∂ Telecom Italia Finance Group Consolidated Financial Statements 2017 Audited Consolidated Annual Accounts as at December 31, 2017, which have been authorized by the Board of Directors held on March 05, 2018 Consolidated Financial Statements 2017 Table of Contents Table of Contents Directors’ report ................................................................................................................................................................................ 3 The Business Units ....................................................................................................................................................................... 3 Key operating Financial Data .................................................................................................................................................... 3 Consolidated financial position and cash flows performance .......................................................................................... 7 Main commercial developments of the business units of the Group .............................................................................. 8 Main changes in the regulatory framework ........................................................................................................................... 8 Competition ................................................................................................................................................................................... 9 Research and development ..................................................................................................................................................... 10 Human resources ....................................................................................................................................................................... 10 Social Responsibility .................................................................................................................................................................. 11 Events subsequent to December 31, 2017 ............................................................................................................................ 12 Business outlook for the year 2018 ........................................................................................................................................ 12 Main risks and uncertainties .................................................................................................................................................... 12 Information for investors .......................................................................................................................................................... 13 Consolidated Statements of Financial Position ...................................................................................................................... 15 Assets ............................................................................................................................................................................................ 15 Equity and Liabilities .................................................................................................................................................................. 16 Separate Consolidated Income Statements ............................................................................................................................ 17 Consolidated Statements of Comprehensive Income ........................................................................................................... 18 Consolidated Statements of Changes in Equity ..................................................................................................................... 19 Consolidated Statements of Cash Flows ................................................................................................................................. 20 Notes to the Annual Accounts .................................................................................................................................................... 21 Note 1 - Form, content and other general information ................................................................................................ 21 Note 2 - Accounting policies ................................................................................................................................................ 22 Note 3 - Scope of consolidation .......................................................................................................................................... 35 Note 4 - Goodwill .................................................................................................................................................................... 36 Note 5 - Intangible assets with a finite useful life .......................................................................................................... 37 Note 6 - Tangible assets (owned and under finance leases) ...................................................................................... 38 Note 7 - Investments ............................................................................................................................................................. 41 Note 8 - Financial assets (non-current and current) ..................................................................................................... 41 Note 9 - Miscellaneous receivables and other non-current assets ............................................................................42 Note 10 - Income taxes (current and deferred) ..............................................................................................................43 Note 11 - Inventories .............................................................................................................................................................45 Note 12 - Trade and miscellaneous receivables and other current assets ..............................................................45 Note 13 - Equity ..................................................................................................................................................................... 46 Note 14 - Financial liabilities (non-current and current) .............................................................................................. 47 Note 15 - Net financial debt ................................................................................................................................................ 49 Note 16 - Financial risk management ............................................................................................................................... 51 Note 17 - Derivatives..............................................................................................................................................................54 Note 18 - Supplementary disclosures on financial instruments ................................................................................. 55 Note 19 - Provisions .............................................................................................................................................................. 60 Telecom Italia Finance Group 1 Consolidated Financial Statements 2017 Table of Contents Note 20 - Miscellaneous payables and other non-current liabilities ........................................................................ 60 Note 21 - Trade and miscellaneous payables and other current liabilities.............................................................. 61 Note 22 - Contingent liabilities, other information, commitments and guarantees ............................................. 61 Note 23 - Revenues ................................................................................................................................................................ 63 Note 24 - Other income ....................................................................................................................................................... 64 Note 25 - Acquisition of goods and services ................................................................................................................... 64 Note 26 - Employee benefits expenses............................................................................................................................ 64 Note 27 - Other operating expenses ................................................................................................................................. 64 Note 28 - Internally generated assets ...............................................................................................................................65 Note 29 - Depreciation and amortization ........................................................................................................................65 Note 30 - Gains/(losses) on disposals of non-current assets ......................................................................................65 Note 31 - Finance income and expenses ......................................................................................................................... 66 Note 32 - Segment reporting .............................................................................................................................................. 68 Note 33 - Related party transactions ..............................................................................................................................