Directors’ report

Consolidated Operating and Financial Data

Consolidated Financial Position Data

Headcount

Highlights

The year 2020 was marked by the pandemic of Covid-19, which imposed great challenges on society as a whole, with impacts on public health and economics. Measures to combat the pandemic through isolation and social distance have substantially affected the daily lives of our customers and our operations, with repercussions on marketing, customer service and the management of our network. As challenging as this context was, the Group proved to be antifragile, reinvented itself and presented solid results at the end of 2020.

Considering the Brazil Business Unit, the capacity to act quickly and assertively, taking advantage of opportunities brought by the changes imposed by the external environment and keeping the focus on executing the strategy were the hallmarks of 2020. This combination made it possible to deliver the main goals defined for the year, even in a highly challenging scenario and many uncertainties.

The pandemic impacts were mainly concentrated at the end of the first quarter and throughout the second, and imposed (i) the closing of points of sale, with a reduction in our commercial activity; (ii) transition to a 100% virtual work model; (iii) alteration of voice and data traffic on our network; (iv) change in the relevance of telecommunications services for customers' lives; and (v) less economic activity and income availability. To manage this situation and turn it into an evolution, for the Group, it was necessary to focus on execution, with agility in decision making, prioritization and digital courage.

The Group response was based on supporting its employees, customers and society in general, carrying out, among others, the following measures:

•For employees: 99,9% of employees were allocated under the teleworking scheme, supported by digital tools that the Group already used. In addition, medical and psychological support was made available to employees, along with a participatory approach to decision making regarding return to the offices.

•For customers: adjustments were made to our network, prioritizing the quality and continuity of services in residential areas and with the presence of health institutions. We expanded the digital channels, whether for sale or for customer service, and completed our support, with flexible collection rules and payment terms.

•For society: in a joint effort with the other operators, in Brazil the Group provided a tool to monitor the displacement of the population through the cities, which made it possible for public entities to monitor the levels of social isolation. The services provided by the Ministry of Health through the application of the Sistema Único de Saúde - SUS and Caixa Econômica Federal, for emergency assistance were encouraged and prioritized. Together, the operators also ran national campaigns to clarify and encourage the adoption of disease prevention measures.

On December 15, 2020 has been 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., has been awarded the contract in the competitive sale process for the purchase of the Oi Group’s mobile business. The completion of the transaction, expected during 2021, is in any case subject to the fulfilment of some conditions precedent provided for in the agreements and the authorisations of the competent Authorities.

The total value of the transaction amounts to 16,5 billion reais (approximately 2,7 billion euros), which is summed with the consideration offered to the Oi Group, of approximately 819 million reais (about 134 million euros), as the NPV of the Take-or-Pay Data Transmission Capacity Contracts. TIM Brasil will participate in the transaction with an investment of about 7,3 billion reais (about 1,2 billion euros) to be paid at closing and 476 million reais related to the portion of TIM Brasil in the 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.

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 South America, which will be strengthened in its investment capacity, technological innovation, as well as its competitiveness.

In December 2020 the Board of Directors of TIM S.A. approved the formation of a company, in preparation for future segregation of assets and provision of fiber infrastructure services. This process is one of the intermediate steps in the transformation of TIM in the provision of broadband services and aims to create an open fiber infrastructure vehicle (“FiberCo”) attracting a strategic partner that will become a shareholder of the FiberCo. The FiberCo will operate in the wholesale market and providing fiber connectivity services for last-mile and transport network, for all market operators, with TIM as an anchor customer. This transaction aims to accelerate the growth of the residential broadband business and unlock the value of TIM's infrastructure.

In 2020 the Parent’s activities continue to be segmented into two business: holding of participations and financial assistance to Telecom Italia Group (“TIM Group”) companies.

THE MARKET

Despite the positive outlook for 2020, the year has been substantially impacted by the atypical and unpredictable new Covid 19 pandemic, that brought, in addition to an immeasurable human onus, an expressive burden on European, Brazilian and the World’s economy.

As to the international scenario, the beginning of the Covid-19 vaccination in most countries, which is perceived as the beginning of the return to normalcy, coupled with the election of Joe Biden as the President of the United States, possibly due to a perspective of reducing international tensions, although the expectation of an agreement in the House of Representatives concerning the new tax package has not yet materialized, are factors that weight in to an increase in projections for global economy growth, which posted a strong recovery in the 3rd quarter of 2020. The GPD of the countries part of the Organization for Economic Co-operation and Development (OEDC) has fallen 10,5% in the second quarter however it has increased 9% in the third. IMF has reviewed its projection for global economy growth in 2020 from -5,2% to -4,4%.

FINANCIAL HIGHLIGHTS

In terms of economic and financial performance in 2020:

•Consolidated revenues amounted to 2,9 billion euros, down by 25,5% on the 2019.

•EBITDA amounted to 1,4 billion euros, down by 42,7% on 2019.

•Operating profit (EBIT) was 0,5 billion euros, down by 63,7% compared to 2019.

•The Profit for the year attributable to Owners of the Parent amounted to 184 million euros (519 million euros for the year 2019).

•Capital expenditures in 2020 amounted to 661 million euros (873 million euros in 2019).

•Net financial debt amounts to -2.353 million euros at December 31, 2020, down of 661 million euros compared to the end of 2019 (-1.692 million euros).

Consolidated operating performance

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

REVENUES

Revenues in 2020 were entirely related to the Brazil Business Unit and amounted to 17.268 million reais (2.933 million euros), down by 0,6% on 2019.

Revenues from services totaled 16.665 million reais (2.830 million euros), an increase of 68 million reais (-930 million euros) compared to 16.597 million reais (3.760 million euros) in 2019 (+0,4%).

Revenues from product sales came to 603 million reais, or 102 million euros (780 million reais or 177 million euros in 2019). The decrease reflects the impact of shutdown of at between two and three months in most of Brazil due to the Covid-19 emergency; the sales policy is still focused more on value than on increasing sales volumes. In particular, the main goals of the new strategy are to increase sales of new connected devices giving TIM customers access to broadband services on 3G/4G networks and to support new retention offerings for higher-value postpaid customers.

Mobile Average Revenue Per User (ARPU) in 2020 was 24,9 reais (4,2 euros), up 5,1% compared to the figure posted in 2019, thanks to the general repositioning towards the postpaid segment and new commercial initiatives aimed at promoting data use and the average spend per customer.

Total lines in place at December 31, 2020 amounted to 51,4 million, a decrease of 3,0 million compared to December 31, 2019 (54,4 million). This variation was mainly driven by the prepaid segment (-3,4 million), partially offset by growth in the postpaid segment (+0,4 million), in part due to the consolidation underwayin the market for second SIM cards. At December 31, 2020, postpaid customers accounted for 42,4% of the customer base, an increase of 3,0 percentage points on December 2019 (39,4%).

EBITDA

EBITDA in 2020 totaled 1.400 million euros, of which 1.407 million euros attributable to the Brazil BU.

Considering Brazil BU, EBITDA in 2020 amounted to 8.282 million reais (1.407 million euros), down by 2.538 million reais (-1.044 million euros) year-on-year (-23,5%).

EBITDA in 2019 benefited from non-recurring net income of 2.760 million reais, from the balance of 3.024 million reais of income related to the recognition of tax receivables following the favorable outcome of tax disputes relating to the inclusion of the ICMS indirect tax in the basis for calculating the PIS/COFINS contribution and 264 million reais of non-recurring charges for provisions mainly for regulatory disputes and related liabilities, as well as for liabilities with customers and/or suppliers, as well as for charges related to corporate reorganisation/restructuring.

EBITDA in 2020 is affected by non-recurring expenses of 27 million reais mainly related to agreements and the development of non-recurring projects.

EBITDA net of the non-recurring component (Organic EBITDA), grew by 3,1% and is calculated as follows:

The growth is attributable to the improvement in the efficiency of the operating expenses structure during the Covid-19 emergency.

The related EBITDA margin stood at 48,1%, up in organic terms by 1,7% compared to 2019.

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

EBIT

EBIT totaled 469 million euros (1.290 million euros in 2019), a decrease of (821) million euros.

Considering Brazil BU, EBIT for 2020 amounted to 2.801 million reais (476 million euros).

In 2019, EBIT also benefited from the non-recurring net income of 2.760 million reais recorded at EBITDA level.

Organic EBIT, net of the non-recurring component, amounted to 2.828 million reais (480 million euros), with an EBIT margin of 16,4% (17,1% in 2019), and was calculated as follows:

PROFIT (LOSS) FOR THE YEAR

The details are as follows:

CAPITAL EXPENDITURE

All capital expenditure is referred to the Brazil Business Unit. The BU posted capital expenditures in 2020 of 661 million euros, decreasing by 212 million euros on 2019 (873 million euros). Excluding the impact of changes in exchange rates (-218 million euros), capital expenditure rose by 7 million euros, targeted mainly at the expansion of mobile ultra-broadband infrastructure and the development of the fixed broadband business of TIM Live.

Non-current assets

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

•Goodwill decreased by 247 million euros as a result of changes in foreign exchange rates applicable to the Group's Brazilian operations. Further details are provided in the Note "Goodwill".

•Other intangible assets decreased by 614 million euros representing the balance of the following items:

–Capex (+193 million euros)

–Amortization charge for the year (-308 million euros)

–Disposals, exchange differences, reclassifications and other changes (for a net balance of -499 million euros), of which -496 related to exchange rate differences..

•Tangible assets decreased by 669 million euros representing the balance of the following items:

–Capex (+456 million euros)

–Depreciation charge for the year (-430 million euros)

–Disposals, exchange differences, reclassifications and other changes (for a net balance of -696 million euros), of which -691 related to exchange rate differences.

•Rights of use third-party assets: decreased by 389 million euros representing the balance of the following items:

–Investments and increases in finance leasing contracts (+520 million euros)

–Amortization charge for the period (-202 million euros)

–Disposals, exchange differences and other changes (for a net balance of -708 million euros) of which -460 related to exchange rate difference.

Consolidated equity

Consolidated equity amounted to 7.303 million euros at December 31, 2020 (8.780 million euros at December 31, 2019), of which 6.070 million euros attributable to Owners of the Parent (7.100 million euros at December 31, 2019) and 1.233 million euros attributable to non-controlling interests (1.680 million euros at December 31, 2019).

Cash flows

The details of Group cash flows are as follow:

Net financial debt

The following table shows the net financial debt of the Group:

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

Brazil

In 2020, TIM Brazil has evolved its positioning strategy as a relevant protagonist player in the Brazilian market. The Group continued the customer base remix on the consumer mobile market, migrating customers from single service daily plans to recurring weekly/monthly plans. The Group aggregated more value-added services in terms of variety and relevance to our customers (e.g. mobile financial services), evolving service plans offers, leveraging leadership in the 4G network. TIM Live has been increasing its coverage and customer base, while in the B2B market IoT initiatives are stronger in the agribusiness and new successful partnerships opportunities have arisen.

Communication and Brand positioning: we strengthened our brand credibility. Launched a new tag line that represents our mission as a company “image the possibilities” and a new spokesperson the singer “Iza” - Women of the year in 2020. The evolution in our communication format and content allowed TIM to win the prestigious Top of Mind prize from “Folha de SP” (one of the main and most credible media groups in Brazil).

Mobile offers: we renewed our offers in all segments following the “beyond connectivity” approach to increase distinctiveness while avoiding commoditization. On hybrid plans, we leveraged our partnership with C6 (digital bank) bundling mobile financial services to mobility. The partnership was then extended to all segments. On the pre-paid, we introduced a new and strong loyalty program with gamification and mobile advertising features. And finally, on post-paid we revamped “TIM Black” with a broader portfolio of entertainment services (from Netflix only to HBO Go and Youtube Premium) and premium caring services, TIM Concierge.

Customer Experience: we are continuously working to increase our customers experience and satisfaction through the use of technology. In this regard, the evolution of AI solutions and our digital channels are fundamental. In 2020, TIM launched “Tais” its cognitive assistant and the penetration of app Meu TIM has been increasing YoY.

Sales channels: in 2020 we focused on channel productivity and channel remix, from volume to value. Nonetheless, during the Covid-19 outbreak, especially at the outset, the priority shifted to sustain our sales channels. More recently, we have reinforced our capillarity on critical markets like State of São Paulo.

Residential market: the focus on investing in FTTH (Fiber To The Home) expansion continues, with higher speed offers and optimal connection stability. We’re present in 31 cities with a customer base growth of 14% in 2020. TIM Live also innovated launching the first 400Mbps offer in Brazilian market and was recognized by Estadão newspaper for the 5th time as Brazil’s best broadband service.

Corporate: we consolidated our strategy “Leaders with Leaders” in agribusiness and launched the first IoT marketplace for B2B in Brazil promoting IoT solutions through partnerships. We also launched the FCA partnership for connected cars and for industry and mining we are developing a private LTE solution in order to address mission critical use cases.

In Luxembourg, a 12-month grace period has been granted for the application of the European Single Electronic Format (ESEF) requirements in relation to annual financial reports, previously applicable to financial years beginning on or after January 01, 2020.

Brazil

Revision of the model for the provision of Telecommunications services

In April 2016, the working group composed of the Ministry of Science, Technology, Innovation and Communications (MCTIC), now called the Ministry of Communications (Minicom), and Anatel (Brazilian National Telecommunications Agency) published its final report with a “diagnosis” on the telecommunications industry and proposed guidelines for the revision of the Brazilian regulatory model. A bill (PLC 79/2016) was then presented to the National Congress of Brazil to propose amendments to the General Telecommunications Law. Law 13.879 was approved in 2019 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. 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.

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.

Another series of important rules was established by Decree 9.612/2018 (“Connectivity Plan”), 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 MCTIC) 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.

700 MHz and Analog TV switch off

In September 2014, TIM won the tender for the award of the 700 MHz (4G/LTE) band frequencies, for a price of 1,7 billion reais (0,3 billion euros at the average exchange rate for the period), and with additional commitments of 1,2 billion reais (0,2 billion euros at the average exchange rate for the period, in four annual installments, adjusted for inflation) as a contribution to the consortium established by the tender (“EAD”) for all the operators (TIM, Algar, Claro and Vivo) awarded the contract for managing the freeing up of the 700 MHz band through the switch off of analog TV, the redistribution of channels and the clean-up of interference. To that end, the first payment (370 million reais, corresponding to 63 million euros at the average exchange rate for the period) was made in April 2015 and another two payments (for a total of 860 million reais, corresponding to around 146 million euros at the average exchange rate for the period) were both made in January 2017, while the final installment (142 million reais, corresponding to 39 million euros) was duly paid in January 2018.

Since 2016, the spectrum has been freed up for mobile operation and in June 2019, all municipalities became available meaning that 100% of Brazilian population can be covered by LTE on 700 MHz.

Throughout 2020, EAD is expected to fulfill the remaining auction obligations, concluding the relocations of broadcasters and interference solutions provisions regarding the completion of the switch-off process and the spectrum full availability to mobile operators.

"Marco Civil da Internet" and Network Neutrality

The “Marco Civil da Internet” (MCI), approved in April 2014 by Brazilian Law 12.965/2014, defined network neutrality as the “duty to treat different data packages in the same way, without distinction based on content, origin and destination, service, terminal or application”. On May 11, 2016, Brazilian Presidential Decree 8.771/2016 was published, which regulates exceptions to the principle of net neutrality, set out in article 9 of the mentioned law.

In August 2017, the oversight board (“GS”) of the Administrative Council for Economic Defense (CADE) handed down a decision in favor of Brazil’s mobile TLC providers, which excluded the imposition of fines in relation to a preliminary investigation into alleged unfair competition in “zero rating” offers and promotions on Internet data consumption. The oversight board heard the depositions of various parties, including the Ministry of Science, Technology, Innovation and Communications (MCTIC) and Anatel, and concluded that Internet business models should not be banned ex-ante, but instead should be monitored comprehensively to prevent any unfair competition outcomes.

Revision of Competition Rules

In November 2012, the Brazilian regulator Anatel introduced instruments for the market analysis, the identification of operators with significant market power (SMP) and the consequent imposition of ex-ante obligations (Plano Geral de Metas de Competição – PGMC).

Anatel has established a number of asymmetrical obligations on all markets for operators with a Significant Market Power (SMP).

In July 2018, Anatel published the new PGMC revising some points and defining two new markets: (i) interconnection for mobile services; and (ii) high capacity data transmission.

TIM Brasil has been identified as the SMP operator on the: (i) mobile network terminations; (ii) national roaming; and (iii) high capacity data transport (in five municipalities).

The measures adopted for the SMP operator on these markets include the obligation to offer national roaming services for non-SMP operators. The obligation for vertically integrated landline operators with an SMP to access the copper network (e.g.: leased lines, bitstream and full unbundling) was maintained.

Since 2016, fixed interconnection rates have been based on a cost-oriented approach. In December 2018, Anatel published the corresponding Acts No. 9.918/2018 and 9.919/2018, which determined the specific

reference rates effective as of February 2020. Before coming into force, Anatel started revision of this acts and, on 24 February 2020, published the new Acts No. 986/2020 and 987/2020.

Revision of Service Quality Regulation

In December 2019, Anatel approved the new Telecommunications Services Quality Regulation (RQUAL), based on responsive regulation. By this new model, quality is measured based on three indicators - Quality of Service Index, Perceived Quality Index and User Complaint Index – and it classifies operators into five clusters (A to E).

On the basis of responsive regulation, Anatel will be able to adopt measures according with the specific case, such as consumer compensation, adoption of action plan or adoption of precautionary measures in order to ensure the improvement of quality standards.

The new regulation is expected to entry into force by 2021 and, until the working group formed by Anatel, operators and the quality assurance support entity (ESAQ) define the goals, criteria and reference values of indicator, Anatel still remain monitoring the old indicators that maintain similarity with the new ones established in the new RQUAL. The criteria and reference value shall be determined in the coming 12 months as from the Working Group launch.

Strategic Digital Transformation and the Internet of Things

In March 2018, the E-Digital Decree (Decree 9.319/2018) was published in order to identify around 100 strategic actions aimed at boosting competition and on-line productivity levels in the country, while raising connectivity and digital inclusion levels. The actions seek to address the main strategic issues for the digital economy, including connectivity infrastructure, the use and protection of data, IoT, and cyber-security.

In June 2019, the Decree on the National Plan for Internet of Things (Decree 9.854/2019) was published in order to regulate and encourage this technology in Brazil. It refers to IoT as “the infrastructure that integrates the provision of value-added services with physical or virtual connection capabilities of things with devices based on existing information and communication technologies and their evolution, with interoperability. The decree lists the following subjects as required to further support National Plan for Internet of Things: (i) science, technology and innovation; (ii) international insertion; (iii) vocational education and training; (iv) connectivity and interoperability infrastructure;(v) regulation, security and privacy; (iv) economic viability.

In order to develop an IoT environment in the country, Law 14.108/2020 was sanctioned. This Law exempts FISTEL (an administrative tax collected by Anatel) from the base stations and equipment that integrate the machine to machine (M2M) ecosystems for 5 years and, also, extinguishes the prior licensing. The definition and regulation of M2M communication systems shall be established by Anatel.

Data protection

On August 14, 2018, the Brazilian President promulgated the General Data Protection Law (Law 13.709/2018).

The new law, as promulgated by the President, is closer to the GDPR, including significant extra-territorial application and considerable fines of up to 2% of the Company's global turnover of the previous financial year.

In December, 2018, Provisional Measure 869/2018 passed by the former Brazilian president amended Law 13.709 to create the National Data Protection Authority (ANPD), within the structure of the Presidency of the Republic, which implies in a larger control by the State and to, among other topics, extend to 24 months the entry into force of the Law (August 2020), by which date, August 2020, all legal entities will be required to adapt their data processing activities to these new rules.

In July 2019, Provisional Measure 869/2018 was converted into law 13.853, keeping the ANPD, as a federal public administration body, as part of the Executive Branch, with transitory nature, for at least 2 years, when it may be transformed, by Executive Branch, in an entity of the indirect federal public administration.

In June 2020, the Bill of Law No. 1.179/2020 was converted into Law No. 14.010/2020 that postponed the date to become effective the General Data Protection Law, only for the provisions related to fines and penalties, to August 2021. The other provisions of the law are in effect as from August 2020, as originally proposed. Additionally, Decree No 10.474/2020 (Data Protection National Authority) entered into force in August 2020, creating ANPD (Autoridade Nacional de Dados Pessoais) which is responsible, among others, for developing guidelines for the National Policy for Data Protection; supervise companies and apply sanctions; issue regulations and procedures on personal data protection.

Brazil

The macroeconomic scene in 2020 witnessed an uncommon and harsh paradigm change, leading to new behavior and consumption habits. As in many countries, lockdown protocols negatively affected the economy, increasing uncertainty, postponing investments, reducing revenues, employment, and taking lives. On the other hand, digital transformation was taken to another level, placing telecom companies in the spotlight,

empowering and connecting people, pushing advanced services such as food and drugs delivery, content streaming and video calls.

Although some political uncertainty still exists, especially regarding the ability of the government to fulfill some of the economic liberal agenda as administrative and tax reforms, as well as to manage the Covid-19 pandemic impacts, the Brazilian economy points to recovery. Employment, which displayed poor results as in 2016 recession, is back to levels seen in early 2020. Despite the negative growth rate expectations for Brazilian GDP in 2020, economic recovery is estimated to surpass the 3% mark in 2021. Endorsing the positive mood, Bovespa Index (“IBOV” – Brazilian stock market index) shows the market confidence by reaching pre-pandemic results.

Despite improving financial indicators, economic conditions are still challenging, as budget deficit and growing debts (for central government, Federal States and municipalities) present a risk that can only be addressed by more structural reforms that need the congress approval. Present government acknowledges that need and maintain reforms as a top priority together with privatization of some companies (such as Eletrobras, Telebras, Correios, and DataPrev) to put the economy growing consistently for the coming years and improve investments in infrastructure.

The mobile telecommunications sector has seen some rationality prevail in the market and in competition, with service providers remaining focused on the development of the characteristics and service range of their commercial offers, rather than pursuing aggressive pricing policies. At last but not least, the reduction from 4 to 3 main mobile players and the raise of infrastructure companies may lead to a better capital allocation and investment return.

In the Prepaid segment, the main objective of market players has been to raise recurrence rates on 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 to meet different needs of customers (unlimited voice calls or data packages). The aim of the strategy is to improve the mix of the customer base and ensure greater stability (together with churn reduction) and ARPU growth. The market Prepaid customer base has decreased -4,6% YoY in November 2020.

In the Postpaid mobile segment, growth in the customer base was driven primarily by the growth of the hybrid Controle segment (especially from the migration of former Prepaid customers), although “pure” Postpaid lines has also presented some growth. Based on offer segmentation strategies that introduce distinctions in the use of data services (such as the unlimited use of data for specific apps, such as WhatsApp, Facebook, Twitter, Netflix, etc.), as part of a “More for More” policy that is designed to provide greater price stability and effectively repositioning the customer base towards higher value deals (voice + data + content). The market total Postpaid (excluding M2M) customer base has grown +4,7% YoY in November 2020.

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 have covered 98% of Brazilian population with 4G (up to November 2020, latest data available), with the top three players providing an average 4G availability above 79% (according to OpenSignal July/2020 report).

The fixed broadband market posted growth of +10,1% YoY in November 2020, driven mainly by smaller market players (+39,6% YoY), which tend to offer cheaper services mainly in areas in which incumbents have limited infrastructure. As consequence, traditional incumbents are facing a high decrease in their customer base. Penetration rates across the population are still quite low (approximately 51% of households) when compared to several countries, which means there are good opportunities for medium-term growth, underpinned by the improving macroeconomic scenario.

In this context, since 2017, TIM has adopted a business strategy for TIM Live to leverage its fiber network infrastructure, offering ultra broadband internet services, through FTTC and notably FTTH, not only in some of the largest cities of Brazil, but also in cities where opportunities arise for such high-quality service. Therefore, TIM Live has been increasing its footprint reaching 32 cities by the end of November 2020, which is expected to continue growing in the following years. TIM Live had a customer base of 640+ thousand users (a 15,4% YoY growth). In order to reach a faster and smarter footprint expansion, TIM is organically evolving to carve out an Open Infra Vehicle together with an investor partner and leveraging through its last mile Fiber assets.

Brazil

The Architecture & Innovation Technology department is responsible for TIM SA Research and Development (R&D) activities; its main responsibilities are to define technological innovation for the network and information technology, determine evolutionary needs for new technologies and devices and link architectural guidelines and strategic partnerships, to use the new business models and ensure the network infrastructure evolution is in line with the corporate strategy.

In 2020, the Architecture & Innovation Technology department was made up of 52 colleagues, including telecommunications, electrical and electronic, IT and other engineers with professional skills and experience, which cover all areas of network knowledge, meeting the need to innovative and supporting 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 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 partnerships 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 devices, in 2020-2022, TIM 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 SA, which can be grouped into the following macro groups:

•next generation network;

•with positive impact on the environment and society and future internet applications;

•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 increase in the LTE coverage area and the enabling of the carrier aggregation strategy, improving the customer experience through a higher reach;

•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.

The implementation of the 700 MHz LTE layer has continued to significantly improve coverage expansion and indoor penetration, promoting the spread of LTE on a national level and consolidating TIM’s leadership in LTE. 89% of TIM SA current user base of LTE devices is 700 MHz enabled (December 2020).

At the end of December 2020, 3.294 cities had 700 MHz LTE coverage equivalent to over 95% of the urban population; spectrum cleaning was completed in June 2019 in all cities of Brazil, enabling a bandwidth of 700MHZ. At end 2021, more than 3.700 cities are expected to be covered by TIM SA in the 700 MHz band, as per the 2020-23 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 costs. At 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 to promote the evolution of the spread of LTE in the Brazilian campaign, effectively sharing access and backhaul. Currently, 4G RAN Sharing is based on three national partners, expanding the benefits and efficiency of this technical model. Following tests and the consequent activation of energy saving functions and solutions, according to the access technology (2G, 3G and 4G) and coverage conditions, it showed a reduction of up to 10%.

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

Internet of Things - It was back in 2018 that TIM SA 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.

In 2019, two major milestones were achieved, namely the activation of an E-SIM (Embedded SIM) platform and the acquisition of an IoT/M2M platform, which was integrated into the TIM infrastructure in 2020, bringing with it new business opportunities.

Agrobusiness - Since 2018, together with Nokia and BR Digital, TIM SA 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). TIM strengthened its position in relation to vertical agriculture in 2020, with the creation of the ConnectarAgro ecosystem (conectaragro.com.br) which brings together TIM, solution providers for the agro segment and telecommunication solution providers.

5G -The commercial launch was announced by TIM Brasil’s CEO early 2020 during an on-line event attended by about 20,000 colleagues; the launch will regard three cities of Brazil: Bento Gonçalves (RS), Itajubá (MG) and Três Lagoas (MS).

Open Lab initiatives

TIM SA 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 SA 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 SA 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. In 2020, TIM 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 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.

Brazil

The Human Resources Department is structured to ensure the best practices in people management, to support the evolution process at the Company, aligned with the technological transformations and business challenges that include the commitment to sustainability and promotion of diversity and inclusion.

It is fundamental to rely on an engaged team to exceed challenges and fetch better results. At TIM, the relationship of transparency and respect with all levels strengthens the pride of belonging and the clarity about our direction. These factors are differential in the development of our employer brand.

In 2020, we achieved another record of adhesion (97%) in the Climate and Engagement Survey.

This growth reflects our commitment to listening to people and the credibility of the Climate Management process at TIM.

Some practices were highlighted in the annual Climate and Engagement Survey, which showed significant results, such as the increase in general favorability by 3 p.p. reaching 84%, and placing TIM 12p.p. above Mercer's Global Telecom Market, a consulting partner responsible for research.

Among the dimensions highlighted in the comparison with 2019, the biggest developments (equal to or greater than 7 p.p.) are in Process Improvement, Healthy Work Environment, Career and Ability to Achieve Goals. This confirms that the actions taken during the year 2020 were perceived positively by our employees.

The results of the Climate and Engagement Survey at TIM in 2020 consolidate the team's high engagement and also indicate that in 2021 we need to focus on specific areas that are not on the same level as TIM and that there is an opportunity for improvement. In addition, it will be necessary to investigate the most critical areas in recognition and reward, in order to act on people's perception of perceived remuneration.

The culture of integrity and attractive careers also stand out among the factors most recognized by our team, reflecting the high engagement and success of actions such as TIM Talks Experience 2020 and Diversity and Inclusion campaigns.

People

The Brazil BU ended 2020 with 9.409 employees across Brazil. The employees, with their stories and knowledge, represent the intellectual capital of the Group and are the engines of business development.

Approximately 70,1% of the employees have completed higher education or attend college and 10,0% have postgraduate degrees. The numbers and results show that TIM has a diverse and highly-qualified staff to meet its challenges. The workforce is complemented by 68 interns and 234 young apprentices.

Development and Training

The Group employees have access to a well-structured training and development offer to evolve within the company and build a successful career. The Brazil BU invested more than 10,8 million reais (1,8 million euros) in training and development of its employees in 2020.

To guide the careers of its employees, the Group identifies and monitors individual performance to guide activities with more assertiveness. The Company evaluates the dedication and differentiated performance of its professionals through different performance management tools and encourages and provides opportunities for development and learning.

Throughout the year 2020 we focused on supporting the company's evolution and transformation towards the TELCO digital model, with a specific focus on the development of new capabilities, necessary to achieve the objectives of the company's strategic and industrial plan. The objective has also been to strengthen and disseminate digital and social learning approaches, consistent with the accelerations brought about by the pandemic situation, as well as to develop specific programs for selected audiences and themes. Thus, we are able to offer our employees the best training and distance learning initiatives.

Among the programs that stood out the most, are:

•TIM Talks: We offer all employees a 4-week program of innovative learning experiences, covering topics related to business, technology, environment, health, diversity and inclusion, skills of the future, among others, also enabling society to participate with events open to the outside.

•Internship Program: To attract the best students in the market and train our future professionals, the Internship Program brings students with energy, determination, initiative, a sense of team and, especially, interest in challenges and innovation. The program has an important focus on the assumptions of diversity and inclusion, in the context of TIM's ambitions and plans in ESG matters and is structured through a dedicated journey of training and development initiatives, including initiatives with Job Rotation and Job Shadowing, among others.

•Support Plan in the context of the Covid-19 Pandemic: Throughout 2020, due to the pandemic of the new coronavirus, the Group carried out training actions focused on topics such as mental, emotional, self-care, well-being and we also provide integration content in digital format. In addition, we have transformed 100% of our training actions into distance learning.

•Onboarding: Considering the digital transformation processes that the Group started a few years ago, accelerated by the needs of the pandemic, a new Onboarding program was designed to engage and prepare new employees for day-to-day activities. The main changes were the creation of a new brand, the inclusion of new targets, the digitization of 100% of the contents and a new governance model. The new program will be fully implemented in the first quarter of 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 position and commitment to the theme through the construction of diversity and inclusion policies, programs and initiatives, aligned with the business strategy, organizational culture and appreciation of the contribution of each employee.

In 2020, the Diversity and Inclusion Program included an annual calendar of actions, based on the UN calendar; creation of the diversity committee, formed by senior leadership; launching of affinity groups, formed by employees from all levels, areas and regions; who work together in the design and implementation of inclusive actions for the pillars of gender, LGBTI + people, race, generations and people with disabilities. A Diversity Policy was also launched with premises and guidelines for the people management processes and reinforcement of the expected behaviors and behaviors of employees, partner companies, suppliers and other stakeholders in the value chain. Because it believes that information and knowledge is the first step in breaking paradigms and prejudices, the 2020 diversity program included an integrated communication and training plan for TIM leaders and professionals, with more than 40 actions and 2,300 trained employees. TIM Convida was also launched, a 100% digital event and open to society, with the aim of connecting TIM with companies, academia, specialists and society in general in an ecosystem of dialogue and reflection on the theme. In all, 6 editions of the event were held with over 50 thousand views on Youtube.

Long Term Incentive Plan

The Long-Term Incentive Plan is intended to grant shares or options for the purchase of shares of TIM SA to employees of the Company and its subsidiaries, thereby seeking to promote the expansion, achievement and success of the corporate goals, and ensuring the alignment of interests of shareholders and management.

On August 5, 2011, April 10, 2014 and April 19, 2018, the Annual Shareholders Meeting of TIM Participações (now TIM SA) approved the long-term incentive plans; “Plan 2011-2013”, “Plan 2014-2016” and “Plan 2018-2020”, respectively, grant to the high management and to those who occupy key positions at the Company and its subsidiaries.

Brazil

The Brazil BU is a pioneer in Environmental, Social & Governance (ESG) topics in the Brazilian telecommunications industry. TIM has been part of B3’s Corporate Sustainability Index (ISE-B3) for 13 years and is the telecommunications company present in the index for the longest time.

Since 2011, TIM voluntarily joined the Novo Mercado, the highest Corporate Governance Level of the Brazilian Stock Exchange, in addition to being the first and only telephony operator awarded as Pró-Ética (Pro-Ethics) by the Controller General of Brazil (“CGU”).

As a signatory of UN’s Global Compact since 2008 and member of the Human Rights Working Group of the Brazilian Global Compact Network since 2015, TIM develops projects linked to the Sustainable Development Goals (SDG) and recognizes data privacy, safe internet and access to information and freedom of speech as essential and non-negotiable rights.

TIM responds to the Carbon Disclosure Project (“CDP”), the largest climate change data base in world, providing information on greenhouse gas, since 2010 and TIM also records its emissions information in the Public Emissions Registry of the Brazilian GHG Protocol Program.

For the past 12 years, TIM has published the Sustainability Report to its stakeholders with information on the main financial and non-financial results, according to the Global Reporting Initiative (GRI) standards. The report is 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, among others, are publicly available to all our stakeholders.

For its strong actions on ESG topics, TIM is included in domestic and international indexes and ratings, such as the Corporate Sustainability Index (ISE-B3), The Carbon Efficiency Index (ICO2-B3), ESG Brazil Index (S&P/B3), CDP Brazil Climate Resilience Index (ICDPR-70), FTSE4GOOD Emerging Markets, FTSE4GOOD Latin America, MSCI ACWI ESG Leaders, MSCI Emerging Markets ESG Leaders, among others, in addition to being certified by ISO 14001 since 2010.

TIM Institute

Founded in July 2013, Instituto TIM (www.institutotim.org.br) has the mission of providing democratic access to science, technology and innovation in order to foster human development in Brazil. More than 700.000 people in all Brazilian states and the Federal District have benefited from the Institute’s education and inclusion projects, some have also been internationally awarded (Governarte Award - BID 2015).

During 2020, Instituto TIM’s projects have been adapted so that they could continue, despite the challenging Covid-19 scenario - The Instituto TIM-OBMEP Scholarships continued to support the 200 medal winners of the Brazilian Public School Math Olympics (OBMEP in Portuguese), who entered public universities and come from low-income families. In 2020, 50 new students have been selected to receive the scholarships. The aid to students is the result of the partnership between Instituto TIM and the National Institute for Pure and Applied Mathematics (IMPA).

Academic Working Capital (AWC) is the entrepreneurial education program developed by Instituto TIM that offers mentoring and financial support to college students who want to turn their course conclusion papers into technology-based businesses. In its 6th edition, AWC brought novelties and a new evaluation criterion: the project’s contribution to Brazil’s challenges after the Covid-19 pandemic. Other differences were the transformation of in person workshops into virtual meetings and a new calendar, with activities held from August to May 2021, when the Investment Fair will take place - date of the beginning of the program’s 2021 edition. Since its inception in 2015, about 180 projects from 470 university students have been supported by AWC and 50 startups have been created. Some of them turned out to be successful businesses, such as Mvisia, a startup participating in the program’s first edition, which in 2020 had 51% of its capital stock acquired by WEG, a Brazilian multinational company manufacturing electronic devices.

Science education is one of Instituto TIM's lines of action. Through its partnership with GaratéaISS, a science and aerospace education program for children, three Brazilian projects have already been sent to the International Space Station (ISS), supported by NASA. The initiative makes Brazil the first country outside North America to participate in the Student Spaceflight Experiments Programs. The winning experiment of the 2019/2020 Garatéa was executed by students from the state of Mato Grosso, with the goal of discovering if a person who is lactoseintolerant could eat this product in space using medicines. The project has been sent to the Space Station in December on board of SpaceX; The Bateria do Instituto TIM (Institution TIM’s percussion band) - project that fosters the inclusion of children, young people and adults, many of whom are disabled, through music - continued in 2020 in a virtual format, named “Percussion Band at Your Home”. The initiative enabled rehearsals to continue through video classes sent every week to the students. To close the activities for the year and contribute to the families’ Christmas - most of them in vulnerability situation - the members and technical team received food boxes.

TIM Tec, Instituto TIM’s free online courses program, registered 100.000 registrations in the platform and a 200% increase in the number of accesses in the first four months of 2020, compared to the same period in

2019. The platform gained more visibility as the search for distance learning increased during the pandemic. TIM Tec is now part of the Aprendendo Sempre initiative, a coalition of several civil society organizations to offer free online courses.

To minimize the social impacts brought by Covid-19, Instituto TIM decided to join forces with the initiative organized by Instituto Biomob NGO to ensure food is provided to families of people with disabilities in the low-income communities in the cities of Petrópolis, Duque de Caxias, Mesquita and Rio de Janeiro. Through the Mútua-Gesto Solidário campaign, over 600 families received monthly food boxes, an initiative that ensured food security for at least 3.000 people in vulnerability situation.

Energy

Energy management is a material topic for TIM and one of its greatest challenges.

In 2020, 64% of TIM’s energy matrix came from renewable sources. By 2021, the Company  expects to have 80% of its matrix from renewable sources, including 60 solar, hydro and biogas power plants, which will generate 38GWh of energy on a monthly basis, enough to power a 150.000-people city.

By the end of 2020, TIM reached 1.679 active biosites. The biosites have a low visual impact and allow the aggregation of other services such as lighting, surveillance cameras, in addition to telecommunications transmissions.

Payment of Interest on Equity

In January 2021, TIM S.A paid Interest on Capital (IOC) related to the fiscal year ending on December 31, 2020 and approved on 2020 according to the following schedule:

Result of Oi Mobile Assets Auction

As a result of the OI Mobile assets auction described in the highlights of this report, TIM S.A. will be entrusted with the following:

•Customers: approximately 14,5 million customers (corresponding to 40% of UPI Ativos Móveis' total customer base) - according to Anatel's access base of Apr/20. The allocation of customers among the Buyers took into consideration criteria that favor competition among the operators present in the Brazilian market;

•Radiofrequency: approximately 49 MHz as a national average weighted by population (54% of UPI Ativos Móveis radiofrequencies). The division of frequencies between Buyers strictly respects the spectrum limits per group established by Anatel;

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

For others details of subsequent events, see the specific Note "Events Subsequent to December 31, 2020".

In Brazil, the expectation for the year 2021 is for the recovery process to accelerate, both in terms of the economy in general and the results of the Group itself. We hope to increasingly capitalize on initiatives on the digital transformation and new business fronts that, combined with the evolution of the mobile segment consolidation process and definitions of 5G technology, will create great opportunities for TIM and the telecom industry.

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.

In the Brazilian market, the expected results may be significantly affected by the macroeconomic and political situation.

In 2020, the impact of the pandemic in Brazil can be verified in the drop of Brazilian Gross Domestic Product (GDP) projections of -4,36% for the period, according to the latest FOCUS report for 2020, compared to an expected growth of 2,30% in the first FOCUS report for the same year.

However, after a devastating first semester, when the pandemic caused the closing of businesses, a strong reduction in mobility and large capital outflow, which had already begun in 2019, the scenario has changed during the second semester, with emphasis for the strong GDP growth in the third quarter, boosted by an uneven recovery between the industries, with manufacturing and commerce with average levels above the pre-crisis period and services still significantly low. Activity level did not resume to 2019 levels at year end, but the drop was lower than projected in mid-2020.

Inflation, as measured by the Extended Consumer Price Index (IPCA), ended 2020 at 4,52%, highest annual rate since 2016. IPCA exceeded the midpoint of the target, which was 4,00% for the year. Inflation was mostly impacted by a rise in the price of Food and Drink, up by 14,09% in the year, and the largest contribution for the inflation measured by the index.

On the currency front, the US Dollar appreciated sharply vis-à-vis the Brazilian Real in 2020, ending the year at R$ 5,19 after reaching R$5,93 in May, the highest nominal exchange rate since the implementation of the Brazilian Real. The rate showed strong volatility during the year amid factors such high tax risk from a sharp increase in public spending due to the pandemic, the halt in the tax and administrative reforms, as well as the SELIC rate reaching the historical minimum level, which contributed to a strong exchange rate variation during the year. The trade balance ended the year with a US$ 50,9 billion surplus, up by 8,3% compared to 2019, the industries’ performance by the daily average shows growth of 6% in agriculture and cattle raising, drop of 2,7% in extractivism and of 11,3% in heavy industry.

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.

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 unfavourable 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.

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.

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 (BOVESPA index).

The ordinary shares of TIM S.A. are also listed on the NYSE (New York Stock Exchange); trading occurs through ADS (American Depositary Shares) that represent 5 ordinary shares of TIM S.A.

Waiver of the obligation to present activities in one report only

The Board of Directors 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 accounts are prepared.

In this Directors’ Report and in the Consolidated Financial Statements of the Group for the year ended December 31, 2020, 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:

•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.

A description of the Parent Corporate Governance is provided within the statutory accounts of Telecom Italia Finance, available at www.tifinance.lu.

Consolidated Statements of Financial Position

The accompanying notes are an integral part of these annual accounts.

The accompanying notes are an integral part of these annual accounts.

The accompanying notes are an integral part of these annual accounts.

The accompanying notes are an integral part of these annual accounts.

Changes from January 1, 2020 to December 31, 2020

Changes from January 1, 2019 to December 31, 2019

The accompanying notes are an integral part of these annual accounts.

Additional Cash Flow Information

The accompanying notes are an integral part of these annual accounts.

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 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 of the Group for the year ended December 31, 2020 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 February 22, 2021.

The Consolidated Financial Statements for the year ended December 31, 2020 have been prepared on a going concern basis (for further details see Note "Accounting policies").

The Consolidated Financial Statements have been prepared under the historical cost convention except for financial assets measured at fair value through other comprehensive income, financial assets measured at fair value through profit or loss 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, that of the preceding years.

The Consolidated Financial Statements are expressed in euro (rounded to the nearest million, unless otherwise indicated).

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 expenses 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; items connected to prior-year adjustments; impairment losses on goodwill and/or other tangible and intangible assets.