TIM S.A. 1Q22 Form 6-K Summary
Business context and reporting period
TIM S.A. provides mobile, fixed-line and broadband telecommunications services throughout Brazil. The filing reports quarterly information for the three months ended March 31, 2022, filed May 3, 2022. The financial information is presented in thousands of Brazilian reais unless otherwise stated.
Following the November 2021 sale of 51% of I-Systems to IHS, TIM retained a 49% associated-company interest and no longer consolidates I-Systems. Accordingly, the 2022 balance sheet and income statement presented are for the parent company; the comparable March 2021 figures include consolidated information where shown. Ernst & Young performed a review, not an audit, and reported no matters causing it to believe the interim information was not prepared in accordance with applicable standards.
Financial and operating metrics
| Metric | 1Q22 | 1Q21 | Change |
|---|---|---|---|
| Net revenue | R$4,727.2 million | R$4,339.8 million | +8.9% |
| Gross income | R$2,426.7 million | R$2,246.9 million | +8.0% |
| Income before financial results | R$694.9 million | R$592.5 million | +17.3% |
| Net financial result | (R$248.0 million) | (R$225.2 million) | More negative by R$22.7 million |
| Net profit | R$405.4 million | R$276.9 million | +46.4% |
| Basic earnings per share | R$0.17 | R$0.11 | +54.5% |
| Net cash from operating activities | R$1,119.6 million | R$1,949.6 million | (42.6%) |
| Capex additions | R$1,328.0 million | R$1,324.2 million | Approximately stable |
- Reported gross margin was approximately 51.3%, operating margin before financial results approximately 14.7%, and net margin approximately 8.6%.
- Normalized EBITDA was reported at approximately R$2.2 billion, up 8.8% year over year, with a 44.9% normalized margin. Normalized EBITDA after leases was R$1.6 billion, up 1.1%.
- Normalized EBITDA less capex was R$795 million, up 14.2%, while normalized EBITDA-after-leases less capex was R$248 million, up 5.3%.
- Cash and cash equivalents were R$4.0 billion at March 31, 2022, down from R$5.2 billion at December 31, 2021. Cash and securities totaled approximately R$8.1 billion.
- Loans and financing totaled R$3.34 billion, including R$106.2 million classified as current. Lease liabilities totaled R$9.83 billion, including R$1.24 billion current. Management reported compliance with applicable financial covenants.
- Total assets were R$49.03 billion and shareholders’ equity was R$25.34 billion at March 31, 2022.
- Mobile service revenue was R$4.286 billion, up 8.6%. Mobile ARPU rose 7.6% to R$27.4, and mobile net additions were 239 thousand.
- TIM ended the quarter with 52.3 million mobile lines, including 23.2 million postpaid and 29.1 million prepaid lines. TIM Live had 689 thousand connections, up 4.2% year over year.
Material changes versus the prior comparable period
- Revenue growth reflected higher-value customer migrations, postpaid expansion, pricing actions and growth in fixed broadband. Postpaid revenue increased 8.2%, prepaid revenue recovered 3.2%, and fixed service revenue increased 5.7%.
- Customer Platform revenue exceeded R$35 million, more than doubling year over year, including R$24 million from financial services and R$11 million from mobile advertising.
- Reported operating costs and expenses increased 13.1% to approximately R$2.624 billion. Personnel, network and interconnection, general and administrative expenses, handset costs and doubtful-account provisions all increased, partly reflecting inflation and strategic initiatives.
- Normalized EBITDA growth benefited from operating leverage, while higher lease and debt interest, inflation and interest-rate increases contributed to the more negative net financial result.
- Operating cash flow declined primarily because of working-capital outflows, including approximately R$1.1 billion paid to EAF for the 3.5 GHz license obligations and approximately R$298 million paid for Condecine and CFRP-related charges.
- Cash declined despite positive operating cash generation because investing activities used R$831.2 million and financing activities used R$1.514 billion, including debt amortization, lease payments, interest and shareholder distributions.
Guidance, outlook, commentary, risks and unusual items
- Management emphasized continued customer-base migration toward higher-value postpaid plans, mobile and fixed broadband expansion, FTTH deployment, 4G/4.5G coverage and 5G rollout. The filing does not provide formal full-year financial guidance.
- On April 20, 2022, TIM completed the acquisition of Oi Móvel assets with Telefônica Brasil and Claro. TIM acquired 100% of Cozani for an adjusted closing price of approximately R$6.98 billion, funded from cash. The amount included R$2.06 billion paid directly to BNDES, R$4.29 billion paid to the seller and R$634.3 million withheld for potential adjustments. Additional consideration of up to R$230 million may become payable based on performance targets, of which R$60 million had been paid.
- The Oi transaction also involved approximately R$250.7 million paid for transition services and a 10-year transport-capacity agreement with present value of approximately R$476 million.
- TIM approved R$195 million of interest on shareholders’ equity, paid April 27, 2022.
- The C6 Bank partnership generated R$24 million of revenue in 1Q22. TIM held a 4.4% interest at quarter-end and approximately 4.8% after achieving the sixth target tranche in April. An arbitration proceeding with C6 remains open and could affect the partnership, including possible termination if TIM loses.
- Legal and administrative provisions totaled R$1.019 billion. Possible-loss proceedings, for which no provision was recorded, totaled R$18.505 billion, including R$16.774 billion of tax matters. These amounts are not forecasts of ultimate losses.
- Fistel/TFF payments for 2020, 2021 and 2022 remained suspended under injunctions without defined payment dates. The company recognized related default interest and continued to carry unpaid obligations.
- The company had R$2.578 billion of outstanding authorization-related obligations at March 31, 2022, including 5G auction-related obligations. It paid approximately R$1.09 billion to EAF in February 2022.
- Management reported no impairment indicators for tangible assets, intangible assets or investments and no material COVID-19 impact identified in the quarterly information. Forward-looking statements remain subject to macroeconomic, regulatory, competitive, legal, interest-rate and foreign-exchange risks.
Important facts investors should verify
- Reconcile parent-company 2022 figures with 2021 consolidated comparatives and assess the accounting effects of the I-Systems deconsolidation.
- Review the cash and debt position after the April 2022 Oi Móvel acquisition, including purchase-price adjustments, contingent consideration and integration costs.
- Assess the effect of R$9.83 billion of lease liabilities and the company’s post-lease cash-flow generation.
- Monitor 5G authorization and EAF/EACE payment obligations, Fistel/TFF injunctions and other regulatory commitments.
- Evaluate the scale and progression of possible-loss tax proceedings totaling R$16.774 billion and the R$1.019 billion provision for probable matters.
- Review the C6 arbitration, the valuation of TIM’s C6-related derivative and the sustainability of Customer Platform revenue.
- Confirm whether revenue growth, normalized EBITDA margins and mobile ARPU trends continue after the Oi customer base is incorporated.