TIM S.A. — Form 6-K Summary
Business context and reporting period
TIM S.A. is a Brazilian telecommunications operator providing mobile, fixed-line and multimedia communication services. The filing, dated August 1, 2022, presents individual and consolidated interim information for the quarter and six months ended June 30, 2022, in thousands of Brazilian reais unless otherwise stated.
Ernst & Young performed a limited review and reported that nothing came to its attention indicating that the interim information was not prepared, in all material respects, under applicable Brazilian standards, IAS 34 and IFRS. This was not an audit opinion.
The consolidated results include Cozani, the entity holding TIM’s acquired Oi Mobile assets, from April 30, 2022. The acquisition closed in April and customer results were incorporated from May 1, 2022.
Key financial metrics
| Metric | 2Q22 | 2Q21 | 6M22 | 6M21 |
|---|---|---|---|---|
| Consolidated net revenue | R$5,368.1 million | R$4,407.0 million | R$10,095.3 million | R$8,746.8 million |
| Gross profit | R$2,691.2 million | R$2,310.9 million | R$5,117.9 million | R$4,557.8 million |
| Income before financial result | R$732.2 million | R$663.3 million | R$1,427.1 million | R$1,255.8 million |
| Net financial result | $(R$439.0) million | $(R$36.3) million | $(R$686.9) million | $(R$261.5) million |
| Net profit | R$279.5 million | R$672.2 million | R$684.9 million | R$949.1 million |
| Basic EPS | R$0.12 | R$0.28 | R$0.28 | R$0.39 |
- Reported gross margin was approximately 50.1% in 2Q22 and 50.7% in 6M22. Net margin was approximately 5.2% and 6.8%, respectively.
- Management reported normalized EBITDA of R$2.486 billion in 2Q22, up 18.3% year over year, with a 46.3% margin. Six-month normalized EBITDA was R$4.609 billion, up 11.8%, with a 45.7% margin.
- Reported consolidated operating cash flow was R$2.454 billion in 6M22, versus R$4.182 billion in 6M21.
- Capital expenditures were R$2.378 billion in 6M22, including network investment related to 5G and Oi integration.
- Cash and cash equivalents were R$1.199 billion at June 30, 2022. Cash plus marketable securities totaled approximately R$2.3 billion based on the balance sheet; management reported cash and securities of R$2.286 billion.
- Loans and financing totaled R$4.720 billion, while consolidated lease liabilities totaled R$12.773 billion. Management reported normalized post-hedge debt of R$18.175 billion, including acquired finance leases and other adjustments.
- Shareholders’ equity was R$25.331 billion and total consolidated assets were R$54.307 billion at June 30, 2022.
Material changes versus comparable periods
- Consolidated revenue increased 21.8% in 2Q22 and 15.4% in 6M22, driven by mobile service growth, handset sales and the inclusion of Oi Mobile assets. Excluding Oi, management reported revenue growth of 12.6% in 2Q22 and 10.8% in 6M22.
- Mobile service revenue increased 23.0% in 2Q22. TIM added approximately 16 million Oi customers, comprising approximately 9 million prepaid and 7 million postpaid lines. Total mobile lines reached 68.7 million.
- Income before financial results grew, but net profit declined materially because the net financial expense increased to R$439.0 million in 2Q22 and R$686.9 million in 6M22. Higher interest rates, inflation, lower cash balances, acquired lease interest and C6-related valuation effects contributed to the deterioration.
- Net profit declined 58.4% in 2Q22 and 27.8% in 6M22. Management’s normalized net income was R$313 million in 2Q22, down 54.1%, and R$731 million in 6M22, down 23.7%.
- Operating cash flow declined primarily because of working-capital payments related to the 5G frequency auction, including approximately R$1.1 billion paid to EAF and approximately R$137 million paid to EACE.
- Consolidated balance-sheet comparisons with December 2021 are not fully comparable because Cozani was consolidated in 2022 and I-Systems was no longer consolidated after the 2021 sale of a 51% interest.
Guidance, outlook, risks and unusual items
Management emphasized continued organic revenue and EBITDA growth, expansion of 4G and 5G infrastructure, and integration of Oi Mobile customers. The filing does not provide clear formal full-year financial guidance.
- Oi integration included approximately 7,200 acquired sites and additional spectrum. The initial “roaming like” phase was completed ahead of schedule, while phased customer migration was expected to begin in September 2022.
- Cost growth reflected inflation, Oi-related integration expenses, a 12-month Temporary Service Agreement, I-Systems network rental costs, higher advertising and network-sharing expenses, and R$50.3 million of non-recurring legal and administrative costs in 2Q22.
- TIM acquired Cozani for adjusted consideration of approximately R$7.175 billion, including preliminary goodwill of approximately R$1.951 billion. The purchase price allocation remained preliminary and could change for up to 12 months after acquisition.
- The seller may receive up to an additional R$230 million based on specified targets through March 31, 2023; R$67.5 million had been paid and management expected an additional R$129.5 million to be disbursed.
- Possible-loss legal and administrative proceedings totaled approximately R$19.029 billion, principally tax matters, compared with R$18.141 billion at December 31, 2021. Provisions for probable proceedings totaled R$1.064 billion.
- TFF/Fistel payments for 2020–2022 remained suspended under injunctions, with no defined payment date. The company recognized related default interest.
- An arbitration proceeding involving the C6 Bank partnership remained open. TIM held an accumulated indirect interest of approximately 4.8% in C6 at quarter-end and subsequently obtained rights that could raise the interest to approximately 5.16%, subject to targets.
- On June 15, 2022, the Board approved R$270 million of interest on shareholders’ equity, paid July 20, 2022.
- Management states that forward-looking statements involve risks and uncertainties and are not guarantees of future results.
Most important facts for investors to verify
- Progress, timing and ultimate cost of integrating and migrating the approximately 16 million Oi Mobile customers.
- Final purchase price allocation for Cozani, goodwill impairment assumptions and any additional contingent consideration.
- Whether revenue synergies and normalized EBITDA growth offset higher lease, integration, network and financing costs.
- Liquidity after acquisition spending, 5G-related installments, capital expenditures and shareholder distributions.
- Exposure to higher CDI, IPCA and foreign-exchange rates despite hedging, including the effect on lease and financing expenses.
- Resolution and potential cash impact of the C6 arbitration, tax proceedings, Fistel/TFF disputes and other possible-loss matters.
- Changes in telecom tax rates following Brazil’s reduction of ICMS on communication services and the extent to which benefits are passed to customers.