TIM S.A. annual report, Q4 FY2021

TIM S.A. — FY2021 Form 20-F Summary

Reporting period: Year ended December 31, 2021. This is an annual report, not a standalone fourth-quarter filing. Financial statements are prepared under IFRS and presented in Brazilian reais (R$). FY2021 figures are standalone; FY2020 and FY2019 comparatives are consolidated. TIM sold control of I-Systems in November 2021, so the reporting perimeter changed and comparisons are not fully like-for-like.

Financial and operating performance

Metric	FY2021	FY2020	Change
Revenue	R$18.06bn	R$17.27bn	+4.6%
Gross income	R$9.62bn	R$9.27bn	+3.7%
Profit before financial income and expenses	R$3.76bn	R$2.80bn	+34.0%
Profit for the year	R$2.96bn	R$1.83bn	+61.7%
Operating cash flow	R$10.08bn	R$8.67bn	+16.2%
Capital expenditure	R$4.38bn	R$3.89bn	+12.6%

Gross margin was approximately 53.2%, operating income before financial items was approximately 20.8% of revenue, and net margin approximately 16.4%.
Revenue growth was led by mobile services (+4.7% to R$16.35bn), landline services (+8.8% to R$1.15bn), and customer-platform revenue. Goods revenue declined 7.0% to R$561m.
Mobile ARPU rose 5.9% to R$26.4. The company attributed growth to differentiated offers and migration of customers to higher-value plans. TIM ended the year with 52.6m customers, up 1.2%.
Adjusted EBITDA is reported as R$8.68bn in the leverage discussion, excluding a non-recurring gain associated with I-Systems. Another financial-statement note reports R$9.46bn under its EBITDA calculation, which includes the effect of the transaction. Investors should verify the definition used for comparisons.
Cash and cash equivalents were R$5.23bn; marketable securities were R$4.58bn. Total current assets were R$15.40bn and current liabilities R$10.61bn.
Borrowings and financing were R$3.85bn; lease liabilities were R$9.06bn. The filing’s non-GAAP leverage table reports net debt of R$2.42bn and net debt/adjusted EBITDA of 0.28x; a separate financial-statement calculation reports adjusted net debt of R$3.72bn and leverage of 0.39x, reflecting different adjustments and EBITDA figures.
Capital expenditure was R$7.97bn including R$3.59bn of 4G/5G auction impacts. TIM reported R$2.65bn of cash increase for the year, ending with R$5.23bn of cash.

Material changes and unusual items

Profit rose sharply, partly because other income turned positive: it included a R$782m pre-tax gain on the sale of 51% of I-Systems. TIM received R$1.10bn in secondary sale proceeds and retained a 49% associate interest recorded at fair value.
The I-Systems transaction also generated a R$509m income-tax expense, offset in part by recognized tax credits, including approximately R$535m related to the Supreme Court ruling on SELIC adjustments for tax refunds.
Revenue increased 4.6% after declining 0.6% in 2020. FY2020 profit had fallen 49.5% from 2019, partly because 2019 included a R$3.02bn PIS/COFINS tax-credit benefit that did not recur.
Operating cash flow improved, though the filing cites working-capital movements and the continued suspension of certain FISTEL payments as factors. The suspended amount had no defined payment date.
FY2021 capital spending increased, with network investment rising to R$3.05bn. The November 2021 5G auction created R$3.58bn of recorded license and related obligations, much of which was non-cash at year-end.

Outlook, risks and contingencies

Management’s 2022–2024 plan emphasizes service-revenue growth, higher operating cash generation, disciplined capital allocation, improved customer experience, 5G deployment, broadband expansion and value from the Oi mobile-asset acquisition. Planned capital expenditure is approximately R$14.0bn for the period, assuming the Oi assets are combined with TIM.
The Oi mobile-asset acquisition had received CADE and Anatel approval by February 2022. TIM expected to contribute R$7.3bn of the R$16.5bn base price and transition services; closing was scheduled for April 20, 2022. Integration, execution, and the associated cash outlay are significant items to monitor.
The 5G auction commitments include coverage obligations, fiber backhaul and public-sector connectivity projects. Separately, TIM’s sustainability-linked debentures include commitments to provide 4G presence in all Brazilian municipalities by December 2023 and improve data-traffic energy efficiency by at least 80% by December 2025, against a 2019 baseline.
Material risks include Brazilian inflation, interest rates and currency volatility; competition and OTT substitution; network investment and technology execution; supplier and supply-chain disruptions; cyber and data-protection exposure; regulatory requirements and spectrum authorizations; and customer credit risk. The filing notes that 46% of debt was foreign-currency-denominated before hedging, while equipment purchases also have foreign-currency exposure.
Tax-related proceedings classified as probable or possible totaled approximately R$16.74bn; the recorded tax provision was approximately R$430m and approximately R$16.31bn was disclosed as possible loss. Total possible-loss legal and administrative proceedings across categories were approximately R$18.14bn. These are claim amounts, not expected cash losses.
The filing reports that the C6 Bank partnership is subject to arbitration over contract interpretation and could be terminated. It also identifies litigation, regulatory proceedings and the ongoing use of the TIM brand under a license that runs through December 31, 2023 unless terminated earlier.
Brazil’s 2021 IPCA inflation was 10.06%, and the SELIC rate was 9.25% at year-end. Management described TIM’s operations as resilient during the pandemic, while noting continued uncertainty from COVID-19, macroeconomic conditions and geopolitical developments.
Ernst & Young issued an unqualified opinion on the IFRS financial statements and concluded internal control over financial reporting was effective, with no material weaknesses reported.

Most important facts for investors to verify

Reconcile the different reported adjusted EBITDA and leverage figures, including treatment of the I-Systems gain, lease liabilities, marketable securities and 5G financing.
Assess sustainable earnings and cash generation excluding the I-Systems transaction gain and unusual tax credits, and confirm the timing and recoverability of tax assets.
Confirm the final Oi acquisition closing terms, total cash requirements, integration costs, expected synergies and impact on leverage and planned investment.
Review the composition and status of the R$16.74bn tax proceedings and the adequacy of the R$430m recorded provision, along with other material legal exposures.
Track 5G and 4G coverage commitments, auction-related payments, capital spending, and progress against sustainability-linked debt targets.
Monitor the changed reporting perimeter after I-Systems’ deconsolidation and compare operating metrics on a consistent basis.