TIM S.A. — Form 6-K Summary
Reporting period: Quarterly and six-month information for the periods ended June 30, 2021, filed July 27, 2021. TIM provides mobile, fixed-line and broadband services in Brazil and is controlled by TIM Brasil Serviços e Participações S.A., which held 66.65% of TIM’s capital at June 30, 2021. The interim information was prepared under IFRS and Brazilian accounting standards and received a limited review by Ernst & Young, not an audit opinion.
Financial performance and position
| Metric | 2Q21 | 6M21 | Comparable period |
|---|---|---|---|
| Net revenue | R$4.407 billion | R$8.747 billion | 2Q20: R$3.987 billion; 6M20: R$8.202 billion |
| Gross profit | R$2.311 billion | R$4.558 billion | 2Q20: R$2.120 billion; 6M20: R$4.374 billion |
| Operating profit | R$663 million | R$1.256 billion | 2Q20: R$635 million; 6M20: R$1.158 billion |
| Net income | R$672 million | R$949 million | 2Q20: R$267 million; 6M20: R$440 million |
| Net margin | 15.3% | 10.9% | Based on reported net income and revenue |
| Operating cash flow | Not separately provided | R$4.182 billion | 6M20: R$2.793 billion |
| Capital expenditure | R$906 million | R$2.230 billion | 2Q21 capex increased 34.5% year over year |
- Management reported normalized EBITDA of approximately R$2.1 billion in 2Q21, up 5.9% year over year, with a 47.7% normalized EBITDA margin.
- Normalized net income was R$681 million in 2Q21, up 154.7% year over year. Normalized metrics exclude or adjust for specified nonrecurring items and a tax credit.
- Mobile service revenue increased 8.5% year over year in 2Q21 to R$3.983 billion. TIM Live revenue increased 21.0% to R$283 million of fixed service revenue.
- Mobile ARPU increased 10.3% year over year to R$25.8. TIM Live ended the quarter with 666,000 connections, up 10.0% year over year.
- Reported net financial expense was R$36 million in 2Q21 and R$262 million for 6M21, compared with R$268 million and R$519 million, respectively, in the comparable periods.
- Cash and cash equivalents were R$3.749 billion at June 30, 2021, compared with R$2.575 billion at December 31, 2020. Cash and marketable securities totaled approximately R$7.125 billion.
- Gross debt was approximately R$12.307 billion, including R$8.186 billion of lease liabilities, R$4.226 billion of bank debt and a R$104 million hedge position. Reported net debt was R$5.183 billion, or 0.60 times EBITDA. Excluding leases, management reported net cash of R$3.003 billion and net debt to EBITDA of negative 0.44 times.
- Consolidated total assets were R$43.858 billion and shareholders’ equity was R$23.774 billion at June 30, 2021. Loans and financing totaled R$4.226 billion and lease liabilities totaled R$8.424 billion.
Material changes versus prior periods
- Revenue growth accelerated as mobile postpaid and prepaid performance improved, handset sales recovered and TIM Live continued to expand. Product revenue increased 130.5% year over year in 2Q21, partly reflecting a weak 2Q20 comparison.
- Reported operating costs and expenses increased 15.8% year over year in 2Q21. Drivers included higher commercial activity, marketing and sales commissions, personnel costs, cloud migration and consulting expenses, and higher handset costs.
- Operating costs included R$13.7 million of nonrecurring legal and administrative expenses related to the Oi and FiberCo projects. Bad debt was R$161 million in 2Q21, or 2.60% of gross revenue.
- Operating cash flow increased substantially year over year, while 2Q21 EBITDA less capex declined 8.8% year over year to R$1.195 billion because of higher investment.
- Debt increased primarily because TIM raised new borrowings and issued R$1.6 billion of sustainability-linked debentures in June 2021, maturing in 2028. The debentures bear interest of IPCA plus 4.1682%, subject to potential step-downs tied to ESG targets, and were hedged to CDI plus 0.95%.
- TIM classified R$2.173 billion of assets and R$402 million of liabilities as held for sale in connection with the planned sale of 51% of FiberCo to IHS Fiber Brasil, subject to regulatory approval. Net assets directly associated with the held-for-sale group totaled R$1.770 billion.
- The Company approved R$350 million of interest on shareholders’ equity in June 2021. Shareholders’ equity increased to R$23.774 billion from R$23.183 billion at year-end 2020 after accounting for profit, the distribution and treasury-share purchases.
Outlook, commentary and key risks
- Management characterized the quarter as a recovery in market dynamics and expects continued infrastructure expansion, including 4G, 4.5G, 700 MHz, FTTH, network virtualization and preparation for the integration of Oi’s mobile assets.
- At June 30, TIM reported 4G coverage in 4,277 cities, 3.8 million homes passed with FTTH and 6.6 million homes passed by FTTH and FTTC combined. The Company expected renewable sources to represent 80% of its energy matrix by year-end 2021 and targets carbon neutrality by 2030.
- The remaining 2021 Fistel/TFF obligation of approximately R$480 million remained suspended under an injunction with no defined payment date. TIM recognized approximately R$42.5 million of default interest on suspended 2020 and 2021 amounts during 2Q21.
- Probable legal and administrative proceedings were provisioned at R$954 million. Possible-loss proceedings totaled R$17.316 billion, including R$15.547 billion of tax matters, with no provision recorded for those classified as possible.
- COVID-19 restrictions continued to affect store activity and handset sales, although management reported no material overall impact on operations through June 30, 2021 and noted improvement as vaccination progressed.
- TIM disclosed an arbitration proceeding against Banco C6 and related parties concerning contractual terms of their operating partnership. Depending on the outcome, the partnership could be terminated, TIM could lose the C6 equity subscription option and a contractual fine could become payable.
- On July 7, 2021, TIM announced a strategic partnership with Cogna’s subsidiary AESAPAR involving the Ampli distance-education platform. Subject to approvals, TIM may acquire up to a 30% interest in a new company; the arrangement does not create a joint venture at the announced stage.
- Management’s forward-looking statements are subject to operational, regulatory, legal, macroeconomic, foreign-exchange, interest-rate, credit, liquidity and execution risks and are not guarantees of future performance.
Investor verification points
- Verify the final regulatory approvals, closing conditions, valuation and accounting treatment of the planned FiberCo transaction with IHS.
- Monitor the timing and ultimate payment or resolution of suspended Fistel/TFF obligations and related litigation.
- Reconcile reported and normalized EBITDA and net income, including the R$13.7 million nonrecurring expense, tax credit and C6-related fair-value gain.
- Assess the effect of Oi mobile-asset integration and the related capex, operating costs, customer migration and synergy assumptions.
- Review the R$17.316 billion of possible-loss proceedings, particularly tax disputes, and the R$954 million provision for probable proceedings.
- Track leverage and liquidity after the new borrowings, the R$1.6 billion debenture issuance, lease obligations and infrastructure investment program.
- Confirm the outcome and potential financial consequences of the C6 arbitration and the proposed Cogna partnership.