Quarterly Report • Jul 23, 2021
Quarterly Report
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First Semester 2021
"Our subsidiary Oi continued its plan to sell non-core assets, with special emphasis on the sale of 58% of the company that will hold the fiber infrastructure, InfraCo, in a process that was confirmed in an auction and court decision, on 7th of July. As a result of some less good news related to the first quarter of this year in the operational area and following the public presentation of the strategic guidance for the coming years, Oi's price suffered throughout the first months of 2021. A timid revaluation of the real it ended up, however, mitigating this trend.
This slight improvement in the real is also, in fact, one of the factors that led to the book value of the credit on Rio Forte not having deserved any change, given that, on the other hand, there were no significant developments in the judicial instances in Portugal and Luxembourg.
Internally, there was a high concentration of efforts to reduce operating costs, and in this first half of the year it was possible to rely on favorable decisions in different tax litigation processes and the consequent refunds of payments improperly made."
| PHAROL | ||
|---|---|---|
| (Euro million) | 1H21 | 1H20 |
| Recurring EBITDA | (1.4) | (1.4) |
| Net Income | (1.3) | (1.7) |
| (Euro million) | Jun21 | Dec20 |
| Assets | 152.5 | 183.3 |
| Liabilities | 17.6 | 18.0 |
| Equity | 134.9 | 165.4 |
Luís Sousa de Macedo Investor Relations Tel: +351 212 697 698 - Fax: +351 212 697 949 E-mail: [email protected]
CONSOLIDATED REPORT FIRST SEMESTER 2021
| 01. | FINANCIAL REVIEW | 3 |
|---|---|---|
| 02. | BUSINESS PERFORMANCE | 8 |
| 03. | MAIN RISKS AND UNCERTAINTIES | 13 |
| 04. | QUALIFIED HOLDINGS | 15 |
| 05. | OUTLOOK | 18 |
| 06. | STATEMENT FROM THE BOARD OF DIRECTORS | 19 |
| 07. | CONSOLIDATED FINANCIAL STATEMENTS | 21 |
"PHAROL", "Group PHAROL", "Group" and "Company" is a reference to the companies that are part of PHAROL, SGPS S.A. or to one of them, depending on the context.
As at June 30, 2021, PHAROL had as its main assets (1) 314,490,159 common shares of Oi, S.A. ("Oi"), representing 5.28% of total share capital of Oi (excluding treasury shares), and (2) debt securities of Rio Forte Investments S.A. ("Rio Forte") with a nominal value of Euro 897 million.
On December 30, 2014, after the capital increase of Oi, concluded on May 5, 2014 (the "Oi Capital Increase "), PHAROL held a 39.7% direct and indirect stake in Oi. This included a portion classified as a non-current asset held for sale, following the Exchange agreement ("Exchange") entered into on September 8, 2014 and completed on March 8, 2015, and the remaining stake of 22.8% classified as investment in joint ventures and associates and therefore accounted for using the equity method.
On March 30, 2015, the Exchange was completed, whereby PHAROL (1) transferred to Portugal Telecom International Finance, B.V. ("PT Finance"), a subsidiary of Oi, an aggregate amount of 47,434,872 common shares and 94,869,744 preferred shares of Oi, and (2) received from PT Finance debt securities of Rio Forte with a nominal value of Euro 897 million and a call option on the transferred shares ("Call Option"). After the completion of the Exchange, PHAROL held an effective stake of 27.48% in Oi corresponding to the 22.8% stake referred above plus 4.7% due to the decrease in the number of outstanding shares of Oi.
The relevant agreements for the implementation of the New Structure of Oi were signed on July 22, 2015. On September 1, 2015, a General Meeting of Shareholders of Oi was held where the New Structure was approved.
As of September 30, 2015, after the implementation of the New Structure, but prior to the voluntary conversion of preferred shares to ordinary shares of Oi, PHAROL held, directly or indirectly through wholly owned subsidiaries, 84,167,978 common shares and 108,016,749 preferred shares of Oi.
As of October 8, 2015, following the voluntary conversion of preferred shares into common shares of Oi, PHAROL now holds, directly and indirectly through wholly owned subsidiaries, 183,662,204 common shares of Oi, representing 27.18% of total share capital of Oi (excluding treasury shares). PHAROL's voting rights in Oi were limited to 15% of the total common shares of Oi.
With the implementation of the New Structure on July 30, 2015, the shareholders' agreements, through which joint control of Oi was exercised, were terminated. Up to that date, PHAROL accounted for its stake in Oi as an Investment in Joint Ventures. After this date, PHAROL considered it had significant influence over Oi and classifies it as an associate company. As a result, from July 30, 2015 the investment in Oi continued to be accounted for according to the equity method, based on PHAROL's economic stake in Oi's results.
On April 29 and May 19, 2016, PHAROL, due to a corporate reorganization, transferred direct ownership of 128,213,478 common shares issued by Oi S.A., to its 100% owned subsidiary BRATEL B.V.. Due to the Corporate Reorganization, BRATEL B.V. now directly holds (and PHAROL indirectly holds) 183,662,204 common shares of Oi S.A., which represented 22.24% of Oi S.A.'s entire share capital (27.18% excluding treasury shares).
On 15 September 2017, in order to concentrate all its operations in Luxembourg, PHAROL transferred the ownership of all the shares that BRATEL BV has in Oi SA to its subsidiary BRATEL S.à.r.l., 100% owned by BRATEL B.V.
In December 2017, and after the decision by the Court of the 7th Business Court of Rio de Janeiro (which it handles the Judicial Recovery of Oi) and which decided to withdraw the rights of the members of the Board of Directors of Oi in the approval of the Judicial Recovery Plan, it was understood that PHAROL lost the significant influence it had until then on its associate Oi. Consequently, on 31 December 2017, PHAROL began to measure its investment in Oi at market value and classify it as "Financial Assets".
Oi S.A., in the disclosure of its consolidated results for 2017, announced that it had restated its Consolidated Equity on January 1, 2016 and December 31, 2016, amounting to BRL 18 billion and BRL 19 billion, respectively. Following this restatement, PHAROL's investment in Oi, being recorded under the equity method, was restated and valued at zero in the periods of January 1, 2016 and December 31, 2016.
On July 20, 2018, following the homologation of the Capital Increase through the conversion of debt into shares, Oi's share capital increased from 825,760,902 shares for a total of 2,340,060,505 shares, was a dilution of PHAROL's participation in Oi to less than 8%.
On January 9, 2019, as part of the capital increase due to the Entry of New Resources, Oi went from 2,340,060,505 shares to a total of 5,954,205,001 shares representing its share capital, with a dilution of PHAROL's stake in Oi to less than 4%, even though it partially accompanied the referred capital increase.
On April 2, 2019, with the approval of an agreement between PHAROL and Oi on January 8, 2019, in which Oi committed itself to reimburse PHAROL for the damages suffered through Oi's shares and resources for the acquisition of Oi shares subscribed in the aforementioned capital increase, PHAROL now holds a 5.51% interest in Oi's share capital.
During 2020, PHAROL sold all preferred shares of Oi and a small portion of common shares, resulting in a final stake of 5.37% of Oi's share capital. In 2021, after selling another part of Oi's common shares, PHAROL held a 5.28% stake in Oi (excluding treasury shares).
Consolidated net income for the first half of 2021 represents a loss of Euro 1.27 million and essentially reflects operating costs.
| CONSOLIDATED INCOME STATEMENT | ||
|---|---|---|
| Euro million | ||
| 1H21 | 1H20 | |
| Wages and salaries Supplies, external services and other expenses |
0.66 0.68 |
0.65 0.64 |
| Indirect taxes | 0.08 | 0.09 |
| Loss before financial results and taxes | (1.42) | (1.38) |
| Depreciations | 0.04 | 0.06 |
| Earnings before interest and taxes | (1.46) | (1.44) |
| Net other gains | (0.23) | 0.26 |
| Loss before financial results and taxes | (1.23) | (1.70) |
| Net other financial losses (gains) | 0.02 | 0.03 |
| Loss before taxes | (1.26) | (1.73) |
| Income taxes | 0.01 | 0.01 |
| Attributable to equity holders of PHAROL, SGPS S.A. | (1.27) | (1.74) |
Consolidated operating costs amounted to 1.46 million Euros in the first half of 2021 compared to 1.44 million Euros in the first half of 2020.
In 2021, the other net gains include the refund of income taxes from previous years. In 2020, the other net costs include the CMVM fine in the amount of 250 thousand euros.
The net profit attributable to PHAROL shareholders in the first half of 2021 was a loss of 1.27 million Euros and 1.74 million Euros in the same period of 2020.
| Consolidated Statement of Financial Position | ||
|---|---|---|
| Euro million | ||
| 30 jun 21 | 31 dec 20 | |
| ASSETS | ||
| Cash and cash equivalents | 19.5 | 20.7 |
| Accounts receivable | 0.1 | 0.1 |
| Tangible assets | 0.3 | 0.2 |
| Taxes receivable | 0.1 | 0.0 |
| Financials assets | 80.4 | 110.3 |
| Other assets | 52.1 | 52.0 |
| Total assets | 152.5 | 183.3 |
| LIABILITIES | ||
| Short-term debt | 0.3 | 0.2 |
| Accounts payable | 0.1 | 0.3 |
| Accrued expenses | 0.9 | 0.9 |
| Taxes payable | 0.2 | 0.1 |
| Other liabilities | 16.1 | 16.4 |
| Total liabilities | 17.6 | 18.0 |
| Total equity | 134.9 | 165.4 |
| Total liabilities and shareholders' equity | 152.5 | 183.3 |
The cash net of liabilities is 2.1 million Euros on June 30, 2021 and 2.9 million Euros on December 31, 2020.
The financial assets correspond to PHAROL's effective participation in Oi on June 30, 2021 and December 31, 2020, with a value of 80.5 million Euros and 110.3 million Euros, respectively. This 30 million Euro devaluation is mainly explained by the devaluation of Oi's share net of the appreciation of the Real against the Euro.
The "Other assets" on June 30, 2021 and December 31, 2020, in the amount of 52 million Euros correspond to the best estimate of the fair values of assets relating to debt instruments issued by Rio Forte, whose nominal value amounts to 897 million of euros.
Equity amounts to 134.9 million Euros as of 30 June 2021, compared to 165.4 million Euros as of 31 December 2020, a decrease of 30.5 million Euros, essentially reflecting (1) the negative result generated in the first half of 2021 in the amount of Euro 1.27 million, and (2) the devaluation of the participation in Oi in the amount of Euro 29.8 million.
Oi's focus continues to be advancing on the main indicators of its transformation plan while expanding commercial horizons.
• Acceleration of massive fiber expansion continues.
• Entered the São Paulo market.
• Fiber expansion is driving the residential turnaround, leading to annual revenue stabilization for the first time in many years.
• Oi Soluções has focused on IT services and, with the launch of TAHTO, seeks to offer digital relationship solutions for the B2B market.
| Milhões de Reais* | |||||
|---|---|---|---|---|---|
| 1T21 | 1T20 | 4T20 | |||
| Oi S.A. | |||||
| Total Net Revenues | 4,453 | 4,749 | 4,777 | ||
| EBITDA | 1,139 | 1,533 | 1,491 | ||
| EBITDA Margin (%) | 25.6% | 32.3% | 31.2% | ||
| Consolidated Net Earnings (Loss) | -3,038 | -6,280 | 1,798 | ||
| Net Debt | 25,172 | 18,131 | 21,797 | ||
| Available Cash | 3,027 | 6,310 | 4,554 | ||
| CAPEX | 1,863 | 1,794 | 1,991 | ||
| Milhões de Reais* | ||||
|---|---|---|---|---|
| 1T21 | 1T20 | 4T20 | ||
| BRAZIL | ||||
| Routine EBITDA | 1,128 | 1,481 | 1,460 | |
| Routine EBITDA Margin (%) | 25.7% | 31.5% | 30.9% | |
| CAPEX | 1,859 | 1,781 | 1,729 | |
| Routine EBITDA - CAPEX | -731 | -299 | -269 | |
| *Or otherwise stated |
Consolidated Report │ First Semester 2021 7
Below we list all the events that occurred between January 1 and July 23, 2021, that can be read in full at PHAROL's website (www.pharol.pt).
The main changes in qualifying holdings of PHAROL were as follows:
4/Jan/2021 | Grupo Visabeira SGPS, SA informed that it sold on the stock exchange, a total of 2,400,000 shares, representing 0.2677% of the share capital and voting rights of PHAROL.
As a result of the sales, Grupo Visabeira SGPS, S.A. now holds 9,967,041 shares, representing 1.1118% of the share capital and voting rights of PHAROL. Also informed that the existing participations are considered attributable to Fernando Campos Nunes (NIF: 175776083).
Below we list the main corporate events of PHAROL:
30/Apr/2021 | PHAROL informed that the General Meeting of PHAROL was held where the Shareholders resolved to approve:
Point One: The amendment and updating of the Company's articles of association, under the terms that will be available on the company's website from next week;
Point Two: The management report, the balance sheet and the individual accounts for the year 2020;
Point Three: The consolidated management report, balance sheet and accounts for the year 2020;
Point Four: The proposal for applying results;
Point Five: General appraisal of the Company's management and supervision;
Point Six: The election of the following members of the Governing Bodies and Remuneration Committee for the 2021-2023 period:
President: Diogo Campos Barradas de Lacerda Machado
Secretary: Maria de Lourdes Vasconcelos Pimentel da Cunha Trigoso
Board of Directors
Chairman:
Luís Maria Viana Palha da Silva
Directors:
Maria do Rosário Amado Pinto Correia
Maria Leonor Martins Ribeiro Modesto
Novo Banco, SA with registered office at Avenida da Liberdade, nº 195, 1250-142, Lisbon, with the registration number at the Commercial Registry Office of Lisbon and Legal Entity 513 204 016, which designates to exercise the position in its own name, pursuant to no. 4 of article 390 of the Commercial Companies Code, Ana Cristina Ferreira Dias.
Pedro Zanartu Gubert Morais Leitão
Oi SA, registered with the CNPJ/MF under No. 76.535.764/0001-43, with headquarters and main establishment in Brazil, at Rua do Lavradio No. 71, Centro, Rio de Janeiro - RJ, CEP 20230 -070, which designates to exercise the position in its own name, under the terms of no. 4 of article 390 of the Commercial Companies Code, Avelino Cândido Rodrigues.
President: José Eduardo Fragoso Tavares de Bettencourt Vowels: Isabel Maria Beja Gonçalves Novo João Manuel Pisco de Castro Substitute Member: Paulo Ribeiro da Silva
President: António Sarmento Gomes Mota
Francisco José Queiroz de Barros Lacerda
Pedro Miguel Ribeiro de Almeida Fontes Falcão
Point Seven: The election of BDO & Associados, SROC, Lda., represented by Ana Gabriela Almeida, as Effective Chartered Accountant and António Pina Fonseca, as Alternate Chartered Accountant.
Point Eight: The acquisition and sale of own shares;
Point Nine: The statement of the Remuneration Committee regarding the remuneration policy of the members of the Company's management and supervisory bodies.
03/May/2021 | PHAROL informed that, at a meeting held on May 3, 2021, its Board of Directors resolved to designate as Company Secretary, for the term corresponding to the 2021-2023 period:
Effective: Luís Manuel da Costa de Sousa de Macedo
Alternate: Maria de Lourdes Vasconcelos Pimentel da Cunha Trigoso
03/May/2021 | PHAROL informed that following the statement of April 30, 2021, it is clarified that regarding the Point One Proposal - Deliberate on proposals for the global amendment and update of the COMPANY's articles of association - the direction of voting by the shareholders was as follows:
| Alternative A - amendment to articles 12/1/a) b) and d) and wording of article | Not approved |
|---|---|
| 13 with the suppression of the content of the current numbers 10/11/12/14 of | |
| the statutes (aka un-shielding). |
| Alternative B - wording of articles 12/1/a), b) and d) and wording of article 13 with maintenance of shielding in numbers 12, 13, 14 and 15. |
Approved |
|---|---|
| Second Vote: | |
| Amend and globally update the Articles of Association. | Approved |
Below we list other relevant PHAROL events:
05/Feb/2021 | PHAROL informed about Report of Judicial Administrators in the insolvency process of Rio Forte (Rapport nº17 des Curateurs), related to December 31, 2020, available at www.espiritosantoinsolvencies.lu
11/Feb/2021 | PHAROL informed that Jorge Telmo Maria Freire Cardoso resigned, on February 10, 2021, from the respective position of non-executive member of the Board of Directors of PHAROL.
11/Mar/2021 | PHAROL reported on the Notice from the Judicial Administrators in the insolvency process of Rio Forte (Communiqué from the Trustees - Number 28: Credit verification list 2), available on the website www.espiritosantoinsolvencies.lu
08/Jun/2021 | PHAROL informed about Report of Judicial Administrators in the insolvency process of Rio Forte (Rapport nº18 des Curateurs), related to April 30, 2021, available at www.espiritosantoinsolvencies.lu
Below we list the other material events of Oi:
15/Jan/2021 | Oi informed that the Company's Annual General Meeting will be held on April 30, 2021.
25/Jan/2021 | Oi informed that he received, on January 22, 2021, binding proposals from third parties for the partial acquisition of UPI InfraCo, all above the minimum value defined in the Amendment to the PRJ.
29/Jan/2021 | Oi informed that, together with Telefônica Brasil S.A., TIM S.A. and Claro S.A., the Agreement for the Purchase and Sale of Shares and Other Covenants, which has as its object the sale of the Mobile Assets SPEs to the Buyers. The Agreement provides for the payment by Buyers of the amount of R\$16.5 billion, of which R\$756 million refer to transition services to be provided for up to 12 months by Oi to Buyers, as well as the execution of a long-term contract to provide transmission capacity services with Oi and some of its subsidiaries, in the take or pay modality, whose net present value (NPV), calculated for the purposes and as provided for in the Amendment to the PRJ, is R\$819 million. The effective conclusion of the Transaction, with the transfer of the shares of the Mobile Assets SPEs to the Purchasers, is subject to CADE's approval and Anatel's prior consent, as well as the fulfilment of usual precedent conditions for operations of this nature, provided for in the Agreement.
04/Feb/2021 | Oi informed that, in view of the conditions of the binding offer for the partial acquisition of UPI InfraCo presented jointly by Globenet Cabos Submarinos SA, BTG Pactual Economia Real Fundo de Investimento em Participações Multiestratégia and other investment funds managed or controlled by member companies of the BTG Group , signed, on this date, an Exclusivity Agreement with the Bidders, for a limited period of time, with the objective of negotiating exclusively with the Bidders the terms and conditions, as well as the documents and annexes related to the Offer. The Agreement aims to ensure security and speed of ongoing negotiations between the parties and allow that, if the negotiations of conditions and documents between the parties are satisfactorily completed, Oi is able to guarantee the Bidders the right to cover ("right to top") other proposals received in the competitive process for the sale of UPI InfraCo. The Agreement is effective until March 6, 2021 and will be automatically renewed for another period of 30 (thirty) days, unless otherwise stated by either party.
18/Feb/2021 | Oi informed that its indirect subsidiary Brasil Telecom Comunicação Multimídia SA, chosen to be used as SPE InfraCo in the scope of the competitive process for the partial sale of UPI InfraCo, pursuant to the Amendment to the Judicial Reorganization Plan, signed, on this date, an indenture of debentures convertible into shares, of the type with real guarantee, for private placement, of the 1st issue of BTCM, in the total amount of up to R\$ 2,500,000,000.00. The subscription of the Debentures will be led by Brookfield Asset Management and will feature the participation of Farallon Latin America Investimentos and Prisma Capital.
05/Mar/2021 | Oi informed that the Exclusivity Agreement signed with Globenet Cabos Submarinos SA, BTG Pactual Economia Real Fundo de Investimento em Participações Multiestratégia and other investment funds managed or controlled by companies that are part of the BTG Group and effective until March 6, 2021 , will be automatically renewed for an additional and final period of 30 days, going into effect until April 5, 2021.
15/Mar/2021 | Oi informed that on March 12, 2021, the completion of the sale of UPI Data Center to Titan Venture Capital e Investimentos Ltda., winner of the competitive procedure carried out on November 26, 2020, in accordance with the Amendment to the Plan of Judicial Recovery ratified by the Court of the 7th Business Court of the Judicial District of the State of Rio de Janeiro on October 5, 2020.
With the conclusion of the Transaction, all shares issued by SPE Data Center were transferred to Titan, which, in turn, paid a cash instalment in the amount of R\$250,000,000.00. The remaining amount established in the Share Purchase and Sale Agreement through UPI and Other Covenants ("Agreement"), equivalent to R\$75,000,000.00, must be paid in instalments, in the manner and within the term provided for in the Agreement.
29/Mar/2021 | Oi informed about the release of the results for the fourth quarter of 2020.
30/Mar/2021 | Oi informed that the sale of UPI Torres to Highline do Brasil II Infraestrutura de Telecomunicações SA, winner of the competitive procedure held on November 26, 2020, was concluded on this date. With the conclusion of the Transaction, all shares issued by the SPE Torres was transferred to Highline, which, in turn, paid on this date an instalment in cash, in the amount of R\$861,758,307.20, of the total price of R\$1,077,197,884.00, owing the remaining balance to be paid after the usual calculations and adjustments to this type of operation, under the terms of the Share Purchase and Sale Agreement through UPI and Other Covenants and the Amendment to Oi's Judicial Recovery Plan.
12/Apr/2021 | Oi informed that, in the context of the negotiations held between, on the one hand, the Company and, on the other, Globenet Cabos Submarinos SA, BTG Pactual Economia Real Fundo de Investimento em Participações Multiestratégia and other investment funds managed or controlled by member companies of the BTG Group, Oi accepted, on this date, the revised binding proposal presented jointly by the Bidders for the acquisition of a portion of the interest held by the Company in Brasil Telecom Comunicação Multimídia SA, an isolated production unit that owns the fiber optic infrastructure assets, in the form of Clause 5.3.9.4 of the Amendment to the Judicial Reorganization Plan approved by the 7th Business Court of the Judicial District of the State of Rio de Janeiro. Without prejudice to the other terms and conditions set forth therein, the Binding Proposal, pursuant to Clause 5.3.9.4 of the PRJ Amendment, provides, on 12/31/21, for the firm value (EV) of SPE InfraCo of R\$ 20,020,000,000 .00, considering a net debt of R\$4,10,353,598.59, as provided for in Clause 5.3.8.1 of the PRJ Amendment, fully owed to Oi and to be repaid within 90 (ninety) days of the closing of the Transaction. The Binding Proposal contemplates the contribution to SPE InfraCo of a Primary Installment, the payment to Oi of a Secondary Installment, and the contribution to SPE InfraCo of an Additional Primary Installment, in addition to the Globenet Merger, as detailed in the company's notice.
03/May/2021 | Oi informed that Act No. 2875/2021 of the National Telecommunications Agency was published on this date, in the Official Gazette, by which the grants held by its wholly-owned subsidiary Telemar Norte Leste SA - In Judicial Reorganization were transferred to Oi provision of the Switched Fixed Telephone Service, in the public and private regimes, in all its modalities, and of the Multimedia Communication Service ("SCM"), including the associated authorizations for the right to use radiofrequency.
Due to the aforementioned transfer of grants, the merger of Telemar by Oi was implemented and became effective on this date, under the terms approved at the Company's Extraordinary General Meeting, held on second call on April 30, 2021, and in line with the Consolidated Judicial Reorganization Plan of Oi and its subsidiaries undergoing judicial reorganization.
10/May/2021 | Oi informed that, on this date, the Company's Board of Directors approved the voluntary resubmission of its financial statements for the fiscal year ended December 31, 2020.
The restatement does not affect the Statements of Income, Comprehensive Income, Changes in Shareholders' Equity, Cash Flows and corporate earnings/loss per share for the year ended December 31, 2020, nor does it affect the equity and financial position and the performance of its consolidated operations for the year then ended.
12/May/2021 | Oi informed about the release of the results for the first quarter of 2021.
17/May/2021 | Oi informed that the Company's Board of Directors has appointed Mr. Marcelo Pavão Lacerda to be part of the Innovation and Digital Transformation Committee, as an external member.
26/May/2021 | Oi informed that on the completion of the subscription and payment of the Convertible Debentures into Shares, Type with Collateral, in Single Series, for private placement, of the 1st issue of Brasil Telecom Comunicação Multimídia SA, an indirect subsidiary of the Company, in the total amount of R \$2,500,000,000.00.
21/Jun/2021 | Oi informed that its direct subsidiary Oi Móvel SA, responsible for contributing the mobile telephony assets to the share capital of UPI Ativos Móveis, signed, on this date, an indenture of nonconvertible debentures, of the type with real guarantee, with guarantee fiduciary additional, in a single series, for private placement, of the 2nd issue of Oi Móvel SA, in the total amount of R\$2,000,000,000.00.
07/Jul/2021 | Oi informed that the hearing was held to open closed bids presented under the competitive procedure for the partial sale of UPI InfraCo and that during the hearing, there was only one closed bid for the partial acquisition of UPI InfraCo, which was jointly presented by Globenet Cabos Submarinos SA and BTG Pactual Economia Real Fundo de Investimento em Participações Multistrategia in the exact terms and conditions of the binding proposal for the acquisition of UPI InfraCo presented by the Bidders.
Due to the presentation of the only closed bid for the partial acquisition of UPI InfraCo, the Judicial Reorganization Court approved the Bidders' proposal as the winner of the competitive procedure for the partial sale of UPI InfraCo.
As provided for in the UPI InfraCo Notice, the respective Share Purchase and Sale Agreement will be entered into with the Bidders, and the effective completion of the transfer of shares issued by SPE InfraCo will be subject to compliance with the conditions provided for in such agreement, among which, the prior consent of the National Telecommunications Agency – ANATEL and the approval of the partial sale of UPI InfraCo by the Administrative Council for Economic Defense – CADE.
14/Jul/2021 | Oi informed that he engaged financial institutions with the objective of evaluating alternatives for raising funds in the domestic or international debt capital market, in connection with the potential refinancing of the first issue debentures of Oi Móvel SA (Debtor in Possession – DIP) with maturity in January 2022.
19/Jul/2021 | Oi presented the Strategic Plan for the 2022-2024 Triennium.
The events and circumstances described below could result in a significant or material adverse effect on the financial condition of PHAROL and a corresponding decline or increase in the market price of the ordinary shares of PHAROL.
| Macro Risk |
Sub-Risk | Risk Factors |
|---|---|---|
| Oi's Performance | With Oi implementing the New Strategic Plan in progress and already operating normally in the market, PHAROL is indirectly subject to the performance of the Brazilian market, which directly impacts Oi's operating performance. |
|
| Economic Risks |
COVID-19 | PHAROL is subject to the potential economic shocks that a pandemic can cause in the economies in which society operates and may have a direct effect on the market value of the assets in which PHAROL has a stake. |
| Information Security |
PHAROL is exposed on a daily basis to security risks, including the availability, integrity and confidentiality of the information. |
|
| Financial Risks |
Exchange Rates | Foreign currency exchange rate risks relate mainly to PHAROL's investment in Oi (Brazil). Any exchange rate fluctuations of the Real against the Euro affect the valorization of Oi shares held by PHAROL, and therefore impact PHAROL's results and financial position. The society does not have a policy to cover the value of the financial investment. |
| Interest Rate | Interest rate risks basically relate to financial expenses and the floating interest rate debt and cash applications. PHAROL is indirectly exposed to this risk specially in Brazil. It should be noted that PHAROL has no bank debt as of December 31, 2020.Market interest rates also affect the discount rates used for impairment testing to the various assets of the company. |
| Treasury Applications |
PHAROL is mainly subject to credit risks in its treasury applications. In order to dilute these risks, in July 2014 the Board of Directors defined a policy for treasury applications and this policy has reviewed in 2019. |
|
|---|---|---|
| Default by Rio Forte as to the reimbursement of the instruments that PHAROL holds following the execution of the Exchange |
The Rio Forte Instruments currently held by PHAROL, are not guaranteed by assets. Therefore, even though there may exist amounts available for reimbursement to Rio Forte's creditors the right to reimbursement of PHAROL will be shared pro rata with the other unsecured creditors of Rio Forte and only after the repayment of all debts to any secured creditors, and after confirmation of the validity of the credits. PHAROL evaluates this instrument every year, with the supervision of the Fiscal Council and External Audit. |
|
| Legal Risks |
Court lawsuits | The Board of Directors subcontracts the risk analysis of the lawsuits to lawyers and external consultants, in order to know, for each one, what is their assessment of the responsibility of PHAROL (probable, possible or remote occurrence), the status of the process, the amounts involved, provisioned and paid and what steps to take in defending PHAROL's interests. |
| Litigation or investigations triggered under the Rio Forte Instruments or the Business Combination |
PHAROL may incur in liabilities in connection with litigation or other future proceedings and incur in defense costs in such litigation or other proceedings. Any liability incurred could adversely affect PHAROL's financial situation. |
|
| Oi's non-compliance with commitments with tax contingencies |
In accordance with the agreements with Oi, Oi is responsible for the payment of all contingencies until May 5, 2014 and PHAROL remains and severally liable for these contingencies. |
As at June 30, 2021, qualified holdings represented over 25.93% of PHAROL share capital, as follows:
| DATE OF INFORMATION |
ENTITIES | NO. OF SHARES | % OF CAPITAL |
% OF VOTING RIGHTS |
|---|---|---|---|---|
| 31/05/2012 | Telemar Norte Leste S.A.* | 89.651.205 | 10,00% | 10,00% |
| *Telemar was incorporated on May 3, 2021 into Oi S.A | ||||
| Total attributable | 89.651.205 | 10,00% | 10,00% | |
| 02/04/2018 | Novo Banco S.A. | 85.665.125 | 9,56% | 9,56% |
| Directly | 85.665.125 |
| Directly | 85.665.125 | ||
|---|---|---|---|
| Shares held by companies in a controlling or group relationship with Novo Banco, S.A. |
916 | ||
| Shares held by directors and members of the Corporate Bodies |
595 | ||
| Total attributable | 85.666.636 | 9,56% | 9,56% |
Under the terms of article 9, number 1 c), of Regulation number 5/2008 of CMVM, the following information is presented with respect to the qualified holdings held by the board members and supervisory bodies in PHAROL's share capital, which the company was informed about with reference to June 30, 2021 or the previous date, as indicated:
The fiscal council members, identified below, do not own any shares of PHAROL.
The managing-director Luís Maria Viana Palha da Silva is also member of the Board of Directors.
The Statutory Auditor does not own any shares of PHAROL.
The maximization of the value of Pharol's investments, which occupies a central place in its policies, started to benefit from a much closer observation position in the management of the most relevant stake, the Brazilian telecommunications company Oi. Pharol, the 2nd largest shareholder, with a 5.28% stake (excluding treasury shares), in this first half, saw its aspiration to see once again elected a member appointed by Pharol into the Board of Directors of that company. This situation allows not only a better knowledge of the development of business on a day-to-day basis, but also contributes more solidly to the definition and execution of strategic lines that create value for its shareholders.
In the accounts presented by Oi in the first quarter of the current year, the will of Oi's management to pursue the strategy of business concentration, investing in fiber infrastructure (FTTH) and executing the ambitious program of divestments and strengthening of the company's balance sheet is clear. Attention will now turn to building a solid business model in the core business activities of nova Oi, with a very determined focus on sales growth in the chosen areas and on the indispensable cost reduction.
At Rio Forte, the pace of minor developments persists in the legal processes in which Pharol is involved, particularly in Luxembourg: the list of creditors accepted by the Bankruptcy Administration is still unknown and some court decisions and expert work have been coming. to suffer unjustified delays.
With the recovery of some amounts under discussion with the Tax Authority and the containment of operating costs, especially in remuneration and FSE's, it was possible, in this semester of 2021, even as a result of the pandemic, to present a loss reduction before financial charges and taxes 27%, when compared to the same period in 2020.
Pharol's Board of Directors, knowing the extended period expected for a significant recovery in the value of assets – operational improvements at Oi dependent on new investments and lengthy legal proceedings at Rio Forte – has been analyzing the potential for a strategic diversification of the company's portfolio and thinking on the skills and costs that this would require, namely in strengthening the management team and achieving an adequate scale to manage a broader portfolio of holdings.
For the purposes of article 246 of the Portuguese Securities Code, the members of the Board of Directors of PHAROL SGPS, S.A., identified hereunder, hereby declare, in their capacity and within their functions as described therein, that, as far as they are aware, and based on information that they have had access to, through the Board of Directors and/or Executive Committee, as applicable, while in office:
Lisbon, July 23, 2021
Luís Maria Viana Palha da Silva, Chairman of the Board of Directors and Managing Director
Ana Cristina Ferreira Dias, Board Member
Avelino Cândido Rodrigues, Board Member
Maria do Rosário Amado Pinto Correia, Board Member
Maria Leonor Martins Ribeiro Modesto, Board Member
Pedro Zañartu Gubert Morais Leitão, Board Member
CONSOLIDATED FINANCIAL STATEMENTS
| PHAROL, SGPS S.A. | |||
|---|---|---|---|
| CONSOLIDATED INCOME STATEMENT PERIODS ENDED JUNE 30, 2021 AND 2020 |
|||
| Euro | |||
| Notes | 1H21 | 1H20 | |
| COSTS, LOSSES AND (INCOME) | |||
| Wages and salaries | 5 | 657,889 | 649,147 |
| Supplies, external services and other expenses | 6 | 684,874 | 639,159 |
| Indirect taxes | 7 | 79,921 | 88,827 |
| Depreciation | 41,952 | 59,657 | |
| Net other losses (gains) | 8 | (230,182) | 264,813 |
| 1,234,454 | 1,701,601 | ||
| Income (loss) before financial results and taxes | (1,234,454) | (1,701,601) | |
| FINANCIAL LOSSES AND (GAINS) | |||
| Net interest income | 9 | - | (1,246) |
| Net foreign currency exchange losses | (611) | 17,775 | |
| Net other financial expenses | 24,367 | 10,968 | |
| 23,756 | 27,496 | ||
| Income (loss) before taxes | (1,258,210) | (1,729,098) | |
| Income taxes | 10 | 14,370 | 13,735 |
| NET INCOME | (1,272,580) | (1,742,833) | |
| Attributable to equity holders of the parent | (1,272,580) | (1,742,833) | |
| Earnings per share | |||
| Basic and Diluted | 11 | (0.00) | (0.00) |
| PHAROL, SGPS S.A. | |||
|---|---|---|---|
| CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME PERIODS ENDED JUNE 30, 2021 AND 2020 |
|||
| Notes | 1H21 | Euro 1H20 |
|
| Net Income recognised in the income statement | (1,272,580) | (1,742,833) | |
| Income (expenses) recognised directly in shareholders' equity | |||
| Items that may be reclassified subsequently to the income statement | |||
| Foreign currency translation adjustments | 7,067 | 3,073 | |
| Gains (expenses) recorded in shareholders' equity related to joint ventures | |||
| Items that will not be reclassified to the income statement | |||
| Gains (losses) on financial assets at fair value Total earnings recognised directly in shareholders' equity |
(27,935,333) (27,928,266) |
1,893,718 1,896,791 |
|
| Total comprehensive income | (29,200,846) | 153,958 | |
| Attributable to non-controlling interests | - | - | |
| Attributable to shareholders of PHAROL SGPS | (29,200,846) | 153,958 |
| Euro | |||
|---|---|---|---|
| Notes | 30 jun 21 | 31 dec 20 | |
| ASSETS | |||
| Current Assets | |||
| Cash and cash equivalents | 16 | 19,473,684 | 20,729,910 |
| Accounts receivable | 136,904 | 138,017 | |
| Taxes receivable | 67,052 | 38,144 | |
| Prepaid expenses | 195,636 | 72,032 | |
| Total current assets | 19,873,276 | 20,978,103 | |
| Non-Current Assets | |||
| Tangible assets | 260,221 | 193,957 | |
| Financials assets | 12 | 80,420,007 | 110,255,384 |
| Other non-current assets | 13 | 51,906,005 | 51,905,456 |
| Total non-current assets | 132,586,233 | 162,354,798 | |
| Total assets | 152,459,509 | 183,332,901 | |
| LIABILITIES | |||
| Current Liabilities | |||
| Accounts payable | 14 | 113,580 | 334,283 |
| Accrued expenses | 15 | 871,584 | 896,867 |
| Taxes payable | 213,483 | 132,597 | |
| Other current liabilities | 17 | 16,100,963 | 16,406,713 |
| Total current liabilities | 17,299,610 | 17,770,460 | |
| Non-Current Liabilities | |||
| Medium and long-term debt | 271,018 | 189,847 | |
| Total non-current liabilities | 271,018 | 189,847 | |
| Total liabilities | 17,570,628 | 17,960,307 | |
| SHAREHOLDERS' EQUITY | |||
| Share capital | 26,895,375 | 26,895,375 | |
| Treasury shares | (186,156,710) | (184,873,844) | |
| Legal reserve | 6,773,139 | 6,773,139 | |
| Reserve for treasury shares | 193,127,337 | 191,844,164 | |
| Other reserves and accumulated earnings | 94,249,740 | 124,733,759 | |
| Total equity | 134,888,881 | 165,372,593 | |
| Total liabilities and shareholders' equity | 152,459,509 | 183,332,900 |
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY PERIODS ENDED JUNE, 30 3021 AND DECEMBER 31, 2020
| Euro | |||||||
|---|---|---|---|---|---|---|---|
| Other reserves | |||||||
| and | |||||||
| Share | Treasury | Legal | Reserve for | accumulated | Equity excluding non | Total | |
| capital | shares | reserve | treasury shares | earnings | controlling interests | equity | |
| Balance as at December 31, 2019 | 26,895,375 | (181,842,907) | 6,773,139 | 188,813,227 | 90,907,501 | 131,546,335 | 131,546,335 |
| Acquisition of own shares | - | (3,030,937) | - | 3,030,937 | (3,030,937) | (3,030,937) | (3,030,937) |
| Income (expenses) recognized directly in equity | - | - | - | - | 51,173,110 | 51,173,110 | 51,173,110 |
| Income recognized in the income statement | - | - | - | - | (14,315,915) | (14,315,915) | (14,315,915) |
| Balance as at December 31, 2020 | 26,895,375 | (184,873,844) | 6,773,139 | 191,844,164 | 124,733,759 | 165,372,593 | 165,372,593 |
| Balance as at December 31, 2020 | 26,895,375 | (184,873,844) | 6,773,139 | 191,844,164 | 124,733,759 | 165,372,593 | 165,372,593 |
| Acquisition of own shares | - | (1,282,867) | - | 1,283,174 | (1,283,174) | (1,282,867) | (1,282,867) |
| Income (expenses) recognized directly in equity | - | - | - | - | (27,928,266) | (27,928,266) | (27,928,266) |
| Income recognized in the income statement | - | - | - | - | (1,272,580) | (1,272,580) | (1,272,580) |
| Balance as at June 30, 2021 | 26,895,375 | (186,156,711) | 6,773,139 | 193,127,338 | 94,249,740 | 134,888,881 | 134,888,881 |
| Euro | |||
|---|---|---|---|
| Notes | 1H21 | 1H20 | |
| OPERATING ACTIVITIES | |||
| Payments to suppliers | 16.a | (1,109,070) | (989,694) |
| Payments to employees | (647,587) | (704,766) | |
| Payments relating to income taxes | - | (2,701) | |
| Other cash receipts, net | 16.b | (80,759) | 5,618,646 |
| Cash flows from operating activities (1) | (1,837,416) | 3,921,485 | |
| INVESTING ACTIVITIES | |||
| Cash receipts resulting from: | |||
| Interest and related income | - | 1,246 | |
| Capital gains and other equity instruments | 1,840,994 | - | |
| 1,840,994 | 1,246 | ||
| Payments resulting from: | |||
| Financial investments | - | 7,916 | |
| Tangible and intangible assets | (45,260) | (520) | |
| (45,260) | 7,396 | ||
| Cash flows from investing activities (2) | 1,795,733 | 8,642 | |
| FINANCING ACTIVITIES | |||
| Cash receipts resulting from: | |||
| Other financing activities | 38,803 | - | |
| 0 | 0 | ||
| Payments resulting from: | |||
| Loans repaid | - | (4,813) | |
| Interest and related expenses | (15,883) | (2,409) | |
| Purchase of own shares | (1,282,867) | - | |
| (1,298,750) | (7,222) | ||
| Cash flows from financing activities (3) | (1,298,750) | (7,222) | |
| Cash and cash equivalents at the beginning of the period | 20,729,910 | 17,948,653 | |
| Change in cash and cash equivalents (4)=(1)+(2)+(3) | (1,301,630) | 3,922,907 | |
| Effect of exchange differences Cash and cash equivalents at the end of the period |
16.c | 45,404 19,473,684 |
(20,960) 21,850,600 |
(Amounts stated in Euros, except where otherwise mentioned)
As of June 30, 2021, PHAROL indirectly holds through 100% owned subsidiaries, 314,490,159 common shares, representing 5.28% of Oi's total share capital (excluding treasury shares).
Based on the agreements concluded on March 30, 2015 between PHAROL and Oi, PHAROL currently holds Rio Forte debt instruments with a nominal value of Euro 897 million.
The interim consolidated financial statements were prepared according to the International Accounting Standard (IAS) 34 Interim Financial Reporting. Therefore, the financial statements do not include all information required by the International Financial Reporting Standards ("IFRS") as adopted by the European Union and so should be read in conjunction with the consolidated financial statements of December 31, 2020. Additionally, the interim management report discloses further explanations regarding major variations in income and expenses, and as such these interim consolidated financial statements should be read with the management report. The disclosed interim financial statements were not subject to external audit or review.
The presented financial statements follow the same accounting policies applied in the most recent annual financial statements.
On June 30, 2021 and December 31, 2020, assets and liabilities denominated in foreign currencies were translated to Euros using the following exchange rates to the Euro:
| Currency | 30 jun 21 | 31 dec 20 |
|---|---|---|
| Real | 5.9050 | 6.3735 |
| USD | 1.1884 | 1.2271 |
On June 30, 2021 and 2020, the statements of financial position, income statements and cash flows of subsidiaries and associated denominated in foreign currencies were translated to euros using the following exchange rates to the Euro:
| Currency | 1H21 | 1H20 |
|---|---|---|
| Real | 6.4902 | 5.4104 |
| USD | 1.2053 | 1.1195 |
The composition of this caption in the first semester of 2021 and 2020 is as follows:
| Euro | ||
|---|---|---|
| 1H21 | 1H20 | |
| Fixed and variable remuneration | 534,121 | 465,188 |
| Social security | 102,616 | 105,696 |
| Other | 21,152 | 78,262 |
| 657,889 | 649,147 |
The composition of this caption in the first semester of 2021 and 2020 is as follows:
| Euro | ||
|---|---|---|
| 1H21 | 1H20 | |
| Specialized work (i) | 399,897 | 370,857 |
| Insurance | 142,096 | 164,106 |
| Travel | 1,601 | 8,225 |
| Other | 141,281 | 95,970 |
| 684,874 | 639,159 |
(i) This caption refers mainly to legal and consultancy services.
The composition of this caption in the first semester of 2021 and 2020 is as follows:
| Euro | ||
|---|---|---|
| 1H21 | 1H20 | |
| VAT | 79,424 | 87,840 |
| Other | 497 | 987 |
| 79,921 | 88,827 |
In the semester ended June 30, 2021, this caption has a gain in the amount of 230 thousand euros, the value of which is related to the refund of income taxes from previous years.
In the semester ended on June 30, 2020, this caption has a value of Euro 264,813, mainly explained by the CMVM's fine of Euro 250,000, in the context of the administrative proceeding, initiated by the CMVM against PHAROL and several former directors, due to the fact that the disclosure of consolidated reports and accounts for the years 2012 and 2013 and the first quarter of 2014, as well as the corporate governance reports for the years 2012 and 2013, did not comply with the information requirements.
The composition of this caption in the first semester of 2021 and 2020 is as follows:
| Euro | ||
|---|---|---|
| 1H21 | 1H20 | |
| Net interest earned | ||
| Related to cash and cash equivalents (i) | - | (1,246) |
| - | (1,246) |
(i) Interest income obtained relates to cash amounts applied in term deposits by PHAROL SGPS.
In June 2021, companies located in mainland Portugal are subject to Corporate Income Tax at a base rate of 21.0%, plus (1) up to a maximum of 1.5% of taxable income through a municipal tax, and (2) a state surcharge levied at the rates of 3.0% on taxable income between Euro 1.5 million and Euro 7.5 million, 5.0% on taxable income between Euro 7.5 million and Euro 35 million and 9.0% on taxable income in excess of Euro 35.0 million, resulting in a maximum aggregate tax rate of approximately 31.5% for taxable income higher than Euro 35 million. When calculating taxable income to which the above tax rate is applied, nontax-deductible amounts are added to or subtracted from accounting records.
The composition of the corporate income tax for the first semester of 2021 and 2020 is as follows:
| Euro | ||
|---|---|---|
| 1H21 | 1H20 | |
| Income tax | ||
| Income tax - current | 14,370 | 13,735 |
| 14,370 | 13,735 |
Earnings per share in the first semester of 2021 and 2020 were as follows:
| Euro | |||
|---|---|---|---|
| 1H21 | 1H20 | ||
| Net loss attributable to equity holders | |||
| of Pharol | (1) | (1,272,580) | (1,742,833) |
| Weighted average common shares | |||
| outstanding in the period | (2) | 816,928,421 | 846,440,786 |
| Earnings per share from continuing | |||
| operations | |||
| Basic and diluted | (1)/(2) | (0.00) | (0.00) |
This caption corresponds to the investment in Oi, which since December 2017 has been measured at fair value. Until that date, Oi was classified as associate and measured by the equity method.
On September 8, 2014, PHAROL entered into an Exchange Agreement with Oi, for the Exchange of a portion of Oi shares held directly by PHAROL for the Rio Forte Investment and the Call Option over the shares. The Exchange was completed on March 30, 2015, after obtaining all necessary approvals. Because of the Exchange, the portion of the investment in Oi delivered in connection with the Exchange was classified as a non-current asset held for sale and measured at fair value based on the price of Oi shares until the Exchange Agreement date. The remaining interest of 22.8%, including the interests of 15.9% and 3.0% held directly by PHAROL and Bratel Brasil, respectively, and the interest of 3.9% owned indirectly through the controlling holding companies of Oi, remained classified as an investment in joint ventures, measured according to the equity method of accounting. After the Exchange Agreement, on March 30, 2015, the interest was 27.5%.
Leading up to the New Ownership Structure of Oi, the Shareholder Agreements through which Oi was jointly controlled were terminated on July 30, 2015. The simplification of the structure occurred on September 1, 2015, and led to the incorporation by Oi of several assets at fair value that were not previously booked by the holding companies.
As a result of the transaction, PHAROL's effective share in Oi reduced from 27.5% to 27.4%. Furthermore, during 2015, changes to Oi's bylaws were approved, which included a 15% limitation on the voting rights of any individual shareholder.
On October 8, 2015, Oi's Board of Directors homologated the voluntary conversion of Oi's preferred shares into common shares ("Voluntary Conversion of PSs"), approved the effective conversion of the preferred shares, object to the conversion manifestations in BM&FBovespa and in the Bank of Brazil, and accepted the conversion solicitations presented by the holders of American Depository Shares ("ADSs") representative of preferred shares ("Preferred ADSs"). The ADSs representative of the new common shares, resulting from the Offer to Exchange, related with the Voluntary Conversion of PSs, were issued on October 13, 2015. Following this operation, PHAROL's effective stake in Oi decreased from 27.4% to 27.2%.
However, in December 2017, and after the decision by the 7th Business Court of the District of the Capital of the State of Rio de Janeiro, before which it handles the Judicial Recovery ("Judgment"), which decided to withdraw the rights of the members of the Council Board of Directors of Oi in the approval of Oi's Judicial Recovery Plan in which Oi is located, and subsequent events, it was understood that PHAROL lost the significant influence it had until then on its associate Oi SA. Therefore as of December 31, 2017, PHAROL started to record its investment in Oi at market value, and it was classified as "Financial Assets".
Therefore, on June 30, 2021 and December 31, 2020, the accounting for Oi Investment, is as follows:
| 1H21 | 31 dez 20 | ||
|---|---|---|---|
| Stock Price Oi (ON) | R\$ | 1.51 | 2.20 |
| Stock Price Oi (PN) | R\$ | 2.21 | 2.82 |
| Shares Outstanding (ON) | Million | 5,796 | 5,796 |
| Shares Outstanding (PN) | Million | 156 | 156 |
| Market Cap. | R\$ Million | 9,097 | 13,192 |
| Number of shares owned by PHAROL (ON) | Million | 314.5 | 319.4 |
| Number of shares owned by PHAROL (PN) | Million | - | - |
| % Participation | % | 5.28% | 5.37% |
| Market value R\$ | R\$ Million | 474.9 | 702.7 |
| Market value Eur. | Eur. Million | 80.4 | 110.3 |
The composition of this caption comprises an estimated future recovery of Euro 51.9 million related to the debt securities issued by Rio Forte on June 30, 2021 and December 31, 2020.
Regarding the debt securities issued by Rio Forte, after having been made aware of the Report of the Judicial Administrators in the Rio Forte insolvency case (Rapport nº 4 des Curateurs), dated August 31, 2016, available at www.espiritosantoinsolvencies.lu, PHAROL began procedures to assess the financial, accounting and legal implications of the information contained in section 2.1.6., which is transcribed in a free translation as follows:
The information currently available to the Judicial Administrators does not allow an estimate of either the total recovery or the recovery to be made by the company currently in bankruptcy proceedings.
It cannot be excluded that judicial seizing and the eventual rights of third parties involved will prolong or even definitively prevent the bankrupt estate from recovering and distributing certain assets. In fact, it is not excluded that the judicial authorities have the objective of confiscating the assets now seized."
The Board of Directors of PHAROL, after taking appropriate measures and supported by the analysis of its advisers, concluded, based on the of principle of prudence, that the expected recoverability of the insolvent estate and, consequently, PHAROL's expected recoverability of its debt instruments of Rio Forte, have reduced. PHAROL's investment in the Rio Forte securities was initially valued at fair value upon initial recognition on March 30, 2015 and subsequently measured at amortized cost less any impairment losses. Based on the principles of IAS 39 (currently IFRS9), taking into account available information, Management used its judgment in the definition of assumptions that culminated in a valuation of the amount due from Rio Forte at 85.7 million euros at December 31, 2016. This reflects an appraisal of some 9.5% of the nominal value, against approximately 15% of the nominal value at December 31, 2015, which resulted in the accounting for an impairment of € 48.8 million.
In addition, in December 2017, the amount of credit claims considered in the last report of the Judicial Administrators was higher than previously considered, the debt recovery valuation was again revised downwards, registering in 8, 32% recovery, equivalent to a reduction of Euro 11.1 million to the amount of Euro 74.6 million. On December 31, 2018, the debt recovery value remained at 8.32%.
On 2019 and 5 years after the filing of the Rio Forte credit claim, a new report by the Judicial Administrators was published on 30 April 2019, which essentially points to: 1) postponement of the results of the conclusion of the analysis. debt declarations; and 2) downward revision of Rio Forte's asset value in Latin America; Accordingly, and based on these new factors, the recovery in debt recovery was once again revised downwards to 7.19% of nominal value recovery, equivalent to a reduction of 10.1 million euros. Euro to the amount of Euro 64.5 million. Even in the year of 2019 and after the analysis of the last report issued by the Judicial Administrators, with effect on December 31, 2019, it was once again revised downwards, with the face value recovery set at 7.02 %, which is equivalent to an additional reduction of Euro 1.5 million to a total recovery amount of Euro 63 million. On December 31, 2020, a new downward revision of the nominal value recovery was carried out to 5.79%, essentially justified by the depreciation of assets held by Rio Forte in Latin America, which is equivalent to a reduction of 11.1 million from Euros to the amount of 51.9 million Euros. This value was maintained on June 30, 2021.
Furthermore, as part of the credit to Rio Forte, PHAROL in December 2017 was informed of a statement from the curators of Espírito Santo International, SA, ("ESI") stating that this bankrupt company will evaluate the possibility of sue PHAROL, requesting the reimbursement of EUR 750 million without specifying the reasons for that request.
Following this announcement, as early as January 2019, PHAROL was notify by ESI's trustee as a precautionary measure to discontinue any limitation period in view of any cancellation of ESI Notes payments made during January 2014
Upon examination of the abovementioned subpoena, PHAROL considers it highly unlikely that any PHAROL conviction on the subpoena could be based on the alleged facts. Accordingly, PHAROL did not record any provision in its financial statements.
On June 30, 2021 and December 31, 2020, the composition of this caption is as follows:
| Euro | ||
|---|---|---|
| 30 jun 21 | 31 dec 20 | |
| Current accounts payable | ||
| Current suppliers | 111,924 | 271,498 |
| Others | 1,656 | 62,785 |
| 113,580 | 334,283 |
On June 30, 2021 and December 31, 2020, the composition of this caption is as follows:
| Euro | ||
|---|---|---|
| 30 jun 21 | 31 dec 20 | |
| Accrued expenses | ||
| Supplies and external services | 562,305 | 507,531 |
| Vacation pay and bonuses | 287,398 | 356,116 |
| Others | 21,881 | 33,220 |
| 871,584 | 896,867 |
During the first semester of 2021 and 2020, payments to suppliers mainly reflect payments, related to third party suppliers and consultants.
In the first half of 2021, other net payments essentially include the payment of bank guarantee commissions net of tax refunds.
In the first half of 2020, other net receipts essentially include reimbursements made by the Portuguese Tax Authority in relation to taxes paid in previous years.
On June 30, 2021 and December 31, 2020, the composition of this caption is as follows:
| Euro | ||
|---|---|---|
| 30 jun 21 | 31 dec 20 | |
| Cash and cash equivalents | ||
| Cash | 2,724 | 2,823 |
| Demand deposits | 19,470,960 | 20,727,087 |
| 19,473,684 | 20,729,910 |
As of June 30, 2021 and December 31, 2020, this caption has the following composition:
| Euro | ||
|---|---|---|
| 30 jun 21 | 31 dec 20 | |
| Bank and other guarantees presented to the tax authorities | 84,617,476 | 84,617,476 |
| 84,617,476 | 84,617,476 |
(i) The bank and other guarantees presented to the tax authorities essentially include Euro 85 million on June 30, 2021 and December 31, 2020, respectively, related to the tax assessments received by PHAROL. The company presented legal challenges to these assessments and, in accordance with the Portuguese Law, provided collateral, in order to avoid the initiation of enforcement proceedings, which, in the absence of guarantee or payment of the contested tax, would continue until the request of a pledge of sufficient assets to cover the requested tax. The Portuguese Law, while always allowing for the appeal over taxes liquidated by the tax authorities, only suspends enforcement proceedings upon payment of the tax, or the provision of a guarantee. Providing a guarantee, thereby, avoids the payment of tax before the appeal decision or attachment of assets in enforcement proceedings. The change in the value of the guarantees provided in 2018 occurred due to cancellation due to the expiration of part of the guarantees.
These guarantees were presented by PHAROL as the dominant company of the consolidated fiscal in the years in question, although as of June 30, 2021 the contingencies associated with these guarantees are not the responsibility of the Company, but were transferred to Oi, but remained the same. PHAROL jointly and severally. Notwithstanding the forfeiture and consequent cancellation of part of the Guarantees, tax proceedings remain ongoing and Oi remains liable for them and may amount to up to 382 million Euros. Also, within the scope of the agreements entered into, Oi is also required to replace the bank guarantees provided by PHAROL to the Tax Authority with guarantees provided by Oi. In cases where this substitution is not possible, Oi has undertaken to provide equivalent guarantees. in favour of PHAROL.
As such, on December 31, 2020, a Pledge Agreement for shares of Telemar Norte Leste was in effect with a maximum amount up to the limit of potential liabilities currently existing. However, due to the incorporation to May 3 2021 Telemar Norte Leste into Oi SA, Pharol and Oi, in order to maintain these counter-guarantees in force, reformulated the pledge contract, now having a pledge made on 644,019,090 shares common shares issued by Oi to face a possible conviction in tax contingencies for which Oi is responsible. If this amount is fully used for this purpose, Oi SA undertakes to reinforce the counter-guarantees in effect.
In 2019, following the Private Transaction Instrument and Other Covenants, signed between PHAROL and Oi on January 8, 2019, that clarified the destination to be given to the tax authority's refunds, these were recognized in the "Other accounts payable".
In January 2020, pursuant to the aforementioned agreement, Oi, through PT Participações SGPS, SA, made a deposit in a guarantee account in the amount of 34,340,803.32 Euros, intended to guarantee PHAROL in the event of eventual condemnation in contingencies Oi's responsibility, this amount will be replaced by Oi SA once it is used for this purpose.
During the first semester 2021 and 2020 there were no costs or revenues related to associated companies.
During the periods years ended June 30, 2021 and 2020, the fixed remuneration of the Board members, which was established by the Remuneration Committee, amounted to Euro 269 thousand and Euro 295 thousand million, respectively.
The Company believes that it is relevant to disclose outstanding balances and transactions with its main shareholders, namely those with a qualified holding of more than 2% in PHAROL's share capital, and with all the entities reported by these shareholders as being part of the respective economic groups. The tables below present the balances as of June 30, 2021 and December 31, 2020, and the transactions occurred in June 30, 2021 and 2020 between PHAROL and the entities that are identified as shareholders with qualified holding and respective economic groups:
| Euro | |||
|---|---|---|---|
| 30 jun 21 | 31 dez 20 | ||
| Cash and bank deposits | |||
| Shareholder | |||
| Novo Banco | 2,837,747 | 2,836,027 | |
| 2,837,747 | 2,836,027 |
| Euro | ||||
|---|---|---|---|---|
| 1H21 | 1H20 | |||
| Net interest | Net interest | |||
| Costs and losses | income | Costs and losses | income | |
| Shareholder | ||||
| Novo Banco | 161 | - | 188 | 469 |
| 161 | - | 188 | 469 |
Oi's stock price evolution between June 30 and July 22, 2021 can be found below:
| 30 jun 21 | 22 jul 21 | |
|---|---|---|
| Oi ON share price (Reais) | 1.51 | 1.27 |
| Exchange rate Real/Euro | 5.905 | 6.1029 |
| Oi ON share price (Euro) | 0.26 | 0.21 |
STATEMENT OF THE FISCAL COUNCIL
Consolidated Report │ First Semester 2021 35
(Sub-paragraph c), paragraph 1 of Article 246 of the Portuguese Securities Code)
Under the terms and for the purposes of the sub-paragraph c), paragraph 1 of article 246 of the Portuguese Securities Code, the members of the Supervisory Board of PHAROL, SGPS S.A. ("PHAROL") declares that:
To the best of your knowledge, the information the information provided for in paragraph a) of paragraph 1 of article 246 of the Portuguese Securities Code was prepared in accordance with the applicable accounting standards, giving a true and appropriate image of the assets and liabilities, the financial situation and the results of PHAROL and the companies included in the consolidation perimeter, and that the interim management report for the first half of 2021 faithfully exposes the important events that occurred in the period to which it refers and the impact on said financial statements, as well as contains a description of the main risks and uncertainties for the next six months.
Lisbon, July 23, 2021
President: José Eduardo Fragoso Tavares de Bettencourt
Members: Isabel Maria Beja Gonçalves Novo
João Manuel Pisco de Castro
Investor Relations Luís Sousa de Macedo Investor Relations Director PHAROL, SGPS S.A. Rua Joshua Benoliel, 1, 2c Edifício Amoreiras Square 1250-133 Lisboa, Portugal Tel: +351 21 269 7698 Fax: +351 21 269 7949 E-mail: [email protected]
Shareholders, investors, analysts and other interested parties should send their requests for information and clarifications (annual, half year, and quarter reports, press releases, etc.).
Depositary bank Deutsche Bank Trust Company Americas ADR Division Floor 27 60 Wall Street New York 10005-2836 Fax: +1(732)544-6346
Holders of ADRs may also request additional information directly from PHAROL's depositary bank for ADRs in New York.
All publications and communications, as well as information regarding the businesses performed by the Company, are available on PHAROL's Internet page, at the following address: www.pharol.pt
Registered Office Rua Joshua Benoliel, 1, 2c Edifício Amoreiras Square 1250-133 Lisboa, Portugal Tel: +351 21 269 7690 Registered with the Commercial Registry Office of Lisbon Under No. 503 215 058
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