction referring to the full transfer of control of the three specific

purpose companies (“Mobile Assets SPE” or “SPE”), which correspond to the mobile telephony activities of Oi

Móvel SA – Em Recuperação Judicial (“Oi Móvel”), for the companies TIM, Telefônica Brasil S.A. and Claro S.A.

(“Transaction”).

Prior consent provides for certain conditions in line with a transaction of this nature, which mainly aim to

guarantee access by small providers to nationwide networks, maintain commitments linked to the transferred

radio frequencies, establish the minimum parameters of the communication plan linked to the Transaction

and grant users certain rights in the migration steps.

The conclusion of the Transaction still depends on the fulfillment of other precedent conditions, including the

approval of the Concentration Act No. 08700.000726/2021-08 by the Conselho Administrativo de Defesa

Econômica - CADE.

CADE approves acquisition of OI's mobile business by TIM Brasil

The offer submitted by TIM S.A., Brazilian subsidiaries of the TIM Group, for the acquisition of the mobile assets

of the Oi Group, together with Telefônica Brasil S.A. (VIVO) and Claro S.A., has been approved by the antitrust

Authority CADE (Conselho Administrativo de Defesa Economica).

The decision follows the pronunciation of the reglementary Authority Anatel (Agência Nacional de

Telecomunicações), which on February 1 last, had expressed itself in favor of the transfer of control of Oi’s

mobile assets.

The closing of the deal, which will define a new infrastructure structure for the Telco market in Brazil, still

depends on the fulfillment of specific steps foreseen in the Sale and Purchase Agreement. The operation, with

which TIM Brasil will acquire the most relevant share of the assets of the Oi Group, is expected to bring

significant benefits to the Brazilian TLC sector, maintaining a high degree of competiton and ensuring the

necessary investments for the development of the country’s digital advancement.

TIM reaffirms that the transaction, as of its completion, will add value not only to its Brazilian subsidiary but to

the whole Group and its shareholders as it will accelerate its growth and increase operating efficiency through

relevant synergies. Furthermore, positive effects are also expected for customers, as the transaction is likely to

improve the users’ experience and the quality of services offered. Finally, the transaction is expected to benefit

the entire telecommunications sector in Brazil, which will be strengthened in its investment capacity,

technological innovation, as well as its competitiveness.

For others details of subsequent events, see the specific Note "Events Subsequent to December 31, 2021".

Consolidated Financial Statements 2021

Directors’ report

Telecom Italia Finance Group

Business outlook for the year 2022

The ability to act quickly and assertively – taking advantage of market opportunities and focusing on executing

the strategy – was the hallmark of 2021. This combination made it possible for us to deliver all the targets set

for the year, even in a scenario of high uncertainty.

Our expectation for 2022 is to speed up the process of transforming TIM and the sector overall, with the

approval of the transaction with Oi Móvel, the beginning of the implementation of “real” 5G, and the paradigm

shift from fixed broadband to neutral networks. We also expect to further capitalize on our initiatives on the

Digital Transformation and New Business fronts, creating major opportunities for efficiency and growth for the

Group.

Main risks and uncertainties

The majority of risks and uncertainty that impact financial markets and industrial arena are beyond the

Group’s control, therefore risk governance is considered a strategic tool for value creation.

In addition, there have been several major shifts, including, but not limited to, the change in the market

environment, the entry of potential new competitors, the start of proceedings by Authorities, and the

implementation of new business strategies in the multimedia segment. These risk factors may have

unforeseeable repercussions in terms of the strategic choices adopted by the Group and could have an impact

on the evolution model adopted in the multimedia market.

The main risks affecting the business activities of the TIF Group are presented below.

Strategic risks

Risks related to macro-economic factors

The Group's economic and financial situation is subject to the influence of numerous macroeconomic factors

such as economic growth, political stability, consumer confidence, and changes in interest rates and exchange

rates in the markets in which it operates.

The main uncertainties for 2022 are tied with inflation that has been fueled by the supply bottlenecks in almost

all the economic sectors and the monetary policy measures that will be taken by the central banks all around

the world. Following the highest level of inflation in the US in almost 40 years, The Federal Reserve (FED) is

now expected to hike the interest rates 6 or 7 times during the years. At the same time the European Central

Bank (ECB) is expected to end an era of expansive monetary policy that lasts, with highs and lows, since 2008.

Geopolitically, the conflict between Ukraine and Russia is set to be the main event of 2022, with the involving

of US, Russia and EU.

The Brazilian economy has partially recovered from the impact of Covid 19 pandemic and is now facing a

double digits inflation. In order to limit the fast pace growing inflation, the Banco Central do Brasil (BCB) has

raised the SELIC rate through the year from 2% to 9,25%. BCB is expected to slow down the pace of hikes and

reach a stable level around 11-12%. Beside inflation and monetary policy, Brazil is facing an electoral year with

the exiting president Jair Bolsonaro being challenged by the left candidate Lula. Facing such uncertainties is

very difficult to predict what kind of impact there will be on the Brazilian economy and TIM Brazil results.

Risks related to competition

Competitive risks in the Brazilian market lie in the rapid transition of the business model tied to traditional

services and the potential consolidation of the sector. As the consumption patterns of consumers change

(migration from voice to data services), service providers need to act swiftly in upgrading their infrastructure

and modernizing their portfolios of products and services. In this context, the TIM Brasil group could be

impacted by the need to upgrade its technologies and infrastructure rapidly and by greater competition, in the

form of aggressive sales strategies and potential business combinations in the sector. In addition, the slow

recovery from the country’s major economic crisis, the delay in the necessary structural reforms, the Covid-19

pandemic and all the restrictions imposed to fight its spread, directly affected consumption, in particular in the

prepaid segment.

Operational risks

Operational risks inherent in our business relate, on one hand, to possible inadequacies in internal processes,

external factors, frauds, employee errors, errors in properly documenting transactions, loss of critical or

commercially sensitive data and failures in systems and/or network platforms; and on the other hand, to the

possibility of implementing strategies for value creation through the optimization of costs and capital

expenditure, which in part could depend on factors beyond the control of the Group, such as the cooperation of

external counterparties (suppliers, trade unions, industry associations) and laws and regulations.

Consolidated Financial Statements 2021

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Cybersecurity risks

Cyber risk is on the increase worldwide and as such requires continual monitoring by the Group, given the

sheer amount of IT assets managed in terms of own TLC infrastructure and assets necessary to deliver services

to customers.

In view of these considerations, considerable attention was paid to protecting networks from main threats (e.g.

viruses, malware, hackers, data theft). With a wide range of attackers (Cyber-Criminals, Cyber-Terrorists,

Insiders, etc.), the Group carries out activities not only to safeguard its infrastructure but also – with a strong

sense of responsibility – to protect customers' information assets, that are a priority target.

As regards prevention, the Group monitors cyber risk analyses, defining security plans for the company's IT

assets, to identify the actions necessary to mitigate cyber risk in advance and guarantee a security by design

approach, also monitoring the plans of these actions and controls on actual adoption in the field.

TIM has also implemented an insurance program to cover cyber risks.

Risks related to business continuity

The TIF Group's success depends heavily on the ability to ensure continuous and uninterrupted delivery of the

products and services we provide through the availability of processes and the relating supporting assets. In

particular, the Network Infrastructure and the Information Systems are sensitive to various internal and

external threats: power outage, floods, storms, human errors, system failures, hardware and software failures,

software bugs, cyber-attacks, earthquakes, facility failures, strikes, fraud, vandalism, terrorism, etc.

TIF, as part of the TIM Group, has adopted a “Business Continuity Model System” framework in line with

international standards, to analyze and prevent these risks.

Risks related to the development of fixed and mobile networks

To maintain and expand our customer portfolio in the Brazilian market it is necessary to maintain, update and

improve existing networks in a timely manner. A reliable and high-quality network is necessary to maintain the

customer base and minimize terminations to protect the Group's revenues from erosion. The maintenance and

improvement of existing installations depend on our ability to:

•deliver network development plans within the time-frames contemplated by business development

plans and with the necessary level of effectiveness/efficiency;

•upgrade the capabilities of the networks to provide customers with services that are closer to their

needs.

Risks of internal/external fraud

TIF Group, as part of the TIM Group, has an organizational model in place to prevent fraud. The organization is

designed to ensure higher risk mitigation levels against illegal acts committed by people inside and outside the

organization, which could adversely affect the Group's operating performance, financial position and image.

Risks related to disputes and litigation

TIF Group has to deal with disputes and litigation with tax authorities and government agencies, regulators,

competition authorities, other telecommunications operators and other entities. The possible impacts of such

proceedings are generally uncertain. In the event of unfavorable settlement for the Group, these issues may,

individually or as whole, have an adverse effect, which may even be significant, on its operating results,

financial position and cash flows.

Financial risks

TIF Group may be exposed to financial risks, such as risks arising from fluctuations in interest rates and

exchange rates, credit risk, liquidity risk and risks related to the performance of the equity markets in general,

and – more specifically – risks related to the performance of the share price of participations held by the Group.

These risks may adversely impact the earnings and the financial structure of the Group. Accordingly, to

manage those risks, the TIF Group has embedded guidelines defined at central level by TIM Group, which must

be followed for operational management, identification of the most suitable financial instruments to meet set

goals, and monitoring the results achieved. In particular, in order to mitigate the liquidity risk, the TIM Group

aims to maintain an "adequate level of financial flexibility", in terms of cash and syndicated committed credit

lines, enabling it to cover refinancing requirements at least for the next 12-18 months.

For further details of financial risks, see the specific Note "Financial risks management" .

Regulatory and compliance risks

Regulatory risks

The telecommunications industry is highly regulated. In this context, new decisions by Anatel may lead to

changes in the regulatory framework that may affect the expected results of the Group.

Consolidated Financial Statements 2021

Directors’ report

Telecom Italia Finance Group

Compliance risks

The TIF Group may be exposed to risks of non-compliance due to non-observance/breach of internal (self-

regulation, such as, for example, bylaws, code of ethics) and external rules (laws, regulations, new accounting

standards and Authority orders), with consequent judicial or administrative penalties, financial losses or

reputational damage.

The TIF Group aims to ensure that processes, and, therefore, the procedures and systems governing them, and

corporate conduct comply with legal requirements. The risk is associated with potential time lags in making

the processes compliant with regulatory changes or whenever non-conformities are identified.

Group internal control and risk management

TIF Group adheres to the principles and criteria of the TIM Group Corporate Governance Code. Its Internal

Control and Risk Management System consists of the set of rules, procedures and organizational structures

applied to the entire TIM Group, which TIF Group is part of. This set allows the sound, fair and consistent

operation of the Group in line with the pre-established objectives.TIM Group level, the Internal Control and Risk

Management System involves several components acting in a coordinated way accordingly to their respective

responsibilities –the Board of Directors, with the responsibility to direct and provide strategic supervision; the

Executive Directors and Management with the responsibility to control and manage; the Control and Risk

Committee and the Head of the Group Audit Department, with the responsibility to monitor, control and

provide support to the Board of Directors.

Information for investors

Brazil – shares

Regarding the trading of shares issued by Group companies on regulated markets, the ordinary shares of TIM

S.A. are listed in Brazil on B3 (formerly BM&F/Bovespa).

Ordinary shares of TIM S.A. were also listed on the NYSE (New York Stock Exchange); share prices are set

through ADS (American Depositary Shares) representing 5 ordinary shares of TIM S.A.

Waiver of the obligation to present activities in one report only

The Board of Directors of Telecom Italia Finance waived the provisions of art. 1720-1 (3) of the Luxembourg law

dated as September 10, 2015, as modified by time to time, which allows the Board to present one report only

where Consolidated Annual Report is prepared.

Consolidated Financial Statements 2021

Directors’ report

Telecom Italia Finance Group

Alternative Performance Measures

In this Directors’ Report and in the Consolidated Financial Statements of the Group for the year ended

December 31, 2021, in addition to the conventional financial performance measures established by IFRS,

certain alternative performance measures are presented for a better understanding of the trend of operations

and financial condition. Such measures, which are also presented in interim financial reports, should, however,

not be considered as a substitute for those required by IFRS.

•EBITDA/EBIT: these financial measures represent a useful unit of measurement for assessing the

operating performance of the Group (considering in particular Brazil BU level). In order to get a more

complete and effective understanding, they are also presented in terms of organic changes (amount

and/or percentage), excluding, where applicable, the effects of the change in the scope of

consolidation and exchange differences. EBITDA/EBIT are calculated as follows:

Profit (loss) before tax from continuing operations

Finance expenses

Finance income

+/-

Other expenses (income) from investments

+/-

Share of profits (losses) of associates accounted for using the equity method

EBIT – operating profit (loss)

+/-

Impairment losses (reversals) on non-current assets

+/-

Losses (gains)on disposals of non-current assets

Depreciation and amortization

EBITDA – Operating profit(loss) before depreciation and amortization, Capital gains (losses) and impairment reversal

(losses) on non-current assets

•EBITDA margin and EBIT margin: Telecom Italia Finance believes that these margins represent useful

indicators of the ability of the Group (and in particular the Brazil BU) to generate profits from its

revenues. In fact, EBITDA margin and EBIT margin measure the operating performance of an entity by

analysing the percentage of revenues that are converted, respectively, into EBITDA and EBIT.

•Capital Expenditures (“Capex”): Telecom Italia Finance considers CAPEX as relevant measures to

understand the Group investments in intangible and tangible nun-current assets. The amount

presented corresponds to the sum of columns “addition” in Note “Intangible assets with a finite useful

life” and Note “Tangible assets”.

•Net financial debt: Telecom Italia Finance believes that Net Financial Debt represents an accurate

indicator of its ability to meet its financial obligations. It is represented by Gross Financial Debt less

Cash and Cash Equivalents and other Financial Assets. The Directors’ Report includes a table showing

the amounts taken from the statements of financial position and used to calculate the Net Financial

Debt of the Group, divided by operating segment. In addition, Note “Net Financial Debt” details the

calculation for the Group.

•ARPU: The Group uses Average Revenue Per User (ARPU) as metric to understand the revenue

generation capability and growth at the per-customer level. It is equivalent to the total revenue

divided by average users number during a period.

Corporate Governance Statement

A description of the Parent Corporate Governance is provided within the statutory accounts of Telecom Italia

Finance, available at www.tifinance.lu.

Consolidated Financial Statements 2021

Directors’ report

Telecom Italia Finance Group

[Page intentionally left blank]

Consolidated Financial Statements 2021

Consolidated Statements of Financial Position

Telecom Italia Finance Group

Consolidated Statements of Financial Position

Assets

(millions of euros)

Note

31/12/2021

31/12/2020

Non-current assets

Intangible assets

1.996

1.732

Goodwill

[4]

443

604

Intangible assets with a finite useful life

[5]

1.552

1.128

Tangible assets

[6]

1.691

1.707

Property, plant and equipment

1.691

1.707

Right of use assets

[7]

1.253

1.180

Other non-current assets

2.658

2.520

Investments

[8]

254

Non-current financial receivables for lease contracts

[9]

Other non-current financial assets

[9]

1.893

1.883

Miscellaneous receivables and other non-current assets

[10]

393

479

Deferred tax assets

[11]

Total Non-current assets

7.598

7.140

Current assets

Inventories

[12]

Trade and miscellaneous receivables and other current assets

[13]

832

807

Current income tax receivables

[11]

Current financial assets

[9]

5.628

4.239

Current financial receivables arising from lease contracts

Securities other than investments, financial receivables and other current

financial assets

2.377

1.237

Cash and cash equivalents

3.247

3.001

Total Current Assets

6.518

5.123

TOTAL ASSETS

14.117

12.263

The accompanying notes are an integral part of these annual accounts.

Consolidated Financial Statements 2021

Consolidated Statements of Financial Position

Telecom Italia Finance Group

Equity and Liabilities

(million euros)

Note

31/12/2021

31/12/2020

Equity

[14]

Share capital issued

1.819

Other reserves and retained earnings (accumulated losses), including

profit (loss) for the year

4.118

4.252

Equity attributable to owners of the Parent

5.937

6.070

Non-controlling interests

[3]

1.345

1.233

TOTAL EQUITY

7.282

7.303

Non-current liabilities

Non-current financial liabilities for financing contracts and others

[15]

2.397

1.889

Non-current financial liabilities for lease contracts

[15]

1.233

1.149

Deferred tax liabilities

[11]

—

Provisions

[20]

157

144

Miscellaneous payables and other non-current liabilities

[21]

118

158

Total Non-current liabilities

3.905

3.340

Current liabilities

Current financial liabilities for financing contracts and others

[15]

1.343

590

Current financial liabilities for lease contracts

[15]

201

166

Trade and miscellaneous payables and other current liabilities

[22]

1.356

845

Current income tax payables

[11]

Total Current Liabilities

2.930

1.620

TOTAL LIABILITIES

6.835

4.960

TOTAL EQUITY AND LIABILITIES

14.117

12.263

The accompanying notes are an integral part of these annual accounts.

Consolidated Financial Statements 2021

Consolidated Statements of Financial Position

Telecom Italia Finance Group

Separate Consolidated Income Statements

(million euros)

Note

31/12/2021

31/12/2020

Revenues

[24]

2.840

2.933

Other operating income

[25]

Total operating revenues and other income

2.853

2.945

Purchase of goods and services

[26]

-1.039

-1.072

Employee benefits expenses

[27]

-238

Other operating expenses

[28]

-287

-322

Change in inventories

-7

Internally generated assets

[29]

Operating profit before depreciation and amortization, capital gains

(losses) and impairment reversals (losses) on non-current assets (EBITDA)

1.355

1.400

Depreciation and amortization

[30]

-895

-939

Gains/(losses) on disposals of non-current assets

[31]

Operating profit (loss) (EBIT)

466

469

Share of profits (losses) of equity investments valued using equity method

-2

—

Other income (expenses) from investments

[32]

120

Finance income

[33]

707

545

Finance expenses

[33]

-816

-683

Profit (loss) before tax from continuing operations

476

332

Income tax expenses

[11]

-39

-44

PROFIT (LOSS) FOR THE YEAR

437

288

Attributable to

Owners of the Parent

282

184

Non-controlling interests

155

104

The accompanying notes are an integral part of these annual accounts.

Consolidated Financial Statements 2021

Separate Consolidated Income Statements

Telecom Italia Finance Group

Consolidated Statements of Comprehensive Income

(millions of euros)

Note

31/12/2021

31/12/2020

Profit (loss) for the year

(a)

437

288

Other components that subsequently will not be reclassified to the

Separate Consolidated Income Statements

(b=c)

-26

Financial assets measured at fair value through other comprehensive

income:

(c)

-26

Profit (loss) from fair value adjustments

[8]

-26

Other components that subsequently will be reclassified to the Separate

Consolidated Income Statements

(d=e+f+g)

-1.597

Financial assets measured at fair value through other comprehensive

income:

(e)

-18

Profit (loss) from fair value adjustments

-12

Loss (profit) transferred to the Separate Consolidated Income

Statements

-6

Hedging derivative instruments:

(f)

—

-1

Profit (loss) from fair value adjustments

—

Loss (profit) transferred to the Separate Consolidated Income

Statements

—

-1

Exchange rate differences on translating foreign operations:

(g)

-1.601

Profit (loss) on translating foreign operations

-1.601

Other components of the Consolidated Statements of Comprehensive

Income

(h=b+d)

-1.623

Total comprehensive income (loss) for the year

(i=a+h)

467

-1.335

Attributable to

Owners of the Parent

300

-948

Non-controlling interests

167

-387

The accompanying notes are an integral part of these annual accounts.

Consolidated Financial Statements 2021

Consolidated Statements of Comprehensive Income

Telecom Italia Finance Group

Consolidated Statements of Changes in Equity

Changes from January 1, 2021 to December 31, 2021

(millions of euros)

capital

Additiona

l paid in

capital

Reserve

for

financial

assets

measure

d at fair

value

through

other

compreh

ensive

income

Reserve for

hedging

instruments

Reserve for

exchange

differences

translating

foreign

operations

Reserve for

remeasure

ments of

employee

defined

benefit

plans

(IAS 19)

Share of

other profits

(losses) of

associates

and joint

ventures

accounted for

using the

equity

method

Other

reserves and

retained

earnings

(accumulated

losses),

including

profit (loss)

for the period

Total Equity

attributable

to owners of

the Parent

Non-

controlling

interests

Total

equity

Balance at January

01, 2021

1.819

3.148

-459

-2.549

-1

—

4.111

6.070

1.233

7.303

Changes in equity

during the period:

Dividends

approved [*]

—

-436

-54

-490

Total

comprehensive

income (loss) for

the period

—

-8

—

282

300

167

467

Transfer of

cumulated result

for disposal of

TIM shares [**]

—

462

—

-462

—

Other changes

—

Balance at

December 31, 2021

1.819

3.148

-6

-2.523

—

3.498

5.937

1.345

7.282

[*] This item includes an interim dividend that the Board of Directors of TI Finance resolved to distribute on November 23,

2021 in the amount of 384,1 million euros, partly in kind and partly cash by using the non-distributed profit of year 2009 to

2014. According to such resolution, on November 26, 327,2 million euros were paid cash. The amount in kind has been paid

distributing all the no. 126.082.374 TIM S.p.A. ordinary shares in portfolio, for a countervalue of 56,9 million euros.

[**] For further details see Note "Investments".

Changes from January 1, 2020 to December 31, 2020

(millions of euros)

capital

Additiona

l paid in

capital

Reserve

for

financial

assets

measure

d at fair

value

through

other

compreh

ensive

income

Reserve for

hedging

instruments

Reserve for

exchange

differences

translating

foreign

operations

Reserve for

remeasure

ments of

employee

defined

benefit

plans (IAS

19)

Share of

other profits

(losses) of

associates

and joint

ventures

accounted for

using the

equity

method

Other

reserves and

retained

earnings

(accumulated

losses),

including

profit (loss)

for the period

Total Equity

attributable

to owners of

the Parent

Non-

controlling

interests

Total

equity

Balance at January

01, 2020

1.819

3.148

-438

-1.440

—

4.009

7.100

1.680

8.780

Changes in equity

during the period:

Dividends

approved

—

-75

-61

-136

Total

comprehensive

income (loss) for

the period

—

-21

-1

-1.109

-1

—

184

-948

-387

-1.335

Other changes

—

(7)

—

-7

Balance at

December 31, 2020

1.819

3.148

-459

-2.549

-1

—

4.111

6.070

1.233

7.303

The accompanying notes are an integral part of these annual accounts.

Consolidated Financial Statements 2021

Consolidated Statements of Changes in Equity

Telecom Italia Finance Group

Consolidated Statements of Cash Flows

(million euros)

Note

31/12/2021

31/12/2020

Cash Flows from operating activities:

Profit (loss) from continuing operations

437

288

Adjustments for:

Depreciation and amortisation

[30]

895

939

Impairment losses(reversals) of non-current assets (including investments)

-6

-1

Net change in deferred tax assets and liabilities

[11]

-97

Losses (gains) realised on disposal of non-current assets (including

investments)

[31] [32]

-125

-8

Change in inventories

Change in trade receivables and net amounts due from customers on

construction contracts

[13]

-17

227

Change in trade payables

-147

Net change in current income tax receivables/payables

[11]

Net changes in miscellaneus receivables/payables and other assets/liabilities

146

-68

Cash flows from (used In ) operating activities

1.420

1.156

Cash Flows from investing activities:

Total purchase of intangible and tangible assets and right of use on a cash basis

-796

-908

Change in financial receivables and other financial assets

[9]

-1.188

313

Collection on sale of equity investments in subsidiaries net value

[32]

172

—

Proceed from sale/repayment of intangible, tangible and other non-current assets

Cash flows from (used In ) investing activities

-1.811

-594

Cash Flows from financing activities:

Changes in current financial liabilities and other

[15]

887

-69

Proceeds from non-current financial liabilities (including current portion)

[15]

618

547

Repayments of non-current financial liabilities (including current portion)

[15]

-455

-464

Changes in derivatives

[9] [16]

-66

Dividends paid

-431

-162

Cash flows from (used In ) financing activities

635

-215

Aggregate Cash flows

244

347

Net foreign exchange differences on net cash and cash equivalents

-151

Net cash and cash equivalents at the beginning of the year

[9]

2.995

2.649

Net cash and cash equivalents at the end of the year

[9]

3.239

2.995

Additional Cash Flow Information

(million euros)

31/12/2021

31/12/2020

Income taxes (paid) received

-16

-30

Interest expense paid

-372

-373

Interest income received

257

236

Dividends received

The accompanying notes are an integral part of these annual accounts.

Consolidated Financial Statements 2021

Consolidated Statements of Cash Flows

Telecom Italia Finance Group

Notes to the Consolidated Financial Statements

Note 1 - Form, content and other general information

FORM AND CONTENT

Telecom Italia Finance S.A. (the “Parent” or “TIF”) is established in Luxembourg as Société Anonyme under the

laws of the Grand Duchy of Luxembourg. The registered office is located at 12, rue Eugène Ruppert,

Luxembourg. Parent and its subsidiaries are collectively referred to as the “Group” or “TIF Group”.

The immediate and ultimate Parent of the Group is TIM S.p.A.

The Group, through its Brazilian’s subsidiaries, is principally engaged in providing fixed-line and telephony

services to the public. The Group is also involved in providing financial assistance and loans to the ultimate

Parent of the Group and its subsidiaries.

The Consolidated Financial Statements 2021 of the Group have been prepared in accordance with the

International Financial Reporting Standards issued by the International Accounting Standards Board as

endorsed by EU ("IFRS") and were authorized for issue with a resolution of the Board of Directors on March 01,

2022. The Consolidated Financial Statements 2021 are subject to approval by the shareholders meeting.

The consolidated financial statements have been prepared under the historical cost convention, except for

financial assets, which are measured at the fair value recognized in the other components of the

comprehensive income, financial assets measured at fair value through the income statement, and derivative

financial instruments, which have been measured at fair value.

In accordance with IAS 1 (Presentation of Financial Statements) comparative information included in the

consolidated financial statements is, unless otherwise indicated, related to the previous year.

The Consolidated Financial Statements 2021 have been prepared on a going concern basis (for further details

see Note "Accounting policies").

The Consolidated Financial Statements 2021 are expressed in euro (rounded to the nearest million, unless

otherwise indicated).

The official version of the consolidated financial statements is the ESEF version available at the Officially

Appointed Mechanism (OAM) at the bourse of Luxembourg (https://www.bourse.lu/oam).

FINANCIAL STATEMENT FORMATS

The financial statement formats adopted are consistent with those indicated in IAS 1. In particular:

•the Consolidated Statement of Financial Position has been prepared by classifying assets and

liabilities according to the "current and non-current" criterion;

•the Separate Consolidated Income Statement has been prepared by classifying operating costs by

nature of expense as this form of presentation is considered more appropriate and representative of

the specific business of the Group, conforms to internal reporting and is in line with the Group's

industrial sector;

•the Consolidated Statement of Comprehensive Income includes the profit or loss for the year as

shown in the Separate Consolidated Income Statement and all other changes in equity related to

non-controlling interests;

•the Consolidated Statement of Cash Flows has been prepared by presenting cash flows from

operating activities according to the "indirect method", as permitted by IAS 7 (Statement of Cash

Flows).

Furthermore, according to IAS 1 (paragraphs 97 and 98), certain expense and income items that are material in

terms of nature and amount are separately disclosed in the notes to the separate consolidated income

statement. Specifically, such items include: income/expenses arising from the disposal of property, plant and

equipment, business segments and investments; expenses stemming from company reorganization and

streamlining processes and projects, also in connection with corporate transactions (mergers, spin-offs, etc.);

expenses resulting from litigation and regulatory fines and related liabilities; other provisions and related

reversals; costs for the settlement of disputes other than regulatory disputes; adjustments, realignments and

other non-recurring items, also relating to previous years; impairment losses on goodwill and/or other

intangible and tangible assets.

Consolidated Financial Statements 2021

Notes to the Consolidated Financial Statements

Telecom Italia Finance Group

SEGMENT REPORTING

An operating segment is a component of an entity:

•that engages in business activities from which it may earn revenues and incur expenses (including

revenues and expenses relating to transactions with other components of the same entity);

•whose operating results are regularly reviewed by the entity's chief operating decision maker to make

decisions about resources to be allocated to the segment and assess its performance; and

•for which discrete financial information is available.

In particular, the operating segments of the Group are organized according to the specific businesses.

The term operating segment is considered synonymous with Business Unit.

The operating segments of the Group are as follows:

•Telecommunications (or Brazil Business Unit): includes mobile and fixed telecommunications

operations in Brazil;

•Other Operations: includes TI Finance, that provides financial assistance to TIM Group companies.

For these Business Units, the Group has identified Chief Operating Decision Makers (CODMs) within the

directors for each segment.

Note 2 - Accounting Policies

GOING CONCERN

The Consolidated Financial Statements 2021 have been prepared on a going concern basis as there is the

reasonable expectation that the Group will continue conducting its business in the foreseeable future (and in

any event over a period of at least twelve months).

In particular, the following factors have been taken into consideration:

•the main risks and uncertainties (that are for the most part of an external nature) to which the Group

and the various activities of the Group are exposed:

–the changes in the general macroeconomic situation in the Italian, European and Brazilian

market, including the effects deriving from the continued state of Covid-19 health

emergency, as well as the volatility of financial markets in the Eurozone, partly following the

UK’s Brexit;

–variations in business conditions, also related to competition;

–changes to laws and regulations (price and rate variations);

–outcomes of legal disputes and proceedings with regulatory authorities, competitors and

other parties;

–financial risks (interest rate and/or exchange rate trends, changes in the Group's credit rating

by rating agencies);

•the optimal mix between risk capital and debt capital;

•the policy for financial risk management (market risk, credit risk and liquidity risk), as described in the

Note "Financial risk management" .

Based on these factors, the Management believes that, at the present time, there are no elements of

uncertainty regarding the Group’s ability to continue as a going concern.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the financial statements of all subsidiaries from the date on

which control over such subsidiaries commences until the date on which control ceases.

The date of all the subsidiaries’ financial statements coincides with that of the Parent.

Control exists when the Parent has all the following:

•decision-making power over the investee, which includes the ability to direct the relevant activities of

the investee, i.e. the activities that significantly affect the investee’s returns;

•entitlement to the variable profits or losses commensurate with its shareholding in the investee;

•the ability to use its decision-making to determine the amount of the returns relating to its

shareholding in the entity.

The Parent assesses whether it controls an investee if facts and circumstances indicate that there are changes

in one or more of the three control elements.

In the preparation of the Consolidated Financial Statements,the global amounts of the assets, liabilities, costs

and revenues of the consolidated companies are recognized on a line-by-line basis, while the share of equity

and the year's result of non-controlling interest is recognized and is disclosed separately under appropriate

Consolidated Financial Statements 2021

Notes to the Consolidated Financial Statements

Telecom Italia Finance Group

items in the Consolidated Statements of Financial Position, in the Separate Consolidated Income Statement

and in the Consolidated Statements of Comprehensive Income.

Under IFRS 10 (Consolidated financial statements), the comprehensive loss (including the profit or loss for the

year) is attributed to the owners of the parent and to the non-controlling interests even when the equity of

non-controlling interest has a deficit balance.

All intragroup balances and transactions and any gains and losses arising from intragroup transactions are

eliminated in consolidation.

The carrying amount of the investment in each subsidiary is eliminated against the corresponding share of

equity in each subsidiary, after adjustment, if any, to fair value at the date of acquisition of control. At that

date, goodwill is recorded as an intangible asset, as described below, whereas any gain from a bargain

purchase (or negative goodwill) is recognized in the separate consolidated income statement.

All the assets and liabilities expressed in currencies other than euro of foreign consolidated entities that are

included in the consolidation are translated using the exchange rates in effect at the reporting date (the

current exchange rate method), while the related revenues and costs are translated at the average exchange

rates for the year. Exchange differences resulting from the application of this method are classified as equity

until the entire disposal of the investment or upon loss of control of the foreign subsidiary. Upon partial

disposal, without losing control, the proportionate share of the cumulative amount of exchange differences

related to the disposed interest is recognized in non-controlling interests.

The cash flows of foreign consolidated subsidiaries expressed in currencies other than Euro included in the

consolidated statement of cash flows are converted into Euro at the average exchange rates for the year.

Goodwill and fair value adjustments arising from the allocation of the purchase price of a foreign entity are

recorded in the relevant foreign currency and are converted using the year-end exchange rate.

Under IFRS 10, changes in a parent’s ownership interest in a subsidiary that do not result in a loss of control

are accounted for as equity transactions. In such circumstances the carrying amounts of controlling and non-

controlling interests shall be adjusted to reflect the changes in their relative interests in the subsidiary. Any

difference between the amount by which the non-controlling interest is adjusted and the fair value of the

consideration paid or received shall be recognized directly in equity and attributed to the owners of the Parent.

Under IFRS 10, the parent company in case of loss of control of a subsidiary:

•derecognizes:

•the assets (including any goodwill) and the liabilities;

•the carrying amount of any non-controlling interest;

•recognizes:

•the fair value of any consideration received;

•the fair value of any residual investment retained in the former subsidiary;

•any gain or loss resulting from the transaction, in the separate consolidated income

statement;

•the reclassification to the separate consolidated income statement of the amounts

previously recognized in other comprehensive income in relation to the subsidiary.

In the Consolidated Financial Statements, investments in associates are accounted for using the equity

method, as provided by IAS 28 (Investments in Associates and Joint Ventures).

Associates are enterprises in which the Group holds at least 20% of the voting rights or exercises significant

influence, but no control or joint control over their financial and operating policies.

Associates are included in the Consolidated Financial Statements from the date that significant influence

commences until the date on which significant influence ceases. Under the equity method, on initial

recognition the investment in an associate is recognized at cost, and the carrying amount is increased or

decreased to recognize the investor's share of the profit or loss of the investee after the date of acquisition.

The investor's share of the investee's profit or loss is recognized in the investor's income statement. Dividends

received from an investee reduce the carrying amount of the investment.

Adjustments to the carrying amount may also be necessary for changes in the investee's other comprehensive

income (i.e. those arising from foreign exchange translation differences). The investor's share of those changes

is recognized in the investor's other comprehensive income.

If an investor's share of losses of an associate equals or exceeds its interest in the associate, the investor

discontinues recognizing its share of further losses. After the investor's interest is reduced to zero, additional

losses are provided for, and a liability is recognized, only to the extent that the investor has incurred legal or

constructive obligations or made payments on behalf of the associate. If the associate subsequently reports

profits, the investor resumes recognizing its share of those profits only after its share of the profits equals the

share of losses not recognized.

Any other long-term interests (some types of preference shares and long-term loans) in an associate or joint

venture are measured in accordance with IFRS 9.

Gains and losses resulting from "upstream" and "downstream" transactions between an investor (including its

consolidated subsidiaries) and its associate are recognized in the investor's financial statements only to the

extent of unrelated investors' interests in the associate.

The investor's share of profits and losses of the associate arising from said transactions is eliminated.

Consolidated Financial Statements 2021

Notes to the Consolidated Financial Statements

Telecom Italia Finance Group

INTANGIBLE ASSETS

Goodwill

The goodwill recorded in the Consolidated Financial Statements of the Group refers to the goodwill which was

generated in connection with the acquisition of the Brazilian Business Unit.

In accordance with IFRS 3 (Business Combinations), goodwill is recognized in the financial statements at the

date of acquisition of control of a business and is determined as the excess of (a) over (b), as follows:

a)the aggregate of:

•the consideration transferred (measured in accordance with IFRS 3; it is generally recognized on

the basis of the fair value at the acquisition date);

•the amount of any non-controlling interest in the acquiree measured proportionally to the non-

controlling interest share of the acquiree's identifiable net assets shown at the related fair value;

•in a business combination achieved in stages, the acquisition date fair value of the acquirer's

previously held equity interest in the acquiree;

b)the fair value of the identifiable assets acquired net of the identifiable liabilities assumed measured at

the date of acquisition of control.

IFRS 3 requires, inter alia, the following:

•incidental costs incurred in connection with a business combination to be charged to the Separate

Consolidated Income Statement;

•in a business combination achieved in stages, the acquirer to remeasure its previously held equity

interest in the acquiree at its fair value at the acquisition date of control and recognize the resulting

gain or loss, if any, in the Separate Consolidated Income Statement.

Goodwill is classified in the statement of financial position as an intangible asset with an indefinite useful life.

Goodwill initially recognized is subsequently reduced only by cumulative impairment losses (for more details,

see the section "Impairment of intangible assets, tangible assets and rights of use assets - Goodwill", below). In

case of loss of control of a subsidiary, the relative amount of goodwill is taken into account in calculating the

gain or loss on disposal.

Development costs

Costs incurred internally for the development of new products and services represent either intangible assets

(mainly costs for software development) or tangible assets. These costs are capitalized only when all the

following conditions are satisfied: i) the cost attributable to the development phase of the asset can be

measured reliably, ii) there is the intention, the availability of financial resources and the technical ability to

complete the asset and make it available for use or sale and iii) it can be demonstrated that the asset will be

able to generate future economic benefits. Capitalized development costs comprise only incurred expenditures

that can be attributed directly to the development process for new products and services.

Capitalized development costs are amortized/depreciated systematically over the estimated product or service

life so that the amortization method reflects the way in which the asset's future economic benefits are

expected to be consumed by the entity.

Other intangible assets with a finite useful life

Other purchased or internally-generated intangible assets with a finite useful life are recognized as assets, in

accordance with IAS 38 (Intangible Assets), when the use of the asset is likely to generate future economic

benefits and when the cost of the asset can be reliably measured.

Such assets are recorded at purchase or production cost and amortized on a straight-line basis over their

estimated useful lives; the amortization rates are reviewed annually and revised if the current estimated useful

life is different from that estimated previously. The effect of such changes is recognized prospectively in the

Separate Consolidated Income Statement.

TANGIBLE ASSETS

Property, plant and equipment

Property, plant and equipment are recognized at purchase or production cost. Subsequent expenditures are

capitalized only if they increase the future economic benefits embodied in the related item of property, plant

and equipment. All other expenditures are recognized in the Separate Consolidated Income Statement as

incurred.

The cost of these assets also includes the expected costs of dismantling the asset and restoring the site, if a

legal or constructive obligation exists. The corresponding liability is recognized at its present value in a

provision for risks and charges in the liabilities. The recognition in the separate consolidated income statement

of the capitalized expenditure is done over the useful life of the related tangible assets through their

depreciation.

Consolidated Financial Statements 2021

Notes to the Consolidated Financial Statements

Telecom Italia Finance Group

The calculation of estimates for dismantling costs, discount rates and the dates in which such costs are

expected to be incurred is reviewed annually at each financial year-end. Changes in the above liability must be

recognized as an increase or decrease of the cost of the relative asset; the amount deducted from the cost of

the asset must not exceed its carrying amount. The excess, if any, is recorded immediately in the Separate

Consolidated Income Statement, conventionally under the line item "Depreciation".

Depreciation is calculated on a straight-line basis over the estimated useful life of the assets.

Depreciation rates are reviewed annually and revised if the current estimated useful life is different from that

estimated previously. The effect of such changes is recognized prospectively in the Separate Consolidated

Income Statement.

Land, including land pertaining to buildings, is not depreciated.

RIGHT OF USE ASSETS

In accordance with IFRS 16, lease liabilities are presented through the recognition of a financial liability in the

statement of financial position consisting in the present value of future lease payments, against the

recognition of the right of use of the leased asset.

On the commencement date of the lease, the right of use is recognized at cost including: the amount of the

initial measurement of the lease liability, any lease payments made at or before the commencement date,

initial direct costs incurred for the signature of the lease and the present value of the estimated restoration

and dismantling costs set out in the lease, less any incentives.

Subsequently, the right of use is amortized over the term of the lease (or the useful life of the asset, if lower),

subject to impairment and adjusted for any remeasurement of the lease liability.

It is specified that starting January 1, 2021, the Group has attracted, under the scope of application of IFRS 16,

if the criteria and the requirements laid down by the standard are met, the new contract types concerning

cloud software resources and the spectrum of transmission frequencies on optic fiber carriers. This approach is

functional to the very innovative specificity of these types of contract, concerning hardware infrastructure and

optical transmission as well as technologically-advanced software services.

CAPITALIZED BORROWING COSTS

Under IAS 23 (Borrowing Costs), the Group capitalizes borrowing costs only if they are directly attributable to

the acquisition, construction or production of an asset that takes a substantial period of time (conventionally

more than 12 months) to get ready for its intended use or sale.

Capitalized borrowing costs are recorded in the Separate Consolidated Income Statement and deducted

directly from the "finance expense" line item to which they relate.

IMPAIRMENT OF INTANGIBLE, TANGIBLE AND RIGHT OF USE ASSETS

Goodwill

Goodwill is tested for impairment at least annually or more frequently whenever events or changes in

circumstances indicate that goodwill may be impaired, as set forth in IAS 36 (Impairment of Assets); however,

when the conditions that gave rise to an impairment loss no longer exist, the original amount of goodwill is not

reinstated.

The test is generally conducted at the end of every year, so the date of testing is the year-end closing date of

the financial statements. Goodwill acquired and allocated during the year is tested for impairment at the end

of the year in which the acquisition and allocation took place.

For the purpose of verifying its recoverability, goodwill is allocated, from the acquisition date, to each of the

cash-generating units, or groups of cash-generating units, that is expected to benefit from the combination.

If the carrying amount of the cash-generating unit (or group of cash-generating units) exceeds the recoverable

amount, an impairment loss is recognized in the Separate Consolidated Income Statement. The impairment

loss is first recognized as a deduction of the carrying amount of goodwill allocated to the cash-generating unit

(or group of cash-generating units) and only subsequently applied to the other assets of the cash-generating

unit in proportion to their carrying amount, up to the recoverable amount of the assets with a finite useful life.

The recoverable amount of a cash-generating unit (or group of cash-generating units) to which goodwill is

allocated is the higher between the fair value less costs to sell and its value in use.

The fair value net of disposal costs is estimated on the basis of the income approach, insofar as this allows for

the reflection of the benefits deriving from a new, different business structure in the future. In particular, the

fair value net of disposal costs is based on the current value of the forecast cash flow, applying a discounting

rate that reflects current market assessments of the time value of money and the risks specific to the asset.

The future cash flows are those arising from an explicit time horizon between three and five years, as well as

those extrapolated to estimate the terminal value.

In calculating the value in use, the estimated future cash flows are discounted to present value using a

discount rate that reflects current market assessments of the time value of money and the risks specific to the

asset. The future cash flows are those arising from an explicit time horizon between three and five years as

well as those extrapolated to estimate the terminal value. The long-term growth rate used to estimate the

Consolidated Financial Statements 2021

Notes to the Consolidated Financial Statements

Telecom Italia Finance Group

terminal value of the cash-generating unit (or group of cash-generating units) is assumed not to be higher

than the average long-term growth rate of the segment, country or market in which the cash-generating unit

(or group of cash-generating units) operates.

The value in use of cash-generating units denominated in foreign currency is estimated in the local currency by

discounting cash flows to present value on the basis of an appropriate rate for that currency. The present value

obtained is converted to euro at the spot rate on the date of the impairment test (in the case of the Group, the

closing date of the financial statements).

Future cash flows are estimated by referring to the current operating conditions of the cash generating unit (or

group of cash-generating units) and, therefore, do not include either benefits originating from future

restructuring for which the entity is not yet committed, or future investments for the improvement or

optimization of the cash-generating unit.

For the purpose of calculating impairment, the carrying amount of the cash-generating unit is established

based on the same criteria used to determine the recoverable amount of the cash generating unit, excluding

surplus assets (that is, financial assets, deferred tax assets and net non-current assets held for sale) and

includes the goodwill attributable to non-controlling interests.

After conducting the goodwill impairment test for the cash-generating unit (or groups of cash-generating

units), a second level of impairment testing is carried out which includes the corporate assets which do not

generate positive cash flows and which cannot be allocated by a reasonable and consistent criterion to the

single units. At this second level, the total recoverable amount of all cash-generating units (or groups of cash-

generating units) is compared to the carrying amount of all cash-generating units (or groups of cash-

generating units), including also those cash-generating units to which no goodwill was allocated, and the

corporate assets.

Intangible and tangible assets with finite useful lives and right of use assets

At the end of each reporting period, the Group assesses whether there is any indication that an asset –

whether tangible or intangible with finite useful lives or a right-of-use – may be impaired. Both internal and

external sources of information are used for this purpose. Internal sources include obsolescence or physical

deterioration, and significant changes in the use of the asset and the economic performance of the asset

compared to estimated performance. External sources include the market value of the asset, any changes in

technology, markets or laws, trends in market interest rates and the cost of capital used to evaluate

investments, and an excess of the carrying amount of the net assets of the Group over market capitalization.

If there is any indication that an asset – whether tangible or intangible with finite useful lives or a right of use

has been impaired, then its carrying amount is reduced to its recoverable amount. The recoverable amount is

the higher of an asset's fair value less costs to sell, and its value in use. In calculating the value in use, the

estimated future cash flows are discounted to present value using a discount rate that reflects current market

assessments of the time value of money and the risks specific to the asset or right. If it is not possible to

estimate the recoverable amount, the Group estimates the recoverable amount of the cash-generating unit to

which the asset belongs. Impairment losses are recognized in the Separate Consolidated Income Statement.

When the reasons for the impairment subsequently cease to exist, the carrying value of the asset/right of use

or of the cash generating unit is increased up to the new estimate of the recoverable amount which, however,

cannot exceed the amount that would have been determined had no impairment loss been recognized. The

reversal of an impairment loss is recognized as income in the Separate Consolidated Income Statement.

FINANCIAL LEASES ASSETS

Leases in which the Group, as lessor, substantially transfers the risks and benefits of the ownership to the other

party (the lessee) are classified as financial leases. These lease values are transferred from the intangible and

tangible assets of the Group and are recognized as a lease receivable at the lower of the fair value of the

leased item and/or the present value of the receipts provided for in the agreement. Interest related to the lease

is taken to income statement as financial revenue over the contractual term.

FINANCIAL INSTRUMENTS

Business models for financial assets management

For the management of trade receivables, the Group Management has identified the business model “Hold to

Collect”. These receivables are financial assets measured at amortized cost, and refer to accounts receivable

from users of telecommunications services, from network use (interconnection) and from sales of handsets

and accessories. Accounts receivable are recorded at the price charged at the time of the transaction. The

balances of accounts receivable also include services provided and not billed (“unbilled”) up to the balance

sheet date. Accounts receivable from clients are initially recognized at fair value and subsequently measured

at amortized cost using the effective interest rate method less the provision for expected credit losses

("impairment").

Consolidated Financial Statements 2021

Notes to the Consolidated Financial Statements

Telecom Italia Finance Group

As part of managing financial assets other than trade receivables, the Group Management has identified its

business models on the basis of how the financial instruments are managed and how their cash flows are

used. This is done to ensure an adequate level of financial flexibility and to best manage, in terms of risks and

returns, the financial resources immediately available through the treasuries of Group companies and in

accordance with the strategies set forth by the Ultimate Parent TIM.

The business models adopted are:

•Hold to Collect: financial instruments used to absorb temporary cash surpluses; such instruments are

low risk and mostly held to maturity; they are measured at amortized cost;

•Hold to Collect and Sell: monetary or debt instruments used to absorb short/medium-term cash

surpluses; such instruments are low risk and generally held to maturity, or otherwise sold to cover

specific cash requirements; they are measured at fair value through other consolidated

comprehensive income (FVTOCI);

•Hold to Sell: monetary, debt and equity trading instruments used to dynamically manage cash

surpluses not managed under the business models identified above; such instruments are higher risk

and traded repeatedly over time; they are measured at fair value through consolidated profit or loss

(FVTPL).

In order for a financial asset to be classified and measured at amortised cost or FVTOCI, it needs to give rise to

cash flows that are “solely payments of principal and interest (SPPI)” on the principal amount outstanding. This

assessment is referred to as the SPPI test and is performed at an instrument level. Financial assets with cash

flows that are not SPPI are classified and measured at fair value through profit or loss, irrespective of the

business model.

At initial recognition, those financial asset are measured at fair value plus or minus, in the case of a financial

asset not at FVTPL, transaction costs that are directly attributable to the acquisition or issue of the financial

asset. Transaction costs include fees and commission paid to agents (including employees acting as selling

agents), advisers, brokers and dealers, levies by regulatory agencies and security exchanges, and transfer taxes

and duties. They do not include debt premiums or discounts, financing costs or internal administrative or

holding costs.

Subsequent measurement changes according to category of financial assets:

•Amortised cost: Interest income from these financial assets is included in finance income using the

effective interest rate method. Any gain or loss arising on derecognition is recognized directly in profit

or loss and presented in other gains/(losses), together with foreign exchange gains and losses.

Impairment losses are presented as a separate line item in the Consolidated Statement of Income.

•FVTOCI: Movements in the carrying amount are taken through OCI, except for the recognition of

impairment gains or losses, interest revenue and foreign exchange gains and losses which are

recognized in profit or loss. When the financial asset is derecognised, the cumulative gain or loss

previously recognized in OCI is reclassified from equity to profit or loss and recognized in “Finance

income and expenses”.

•FVTPL: A gain or loss on those investments is recognized in profit or loss and presented net within

“Finance income and expenses” in the period in which it arises.

Financial assets are derecognized when the contractual rights to the cash flows from the financial asset expire,

or they are transferred and the transfer qualifies for derecognition (therefore, the entity transfers substantially

all the risks and rewards of ownership of the financial asset).

Other investments

Other investments (equity investments other than those in subsidiaries and associates) are classified as non-

current or current assets if they will be kept in the Group's portfolio for a period of more or not more than 12

months, respectively.

Other investments are classified as “financial assets measured at fair value through consolidated profit or

loss” (FVTPL), as current assets.

At the purchase time of each investment, IFRS 9 provides for the irrevocable option to recognize these

investments in "financial assets measured at fair value through other consolidated comprehensive

income" (FVTOCI) as non-current or current assets.

The other investments classified as “financial assets measured at fair value through other comprehensive

income” are measured at fair value; changes in the fair value of these investments are recognized in a special

equity reserve under the other components of the statements of comprehensive income (Reserve for financial

assets measured at fair value through other comprehensive income), without reclassification to the separate

income statement when the financial asset is disposed of or impaired. Dividends are recognized in the

separate consolidated income statement.

Consolidated Financial Statements 2021

Notes to the Consolidated Financial Statements

Telecom Italia Finance Group

Changes in the value of other investments classified as "financial assets at fair value through profit or loss" are

recognized directly in the separate consolidated income statement.

Securities other than investments

Securities other than equity investments included among non-current or current assets, depending on the

business model adopted and the contractual flows envisaged, fall among financial assets measured at

amortized cost, or measured at fair value through other comprehensive income or at fair value though profit or

loss.

Securities other than investments classified as current assets are those that, by decision of the directors, are

intended to be kept in the Group's portfolio for a period of not more than 12 months, and are classified:

•as "financial assets measured at amortized cost" (AC) when held to maturity (originally more than 3

months but less than 12 months, or, with an original maturity of more than 12 months but the

remaining maturity at the date of purchase is more than 3 months but less than 12 months);

•as "financial assets measured at fair value through other consolidated comprehensive

income" (FVTOCI) when held in the scope of a business model whose objective is to sell the financial

asset and/or collect the contractual flows. The "Reserve for financial assets measured at fair value

through other consolidated comprehensive income" is reversed to the Separate Consoldiated Income

Statement when the financial asset is disposed of or impaired;

•as “financial assets measured at fair value through consolidated profit or loss" (FVTPL) in the other

cases or when their cash flows are not SPPI.

Cash and cash equivalents

Cash and cash equivalents are recorded at amortized cost.

Cash equivalents are short-term and highly liquid investments that are readily convertible to known amounts

of cash, subject to an insignificant risk of change in value and their original maturity or the remaining maturity

at the date of purchase does not exceed 3 months.

Impairment of financial assets

At every closing date, assessments are made as to whether there is any objective evidence that a financial

asset or a group of financial assets may be impaired.

The impairment of financial assets is based on the expected credit loss model.

In particular:

•impairment on trade receivables assets is carried out using the simplified approach that involves

estimating the loss expected over the life of the receivable at the time of initial recognition and on

subsequent measurements. It is recognized as a reduction in accounts receivable based on the profile

of the subscriber portfolio, the aging of overdue accounts receivable, the economic situation, the risks

involved in each case and the collection curve, at an amount deemed sufficient by Management, as

adjusted to reflect current and prospective information on macroeconomic factors that affect the

customers’ ability to settle the receivables.

•impairment on financial assets other than trade receivables is calculated on the basis of a general

model which estimates expected credit losses over the following 12 months, or over the residual life of

the asset in the event of a substantial worsening of its credit risk.

Derivative financial instruments

As allowed by IFRS 9, the Group decided to continue to apply the hedge accounting provisions contained in IAS

39, instead of those of IFRS 9.

Derivatives are used by the Group to manage its exposure to exchange rate and interest rate risks and to

diversify the parameters of debt so that costs and volatility can be reduced within pre-established operational

limits.

In accordance with IAS 39, derivative financial instruments qualify for hedge accounting only when:

•at the inception of the hedge, the hedging relationship is formally designated and documented;

•the hedge is expected to be highly effective;

•its effectiveness can be reliably measured;

•the hedge is highly effective throughout the financial reporting periods for which it is designated.

All derivative financial instruments are measured at fair value in accordance with IAS 39.

When derivative financial instruments qualify for hedge accounting, the following accounting treatment

applies:

•Fair value hedge – Where a derivative financial instrument is designated as a hedge of the exposure

to changes in fair value of an asset or liability due to a particular risk, the gain or loss from re-

measuring the hedging instrument at fair value is recognized in the Separate Consolidated Income

Statement. The gain or loss on the hedged item attributable to the hedged risk adjusts the carrying

amount of the hedged item and is recognized in the Separate Consolidated Income Statement.

•Cash flow hedge – Where a derivative financial instrument is designated as a hedge of the exposure

to variability in cash flows of an asset or liability or a highly probable expected transaction, the

effective portion of any gain or loss arising from the value adjustment of the derivative financial

Consolidated Financial Statements 2021

Notes to the Consolidated Financial Statements

Telecom Italia Finance Group

instrument is recognized directly in a specific equity reserve (Reserve for fair value adjustment of

hedging derivative instruments). The cumulative gain or loss is removed from equity and recognized

in the Separate Consolidated Income Statement during the same business year in which the hedged

transaction is recognized in the Separate Consolidated Income Statement. The gain or loss associated

with the ineffective portion of a hedge is recognized in the Separate Consolidated Income Statement

immediately. If the hedged transaction is no longer considered to be probable, the gains or losses not

yet realized included in the equity reserve are immediately recognized in the Separate Consolidated

Income Statement.

For derivatives for which a hedging relationship has not been designated, changes in value compared to initial

recognition are recognized directly in the separate consolidated income statement

Financial liabilities

Financial liabilities include financial payables, including payables for advances on assignments of receivables

where the assignment does not transfer substantially all the risks and rewards, as well as other financial

liabilities, including derivative financial instruments and liabilities in respect of assets recognized under finance

leases recognized in accordance with IFRS 16.

In accordance with IFRS 9, they also include trade and other payables.

Financial liabilities other than derivatives are initially recognized at fair value and subsequently measured at

amortized cost.

Financial liabilities hedged by derivative instruments designed to manage exposure to changes in the fair value

of liabilities (fair value hedge derivatives) are measured at fair value in accordance with the hedge accounting

principles of IAS 39:the gains and losses deriving from subsequent fair value adjustments, only as regards the

covered component, are recognized in the separate consolidated income statement and counterbalanced by

the effective portion of the gain or loss deriving from the corresponding fair value measurements of the hedge

instrument.

Financial liabilities hedged by derivative instruments designed to manage exposure to variability in cash flows

(cash flow hedge derivatives) are measured at amortized cost in accordance with the hedge accounting

principles of IAS 39.

Financial liabilities are derecognized when they are extinguished, i.e. when the obligation specified in the

contract is discharged or cancelled or expires.

INVENTORIES

Inventories are measured at the lower of purchase or production cost and estimated realizable value; the cost

is determined using the weighted average cost formula for each movement, while the estimated realizable

value is determined by observing general prices at the end of the year. Provision is made for obsolete and slow-

moving inventories based on their expected future use and estimated realizable value.

EMPLOYEE BENEFITS

Equity compensation plans

The companies of the Group provide additional benefits to certain managers of the Group through equity

compensation plans (for example stock options and long-term incentive plans). The above plans are

recognized in accordance with IFRS 2 (Share-Based Payment).

In accordance with IFRS 2, such plans represent a component of the beneficiaries' compensation. Therefore, for

the plans that provide for compensation in equity instruments, the cost is represented by the fair value of such

instruments at the grant date and is recognized in the Separate Consolidated Income Statement in "Employee

benefits expenses" over the period between the grant date and vesting date with a contra-entry to an equity

reserve denominated "Other equity instruments". Changes in the fair value subsequent to the grant date do

not affect the initial measurement. At the end of each year, adjustments are made to the estimate of the

number of rights that will vest up to expiry. The impact of the change in estimate is recorded as an adjustment

to "Other equity instruments" with a contra-entry to "Employee benefits expenses".

The portion of the plans that specifies the payment of compensation in cash is recognized in liabilities as a

contra-entry to "Employee benefits expenses"; at the end of each year said liability is measured at fair value.

PROVISIONS

The Group records provisions for risks and charges when having a current legal or constructive obligation to a

third party, as a result of a past event, an outflow of Group resources is likely to be required to meet that

obligation and when the amount of the obligation can be estimated reliably.

Provisions for risks and charges also include those established in the event that the company should stipulate

contracts that thereafter became onerous, the non-discretionary costs of which necessary to fulfill the

commitments made, exceeding the economic benefits expected from such contracts.

When the effect of the time value is material and the payment date of the obligations can be reasonably

estimated, the provision is determined by discounting the given expected cash flows by taking into account the

Consolidated Financial Statements 2021

Notes to the Consolidated Financial Statements

Telecom Italia Finance Group

risks associated with the obligation. The increase in the provision due to the passage of time is recognized in

the separate consolidated income statements as "Finance expenses".

FOREIGN CURRENCY TRANSACTIONS

Transactions in foreign currencies are recorded at the foreign exchange rate prevailing at the date of the

transaction. Monetary assets and liabilities denominated in foreign currencies are converted at the foreign

exchange rate prevailing at the statement of financial position date. Exchange differences arising from the

settlement of monetary items or from their conversion at rates different from those at which they were initially

recorded during the year or at the end of the prior year, are recognized in the Separate Consolidated Income

Statement.

REVENUES

Revenues are the gross inflows of economic benefits during the period arising in the course of the ordinary

activities of an entity. Amounts collected on behalf of third parties such as sales taxes, goods and services

taxes and value added taxes are not economic benefits which flow to the entity and do not result in increases

in equity. Therefore, they are excluded from revenues.

The process underlying the recognition of revenues follows the steps set out in IFRS 15:

•identification of the contract: takes place when the parties approve the contract (with commercial

substance), identify the respective rights and obligations, this means that: the contract must be

legally enforceable, the rights to receive goods and/or services and the terms of payment can be

clearly identified and the Group deems receipt of payment as probable;

•identification of the performance obligations: based on the review of its contracts, the Group verified

the existence of two performance obligations:(i)sale of equipment and (ii) provision of mobile, fixed

and internet telephony services. Revenues recognition starts when, or as, the performance obligation

is met when transferring the good or service promised to the customer; the asset is considered

transferred when or as the customer obtains control of this asset;

•determination of the transaction price and allocation of the transaction price to the performance

obligations: the Group sell commercial packages that combine services and sale of cellular handsets

with discounts. In accordance with IFRS 15, the Group is required to perform the discount allocation

and recognize revenues related to each performance obligation based on their standalone selling

prices.

•recognition of revenues: revenues are stated net of discounts, allowances, and returns in connection

with the characteristics of the type of revenue:

▪Revenues from services rendered

The principal service revenue derives from monthly subscription, the provision of separate

voice, SMS and data services, and user packages combining these services, roaming charges

and interconnection revenue. The revenue is recognized as the services are used, net of sales

taxes and discounts granted on services. This revenue is recognized only when the amount of

services rendered can be estimated reliably.

Revenues are recognized monthly, through billing, and revenues to be billed between the

billing date and the end of the month (unbilled) are identified, processed, and recognized in

the month in which the service was provided. These non-billed revenues are recorded on an

estimated basis, which takes into account consumption data, number of days elapsed since

the last billing date.

Interconnection traffic and roaming revenue are recorded separately, without offsetting the

amounts owed to other telecom operators (the latter are accounted for as operating costs).

The minutes not used by customers and/or reload credits in the possession of commercial

partners regarding the prepaid service system are recorded as deferred revenue and

allocated to income when these services are actually used by customers.

▪Revenues from product sales

Revenues from product sales (telephones, mini-modems, tablets and other equipment) are

recognized when the performance obligations associated with the contract are transferred to

the buyer. Revenues from sales of devices to trading partners are accounted for at the time

of their physical delivery to the partner, net of discounts, and not at the time of sale to the

end customer, since the Company has no control over the product sold.

The recognition of revenues can generate the recognition of an asset or liability deriving from

contracts. In particular:

▪Contract assets are the rights to a consideration in exchange for goods or services that have

been transferred to the customer, when the rights is conditioned on something other than

the passage of time and are recognised as Other Receivable.

▪Contract liabilities are the obligation to transfer goods or services to the customer for which

the Group has received (or for which it is due) a consideration from the customer.

Consolidated Financial Statements 2021

Notes to the Consolidated Financial Statements

Telecom Italia Finance Group

All incremental costs related to obtaining a contract (sales commissions and other costs of acquisition from

third parties) are recorded as prepaid expenses and amortized over the same period as the revenue associated

with this asset. Similarly, certain contract compliance costs are also deferred to the extent that they relate to

performance obligations under the customer agreement, i.e. when the customer obtains control over the asset.

RESEARCH COSTS AND ADVERTISING EXPENSES

Research and advertising costs are directly expensed to the Separate Consolidated Income Statement in the

year in which they are incurred.

FINANCE INCOME AND EXPENSES

Finance income and expenses are recognized on an accrual basis and include: interest accrued on the related

financial assets and liabilities using the effective interest rate method; changes in the fair value of derivatives

and other financial instruments measured at fair value through the income statements; gains and losses on

foreign exchange and financial instruments (including derivatives).

DIVIDENDS

Dividends received from companies other than subsidiaries and associates are recognized in the Separate

Consolidated Income Statement on an accrual basis, i.e. in the year in which they become receivable following

the resolution by the shareholders' meeting for the distribution of dividends of the investee companies.

Dividends payable to third parties are reported as a change in equity in the year in which they are approved by

the shareholders' meeting.

INCOME TAXES EXPENSE (CURRENT AND DEFERRED)

Income taxes include all taxes calculated on the basis of the taxable income of the companies of the Group.

Current and deferred income taxes are calculated using all the elements and information available at the

reporting date, taking into account current laws and considering all the elements that could give rise to

uncertainties in the determination of the amounts due to the tax authorities, as provided for in IFRIC 23.

Income taxes are recognized in the Separate Consolidated Income Statement, except to the extent that they

relate to items directly charged or credited to equity, in which case the related tax effect is recognized in the

relevant equity reserves.The amount of the income tax expense relating to each item included as "Other

components of the Consolidated Statements of Comprehensive income" is indicated in the Statement of

comprehensive income.

The provisions for taxes that could arise from the remittance of the undistributed earnings of subsidiaries are

made only where there is the actual intention to remit such earnings.

Deferred tax liabilities / assets are recognized using the "Balance sheet liability method". They are calculated

on all the temporary differences that arise between the taxable base of assets and liabilities and the related

carrying amounts in the consolidated financial statements, except for differences arising from investments in

subsidiaries that are not expected to reverse in the foreseeable future. Deferred tax assets relating to unused

tax loss carryforwards are recognized to the extent that it is probable that future taxable income will be

available against which they can be utilized. Tax assets and liabilities are offset, separately for current and

deferred taxes, when income taxes are levied by the same tax authority and when there is a legally

enforceable offsetting right. Deferred tax assets and deferred tax liabilities are determined by adopting the tax

rates expected to be applicable in the respective jurisdictions of the countries in which the Group companies

operate, in the years in which those temporary differences are expected to be recovered or settled.

The other taxes, other than income taxes, are included in "Other operating expenses".

USE OF ESTIMATES

The preparation of Consolidated Financial Statements and related disclosure in conformity with IFRS requires

management to make estimates and assumptions based also on subjective judgments, past experience and

assumptions considered reasonable and realistic in relation to the information known at the time of the

estimate. Such estimates have an effect on the reported amount of assets and liabilities and disclosure of

contingent assets and liabilities at the date of the financial statements, as well as on the amount of revenues

and costs during the year. Actual results could differ, even significantly, from those estimates owing to possible

changes in the factors considered in the determination of such estimates. Estimates are reviewed periodically.

Consolidated Financial Statements 2021

Notes to the Consolidated Financial Statements

Telecom Italia Finance Group

The most significant accounting estimates that involve a high level of subjective assumptions and judgments

are detailed below.

Impairment of goodwill

The impairment test on goodwill is carried out by comparing the carrying amount of

cash-generating units and their recoverable amount. The recoverable amount of a

cash-generating unit is the higher of fair value, less costs to sell, and its value in use. If

the market capitalization, taking in account the volatility, is sufficiently high, it is

considered as the recoverable value. Otherwise, the valuation process entails the use

of methods such as the discounted cash flow method, which uses assumptions to

estimate cash flows. The fair value net of disposal costs is based on the current value

of forecast cash flow, calculated using a discount rate that reflects current market

assessments of the time value of money and the risks specific to the asset. The

recoverable amount depends significantly on the discount rate used in the discounted

cash flow model as well as the expected future cash flows and the growth rate used

for the extrapolation. The key assumptions used to determine the recoverable

amount for the different cash generating units, including a sensitivity analysis, are

detailed in the Note "Goodwill".

Impairment of intangible and

tangible assets with finite useful

lives and right of use assets

At the end of each reporting period, the Group assesses whether there is any

indication that an asset – whether tangible or intangible with finite useful lives or a

right-of-use – has been impaired. Both internal and external sources of information

are used for this purpose.

Identifying the impairment indicators, estimating future cash flows and calculating

the fair value of each asset requires the Management to make significant estimates

and assumptions in calculating the discount rate to be used, and the useful life and

residual value of the assets. These estimates can have a significant impact on the fair

value of the assets and on the amount of any impairment write-down.

Expected Credit Loss

Impairment on trade receivables assets is carried out using the simplified approach

that involves estimating the loss expected over the life of the receivable at the time of

initial recognition and on subsequent measurements. It is recognized as a reduction in

accounts receivable based on the profile of the subscriber portfolio, the aging of

overdue accounts receivable, the economic situation, the risks involved in each case

and the collection curve, at an amount deemed sufficient by Management, as

adjusted to reflect current and prospective information on macroeconomic factors

that affect the customers’ ability to settle the receivables. Impairment on financial

assets other than trade receivables is calculated on the basis of a general model

which estimates expected credit losses over the following 12 months, or over the

residual life of the asset in the event of a substantial worsening of its credit risk.

Details are provided in the Note "Financial Risk Management".

Provision for legal and

administrative proceedings

The legal and administrative proceedings are analyzed by the Management along

with its legal advisors (internal and external). The Group considers factors in its

analysis such as hierarchy of laws, precedents available, recent court judgments, their

relevance in the legal system and payment history. These assessments involve

Management’s judgment. Further detail are provided in the Note "Disputes and

pending legal actions, other information, commitments and guarantees".

Unbilled revenues

Since some cut dates for billing occur at intermediate dates within the months of the

year, as the end of each month there are revenues earned by the Group, but not

actually invoiced to its customers. These unbilled revenues are recorded based on

estimate that takes into consideration historical consumption data, number of days

elapsed since the last billing date, among others.

Income tax and social contribution

(current and deferred)

Income tax and social contribution (current and deferred) are calculated according to

interpretations of current legislation and IAS 12. This process typically involves

complex estimates to determine taxable income and temporary differences. In

particular, the deferred assets on tax losses, negative basis of social contribution and

temporary differences is recognized in proportion to the probability that future

taxable income is available and can be used. The measurement of the recoverability

of deferred income tax on tax losses, negative basis of social contribution and

temporary differences takes the history of taxable income into account, as well as the

estimate of future taxable income. Further detail are provided in the Note "Income

taxes (current and deferred)".

Financial statement line item/area

Accounting estimates

Consolidated Financial Statements 2021

Notes to the Consolidated Financial Statements

Telecom Italia Finance Group

Derivative instruments and equity

instruments

The fair value of derivative instruments and equity instruments is determined both

using valuation models which also take into account subjective measurements such

as, for example, cash flow estimates, expected volatility of prices, etc., and on the

basis of prices existing in regulated markets or quotations provided by financial

counterparts. For further details, please also see the Note "Supplementary disclosures

on financial instruments".

Leasing

The Group has a significant number of lease agreements in which it is the lessee,

whereby with the adoption of accounting standard IFRS 16, the Group Management

made certain judgments when measuring the lease liability and the right of use

assets, such as: (i) an estimation of the lease term, considering a non-cancellable

period and the periods covered by options to extend the lease term, where such

exercise depends only on the Group and is reasonably certain; (ii) use of certain

assumptions to calculate the discount rate.

According to paragraph 18 of IFRS 16, an entity shall determine the lease term as the

non-cancellable period of a lease, together with both periods covered by an option to

extend the lease (if the lessee is reasonably certain to exercise that option) and

periods covered by an option to terminate the lease (if the lessee is reasonably certain

not to exercise that option). During the non-cancellable lease period, the contract

must be enforceable. A lease is no longer enforceable when the lessee and the lessor

each has the right to terminate the lease without permission of the other party with

no more than an insignificant penalty.

The Group is not able to readily determine the interest rate implicit on the lease and,

therefore, considers its incremental rate on loans to measure lease liabilities.

Incremental rate on the lessee´s borrowing is the interest rate that the lessee would

have to pay when borrowing, for a similar term and with a similar guarantee, the

resources necessary to obtain the asset with a value similar to the right of use asset in

a similar economic environment. Thus, this assessment of lease, considering non-

cancellable period and the period covered by options to extend the contract term. The

Group estimates the incremental rate using observable data (such as market interest

rates) when available and considers aspects that are specific to the Company (such as

the cost of debt) in this estimate. The Group´s average incremental rate is 8,94% for

an average lease term.

Financial statement line item/area

Accounting estimates

NEW STANDARDS AND INTERPRETATIONS ENDORSED BY THE EU AND IN FORCE FROM JANUARY 1, 2021

As required by IAS 8 (Accounting Policies, Changes in Accounting Estimates and Errors), the following is a brief

description of the IFRS in force as from January 1, 2021.

Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 Reform of the interest rates benchmark - Phase 2

On January 13, 2021, Regulation (EU) no. 2021/25 was issued, which incorporated a set of amendments to the

IFRSs relating to the reform of the interbanking rates offered (IBOR) and other interest rate benchmarks. The

amendments aim to help the entities to provide investors with useful information on the effects of the reform

on the entities’ financial statements.

The amendments integrate those issued in 2019 and focus on the effects of the financial statements when an

entity replaces the old interest rate benchmark with an alternative benchmark rate following the reform. The

changes during this final phase regard:

a. changes to contractual cash flows - an entity shall not eliminate or rectify the carrying amount of the

financial instruments following the amendments required by the reform, but must instead modify the

effective interest rate to reflect the change in the alternative benchmark rate;

b. hedge accounting - an entity shall not stop booking the hedges only because the changes have been

made to the hedging documentation as required by the reform, if the hedge continues to meet the

other criteria for booking the hedge;

c. disclosure: an entity shall disclose information on the new risks deriving from the reform and on how it

manages the transition to alternative benchmark rates.

The adoption of these amendments had no effect on the Consolidated Financial Statements at December 31,

2021.

Amendments to IFRS 16 Leases: COVID-19-related rent concessions beyond June 30, 2021

On August 30, 2021, Regulation (EU) 2021/1421 was issued, endorsing the extension by one year of the period

of application of the practical expedient of IFRS 16 Leases, to assist lessees in accounting for COVID-19-related

rent concessions.

In response to requests from interested parties, and because the COVID-19 pandemic is still at its peak, the

IASB has extended, by an additional year, this method of accounting for rental concessions that reduce only

lease payments due by June 30, 2022.

Consolidated Financial Statements 2021

Notes to the Consolidated Financial Statements

Telecom Italia Finance Group

The original amendment was issued in May 2020 to allow lessees not to account for rent concessions as lease

modifications if they are a direct consequence of the COVID-19 pandemic. The amendment takes effect for

financial years starting on or after April 1, 2021.

The adoption of these amendments had no effect on the consolidated financial statements at December 31,

2021.

NEW STANDARDS AND INTERPRETATIONS ISSUED BY IASB BUT NOT YET APPLICABLE

At the reporting date of these Consolidated Financial Statements, the IASB had issued the following new

Standards and Interpretations which have not yet come into force and have not yet been endorsed by the EU.

Mandatory application

starting from

New Standards / Interpretations endorsed by the EU but not yet in force

Amendments to: IFRS 3 Business combinations; IAS 16 Property, Plant and equipment; IAS 37

Provisions, Contingent Liabilities and Contingent Assets; Annual cycle of improvements

2018-2020

1 January, 2022

Amendments to IAS 1 Presentation of Financial Statements: Disclosure on accounting policies

1 January, 2023

Amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors:

Definition of accounting estimates

1 January, 2023

New Standards and Interpretations not yet in force and not yet endorsed by the EU

1 January, 2023

Amendments to IAS 12 Income taxes: deferred tax related to assets and liabilities arising from a

single transaction

1 January, 2023

Amendments to IAS 1 Presentation of Financial Statements: classification of liabilities as current

or non-current

1 January, 2023

The potential impacts on the Group Consolidated Financial Statements from application of these standards

and interpretations are currently being assessed.

Note 3 - Scope of Consolidation

INVESTMENTS IN CONSOLIDATED SUBSIDIARIES

Composition of the Group

The Group holds a majority of the voting rights in all the subsidiaries included in the scope of consolidation.

A complete list of consolidated subsidiaries is provided in the Note "List of companies of the Telecom Italia

Finance Group".

SCOPE OF CONSOLIDATION

The changes in the scope of consolidation at December 31, 2021 compared to December 31, 2020 are listed

below.

Company

Event

Business Unit

Month

I - System S.A.

Dilution

Brazil

November 2021

Further details are provided in the Note "Goodwill" and "List of companies of the Telecom Italia Finance

Group".

SUBSIDIARIES WITH SIGNIFICANT NON-CONTROLLING INTERESTS

At December 31, 2021, the Group held equity investments in subsidiaries with significant non-controlling

interests in TIM Brasil Group.

The figures provided below, stated before the netting and elimination of intragroup accounts, have been

prepared in accordance with IFRS and reflect adjustments made at the acquisition date to align the assets and

liabilities acquired to their fair value.

Consolidated Financial Statements 2021

Notes to the Consolidated Financial Statements

Telecom Italia Finance Group

TIM Brasil Group – Brazil Business Unit

Non-controlling interests held at December 31, 2021 amounted to 33,4% of the capital of TIM S.A., coinciding

with the corresponding voting rights.

Financial Position Data TIM Brasil Group

(million euros)

31/12/2021

31/12/2020

Non-current assets

5.787

5.246

Current assets

2.476

1.662

Total Assets

8.263

6.908

Non-current liabilities

2.159

1.558

Current liabilities

1.750

1.338

Total Liabilities

3.909

2.897

Equity

4.353

4.011

of which Non-controlling interests

1.345

1.232

Income statement Data TIM Brasil Group

(million euros)

31/12/2021

31/12/2020

Revenues

2.840

2.933

Profit (loss) for the year

455

297

of which Non-controlling interests

155

104

Financial Data TIM Brasil Group

In 2021, aggregate cash flows generated a positive amount of 416 million euros, including a positive exchange

rate effect of 6 million euros, without which cash flow would have generated a positive amount of 410 million

euros. In 2020, aggregate cash flows generated a negative amount of 93 million euros, partially due to a

negative exchange rate effect of 151 million euros, without which cash flow would have generated a positive

amount of 58 million euros.

Lastly, again with reference to the TIM Brasil Group, the main risk factors that could, even significantly, restrict

the operations of the TIM Brasil Group are listed below:

•strategic risks (risks related to macroeconomic and political factors, as well as risks associated with

foreign exchange restrictions and competition);

•operational risks (risks related to business continuity and development of the fixed and mobile

networks, as well as risks associated with litigation and disputes);

•financial risks;

•regulatory and compliance risks.

Note 4 - Goodwill

Goodwill is only referred to Brazil Cash Generating unit (“CGU”) and shows the following changes during 2021

and 2020:

(million euros)

31/12/2020

Increase

Decrease

Impairments

Exchange

differences

31/12/2021

Brazil

604

—

(165)

—

443

(million euros)

31/12/2019

Increase

Decrease

Impairments

Exchange

differences

31/12/2020

Brazil

851

—

-247

604

In 2021 the Goodwill decreased of 165 million euros following the deconsolidation of I-Systems S.A. (formerly

FiberCo Soluções de Infraestrutura S.A.), a company set up by the Brazilian subsidiary TIM S.A. for the

segregation of its network assets and the provision of infrastructure services. The deconsolidation is a

consequence of the completion, in November 2021, of the agreement between TIM S.A. and IHS Fiber Brasil

Cessão de Infraestruturas Ltda. Due to the closing of the transaction, TIM S.A. wrote-off about 90% of the total

goodwill previously recorded. As a result, IHS currently holds 51% of the share capital of I-Systems, with TIM

S.A. having a minority (non-controlling) interest of 49% in I-Systems.

I-Systems S.A. is now accounted for using the equity method. In addition, the item increased by 4 million euros

due to the positive exchange rate difference relating to the Goodwill of the Cash Generating Unit.

Consolidated Financial Statements 2021

Notes to the Consolidated Financial Statements

Telecom Italia Finance Group

The gross carrying amounts of goodwill and the relative accumulated impairment losses can be summarized

as follows:

(million euros)

31/12/2021

31/12/2020

Gross carrying

amount

Accumulated

impairment

losses

Net

carrying

amount

Gross carrying

amount

Accumulated

impairment

losses

Net

carrying

amount

Brazil

591

148

443

751

147

604

The figures for the Brazil CGU are stated in euros, converted at the spot exchange rate at the closing date of

the financial statements; the carrying amount of goodwill for the CGU corresponds at December 31, 2021 to

2.803 million reais (3.854 million reais at December 31, 2020).

Goodwill is not subject to amortization, but it is tested for impairment at least annually. Accordingly, the Group

conducted impairment tests on the recoverability of the goodwill. The results showed that the recoverable

amount of the assets at December 31, 2021 was higher than the net carrying amount for the Brazil CGU (+527

million of euros).

The value used to measure the recoverable amount of the Cash Generating Unit to which goodwill has been

allocated is the fair value, based on market capitalisation as of the end of the reporting period. The recoverable

amount of the assets was denominated in the functional currency and subsequently translated at the spot

exchange rate at the reporting date.

In estimating the recoverable amounts, simulations were conducted on the results with respect to changes in

the relevant parameters. To make the recoverable amount of the Brazil CGU equal to their net carrying

amount the market capitalization should vary of -10%.

Note 5 - Intangible assets with a finite useful life

All intangible assets with a finite useful life in the 2021 and 2020 are referred to Brazil Business Unit.

(millions of euros)

31/12/2020

Investments

Amortization

Disposals

Exchange

differences

Other

Changes

31/12/2021

Industrial patents and intellectual

property rights

429

108

-182

—

392

Concessions, licenses, trademarks

and similar rights

642

191

-87

—

753

Other intangible assets

-1

—

Work in progress and advance

payments

382

—

-34

406

Total

1.128

682

-269

—

1.552

(millions of euros)

31/12/2019

Investments

Amortization

Disposals

Exchange

differences

Other

Changes

31/12/2020

Industrial patents and intellectual

property rights

690

151

-214

—

-195

-3

429

Concessions, licenses, trademarks

and similar rights

1.018

-93

—

-288

—

642

Other intangible assets

—

-1

—

-1

—

Work in progress and advance

payments

—

-12

—

Total

1.742

193

-308

—

-496

-3

1.128

Industrial patents and intellectual property rights at December 31, 2021 consisted mainly of software

licenses.

Concessions, licenses, trademarks and similar rights at December 31, 2021 mainly related to the remaining

cost of telephone licenses and similar rights for 716 million of euros (601 million euros at December 31, 2020).

Investments for the year valued 191 million euros (6 million euros at December 31, 2020) are essentially related

to the recognition of the value of the 2,3 MHz and 26 GHz frequencies that the TIM Brasil group was awarded in

November 2021 and thanks to which it will be able to offer 4G and 5G mobile services.

The assignment of the rights to use these frequencies also entailed commercial commitments toward a new

entity (EACE Entidade Administradora da Conectividade de Escolas) which will be responsible for the

development of some connectivity projects for Brazilian schools.

Consolidated Financial Statements 2021

Notes to the Consolidated Financial Statements

Telecom Italia Finance Group

The net carrying amount of telephone licenses and similar rights and their useful lives are detailed below:

Type

Net carrying amount at

31/12/2021

(million euros)

Useful life in years

Amortization charge for

2021

(million euros)

GSM and 3G (UMTS)

4G (LTE)

494

184

—

Work in progress and advance payments at December 31, 2021 is valued 406 million euros (55 million euros at

December 31, 2020), of which 379 million euros relating to the recognition of the value of the 3,5 GHz

frequencies that the TIM Brasil group was awarded in Novem ber 2021 and thanks to which it will be able to

implement mobile services with 5G technology. The allocation of the rights to use these frequencies also

entailed commercial commitments toward Empresa Administradora da Faixa (EAF), which will be responsible

for the development of infrastructure projects.

Amortization have been reported in the income statement as components of the operating result.

No impairment losses have been recorded during the year 2021 and 2020.

The gross carrying amount, accumulated impairment losses and accumulated amortization at December 31,

2021 and 2020 can be summarized as follows:

31/12/2021

(million euros)

Gross carrying

amount

Accumulated

amortization

Net carrying

amount

Industrial patents and intellectual property rights

3.144

2.752

392

Concessions, licenses, trademarks and similar rights

1.775

1.022

753

Other intangible assets with a finite useful life

381

379

Work in progress and advance payments

406

—

406

Total intangible assets with a finite useful life

5.706

4.153

1.552

31/12/2020

(million euros)

Gross carrying

amount

Accumulated

amortization

Net carrying

amount

Industrial patents and intellectual property rights

2.992

2.563

429

Concessions, licenses, trademarks and similar rights

1.573

931

642

Other intangible assets with a finite useful life

374

373

Work in progress and advance payments

—

Total intangible assets with a finite useful life

4.995

3.867

1.127

Consolidated Financial Statements 2021

Notes to the Consolidated Financial Statements

Telecom Italia Finance Group

Note 6 - Tangible assets

All tangible assets in the 31/12/2021 and 2020 are referred to Brazil Business Unit.

PROPERTY, PLANT AND EQUIPMENT OWNED

(million euros)

31/12/2020

Investments

Depreciation

Disposals

Exchange

differences

Other

Changes

Deconsolidatio

n of I-System

S.A.

31/12/2021

Land

—

Buildings (civil and

industrial)

—

-1

—

Plant and equipment

1.546

453

-371

-10

-187

1.501

Other

-39

—

-1

Construction in

progress and advance

payments

—

-54

-3

Total

1.707

570

-411

-7

-192

1.691

(million euros)

31/12/2019

Investments

Depreciation

Disposals

Exchange

differences

Other

Changes

31/12/2020

Land

—

-3

—

Buildings (civil and industrial)

—

-1

—

-5

—

Plant and equipment

2.105

364

-388

-2

-614

1.546

Other

126

-41

-1

-37

Construction in progress and

advance payments

121

—

-32

-93

Total

2.377

456

-430

-3

-691

-2

1.707

In 2021 the item decreased following the deconsolidation of I-Systems S.A. (formerly FiberCo Soluções de

Infraestrutura S.A.), a company set up by the Brazilian subsidiary TIM S.A. for the segregation of its network

assets and the provision of infrastructure services. The deconsolidation is a consequence of the completion, in

November 2021, of the agreement between TIM S.A. and IHS Fiber Brasil Cessão de Infraestruturas Ltda. which

resulted in the dilution from 100% to 49% of TIM S.A.'s investment in I- Systems S.A.

Land comprises both built-up land and available land and is not subject to depreciation.

Buildings (civil and industrial) almost exclusively includes buildings for industrial use hosting telephone

exchanges or for office use, and light constructions.

Plant and equipment includes the aggregate of all the structures used for the functioning of voice and data

telephone traffic.

The item Other mainly consists of hardware for work stations, furniture and fixtures and, to a minimal extent,

transport vehicles and office machines.

Construction in progress and advance payments refers to the internal and external costs incurred for the

acquisition and internal production of tangible assets, which are not yet in use.

Depreciation have been reported in the income statement as components of the operating result.

No impairment losses have been recorded during the year 2021 and 2020.

Depreciation for the years 2021 and 2020 was calculated on a straight-line basis over the estimated useful lives

of the assets according to the following minimum and maximum rates:

Buildings (civil and industrial)

Plant and equipment

4% - 33%

Other

10% - 50%

Consolidated Financial Statements 2021

Notes to the Consolidated Financial Statements

Telecom Italia Finance Group

The gross carrying amount, accumulated impairment losses and accumulated depreciation at December 31,

2021 and 2020 can be summarized as follows:

31/12/2021

(million euros)

Gross carrying

amount

Accumulated

depreciation

Net carrying

amount

Land

—

Buildings (civil and industrial)

Plant and equipment

5.034

3.533

1.501

Other

842

746

Construction in progress and advance payments

—

Total

5.982

4.291

1.691

31/12/2020

(million euros)

Gross carrying

amount

Accumulated

depreciation

Net carrying

amount

Land

—

Buildings (civil and industrial)

Plant and equipment

5.050

3.503

1.546

Other

800

710

Construction in progress and advance payments

—

Total

5.931

4.224

1.707

Note 7 - Right of use assets

At December 31, 2021 right of use assets amounted to 1.253 million euros and are referred to Brazil Business

Unit. The breakdown and movements during the 31/12/2021 and 2020 are shown below.

(millions of euros)

31/12/2020

Investments

Increase in

lease

contracts

Depreciation

and

amortization

Disposals

Exchange

differences

Other

Changes

31/12/2021

Property

299

—

145

-50

-61

-11

324

Plant and equipment

880

296

-163

-76

-17

928

Other

—

-1

—

Total

1.180

441

-214

-137

-28

1.253

(millions of euros)

31/12/2019

Investments

Increase in

lease

contracts

Depreciation

and

amortization

Disposals

Exchange

differences

Other

Changes

31/12/2020

Property

446

—

152

-53

-85

-128

-34

299

Plant and equipment

1.118

355

-147

-109

-331

-17

880

Other

—

-2

—

-1

Total

1.570

508

-202

-194

-460

-53

1.180

The increases in financial leasing contracts in 2021, equal to 441 million euros (508 million euros at December

31, 2020), include the higher value of the rights of use recorded as a result of new leases, increases of lease

payments and renegotiation of agreements existing both land and buildings for office use and industrial

relationship over time, to infrastructure sites for the mobile telephone network infrastructure and network.

The disposals are representative of the carrying amount of the assets from lease agreements that terminated

early.

Amortization have been recorded in the income statement as components of EBIT.

Other changes included, inter alia, the lower value of the rights of use recorded as a result of contractual

changes during the year.

The item Property (civil and industrial) includes buildings under financial leases and related building

adaptations.

Consolidated Financial Statements 2021

Notes to the Consolidated Financial Statements

Telecom Italia Finance Group

The item Plant and equipment mainly includes the rights of use on the infrastructures for telecommunications

services. This includes, among others, the recognition of the value of the telecommunications towers sold by

the TIM Brasil group to American Tower do Brasil and subsequently repurchased in the form of finance lease.

Further details on finance lease are provided in the Note "Financial liabilities (non-current and current)".

The item Other mainly comprises the leases on motor vehicles.

No impairment losses have been recorded during the year 2021 and 2020.

The gross carrying amount, accumulated impairment losses and accumulated depreciation at December 31,

2021 and 2020 can be summarized as follows:

31/12/2021

(million euros)

Gross carrying

amount

Accumulated

amortization

Net carrying

amount

Property

451

127

324

Plant and equipment

1.381

452

928

Other

Total

1.839

586

1.253

31/12/2020

(million euros)

Gross carrying

amount

Accumulated

amortization

Net carrying

amount

Property

380

299

Plant and equipment

1.171

292

880

Other

Total

1.558

378

1.180

Note 8 - Investments

INVESTMENTS IN ASSOCIATES ACCOUNTED FOR USING THE EQUITY METHOD

Investments in associates accounted for using the equity method are reported below:

(million euros)

31/12/2021

31/12/2020

I-Systems S.A.

253

—

Total

253

—

Starting from 2021 the item include the carrying amount of the investment in I-Systems S.A. (formerly FiberCo

Soluções de Infraestrutura S.A.) following the deconsolidation of the company.

On November 2021, once the regulatory authorization process had been completed, the agreement was

finalized between TIM S.A. (Brazil Business Unit) and IHS Fiber Brasil Cessão de Infraestruturas Ltda. (“IHS

Brasil”), in order to acquire an equity stake in FiberCo Soluções de Infraestrutura S.A. ("FiberCo"), a company

established by TIM S.A. for the segregation of network assets and the provision of infrastructure services. The

closing of the transaction resulted in the dilution from 100% to 49% of TIM S.A.'s investment in I-Systems,

which is now accounted for by the TIM Group using the equity method.

Shareholder relations are governed by a shareholders' agreement.

The operation was worth 1,68 billion reais, divided up into a primary component of 0,58 billion reais, for the

treasury of I-Systems, and a secondary component of 1,10 billion reais, paid to TIM S.A. The enterprise value of

I-Systems was established at 2,71 billion reais and the equity value, after the contribution of the primary

component, was set at 3,29 billion reais. The operation also considers possible additional earnings deriving

from an earn out component.

In addition, under the scope of the Operation, TIM S.A. and I Systems have stipulated an agreement to develop

the Fiber to the Site (FTTS) infrastructure to connect TIM sites in the areas in which FiberCo will be developing

the new infrastructure granting access to fiber optic broadband.

The associate is in first stages of its business and the main assets are represented by plants and equipment, as

they were derecognized following the deconsolidation of the company.

Further details are provided in the Note "Tangible Assets".

Consolidated Financial Statements 2021

Notes to the Consolidated Financial Statements

Telecom Italia Finance Group

Other investments in associates accounted for using the equity method include TI Audit Compliance Latam

S.A. and Movenda S.p.A. that are associates to the Group, but their contributions in the Consolidated Financial

Statements is considered to be non-material individually and in an aggregate form.

INVESTMENTS IN STRUCTURED ENTITIES

The Group does not hold investments in structured entities.

OTHER INVESTMENTS

(million euros)

31/12/2021

31/12/2020

TIM S.p.A.

—

Total

—

The shares of TIM S.p.A. have been entirely distributed on November 23, 2021 to TIM S.p.A. by TI Finance as

interim dividend in kind. The shares in portfolio has been valued at the market price of the day preceding the

Board resolution, realizing a gain of 9,3 million euros. As permitted by IFRS 9, the Group measured Other

Investments at fair value through other comprehensive income (FVTOCI), as a consequence the gain has not

been reversed to the Separate Consolidated Income Statement.

Further details on Financial Instruments are provided in the Note "Supplementary disclosure on financial

instruments".

Note 9 - Financial assets (non-current and current)

(millions of euros)

31/12/2021

31/12/2020

Non-current financial assets

1.927

1.907

Financial receivables for lease contracts

Hedging derivatives relating to hedged items classified as non-current assets/

liabilities of a financial nature

Non-hedging derivatives

710

700

Loans and other financial receivables

1.182

Current financial assets

5.628

4.239

Securities other than investments

2.249

1.092

Fair value through other comprehensive income (FVTOCI)

1.515

768

Fair value through profit or loss (FVTPL)

733

325

Financial receivables and other current financial assets

133

145

Financial receivables arising from lease contracts

Non-hedging derivatives

Loans and other financial receivables

Cash and cash equivalents

3.247

3.001

Total non-current and current financial assets

7.555

6.146

Further details on Financial Instruments are provided in the Note "Supplementary disclosure on financial

instruments".

Financial receivables for lease contracts refers to finance leases on rights of use (Brazil Business Unit).

Hedging derivatives relating to hedged items classified as non-current assets/liabilities of a financial

nature refers mainly to the mark-to-market component of the hedging derivatives.

Consolidated Financial Statements 2021

Notes to the Consolidated Financial Statements

Telecom Italia Finance Group

Investments | 51

Non-hedging derivatives relating to items classified as current and non-current financial assets totaled 754

million euros (768 million euros at December 31, 2020). These include the measurement of derivatives which,

although put into place for hedging purposes, do not possess the formal requisites to be considered as such

under IFRS and derivatives put in place in the framework of the activity of centralizing all the banking

exposures of the TIM Group (further details are provided in the Note “Derivatives”). At December 31, 2021 the

mark-to-market component of the non-hedging derivatives of the Brazil Business Unit is equal to 72 million

euros (25 million euros at December 31, 2020) in relation to the option to subscribe shares of C6 Bank with

which TIM S.A. entertains commercial relations.

Loans and receivables both in current and non-current financial assets amounts to 1.266 million euros (1.258

million euros at December 31, 2020) and refers to loans granted by the Parent to the ultimate Parent and other

TIM Group companies. Regarding the loans granted to the ultimate Parent company, the credit risk is

considered low based on the financial capability of TIM S.p.A. Other loans are considered fully recoverable by

the management.

Securities other than investments included in current assets relates to:

•listed securities, classified as FVTOCI - Fair value through other comprehensive income, due beyond

three months. They consist of 833 million euros (320 million euros at December 31, 2020) of italian

treasury bonds and 682 million euros (448 million euros at December 31, 2020) of bonds purchased by

the Parent with different maturities, all with an active market and consequently readily convertible

into cash. The above government bonds represent investments in "Sovereign debt securities”.

•securities, classified as FVTPL - Fair value through profit or loss, due beyond three months. They are

related to the investment made by the Brazil Business Unit for an equivalent value of 733 million

euros (325 million euros at December 31, 2020) in monetary funds.

At December 31, 2021, Telecom Italia Finance S.A raised short-term capital (note "Financial liabilities (non-

current and current)") with government and corporate bonds serving as collateral for a total value of 838,3

million euros by entering in repurchase agreements (“Repo”) expiring in the first quarter 2022.

At December 31, 2021, the Parent has contracts of security lending with TIM S.p.A. for a total of 189,5 million

euros of government bonds and with bank counterparties for 171,6 million euros of other bonds.

As per IFRS9, the assets have not been derecognized, being Telecom Italia Finance S.A. the Company which

retains the risks and benefits associated with the position.

Cash and cash equivalents:

(millions of euros)

31/12/2021

31/12/2020

Liquid assets with banks, financial institutions and post offices

2.318

2.510

Other financial receivables (due within 3 months)

117

Securities other than investments (due within 3 months)

811

395

Total

3.247

3.001

For the purpose of the statement of cash flows, cash and cash equivalents comprise the following:

(millions of euros)

31/12/2021

31/12/2020

Liquid assets with banks, financial institutions and post offices

2.318

2.510

Other financial receivables (due within 3 months)

117

Securities other than investments (due within 3 months)

811

395

3.247

3.001

Financial payables (due within 3 months)

-8

-6

Total

3.239

2.995

The different technical forms of investing available cash at December 31, 2021 had the following

characteristics:

•maturities: all deposits have a maximum maturity date of three months;

•counterparty risk: deposits have been made with leading high-credit-quality banks and financial

institutions with a rating of at least BBB according to Standard & Poor's with regard to Europe, and

with leading local counterparts with regard to investments in South America;

•country risk: deposits have been made mainly by the Parent company in major European financial

markets.

Consolidated Financial Statements 2021

Notes to the Consolidated Financial Statements

Telecom Italia Finance Group

Other financial receivables (due within 3 months) refers to loans granted by the Parent to TIM Group

companies. All loans are considered fully recoverable by the management.

Securities other than investments (due within 3 months) included 811 million euros (395 million euros at

December 31, 2020) of Brazilian bank certificates of deposit (Certificado de Depósito Bancário) held by the

Brazil Business Unit with premier local banking and financial institutions.

Note 10 - Miscellaneous receivables and other non-current assets

(million euros)

31/12/2021

Of which

Financial

Instruments

31/12/2020

Of which

Financial

Instruments

Miscellaneous receivables

380

121

467

132

Other non-current assets

—

Prepaid expenses from customer contracts

(contract assets)

—

Other prepaid expenses

—

Total

393

121

479

132

As at December 31, 2021 Miscellaneous receivables relate to the Brazil Business Unit for an amount of 380

million euros (467 million euros at December 31, 2020). They include receivables for court deposits of 113

million euros (126 million euros at December 31, 2020) and income tax receivables of 116 million euros (33

million euros at December 31, 2020). Furthermore, they included non-current receivables for indirect taxes

totaling 137 million euros (296 million euros at December 31, 2020), including receivables relating to the

decision made by the Supreme Federal Court (STF) on the waiver of collection of corporate income tax (IRPJ)

and social contributions (CSLL) on the monetary recalculation that uses the SELIC rate in cases of undue

payment.

Other non-current assets include prepaid expenses related to the Brazil BU for 13 million euros (12 million

euros at December 31, 2020) and is mainly represented by incremental costs related to sales commissions paid

to partners for obtaining customer contracts arising from the adoption of IFRS 15, which are deferred to the

result in accordance with the term of the contract and/or economic benefit, usually from 1 to 2 years.

Further details on Financial Instruments are provided in the Note "Supplementary disclosure on financial

instruments".

Note 11 - Income taxes (current and deferred)

INCOME TAX RECEIVABLES

Non-current and current income tax receivables at December 31, 2021 amounted to 142 million euros (72

million euros at December 31, 2020) and related to the Brazil Business Unit.

Specifically, they consisted of:

•non-current receivables of 116 million euros (33 million at December 31, 2020);

•current income tax receivables of 26 million euros (39 million euros at December 31, 2020).

DEFERRED TAX ASSETS AND DEFERRED TAX LIABILITIES

The net balance of 85 million euros at December 31, 2021 (86 million euros at December 31, 2020) was broken

down as follows:

(million euros)

31/12/2021

31/12/2020

Deferred tax assets

Deferred tax liabilities

—

Total

Deferred taxes are all attributable to Brazil BU.

Consolidated Financial Statements 2021

Notes to the Consolidated Financial Statements

Telecom Italia Finance Group

Since the presentation of deferred tax assets and liabilities in the financial statements takes into account the

offsets by legal entity when applicable, the composition of the gross amounts before offsets is presented

below:

(million euros)

31/12/2021

31/12/2020

Deferred tax assets

270

260

Deferred tax liabilities

-185

-174

Total

The temporary differences that made up this line item at December 31, 2021 and 2020, as well as the

movements during 2021 were as follows:

(million euros)

31/12/2020

Recognized in

profit or loss

Recognized in

equity

Exchange

differences and

other changes

31/12/2021

Deferred tax assets

260

—

270

Tax loss carryforwards

-40

—

Provision for bad debts

—

Provisions

—

124

Other deferred tax assets

—

Deferred tax liabilities

-174

-63

—

-185

Derivatives

-24

—

-23

Business combinations - for step-

up of net assets in excess of tax

basis

-67

-37

—

-52

Accelerated depreciation

-42

-32

—

-1

-74

Other deferred tax liabilities

-41

—

-37

Total Net deferred tax assets

(liabilities)

-55

—

At December 31, 2021, the Group had unused tax loss carryforwards of 1.026 million euros with the following

expiration dates:

Year of expiration

(million euros)

2022

—

2023

—

2024

—

2025

—

2026

—

Expiration after 2026

Without expiration

998

Total unused tax loss carryforwards

1.026

Unused tax loss carryforwards considered in the calculation of deferred tax assets amounted to 113 million

euros at December 31, 2021 (229 million euros at December 31, 2020) and referred to the Brazil Business Unit.

Deferred tax assets are recognized when it is considered probable that taxable income will be available in the

future against which the tax losses can be utilized. On the other hand, deferred tax assets of 206 million euros

(227 million euros at December 31, 2020) have not been recognized on 858 million euros (939 million euros at

December 31, 2020) of tax loss carryforwards since, at this time, their recoverability is not considered probable.

At December 31, 2021, deferred tax liabilities have not been recognized on approximately 0,2 billion euros (0,5

billion euros at December 31, 2020) of tax-suspended reserves and undistributed earnings of subsidiaries,

because the Group is in a position to control the timing of the distribution of those reserves and it is probable

that those accumulated earnings will not be distributed in the foreseeable future. The contingent liabilities

relating to taxes that should be recognized, if these reserves are distributed, are in any case not significant.

Consolidated Financial Statements 2021

Notes to the Consolidated Financial Statements

Telecom Italia Finance Group

INCOME TAX PAYABLES

Income tax payables amounted to 30 million euros (49 million euros at December 31, 2020) and are mainly

related to Brazil Business Unit. They were broken down as follows:

(million euros)

31/12/2021

31/12/2020

Non-Current

—

Current

Total

INCOME TAX INCOME (EXPENSE)

Details are as follows:

(million euros)

Year 2021

Year 2020

Current taxes for the year

-16

Net difference in prior year estimates

—

120

Total current taxes

-16

145

Deferred taxes

-102

Total income tax for the year

The decrease in total current tax reflects the difference in estimates from previous years of the Brazil Business

Unit recorded in 2020, mainly consequent to the procedural changes in the determination of the tax effects

deriving from the exclusion of the ICMS tax from the basis used to calculate the PIS/COFINS contribution. For

further details please refer to the Note "Disputes and pending legal actions, other information, commitments

and guarantees".

The reconciliation between the theoretical tax expense, and the effective tax expense for the years ended

December 31, 2021 and 2020 is the following:

(million euros)

Year 2021

Year 2020

Profit (loss) before tax

476

332

Theoretical income tax

119

Income tax effect on increases (decreases) in variations

Tax losses of the year not considered recoverable

-21

-20

Different rate compared to theoretical rate in force in Luxembourg and other

changes

-31

Brazil: incentive on investments

-28

Total effective income tax recognized in income statement

During the year 2021 tax losses of 21 million euros have been considered not recoverable in relation to tax loss

carryforwards whose recoverability is not considered probable.

The tax rate in force in Luxembourg as at December 31, 2021 and 2020 is 24,94%.

Note 12 - Inventories

(million euros)

31/12/2021

31/12/2020

Finished goods

Total

The inventories mainly consist of cell phones and tablets, accessories and prepaid cards and are referred to

Brazil Business Unit.

Consolidated Financial Statements 2021

Notes to the Consolidated Financial Statements

Telecom Italia Finance Group

Note 13 - Trade and miscellaneous receivables and other current assets

(million euros)

31/12/2021

Of which

Financial

Instruments

31/12/2020

Of which

Financial

Instruments

Trade receivables

512

495

Receivables from customers

465

452

Receivables from other telecommunications

operators

Miscellaneous receivables

273

285

Other current assets

Prepaid expenses from customer contracts

(contract assets)

Other prepaid expenses

—

Total

832

517

807

499

The aging of financial instruments included in "Trade and miscellaneous receivables and other current assets"

at December 31, 2021 and 2020 was as follows:

overdue:

(million euros)

31/12/2021

Total

non-

overdue

Total

overdue

0-90

days

91-180

days

181-365

days

More than

365 days

Net trade and miscellaneous

receivables and other current

assets

517

448

—

overdue:

(million euros)

31/12/2020

Total

non -

overdue

Total

overdue

0-90

days

91-180

days

181-365

days

More than

365 days

Net trade and miscellaneous

receivables and other current

assets

499

387

112

—

The increase in the non-overdue portion (61 million euros) includes a negative exchange adjustment of

approximately 3 million euros.

Overdue receivables decreased of 43 million of euros compared to December 31, 2020, including a positive

exchange difference of around 1 million euros.

As at December 31, 2021 Trade receivables related to the Brazil Business Unit amounted to 512 million euros

(495 million euros at December 31, 2020 and are stated net of the provision for expected credit losses of 118

million euros (102 million euros at December 31, 2020).

Movements in the provision for expected credit losses were as follows:

(million euros)

2021

2020

At January 01

102

171

Provision charges to the income statement

Utilization and decreases

(71)

(115)

Exchange differences and other changes

(48)

At December 31

118

102

Consolidated Financial Statements 2021

Notes to the Consolidated Financial Statements

Telecom Italia Finance Group

Other current assets include the current portion of prepaid expenses related to the Brazil BU and is mainly

represented by incremental costs related to sales commissions paid to partners for obtaining customer

contracts arising from the adoption of IFRS 15, which are deferred to the result in accordance with the term of

the contract and/or economic benefit, usually from 1 to 2 years.

As at December 31, 2021 Miscellaneous receivables amounted to 273 million euros (285 million euros at

December 31, 2020) and did not include provisions for bad debts (same as at December 31, 2020).

Details are as follows:

(million euros)

31/12/2021

31/12/2020

Advances to suppliers

Tax receivables

240

245

Sundry receivables

Total

273

285

As at December 31, 2021 Tax receivables included 240 million euros (245 million euros at December 31, 2020)

referring to the Brazil Business Unit and related to local indirect taxes.

Other prepaid expenses include for the Brazil BU relative to marketing activities (approximately 14 million

euros), insurance premiums (approximately 5 million euros) and maintenance contracts (approximately 5

million euros).

Further details on Financial Instruments are provided in the Note "Supplementary disclosure on financial

instruments".

Note 14 - Equity

As at December 31, 2021 the authorized, issued and fully paid capital of 1.818.691.978,50 euros

(1.818.691.978,50 euros at December 31, 2020) is represented by 185.960.325 ordinary shares (185.960.325 at

December 31, 2020) with a nominal value of EUR 9,78 per share.

As at December 31, 2021 and 2020 the Parent is 100% held by TIM S.p.A.

There has not been any movement in Share Capital in the 31/12/2021.

Consolidated Financial Statements 2021

Notes to the Consolidated Financial Statements

Telecom Italia Finance Group

Note 15 - Financial liabilities (non-current and current)

Non-current and current financial liabilities (gross financial debt) were broken down as follows:

(million euros)

31/12/2021

31/12/2020

Non-current financial liabilities

3.630

3.038

Financial payables (medium/long-term):

1.815

1.273

Bonds

1.276

1.012

Amounts due to banks

259

103

Other financial payables

279

158

Finance lease liabilities (medium/long-term)

1.233

1.149

Other financial liabilities (medium/long-term):

582

616

Non-hedging derivatives

582

616

Current financial liabilities

1.544

756

Financial payables (short-term):

1.289

572

Bonds

Amounts due to banks

1.198

490

Other financial payables

Finance lease liabilities (short-term)

201

166

Other financial liabilities (short-term):

Hedging derivatives

—

Non-hedging derivatives

Total financial liabilities (gross financial debt)

5.174

3.793

Further details on Financial Instruments are provided in the Note “Supplementary disclosure on financial

instruments”.

The breakdown of gross financial debt by effective interest rate bracket, excluding the effect of any hedging

instruments, is provided below:

(million euros)

31/12/2021

31/12/2020

Up to 2,5%

1.438

311

From 2,5% to 5%

339

286

From 5% to 7,5%

233

158

From 7,5% to 10%

1.012

Over 10%

1.433

1.313

Accruals/deferrals, MTM and derivatives

718

712

Total

5.174

3.793

Following the use of derivative hedging instruments, on the other hand, the gross financial debt by nominal

interest rate bracket is:

(million euros)

31/12/2021

31/12/2020

Up to 2,5%

1.000

380

From 2,5% to 5%

272

375

From 5% to 7,5%

—

From 7,5% to 10%

1.252

1.012

Over 10%

1.931

1.313

Accruals/deferrals, MTM and derivatives

718

712

Total

5.174

3.793

Consolidated Financial Statements 2021

Notes to the Consolidated Financial Statements

Telecom Italia Finance Group

Details of the maturities of financial liabilities – at nominal repayment amount as at December 31, 2021:

maturing by 31/12 of the year

(millions of euros)

2022

2023

2024

2025

2026

After 2026

Total

Bonds

—

1.268

Loans and other financial liabilities

—

193

—

342

621

Finance lease liabilities

—

230

—

1.203

1.434

Total

—

423

—

2.813

3.322

Current financial liabilities

1.119

—

1.119

Total

1.186

—

423

—

2.813

4.441

Details of the maturities of financial liabilities – at nominal repayment amount as at December 31, 2020:

maturing by 31/12 of the year

(millions of euros)

2021

2022

2023

2024

2025

After 2025

Total

Bonds

—

1.015

Loans and other financial liabilities

250

—

158

525

Finance lease liabilities

—

223

—

1.090

1.314

Total

250

256

2.263

2.854

Current financial liabilities

229

—

229

Total

480

256

2.263

3.083

The following tables list the bonds issued by the Group, expressed at the nominal repayment amount, net of

bond repurchases, and also at market value as at December 31, 2021:

Currency

Amount

(millions)

Nominal

repayment

amount at

31/12/2021

(millions of

euros)

Coupon

Issue date

Maturity

date

Issue price

(%)

Market

price at

31/12/2021

(%)

Market value

31/12/2021

(millions of

euros)

Bonds issued by Telecom Italia Finance and guaranteed by TIM S.p.A.

Euro

1.015

7,750%

24/01/2003

24/01/2033

109,646[*]

133,488

1.355

Bonds issued by TIM S.A.

BRL

1.600

253

IPCA+4,1682%

15/06/2021

15/06/2028

100

100,000

253

Total

1.608

[*]Weighted average issue price for bonds issued with more than one tranche.

The following table lists the changes in bonds during 2021:

New issues

(millions of original currency)

Currency

Amount

Issue date

TIM S.A. 1,600 million BRL IPCA+4,1682%

BRL

1.600

15/06/2021

Amounts due to banks (medium/long term) of 259 million euros (103 million euros at December 31, 2020)

Increased by 156 million euros, mainly as net result of new loans and the transfer to the current portion.

As at December 31, 2021 Other financial payables (medium/long-term) amounted to 279 million euros (158

million euros at December 31, 2020) corresponding to Telecom Italia Finance loan of 20.000 million Japanese

yens expiring in 2029.

Finance lease liabilities (medium/long-term) totalled 1.233 million euros at December 31, 2021 (1.149 million

euros at December 31, 2020). With reference to the financial lease liabilities recognized, in 2021 and 2020 the

following is noted:

(million euros)

31/12/2021

31/12/2020

Principal reimbursements

Cash out interest portion

Total

148

Non-hedging derivatives relating to items classified as current and non-current financial liabilities totaled 636

million euros (634 million euros at December 31, 2020). These include the measurement of derivatives which,

Consolidated Financial Statements 2021

Notes to the Consolidated Financial Statements

Telecom Italia Finance Group

although put into place for hedging purposes, do not possess the formal requisites to be considered as such

under IFRS and derivatives put in place in the framework of the activity of centralizing all the banking

exposures of the TIM Group (further details are provided in the Note “Derivatives”).

Short-term amounts due to banks totalled 1.198 million euros (490 million euros at December 31, 2020) and

included 251 million euros of the current portion of medium/long-term amounts due to banks. As at December

31, 2021 the item includes 838,3 million euros of short-term capital raised by entering in repurchase

agreements (“Repo”).

Further details on Financial Instruments are provided in the Note “Supplementary disclosure on financial

instruments”.

Note 16 - Net financial debt

The following table shows the net financial debt at December 31, 2021 and December 31, 2020, determined in

accordance with the provisions of the “Guidelines on disclosure requirements under the Prospectus

Regulation” issued by the ESMA (European Securities & Markets Authority) on March 4, 2021

(ESMA32-382-1138).

(million euros)

31/12/2021

31/12/2020

Liquid assets with banks, financial institutions and post offices

2.318

2.510

Other cash and cash equivalents

811

395

Securities other than investments

2.249

1.092

Liquidity

d=a+b+c

5.378

3.998

Current financial debt (including debt instruments, but excluding the

current portion of non-current financial debt)

1.120

231

Current portion of non-current financial debt

379

456

Current financial debt

g=e+f

1.499

687

Net current financial debt

h=g-d

-3.879

-3.311

Non-current financial debt (excluding the current part and debt

instruments)

1.642

1.325

Debt instruments

1.276

1.012

Trade payables and other non-current debt [**]

Non-current financial debt

l=i+j+k

2.998

2.381

Total net financial debt as per ESMA guidelines 32-382-1138

m=h+l

-881

-930

Trade payables and other non-current debt

-79

-44

Loans and other non-current financial receivables

-1.182

Non-current financial receivables arising from lease contracts

-34

-25

Loans and other current financial receivables

-201

-171

Current financial receivables arising from lease contracts

-5

-1

Subtotal

-1.501

-1.423

Net financial debt carrying amount[*]

o=m+n

-2.382

-2.353

[*] For details of the effects of related party transactions on net financial debt, see the specific table in the Note "Related

party transactions".

[**]The value at December 2021 mainly includes the payables of the Brazil Business Unit for the purchase and

renewal of telecommunications licenses (72 million euros), also including the payable due to Entidade

Administradora da Conectividade de Escolas (EACE) for the development of certain infrastructural projects in

Brazil in connection with the assignment of the rights of use of frequencies for 5G services.

Consolidated Financial Statements 2021

Notes to the Consolidated Financial Statements

Telecom Italia Finance Group

The following additional disclosures are provided in accordance with IAS 7:

(million euros)

Cash movements

Non-cash movements

31/12/2020

Receipts

and/or

issues

Payments

and/or

reimbursem

ents

Differences

exchange

rates

Fair value

changes

Other

changes

31/12/2021

Financial payables

(medium/long-term):

1.613

481

-269

—

141

1.983

Bonds

1.086

252

—

1.350

Amounts due to banks

368

230

-269

—

-2

345

Other financial payables

160

—

-4

—

133

289

of which short-term portion

340

—

-269

—

168

Finance lease liabilities

(medium/long-term):

1.315

136

-186

—

157

1.434

of which short-term portion

166

—

-186

—

220

201

Other financial liabilities

(medium/long-term):

634

—

-67

635

Hedging derivatives

relating to hedged items

classified as non-current

assets/liabilities of a

financial nature

—

Non-hedging derivatives

634

—

-67

634

of which short-term portion

—

Financial payables (short-

term):

231

890

—

1.122

Amounts due to banks

225

887

—

1.112

Non-hedging derivatives

—

Other financial payables

—

Total financial liabilities

(gross financial debt)

3.794

1.508

-455

-67

301

5.174

—

Positive hedging derivatives

(current and non-current)

—

Positive non-hedging

derivatives (current and

non-current)

768

—

-10

-52

753

Total

3.024

1.508

-445

-16

286

4.419

Consolidated Financial Statements 2021

Notes to the Consolidated Financial Statements

Telecom Italia Finance Group

(million euros)

Cash movements

Non-cash movements

31/12/2019

Receipts

and/or

issues

Payments

and/or

reimbursem

ents

Differences

exchange

rates

Fair value

changes

Other

changes

31/12/2020

Financial payables

(medium/long-term):

1.700

306

-307

-88

—

1.614

Bonds

1.312

—

-170

-52

—

-4

1.086

Amounts due to banks

222

306

-137

-30

—

368

Other financial payables

166

—

-6

—

160

of which short-term portion

382

—

-45

-96

—

100

341

Finance lease liabilities

(medium/long-term):

1.719

241

-157

-506

—

1.314

of which short-term portion

193

187

-157

-58

—

166

Other financial liabilities

(medium/long-term):

590

—

-40

634

Hedging derivatives

relating to hedged items

classified as non-current

assets/liabilities of a

financial nature

—

Non-hedging derivatives

590

—

-40

634

of which short-term portion

—

Financial payables (short-

term):

303

—

-72

-1

—

231

Amounts due to banks

279

—

-54

—

225

Non-hedging derivatives

—

Other financial payables

—

-18

-1

—

Total financial liabilities

(gross financial debt)

4.312

547

-536

-634

3.793

Positive hedging derivatives

(current and non-current)

—

Positive non-hedging

derivatives (current and

non-current)

—

Total

4.311

547

-536

-634

3.792

Consolidated Financial Statements 2021

Notes to the Consolidated Financial Statements

Telecom Italia Finance Group

Note 17 - Financial risk management

Financial risk management objectives and policies of the Group

The Group is exposed to the following financial risks in the ordinary course of its business operations:

•market risk: stemming from changes in interest rates and exchange rates in connection with financial

assets that have been originated and financial liabilities that have been assumed;

•credit risk: representing the risk of non-fulfilment of obligations undertaken by the counterparty with

regard to the liquidity investments of the Group;

•liquidity risk: connected with the need to meet short-term financial commitments.

These financial risks are managed by:

•the establishment, at TIM Group level, of guidelines for directing operations;

•the work of a TIM Group committee that monitors the level of exposure to market risks in accordance

with pre-established general objectives;

•the identification of the most suitable financial instruments, including derivatives, to reach pre-

established objectives;

•the monitoring of the results achieved;

•the exclusion of the use of financial instruments for speculative purposes.

The policies for the management and the sensitivity analyses of the above financial risks by the Group are

described below.

Identification of risks and analysis

The Group is exposed to market risks as a result of changes in interest rates and exchange rates in the markets

in which it operates, or has bond issues, principally Europe and Latin America.

The financial risk management policies of the Group are directed towards diversifying market risks, hedging

exchange rate risk in full and minimizing interest rate exposure by an appropriate diversification of the

portfolio, which is also achieved by using carefully selected derivative financial instruments.

At TIM Group level is set an optimum composition of its debt structure by balancing fixed and variable-rates

and uses derivative financial instruments to achieve that debt composition. In consideration of the Group's

operating activities, the optimum combination of medium/long-term non-current financial liabilities has been

identified, on the basis of the nominal amount, in the 65%-85% range for the fixed-rate component and in the

15%-35% range for the variable-rate component.

In managing market risk, the Group mainly uses the following financial derivatives:

•Interest Rate Swaps (IRSs), to modify the profile of the original exposure to interest rate risks on loans

and bonds, both fixed and variable;

•Cross Currency and Interest Rate Swaps (CCIRSs) and Currency Forwards, to convert loans and bonds

issued in currencies other than euro to the functional currencies of the operating companies.

Derivative financial instruments may be designated as fair value hedges for managing exchange rate and

interest rate risk on instruments denominated in currencies other than euro and for managing interest rate risk

on fixed-rate loans. Derivative financial instruments are designated as cash flow hedges when the objective is

to pre-set the exchange rate of future transactions and the interest rate.

All derivative financial instruments are entered into with banking and financial counterparties with at least a

"BBB-" rating from Standard & Poor's or an equivalent rating and a non-negative outlook. The exposure to the

various market risks can be measured by sensitivity analyses, as set forth in IFRS 7. This analysis illustrates the

effects produced by a given and assumed change in the levels of the relevant variables in the various reference

markets (exchange rates, interest rates and prices) on finance income and expenses and, at times, directly on

equity. The sensitivity analysis was performed based on the suppositions and assumptions indicated below:

•sensitivity analyses were performed by applying reasonably likely changes in the relevant risk

variables to the amounts in the Consolidated Financial Statements at December 31, 2021;

•changes in value of fixed-rate financial instruments, other than derivatives, produced by changes in

the reference interest rates, generate an impact on profit only when, in accordance with IAS 39 and

IFRS 9, they are accounted for at their fair value through profit and loss. All fixed-rate instruments,

which are accounted for at amortized cost, are not subject to interest rate risk as defined by IFRS 7;

•in the case of fair value hedge relationships, fair value changes of the underlying hedged item and of

the derivative instrument, due to changes in the reference interest rates, offset each other almost

entirely in the income statement for the year. As a result, these financial instruments are not exposed

to interest rate risk. The Group has not applied fair value hedge accounting for the year ended 31

December 2021;

•changes in the value of designated financial instruments in a cash flow hedge relationship, produced

by changes in interest rates, generate an impact on the debt level and on equity; accordingly, they are

included in this analysis;

•the changes in value, produced by changes in the reference interest rates, of variable-rate financial

instruments, other than derivatives, which are not part of a cash flow hedge relationship, generate an

Consolidated Financial Statements 2021

Notes to the Consolidated Financial Statements

Telecom Italia Finance Group

impact on the finance income and expenses for the year; accordingly, they are included in this

analysis.

Exchange rate risk – Sensitivity analysis

At December 31, 2021 (and also at December 31, 2020), the exchange rate risk of the Group's loans

denominated in currencies other than the functional currency of the Consolidated Financial Statements was

hedged in full. Accordingly, a sensitivity analysis was not performed on the exchange rate risk.

Interest rate risk – Sensitivity analysis

The change in interest rates on the variable component of payables and liquidity may lead to higher or lower

finance income and expenses, while changes in the level of the expected interest rate affect the fair value

measurement of the Group's derivatives. In particular:

•with regard to derivatives that convert the liabilities contracted by the Group to fixed rates (cash flow

hedging), in line with international accounting standards that regulate hedge accounting, the fair

value (mark-to-market) measurement of such instruments is set aside in a specific unavailable Equity

reserve. The combined change of the numerous market variables to which the mark-to-market

calculation is subject between the transaction inception date and the measurement date renders any

assumption about the trend of the variables of little significance. As the contract expiration date

approaches, the accounting effects described will gradually be absorbed until they cease to exist;

•if at December 31, 2021 the interest rates in the various markets in which the Group operates had

been 100 basis points higher/lower compared to the actual rates, then higher/lower finance expenses,

before the income tax effect, would have been recognized in the income statement of 2 million euros

(4 million euros at December 31, 2020).

Credit risk

Exposure to credit risk for the Group consists of possible losses that could arise from the failure of either

commercial or financial counterparties to fulfill their assumed obligations. To measure this risk over time for

impairment of financial assets (trade receivables due from customers included), the Group uses the expected

credit loss model. Such exposure mainly stems from general economic and financial factors, the potential

occurrence of specific insolvency situations of some borrowers and other more strictly technical-commercial or

administrative factors. The Group's maximum theoretical exposure to credit risk is represented by the carrying

amount of the financial assets and trade receivables recorded in the financial statements.

Risk related to trade receivables is managed using customer scoring and analysis systems. Provision charges

for expected credit losses are recorded for specific credit positions that have an element of individual risk. On

credit positions that do not have such characteristics, provision charges are recorded by customer segment

according to the average uncollectibility estimated on the basis of statistics. Further details are provided in the

Note "Trade and miscellaneous receivables and other current assets".

Financial assets other than trade receivables are written down for impairment on the basis of a general model

which estimates expected credit losses over the following 12 months, or over the residual life of the asset in

the event of a substantial increase in its credit risk. The expected credit loss is calculated based on the default

probability and the percentage of credit that cannot be recovered in the event of a default (the loss given

default). The model adopted to calculate the expected credit loss is based on the Bloomberg Credit Risk Model,

a model developed by Bloomberg which, starting from Merton’s distance-to-default (“DD”) concept, estimates

the probability of default together with the recovery rate. At the same time, the loss given default is defined as

the non-recoverable component of post-default financial assets. In particular, the DD - based on balance sheet

data - is enriched with a series of additional information by country (macroeconomic, risk), business sector and

individual company, as well as accounting adjustments aimed at ensuring uniformity of the model's outputs;

finally, through a non-linear function of the DD, you get the default probability.

As regards the current COVID-19 pandemic, use of the Bloomberg Credit Risk Model, which, as mentioned, also

takes into account the political and economic situation of the various countries in the short and medium/long-

term (from 3 months to 5 years), ensures that all risk components are adequately reflected in the

measurement of the credit risk.

Moreover, as regards credit risk relating to the asset components which contribute to the determination of

"Net financial debt", it should be noted that the management of the Group's liquidity is guided by conservative

criteria and is principally based on the following:

•money market management: the investment of temporary excess cash resources;

•bond portfolio management: the investment of medium-term liquidity, as well as the improvement of

the average yield of the assets.

In order to mitigate the risk of the non-fulfillment of the obligations undertaken by the counterparty, deposits

of the European companies are made with leading banking and financial institutions rated no lower than

investment grade and with a non-negative outlook, and investments by the companies in South America are

made with leading local counterparties. Moreover, deposits are made generally for periods of less than three

months. With regard to other temporary investments of liquidity, there is a bond portfolio in which the

Consolidated Financial Statements 2021

Notes to the Consolidated Financial Statements

Telecom Italia Finance Group

investments have a low risk level. All investments have been carried out in compliance with the Guidelines on

"Management and control of financial risk" established by the ultimate Parent entity TIM S.p.A.

In order to minimize credit risk, the Group also pursues a diversification policy for its investments of liquidity

and allocation of its credit positions among different banking counterparties. Consequently, there are no

significant positions with any one single counterparty.

Liquidity risk

The Group pursues the objective of achieving an "adequate level of financial flexibility" which is expressed by

maintaining a current treasury margin to cover the refinancing requirements at least for the next 12 months

with irrevocable bank lines and liquidity.

Current financial assets at December 31, 2021, together with unused committed bank lines, are sufficient to

fully cover the Group’s financial liabilities due at least for the next 24 months.

The following tables report the contractual cash flows, not discounted to present value, relative to gross

financial debt at nominal repayment amounts and the interest flows, determined using the terms and the

interest and exchange rates in place at December 31, 2021. The portions of principal and interest of the hedged

liabilities includes both the disbursements and the receipts of the relative hedging derivatives.

Financial liabilities – Maturities of contractually expected disbursements as at December 31, 2021:

maturing by 31/12 of the year:

(million euros)

2022

2023

2024

2025

2026

After

2026

Total

Bonds

Principal

—

1.268

Interest Portion

101

552

1.025

Loans and other financial liabilities

Principal

191

293

621

Interest Portion

166

Finance lease liabilities

—

Principal

200

209

109

616

1.433

Interest Portion

130

280

Non-current financial liabilities

Principal

282

217

400

130

116

2.177

3.322

Interest Portion

172

166

147

141

125

720

1.471

Current financial liabilities

Principal

1.119

—

1.119

Interest Portion

—

Total Financial liabilities

Principal

1.401

217

400

130

116

2.177

4.441

Interest Portion

176

166

147

141

125

720

1.476

Derivatives on financial liabilities – Contractually expected interest flows as at December 31, 2021:

maturing by 31/12 of the year:

(million euros)

2022

2023

2024

2025

2026

After

2026

Total

Disbursements

Receipts

-1

-4

-10

Hedging derivatives – net disbursements

(receipts)

—

-1

-2

Disbursements

263

182

256

145

221

790

1.857

Receipts

-235

-159

-241

-132

-214

-808

-1.790

Non-Hedging derivatives – net

disbursements (receipts)

-19

Total net disbursements (receipts)

-20

Consolidated Financial Statements 2021

Notes to the Consolidated Financial Statements

Telecom Italia Finance Group

Market value of derivatives

In order to determine the fair value of derivatives, the Group uses various valuation models.

The mark-to-market calculation is determined by the present value discounting of the interest and notional

future contractual flows using market interest rates and exchange rates.

The notional amount of IRSs does not represent the amount exchanged between the parties and therefore is

not a measurement of credit risk exposure which, instead, is limited to the amount of the difference between

the interest rates paid/received.

The market value of CCIRSs, on the other hand, also depends on the differential between the reference

exchange rate at the date of signing the contract and the exchange rate at the date of measurement, since

CCIRSs involve the exchange of the reference interest and principal, in the respective denomination currencies.

Options are measured according to the Black & Scholes or Binomial models and involve the use of various

measurements factors, such as: the lifetime horizon of the option, the risk-free rate of return, current price,

volatility and any cash flows (e.g. dividend) of the underlying financial instrument, and the exercise price.

Note 18 - Derivatives

The hedge accounting rules provided by IAS 39 continued to be applied for derivatives.

Derivative financial instruments are used by the Group to hedge its exposure to foreign exchange rate risk, to

manage interest rate risk and to diversify the parameters of debt so that costs and volatility can be reduced to

within predetermined operational limits.

Derivative financial instruments in place at December 31, 2021 are principally used to manage debt positions.

They include interest rate swaps (IRSs) to reduce interest rate exposure on fixed-rate and variable-rate bank

loans and bonds, as well as cross currency and interest rate swaps (CCIRSs), currency forwards and foreign

exchange options to convert the loans/receivables secured in currencies different from the functional

currencies of the various Group companies.

IRSs transactions provide for or may entail, at specified maturity dates, the exchange of flows of interest,

calculated on the notional amount, at the agreed fixed or variable rates.

The same also applies to CCIRSs transactions which, in addition to the settlement of periodic interest flows,

may provide for the exchange of principal, in the respective currencies of denomination, at maturity and

possibly spot.

In carrying out its role of providing financial assistance to TIM Group companies, Telecom Italia Finance

aggregates all the exposure with some banking counterparties in just one entity. As a consequence, the Group

has derivative contracts signed with banks and analogous intercompany derivative contracts with other TIM

Group companies for a notional amount of 3.432 million euros (3.362 at December 31, 2020).

The balance of asset and liability measurements of these contracts is equal to zero.

The following tables show the derivative financial instruments of the Group at December 31, 2021 and

December 31, 2020, by type:

Type(million

euros)

Hedged risk

Notional

amount at

31/12/2021

Notional

amount at

31/12/2020

Spot Mark-to-

Market (Clean

Price) at

31/12/2021

Spot Mark-to-

Market (Clean

Price) at

31/12/2020

Cross Currency

and Interest Rate

Swap [*]

Interest rate risk and

currency exchange rate risk

139

Total Cash Flow Hedge Derivative [**]

139

Total Non-Hedge Accounting Derivatives [***]

4.407

4.548

105

118

Total Telecom Italia Finance Group Derivatives

4.546

4.686

106

119

[*] For this instrument contracts no exchange of notional amounts has been agreed with the counterparties.

[**] On the liability expiring on 2029, derivatives are both accounted in CFH and non-hedge; accordingly, although it is a

single issue, the notional amount of derivatives is included in both the CFH and non-hedging groupings.

[***] Telecom Italia Finance Group entered into some derivatives on other TIM Group companies request. Since TIF Group has

a contract with an external counterparty and the opposite contract with an intercompany, the MTM exposure on these

positions is neutral and there is no risk connected. The notional amounts are exposed for all these positions.

The MTM of Non-Hedge Accounting Derivatives is mainly related to the value of the right held by TIM Brasil to

subscribe shares of the Brazilian C6 Bank of 72 million euros on the basis of a commercial agreement signed by

the two companies in March 2020.

Consolidated Financial Statements 2021

Notes to the Consolidated Financial Statements

Telecom Italia Finance Group

The hedging of cash flows by cash flow hedges was considered highly effective and at December 31, 2021 led

to recognition in equity of unrealized gains of 1,5 million euros (1 million euros as at December 31, 2020).

The transactions hedged by cash flow hedges will generate cash flows and produce economic effects in the

income statement in the periods indicated in the following table:

Currency of

denomination

Notional amount

in currency of

denomination

(million)

Start of period

End of period

Rate applied

Interest period

USD

186

Jan-22

Oct-29

0,75%

Semiannually

The method selected to test the effectiveness retrospectively and, whenever the main terms do not fully

coincide, prospectively, for cash flow hedge derivatives and fair value hedge derivatives is the Volatility Risk

Reduction (VRR) Test. This test assesses the ratio between the portfolio risk (meaning the derivative and the

item hedged) and the risk of the hedged item taken individually. In essence, the portfolio risk must be

significantly lower than the risk of the h edged item.

No material ineffective portion has been recognized in the income statement from designated cash flow hedge

derivatives during 2021.

Note 19 - Supplementary disclosures on financial instruments

Measurement at fair value

For the purposes of the comparative information between the carrying amounts and the fair value of financial

instruments, required by IFRS 7, for the Parent’s bond included in non-current financial liabilities, the fair value

is directly observable in the financial markets, as it is a financial instrument that, due to its size and diffusion

among investors, is commonly traded on the relevant markets (see the Note "Financial Liabilities (non-current

and current)"). For other types of financing, the fair value has been assumed to be equal to nominal repayment

amount (level 3). For the majority of financial assets, their carrying amount constitutes a reasonable

approximation of their fair value since these are short-term investments that are readily convertible into cash

or loans towards Ultimate Parent Company and other TIM Group companies.

The fair value measurement of the financial instruments of the Group is classified according to the three levels

set out in IFRS 7. In particular, the fair value hierarchy introduces three levels of input:

•Level 1: quoted prices in active market;

•Level 2: prices calculated using observable market inputs;

•Level 3: prices calculated using inputs that are not based on observable market data.

Further details on Level 2 inputs are provided in the Note "Derivatives".

The tables below provide additional information on the financial instruments, including the hierarchy level for

each class of financial asset/liability measured at fair value at December 31, 2021.

The assets and liabilities at December 31, 2021 are presented based on the categories established by IFRS 9.

Key for IFRS 9 categories

Acronym

Financial assets measured at:

Amortized Cost

Fair Value Through Other Comprehensive Income

FVTOCI

Fair Value Through Profit or Loss

FVTPL

Financial liabilities measured at:

Amortized Cost

Fair Value Through Profit or Loss

FVTPL

Hedge Derivatives

Not applicable

n/a

Consolidated Financial Statements 2021

Notes to the Consolidated Financial Statements

Telecom Italia Finance Group

Classification and fair value hierarchy of financial instruments measured at fair value as at December 31, 2021:

Levels of hierarchy

(millions of euros)

IFRS 9

Categories

Note

Value at

31/12/2021

Level1

Level2

ASSETS

Non-current Assets

711

—

711

Other non-current financial assets:

Hedging derivatives

HD[*]

[9]

—

Non-hedging derivatives

FVTPL

[9]

710

—

710

Current Assets

2.293

2.249

Securities other than investments, measured

at:

Fair value through other comprehensive

income

FVTOCI

[9]

1.515

—

Fair value through profit or loss

FVTPL

[9]

733

—

Other current financial assets:

Non-hedging derivatives

FVTPL

[9]

—

Total (a+b)

3.004

2.249

756

LIABILITIES

Non-current liabilities

582

—

582

Non-hedging derivatives

FVTPL

[15]

582

—

582

Current liabilities

—

Hedging derivatives

HD[*]

[15]

—

Non-hedging derivatives

FVTPL

[15]

—

Total (c+d)

636

—

636

[*] Derivative measured at fair value through other comprehensive income.

Consolidated Financial Statements 2021

Notes to the Consolidated Financial Statements

Telecom Italia Finance Group

Classification and fair value hierarchy of financial instruments measured at fair value as at December 31, 2020:

Levels of hierarchy

(millions of euros)

IFRS 9

Categories

Note

Value at

31/12/2020

Level1

Level2

ASSETS

Non-current Assets

749

701

Other investments

FVTOCI

[8]

—

Other non-current financial assets:

Hedging derivatives

HD[*]

[9]

—

Non-hedging derivatives

FVTPL

[9]

700

—

700

Current Assets

1.161

1.092

Securities other than investments, measured

at:

Fair value through other comprehensive

income

FVTOCI

[9]

768

—

Fair value through profit or loss

FVTPL

[9]

325

—

Other current financial assets:

Non-hedging derivatives

FVTPL

[9]

—

Total (a+b)

1.909

1.140

769

LIABILITIES

Non-current liabilities

616

—

616

Non-hedging derivatives

FVTPL

[14]

616

—

616

Current liabilities

—

Non-hedging derivatives

FVTPL

[14]

—

Total (c+d)

634

—

634

[*] Derivative measured at fair value through other comprehensive income.

For financial assets measured at FVTOCI, the profit/(loss) recognized in Other components of the Consolidated

Statements of Comprehensive Income were recognized within the scope of the Reserve for financial assets

measured at fair value through other comprehensive income.

Consolidated Financial Statements 2021

Notes to the Consolidated Financial Statements

Telecom Italia Finance Group

Carrying amount and fair value of financial instruments not measured at fair value as at December 31, 2021:

Levels of hierarchy

(millions of euros)

IFRS 9

Categories

Note

Value at

31/12/2021

Fair Value at

31/12/2021

Level1

Level3

Amounts

recognized

in the

financial

statement

s pursuant

to IFRS 16

ASSETS

Non-current Assets

1.336

—

1.303

Other financial receivables

[9]

1.182

—

1.182

—

Miscellaneous receivables

[10]

121

—

121

—

Financial receivables for lease contracts

n/a

[9]

—

Current Assets

3.853

—

3.848

Other short-term financial receivables

[9]

—

Cash and cash equivalents

[9]

3.247

—

3.247

—

Trade and miscellaneous receivables

[13]

517

—

517

—

Financial receivables for lease contracts

n/a

[9]

—

Total (a+b)

5.189

—

5.150

LIABILITIES

Non-current liabilities

3.048

2.841

1.355

253

1.233

Financial payables

[15]

1.815

1.608

1.355

253

—

Finance lease liabilities

n/a

[15]

1.233

—

1.233

Current liabilities

2.528

—

2.327

201

Financial payables

[15]

1.289

—

1.289

—

Trade and miscellaneous payables and

other current liabilities

[22]

1.038

—

1.038

—

Finance lease liabilities

n/a

[15]

201

—

201

Total (c+d)

5.576

5.369

1.355

2.580

1.434

Consolidated Financial Statements 2021

Notes to the Consolidated Financial Statements

Telecom Italia Finance Group

Carrying amount and fair value of financial instruments not measured at fair value as at December 31, 2020:

Levels of hierarchy

(millions of euros)

IFRS 9

Categories

Note

Value at

31/12/2020

Fair Value at

31/12/2020

Level1

Level3

Amounts

recognized in

the financial

statements

pursuant to

IFRS 16

ASSETS

Non-current assets

Other financial receivables

[9]

1.182

—

1.182

—

Miscellaneous receivables

[10]

132

—

132

—

Financial receivables for lease contracts

n/a

[9]

—

(a)

1.339

—

1.314

Current assets

Other short-term financial receivables

[9]

—

Cash and cash equivalents

[9]

3.001

—

3.001

—

Trade and miscellaneous receivables

[11]

499

—

499

—

Financial receivables for lease contracts

n/a

[9]

—

(b)

3.577

—

3.577

Total (a+b)

4.916

—

4.891

LIABILITIES

Non-current liabilities

Financial payables

[14]

1.273

1.763

1.503

261

—

Finance lease liabilities

n/a

[14]

1.149

—

1.149

(c)

2.422

2.912

1.503

261

1.149

Current liabilities

Financial payables

[14]

572

—

572

—

Trade and miscellaneous payables and

other current liabilities

[20]

581

—

581

—

Finance lease liabilities

n/a

[14]

166

—

166

(d)

1.319

—

1.153

166

Total (c+d)

3.741

4.231

1.503

1.414

1.315

Gains and losses by IFRS 9 category - Year 2021

(million euros)

IFRS 9 Categories

Net gains/(losses)

31/12/2021

of which interest

Amortized Cost

-77

Fair Value Through Profit or Loss

FVTPL

—

Fair Value Through Other Comprehensive Income

FVTOCI

—

Total

-47

Gains and losses by IFRS 9 category - Year 2020

(million euros)

IFRS 9 Categories

Net gains/(losses)

31/12/2020

of which interest

Amortized Cost

-114

-5

Fair Value Through Profit or Loss

FVTPL

—

Fair Value Through Other Comprehensive Income

FVTOCI

—

Total

-24

-5

Consolidated Financial Statements 2021

Notes to the Consolidated Financial Statements

Telecom Italia Finance Group

Note 20 - Provisions

(million euros)

31/12/2020

Increase

Taken to

income

Used directly

Exchange

differences

and other

changes

31/12/2021

Provision for taxation and tax risks

—

-3

Provision for restoration costs

—

Provision for legal disputes

—

-26

Other provisions

—

Total

146

—

-29

158

of which:

non-current portion

144

—

-29

157

current portion

—

Provision for taxation and tax risks increased by 5 million euros compared to December 31, 2020.

Provision for legal disputes includes the provision for litigation with employees and other counterparties and

refers to the Brazil Business Unit. The uses consisted of 26 million euros and resulted from settlement

agreements reached.

Note 21 - Miscellaneous payables and other non-current liabilities

(million euros)

31/12/2021

31/12/2020

Other deferred income

109

118

Income tax payables

—

Other

Total

118

158

Other deferred income includes the non-current portion of approximately 108 million euros as at December

31, 2021 (119 million euros as at December 31, 2020) of deferred gain on the sale and lease back of the

telecommunication towers of the Brazil Business Unit.

Consolidated Financial Statements 2021

Notes to the Consolidated Financial Statements

Telecom Italia Finance Group

Note 22 - Trade and miscellaneous payables and other current liabilities

(million euros)

31/12/2021

Of which

Financial

Instruments

31/12/2020

Of which

Financial

Instruments

Trade payables

1.001

546

Payables to suppliers

978

523

Payables to other telecommunication

operators

Tax payables

—

103

—

Miscellaneous payables

244

154

Payables for employee compensation

Payables to social security agencies

Payables for TLC operating fee

164

Dividends approved, but not yet paid to

shareholders

Provisions for risks and charges for the

current portion expected to be settled

within 1 year

Other current liabilities

Deferred revenues from customer contracts

(Contract liabilities)

Customer-related items

—

Other deferred income

Advances received

Other current liabilities

—

Total

1.356

1.038

845

581

Trade payables amounting to 1.001 million euros as at December 31, 2021 (546 million euros at December 31,

2020) are mainly referred to the Brazil Business Unit. The increase is mainly referred to the acquisition of 5G

licenses on November 2021.

At December 31, 2021, trade payables due beyond 12 months totaled 73 million euros (44 at December 31,

2020) and are mainly represented by payables of the Brazil Business Unit for the purchase and renewal of

telecommunications licenses, also including the payable due to Entidade Administradora da Conectividade de

Escolas (EACE) for the development of certain infrastructural projects in Brazil in connection with the

assignment of the rights of use of frequencies for 5G services.

For more details on the acquisition of 5G licenses in Brazil, see the Note on “Intangible assets”

Tax payables amounting to 78 million euros as at December 31, 2021 are entirely referred to the Brazil

Business Unit (103 million euros at December 31, 2020).

Other current liabilities includes current contract liabilities, recognized when the client has paid the

consideration or when the Company has the right to a consideration amount that is unconditional, before the

Company has complied with the performance obligation, whether through the sale of equipment/devices or

the provision of services to the client and customer-related items, that include trade payables following

contractual relationships, such as the payable for prepaid traffic and the subscription charges charged in

advance.

Further details on Financial Instruments are provided in the Note “Supplementary disclosure on financial

instruments”.

Consolidated Financial Statements 2021

Notes to the Consolidated Financial Statements

Telecom Italia Finance Group

Note 23 - Disputes and pending legal actions, other information, commitments and guarantees

A description is provided below of the most significant judicial, arbitration and tax disputes in which the Group

companies are involved as at December 31, 2021, as well as those that came to an end during the financial

year.

SIGNIFICANT DISPUTES AND PENDING LEGAL ACTIONS

International tax and regulatory disputes

As of December 31, 2021, the companies belonging to the Brazil Business Unit were involved in tax or

regulatory disputes, the outcome of which is estimated as a possible loss totalling around 16,3 billion reais

(around 2,6 billion euros). The main types of litigation are listed below, classified according to the tax to which

they refer.

Federal taxes

In relation to the federal level of taxation, the following disputes should be noted:

•disallowance of the tax effects of the merger between the companies of the TIM Brasil Group;

•denial of the SUDENE regional tax benefit, due to alleged irregularities in the management and

reporting of the benefit itself;

•challenges regarding offsetting against previous tax losses;

•further challenges regarding the tax deductibility of the amortization of goodwill;

•imposition of income tax on certain types of exchange rate differences;

•imposition of withholding taxes on certain types of payments to foreign entities (for example,

payments for international roaming);

•further challenges regarding offsets made between taxes payable and group company credit

positions

Overall, the risk for these cases, considered to be possible, amounts to 3,1 billion reais (about 0,5 billion euros).

State taxes

Within the scope of the state levy, there are numerous challenges regarding ICMS, and in particular:

•challenges concerning the reduction of the tax base due to discounts granted to customers, as well as

challenges regarding the use of tax credits declared by group companies, with respect to the return of

loaned telephone handset, and following the detection of contract frauds to the detriment of the

companies;

•subjection of some fees owed to group companies and classified by them as fees for services other

than telecommunications to ICMS;

•challenges over the use of the "PRO-DF" tax benefit originally granted by some States, and

subsequently declared unconstitutional (the challenge refers to the actual credit due to ICMS,

declared by the TIM Cellular on the basis of the aforementioned tax benefits);

•challenges relating to the use of ICMS credits claimed by Group Companies as a result of the

acquisition of tangible assets, and in relation to the supply of electricity to the Companies, as well as

in application of the provisions on acting as a withholding agent;

•fines imposed on group companies for irregularities in tax return compliance;

•challenges of ICMS credits in relation to acting as a withholding agent, applicable when equipment is

•bought and distributed in different States;

•challenges of ICMS credits deriving from the “special credit” recognized by the company to its prepaid

customers, against subsequent top-ups.

Overall, the risk for these cases, considered to be possible, amounts to 8,8 billion reais (about 1,4 billion euros).

Municipal taxes

Among disputes classified with a "possible" degree of risk, there are some relating to municipal taxes for a

total amounting to around 1,2 billion reais (about 0,2 billion euros).

FUST and FUNTTEL

The main challenges about contributions to the regulatory body (Anatel), and in particular in terms of FUST

and FUNTTEL, concern whether or not interconnection revenues should be subject to these contributions.

Overall, the risk for these cases, considered to be possible, amounts to 3,2 billion reais (around 0,5 billion

euros).

Consolidated Financial Statements 2021

Notes to the Consolidated Financial Statements

Telecom Italia Finance Group

Brazil - Opportunity Arbitration

In May 2012, TIM and Telecom Italia International N.V. (now merged in Telecom Italia Finance) were served

with a notice of arbitration proceedings brought by the Opportunity group, claiming compensation for

damages allegedly suffered for presumed breach of a settlement agreement signed in 2005. Based on the

claimant’s allegations, the damages relate to circumstances that emerged in the criminal proceedings pending

before the Milan Court regarding, inter alia, unlawful activities engaged in by former employees of TIM.

The investigatory phase having been completed, the hearing for oral discussion took place in November 2014,

after which the parties filed their concluding arguments in preparation for the decision on the case.

In September 2015, the Board of Arbitration declared the proceedings closed, as the award was going to be

filed.

In September 2016 the ICC Court notified the parties of its judgment, based on which the Court of Arbitration

rejected all the claims made by the Opportunity group and decided that the legal costs, administrative costs

and costs for expert witnesses should be split between the parties (the “2016 Arbitration Award”).

In April 2017 the Opportunity group filed an appeal against the 2016 Arbitration Award before the Paris Court

of Appeal.

In November 2017, TIM and Telecom Italia Finance received from the Secretariat of the ICC’s International

Court of Arbitration notice of a Request for Revision of the 2016 Arbitration Award, filed by the Opportunity

group, asking for a new award. A Board of Arbitration was subsequently established.

In October 2018, TIM and Telecom Italia Finance requested proceedings with the Paris Court of Appeal to be

suspended, in the light of proceedings pending with the Court of Arbitration of the International Chamber of

Commerce to review the same 2016 Arbitration Award. In November 2018, the Paris Court of Appeal

suspended the proceedings until the decision is taken by the Court of Arbitration in the review proceedings.

As regards the proceedings to review the 2016 Arbitration Award, in October 2019 the ICC held the discussion

hearing in Paris. In August 2020, the Arbitration Court issued the award rejecting the Request for Revision

presented by the Opportunity Group (the “2020 Arbitration Award”). In December 2020, the Opportunity group

filed an appeal against the 2020 Arbitration Award before the Paris Court of Appeal. In May 2021 the

Opportunity group asked the Paris Court of Appeal to summarize the proceedings brought against the 2016

Arbitration Award.

COMMITMENTS AND GUARANTEES

TIM S.p.A. has provided to the Group the following guarantees:

(million euros)

31/12/2021

31/12/2020

Guarantee on bonds and other debts issued by the Group

1.168

1.173

Guarantee on derivatives financial instruments

180

251

Total

1.348

1.424

There are also surety bonds on the telecommunication services in Brazil for 653 million euros.

The Group has provided to Telecom Italia Capital (related party) a guarantee covering the full amount of a

credit line amounting to 100 million euros, which represents the maximum credit risk exposure relating to this

financial guarantee contract.

Note 24 - Revenues

(million euros)

31/12/2021

31/12/2020

Equipment sales

102

Services

2.751

2.830

Total

2.840

2.933

Consolidated Financial Statements 2021

Notes to the Consolidated Financial Statements

Telecom Italia Finance Group

Revenues only relates to the Brazil Business Unit.

Revenues from telecommunications services are presented gross of amounts due to other TLC operators,

equal to 129 million euros in 2021 (130 million euros in 2020, -0,1% change), included in the costs of services.

For a breakdown of revenues by operating segment, reference should be made to the Note "Segment

Reporting".

Note 25 - Other operating income

(million euros)

Year 2021

Year 2020

Late payment fees charged for telephone services

Other income

Total

Other operating income only relates to the Brazil Business Unit.

Note 26 - Purchase of goods and services

(million euros)

Year 2021

Year 2020

Purchase of raw materials and merchandise

112

140

Costs of services

766

777

Revenues due to other TLC operators

129

130

Commissions, sales commissions and other selling expenses

263

266

Advertising and promotion expenses

Professional and consulting services

Utilities

Maintenance

Outsourcing costs for other services

Mailing and delivery expenses for telephone bills, directories and other materials to

customers

Other service expenses

Lease and rental costs

161

155

Rent of properties

TLC circuit lease rents and rents for use of satellite systems

Other lease and rental costs

Total

1.039

1.072

Note 27 - Employee benefits expenses

(million euros)

Year 2021

Year 2020

Wages and salaries

158

163

Social security expenses

Other employee benefits

Total

238

The employee benefits expenses are mainly related to the Brazil Business Unit for 236 million euros (236

million euros in 2020).

Consolidated Financial Statements 2021

Notes to the Consolidated Financial Statements

Telecom Italia Finance Group

Note 28 - Other operating expenses

(million euros)

Year 2021

Year 2020

Write-downs and expenses in connection with credit management

Provision charges

TLC operating fees and charges

146

155

Indirect duties and taxes

Penalties, settlement compensation and administrative fines

—

Association dues and fees, donations, scholarships and traineeships

Sundry expenses

Total

287

322

of which, included in the supplementary disclosure on financial instruments

Further details on Financial Instruments are provided in the Note "Supplementary disclosure on financial

instruments".

Note 29 - Internally generated assets

(million euros)

Year 2021

Year 2020

Intangible assets with a finite useful life

Tangible assets owned

Total

Internally generated assets mainly include labour costs of dedicated technical staff for software development

and work in connection with the executive design, construction and testing of network installations.

Note 30 - Depreciation and amortization

(million euros)

Year 2021

Year 2020

Amortization of intangible assets with a finite useful life

269

308

Industrial patents and intellectual property rights

182

214

Concessions, licenses, trademarks and similar rights

Other intangible assets

Depreciation of tangible assets owned

411

430

Buildings (civil and industrial)

Plant and equipment

371

388

Other

Depreciation of right of use assets

214

202

Property

Plant and equipment

163

147

Other

Total

895

939

For further details refer to the Notes "Intangible assets with finite useful lives", "Tangible assets" and "Rights of

use assets".

For a breakdown of depreciation and amortization by operating segment, reference should be made to the

Note "Segment Reporting".

Consolidated Financial Statements 2021

Notes to the Consolidated Financial Statements

Telecom Italia Finance Group

Revenues | 77

Note 31 - Gains/(losses) on disposals of non-current assets

(million euros)

Year 2021

Year 2020

Gains on disposals of non-current assets

Gains on the retirement/disposal of intangible and tangible assets

Losses on disposals of non-current assets

(2)

(1)

Losses on the retirement/disposal of intangible and tangible assets

(2)

(1)

Total

In 2021, the item posted a net gain of 6 million euros, connected with the ordinary asset renewal process.

Note 32 - Other income (expenses) from investments

(million euros)

Year 2021

Year 2020

Dividends from TIM S.p.A.

Net gains on investments

119

—

Total

120

In 2021, the item mainly included the net capital gain (119 million euros) recognized following the dilution from

100% to 49% of the equity investment of the Brazilian subsidiary TIM S.A. in I-Systems S.A. (formerly FiberCo

Soluções de Infraestrutura S.A.), a company established by TIM S.A. for the segregation of its network assets

and the provision of infrastructure services, following the completion of the agreement between TIM S.A. and

IHS Fiber Brasil - Cessão de Infraestruturas Ltda.

Note 33 - Finance income and expenses

FINANCE INCOME

(million euros)

31/12/2021

31/12/2020

Interest income and other finance income

462

341

Income from financial receivables, recorded in non-current assets

Interest income on bank and postal accounts

Interest income on trade accounts receivable

Income from securities other than investments measured at FVTOCI

Income other than the above:

Interest income on financials leasing receivables

Exchange gains

107

Reversal of the Reserve for cash flow hedge derivatives to the income statement

(interest rate component)

Income from non-hedging derivatives

160

134

Miscellaneous finance income

Positive fair value adjustments to non-hedging derivatives

237

201

Positive adjustments and reversal for impairment on financial assets

Total

707

545

Consolidated Financial Statements 2021

Notes to the Consolidated Financial Statements

Telecom Italia Finance Group

FINANCE EXPENSES

(million euros)

31/12/2021

31/12/2020

Interest expenses and other finance expenses

547

559

Interest expenses and other costs relating to bonds

Interest expenses to banks

Interest expenses to others

Interest expenses on lease liabilities

135

Expenses other than the above:

Financial commissions and fees

Exchange losses

108

Reversal of the Reserve for cash flow hedge derivatives to the income statement

(interest rate component)

Charges from non-hedging derivatives

150

132

Miscellaneous finance expenses

Negative fair value adjustments to non-hedging derivatives

268

123

Negative adjustments for impairment on financial assets

Total

816

683

For greater clarity of presentation, the net effects relating to derivative financial instruments are summarized

in the following table:

(million euros)

31/12/2021

31/12/2020

Exchange gains

107

Exchange losses

-65

-108

Net exchange gains and losses

-40

Positive Reversal of the Reserve for cash flow hedge derivatives

Negative Reversal of the Reserve for cash flow hedge derivatives

-1

Net effect of the Reversal of the Reserve of cash flow hedge derivatives to the

income statement (interest rate component)

—

Income from non-hedging derivatives

160

134

Charges from non-hedging derivatives

-150

-132

Net result from non-hedging derivatives

Net result from derivatives

Positive fair value to non-hedging derivatives

237

201

Negative fair value adjustments to non-hedging derivatives

-268

-123

Net fair value adjustments to non-hedging derivatives

-31

Positive adjustments and reversal for impairment on financial assets

Negative adjustments for impairment on financial assets

-1

-2

Net impairment on financial assets

Consolidated Financial Statements 2021

Notes to the Consolidated Financial Statements

Telecom Italia Finance Group

Note 34 - Segment reporting

SEGMENT REPORTING

Segment reporting is based on the following operating segments:

•Telecommunications (Brazil)

•Other Operations

Separate Consolidated Income Statements by Operating Segment

(million euros)

Brazil

Other Operations

Consolidated Total

31/12/2021

31/12/2020

31/12/2021

31/12/2020

31/12/2021

31/12/2020

Third-party revenues

2.840

2.933

—

2.840

2.933

Revenues by operating segment

2.840

2.933

—

2.840

2.933

Other income

—

Total operating revenues and other

income

2.853

2.944

—

2.853

2.945

Purchase of goods and services

-1.037

-1.070

-2

-1.039

-1.072

Employee benefits expenses

-237

-236

-1

-238

Other operating expenses

-283

-318

-4

-287

-322

of which: write-downs and expenses in

connection with credit management

and provision charges

-113

-132

—

-113

-132

Change in inventories

-7

—

-7

Internally generated assets

—

EBITDA

1.362

1.407

-7

1.355

1.399

Depreciation and amortization

-895

-939

—

-895

-939

Gains/(losses) on disposals of non-

current assets

—

EBIT

473

476

-7

466

468

Share of profits (losses) of equity investments valued using equity method

-2

—

Other income (expenses) from investments

120

Finance income

707

545

Finance expenses

-816

-683

Profit (loss) before tax

476

332

Income tax income (expense)

-39

-44

Profit (loss) for the year

437

288

Attributable to:

Owners of the Parent

282

184

Non-controlling interests

155

104

Revenues by operating segment

The revenues only relate to the Brazil Business Unit.

Purchase of intangible and tangible assets by operating segment

Purchase of intangible and tangible assets only relates to the Brazil Business Unit.

Consolidated Financial Statements 2021

Notes to the Consolidated Financial Statements

Telecom Italia Finance Group

Assets and liabilities by Operating Segment

(millions of euros)

Brazil

Other Operations

Consolidated Total

31/12/2021

31/12/2020

31/12/2021

31/12/2020

31/12/2021

31/12/2020

Non-current operating assets

5.332

5.098

5.333

5.098

Current operating assets

773

772

818

819

Total operating assets

6.105

5.870

6.151

5.918

Discontinued operations /Non-current

assets held for sale

—

Unallocated assets

7.966

6.345

Total Assets

14.117

12.263

Total operating liabilities

1.626

1.144

1.631

1.148

Unallocated liabilities

5.204

3.812

Equity

7.282

7.303

Total Equity and Liabilities

14.117

12.263

Note 35 - Related party transactions

The following tables show the figures relating to related party transactions and the impact of those amounts

on the Separate Consolidated Income Statement and Consolidated Statement of Financial Position.

Related party transactions, when not dictated by specific laws, were conducted at arm's length.

The effects on the individual line items of the Group's Separate Consolidated Income Statements for 2021 and

2020 are as follows:

Separate Consolidated Income Statement line items at 31/12/2021

(million euros)

Related Parties

Total

Associates,

companies

controlled by

associates and

joint ventures

Other

parties [*]

Pension

funds

Key

managers

Total

parties

% of

financial

statement

item

Revenues

2.840

—

0,1

Other income

—

2,0

Purchase of goods and

services

1.039

—

5,8

Employee benefits

expenses

238

—

4,6

Other operating expenses

287

—

Other income (expenses)

from investments

120

—

120

—

120

100,0

Finance income

707

—

186

—

186

26,3

Finance expenses

816

—

225

—

225

27,5

[*] TIM Group companies; Vivendi group and companies belonging to the group that it belongs to; other related parties

through directors, statutory auditors and key managers.

Consolidated Financial Statements 2021

Notes to the Consolidated Financial Statements

Telecom Italia Finance Group

Separate Consolidated Income Statement line items 2020

(million euros)

Related Parties

Total

Associates,

companies

controlled by

associates and

joint ventures

Other

parties [*]

Pension

funds

Key

managers

Total

parties

% of

financial

statement

item

Revenues

2.933

—

0,1

Other income

—

1,5

Purchase of goods and

services

1.072

—

5,8

Employee benefits

expenses

238

—

4,1

Other operating expenses

322

—

Finance income

545

—

234

—

234

43,0

Finance expenses

683

—

107

—

107

15,7

[*] TIM Group companies; Vivendi group and companies belonging to the group that it belongs to; other related parties

through directors, statutory auditors and key managers.

The effects on the individual line items of the consolidated statements of financial position at December 31,

2021 and December 31, 2020 are as follows:

Consolidated Statement of Financial Position line items at 31/12/2021

(million euros)

Total

Associates,

companies

controlled by

associates and

joint ventures

Other

parties [*]

Pension

funds

Total related

parties

% of financial

statement

item

Net financial debt

-2.382

—

-1.184

—

-1.184

49,7

Non-current financial assets

-1.927

—

-1.403

—

-1.403

72,8

Current financial assets

-5.628

—

-209

—

-209

3,7

Securities other than investments (current

assets)

-2.249

—

Financial receivables and other current financial

assets

-133

—

-91

—

-91

68,7

Cash and cash equivalents

-3.247

—

-117

—

-117

3,6

Non-current financial liabilities

3.630

—

408

—

408

11,2

Current financial liabilities

1.544

—

1,3

Other statement of financial position line items

Trade and miscellaneous receivables and other

current assets

832

—

1,9

Miscellaneous payables and other non-current

liabilities

118

—

Trade and miscellaneous payables and other

current liabilities

1.356

—

1,8

[*] TIM Group companies; Vivendi group and companies belonging to the group that it belongs to; other related parties

through directors, statutory auditors and key managers.

Consolidated Financial Statements 2021

Notes to the Consolidated Financial Statements

Telecom Italia Finance Group

Consolidated Statement of Financial Position line items at 31/12/2020

(million euros)

Total

Associates and

companies

controlled by

associates

Other

parties [*]

Pension

funds

Total related

parties

% of financial

statement

item

Net financial debt

-2.353

—

-1.273

—

-1.273

54,1

Non-current financial assets

-1.907

—

-1.475

—

-1.475

77,3

Current financial assets

-4.239

—

-179

—

-179

4,2

Securities other than investments (current

assets)

-1.092

—

Financial receivables and other current financial

assets

-145

—

-84

—

-84

57,7

Cash and cash equivalents

-3.001

—

-95

—

-95

3,2

Non-current financial liabilities

3.038

—

364

—

364

12,0

Current financial liabilities

756

—

2,2

Other statement of financial position line items

Trade and miscellaneous receivables and other

current assets

807

—

0,1

Miscellaneous payables and other non-current

liabilities

158

—

Trade and miscellaneous payables and other

current liabilities

845

—

2,3

[*] TIM Group companies; Vivendi group and companies belonging to the group that it belongs to; other related parties

through directors, statutory auditors and key managers.

TRANSACTIONS WITH PENSION FUNDS

The most significant amounts are summarized as follows:

Separate Consolidated Income Statement line items

(million euros)

31/12/2021

31/12/2020

Type of contract

Other pension funds

Total employee benefits expenses

Contributions to pension funds

REMUNERATION TO KEY MANAGERS

The remuneration to key managers in 2021 amounted to 8 million euros (6 million euros in 2020). The

compensation of key Management personnel for services rendered is shown below:

(million euros)

31/12/2021

31/12/2020

Short-term benefits

Long-term benefits

—

Share-based payments remuneration

Total remuneration to key managers

The Group considers as key managers the statutory directors and the Board of Directors.

Consolidated Financial Statements 2021

Notes to the Consolidated Financial Statements

Telecom Italia Finance Group

Note 36 - Equity compensation plans

The equity compensation plans in force at December 31, 2021 are used for attraction and retention purposes,

and as a long-term incentive for the managers and employees of the Group.

However, it should be noted that these plans do not have any significant effect on the economic result or on

the financial position or on cash flows at December 31, 2021.

A summary is provided below of the plans in place at December 31, 2021.

DESCRIPTION OF STOCK OPTION PLANS

TIM S.A. Stock Option Plan

On April 10, 2014, the General Meeting of Shareholders of Tim Participações S.A. (now incorporated into TIM

S.A.) approved the long-term incentive plan for managers in key positions in the company and its subsidiaries.

Exercise of the options is not subject to the achievement of specific performance targets, but the strike price is

adjusted upwards or downwards during each year for which the plan is in force, according to the ranking of the

Total Shareholder Return of the TIM S.A. shares with respect to a panel of peers (made up of companies in the

Telecommunications, Information Technology and Media industry).

The vesting period is 3 years (a third per year), the options can be exercised for 6 years, and the company does

not have the legal obligation to repurchase or liquidate the options in cash, or in any other form.

•Year 2014

On September 29, 2014, the grantees of the options were granted the right to purchase a total of 1.687.686

shares. At December 31, 2021, there are no options that can be exercised. Out of the total attributed, 1.558.043

options have been canceled (due to withdrawal of the participants from the company or for expiry of the

exercise period), and 129.643 options have been exercised.

•Year 2015

On October 16, 2015, the grantees of the options were granted the right to purchase a total of 3.355.229 shares.

As of December 31, 2021, 100% of the options were considered as vested, and there are no options that can be

exercised. Of the total options granted, 1.646.080 were canceled by participants leaving the company. All of

the remaining balance (amounting to 1.709.149 options) has been exercised.

•Year 2016

On November 8, 2016, the grantees of the options were granted the right to purchase a total of 3.922.204

shares. At December 31, 2021, 100% of the options were considered as vested. Of the total options granted,

1.727.424 were canceled by participants leaving the company. Of the remaining balance (2.194.780 options),

2.082.228 options had been exercised and 112.552 could still be exercised.

DESCRIPTION OF OTHER COMPENSATION PLANS

TIM S.A. - Long Term Incentive Plan 2018-2020

On April 19, 2018, the General Meeting of Shareholders of TIM Participações S.A. (now incorporated into TIM

S.A.) approved the long-term incentive plan for managers in key positions in the company. The plan aimed to

reward participants with shares issued by the company, subject to specific temporal and performance

conditions. The portion of shares linked to performance (70%) is granted 1/3 each year, if the performance

target is achieved; the remaining portion of shares (30%) is granted 3 years after allocation (restricted share).

The vesting period is 3 years (with annual measurement) and the company does not have the legal obligation

to repurchase or liquidate the shares in cash or in any other form.

The plan – in addition to transferring shares to beneficiaries – also includes the possibility of rewarding

participants through the settlement of the amount corresponding in cash.

•Year 2018

On April 20, 2018, plan beneficiaries were granted the right to receive a total of 849.932 shares, of which

594.954 performance shares restricted to performance conditions and with gradual vesting over 3 years and

254.978 restricted shares, with a total vesting period of 3 years.

At December 31, 2021, 100% of the rights assigned were considered as vested:

–First vesting period: in compliance with the results approved on May 29, 2019, 115.949 shares were

transferred to beneficiaries, of which 91.708 relating to the original volume accrued, 20.594 granted

according to the degree to which objectives had been achieved and 3.647 shares as a result of the

dividends distributed during the period. For participants transferred to other Group companies, as per

Consolidated Financial Statements 2021

Notes to the Consolidated Financial Statements

Telecom Italia Finance Group

the Plan rules, payment in cash was considered of the amount corresponding to 3.685 shares (2.915

relative to the original volume accrued, 654 acknowledged according to the degree to which the

objectives had been achieved and 116 due to dividends distributed during the period).

–Second vesting period: in compliance with the results approved on June 17, 2020, 87.766 shares were

transferred to beneficiaries, of which 83.181 relating to the original volume accrued, 70 discounted

according to the degree to which objectives had been achieved and 4.655 shares for dividends

distributed during the period. For participants transferred to other Group companies, as per the Plan

rules, payment in cash was considered of the amount corresponding to 3.084 shares (2.915 relative to

the original volume accrued, 5 acknowledged according to the degree to which the objectives had

been achieved and 164 due to dividends distributed during the period).

–Third vesting period: in compliance with the results approved on May 5, 2021, 252.143 shares were

transferred to beneficiaries, of which 187.039 relating to the original volume accrued, 42.854

discounted according to the degree to which objectives had been achieved and 22.250 shares for

dividends distributed during the period. For participants transferred to other Group companies, as per

the Plan rules, payment in cash was considered of the amount corresponding to 12.500 shares (9.101

relative to the original volume accrued, 2.305 acknowledged according to the degree to which the

objectives had been achieved and 1.094 due to dividends distributed during the period).

At December 31, 2021, of the total assigned of 849.932 shares, 473.073 had been canceled due to the

beneficiaries having left the participating company, 455.858 shares had been transferred to beneficiaries

(361.928 relative to the original volume accrued, 63,378 from performance achieved and 30,552 for payment of

dividends in shares) and 19.269 shares had been valued and paid in cash (14,931 relative to the original volume

accrued, 2.964 from performance achieved and 1.374 for payment of dividends in shares), thereby completing

the 2018 concession.

•Year 2019

On July 30, 2019, plan beneficiaries were granted the right to receive a total of 930.662 shares, of which

651.462 performance shares restricted to performance conditions and with gradual vesting over 3 years and

279.200 restricted shares, with a total vesting period of 3 years.

Two vesting periods ended on December 31:

–First vesting period: in compliance with the results approved on July 29, 2020, 309.557 shares were

transferred to beneficiaries, of which 209.349 relating to the original volume accrued, 83.672 granted

according to the degree to which objectives had been achieved and 16.536 shares as a result of the

dividends distributed during the period.

–Second vesting period: in compliance with the results approved on July 26, 2021, 309.222 shares were

transferred to beneficiaries, of which 207.859 relating to the original volume accrued, 78.111

discounted according to the degree to which objectives had been achieved and 23.252 shares for

dividends distributed during the period.

At December 31, 2021, of the total assigned of 930.662 shares, 86.424 had been canceled due to the

beneficiaries having left the company and 618.779 shares had been transferred to beneficiaries (417.208

related to the original volume vested, 161.783 from performance achieved and 39.788 for payment of dividends

in shares), thereby leaving a balance of 427.030 shares that could be accrued at period end.

•Year 2020

On April 14, 2020, plan beneficiaries were granted the right to receive a total of 796.054 shares, of which

619.751 performance shares restricted to performance conditions and with gradual vesting over 3 years and

176.303 restricted shares, with a total vesting period of 3 years.

At December 31, 2021, of the total assigned of 796.054 shares, 70.378 shares were canceled due to

beneficiaries having left the company and 267.145 shares were transferred to beneficiaries against the result of

the first vesting period of performance shares, in accordance with the results approved on May 5, 2021 (206.578

relating to the original volume vested, 51,634 recognized based on the level of achievement of objectives and

8.933 as a result of dividends distributed during the period), thereby leaving a balance of 519.098 shares that

could be accrued at period end.

TIM S.A. - Long Term Incentive Plan 2021-2023

On March 30, 2021, the General Meeting of Shareholders of TIM S.A. approved the long-term incentive plan for

managers in key positions in the company. The plan aims to reward participants with shares issued by the

company, according to specific time (restricted shares) and performance (performance shares) conditions. The

vesting period is 3 years and the company does not have the legal obligation to repurchase or liquidate the

Consolidated Financial Statements 2021

Notes to the Consolidated Financial Statements

Telecom Italia Finance Group

shares in cash or in any other form. The plan – in addition to transferring shares to beneficiaries – also includes

the possibility of rewarding participants through the settlement of the amount corresponding in cash.

•Year 2021

On May 05, 2021, plan beneficiaries were granted the right to receive a total of 3.431.610 shares, of which

3.173.142 performance shares restricted to performance conditions and with gradual vesting over 3 years and

258.468 restricted shares, with a total vesting period of 3 years.

In 2021, the Special Grant was added to the traditional plan, a further extraordinary concession with the aim of

encouraging the closure of the Oi purchase operation in Brazil as well as the success of the subsequent

integration operations.

Of the total 3.431.610 shares granted, 1.151.285 relate to the traditional grant (with 892.817 performance

shares and 258,468 restricted shares) and 2,280,325 refer to the Special Grant.

As at December 31, 2021, the first vesting period has not yet finished. However, 311,876 shares were canceled

due to the participants leaving the company.

CALCULATION OF FAIR VALUE MEASUREMENT OF THE GRANTED OPTIONS AND RIGHTS

Parameters used for the assignments of TIM S.A.

Plans/Parameters

Exercise price

(reais)

Nominal value

(reais)

Volatility (%)

Period

Risk-free interest

rate

Stock option plan 2014

13,42

n/a

44,60

6 years

10,66% per annum

Stock option plan 2015

8,45

n/a

35,50

6 years

16,10% per annum

Stock option plan 2016

8,10

n/a

36,70

6 years

11,73% per annum

2018 PS/RS Plan

n/a

14,41

n/a

3 years

n/a

2019 PS/RS Plan

n/a

11,28

n/a

3 years

n/a

2020 PS/RS Plan

n/a

14,40

n/a

3 years

n/a

2021 PS/RS Plan

n/a

12,95

n/a

3 years

n/a

The parameters are characteristic of a stock option plan, considering the use of fair value appropriate only for

Stock Option Plans.

Note 37 - Other information

EXCHANGE RATE USED TO TRANSLATE FOREIGN OPERATIONS

Period-end exchange rates

Average exchange rates for the

period

(statements of financial position)

(income statements and statements

of cash flows)

Local currency against 1 EUR

31/12/2021

31/12/2020

31/12/2021

31/12/2020

BRL (Brazilian real)

6,32047

6,37680

6,35936

5,88806

USD (U.S. dollar)

1,13260

1,22710

1,18285

1,14179

JPY (Japan Yen)

130,38000

126,49000

129,86490

121,81378

GBP (Pound sterling)

0,84028

0,89903

0,85970

0,88940

CHF (Swiss franc)

1,03310

1,08020

1,08136

1,07047

RESEARCH AND DEVELOPMENT

Expenditures for research and development activities are represented by external costs, labour costs of

dedicated staff and depreciation and amortization. Details are as follows:

(million euros)

31/12/2021

31/12/2020

Capitalized development costs

Total research and development costs (expensed and capitalized)

Consolidated Financial Statements 2021

Notes to the Consolidated Financial Statements

Telecom Italia Finance Group

AUDITOR’S FEES

The following schedule reports the fees due to Ernst & Young for the audit of financial statements:

(thousands of euros)

Audit services

865

957

Verification services with issue of certification

Other assurance services

Total fees due to EY network for the audit and other services

923

1.045

Out of pocket

Total

974

1.108

Note 38 - Events subsequent to December 31, 2021