TIM S.A. — 2022 Form 6-K Summary
Business context and reporting period
TIM S.A. filed audited individual and consolidated financial statements for the year ended December 31, 2022. The company provides mobile, fixed-line, broadband, data transmission and related digital services throughout Brazil. The statements were prepared under Brazilian accounting standards and IFRS. Ernst & Young issued an unqualified audit opinion on February 9, 2023.
2022 included the acquisition and integration of Oi Móvel’s mobile assets through the acquisition of 100% of Cozani RJ Infraestrutura e Rede de Telecomunicações S.A., the nationwide launch of 5G, and continued expansion of fiber broadband. Consolidated 2021 balance-sheet and income-statement comparisons are limited because TIM had no consolidated subsidiary at December 31, 2021; management generally compares 2022 consolidated operating results with the parent-company 2021 figures.
Key financial metrics
| Metric | 2022 | Comparable prior period |
|---|---|---|
| Net revenue | R$21.531 billion consolidated | R$18.058 billion in 2021 parent-company figures; management reported 19.2% growth |
| Adjusted EBITDA | R$10.049 billion; 46.7% margin | 6.2% growth; margin declined 5.7 percentage points |
| EBIT | R$3.160 billion | 15.9% decline versus 2021 comparable basis |
| Net profit | R$1.671 billion | R$2.957 billion; 43.5% decline |
| Basic and diluted EPS | R$0.69 | R$1.22 |
| Operating cash flow | R$9.429 billion | 6.4% decline |
| Cash flow from investing | R$(8.620) billion | 28.9% higher cash use |
| Capital expenditure | R$4.730 billion | 40.6% decline, mainly because 2021 included 5G license investments; underlying capex increased approximately 8% |
| Cash and marketable securities | R$4.739 billion | R$5.057 billion decrease |
| Total post-hedge debt | R$18.575 billion, including leases | R$5.055 billion increase |
| Adjusted net debt | R$13.822 billion consolidated; 1.38x adjusted net debt/EBITDA | 2021 parent-company ratio was 0.39x |
Mobile services revenue increased 19.8% to R$19.594 billion, fixed-service revenue increased 7.6% to R$1.234 billion, and product revenue increased 25.0%. Mobile accesses reached 62.5 million at year-end, up 20.0% year over year, while TIM UltraFibra connections reached 716 thousand, up 4.6%.
Material changes versus the prior comparable period
- Oi Móvel contributed approximately 8 months of operations in 2022 and increased the customer base, network costs, selling expenses, depreciation and lease liabilities. The integration had migrated 8.7 million customers by the end of January 2023, with completion expected in April 2023.
- Revenue growth was partly offset by lower average revenue per user because acquired Oi customers had lower average tariffs.
- Adjusted EBITDA increased despite the prior year’s R$782 million extraordinary gain from the sale of control of I-Systems. The adjusted EBITDA margin fell to 46.7%.
- Net profit, EBIT and reported margins declined substantially because 2021 benefited from the I-Systems transaction and 2022 incurred higher depreciation, lease interest, financial expenses and integration costs.
- Net financial expense increased to R$1.439 billion, driven by higher interest rates, increased debt, lease liabilities assumed with Oi Móvel and higher lease interest.
- Cash declined materially because of the Oi Móvel acquisition, 5G-related payments and a R$670 million judicial deposit related to the disputed Oi Móvel purchase-price adjustment.
- Shareholders’ equity was R$25.397 billion. The company declared R$1.400 billion of interest on shareholders’ equity during 2022 and proposed an additional R$600 million, subject to shareholder approval.
Guidance, outlook, risks and unusual items
Management stated that 2023 priorities are completing Oi Móvel integration, expanding “real” 5G coverage, developing fixed broadband through neutral-network partnerships, and pursuing digital transformation and new business initiatives. The filing does not provide formal quantitative 2023 revenue, EBITDA or capex guidance.
- Oi Móvel purchase-price arbitration: TIM and the other buyers disputed approximately R$1.4 billion of adjusted closing-price items and sought an additional indemnity of approximately R$231 million. TIM retained approximately R$634 million, later updated to approximately R$671 million, and deposited R$670 million in court pending arbitration. A further contingent consideration of up to R$110 million remained potentially payable, with management recognizing approximately R$77 million.
- Tax and legal contingencies: tax claims classified as possible losses totaled R$18.171 billion, against a tax-proceeding provision of R$473 million. Total possible civil, labor, tax and regulatory losses were R$20.124 billion. These amounts are not recorded as liabilities where management assessed the losses as possible rather than probable.
- Acquisition accounting: Cozani was acquired for total consideration of R$7.212 billion, including R$2.636 billion of goodwill and R$2.929 billion of lease liabilities assumed. Valuation of spectrum, customer relationships, goodwill and contingent consideration involved significant estimates.
- C6 Bank partnership: TIM reported a derivative asset of approximately R$625 million representing the potential right to subscribe for approximately 5.52% of C6 Bank, subject to ongoing arbitration. A loss in the arbitration could affect the partnership and valuation of the instrument.
- Liquidity and leverage: current liabilities exceeded current assets by approximately R$2.229 billion. Management stated that the company had available credit lines and no going-concern uncertainty, but higher interest rates, lease obligations and acquisition-related commitments remain relevant risks.
- Regulatory and operational risks: TIM operates in a highly competitive and regulated market. Risks include ANATEL compliance, service quality obligations, spectrum payments, consumer claims, cybersecurity and data privacy, customer churn, network investment requirements and macroeconomic volatility.
- Fistel obligations: approximately R$361.6 million of 2022 Fistel obligations remained suspended under court injunctions, with no defined payment date, and related default interest was recognized.
Most important facts for investors to verify
- Progress and final economics of the Oi Móvel customer migration, network integration, synergy realization and purchase-price arbitration.
- Reconciliation of reported debt, lease liabilities, 5G obligations, cash and management’s adjusted net debt measure.
- Conversion of strong operating cash flow into free cash flow after acquisition payments, spectrum obligations, leases and capex.
- Sustainability of the 46.7% adjusted EBITDA margin after completion of Oi Móvel integration and normalization of one-time items.
- Potential cash exposure from the R$20.124 billion of possible legal and administrative losses and the R$18.171 billion of possible tax losses.
- Status and valuation of the C6 Bank subscription warrant and related arbitration.
- Approval and payment timing of the proposed additional R$600 million shareholder distribution.