Business Context and Reporting Period
TIM S.A. is a Brazilian telecommunications company providing mobile, fixed-line and broadband services nationwide. This Form 6-K reports the quarterly information for the three and nine months ended September 30, 2021, prepared under Brazilian accounting standards and IFRS. Ernst & Young performed a limited review and reported no matters causing it to believe the interim information was materially misstated; the review was not an audit.
Financial Performance and Position
| Metric | 3Q21 | 9M21 | Comparable period |
|---|---|---|---|
| Net revenue | R$4.512 billion | R$13.259 billion | 3Q20: R$4.387 billion; 9M20: R$12.590 billion |
| Operating profit | R$755 million | R$2.011 billion | 3Q20: R$683 million; 9M20: R$1.841 billion |
| Net profit | R$993 million | R$1.942 billion | 3Q20: R$390 million; 9M20: R$830 million |
| Basic EPS | R$0.41 | R$0.80 | 3Q20: R$0.16; 9M20: R$0.34 |
| Normalized EBITDA | R$2.2 billion | R$6.3 billion | Up 4.5% and 5.0%, respectively |
| Normalized EBITDA margin | 48.0% | 47.4% | Management measure |
| Net cash from operating activities | Not separately provided | R$6.955 billion | 9M20: R$4.975 billion |
| Capital expenditures | R$897 million | R$3.126 billion | 3Q21 up 5.5%; 9M21 up 28.8% |
Reported 9M21 gross profit was R$6.977 billion, implying a gross margin of approximately 52.6%. Reported operating margin was approximately 15.2% and net margin was approximately 14.6%. The reported 3Q21 net profit benefited materially from tax credits and other items; management reported normalized net income of R$474 million for the quarter and approximately R$1.4 billion for 9M21.
- Cash and cash equivalents were R$4.068 billion at September 30, 2021, compared with R$2.575 billion at December 31, 2020.
- Cash and securities totaled R$7.372 billion at quarter-end.
- Loans and financing totaled R$3.415 billion, including R$534 million current and R$2.881 billion non-current. Management reported after-hedge financing of R$3.439 billion and an average quarterly cost of debt excluding leases of 6.3% per year.
- Lease liabilities totaled R$8.512 billion, including R$1.249 billion current and R$7.264 billion non-current.
- Shareholders’ equity was R$24.642 billion, compared with R$23.183 billion at December 31, 2020.
- Net cash increased by R$1.492 billion during the first nine months, after R$6.955 billion of operating cash flow, R$4.358 billion of investing outflows and R$1.105 billion of financing outflows.
Material Changes Versus Prior Comparable Period
- Net revenue increased 2.8% in 3Q21 and 5.3% in 9M21. Total service revenue increased 4.2% in the quarter and 5.3% year to date, led by mobile service revenue growth of 4.1% and 5.1%, respectively.
- Postpaid revenue increased 5.3% in 3Q21 and 6.0% in 9M21. Mobile ARPU increased 4.4% year over year to R$26.5, while the postpaid customer mix reached 43.4%.
- Net profit increased 154.5% in 3Q21 and 133.9% in 9M21. The increase includes a R$534 million estimated tax credit related to the non-incidence of IRPJ and CSLL on SELIC adjustments in certain undue-payment cases, as well as other tax effects.
- Normalized EBITDA increased 4.5% in 3Q21 and 5.0% in 9M21. Reported operating costs and expenses increased 1.7% in 3Q21 and 5.9% in 9M21, affected by personnel, network, interconnection and project-related costs.
- Net financial expense improved to R$211 million in 3Q21 from R$244 million in 3Q20, although new debt and higher interest rates increased financing costs.
- Product revenue fell 28.3% in 3Q21 because of weaker macroeconomic conditions and equipment supply issues. Fixed service revenue increased 5.5%, while TIM Live revenue increased 9.5%.
- Capital expenditures increased significantly year to date, partly reflecting preparations to integrate Oi Mobile assets. FiberCo-related assets and liabilities totaling R$2.235 billion and R$366 million, respectively, were classified as held for sale.
Guidance, Outlook, Commentary, Risks and Unusual Items
- Management described the quarter as confirming a positive trend, emphasizing customer migration to higher-value plans, network expansion, 5G testing and continued fiber rollout. The filing does not provide formal full-year financial guidance.
- TIM reported 51.6 million mobile users, 44.7 million 4G users and 675,000 TIM Live connections. It reported 4G coverage in 4,420 cities, 700 MHz coverage in 3,744 cities and approximately 4.0 million homes passed by FTTH.
- The company is preparing to acquire and integrate Oi Mobile assets, creating execution, integration, capital expenditure and regulatory risks.
- The planned sale of 51% of FiberCo to IHS remained subject to regulatory approvals. TIM would retain 49% and remain an anchor customer. The transaction assets were classified as held for sale, with no impairment recognized through September 30, 2021.
- TIM obtained rights to the third and, in October 2021, fourth C6 Bank subscription-bonus tranches, representing approximately 3.6% and accumulated potential indirect participation of approximately 4.08%, respectively. An arbitration proceeding with C6 and related entities disputes contract interpretation; an adverse outcome could terminate the partnership.
- Approximately R$1 billion of Fistel-related obligations, including default interest, remained suspended without a defined payment date. The company also had R$959 million of provisions for probable legal and administrative losses and R$18.019 billion of proceedings classified as possible losses, principally tax matters.
- Management stated that foreign-currency debt was fully hedged through swaps. Liquidity is supported by daily-liquid investments, operating cash generation and available credit lines, although the company remains exposed to interest rates, foreign exchange, regulatory proceedings, tax disputes, customer credit losses, competition and macroeconomic conditions.
- Interest on shareholders’ equity declared through the quarter totaled R$487.5 million. A further R$137.5 million distribution was approved on September 24, 2021 and scheduled for payment on October 27, 2021.
Key Facts for Investors to Verify
- Reconcile reported net income with normalized net income, particularly the R$534 million tax-credit estimate and other tax benefits.
- Monitor regulatory approvals, closing terms and the accounting impact of the FiberCo transaction and the planned Oi Mobile asset acquisition.
- Assess the sustainability of revenue and EBITDA growth against rising personnel, network, interconnection, lease and financing costs.
- Review liquidity after considering R$3.415 billion of financial debt, R$8.512 billion of lease liabilities, suspended Fistel obligations and planned network investment.
- Track the C6 arbitration, the valuation of the C6 subscription option and the potential effect of partnership termination.
- Evaluate exposure to the R$18.019 billion of possible-loss proceedings and the R$959 million provision for probable legal and administrative losses.