TIM S.A. — 3Q20 Form 6-K Summary
Business context and reporting period
TIM S.A. reported third-quarter and nine-month 2020 results on November 3, 2020. The results reflect the effects of IFRS 9, IFRS 15 and IFRS 16 and cover operations through September 30, 2020. Comparisons are primarily against 3Q19 and 9M19.
TIM Participações was incorporated into TIM S.A. in August 2020. For economic comparability, prior-period figures presented in the release reflect TIM Participações’ previously reported financial statements. The restructuring was completed in October 2020, after which TIM S.A. became the sole listed entity, with new B3 and NYSE tickers.
Key financial and operating metrics
| Metric | 3Q20 | Change |
|---|---|---|
| Net revenues, 9M20 | R$12,590 million | Down 1.6% YoY |
| Service revenue | — | Up 1.3% YoY in 3Q20; mobile up 0.4% and fixed up 16.4% |
| Product revenue, 9M20 | — | Down 33.6% YoY |
| Mobile service revenue | R$3,935 million | Up 0.4% YoY; up 7.2% versus 2Q20 |
| Fixed service revenue | R$272 million | Up 16.4% YoY |
| Normalized EBITDA | R$2.1 billion | Up 0.8% YoY |
| Normalized EBIT margin | 15.6% | Up 1.3 percentage points YoY |
| Operating free cash flow | R$1.3 billion | Up 11.8% YoY |
| Capex | R$850 million | Down 8.0% YoY |
| EBITDA less Capex | R$1,223 million | Up 7.9% YoY |
| Gross debt | R$9,815 million | Up R$309 million YoY |
| Cash and short-term investments | R$3,638 million | Up R$1,980 million YoY |
| Net debt | R$6,178 million | Down R$1,671 million YoY |
| Net debt/EBITDA | 0.74x | — |
The filing text does not provide a clear reported or normalized net income value in the supplied income-statement attachment. Reported income tax and social contribution was an expense of R$49 million in 3Q20, compared with income of R$171 million in 3Q19. The normalized effective tax rate was negative 11.2% in 3Q20 versus positive 71.1% in 3Q19.
Excluding IFRS 16 financial leases, net debt was negative R$1,692 million, indicating a net cash position, and net debt-to-EBITDA was negative 0.26x. Debt excluding leases was fully hedged to local currency, with an average cost of 2.6% per year versus 6.9% in 3Q19.
Operating performance
- Mobile ARPU increased 6.3% YoY to R$25.4. Prepaid ARPU rose 9.4% to R$13.1, while postpaid ARPU excluding M2M rose 4.5% to R$46.1.
- The mobile customer base totaled 51.2 million, down 6.2% YoY. Postpaid users increased 2.3% to 21.7 million, representing 42.5% of the base. Prepaid users declined 11.6% to 29.4 million.
- TIM Live connections increased 16.8% YoY to 627,000, while TIM Live ARPU rose 9.3% to R$89.4. The service was present in 32 cities and generated 29.1% revenue growth.
- Bad debt declined 46.2% YoY to R$108 million, or approximately 1.8% of gross revenue. Subscriber acquisition cost declined 16.1% to R$42 per gross addition, and estimated payback improved to 1.7 months from 2.1 months.
- 4G coverage reached 3,545 cities, including 3,023 cities covered by the 700 MHz frequency. VoLTE was available in more than 3,527 cities.
- FTTH homes passed reached 3.1 million in 30 cities. Total FTTH and FTTC homes passed reached 6.2 million in 32 cities.
Material changes versus comparable periods
- Revenue trends improved during 3Q20 as Brazilian economic activity and physical sales channels gradually reopened after COVID-19 restrictions. Mobile service revenue shifted from decline in 2Q20 to 0.4% YoY growth in 3Q20.
- Postpaid gross additions increased 75% sequentially, and postpaid net additions were 418,000 higher than the prior-year period. Prepaid rechargers increased 10.6% versus 2Q20 but remained 2.6% below 3Q19.
- Normalized costs and expenses increased 1.5% YoY, below inflation, supported by lower bad debt and efficiency from digital channels. Reported operating costs and expenses increased 3.2% to R$2,314 million, partly because 3Q19 benefited from tax credits and other non-recurring items.
- Capex declined as mobile-network projects were reassessed during the pandemic, while fiber investments were maintained. Approximately 91% of 3Q20 investments were directed to infrastructure.
- Cash generation and liquidity strengthened materially. Cash increased more than debt, reducing net debt despite higher lease liabilities recognized under IFRS 16.
Outlook, commentary, risks and unusual items
- Management characterized the quarter as a gradual recovery in commercial activity and emphasized a shift from volume toward value, including customer migration to higher-value plans and continued fiber expansion.
- COVID-19 remained a key risk to commercial activity, customer purchasing behavior, collections, physical-channel operations and the pace of economic recovery.
- TIM borrowed R$1.0 billion to reinforce liquidity during the pandemic: R$574 million from Scotiabank in April and R$426 million from BNP Paribas in July. It fully repaid R$1.0 billion of debentures in July.
- Approximately R$790 million of regulatory inspection fees originally due in March were postponed. TIM paid approximately R$300 million in 3Q20 for Condecine and CFRP; payment of the remaining Fistel amount was suspended with no date set.
- TIM, Telefônica Brasil and Claro were qualified as “stalking horse” bidders for Oi’s mobile assets, based on a proposal totaling R$16.5 billion, including R$756 million for transition services. The transaction remained subject to Oi’s judicial reorganization and competitive-sale process.
- The board approved R$500 million of interest on equity on October 7, 2020, scheduled for payment on November 10, 2020, to shareholders of record as of October 19, 2020.
- TIM announced a connected-car partnership with Fiat Chrysler Automobiles, expected to launch in Brazil in the first half of 2021.
- The filing includes forward-looking statements subject to economic, regulatory, competitive, operational and other risks. Management stated that actual future results may differ from expectations and that it is not obligated to update such statements.
Facts investors should verify
- Verify the complete financial statements and notes for reported and normalized net income, detailed margins, and the missing balance-sheet, income-statement and cash-flow line items from the supplied text.
- Monitor the impact of COVID-19, customer churn, prepaid recharges, collections and the pace of recovery in physical sales channels.
- Assess the financial, regulatory and execution implications of the proposed Oi mobile-assets acquisition, including funding, approval requirements and final purchase consideration.
- Reconcile gross debt and net debt under IFRS 16 with debt measures excluding lease liabilities.
- Track the timing and amount of deferred Fistel fees and other regulatory charges.
- Confirm the completion and accounting effects of the TIM Participações incorporation and the related change in listing tickers.