TIM S.A. current report, Q2 FY2021

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TIM S.A. — 2Q21 Form 6-K Summary

Business context and reporting period

TIM S.A. filed its Form 6-K on July 26, 2021, reporting second-quarter and first-half 2021 results under IFRS 9, 15 and 16. The company operates mobile telecommunications, fixed broadband, infrastructure and customer-platform businesses in Brazil. Comparisons are primarily with 2Q20 unless stated otherwise.

Key financial and operating metrics

  • Revenue: Total net revenue increased 10.5% year over year in 2Q21; total service revenue increased 8.7%.
  • Mobile service revenue: R$3.983 billion, up 8.5%; postpaid revenue rose 8.9% and prepaid revenue rose 5.3%.
  • Fixed service revenue: R$283 million, up 11.1%; TIM Live revenue increased 21.0%.
  • Customer platform revenue: R$29 million, including R$20 million from financial services and R$9 million from mobile advertising.
  • Profitability: Normalized EBITDA was R$2.1 billion, up 5.9%, with a 47.7% normalized EBITDA margin. Normalized net income was R$681 million, up 154.7%.
  • EBIT: Normalized EBIT increased 6.6%, while normalized EBIT margin was 15.4%, down 0.6 percentage points.
  • Cash generation and investment: EBITDA less Capex was R$1.195 billion, down 8.8%; Capex was R$906 million, up 34.5%, with 88% allocated to infrastructure.
  • Working capital: Change in working capital was positive R$40 million, compared with positive R$279 million in 2Q20.
  • Debt and liquidity: Gross debt was R$12.307 billion, cash and securities were R$7.125 billion, and net debt was R$5.183 billion. Net debt/EBITDA was 0.60x. Excluding leases, the company reported net cash of R$3.003 billion and net debt-AL/EBITDA-AL of negative 0.44x.
  • Subscribers: Total mobile users were 51.3 million; postpaid lines were 22.2 million, human postpaid lines were 18.2 million, and prepaid lines were 29.2 million.
  • ARPU: Consolidated mobile ARPU rose 10.3% to R$25.8; prepaid ARPU rose 11.2% to R$12.7; human postpaid ARPU rose 5.6% to R$45.8; TIM Live ARPU rose 8.2% to R$90.8.
  • Broadband and network: TIM Live had 666,000 connections, up 10.0%. FTTH passed more than 3.8 million homes, while total FTTH and FTTC homes passed reached 6.6 million.

Material changes versus the prior comparable period

  • Revenue growth accelerated, supported by improved prepaid and postpaid performance, higher ARPU, recovery in product revenue and continued TIM Live expansion.
  • Product revenue increased 130.5%, while cost of goods sold rose 123.1% to R$183 million, reflecting higher handset sales and a weak 2Q20 comparison.
  • Reported operating costs and expenses increased 15.8% to R$2.320 billion. The quarter included R$13.7 million of non-recurring legal and administrative expenses related to Oi and FiberCo projects.
  • Subscriber acquisition cost rose 63.5% to R$58.0 per gross addition, and payback increased to 2.2 months from 1.5 months.
  • Net financial expense improved to negative R$36 million from negative R$268 million in 2Q20, partly due to mark-to-market gains related to TIM’s C6 Bank subscription rights and the reversal of certain tax-related provisions.
  • Net debt declined R$1.874 billion year over year despite higher gross debt, primarily because of stronger cash generation. Gross debt increased partly due to IFRS 16 lease recognition.

Guidance, outlook, commentary and risks

  • Management described the business as showing operational resilience and a recovery in market dynamics, with continued focus on monetizing the customer base, network expansion and higher-value plans.
  • TIM is preparing its infrastructure for the integration of Oi’s mobile assets and incurred related project costs. The filing does not provide a specific completion date or quantified financial impact for the integration.
  • The company received authorization to issue up to R$5.75 billion of incentive debentures and completed a R$1.6 billion ESG-linked debenture issuance maturing in June 2028. Net proceeds are intended for fixed and mobile network projects, including 5G.
  • The 2021 Fistel TFF balance of R$480 million remained suspended with no defined payment date. The company had partially paid R$300 million of CFRP and Condecine fees during 6M21.
  • TIM expects renewable sources to represent 80% of its energy matrix by year-end 2021 and targets carbon neutrality by 2030. It also expects to reach 47 million cognitive customer-service interactions by year-end.
  • A July 2021 partnership with Cogna’s AESAPAR is intended to combine TIM’s mobile infrastructure with the Ampli distance-learning platform. Subject to regulatory approvals, TIM may receive an equity interest of up to 30% in a new company.
  • Key risks include COVID-19 effects on customer activity, execution and costs related to Oi and FiberCo transactions, regulatory and tax contingencies, suspended Fistel obligations, higher acquisition costs, interest-rate exposure and the uncertainty inherent in forward-looking statements.

Important facts for investors to verify

  • Reconcile normalized EBITDA and net income to reported results, including the R$13.7 million non-recurring expense and R$4.6 million net-income tax-credit adjustment.
  • Review the complete financial statements and notes for the Oi mobile-asset transaction, FiberCo projects, C6 Bank subscription rights and related contingencies.
  • Confirm the timing, terms and ultimate payment obligations for the suspended R$480 million Fistel TFF balance.
  • Assess lease-adjusted leverage separately from reported IFRS 16 gross and net debt.
  • Monitor Capex intensity, EBITDA less Capex, working-capital performance and the effect of network expansion and 5G investment on future cash generation.
  • Verify regulatory approvals and economic terms of the Cogna partnership and the planned Oi mobile integration.