SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 6-K

 

Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of the

Securities Exchange Act of 1934

 

For the month of February, 2020

Commission File Number 001-14491

 


 

TIM PARTICIPAÇÕES S.A.

(Exact name of registrant as specified in its charter)

 

TIM PARTICIPAÇÕES S.A.

(Translation of Registrant's name into English)

 

Avenida João Cabral de Melo Neto, nº 850, Torre Norte, 12º andar – Sala 1212,
Barra da Tijuca - Rio de Janeiro, RJ, Brazil

(Address of principal executive office)

 

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F. 

Form 20-F ___X___ Form 40-F _______

 

 Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.  

Yes _______ No ___X____ 


 

 

 

 

 

 

 

    TIM Participações S.A.,

    TIM Participações S.A. and

    Subsidiary

      

FINANCIAL STATEMENTS

       as at December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

(A free translation of the original in Portuguese)

 

TIM PARTICIPAÇÕES S.A. and

TIM PARTICIPAÇÕES S.A. e SUBSIDIARY

 

FINANCIAL STATEMENTS

 

December 31, 2019 and 2018

 

Contents

 

Report of the independent auditors on the financial statements

4

Audited financial statements

 

Balance sheets

11

Income statements

13

Statements of comprehensive income

14

Statements of changes in shareholders’ equity

15

Cash flow statements

17

Statements of value added

19

Management report

20

Notes to the financial statements

59

Opinion of the Fiscal Council

134

Statutory Audit Committee Annual Report

135

Statutory officers on the financial statements

143

Statutory officers statement on independent auditors

144

 

 

 


 

Independent auditor’s report on individual and consolidated financial statements

 

To the board of directors and shareholders of

TIM Participações S.A.

 

Opinion

 

We have audited the individual and consolidated financial statements of TIM Participações S.A. (the “Company”), identified as Individual and Consolidated, respectively, which comprise the balance sheet as at December 31, 2019, and the statements of income, of comprehensive income, of changes in shareholders equity and cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies.

 

In our opinion, the accompanying financial statements present fairly, in all material respects, the individual and consolidated financial position of TIM Participações S.A. as at December 31, 2019, and its individual and consolidated financial performance and cash flows for the year then ended in accordance with the accounting practices adopted in Brazil and with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB).

 

Basis for opinion

 

We conducted our audit in accordance with Brazilian and International Standards on Auditing. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the individual and consolidated financial statements section of our report. We are independent of the Company and its subsidiaries in accordance with the relevant ethical principles set forth in the Code of Professional Ethics for Accountants, the professional standards issued by the Brazil’s National Association of State Boards of Accountancy (CFC) and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

 

Key audit matters

 

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the individual and consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter, including any commentary on the findings or outcome of our procedures, is provided in that context.

4


 

We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the individual and consolidated financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial statements. Th        e results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying financial statements.

 

Provision for tax contingencies

 

The Company has tax matters under discussion at various procedural levels, in the amount of R$ 16,529 million, for which, based on opinion and its legal counsel, a provision for contingencies of R$ 333 million was set up in the consolidated statement of financial position, while R$ 16,196 million were disclosed by the Company as possible losses as disclosed in note 24.

 

The determination of the amount of the provision and the amounts disclosed depends on critical judgments made by management, based on the analysis of the proceedings and the corresponding prognosis for their final resolution by its legal advisors. The audit of management’s assessment of the likelihood of loss in tax proceedings is complex, highly subjective and based on interpretations of tax legislation and court decisions, since there is significant uncertainty in the estimates as to the outcome of court decisions, how formerly adjudged cases have evolved and the position of the tax authorities.

 

In addition, in view of the magnitude of the amounts involved, any changes in estimates or assumptions that impact the determination of the loss prognosis may have significant impacts on the Company’s financial statements. Accordingly, this was considered a key audit matter.

 

How our audit conducted this matter

 

Our audit procedures included, among others:

 

We requested and obtained confirmation from all internal and external legal advisors who are involved in the tax proceedings of the Company, confirming the amounts and prognosis of proceedings losses, as determined by the Company’s management.

 

To test the Company’s assessment of the likelihood of loss in tax proceedings, our audit procedures included, among others, the involvement of our internal Tax Controversy experts to support us in discussions regarding the forecasts made by Company’s external lawyers for the most significant tax contingencies;

 

Additionally, for the most significant tax proceedings, we obtained additional legal opinions from other legal advisors to assess the reasonableness of the prognosis determined by the Company’s legal advisors in charge of the respective proceedings, and we evaluated the arguments, case law and/or strategy of defense adopted by the Company’s legal advisors.

 

Based on the result of audit procedures performed in the provision for tax contingencies and related disclosures, which is consistent with management’s assessment, we understand that the measurement of tax claims assessed as probable and possible loss, as well as the respective disclosures in Note 24 are acceptable in the context of the financial statements taken as a whole.

 

 

5


 

PIS and Cofins tax recoverable

 

The Company recorded tax credits in the amount of R$ 3,023 million under “Direct taxes, charges and contribution recoverable” in the consolidated statement of financial position, arising from the favorable court judgments from the Tax Authorities in lawsuits in favor of the Company’s subsidiary during 2019. These lawsuits recognized the right to exclude State VAT (ICMS) from the Contribution Taxes on Gross Revenue for Social Integration Program (PIS) and for Social Security Financing (COFINS) computation bases for the periods covered by the lawsuits as disclosed in note 9. The Company received authorization from the competent authority in Brazil to start offsetting these credits against federal tax liabilities, since part of the Company’s lawsuits seeks to ensure the continuity of the offsetting of those credits.

 

The audit of management’s assessment regarding the amount of credit is complex and subjective, mainly due to the following factors: (i) the amount of the credit and the calculation basis are not expressly stated in the court decision as to the method of calculating the credit favorable to the Company; (ii) the estimate of the term and amount of the use of tax credits entails the estimate of the Company’s future revenues, among other key assumptions.

 

For these reasons, the assessment, measurement and disclosure of this matter was considered a key audit matter.

 

How our audit conducted this matter

 

Our audit procedures included, with the assistance of our tax experts, the following, among others: (i) we read the decisions and evaluated and discussed with management the conclusions obtained by the Company, also grounded on the opinions of renowned and independent specialists, as to the appropriate moment of recognition of the tax credit resulting from final and unappealable decisions favorable to the Company, as well as its amount; (ii) we obtained and audited the calculations prepared by the Company to measure the amounts of recoverable taxes and the corresponding monetary adjustment applicable for the period covered by the lawsuit; (iii) we understood and evaluated Management assumptions on the measurement of the asset.

 

As a result of the application of our audit procedures are consistent with the assessment, assumptions and conclusion of Company’s management as well as the disclosure stated in Note 9, 29 and 30 in the context of the consolidated financial statements and taken as a whole.

 

Adoption of the Accounting Standard on Leases (CPC 06 (R2) / IFRS 16)

 

The Company adopted CPC 06 (R2)/IFRS 16 “Leases” retrospectively, with the cumulative effect of the initial adoption recognized on its date, that is, as at January 1, 2019. The initial adoption of this standard resulted in the recognition of right-of-use assets and lease liabilities in the amount of R$ 5,256 thousand at January 1, 2019.

 

The Company’s management completed a study of the impacts of this new standard on its consolidated financial statements, which included: (i) estimate of the lease term, considering a non-cancellable period and the periods covered by options to extend the lease term, when this term depends solely on the Company and is reasonably certain; (ii) detailed review of the nature of the various lease contracts inherent in the telecommunications sector; (iii) use of assumptions in calculating the discount rate, which was based on the incremental interest rate for the contract period; (iv) design and implementation of internal controls to adequately capture modification or cancellation of contracts due to the course of the lease expiration and identification of new lease contracts.

6


 

 

The validation of reports and tools implemented by the Company’s management to ensure the totality and integrity of the lease contracts, as well as the appropriate data collection and measurement of the balances and transactions recorded in the consolidated financial statements were highly complex due to the high number of leases within the scope of the new accounting standards with a significant volume of operational lease contracts due to various network infrastructure sharing leases amongst various telecom operators in the market, with payments recorded on a linear basis over the contract term.

 

In addition, there are certain aspects of the adoption of CPC 06 (R2)/IFRS 16 that require of management to make judgment assumptions, such as determining the incremental borrowing rate and classifying individual leases based on their contractual terms.

 

Accordingly, the assessment, measurement and disclosure of this matter was considered a key audit matter.

 

How our audit conducted this matter

 

Our audit procedures included, among others: (i) analysis and examination of contracts in the as of the adoption date and executed in 2019, to assess whether the leasing population is complete; (ii) comparison of the contract population provided by the procurement department, and others, with the contracts considered in the scope of the new accounting standard, checking if any of contracts that have not been considered. (iii) on a sampling basis, whether the input data used by the Company is consistent with the original contracts; (iv) whether the adequacy of the discount rate used by the Company is consistent with the accounting standard; (v) the adequacy of the model used by the Company to determine lease liabilities; (vi) evaluation of consolidated financial statement disclosure

 

As a result of the application of our audit procedures are consistent with the assessment, assumptions and conclusion of Company’s management as well as the disclosure stated in Note 2, 14 and 16 in the context of the consolidated financial statements and taken as a whole.

 

 

 

 

 

 

 

 

7


 

Other matters

 

Statements of value added

 

The individual and consolidated statements of value added (SVA) for year ended December 31, 2019, prepared under the responsibility of Company management, and presented as supplementary information for purposes of IFRS, were submitted to audit procedures conducted together with the audit of the Company’s financial statements. To form our opinion, we evaluated if these statements are reconciled to the financial statements and accounting records, as applicable, and if their form and content comply with the criteria defined by NBC TG 09 – Statement of Value Added. In our opinion, these statements of value added were prepared fairly, in all material respects, in accordance with the criteria defined in abovementioned accounting pronouncement, and are consistent in relation to the overall individual and consolidated financial statements.

 

Prior-year corresponding figures

 

The individual and consolidated financial statements of the Company for the year ended December 31, 2018, were audited by another auditor who expressed an unmodified opinion on those financial statements on February 19, 2019.

 

Other information accompanying the individual and consolidated financial statements and the auditor’s report

 

Management is responsible for such other information, which comprise the Management Report.

 

Our opinion on the individual and consolidated financial statements does not cover the Management Report and we do not express any form of assurance conclusion thereon.

 

In connection with our audit of the individual and consolidated financial statements, our responsibility is to read the Management Report and, in doing so, consider whether this report is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of the Management Report, we are required to report that fact. We have nothing to report in this regard.

 

Responsibilities of management and those charged with governance for the individual and consolidated financial statements

 

Management is responsible for the preparation and fair presentation of the individual and consolidated financial statements in accordance with the accounting practices adopted in Brazil and with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB), and for such internal control as management determines is necessary to enable the preparation of financial statements that are free of material misstatement, whether due to fraud or error.

 

In preparing the individual and consolidated financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

 

8


 

Those charged with governance are responsible for overseeing the Company’s and its subsidiaries’ financial reporting process.

 

Auditor’s responsibilities for the audit of the individual and consolidated financial statements

 

Our objectives are to obtain reasonable assurance about whether the individual and consolidated financial statements as a whole are free of material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Brazilian and International standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

 

As part of an audit in accordance with Brazilian and International Standards on Auditing, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

 

·  Identified and assessed the risks of material misstatement of the individual and consolidated financial statements, whether due to fraud or error, designed and performed audit procedures responsive to those risks, and obtained audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

 

·  Obtained an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s and its subsidiaries’ internal control.

 

·  Evaluated the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

 

·  Concluded on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the individual and consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern.

 

·  Evaluated the overall presentation, structure and content of the financial statements, including the disclosures, and whether the individual and consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

 

·  Obtained sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the individual and consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

9


 

 

We communicate with those charged with governance regarding, among other matters, the scope and timing of the planned audit procedures and significant audit findings, including deficiencies in internal control that we may have identified during our audit.

 

We also provided those charged with governance with a statement that we have complied with relevant ethical requirements, including applicable independence requirements, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

 

From the matters communicated with those charged with governance, we determined those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

 

Rio de Janeiro, February 11, 2020.

 

ERNST & YOUNG

Auditores Independentes S.S.

CRC-2SP015199/O-6

 

 

 

Fernando Alberto S. Magalhães

Accountant CRC-1SP133169/O-0

 

 

 

 

10


 
 

TIM PARTICIPAÇÕES S.A.,  TIM PARTICIPAÇÕES S.A. AND SUBSIDIARY

BALANCE SHEETS

December 31, 2019 and December 31, 2018

(In thousands of Reais)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Parent Company

 

Consolidated

 

Notes

12/2019

 

12/2018

 

12/2019

 

12/2018

 

 

 

 

 

 

 

 

 

Asset

 

23,133,188

 

20,275,453

 

40,348,924

 

31,957,889

 

 

 

 

 

 

 

 

 

Current Assets

 

677,929

 

457,534

 

8,454,129

 

5,998,126

Cash and cash equivalents

4

762

 

167

 

2,284,810

 

1,075,530

Marketable securities

5

12,167

 

13,378

 

654,479

 

784,841

Trade accounts receivable

6

1,844

 

444

 

3,184,780

 

2,838,808

Inventory

7

-

 

-

 

203,278

 

183,059

Dividends and interest on shareholders’ equity receivable

13

597,550

 

362,436

 

 

Indirect taxes, charges and contributions recoverable

8

 

-

 

420,284

 

280,254

Direct taxes, charges and contributions recoverable

9

28,383

 

45,278

 

1,395,193

 

347,505

Prepaid expenses

11

2,729

 

2,460

 

175,868

 

272,060

Derivative Financial Instruments

37

-

 

-

 

16,602

 

50,769

Financial leases

16

-

 

-

 

4,931

 

22,491

Regulatory credits recoverable

17

-

 

-

 

33,090

 

41,612

Other current assets

 

34,494

 

33,371

 

80,814

 

101,197

 

 

 

 

 

 

 

 

 

Non-current assets

 

22,455,259

 

19,817,919

 

31,894,795

 

25,959,763

Long-term receivables

 

88,077

 

133,848

 

4,614,305

 

4,074,137

Marketable securities

5

-

 

-

 

3,849

 

5,229

Trade accounts receivable

6

-

 

-

 

103,075

 

130,308

Indirect taxes, charges and contributions recoverable

8

-

 

-

 

823,349

 

912,511

Direct taxes, charges and contributions recoverable

9

 

 

2,367,607

 

558,016

Deferred income tax and social contribution

10

-

 

-

 

 

801,971

Judicial Deposit

12

87,049

 

131,270

 

1,006,899

 

1,345,113

Prepaid expenses

11

1,028

 

2,578

 

69,656

 

74,381

Derivative Financial Instruments

37

-

 

-

 

29,909

 

30,639

Financial leases

16

-

 

-

 

151,447

 

185,558

Other current assets

 

-

 

-

 

58,514

 

30,411

 

 

 

 

 

 

 

 

 

Investment

13

22,209,626

 

19,526,515

 

 

Property, plant and equipment

14

 

 

17,612,164

 

11,203,622

Intangible

15

157,556

 

157,556

 

9,668,326

 

10,682,004

 

 

 

The accompanying notes are an integral part of the financial statements.

 

11


 

TIM PARTICIPAÇÕES S.A., TIM PARTICIPAÇÕES S.A. AND SUBSIDIARY

BALANCE SHEETS

December 31, 2019 and December 31, 2018

(In thousands of Reais)

 

 

Parent Company

 

Consolidated

 

Notes

12/2019

 

12/2018

 

12/2019

 

12/2018

 

 

 

 

 

 

 

 

 

Total liabilities and shareholders’ equity

 

23,133,188

 

20,275,453

 

40,348,924

 

31,957,889

 

 

 

 

 

 

 

 

 

Total  Liability

 

701,370

 

480,616

 

17,917,106

 

12,163,052

 

 

 

 

 

 

 

 

 

Current Assets

 

624,194

 

441,024

 

8,117,479

 

7,075,379

Suppliers

18

6,987

 

11,770

 

3,923,035

 

4,323,374

Loans and financings

20

-

 

-

 

1,384,180

 

698,728

Financial leases

16

-

 

-

 

873,068

 

205,048

Derivative Financial Instruments

37

-

 

-

 

858

 

2,373

Payroll and related charges

 

898

 

2,344

 

218,421

 

211,685

Indirect taxes, charges and contributions payable

21

530

 

447

 

463,606

 

451,169

Direct taxes, charges and contributions payable

22

25,816

 

47,285

 

296,305

 

332,333

Dividends and interest on shareholders’ equity payable

25

577,837

 

370,105

 

577,837

 

370,105

Authorizations payable

19

-

 

-

 

88,614

 

65,464

Deferred revenues

23

-

 

-

 

281,930

 

406,867

Other current liabilities

 

12,126

 

9,073

 

9,625

 

8,233

 

 

 

 

 

 

 

 

 

Non-current assets

 

77,176

 

39,592

 

9,799,627

 

5,087,673

Loans and financings

20

-

 

-

 

644,908

 

964,289

Derivative Financial Instruments

37

-

 

-

 

3,547

 

9,245

Financial leases

16

-

 

-

 

6,907,802

 

1,735,026

Indirect taxes, charges and contributions payable

21

 

 

2,997

 

2,772

Direct taxes, charges and contributions payable

22

 

 

212,310

 

209,880

Deferred income tax and social contribution

10

 

 

 

 

47,734

 

Provision for legal and administrative proceedings

24

47,423

 

9,837

 

840,637

 

849,408

Pension plan and other post-employment benefits

38

 

 

5,782

 

2,850

Authorizations payable

19

-

 

-

 

237,723

 

348,336

Deferred revenues

23

-

 

-

 

827,182

 

906,600

Other current liabilities

 

29,753

 

29,755

 

69,005

 

59,267

 

 

 

 

 

 

 

 

 

Shareholders’ equity

25

22,431,818

 

19,794,837

 

22,431,818

 

19,794,837

Capital Stock

 

9,866,298

 

9,866,298

 

9,866,298

 

9,866,298

Capital reserves

 

410,650

 

412,091

 

410,650

 

412,091

Profit reserves

 

12,159,162

 

9,524,124

 

12,159,162

 

9,524,124

Accumulated other comprehensive income

 

(1,088)

 

847

 

(1,088)

 

847

Treasury shares

 

(3,204)

 

(8,523)

 

(3,204)

 

(8,523)

The accompanying notes are an integral part of the financial statements.

12


 

TIM PARTICIPAÇÕES S.A., TIM PARTICIPAÇÕES S.A. AND SUBSIDIARY

STATEMENTS OF INCOME

Periods ended December 31, 2019 and 2018

(In thousands of Reais, except as otherwise stated)

 

 

 

 

 

 

 

 

 

 

 

 

 

Parent Company

 

Consolidated

 

Notes

 

2019

 

2018

 

2019

 

2018

 

 

 

 

 

 

 

 

 

 

Net revenue

27

 

              -

 

              -

 

17,377,194

 

16,981,329

 

 

 

 

 

 

 

 

 

 

Costs of services provided and goods sold 

28

 

 

 

(7,433,731)

 

(7,701,418)

Gross income

 

 

 

 

9,943,463

 

9,279,911

 

 

 

 

 

 

 

 

 

 

Operating income (expenses):

 

 

 

 

 

 

 

 

 

Selling expenses

28

 

 

-

 

(4,986,289)

 

(4,970,780)

General and administrative expenses

28

 

(24,755)

 

 (29,745)

 

(1,717,859)

 

(1,608,319)

Income from equity accounting

13

 

3,865,255

 

 2,672,647

 

 

Other revenues (expenses), net

29

 

(54,865)

 

 (837)

 

1,275,542

 

(283,289)

 

 

 

3,785,635

 

2,642,065

 

(5,428,606)

 

(6,862,388)

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

3,785,696

 

2,642,065

 

4,514,857

 

2,417,523

 

 

 

 

 

 

 

 

 

 

Financial income (expenses):

 

 

 

 

 

 

 

 

 

   Financial income

30

 

2,671

 

1,978

 

1,430,171

 

412,733

   Financial expenses

31

 

(169,399)

 

 (95,687)

 

(1,408,053)

 

(951,439)

   Foreign exchange variations, net 

32

 

(26)

 

 (9)

 

(908)

 

1,373

 

 

 

(166,754)

 

(93,718)

 

21,210

 

(537,333)

Income before income and social contribution taxes

 

 

3,618,881

 

2,548,347

 

4,536,067

 

1,880,190

 

 

 

 

 

 

 

 

 

 

Income tax and social contribution

33

 

3,246

 

(3,246)

 

(913,940)

 

664,911

 

 

 

 

 

 

 

 

 

 

Net income for the year

 

 

3,622,127

 

2,545,101

 

3,622,127

 

2,545,101

 

 

 

 

 

 

 

 

 

 

Earnings per share attributed to the Company’s shareholders (in R$ per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share 

34

 

1.50

 

1.05

 

1.50

 

1.05

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share

34

 

1.50

 

1.05

 

1.50

 

1.05

 

 

The accompanying notes are an integral part of the financial statements.

 

13


 

TIM PARTICIPAÇÕES S.A., TIM PARTICIPAÇÕES S.A. AND SUBSIDIARY

COMPREHENSIVE INCOME STATEMENT

Periods ended December 31, 2019 and 2018

(In thousands of Reais)

 

 

Parent Company

 

Consolidated

 

 

2019

 

2018

 

2019

 

2018

 

 

 

 

 

 

 

 

 

Net income for the year

 

3,622,127

 

2,545,101

 

3,622,127

 

2,545,101

 

 

 

 

 

 

 

 

 

Other components of comprehensive income

 

 

 

 

 

 

 

 

Item not to be reclassified to income:

 

 

 

 

 

 

 

 

     Pension plan and other post-employment benefits

 

(2,932)

 

(215)

 

(2,932)

 

(215)

     Deferred taxes

 

997

 

73

 

997

 

73

Total comprehensive income for the period

 

3,620,192

 

2,544,959

 

3,620,192

 

2,544,959

 

 

 

The accompanying notes are an integral part of the financial statements.

14


 

TIM PARTICIPAÇÕES S.A., TIM PARTICIPAÇÕES S.A. AND SUBSIDIARY

STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

Fiscal years ended December 31

(In thousands of Reais)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

          Profit reserves 

 

 

 

 

 

 

 

 

 

 

Capital Stock

 

Capital reserves

 

               Legal reserve

 

Reserve for expansion

 

Tax benefit reserve

 

Treasury shares

 

Accumulated other comprehensive income

 

Retained earnings

 

Total

Balances as at January 1, 2019

9,866,298

 

412,091

 

838,692

 

7,267,574

 

1,417,858

 

(8,523)

 

847

 

 

19,794,837

Impact of initial adoption of new accounting pronouncements (note 2.f)

 

 

 

 

 

 

 

 

 

Balances as at January 1st, 2019, adjusted

9,866,298

 

412,091

 

838,692

 

7,267,574

 

1,417,858

 

(8,523)

 

847

 

 

19,794,837

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income for the period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Net income for the year

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,622,127

 

3,622,127

    Remeasurement of post-employment benefit obligation (Note 13)

 

-

 

-

 

-

 

-

 

 

-

 

(1,935)

 

-

 

(1,935)

Total comprehensive income for the period

 

 

 

 

 

 

 

(1,935)

 

3,622,127

 

3,620,192

Total contributions from shareholders and distributions to shareholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Stock options (Note 25.b)

 

-

 

(1,441)

 

-

 

-

 

 

 

 

-

 

-

 

(1,441)

    Purchases of treasury shares, net of disposals

 

-

 

-

 

-

 

-

 

 

 

5,319

 

-

 

-

 

5,319

    Allocation of net profit for the year:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

          Legal Reserve (note 25)

 

-

 

-

 

171,398

 

-

 

 

 

-

 

-

 

(171,398)

 

          Interest on equity (note 25)


        
 

 

-

 

-

 

-

 

-

 

 

 

-

 

 

 

(995,438)

 

(995,438)

          Constitution of tax benefit reserve (note 25)

 

-

 

-

 

 

 

 

194,161

 

-

 

-

 

(194,161)

 

          Constitution of reserve for expansion (note 25)

 

-

 

-

 

-

 

2,261,130

 

 

 

-

 

-

 

(2,261,130)

 

     Unclaimed dividends (note 25)

 

-

 

-

 

-

 

8,349

 

 

 

-

 

-

 

 

8,349

Total contributions from shareholders and distributions to shareholders

 

 

(1,441)

 

171,398

 

2,269,479

 

194,161

 

5,319

 

 

(3,622,127)

 

(983,211)

Balances as at December 31, 2019

9,866,298

 

410,650

 

1,010,090

 

9,537,053

 

1,612,019

 

(3,204)

 

(1,088)

 

 

22,431,818

 

 

 

 

 

 

 

 

 

 

 

 

 

15


 

TIM PARTICIPAÇÕES S.A., TIM PARTICIPAÇÕES S.A. AND SUBSIDIARY

STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

Fiscal years ended December 31

(In thousands of Reais)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

          Profit reserves 

 

 

 

 

 

 

 

 

 

 

Capital Stock

 

Capital reserves

 

           Legal reserve

 

Reserve for expansion

 

Tax benefit reserve

 

Treasury shares

 

Accumulated other comprehensive income

 

Retained earnings

 

Total

Balances as at January 1, 2018

9,866,298

 

416,162

 

718,759

 

5,894,060

 

1,271,403

 

(16,487)

 

989

 

 

18,151,184

Impact of initial adoption of new accounting pronouncements (note 2.f)

 

 

 

 

(62,119)

 

 

 

 

 

(62,119)

Balances as at January 1st, 2018, adjusted

9,866,298

 

416,162

 

718,759

 

5,831,941

 

1,271,403

 

(16,487)

 

989

 

 

18,089,065

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income for the period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Net income for the year

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,545,101

 

2,545,101

    Remeasurement of post-employment benefit obligation (Note 13)

 

-

 

-

 

-

 

-

 

 

-

 

(142)

 

-

 

(142)

Total comprehensive income for the period

 

 

 

 

 

 

 

(142)

 

2,545,101

 

2,544,959

Total contributions from shareholders and distributions to shareholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Stock options (Note 25.b)

 

-

 

(4,071)

 

-

 

-

 

 

 

 

-

 

-

 

(4,071)

   Purchases of treasury shares, net of disposals

 

-

 

-

 

-

 

-

 

 

 

7,964

 

-

 

-

 

7,964

   Allocation of net profit for the year:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

          Legal Reserve (note 25)

 

-

 

-

 

119,933

 

-

 

 

 

-

 

-

 

(119,933)

 

          Interest on equity (note 25)

 

-

 

-

 

-

 

-

 

 

 

-

 

 

 

(849,994)

 

(849,994)

          Constitution of tax benefit reserve (note 25)

 

-

 

-

 

 

 

 

 

146,455

 

-

 

-

 

(146,455)

 

          Constitution of reserve for expansion (note 25)

 

-

 

-

 

-

 

1,428,719

 

 

 

-

 

-

 

(1,428,719)

 

   Unclaimed dividends (note 25)

 

-

 

-

 

-

 

6,914

 

 

 

-

 

-

 

 

6,914

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total contributions from shareholders and distributions to shareholders

 

 

(4,071)

 

119,933

 

1,435,633

 

146,455

 

7,964

 

 

(2,545,101)

 

(839,187)

Balances as at December 31, 2018

9,866,298

 

412,091

 

838,692

 

7,267,574

 

1,417,858

 

(8,523)

 

847

 

 

19,794,837

 

 

The accompanying notes are an integral part of the financial statements.

16


 

TIM PARTICIPAÇÕES S.A., TIM PARTICIPAÇÕES S.A. AND SUBSIDIARY

STATEMENT OF CASH FLOWS

 

 

 

 

 

 

 

 

Fiscal years ended December 31

 

 

 

 

 

 

 

 

(In thousands of Reais)

 

 

 

 

 

 

 

 

 

 

 

 

 

Parent Company

 

Consolidated

 

Notes

 

2019

 

2018

 

2019

 

2018

Operating activities

 

 

 

 

 

 

 

 

 

Income before income and social contribution taxes

 

 

3,618,881

 

2,548,347

 

4,536,067

 

1,880,190

 Adjustments to reconcile income with net cash from operations

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

-

 

-

 

5,128,981

 

3,954,321

Income from equity accounting

13

 

(3,865,255)

 

(2,672,647)

 

 

-

Residual value of property, plant and equipment and intangible assets written off

 

 

-

 

-

 

32,411

 

9,700

Interest from obligations arising from asset retirement obligation

 

 

-

 

-

 

226

 

648

Provision for legal and administrative proceedings

24

 

56,710

 

4,180

 

547,691

 

551,191

Monetary adjustments to deposits, administrative and legal proceedings

 

 

50,838

 

4,507

 

200,469

 

297,529

Interest, monetary and exchange variations of borrowings and other financial adjustments

 

 

-

 

-

 

(950,675)

 

(35,450)

Lease interest payable

31

 

-

 

-

 

821,463

 

266,328

Lease interest receivable

30

 

-

 

-

 

(6,422)

 

(25,664)

Provision for doubtful debts

28

 

-

 

-

 

748,291

 

544,881

Stock options 

26

 

652

 

(4,593)

 

3,443

 

(1,424)

 

 

 

(138,174)

 

(120,206)

 

11,061,945

 

7,442,250

Decrease (increase) in operating assets

 

 

 

 

 

 

 

 

 

Trade accounts receivable

 

 

(1,400)

 

(115)

 

(1,027,131)

 

(1,028,791)

Taxes and contributions recoverable

 

 

194,344

 

(33,601)

 

(1,601,276)

 

175,116

Inventory

 

 

-

 

-

 

(20,219)

 

(59,274)

Prepaid expenses

 

 

1,281

 

1,532

 

100,917

 

56,792

Dividends and interest on shareholders’ equity received

 

 

770,436

 

734,685

 

 

Judicial Deposit

 

 

44,441

 

(18,794)

 

296,486

 

30,478

Other current assets

 

 

(1,123)

 

(13,665)

 

5,059

 

133,831

Increase (decrease) in operating liabilities

 

 

 

 

 

 

 

 

 

Payroll and related charges

 

 

(1,446)

 

(4,105)

 

6,736

 

(50,765)

Suppliers

 

 

(4,784)

 

8,418

 

(401,200)

 

331,736

Taxes, charges and contributions

 

 

(27,359)

 

15,955

 

40,045

 

187,170

Authorizations payable

 

 

-

 

-

 

(100,182)

 

(104,582)

Payments for legal and administrative proceedings  

24

 

(70,182)

 

(1,690)

 

(715,203)

 

(536,646)

Deferred revenues

 

 

-

 

-

 

(204,355)

 

(193,599)

Other current liabilities

 

 

3,055

 

(308)

 

(215,063)

 

(40,373)

Cash generated by operations

 

 

769,089

 

568,106

 

7,226,559

 

6,343,343

Income tax and social contribution paid

 

 

-

 

-

 

(161,833)

 

(213,956)

Net Cash from Operations

 

 

769,089

 

568,106

 

7,064,726

 

6,129,387

 

 

 

 

 

 

 

 

 

 

Cash from Investment Activities

 

 

 

 

 

 

 

 

 

Marketable securities

 

 

1,210

 

(13,378)

 

131,742

 

(21,460)

Additions to property, plant and equipment and intangible assets

 

 

-

 

-

 

(3,853,484)

 

(3,831,906)

Receipt of financial leases

 

 

-

 

-

 

9,100

 

22,946

Net cash (used in) from investment activities

 

 

1,210

 

(13,378)

 

(3,712,642)

 

(3,830,420)

 

 

 

 

 

 

 

 

 

 

Cash from financing activities

 

 

 

 

 

 

 

 

New borrowing

 

-

 

-

 

1,000,000

 

166,548

Repayment of borrowing

 

-

 

-

 

(723,500)

 

(3,359,074)

Interest paid – borrowing and financings

 

-

 

-

 

(96,649)

 

(193,333)

Payment of financial lease

 

-

 

-

 

(800,621)

 

(9,898)

Interest paid - Leases

 

-

 

-

 

(785,091)

 

(242,512)

Derivative Financial Instruments

 

-

 

-

 

32,761

 

37,044

Purchases of treasury shares, net of disposals

 

435

 

5,317

 

435

 

5,317

Dividends and interest on shareholders’ equity paid

 

(770,139)

 

(588,247)

 

(770,139)

 

(588,247)

Net cash used in financing activities

 

(769,704)

 

(582,930)

 

(2,142,804)

 

(4,184,155)

 

 

 

 

 

 

 

 

 

Increase (decrease) in cash and cash equivalents

 

595

 

(28,202)

 

1,209,280

 

(1,885,188)

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at the beginning of the year

 

167

 

28,369

 

1,075,530

 

2,960,718

Cash and cash equivalents at the end of the year

 

762

 

167

 

2,284,810

 

1,075,530

                   

17


 

 

 

 

 

 

 

 

 

Consolidated

 

 

 

 

 

 

 

2019

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-cash transactions

 

 

 

 

 

 

 

 

 

 

Additions to property, plant and equipment and intangible assets, without cash effects   

 

 

 

 (6,653,985)

 

(38,944)

Increase in lease liabilities, without cash effects   

 

 

 

 

 

 6,653,985

 

38,944

 

 

The accompanying notes are an integral part of the financial statements.

 

18


 

TIM PARTICIPAÇÕES S.A., TIM PARTICIPAÇÕES S.A. AND SUBSIDIARY

STATEMENTS OF VALUE ADDED

Fiscal years ended December 31

(In thousands of Reais)

 

Parent Company

 

Consolidated

 

2019

 

2018

 

2019

 

2018

Revenue

 

 

 

 

 

 

 

Gross operating revenue

 

-

 

25,182,831

 

24,232,404

Other revenues

 

 

1,795,000

 

Losses from doubtful debts

 

-

 

(748,291)

 

(544,881)

Discounts granted, refunds and other

 

-

 

(2,865,657)

 

(2,087,278)

 

 

 

23,363,883

 

21,600,245

Inputs purchased from third parties

 

 

 

 

 

 

 

Costs of services provided and goods sold

 

-

 

(2,575,465)

 

(3,929,961)

Materials, energy, third-party services and other

(59,416)

 

(4,675)

 

(3,346,565)

 

(3,237,372)

 

(59,416)

 

(4,675)

 

(5,922,030)

 

(7,167,333)

Withholding

 

 

 

 

 

 

 

Depreciation and amortization

 

 

(5,128,981)

 

(3,954,320)

Net value added produced

(59,416)

 

(4,675)

 

12,312,872

 

10,478,592

Value added received by transfer

 

 

 

 

 

 

 

Equity Income

3,865,255

 

2,672,647

 

 

-

Financial income

2,705

 

1,989

 

1,518,362

 

510,265

 

3,867,960

 

2,674,636

 

1,518,362

 

510,265

Total value added for distribution

3,808,544

 

2,669,961

 

13,831,234

 

10,988,857

 

 

 

 

 

 

 

 

Distribution of value added

 

 

 

 

 

 

 

Personnel and charges

 

 

 

 

 

 

 

      Direct compensation

6,274

 

22,591

 

517,505

 

503,198

      Benefits

852

 

1,479

 

178,796

 

181,502

      FGTS (unemployment fund)

212

 

268

 

58,381

 

55,765

      Others

10,842

 

87

 

116,514

 

102,254

 

18,180

 

24,425

 

871,196

 

842,719

Taxes, charges and contributions

 

 

 

 

 

 

 

      Federal

(1,207)

 

4,806

 

3,050,397

 

1,655,868

      State

60

 

 

3,907,216

 

4,000,551

      Municipal

 

 

111,860

 

104,710

 

(1,147)

 

4,806

 

7,069,473

 

5,761,129

Remuneration of third-party capital

 

 

 

 

 

 

 

   Interest

169,370

 

95,613

 

1,495,444

 

1,046,256

   Rents

14

 

16

 

768,787

 

789,015

 

169,384

 

95,629

 

2,264,231

 

1,835,271

Others

 

 

 

 

 

 

 

   Social Investment

 

 

4,207

 

4,637

 

 

 

4,207

 

4,637

Remuneration of shareholders’ equity

 

 

 

 

 

 

 

   Dividends and interest on shareholders’ equity

995,438

 

849,994

 

995,438

 

849,994

   Retained earnings

2,626,689

 

1,695,107

 

2,626,689

 

1,695,107

 

3,622,127

 

2,545,101

 

3,622,127

 

2,545,101

The accompanying notes are an integral part of the financial statements.

19


 

MANAGEMENT DISCUSSION AND ANALYSIS FOR 2019 RESULTS

 

COMMENTARY ON THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED ON DECEMBER 31, 2019

 

Dear shareholders,

 

The management of TIM Participações S.A. ("TIM Participações", "Company" or "TIM") presents the Management and Analysis Report of the 2019 Results, together with the Individual and Consolidated Financial Statements and the Independent Auditors’ Report for the fiscal year ended on December 31, 2019.

 

The Financial Statements have been prepared in accordance with Brazilian Standards and the IFRS (International Financial Reporting Standards), as defined by the IASB.

 

The operational and financial information for 2019, unless stated otherwise, is presented in reais (R$) based on the consolidated amounts and pursuant to Brazilian corporate law.

 

Company Profile

 

TIM Participações is a publicly-held company with shares listed on the São Paulo Stock Exchange (B3) and ADRs (American Depositary Receipts) listed on the New York Stock Exchange (NYSE). In 2019, TIM confirmed its permanence for the twelfth consecutive year in the select group of companies that integrate the ISE (Corporate Sustainability Index) portfolio, reinforcing its commitment to economic, social and environmental sustainability. Moreover, TIM is the only telecommunication company to participate in Novo Mercado (New Market), a segment recognized by B3's highest level of corporate governance

 

TIM Participações is controlled by TIM Brasil Serviços e Participações S.A., a subsidiary of the Telecom Italia group. Through the sharing of experiences and the adoption of a good practices policy, the Company exchanges experiences with its parent company and accumulates synergies that benefit all of its clients. Through its subsidiary TIM S.A., TIM operates in the mobile, fixed telephony, long distance and data transmission markets throughout the Brazilian territory and in the ultra-broadband market encompassing certain states of the country.

 

 

 

20


 

MANAGEMENT DISCUSSION AND ANALYSIS FOR 2019 RESULTS

 

COMMENTARY ON THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED ON DECEMBER 31, 2019

 

1. Message from Management

 

The year 2019 saw the Company's capacity to enhance operating and financial aspects, making certain adjustments in its approach and strategy. Our focus on execution enabled the development of areas in need of adjustment: (i) agility in decision-making; (ii) focus on key business areas; (iii) boost to accountability culture and (iv) recovery of innovation leadership in offers and communication.

 

The first and second halves of the year were strikingly different, both on the macroeconomic side and in the intensity of competition within mobile telecommunications, forcing TIM to demonstrate great resiliency in the first half of the year. In the second half, the engines of growth had more room to evolve. This is evidenced by the acceleration of annual growth rates for service revenues (+3.1% in 2H from +1.7% in 1H) and EBITDA (+7.5% in 2H versus 5.8% in 1H).

 

Were fundamental to this performance: (i) continued evolution from volume to value; (ii) adjustments in the portfolio and in the communication with customers; (iii) image recovery in all segments of the base; (iv) continued development of our mobile and fixed networks; (v) solid execution in costs and investments efficiency.

 

 

Resiliency and Evolution of Mobile Service

 

At the beginning of the year, the mobile segment faced increasingly aggressive offers, while the economic activity remained sluggish. We started the adjustments in communication and in the portfolio to keep our competitiveness, without the need to add to competition. We adapted our approach in order to manage a slower pace of customer migration from prepaid to postpaid, without losing the focus on value over volume. We kept working on the second wave of the upselling process, with intra-segment migrations (within prepaid and within postpaid) and brought a few innovations such as TIM Chip Top for prepaid and TIM Black Família in postpaid.

 

The positive impact of these adjustments were evident:

·       Prepaid: (i) higher number of rechargers; (ii) 2.5% increase YoY average spending from rechargers (iii) 4.2% ARPU growth YoY and (iv) reclaiming of first place in Top of Mind survey;

·       Postpaid: (i) reduced level of disconnections; (ii) maintenance of good sales level (+13.8% throughout the year); (iii) reacceleration of growth of client-generated revenues and (iv) ARPU (ex-M2M) growth 0.6% YoY.

 

 

Residential Broadband - An Opportunity Materializes

 

Residential broadband was one of the year's highlights, keeping strong revenue growth as adjustments in the operations accelerated the coverage rollout and client acquisition (~40,000 in 1H and ~60,000 in 2H). The geographic expansion that started in 2018 continued and we ended the year present in 25 cities, of them 23 with FTTH.

21


 

MANAGEMENT DISCUSSION AND ANALYSIS FOR 2019 RESULTS

 

COMMENTARY ON THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED ON DECEMBER 31, 2019

 

The focus on a value offer for clients, providing fiber optic broadband and content through partnerships with APPs, enabled 8% growth YoY for ARPU while TIM Live won two awards for best broadband service in the country.

 

Infrastructure Development: furthering the mobile and fixed segments

 

The development of our infrastructure is a fundamental pillar in the strategy of enhancing customer experience. Therefore, in 2019 we stressed investments with a direct impact on the quality of mobile and fixed services.

 

For another year, TIM ensured its leadership in 4G with the largest and best coverage in this technology. We ended 2019 with over 3,400 thousand cities, 85.7% network availability and the lowest latency among all operators, according to Tecnoblog news from Jan/20. In order to maintain this position as a competitive differential, we continued to bring technological innovations, running tests with 5G and using the Massive MIMO for 4G. Meanwhile, we maintained the efficient approach with the refarming of frequencies to expand the capacity of our network.

 

On the fixed network side, we exceeded 100,000 km of fiber optic in backbone and backhaul, demonstrating the commitment to improve our transport network. We also expanded the coverage of our TIM Live residential broadband, reaching 2.3 million households.

 

 

Efficiency and Cash Generation

 

The efficiency approach is more and more Company-wide, across different processes in all areas. Also, the digital transformation process, which impacts the Company's costs and customer satisfaction, keeps advancing at an excellent speed, with expressive results in the adoption of digital channels such as the Meu TIM app (+18% of number of unique users on the platform), electronic payments (+14% of access making these payments) and digital invoices (+18% of invoices delivered), among other indicators.

 

The program's goals are not restricted to cost savings, but also involve tax efficiency and improvements in financial expenses. Amid this context, we activated and started to utilize tax credits stemming from court decisions, and we maintained the trajectory of optimizing the Company's financing lines.

 

The combination of all these elements on the operational and financial fronts yielded the biggest EBITDA in TIM's history, reaching R$ 6.8 billion with a margin that exceeded 39% in the year, and an excellent level of operating cash flow at R$ 2.1 billion. This enabled the highest ever shareholder compensation in TIM's history, close to R$ 1 billion.

 

 

Conclusion and Perspectives

 

The capacity to make adjustments without creating fracture, maintaining our focus on strategy execution, were the highlights of 2019, making it possible to fulfill targets and continue our history of sustainable and consistent growth.

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MANAGEMENT DISCUSSION AND ANALYSIS FOR 2019 RESULTS

 

COMMENTARY ON THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED ON DECEMBER 31, 2019

 

 

The year 2020 may bring sizable opportunities with a quickening economy and the evolution of the consolidation process in the mobile segment, as well as from definitions over how the country sees the 5G technology, the opening of new revenue fronts, and more. This way, the focus on execution and a well-defined strategy will be the key to reach our strategic goals.

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MANAGEMENT DISCUSSION AND ANALYSIS FOR 2019 RESULTS

 

COMMENTARY ON THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED ON DECEMBER 31, 2019

 

2. Economic and Industrial Overview

 

2.1. Macroeconomic Environment

 

In 2019, the Brazilian economy did not meet market expectations, although it closed the year in an optimistic tone amid factors such as a record high for the Ibovespa, the main index on B3 – Brasil, Bolsa, Balcão, which ended the year above 115,000, the SELIC base rate at an all-time low of 4.5% per year and the recovery of the retail sector, which accelerated sharply at the end of the period despite a more sluggish pace during the year.

 

Said frustration stems from market forecasts in early 2019, pointing to Gross Domestic Product (GDP) growth of 2.5% for the year, according to the first FOCUS1 report of 2019. However, the last FOCUS2 report for the period signals modest growth of 1.1%.

 

Inflation as measured by the Ample Consumer Price Index (IPCA) ended 2019 at 4.31%, the highest annual rate since 2016. IPCA exceeded the midpoint of the target, which was 4.25% for the year. Inflation was mostly impacted by a rise in the price of meat at the end of the year and by an increase in administered prices, such as fuels and electricity.

 

On the currency front, the US dollar appreciated sharply vis-à-vis the real in 2019, ending the year at R$ 4.033 after reaching R$ 4.254 in November, the highest nominal exchange rate since the implementation of the Brazilian real. The rate showed strong volatility during the year amid factors such as uncertainty about the Brazilian economy, in addition to international factors, especially the trade war involving the US and China, with mutual taxation on imports. The trade balance ended the year with a US$ 47 billion5 surplus, down by 19.6% compared to 2018 and the lowest figure in four year.

 

As to the international scenario, the trade war between the US and China remained at the forefront during 2019 and contributed to the volatility seen in international markets, as well as to the reduced growth forecasts for the global economy. This situation eased slightly at the end of the year, as the two main global economies concluded the first phase of a deal, favoring emerging countries as proved by the significant reduction in Brazil's country risk. 

 

 

2.2. Particularities of the Telecommunications Sector

 

The telecommunications sector in Brazil is marked by strong competition and by the effective regulation of the National telecommunications agency, ANATEL, whose mission is "to promote the development of the country's telecommunications, in order to provide it with a modern and efficient telecommunications infrastructure, capable of providing the society with adequate, diversified and fair prices throughout the entire national territory."

 


1 Estimated by the latest FOCUS report issued by the Central Bank (BACEN) on January 4, 2019

2 Estimated by the latest FOCUS report issued by the Central Bank (BACEN) on January 6, 2020

3 Source: Central Bank

4 Source: Central Bank

5 Source: Economy Ministry

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MANAGEMENT DISCUSSION AND ANALYSIS FOR 2019 RESULTS

 

COMMENTARY ON THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED ON DECEMBER 31, 2019

 

However, such strategy was impacted by fiercer competition in the Brazilian market, seen through the presence of more aggressive offers considering the content provided to clients and a reduction in the prices offered by operators in general, which to a certain extent limited the Company's capacity to pass on cost increases or to propose adhesion to high-value offers.

 

The sector continued the trend of strong growth in data consumption, demanding from the operators the capacity to adapt their networks, facing the challenge of delivering an increasingly robust infrastructure in an environment of more rational investments in projects such as the densification of sites, frequency refarming and carrier aggregation in two or three frequencies. Moreover, TIM has advanced its sharing initiatives focused on 4G and transport network. This evolution in the Company`s network allows the significant expansion of traffic on the 4G network, providing clients with a better user experience, both in terms of performance, with higher download and upload speeds and lower latency, and indoor coverage and greater penetration.

 

News about 5G technology has yielded discussions worldwide. The implementation of this technology will bring highly significant results, enabling new business models, encouraging an increasingly connected society and clearing the way for the implementation of advances in research and development.

Last, the growing demand for Fixed Broadband consolidated the view of internet access as an essential resource for the population, which was confirmed by the evolution of the client base and TIM Live's net additions.

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