Annual Report • May 29, 2020
Annual Report
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| 1Q20 Preliminary Considerations |
4 |
|---|---|
| 1Q20 Highlights |
6 |
| Governing Bodies |
8 |
| Management Report |
9 |
| Consolidated Financial Statements |
19 |
objective is to keep customers connected to their core telecommunications and entertainment services. We have implemented a number of commercial measures with a direct impact on economic and financial performance, namely: an increase in mobile data allowances to provide easier service access, free premium sports channels subscription given the suspension of live sports events, reinforced service and maintenance capacity for the B2B segment and reinforced own store safety measures. Although the formal lock-down was only declared on 16 March, the nationwide implementation of social distancing measures and the clear slowdown in economic activity started to be felt towards the end of February, and as such impacted performance for all of March. The main operating impacts of the pandemic in our 1Q20 revenues were felt namely in:
o of a number of movie premieres;
| 1Q20 Highlights | 1Q19 | 1Q20 | 1Q20 / 1Q19 |
|---|---|---|---|
| Operating Highlights | |||
| Homes Passed | 4,449.5 | 4,639.6 | 4.3% |
| % FttH | 27.4% | 33.2% | 5.9pp |
| Total RGUs | 9,508.5 | 9,707.9 | 2.1% |
| Pay TV RGUs | 1,616.8 | 1,644.0 | 1.7% |
| Convergent + Integrated Customers | 896.1 | 942.0 | 5.1% |
| Fixed Convergent + Integrated Customers as % of Fixed Access Customers | 58.5% | 60.2% | 1.7pp |
| Mobile RGUs | 4,749.5 | 4,847.1 | 2.1% |
| Residential ARPU / Unique Subscriber With Fixed Access (Euros) | 44.9 | 44.2 | (1.8%) |
| Financial Highlights | |||
| Operating Revenues | 355.9 | 345.4 | (3.0%) |
| Telco Revenues | 340.4 | 332.9 | (2.2%) |
| EBITDA | 160.2 | 152.7 | (4.6%) |
| EBITDA Margin | 45.0% | 44.2% | (0.8pp) |
| Telco | 146.9 | 141.8 | (3.4%) |
| EBITDA Margin | 43.1% | 42.6% | (0.5pp) |
| Net Income Before Associates & Non-Controlling Interests | 41.7 | (2.0) | n.a. |
| EBITDA - Total CAPEX Excluding Leasings | 72.9 | 64.5 | (11.5%) |
| Total Free Cash-Flow Before Dividends, Financial Investments and Own Shares Acquisition |
42.9 | 34.6 | (19.2%) |
As at the date of this report, 06 May 2020
| Board of Directors | |
|---|---|
| Chairman of the Board of Directors | Ángelo Paupério |
| Chairman of the Executive Committee | Miguel Almeida |
| Members of the Executive Committee | José Pedro Pereira da Costa, Vice-Presidente, CFO Ana Paula Marques, Vice-Presidente |
| Jorge Graça Luis Nascimento Manuel Ramalho Eanes |
|
| Members | Ana Rita Cernadas |
| António Domingues | |
| António Lobo Xavier | |
| António Correia Teles | |
| Catarina Tavira | |
| Cristina Marques | |
| João Torres Dolores | |
| Joaquim de Oliveira | |
| José Carvalho de Freitas | |
| Maria Cláudia de Azevedo | |
| Fiscal Board | |
| Chairman of the Fiscal Board | José Pereira Alves |
| Members | Patrícia Couto Viana |
| Paulo Mota Pinto | |
| Alternate | Ana Luisa Aniceto da Fonte |
| Officials of the General Meeting of Shareholders | |
| Chairman | Pedro Canastra de Azevedo Maia |
| Secretary | Tiago Antunes da Cunha Ferreira de Lemos |
| Statutory Auditor | |
| In Office | ERNST & YOUNG AUDIT & ASSOCIADOS, SROC, S.A., (ROC number 178 and registered at CMVM with the number 9011, represented by Sandra e Sousa Amorim (ROC number 1213); |
| Alternate | Pedro Jorge Pinto Monteiro da Silva e Paiva (ROC n.º 1258) |
Total RGU growth maintained a relatively stable performance with net adds of 20.5 thousand in 1Q20, despite the generalized slowdown in economic activity since lower sales were, in part, compensated by lower marketwide churn rates. Total RGUs increased by 2.1% yoy to 9.708 million services, with Consumer RGUs growing by 2.2% yoy to 8.216 million and Business Services growing 1.4% to 1.492 million. With the institution of pandemic related nationwide restrictions and stay-at-home recommendations, almost all proactive commercial initiatives were put on hold and marketing campaigns focused on institutional positioning and support during this unprecedented crisis. Pay TV subscribers grew by 5.3 thousand in 1Q20, of which 4.4 thousand over fixed access technology and with the DTH subscriber base posting net growth for the first time since 3Q16. The number of fixed broadband and voice customers grew by 10.2 thousand and 8.2 thousand respectively in the quarter, higher than the same quarter last year, further supported towards the end of the quarter by the relevance of residential fixed solutions due to stay-at-home recommendations. Post paid mobile net adds posted yoy growth of 31% to 21 thousand in 1Q20 driving a significant reduction in negative net adds in total mobile RGUs in comparison with the previous year, reducing from -18.2 to -4 thousand in 1Q20.
Customers subscribing to convergent and integrated packages recorded net adds of 11.3 thousand to 942 thousand, representing 60% of the fixed access customer base by the end of the quarter and clear evidence of the importance in the Portuguese market that customers place on taking their fixed and mobile services within the same monthly bill and of their appreciation of high bandwidth and more flexible, made-to-measure tariff plans with high usage allowances and content line up. Average Revenues in fixed residential services posted a marginal yoy decline of 1.8% to 44.2 euros, reflecting a combination of stability in basic monthly contract revenues which was diluted by a decline in more discretionary revenues such as premium channel revenues, off bundle traffic and roaming-out revenues.
-hour channel with a selection of the most popular TVI produced series, soap-operas, sitcoms and mini-series. Already at the beginning of April, NOS launched an under isolation at home with creative and inspiring ideas for things to do such as new recipes, decoration, fashion and beauty, travel and wellis included in the regular line-up in HD format and with access to all interactive functionalities such as restart TV, automatic and advanced recording and is also available over the NOS TV APP.
The competencies and technological platforms that we have been developing to serve our business customers and to partner in their transformation initiatives have served us well in the past weeks as reflected in our ability to provide fast and technologically cutting-edge support in their own deployment of remote work platforms. During the period we launched a specific offer sharing all internal information prepared for our own crisis response plan, with a regular and time critical flow of information providing customers with a benchmark on how to implement their own response strategies. We also launched a sophisticated Analytics programme to support public institutions and companies to monitor the COVID pandemic. Examples of success in the large corporate space were our ability to implement, in a 24-hour timeframe, IT solutions and platforms, such as VPNs, remote service desks and collaborative tools supporting our customers in their move to work-fromhome models. Although acceleration of these kinds of solutions in corporate and large businesses was driven by the pandemic, we believe it provides a platform for future expansion in the portfolio of IT and data solutions we provide our customers, a core element of our strategy for the business segment. On a more negative note, revenues, in particular in the smaller business segment, were impacted by the suspension of payment of premium sports channels in March, and the difficulties felt by many smaller clients to surpass an indefinite period of business shutdown. Wholesale revenues recorded a negative performance in the quarter reflecting
the collapse of roaming-in revenues caused by global travel restrictions and also as a result of the decline in low-margin mass calling service (MCS) revenues due to lower game and reality show broadcasting.
Consistent with overall sector trends, traffic volumes have increased exponentially in recent weeks due to the almost overnight shift to remote work and learning platforms from home and the increase in time spent on entertainment and gaming platforms. The increase has been particularly relevant over fixed networks given the stay-at-home restrictions. Given the huge investments made in past years to deploy our nationwide next generation network, both fixed and mobile, with best in class capabilities and service levels, we have successfully withstood the peak in network demand, delivering services with only minimum levels of disruption. This ability to respond effectively in times of crisis, and guarantee critical business and social continuity, is a reflection of the strategic national relevance of nurturing well invested and financially sustainable telecommunications operators in the country.
In this regard, conditions to deploy telecoms infrastructure during this period have been comparatively favourable and as such, we have resumed a normalized pace of FttH expansion. By the end of 1Q20, we had guaranteed access to an additional 27 thousand FttH households net, through own deployment and wholesale access mostly within the framework of our FttH sharing agreement. FttH penetrations as a proportion of our total fixed coverage grew to 33.2% compared with 27.4% at the end of 1Q19 and an additional 1.4pp in comparison with the previous quarter.
The sophistication and resilience of our next generation networks, both fixed and mobile, has really been put to the test over the past weeks with the unprecedented change in usage intensity and traffic profiles, due to the almost overnight implementation of new, remote and digital ways of working and learning from home. The increased video and data usage and traffic related with work, academic, social and entertainment platforms led to a huge step up in traffic usage in a very short time frame. And our network passed with flying colours, delivering consistently best-in-class levels of service quality and experience. The relevance of the feat is evident in the increase in traffic on the network during this exceptional period, with an average of 30% more traffic in both fixed and mobile 4G and with an almost 50% escalation in upstream traffic since the last week of February. The ability to ensure this kind of nationwide service quality bears witness to the ongoing intense technological investment made over the years in both capacity, coverage and technological innovation, providing portuguese consumers with access to the very best network, next generation, capabilities and services at highly competitive prices, which compares particularly well with the vast majority of other international markets.
organizational response to the pandemic has been best in class at all levels with the company pioneering incorporation of measures that ensure social distancing recommendations in all processes and interactions whilst, at the same time, launching inclusive initiatives to support and engage employees, customers, communities and business partners. The company-wide digitalization programme we have been pursuing over the past companywide digital transformation programme is focused on addressing customer needs and accelerating the release of new digital features, contributing directly to sustained growth in demand and usage of digital channels. During 1Q20, due to the current context, we reinforced our focus on driving customer takeup of digital touchpoints, having recorded a 51% increase in the number of users of NOS customer service apps and also a marked acceleration of online equipment sales and customer acquisition, all of which key pillars of our digital transformation programme. Several new releases and campaigns were launched during the period, such as the 10GB mobile data allowance available only for redemption over digital channels which generated more than 40% take-up with digital customers. On the customer service front, where the majority of the workforce is outsourced, we were able to transfer 90% of the operation to work-from-home models in a little more than a week. In comparison with normal activity levels, both technical and non-technical inbound demand increased by more than 30% with issues mainly related to clients calling to request increased service capacity, with migration of customer traffic from stores and general enquiries about digital payment options. To meet the shift in demand we were able to reassign staff from frontline commercial activities ensuring 100% remote training for reassigned employees and, despite the significant increase in demand, service response levels were consistently maintained close to 90%. Regarding our installation and technical field force, the processes we
have developed to digitalize and simplify customer interactions have proven especially important, enabling our technicians to adapt immediately to Covid-19 driven restrictions whilst still delivering benchmark levels of productivity and response times, and ensuring stringent health protection measures for both technicians and customers from the beginning of the pandemic.
| Operating Indicators ('000) | 1Q19 | 1Q20 | 1Q20 / 1Q19 |
|---|---|---|---|
| Telco (1) | |||
| Homes Passed | 4,449.5 | 4,639.6 | 4.3% |
| Total RGUs | 9,508.5 | 9,707.9 | 2.1% |
| o.w. Consumer RGUs | 8,037.7 | 8,216.2 | 2.2% |
| o.w. Business RGUs | 1,470.8 | 1,491.7 | 1.4% |
| Mobile | 4,749.5 | 4,847.1 | 2.1% |
| Pre-Paid | 1,995.0 | 1,983.2 | (0.6%) |
| Post-Paid | 2,754.5 | 2,863.9 | 4.0% |
| Pay TV Fixed Access (2) | 1,326.3 | 1,360.4 | 2.6% |
| Pay TV DTH | 290.5 | 283.7 | (2.3%) |
| Fixed Voice | 1,728.0 | 1,756.7 | 1.7% |
| Broadband | 1,382.5 | 1,424.5 | 3.0% |
| Others and Data | 31.7 | 35.5 | 12.0% |
| 3,4&5P Subscribers (Fixed Access) | 1,170.0 | 1,218.2 | 4.1% |
| % 3,4&5P (Fixed Access) | 88.2% | 89.5% | 1.3pp |
| Convergent + Integrated RGUs | 4,521.0 | 4,753.7 | 5.1% |
| Convergent + Integrated Customers | 896.1 | 942.0 | 5.1% |
| Fixed Convergent + Integrated Customers as % of Fixed Access Customers | 58.5% | 60.2% | 1.7pp |
| % Convergent + Integrated Customers | 55.4% | 57.3% | 1.9pp |
| Residential ARPU / Unique Subscriber With Fixed Access (Euros) | 44.9 | 44.2 | (1.8%) |
| Net Adds | |||
| Homes Passed | 55.0 | 27.0 | (50.8%) |
| Total RGUs | (23.8) | 20.5 | n.a. |
| o.w. Consumer RGUs | (33.8) | 20.0 | n.a. |
| o.w. Business RGUs | 10.0 | 0.6 | (94.4%) |
| Mobile | (18.2) | (4.0) | (78.1%) |
| Pre-Paid | (34.3) | (25.0) | (27.0%) |
| Post-Paid | 16.1 | 21.0 | 30.8% |
| Pay TV Fixed Access | 1.8 | 4.4 | 140.6% |
| Pay TV DTH | (8.4) | 0.9 | n.a. |
| Fixed Voice | (2.6) | 8.2 | n.a. |
| Broadband | 3.4 | 10.2 | 200.6% |
| Others and Data | 0.1 | 0.7 | n.a. |
| 3,4&5P Subscribers (Fixed Access) | 6.8 | 8.8 | 30.7% |
| Convergent + Integrated RGUs | 38.3 | 49.1 | 28.4% |
| Convergent + Integrated Customers | 6.3 | 11.3 | 79.0% |
(1) Portuguese Operations. (2) Fixed Access Subscribers include customers served by the HFC, FTTH and ULL networks and indirect access customers.
| 1Q19 | 1Q20 | 1Q20 / 1Q19 |
|---|---|---|
| 5.2 | 5.2 | 0.9% |
| 1,847.2 | 1,526.6 | (17.4%) |
| 3,113.5 | 2,529.7 | (18.7%) |
| 218 | 219 | 0.5% |
(1) Portuguese Operations (2) Source: ICA - Portuguese Institute For Cinema and Audiovisuals
The sales of NOS cinema tickets declined by 17.4% in 1Q20, to 1.527 million tickets, a reflection of the performance of the market as a whole[1], which declined by 18.7% in the same period. Performance of the cinema exhibition business was clearly impacted by the COVIDthe market, with year-to-date growth of 15.1% in terms of attendance, which compares with 12.1% for the The average revenue per ticket -office revenues decreased by 16.7% in 1Q20, which compares with 17.4% for the market as a whole. Until the end of February, NOS was up by 16.3% year-to-date, with the market improving by 14.1%.
In the Audiovisuals area, NOS distributed 5 out of the top 10 cinema box- -
[1] Source: ICA Portuguese Institute For Cinema and Audiovisuals
The following Consolidated Financial Statements have been subject to limited review.
| Profit and Loss Statement | 1Q19 | 1Q20 | 1Q20 / 1Q19 |
|---|---|---|---|
| (Millions of Euros) | |||
| Operating Revenues | 355.9 | 345.4 | (3.0%) |
| Telco | 340.4 | 332.9 | (2.2%) |
| Consumer Revenues | 244.1 | 243.6 | (0.2%) |
| Business Revenues | 72.2 | 71.6 | (0.8%) |
| Wholesale and Others | 24.1 | 17.7 | (26.6%) |
| Audiovisuals & Cinema (1) | 25.8 | 21.8 | (15.5%) |
| Others and Eliminations | (10.3) | (9.3) | (9.3%) |
| Operating Costs Excluding D&A | (195.7) | (192.7) | (1.6%) |
| Direct Costs | (100.7) | (97.7) | (3.0%) |
| Non-Direct Costs (2) | (95.0) | (95.0) | (0.0%) |
| EBITDA (3) | 160.2 | 152.7 | (4.6%) |
| EBITDA Margin | 45.0% | 44.2% | (0.8pp) |
| Telco | 146.9 | 141.8 | (3.4%) |
| EBITDA Margin | 43.1% | 42.6% | (0.5pp) |
| Cinema Exhibition and Audiovisuals | 13.3 | 10.9 | (17.9%) |
| EBITDA Margin | 51.6% | 50.1% | (1.5pp) |
| Depreciation and Amortization | (97.3) | (100.5) | 3.2% |
| (Other Expenses) / Income | (3.3) | (45.7) | n.a. |
| Operating Profit (EBIT) (4) | 59.5 | 6.5 | (89.0%) |
| Share of profits (losses) of associates and joint ventures | 0.2 | (8.8) | n.a. |
| (Financial Expenses) / Income | (6.4) | (5.7) | (10.8%) |
| Income Before Income Taxes | 53.3 | (8.0) | n.a. |
| Income Taxes | (11.4) | (2.9) | (74.9%) |
| Net Income Before Associates & Non-Controlling Interests | 41.7 | (2.0) | n.a. |
| Income From Continued Operations | 41.9 | (10.9) | n.a. |
| o.w. Attributable to Non-Controlling Interests | 0.1 | 0.4 | n.a. |
| Discontinued Operations | 0.4 | 0.1 | (67.5%) |
| Net Income | 42.5 | (10.4) | n.a. |
(1) Includes cinema operations in M ozambique. (2) Non-Direct Costs Include Commercial & Customer Related Costs and Operating & Structure Costs
(4) EBIT = Income Before Financials and Income Taxes.
(3) EBITDA = Operating Profit + Depreciation and Amortization + Integration Costs + Net Losses/Gains on Disposal of Assets + Other Non-Recurrent Losses/Gains
As explained in the preliminary notes at the start of this report, several business segments have been particularly impacted by the restrictions imposed. Within the Telco sector, the biggest impacts were felt in terms of: i) revenues from premium channel subscriptions, which are being offered free of charge to subscribers during this period due to the fact that no live matches are being broadcast; ii) roaming and international travel revenues which have dropped to absolute lows due to the restrictions on non-essential international travel; iii) pressure in the B2B segment, with some companies being forced to negotiate their cost structure and payment terms and also in the Wholesale and Others line, due to lower roaming in and wholesale mass calling service revenues; iv) lower equipment sales due to the closure of all non-essential retail activity, in particular of shopping centres. The Cinema and Audiovisual business is the most impacted on a relative basis given the complete closure of exhibition theatres since 16 March, and postponement of movie premieres, driving a distribution activity.
Financial statements are also impacted by the deconsolidation of NICS due to the announcement of its sale on 1 April 2020.
the P&L under discontinued operations. All accounts have been restated to reflect the adjustment as from 1Q19. For reference, in full year 2019, NICS contributed to consolidated accounts with revenues of 141 million euros and EBITDA of 1.1 million euros.
Consolidated revenues fell 3% yoy to 345.4 million euros, as a result of the significant slowdown in commercial activity as from mid-March as discussed above, before the nationwide pandemic related restrictions started to be implemented.
In the Telco segment, revenues fell by 2.2% yoy to 332.9 million euros reflecting different patterns between segments.
The Consumer segment recorded a marginal decline yoy in revenues of 0.2% to 243.6 million euros, combining a decline of 1.8% in Residential Revenues to 196.3 million euros, explained by the aforementioned decline in premium sports channel revenues, discretionary traffic and roaming-out revenues and by lower DtH subscriber numbers yoy and a 7.1% increase in stand -alone mobile revenues. Business revenues posted a decline of 0.8% yoy to 71.6 million euros, similarly affected by lower revenues from premium channel sales and discretionary traffic and roaming out revenues and also due to significantly lower volumes of equipment sales. Other Telco and Wholesale revenues fell to 17.7 million euros yoy driven by the negative impact primarily from lower roaming-in revenues, mass calling service revenues and advertising revenues.
The impact of the pandemic on the cinema business was felt from the beginning of the month with a significant reduction in spectators in the build up to the nationwide lock-down and subsequent closure of the theatres on 16 March. The impact on quarterly numbers was material and is set to continue until lock-down restrictions are lifted and with gradual recovery thereon. Total Cinema and Audiovisuals Revenues fell by 15.5% to 21.8 million euros with a drop in Cinema Revenues of 16.8% to 11.5 million euros and in Audivisuals Revenues of 19.3% to to 12.2 million euros, the latter due to its almost 50% revenue exposure to cinema distribution.
Total OPEX fell by 1.6% in 1Q20 to 192.7 million euros with the direct cost base down by 3% yoy to 97.7 million euros, in line with the decline in Revenues and with the largest savings deriving from the more than 50% reduction in cinema royalties and mass-calling interconnection costs. Non-direct costs remained flat reflecting a combination of lower commercial costs due primarily to a postponement of regular advertising campaigns for the period. This was offset in main part by a yoy increase in duct and circuit related costs, the latter led by the increased scale of the network.
Consolidated EBITDA fell by 4.6% to 152.7 million euros combining a 3.4% decline in Telco EBITDA to 141.8 million euros and a 17.9% decline in Audiovisuals and Cinema EBITDA to 10.9 million euros, the latter decline a reflection of the complete closure of the cinema theatres in March due to the COVID-19 pandemic. Variable costs represent a little more than 60% of OPEX in the cinema operation, under more normal operating circumstances, related mostly with royalties.
Net Results in 1Q20 were negative by 10.4 million euros led by a decline in EBIT to 6.5 million euros. Due to the impacts of the COVID-19 pandemic, non-recurrent items increased by 42.4 million euros, the majority of which reflecting reinforcement of operating provisions for customer bad debt, onerous contracts and personal protective equipment. Net financial expenses were 10.8% lower yoy at 5.7 million euros, reflecting lower levels of average gross debt and respective average cost of debt. Contribution from Associated Companies deteriorated significantly yoy to losses of 8.8 million euros, with similar negative contribution from Sport TV due to impairments recorded in the quarter and at ZAP due to provisions booked. Finally, provisions for taxes reduced to 2.9 million euros, from 11.4 million euros in 1Q19, led by the significantly lower level of Earnings Before Taxes.
| CAPEX (Millions of Euros) (1) | 1Q19 | 1Q20 | 1Q20 / 1Q19 |
|---|---|---|---|
| Total CAPEX Excluding Leasing Contracts | 87.3 | 88.2 | 1.1% |
| Telco | 81.7 | 81.8 | 0.1% |
| % of Telco Revenues | 24.0% | 24.6% | 0.6pp |
| o.w. Technical CAPEX | 44.9 | 48.5 | 7.9% |
| % of Telco Revenues | 13.2% | 14.6% | 1.4pp |
| Baseline Telco | 32.8 | 29.8 | (9.0%) |
| Network Expansion / Substitution and Integration Projects and Others |
12.1 | 18.7 | 53.7% |
| o.w. Customer Related CAPEX | 36.8 | 33.4 | (9.4%) |
| % of Telco Revenues | 10.8% | 10.0% | (0.8pp) |
| Audiovisuals and Cinema Exhibition | 5.5 | 6.4 | 16.2% |
| Leasing Contracts | 3.7 | 11.3 | 203.2% |
| Total Group CAPEX | 91.0 | 99.5 | 9.4% |
Total CAPEX in 1Q20 of 88.2 million euros (excluding leasing contracts) was marginally higher than the levels of the previous year with Telco CAPEX in line at 81.8 million euros, representing 24.6% of Telco Revenues. Technical telco CAPEX was 7.9% higher at 48.5 million euros with expansionary CAPEX up by 53.7% yoy at 18.7 million euros, the majority of which relating to the FttH deployment programme underway, which was fully maintained, guaranteeing service providers with much needed continuity of service. Customer Related CAPEX was down 9.4% yoy at 33.4 million euros as a consequence of the lower level of commercial activity driving lower contract related sales commissions, installation costs and investment in customer premise equipment.
With the implementation of IFRS16 as from 2019, and as in previous quarters, the level of operational leasing contracts is isolated in the table above to provide a better proxy of cash CAPEX for the period and to reduce quarterly volatility resulting from operating lease capitalization under the new accounting rules.
| Cash Flow (Millions of Euros) | 1Q19 | 1Q20 | 1Q20 / 1Q19 |
|---|---|---|---|
| EBITDA | 160.2 | 152.7 | (4.6%) |
| Total CAPEX Excluding Leasings | (87.3) | (88.2) | 1.1% |
| EBITDA - Total CAPEX Excluding Leasings | 72.9 | 64.5 | (11.5%) |
| % of Revenues | 20.5% | 18.7% | (1.8pp) |
| Non-Cash Items Included in EBITDA - CAPEX and Change in Working Capital |
(7.8) | (4.5) | (41.8%) |
| Leasings (Capital & Interest) (1) | (16.0) | (15.6) | (2.7%) |
| Operating Cash Flow | 49.1 | 44.4 | (9.6%) |
| Interest Paid | (3.0) | (2.6) | (12.2%) |
| Income Taxes Paid | (0.4) | (3.6) | n.a. |
| Disposals | 0.4 | 0.0 | (94.1%) |
| Other Cash Movements (2) | (3.3) | (3.6) | 8.5% |
| Total Free Cash-Flow Before Dividends, Financial Investments and Own Shares Acquisition |
42.9 | 34.6 | (19.2%) |
| Financial Investments | 0.0 | 0.0 | n.a. |
| Acquisition of Own Shares | 0.0 | 0.0 | n.a. |
| Dividends | 0.0 | 0.0 | n.a. |
| Free Cash Flow | 42.9 | 34.6 | (19.2%) |
| Debt Variation Through Financial Leasing, Accruals & Deferrals & Others |
(3.4) | (3.1) | (9.8%) |
| Change in Net Financial Debt | (39.5) | (31.5) | (20.0%) |
(1) Includes Long Term Contracts. (2) Includes Cash Restructuring Payments and Other Cash M ovements.
Free Cash Flow Before Dividends decreased in 1Q20 to 34.6 million euros as a consequence of the 11.5% yoy decline in EBITDA CAPEX to 64.5 million euros which was in part offset by the lower level of non-cash adjustments and change in working capital and marginally lower cash lease charges that, in combination, drove a decline in Operating Cash Flow of 9.6% to 44.4 million euros.
The absolute decline in Operating Cash Flow of 4.7 million euros in 1Q20 was lower than the decline in Consolidated Revenues of 10.5 million euros and in EBITDA of 7.4 million, indicative of some ability to partially contain business activity impacts on cash generation.
| Balance Sheet (Millions of Euros) | 1Q19 | 2019 | 1Q20 | 1Q20 / 1Q19 |
|---|---|---|---|---|
| Non-current Assets | 2,510.5 | 2,534.3 | 2,533.1 | 0.9% |
| Current Assets | 518.7 | 553.8 | 520.2 | 0.3% |
| Total Assets | 3,029.2 | 3,088.2 | 3,085.7 | 1.9% |
| Total Shareholders' Equity | 1,098.1 | 1,012.3 | 1,002.4 | (8.7)% |
| Non-current Liabilities | 1,147.6 | 1,333.3 | 1,412.3 | 23.1% |
| Current Liabilities | 783.6 | 742.5 | 640.8 | (18.2)% |
| Total Liabilities | 1,931.2 | 2,075.9 | 2,083.3 | 7.9% |
| Total Liabilities and Shareholders' Equity | 3,029.2 | 3,088.2 | 3,085.7 | 1.9% |
At the end of 1Q20, Total Net Debt, including Leasings and Long-Term Contracts (according to IFRS16) amounted to 1,311.1 million euros. Total Debt stood at 1,127.5 million euros and was offset with a cash and short-term investment position on the balance sheet of 65.4 million euros. At the end of 1Q20, NOS also had 350 million euros in unissued commercial paper programmes.
The all-in average cost of debt stood at 1.1% for 1Q20 which compares with 1.7% in 1Q19. Net Financial Debt / EBITDA After Lease Payments (last 4 quarters) now stands at 1.9x. NOS targets a leverage ratio in the range of 2x Net Financial Debt / EBITDA after lease payments, which represents a solid and conservative capital structure that NOS is committed to maintain.
The average maturity of debt at the end of 1Q20 was 3.0 years. Taking into account loans issued at a fixed rate, interest rate hedging operations in place and the negative interest rate environment, as at 31 March 2020, the
On 27 March, NOS announced that it had reached agreements regarding the contractual terms for three financing deals for a total amount of 280 million euros, with three banking institutions:
These transactions will enable NOS to refinance all facilities maturing in 2020 and will significantly increase its liquidity position, whilst increasing average debt maturity and maintaining a very attractive average cost of debt.
| Net Financial Debt (Millions of Euros) | 1Q19 | 2019 | 1Q20 | 1Q20 / 1Q19 |
|---|---|---|---|---|
| Short Term | 180.3 | 84.6 | 23.1 | (87.2%) |
| Medium and Long Term | 826.1 | 1,021.8 | 1,104.4 | 33.7% |
| Total Debt | 1,006.4 | 1,106.4 | 1,127.5 | 12.0% |
| Cash and Short Term Investments | 3.0 | 12.8 | 65.4 | n.a. |
| Net Financial Debt (1) | 1,003.4 | 1,093.6 | 1,062.1 | 5.8% |
| Net Financial Debt / EBITDA after lease payments (last 4 quarters) (2) | 1.8x | 1.9x | 1.9x | n.a. |
| Leasings and Long Term Contracts | 240.6 | 253.7 | 249.0 | 3.5% |
| Net Debt | 1,244.0 | 1,347.3 | 1,311.1 | 5.4% |
| Net Debt / EBITDA | 2.0x | 2.1x | 2.1x | n.a. |
| Net Financial Gearing (3) | 53.3% | 57.3% | 56.8% | 3.6pp |
| (1) Net Financial Debt = Borrowings – Leasings - Cash |
(2) EBITDA After Lease Payments = EBITDA - Lease Cash Payments (Capital & Interest)
(3) Net Financial Gearing = Net Debt / (Net Debt + Total Shareholders' Equity).
NOS announced it had reached an agreement with Tofane Global, S.A.S. to sell all of NOS International Carrier with wholesale international voice and SMS services, which were previously provided by NOS ICS. Completion of this agreement is subject to non-opposition by the Competition Authority. In 2019 NOS ICS generated . Considering the approval of the transaction before 31 March 2020, accounts have been restated accordingly for 1Q20 and for FY19. With this transaction, NOS will increase its focus on its core telecom business whilst optimizing the underlying cost structure for international voice and SMS traffic.
NOS announced it had reached an agreement to sell 100% of the share capital of NOS Towering S.A. to Cellnex, encompassing the disposal of approximately 2,000 sites (towers and rooftops). The parties also signed a longterm agreement whereby Cellnex will provide NOS Group with active network hosting over the passive infrastructure acquired, for a period of 15 years which renews automatically for equal periods. In addition, this agreement foresees a perimeter increase of up to 400 additional sites over the next 6 years. The execution of these agreements is subject to the verification of the usual conditions in this type of transaction, notably, if applicable, the non-opposition by the Competition Authority. This operation, which will be accounted as a sale and lease back transaction, was approved after 31 March 2020.
The potential value of the agreements to be reached over a 6-year period is 550 million euros, with an upfront payment of approximately 375 million euros. The expected impact on pro forma operating cash flow for NOS in year 1 is approximately 22 million euros, therefore driving an implied multiple on the initial 2000 site perimeter of 17x and a combined multiple for the full perimeter of 20x. Given IFRS16 accounting standards the appropriate multiple for valuation comparisons should be EV/OCF impact as lease contract costs are accounted below EBITDA.
This agreement will enable NOS to continuously optimize and expand its state-of-the-art mobile network, while reinforcing its ability to invest in the long-term value of the company. By joining forces with Cellnex in Portugal, through this strategic partnership, NOS ensures the supply of current and future needs of its passive mobile infrastructure. In addition to this agreement, NOS will continue to pursue other investment efficiency opportunities.
Condensed consolidated statement of financial position at 31 March 2019, 31 December 2019 and 31 March 2020
(Amounts stated in thousands of euros)
| NOTES | 31-03-2019 | 31-12-2019 | 31-03-2020 | |
|---|---|---|---|---|
| ASSETS | ||||
| NON - CURRENT ASSETS | ||||
| Tangible assets | 7 | 1,029,593 | 1,034,813 | 1,042,680 |
| Investment property | 658 | 653 | 649 | |
| Intangible assets | 8 | 1,018,924 | 1,014,066 | 1,009,038 |
| Contract costs | 9 | 164,381 | 163,101 | 162,028 |
| Rights of use | 10 | 189,557 | 218,383 | 215,575 |
| Investments in jointly controlled companies and associated companies | 11 | 20,014 | 18,244 | 12,943 |
| Accounts receivable - other | 12 | 4,542 | 4,064 | 3,630 |
| Tax receivable | 13 | 149 | 149 | 149 |
| Other financial assets non-current | 209 | 439 | 399 | |
| Deferred income tax assets | 14 | 82,318 | 80,428 | 86,053 |
| Derivative financial instruments | 19 | 166 | - | - |
| TOTAL NON - CURRENT ASSETS | 2,510,512 | 2,534,342 | 2,533,144 | |
| CURRENT ASSETS: | ||||
| Inventories | 15 | 42,062 | 34,081 | 37,344 |
| Accounts receivable - trade | 16 | 339,097 | 361,712 | 285,416 |
| Contract assets | 17 | 60,480 | 68,059 | 67,490 |
| Accounts receivable - other | 12 | 21,669 | 28,128 | 21,107 |
| Tax receivable | 14 | 3,320 | 4,631 | 6,797 |
| Prepaid expenses | 18 | 48,402 | 43,954 | 36,139 |
| Non-current assets held-for-sale | 600 | 450 | 450 | |
| Derivative financial instruments | 19 | 154 | - | 17 |
| Cash and cash equivalents | 2 0 | 2,954 | 12,819 | 65,393 |
| CURRENT ASSETS FROM CONTINUING OPERATIONS | 518,738 | 553,834 | 520,153 | |
| Assets held for sale | 45 | - | - | 32,354 |
| TOTAL CURRENT ASSETS | 518,738 | 553,834 | 552,507 | |
| TOTAL ASSETS SHAREHOLDER'S EQUITY |
3,029,250 | 3,088,176 | 3,085,651 | |
| 21.1 | ||||
| Share capital | 21.2 | 5,152 | 5,152 | 5,152 854,219 |
| Capital issued premium Own shares |
21.3 | 854,219 | 854,219 | (9,325) |
| Legal reserve | 21.4 | (8,134) 1,030 |
(14,655) 1,030 |
1,030 |
| Other reserves and accumulated earnings | 21.4 | 196,158 | 16,041 | 154,982 |
| Net Income | 42,461 | 143,494 | (10,355) | |
| EQUITY BEFORE NON - CONTROLLING INTERESTS | 1,090,886 | 1,005,281 | 995,703 | |
| Non-controlling interests | 2 2 | 7,196 | 7,042 | 6,657 |
| TOTAL EQUITY | 1,098,082 | 1,012,322 | 1,002,360 | |
| LIABILITIES | ||||
| NON - CURRENT LIABILITIES | ||||
| Borrowings | 2 3 | 1,002,106 | 1,216,847 | 1,295,617 |
| Provisions | 2 4 | 127,020 | 94,959 | 95,496 |
| Accounts payable - other | 2 8 | 7,632 | 3,855 | 3,873 |
| Accrued expenses | 2 5 | 293 | 667 | 521 |
| Deferred income | 2 6 | 5,418 | 5,123 | 5,025 |
| Derivative financial instruments | 19 | - | 265 | 485 |
| Deferred income tax liabilities | 14 | 5,139 | 11,626 | 11,239 |
| TOTAL NON - CURRENT LIABILITIES | 1,147,609 | 1,333,343 | 1,412,256 | |
| CURRENT LIABILITIES: | ||||
| Borrowings | 2 3 | 244,837 | 143,281 | 80,875 |
| Accounts payable - trade | 2 7 | 243,341 | 259,499 | 252,712 |
| Accounts payable - other | 2 8 | 40,149 | 33,835 | 35,393 |
| Tax payable | 13 | 31,293 | 68,202 | 73,473 |
| Accrued expenses | 2 5 | 191,113 | 203,726 | 170,139 |
| Deferred income | 2 6 | 32,005 | 33,834 | 27,916 |
| Derivative financial instruments | 19 | 822 | 135 | 338 |
| CURRENT LIABILITIES FROM CONTINUING OPERATIONS | 783,559 | 742,511 | 640,846 | |
| Liabilities directly associated with the assets held for sale | 45 | - | - | 30,189 |
| TOTAL CURRENT LIABILITIES | 783,559 | 742,511 | 671,035 | |
| TOTAL LIABILITIES | 1,931,168 | 2,075,854 | 2,083,291 | |
| TOTAL LIABILITIES AND SHAREHOLDER´S EQUITY | 3,029,250 | 3,088,176 | 3,085,651 |
As a standard practice, only the annual accounts are audited, therefore the quarterly amounts were not audited autonomously.
The Notes to the Financial Statements form an integral part of the consolidated statement of financial position as at 31 March 2020.
(Amounts stated in thousands of euros)
| REVENUES: Services rendered 360,880 331,469 322,224 Sales 19,424 19,424 18,219 Other operating revenues 5,012 5,012 4,941 2 9 385,316 355,905 COSTS, LOSSES AND GAINS: Wages and salaries 30 20,162 20,079 21,148 Direct costs 31 122,224 93,527 90,675 Costs of products sold 32 13,916 13,916 14,756 Marketing and advertising 6,289 6,289 5,365 Support services 33 20,979 20,979 21,475 Supplies and external services 33 28,852 28,767 27,610 Other operating losses / (gains) 121 121 150 Taxes 8,764 8,764 8,240 Provisions and adjustments 34 3,294 3,294 3,237 Depreciation, amortisation and impairment losses 7, 8, 9 e 36 97,320 97,320 100,474 Reestructuring costs 37 1,913 1,913 578 Losses / (gains) on sale of assets, net (182) (182) (25) Other losses / (gains) non recurrent net 1,592 1,592 38 45,183 325,244 296,379 338,866 INCOME BEFORE LOSSES / (GAINS) PARTICIPATED COMPANIES, FINANCIAL RESULTS 60,072 59,526 AND TAXES Net losses / (gains) of affiliated companies (198) (198) 11 e 35 Financial costs 39 5,628 5,628 Net foreign exchange losses / (gains) 51 51 150 Net losses / (gains) on financial assets (3) (3) 58 Net other financial expenses / (income) 39 731 731 841 6,208 6,208 14,537 (8,019) INCOME BEFORE TAXES 53,864 53,318 Income taxes 14 11,493 11,370 2,852 NET CONSOLIDATED INCOME FROM CONTINUING OPERATIONS 42,371 41,948 (10,871) Net consolidated income from discontinued operadtions 45 423 138 - (10,733) NET CONSOLIDATED INCOME 42,371 42,371 ATTRIBUTABLE TO: (10,355) NOS Group Shareholders 42,461 42,461 (90) (90) (378) Non-controlling interests 2 2 EARNINGS PER SHARES (0.02) Basic - euros 40 0.08 0.08 (0.02) Diluted - euros 40 0.08 0.08 EARNINGS PER SHARES FROM CONTINUING OPERATIONS (0.02) Basic - euros 40 0.08 0.08 (0.02) Diluted - euros 40 0.08 0.08 |
NOTES | 3M 19 REPORTED |
3M 19 RESTATED* |
3M 20 |
|---|---|---|---|---|
| 6,518 8,824 4,664 |
||||
| 345,384 | ||||
*Restatement resulting from the classification of NOS International Carrier Services as a discontinued operating unit (note 45).
As a standard practice, only the annual accounts are audited, therefore the quarterly amounts were not audited autonomously.
The Notes to the Financial Statements form an integral part of the consolidated statement of income by nature for the quarter ended on 31 March 2020.
(Amounts stated in thousands of euros)
| NOTES | 3M 19 REPORTED |
3M 19 RESTATED |
3M 20 | |
|---|---|---|---|---|
| NET CONSOLIDATED INCOME | 42,371 | 42,371 | (10,733) | |
| OTHER INCOME | ||||
| ITENS THAT MAY BE RECLASSIFIED SUBSEQUENTLY TO THE INCOME STATEMENT: | ||||
| Accounting for equity method | 11 | 234 | 234 | (1,064) |
| Fair value of interest rate swap | 19 | 389 | 389 | 2 1 |
| Deferred income tax - interest rate swap | 19 | (88) | (88) | (5) |
| Fair value of equity swaps | 19 | 35 | 35 | (164) |
| Deferred income tax - equity swap | 19 | (8) | (8) | 37 |
| Currency translation differences and others | (20) | (20) | (35) | |
| INCOME RECOGNISED DIRECTLY IN EQUITY | 542 | 542 | (1,210) | |
| TOTAL COMPREHENSIVE INCOME | 42,913 | 42,913 | (11,943) | |
| ATTRIBUTABLE TO: | ||||
| NOS Group Shareholders | 43,003 | 43,003 | (11,565) | |
| Non-controlling interests | (90) | (90) | (378) | |
| 42,913 | 42,913 | (11,943) |
As a standard practice, only the annual accounts are audited, therefore the quarterly amounts were not audited autonomously.
The Notes to the Financial Statements form an integral part of the consolidated statement of comprehensive income for the quarter ended on 31 March 2020.
(Amounts stated in thousands of euros)
| ATTRIBUTABLE TO NOS GROUP SHAREHOLDERS | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| OWN SHARES | OTHER | NON - | |||||||
| NOTES SHARE CAPITAL |
CAPITAL ISSUED PREMIUM |
DISCOUNTS AND |
LEGAL RESERVE |
RESERVES AND ACCUMULATED |
NET INCOME |
CONTROLLING INTERESTS |
TOTAL | ||
| PREMIUMS | EARNINGS | ||||||||
| BALANCE AS AT 1 JANUARY 2019 | 5,152 | 854,219 | (12,132) | 1,030 | 60,276 | 137,770 | 7,296 | 1,053,611 | |
| Result appropriation | |||||||||
| Transfers to reserves | - | - | - | - | 137,770 (137,770) | - | - | ||
| Distribution of own shares - share incentive scheme | 21.3 | - | - | 3,659 | - | (3,659) | - | - | - |
| Distribuition of own shares - other remunerations | 21.3 | - | - | 339 | - | (13) | - | - | 325 |
| Share Plan - costs incurred in the period and others | - | - | - | - | 1,242 | - | (10) | 1,232 | |
| Comprehensive Income | - | - | - | - | 542 | 42,461 | (90) | 42,913 | |
| BALANCE AS AT 31 MARCH 2019 | 5,152 | 854,219 | (8,134) | 1,030 | 196,158 | 42,461 | 7,196 | 1,098,082 | |
| BALANCE AS AT 1 JANUARY 2020 | 5,152 | 854,219 | (14,655) | 1,030 | 16,041 | 143,494 | 7,042 | 1,012,322 | |
| Result appropriation | |||||||||
| Transfers to reserves | - | - | - | - | 143,494 (143,494) | - | - | ||
| Distribution of own shares - share incentive scheme | 21.3 | - | - | 4,820 | - | (4,820) | - | - | - |
| Distribuition of own shares - other remunerations | 21.3 | - | - | 510 | - | (235) | - | - | 275 |
| Share Plan - costs incurred in the period and others | 44 | - | - | - | 1711.851 | - | (7) | 1,705 | |
| Comprehensive Income | - | - | - | - | (1,210) | (10,355) | (378) | (11,943) | |
| BALANCE AS AT 31 MARCH 2020 | 5,152 | 854,219 | (9,325) | 1,030 | 154,982 | (10,355) | 6,657 | 1,002,360 |
As a standard practice, only the annual accounts are audited, therefore the quarterly amounts were not audited autonomously.
The Notes to the Financial Statements form an integral part of the consolidated statement of changes in shareholders' equity for the quarter ended on 31 March 2020.
(Amounts stated in thousands of euros)
| NOTES | 3M 19 | 3M 20 | |
|---|---|---|---|
| OPERATING ACTIVITIES | |||
| Collections from clients | 498,332 | 413,751 | |
| Payments to suppliers | (266,517) | (192,090) | |
| Payments to employees | (25,507) | (24,739) | |
| Receipts / (Payments) relating to income taxes | (390) | (2,497) | |
| Other cash receipts / (payments) related with operating activities | (30,179) | (32,524) | |
| CASH FLOW FROM OPERATING ACTIVITIES (1) | 175,739 | 161,901 | |
| INVESTING ACTIVITIES | |||
| CASH RECEIPTS RESULTING FROM | |||
| Financial investments | 91 | - | |
| Tangible assets | 491 | 52 | |
| Interest and related income | 1,524 | 736 | |
| 2,106 | 788 | ||
| PAYMENTS RESULTING FROM | |||
| Tangible assets | (68,697) | (57,726) | |
| Intangible assets and contract costs | (46,145) | (51,020) | |
| (114,842) | (108,746) | ||
| CASH FLOW FROM INVESTING ACTIVITIES (2) | (112,736) | (107,958) | |
| FINANCING ACTIVITIES | |||
| CASH RECEIPTS RESULTING FROM | |||
| Borrowings | 4,000 | 57,001 | |
| 4,000 | 57,001 | ||
| PAYMENTS RESULTING FROM | |||
| Borrowings | (31,000) | (29,998) | |
| Lease rentals (principal) | (15,270) | (15,999) | |
| Interest and related expenses | (6,962) | (5,808) | |
| (53,232) | (51,805) | ||
| CASH FLOW FROM FINANCING ACTIVITIES (3) | (49,232) | 5,196 | |
| Change in cash and cash equivalents (4)=(1)+(2)+(3) | 13,771 | 59,139 | |
| Effect of exchange differences | (16) | (35) | |
| Cash and cash equivalents at the beginning of the year | (17,754) | 3,301 | |
| CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD | (3,999) | 62,405 | |
| Cash and cash equivalents | 20 | 2,954 | 65,393 |
| Bank overdrafts | 23 | (6,953) | (2,988) |
| (3,999) | 62,405 |
As a standard practice, only the annual accounts are audited, therefore the quarterly amounts were not audited autonomously.
The Notes to the Financial Statements form an integral part of the consolidated statement of cash flows for the quarter ended on 31 March 2020.
(Amounts stated in thousands of euros, unless otherwise stated)
Serviços de Telecomunicações e Multimédia, Rua Actor António Silva, nº9, Campo Grande, was established by Portugal Telecom, SGPS, S.A. ("Portugal Telecom") on 15 July 1999 for the purpose of implementing its multimedia business strategy.
During the 2007 financial year, Portugal Telecom proceeded with the spin-off of ZON through the attribution of its participation in the company to their shareholders, which become fully independent from Portugal Telecom.
During the 2013 financial year, ZON and Optimus, SGPS, S.A. ("Optimus SGPS") have merged through the incorporation of Optimus SGPS into ZON. Thereafter, the Company adopted the designation of ZON OPTIMUS, SGPS, S.A..
Shareholders approved
The businesses operated by NOS and its associated companies, form the "NOS Group" or "Group", which includes cable and satellite television services, voice and Internet access services, video production and sale, advertising on Pay TV channels, cinema exhibition and distribution, the production of channels for Pay TV, management of datacentres and consulting services in IT.
f the Group as at 31 March 2020 is shown in Note 21.
International Carrier Services (discontinuing operations) and NOS wholesale is: a) cable and satellite television distribution; b) the operation of the latest generation mobile communication network, GSM/UMTS/LTE; c) the operation of electronic communications services, including data and multimedia communication services in general; d) IP voice services ("VOIP" provision of consultancy and similar services directly or indirectly related to the above mentioned activities and services. The business of these companies is regulated by Law no. 5/2004 (Electronic Communications Law), which establishes the legal regime governing electronic communications networks and services.
NOSPUB and NOS Lusomundo TV operate in the television and content production business, and currently produce films and series channels, which are distributed, among other operators, by NOS SA and its subsidiaries. NOSPUB also manages the advertising space on Pay TV channels and in the cinemas of NOS Cinemas.
NOS Audiovisuais and NOS Cinemas, together with their associated companies, operate in the audiovisual sector, which includes video production and sale, cinema exhibition and distribution, and the acquisition/negotiation of Pay TV and VOD (video-on-demand) rights.
NOS Sistemas is a company dedicated to datacentre management and consulting services in IT.
NOS Inovação main activities are conducting and stimulating scientific activities of R&D (it owns all the intellectual property developed within the NOS Group, intending to guarantee the return of the initial investment through the commercialization of patents and concessions regarding commercial operation, as a result of the creation of new products and services), the demonstration, disclosure, technology and training transfers in the services and information management domains as well as fixed and mobile solutions of the latest generation of TV, internet, voice and data solutions.
These Notes to the Financial Statements follow the order in which the items are shown in the consolidated financial statements.
The consolidated financial statements for the quarter ended on 31 March 2020 were approved by the Board of Directors and their issue authorised on 06 May 2020. At the present date, the financial statements for the financial year ended on 31 December 2019, have not yet been approved by the General Meeting of Shareholders, as a result of the current context caused by COVID-19 (Note 46), and they are expected to be approved within the deadlines legally provided for and changed after the situation created by COVID-19. In addition, no significant impacts are expected on the management and operation of NOS, due to the postponement of the General Shareholders' Meeting, with no impact in terms of the company's capital structure. NOS 'capital structure is within the 2x Net Financial Debt / EBITDA After Leasings Payments threshold, so the Board of Directors believes that the company will overcome the negative impacts caused by this crisis, without disruption of business continuity.
The Board of Directors believes that these financ operations, financial performance, and consolidated cash flows.
The principal accounting policies adopted in the preparation of the financial statements are described below. These policies were consistently applied to all the financial years presented, unless otherwise stated.
these financial statements do not include all the information required by IFRS, so they must be read in conjunction with the consolidated financial statements for the year ended on 31 December 2019.
The consolidated financial statements are presented in euros as this is the main currency of the Group's operations and all amounts are presented in thousands of euros, except when referred to the financial statements of subsidiaries located abroad were converted into euros in accordance with the accounting policies described in Note 2.3.20.
The consolidated financial statements were prepared on a going concern basis from the ledgers and accounting records of the companies included in the consolidation (Annex A)), using the historical cost convention, adjusted when necessary for the valuation of financial assets and liabilities (including derivatives) at their fair value (Note 2.3.23).
In preparing the consolidated financial statements in accordance with IFRS, the Board used estimates, assumptions, and critical judgments with impact on the value of assets and liabilities and the recognition of income and costs in each reporting period. Although these estimates were based on the best information available at the date of preparation of the consolidated financial statements, current and future results may differ from these estimates. The areas involving a higher element of judgment and estimates are described in Note 3.
The group presents a statement of financial position at the beginning of the previous comparative period when there is a retrospective application of an accounting policy, a retrospective restatement or a material reclassification of items in the financial statements. Similary, the income statements by nature are restated. During the quarter ended on 31 March 2020, the income statements by nature related to the quarter ended on 31 March 2019, were restated due to the classification of NOS International Carrier Services as a discontinued unit (Note 45).
In the preparation and presentation of the consolidated financial statements, the NOS Group declares that it complies explicitly and without reservation with IAS/IFRS reporting standards and related SIC/IFRIC interpretations as approved by the European Union.
The standards and interpretations that became effective as of 1 January 2020 are as follows:
No material impacts are estimated on the Company's financial statements from the application of these standards and amendments.
At the date of approval of these financial statements, there are no standards and interpretations endorsed by the European Union, whose mandatory application occurs in future financial years.
The following standards, interpretations, amendments and revisions, with mandatory application in future financial years, have not been endorsed by the European Union, until the date of approval of these financial statements:
The Group has been evaluating the impact of these amendments. It will apply this standard once it becomes effective or when earlier application is permitted.
Controlled companies were consolidated by the full consolidation method. Control is deemed to exist when the Group is exposed or has rights, because of their involvement, to a variable return of the entity's activities, and has capacity to affect this return through the power over the entity. Namely, when the Company directly or indirectly holds a majority of the voting rights at a General Meeting of Shareholders or has the power to determine the financial and operating policies. In situations where the Company has, in substance, control of other entities created for a specific purpose, although it does not directly hold equity in them, such entities are consolidated by the full consolidation method. The entities in these situations are listed in Annex A).
T consolidated statement of financial position and in the consolidated statement, respectively, under the item - 2).
The identifiable acquired assets and the liabilities and contingent liabilities assumed in a business combination are measured initially at fair value at the acquisition date, irrespective of the existence of non-controlled interests. The excess of acq and liabilities is stated in Goodwill. When the acquisition cost is less than the fair value of the identified net assets, the difference is recorded as a gain in the income statement in the period in which the acquisition occurs.
The interests of minority shareholders are initially recognised as their proportion of the fair value of the identifiable assets and liabilities.
On the acquisition of additional equity shares in companies already controlled by the Group, the difference between the share of capital acquired and the corresponding acquisition value is recognised directly in equity.
When an increase in position in the capital of an associated company results in the acquisition of control, with the latter being included in the consolidated financial statements by the full consolidation method, the share of the fair values assigned to the assets and liabilities, corresponding to the percentages previously held, is stated in the income statement.
The directly attributable transaction costs are recognised immediately in profit or loss.
The results of companies acquired or sold during the year are included in the income statements as from the date of obtaining control or until the date of their disposal, respectively.
Intercompany transactions, balances, unrealised gains on transactions and dividends distributed between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction shows evidence of impairment of the transferred asset.
When necessary, adjustments are made to the financial statements of controlled companies in order to align their accounting policies with those of the Group.
The classification of investments as jointly controlled companies is determined based on the existence of shareholder agreements, which show and regulate the joint control. Financial investments of jointly controlled companies (Annex C)) are stated by the equity method. Under this method, financial investments are adjusted periodically by an amount corresponding to the share in the net profits of jointly controlled companies, as a ement before financial results and taxes. Direct changes in the post-acquisition equity of jointly controlled companies are recognised as the value of the shareholding as a contra entry in reserves, in equity.
Additionally, financial investments may also be adjusted for recognition of impairment losses.
Any excess of acquisition cost over the fair value of identifiable net assets and liabilities (goodwill) is recorded as part of the financial investment of jointly controlled companies and subject to impairment testing when there are indicators of loss of value. When the acquisition cost is less than the fair value of the identified net assets, the difference is recorded as a gain in the income statement in the period in which the acquisition occurs.
Losses in jointly controlled companies, which exceed the investment made in them, are not recognised, except when the Group has entered into undertakings with that company.
Dividends received from these companies are recorded as a reduction in the value of the financial investments.
An associated company is a company in which the Group exercises significant influence through participation in decisions about its financial and operating policies, but in which does not have control or joint control.
Any excess of the acquisition cost of a financial investment over the fair value of the identifiable net assets is recorded as goodwill and is added to the value of the financial investment and its recovery is reviewed annually or whenever there are indications of possible loss of value. When the acquisition cost is less than the fair value of the identified net assets, the difference is recorded as a gain in the statement of comprehensive income in the period in which the acquisition occurs.
Financial investments in the majority of associated companies (Annex B)) are stated by the equity method. Under this method, financial investments are adjusted periodically by an amount corresponding to the share in the net profits of associated companies, as a cont statement. Direct changes in the post-acquisition equity of associated companies are recognised as the value of the shareholding as a contra entry in reserves, in equity. Additionally, financial investments may also be adjusted for recognition of impairment losses.
Losses in associated companies, which exceed the investment made in them, are not recognised, except when the Group has entered into undertakings with that associated company.
Dividends received from these companies are recorded as a reduction in the value of the financial investments.
Investments made by the Group in entities where it does not have significant influence are initially recorded at cost and subsequently measured at fair value through profit or loss.
These investments are presented under "Other financial assets non-current" in the statement of financial position and changes in fair value are recorded against "Net losses / (gains) of affiliated companies" in the statement of income.
Balances and transactions as well as unrealised gains between Group companies, and between them and the parent company, are eliminated in the consolidation.
The part of unrealised gains arising from transactions with associated companies or jointly controlled companies attributable to the Group is eliminated in the consolidation. Unrealised losses are similarly eliminated except when they show evidence of impairment of the transferred asset.
As stipulated in IFRS 8, the Group presents operating segments based on internally produced management information.
Operating segments are reported consistently with the internal management information model provided to the chief operating decision maker of the Group, who is responsible for allocating resources to the segment and for assessing its performance, and for taking strategic decisions.
Realisable assets and liabilities due in less than one year from the date of the statement of financial position are classified as current in assets and liabilities, respectively.
In accordance with IAS 1, "Integration costs", "Losses / (gains) on disposal of assets" and "Other non-recurring costs / (gains)"reflect unusual costs, should be disclosed separately from the usual cost lines, in order to avoid distortion of the financial information from regular operations.
In the quarter ended on 31 March 2020, these costs refer, mainly, to non-recurring expenses caused by the slowdown in the Portuguese economy, resulting from the measures adopted to combat the new coronavirus COVID-19.
Tangible assets are stated at acquisition cost, less accumulated depreciation and impairment losses, when applicable. Acquisition cost includes, in addition to the purchase price of the asset: (i) costs directly attributable to the purchase; and (ii) the estimated costs of decommissioning and removal of the assets and restoration of the site, which in Group applies to the cinema operation business, telecommunication towers and offices (Note 7).
Estimated losses resulting from the replacement of equipment before the end of its useful life due to technological obsolescence are recognised by a deduction, from the corresponding asset as a contra entry in profit and loss. The costs of current maintenance and repairs are recognised as a cost when they are incurred. Significant costs incurred on renovations or improvements to the asset are capitalised and depreciated over the corresponding estimated payback period when it is probable that there will be future economic benefits associated with the asset and when these can be measured reliably.
Non-current assets (or discontinued operations), are classified as held for sale if their value is realisable through a sale transaction rather than through their continued use.
This situation is deemed to arise only when: (i) the sale is highly probable and the asset is available for immediate sale in its present condition; (ii) the Group has given an undertaking to sell; and (iii) it is expected that the sale will be realised within 12 months. In this case, non-current assets are valued at the lesser of their book value or their fair value less the sale costs.
ceases and they are classified as non-current assets held for sale. Gains and losses on disposals of tangible assets, corresponding to the difference between the sale price and the net book value, are recognised in results
Tangible assets are depreciated from the time they are completed or ready to be used. These assets, less their residual value, are depreciated by the straight-line method, in twelfths, from the month in which they become available for use, according to the useful life of the assets defined as their estimated utility.
The depreciation rates used correspond to the following estimated useful lives:
| 2019 | 2020 | |
|---|---|---|
| Buildings and other constructions | (YEARS) 2 - 50 |
(YEARS) 2 - 50 |
| Technical equipment: | ||
| Network Installations and equipment | 7 - 40 | 7 - 40 |
| Terminal equipment Other technical equipment |
2 - 8 1 - 16 |
2 - 8 1 - 16 |
| Transportation equipment | 3 - 4 | 3 - 4 |
| Administrative equipment Other tangible assets |
2 - 10 4 - 8 |
2 - 10 4 - 8 |
| Intangible assets | ||
| Intangible assets are stated at acquisition cost, less accumulated amortisation and impairment losses, when applicable. Recognised only when they generate future economic benefits for the Group and when they can be measured reliably. |
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| Intangible assets consist mainly of goodwill, telecom and software licenses, content utilisation rights and other contractual rights. |
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| Goodwill | ||
| Goodwill represents the excess of acquisition cost over the net fair value of the assets, liabilities, and contingent liabilities of a subsidiary, jointly controlled company or associated company at the acquisition date, in accordance with IFRS 3. |
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| Goodwill is not amortised and is subject to impairment tests at least once a year, on a specified date, and position which may result in a possible loss of value. Any impairment loss is recorded immediately in the income |
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| For the purposes of impairment tests, goodwill is attributed to the cash-generating units to which it is related (Note 8), which may correspond to the business segments in which the Group operates, or a lower level. |
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| Internally generated intangible assets | ||
| Internally generated intangible assets, including expenditure on research, are expensed when they are incurred. Research and development costs are only recognised as assets when the technical capability to complete the intangible asset is demonstrated and when it is available for use or sale. |
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| Industrial property and other rights | ||
| Assets classified under this item relate to the rights and licenses acquired under contract by the Group to third parties and used in realising the Group's activities, and include: |
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| • Telecom licenses; |
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| • Software licenses; |
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| Content utilisation rights; • |
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| • Other contractual rights. |
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| The content exploration rights are recorded in the consolidated statement of financial position, as intangible assets, when the following conditions are fulfilled: (i) there is control over the content, (ii) the Company has the right to choose the way to explore the content, and (iii) it is available for exhibition. |
Intangible assets are stated at acquisition cost, less accumulated amortisation and impairment losses, when applicable. Recognised only when they generate future economic benefits for the Group and when they can be measured reliably.
Intangible assets consist mainly of goodwill, telecom and software licenses, content utilisation rights and other contractual rights.
Goodwill represents the excess of acquisition cost over the net fair value of the assets, liabilities, and contingent liabilities of a subsidiary, jointly controlled company or associated company at the acquisition date, in accordance with IFRS 3.
p
Goodwill is not amortised and is subject to impairment tests at least once a year, on a specified date, and sumptions at the date of the statement of financial position which may result in a possible loss of value. Any impairment loss is recorded immediately in the income
For the purposes of impairment tests, goodwill is attributed to the cash-generating units to which it is related (Note 8), which may correspond to the business segments in which the Group operates, or a lower level.
Internally generated intangible assets, including expenditure on research, are expensed when they are incurred. Research and development costs are only recognised as assets when the technical capability to complete the intangible asset is demonstrated and when it is available for use or sale.
Assets classified under this item relate to the rights and licenses acquired under contract by the Group to third parties and used in realising the Group's activities, and include:
The content exploration rights are recorded in the consolidated statement of financial position, as intangible assets, when the following conditions are fulfilled: (i) there is control over the content, (ii) the Company has the The conclusion of contracts relating to sports contents, which are not immediately available, originates rights that are initially classified as contractual commitments.
In the specific case of broadcasting rights of sports competitions, these are recognised as assets when the necessary conditions to organise each sports competition are present, which occurs in the homologation date of the participating teams in the competition that is being held in the sports season to be initiated, by the organizing entity, taking into consideration that it is from that date that the conditions for the recognition of an asset are present, namely, the unequivocal attainment of the exploration rights of the games of the stated hod, by twelfths, starting from the beginning of the month in which they are available for use.
Resulting from agreements concluded for the cession of the exclusive rights to exploit sports content, and as it is permitted by IAS 1, since 2017, NOS presents the net assets and liabilities of the values ceded to other operators, considering that this compensation best reflects the substance of the transactions.
Group companies periodically carry out an impairment assessment of intangible assets in-progress. This impairment assessment is also carried out whenever events or changes in circumstances indicate that the amount at which the asset is recorded may not be recoverable. When such indications exist, the Group calculates the recoverable value of the asset in order to determine the existence and extent of the impairment loss.
These assets are amortised by the straight-line method, in twelfths, from the beginning of the month in which they become available for use.
The amortisation rates used correspond to the following estimated useful lives:
| 2019 | 2020 | |
|---|---|---|
| (YEARS) | (YEARS) | |
| Telecom licences | 30 - 33 | 30 - 33 |
| Software licences | 1 - 8 | 1 - 8 |
| Content utilization rights | Period of the | Period of the |
| contract | contract | |
| Other | 1 - 8 | 1 - 8 |
| Contract costs This item corresponds to costs incurred in attracting customers and costs associated with fulfilling a contract that are capitalized whenever they meet all of the following criteria: |
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| i) they are related to an existing contract or a specific future contract; | ||
| ii) generate or increase resources that will be used in the future; | ||
| iii) costs are expected to be recovered; and | ||
| iv) they are not already covered by the scope of another standard, such as inventories, tangible or intangible | ||
| assets. | ||
| These costs are recognised for the period expected to fulfill the contract (2 to 4 years). | ||
| The costs of attracting customers are essentially: | ||
| i) Commissions paid to third parties with the acquisition of new contracts / new customers; | ||
| ii) Commissions paid to third parties for upgrading the services provided; | ||
| iii) Commissions paid to third parties for renewal of loyalty of services and offers to customers; and | ||
| iv) Several commissions with revenue collection. |
This item corresponds to costs incurred in attracting customers and costs associated with fulfilling a contract that are capitalized whenever they meet all of the following criteria:
iv) they are not already covered by the scope of another standard, such as inventories, tangible or intangible assets.
The costs associated with fulfilling the contracts are essentially:
i) Costs incurred with the portability of mobile / fixed numbers of other operators;
ii) Variable costs, variables, incurred with the activation of services contracted by customers.
Group companies periodically carry out an impairment assessment of non-current assets. This impairment assessment is also carried out whenever events or changes in circumstances indicate that the amount at which the asset is recorded may not be recoverable. When such indications exist, the Group calculates the recoverable value of the asset to determine the existence and extent of the impairment loss.
The recoverable value is estimated for each asset individually or, if that is not possible, assets are grouped at the lowest levels for which there are identifiable cash flows to the cash-generating unit to which the asset belongs. -generating unit, except for the assets allocated to the cinema exhibition business, which are grouped into regional cash-generating units.
The recoverable amount is calculated as the higher of the net sale price and the current use value. The net sale price is the amount that would be obtained from the sale of the asset in a transaction between independent and knowledgeable entities, less the costs directly attributable to the sale. The current use value is the current value of the estimated future cash flows resulting from continued use of the asset or of the cash-generating unit. When the amount at which the asset is recorded exceeds its recoverable value, it is recognised as an impairment loss.
The reversal of impairment losses recognised in previous years is recorded when there are indications that these losses no longer exist or have decreased. The reversal of impairment losses is recognised in the statement of comprehensive income in the year in which it occurs. However, an impairment loss can only be reversed up to the amount that would be recognised (net of amortisation or depreciation) if no impairment loss had been recorded in previous years.
Financial assets are recognised in the statement of financial position of the Group on the trade or contract date, which is the date on which the Group undertakes to purchase or sell the asset.
Initially, apart from commercial accounts receivable, financial assets are recognised at fair value plus directly attributable transaction costs, except for assets at fair value through income in which transaction costs are immediately recognised in income. Trade accounts receivable, at the initial time, are recognised at their transaction price, as defined in IFRS 15.
(ii) the Group has substantially transferred all the risks and benefits associated with their ownership; or (iii) although it retains part but not substantially all of the risks and benefits associated with their ownership, the Group has transferred control of the assets.
The financial assets and liabilities are offset and shown as a net value when, and only when, the Group has the right to offset the recognised amounts and intends to settle for the net value.
The Group classifies its financial assets into the following categories: financial assets at fair value through profit or loss, financial assets measured at amortised cost, financial assets at fair value through other comprehensive income. Its classification depends on the entity's business model to manage the financial assets and the contractual characteristics in terms of the cash flows of the financial asset.
This category includes financial derivatives and equity instruments that the Group has not classified as financial assets through other comprehensive income at the time of initial recognition. This category also includes all financial instruments whose contractual cash flows are not exclusively capital and interest.
Gains and losses resulting from changes in the fair value of assets measured at fair value through profit or loss the income from interest and dividends.
Financial assets measured at fair value through other comprehensive income are those that are part of a business model whose objective is achieved through the collection of contractual cash flows and the sale of financial assets, being that these contractual cash flows are only capital and interest reimbursement on the capital in debt.
Financial assets measured at amortised cost are those that are included in a business model whose purpose is to hold financial assets in order to receive the contractual cashflows, being that these contractual cash flows are only capital reimbursement and interest payments on the capital in debt.
The amounts deposits and other investments with maturities of less than three months which may be immediately realisable and with a negligible risk of change of value.
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Financial liabilities and equity instruments are classified according to their contractual substance irrespective of deducting the liabilities. The equity instruments issued by Group companies are recorded at the amount received, net of the costs incurred in their issue. Financial liabilities are recognised only when extinguished, i.e. when the obligation is settled, cancelled, or extinguished.
In accordance with IFRS 9, financial liabilities are classified as subsequently measured at amortised cost, except for:
Financial liabilities of the Group include borrowings, accounts payable and derivative financial instruments.
At the date of each financial position statement, the Group analyses and recognises expected losses on its debt securities, loans and accounts receivable. The expected loss results from the difference between all contractual cash flows that are due to an entity in accordance with the contract and all the cash flows that the entity expects to receive, discounted at the original effective interest rate.
The objective of this impairment policy is to recognise expected credit losses over the respective duration of financial instruments that have undergone significant increases in credit risk since initial recognition, assessed on an individual or collective basis, taking into account all reasonable and sustainable information, including prospects. If, at the reporting date, the credit risk associated with a financial instrument has not increased significantly since the initial recognition, the Group measures the provision for losses relating to that financial instrument by an amount equivalent to the expected credit losses within a period of 12 months.
For receivables and assets resulting from contracts under IFRS 15, the Group adopts the simplified approach when calculating expected credit losses. As a result, the Group does not monitor changes in credit risk, recognising instead impairment losses based on the expected credit loss on each reporting date. The Group presents an impairment loss criterion based on the history of credit losses, adjusted by specific prospective factors for the clients and the economic environment.
The Group uses derivative financial instruments, such as exchange rate forward contracts, interest rate swaps, to cover its exchange rate risks, interest, respectively. Such derivative financial instruments are initially recorded at fair value on the date the derivative is contracted and are subsequently measured at fair value. Derivatives are presented in assets when their fair value is positive and in liabilities when their fair value is negative.
In terms of hedge accounting, hedges are classified as:
NOS Group uses derivative financial instruments with fair value and cash flow hedges.
At the beginning of the hedge relationship, the Group formally designates and documents the hedging relationship for which hedge accounting is intended to apply as well as the management and strategy purpose of such hedge.
Until the 1 January 2018, the documentation included the identification of the hedging instrument, the hedged item or transaction, the nature of the hedged risk and the manner in which the Group assessed the effectiveness of changes in the fair value of the hedging instrument according with the Group's exposure to changes in the fair value of the hedge item or cash flows arising from the hedged risk. Such hedges should be highly effective to compensate changes in fair values or cash flows and would be assessed on a continuing basis in order to demonstrate their highly effectiveness over the reporting period.
Beginning 1 January 2018, the documentation includes the identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the Group will assess whether the hedging relationship meets the hedge effectiveness requirements (including the analysis of sources of hedge ineffectiveness and how the hedge ratio is determined). A hedging relationship qualifies for hedge accounting if it meets all the following effectiveness requirements:
Hedges that meet all the quantifying criteria for hedge accounting are accounted for, as described below:
The change in the fair value of a hedging instrument is recognised in the statement of profit or loss. The change in the fair value of the hedged item attributable to the risk hedged is recorded as part of the carrying value of the hedged item and is also recognised in the statement of profit or loss.
For fair value hedges relating to items carried at amortised cost, any adjustment to carrying value is amortised through profit or loss over the remaining term of the hedge using the EIR method. The EIR amortisation may begin as soon as an adjustment exists and no later than when the hedged item ceases to be adjusted for changes in its fair value attributable to the risk being hedged.
If the hedged item is derecognised, the unamortised fair value is recognised immediately in profit or loss.
When an unrecognised firm commitment is designated as a hedged item, the subsequent cumulative change in the fair value of the firm commitment attributable to the hedged risk is recognised as an asset or liability with a corresponding gain or loss recognised in profit or loss.
The effective portion of the gain or loss on the hedging instrument is recognised in OCI in the cash flow hedge reserve, while any ineffective portion is recognised immediately in the statement of profit or loss. The cash flow hedge reserve is adjusted to the lower of the cumulative gain or loss on the hedging instrument and the cumulative change in fair value of the hedged item.
The Group uses forward contracts of: i) currency contracts for its exposure to foreign currency risk in forecast transactions and firm commitments; ii) interest rates to cover the risk of volatility of the interest rates; iii) own shares contracts for its exposure to volatility in own shares to be distributed within the scope of share incentive scheme. The ineffective portion relati
In the quarter ended on 31 March 2020, the Group did not make any changes in the recognition method.
The amounts accumulated in OCI are accounted for, depending on the nature of the underlying hedged transaction. If the hedged transaction subsequently results in the recognition of a non-financial item, the amount accumulated in equity is removed from the separate component of equity and included in the initial cost or other carrying amount of the hedged asset or liability. This is not a reclassification adjustment and will not be recognised in OCI for the period. This also applies where the hedged forecast transaction of a non-financial asset or non- e hedge accounting is applied.
For any other cash flow hedges, the amount accumulated in OCI is reclassified to profit or loss as a reclassification adjustment in the same period or periods during which the hedged cash flows affect profit or loss.
If cash flow hedge accounting is discontinued, the amount that has been accumulated in OCI must remain in accumulated OCI if the hedged future cash flows are still expected to occur. Otherwise, the amount will be immediately reclassified to profit or loss as a reclassification adjustment. After discontinuation, once the hedged cash flow occurs, any amount remaining in accumulated OCI must be accounted for depending on the nature of the underlying transaction as described above.
Inventories, which mainly include mobile phones, customer terminal equipment, DVDs, and content broadcasting rights, are valued at the lower of their cost or net realisable value.
The acquisition cost includes the invoice price, freight, and insurance costs, using the weighted average cost as the method of costing goods sold.
Inventories are adjusted for technological obsolescence, as well as for the difference between the purchase cost and the net realisable value, whichever is the lower, and this reduction is recognised directly in the income statement.
The net realisable value corresponds to the normal sale price less restocking costs and selling costs.
The differences between the cost and the corresponding net realisable value of inventories, when this is less than the cos
Inventories in transit, since they are not available for consumption or sale, are separated out from other inventories and are valued at their specific acquisition cost.
The signing of contracts related with sports content originates rights that are initially classified as contractual commitments.
The content broadcasting rights are recorded in the consolidated statement of financial position, as Inventories, in the event of the nonexistence of full right over the way of exploration of the asset, by the respective value of cost or net realisable value, whenever it is lower, when programmatic content has been received and is available for exhibition or use, according to contractual conditions, without any production or change, given that the necessary conditions for the organization of each sports competition are present, which occurs in the homologation date of the participating teams in the competition that is being held in the sports season to be i commercial exploration.
Due to the agreement between the three national operators of reciprocal availability, for several sports seasons considered the recognition of the costs, excluding those divided by the remaining operators, on a systematic basis, given the pattern of economic benefits obtained through their commercial exploration.
Subsidies are recognised at their fair value when there is a reasonable assurance that they will be received and Group companies will meet the requirements for their award.
Operating subsidies, mainly for employee training, are recognised in the statement of income by deduction from the corresponding costs incurred.
Investment subsidies are recognised in the statement of financial position as deferred income.
If the subsidy is considered as deferred income, it is recognised as income on a systematic and rational basis during the useful life of the asset.
Provisions are recognised when: (i) there is a present obligation arising from past events and it is likely that in settling that obligation, the expenditure of internal resources will be necessary; and (ii) the amount or value of such obligation can be reasonably estimated. When one of the above conditions is not met, the Group discloses the events as a contingent liability unless the likelihood of an outflow of funds resulting from this contingency is remote, in which case they are not disclosed.
Provisions for legal procedures taking place against the Group are made in accordance with the risk assessments carried out by the Group and by their legal advisers, based on success rates.
Provisions for restructuring are only recognised when the Group has a detailed, formal plan, which identify the main features of the restructuring programme, and after these facts have been reported to the entities involved.
Provisions for dismantling costs, removal of assets and restoration of the site are recognised when the assets are installed, in line with the best estimates available at that date. The amount of the provisioned liability reflects the effects of the passage of time and the corresponding financial indexing is recognised in results as a financial cost.
Obligations that result from onerous contracts are registered and measured as provisions. There is an onerous contract when the Company is an integral part of the provisions of an agreement contract, which entail costs that cannot be avoided and exceed the economic benefits derived from the agreement.
Provisions for potential future operating losses are not covered.
Contingent liabilities are not recognised in the financial statements, unless the exception provided under IFRS 3 business combination, and are disclosed whenever there is a good chance to shed resources including economic benefits. Contingent assets are not recognised in the financial statements, being disclosed when there is a likelihood of a future influx of financial resources.
Provisions are reviewed and brought up to date at the date of the statement of financial position to reflect the best estimate at that time of the obligation concerned.
A lease is defined as a contract, or part of a contract, that transfers the right to use a good (the underlying asset) for a period in exchange for a value.
At the beginning of each contract, it is evaluated and identified if it is or contains a lease. This assessment involves an exercise of judgement as to whether each contract depends on a specific asset, if NOS obtains substantially all the economic benefits from the use of that asset and whether NOS has the right to control the use of the asset.
All contracts that constitute a lease are accounted for based on the on-balance model in a similar way with the treatment that IAS 17 establishes for financial leases.
At the commencement date of the lease, NOS recognises the liability related to lease payments (lease liability) and the asset representing the right to use the underlying asset during the lease period (the right of use or "ROU").
The cost of interest on the lease liability and the depreciation of the ROU are recognised separately.
Lease liability is remeasured at the occurrence of certain events (such as a change in the lease period, a change in future payments that result from a change in the reference rate or rate used to determine such payments). This remeasurement of the lease liability is recognised as an adjustment in the ROU.
The Group recognises the right to use the assets at the start date of the lease (that is, the date on which the underlying asset is available for use).
The right to use the assets is recorded at acquisition cost, deducted from accumulated depreciation and impairment losses and adjusted for any new measurement of lease liabilities. The cost of the ROU of the assets includes the recognised amount of the lease liability, any direct costs incurred initially and payments already made prior to the initial rental date, less any incentives received.
Unless it is reasonably certain that the Group obtains ownership of the leased asset at the end of the lease term, the recognised right of use of the assets is depreciated on a straight-line basis over the shorter of its estimated useful life and the term of the lease.
Rights of use are subject to impairment.
At the start date of the lease, the Group recognises the liabilities measured at the present value of the future payments to be made until the end of the lease.
Lease payments include fixed payments (including fixed payments on the substance), deducted of any incentives to be received, variable payments, dependent on an index or rate, and expected amounts to be paid under residual value guarantees. The lease payments also include the exercise price of a call option if it is reasonably certain that the Group will exercise the option, and penalties for termination of the lease if it is reasonably certain that the Group will terminate the lease.
Variable payments that do not depend on an index or a rate are recognised as an expense in the period in which the event giving rise to them occurs.
To calculate the present value of the lease payments, the Group uses the incremental loan rate at the start date of the lease if the implied interest rate is not readily determinable.
After the start date of the lease, the value of the lease liability is increased to reflect the increase in interest and reduces by the payments made. In addition, the book value of the lease liability is remeasured if there is a change, such as a change in the lease term, fixed payments or the purchase decision of the underlying asset.
NOS is covered by the special tax regime for groups of companies, which covers all the companies in which it directly or indirectly owns at least 75% of the share capital and which simultaneously are resident in Portugal and subject to Corporate Income Tax (IRC).
The remaining subsidiaries not covered by the special tax regime for groups of companies are taxed individually based on their respective taxable incomes and the applicable tax rates.
Income tax is stated in accordance with the IAS 12 criteria. In calculating the cost relating to income tax for the period, in addition to current tax, allowance is also made for the effect of deferred tax calculated in accordance with the liability method, taking into account the temporary differences resulting from the difference between the tax basis of assets and liabilities and their values as stated in the consolidated financial statements, and the tax losses carried forward at the date of the statement of financial position. The deferred income tax assets and liabilities were calculated based on the tax legislation currently in force or of legislation already published for future application.
As stipulated in the above standard, deferred income tax assets are recognised only when there is reasonable assurance that these may be used to reduce future taxable profit, or when there are deferred income tax liabilities whose reversal is expected to occur in the same period in which the deferred income tax assets are reversed. At the end of each period an assessment is made of deferred income tax assets, and these are adjusted in line with the likelihood of their future use.
The amount of tax to be included, either in current tax or in deferred tax resulting from transactions or events recognised in equity accounts, is recorded directly under those items and does not affect the results for the period.
In a business combination, the deferred tax benefits acquired are recognised as follows:
The benefits granted to employees under share purchase or share option incentive plans are recorded in accordance with the requirements of IFRS 2 Share-based payments.
In accordance with IFRS 2, since it is not possible to reliably estimate the fair value of the services received from employees, their value is measured by reference to the fair value of equity instruments in accordance with their share price at the grant date.
The cost is recognised, linearly over the period in which the service is provided by employees, under the caption
The accumulated cost recognised at the date of each statement of financial position up to the vesting reflects the best estimate of the number of own shares that will be vested, weighted by the tire elapse between the grant and the vesting. The impact on the income statement each year corresponds to the accumulated cost valuation between the beginning and the end of the year.
In turn, benefits granted based on shares but paid in cash lead to the recognition of a liability valued at fair value at the date of the statement of financial position.
Portuguese commercial legislation requires that at least 5% of annual net profit must be appropriated to a legal reserve until it represents at least 20% of the share capital. This reserve is not distributable, except in case of liquidation, but can be used to absorb losses, after having exhausted all other reserves and to increase share capital.
Issue of shares corresponds to premiums from the issuance or capital increases. According to Portuguese law, share premiums follow the treatment given to the "Legal reserve", that is, the values are not distributable, except in case of liquidation, but can be used to absorb losses after having exhausted all other reserves and to increase share capital.
According to IFRS 2 - "Share-based payments", the responsibility with the medium-term incentive plans settled by delivery of own shares is recorded as credit under "Reservations for mid-term incentive plans" and such reserve is not likely to be distributed or used to absorb losses.
Hedging reserve reflects the changes in fair value of derivative financial instruments as cash flow hedges that are considered effective, and they are not likely to be distributed or be used to absorb losses.
reserve. Under Portuguese law, the amount of distributable reserves is determined according to the individual financial statements of the company prepared in accordance with IFRS. In addition, the increases resulting from the application of fair value through equity components, including its application through the net profit can only be distributed when the elements that originated them are sold, exercised liquidated or when the end their use, in the case of tangible assets or intangible assets.
The own shares are recorded at acquisition cost as a deduction from equity. Gains or losses on the sale of own shares are recorded under "Other reserves".
This item includes the results available for distribution to shareholders and earnings per fair value in financial instruments increases, financial investments and investment properties, which, in accordance with paragraph 2 of article 32 of the CSC, will only be available for distribution when the elements or rights that originated them are sold, exercised, terminated, or settled.
The main types of revenue of NOS subsidiaries are as follows:
i) Revenues of Communications Services:
Cable television, fixed broadband and fixed voice: The revenues from services provided using the fibre optic cable network result from: (a) basic channel subscription packages that can be sold in a bundle with fixed broadband/fixed voice services; (b) premium channel subscription packages and S-VOD; (c) terminal equipment rental; (d) consumption of content (VOD); (e) traffic and voice termination; (f) service activation; (g) sale of equipment; and (h) other additional services (ex: firewall, antivirus).
Satellite television: Revenues from the satellite television service mainly result from: (a) basic and premium channel subscription packages; (b) equipment rental; (c) consumption of content (VOD); (d) service activation; and (e) sale of equipment.
Mobile broadband and voice services: Revenues from mobile broadband Internet access services and mobile voice services result mainly from monthly subscriptions and/or usage of the Internet and voice service, as well as the traffic associated with the type chosen by the client.
The Group's revenue is based on the five-step model established by IFRS 15:
Thus, at the beginning of each contract, the NOS Group evaluates the promised goods or services and identifies, as a performance obligation, every promise of transfer to the customer of any distinct good or service (or package of goods or services). These promises in customer contracts may be express or implied, provided such promises create a valid expectation in the client that the entity will transfer a good or service to the customer, based on the entity's published policies, specific statements or usual business practices.
The NOS Group has internally defined that a performance obligation corresponds to the promise of delivery of a good or service that can be used in an isolated/separated way by the customer and on which there is a clear perception of this good or service by the customer among the available in each contract.
The main performance obligations are summarized as Sales of Mobile Phones, Telephones, Hotspots, DVD's, Movie Tickets and Other Equipment and the Services Rendered of Mobile Internet Services, Fixed Internet, Mobile Phone, Landline Phone, Television, Consulting, Cloud/ IT Services, distribution of audio-visual rights among others.
The provision of Set-top-boxes, routers, modems and other terminal equipment at the customers' home and respective installation and activation services were considered by the group as not corresponding to a performance obligation, since they are necessary actions to fulfil the promised performance obligation.
In determining and allocating the transaction price of each performance obligation, NOS used stand-alone prices of the promised products and services at the time of entering into the agreement with the customer to distribute the amount expected to be received under the contract.
The recognition of revenue occurs at the time of performance of each performance obligation.
Revenue from selling equipment is recognized when the buyer takes on the risks and advantages of taking possession of goods and the value of the benefits are reasonably quantified.
Revenue from telecom services subscriptions (TV, internet, mobile and fixed voice services bundle subscription, individually or as a bundle) is recognised linearly over the subscription period.
Revenue from equipment rental is recognised linearly over the rental agreement, except in the case of instalment sales, which are accounted as credit sales.
The Group attributes to its customers loyalty points in each call or recharge, that might be exchanged, over a limited period, for discounts in equipment purchase. In each reporting period, NOS recognises the current liability with discounts to be awarded in the future. This responsibility is calculated based on the amount of points awarded and not yet used, discounted from the estimate of points that will not be used (based on the history of use) and valued based on the offer available at each time for the use of points (specific catalog).
The recognition of liability configures a deferred income (until the date on which the points are definitively converted into benefits), which is recognised at the time of the use of the discount, as a revenue accrual.
Revenue related with traffic, roaming, data usage, audiovisual content, and others is recognised when the service is rendered. The Group also offers various personalised solutions, particularly to its corporate customers in telecom management, access, voice, and data transmission services. These personalised solutions are also recognised when the service is rendered.
Unless demanded or allowed by IFRS, the compensation of revenues and costs is not performed, namely, when it reflects the nature of the transaction or other event.
The compensation of revenues and costs is performed in the following situations:
Discounts granted to customers related with loyalty programmes are allocated to the entire retention contract to which the customer is committed to. Therefore, the discount is recognised as the goods and services made available to the customer.
Amounts that have not been invoiced for are included based on estimates. The differences between the estimated amounts and the actual amounts, which are normally immaterial, are recorded in the next financial year.
Until 31 December 2014, revenue from penalties, due to the inherent uncertainties, was recorded only at the moment it was received, and the amount was disclosed as a contingent asset (Note 43). From 1 January 2015, Revenue from penalties is recognised based on an estimated collectability rate, considering the Group's collection history.
In the quarter ended on 31 March 2020, due to the impacts resulting from the new coronavirus and the estimated reduction in collections, expected credit losses were recognised for all accounts receivable from penalties. The
Interest revenue is recognised using the effective interest method, only when they generate future economic benefits for the Group and when they can be measured reliably.
principle, under which they are recognised as they are generated or incurred, regardless of when they are received or paid.
The costs and revenues related to the current period and whose expenses and income will only occur in future periods are registered relate to future periods, which will be recognised in each of those periods, for the corresponding amount.
The costs related to the current period and whose expenses will only occur in that future periods are registered well as the timing Provisions (Note 2.3.13).
Transactions in foreign currencies are converted into the functional currency at the exchange rate on the transactions dates. On each accounting date, outstanding balances (monetary items) are updated by applying the exchange rate prevailing on that date. The exchange rate differences in this update are recognised in the income statement for the year in which they were calculated in the item "Losses / (gains) on exchange variations". Exchange rate variations generated on monetary items, which constitute enlargement of the investment denominated in the functional currency of the Group or of the subsidiary in question, are recognised in equity. Exchange rate differences on non-
The financial statements of subsidiaries denominated in foreign currencies are converted at the following exchange rates:
Exchange differences arising from the conversion into euros of the financial statements of subsidiaries
In the last quarter of 2017, the Angolan economy was considered a hyperinflationary economy according to IAS 29 - Financial Reporting in Hyperinflationary Economies.
This standard requires that the financial statements prepared in the currency of a hyperinflationary must be expressed in terms of the current measurement unit at the financial statements preparation date.
In summary, the general aspects that must be considered for the restatement of the individual financial statements are the following ones:
The monetary assets and liabilities are not amended because they are already updated to the current unit at the financial statements date;
The non-monetary assets and liabilities (that are still not expressed in terms of the current unit at the financial statements) are restated by the application of an index;
The effect of the inflation on the net monetary position of the subsidiaries companies is reflected in the income statement as a loss in the net monetary position.
Additionally, according to IAS 21, the restatement of the consolidated financial statements is prohibited when the parent company does not operate in a hyperinflationary economy.
The conversion coefficient that was used for the restatement of the individual financial statements of the subsidiaries in Angola was the Consumer Price Index (CPI), issued by the National Bank of Angola.
| Basis 100 | CPI | Converted CPI (Basis 100 Year 2010) |
|
|---|---|---|---|
| dec/10 | Year 2010 | 100.0 | 100.0 |
| dec/11 | Year 2010 | 111.4 | 111.4 |
| dec/12 | Year 2011 | 109.0 | 121.4 |
| dec/13 | Year 2014 | 93.0 | 130.8 |
| dec/14 | Year 2014 | 100.0 | 140.5 |
| dec/15 | Year 2014 | 114.3 | 160.6 |
| dec/16 | Year 2014 | 162.2 | 227.9 |
| dec/17 | Year 2014 | 204.8 | 287.8 |
| dec/18 | Year 2014 | 241.1 | 338.8 |
| sept/19 | Year 2014 | 270.2 | 379.7 |
In the last quarter of 2019, the Angolan economy was no longer considered a hyperinflationary economy.
IAS 29 hyperinflationary, the company should treat the amounts expressed in the current unit of measurement at the end of the previous reporting period, as the basis for the carrying amounts in its statements subsequent financial s / revaluations, carried out until the end of the classification as a proportion as the assets that gave rise to it.
At 31 December 2019 and 31 March 2020, assets and liabilities expressed in foreign currencies were converted into euros using the following exchange rates of such currencies against the euro, as published by the Bank of Portugal:
| 31-12-2019 | 31-03-2020 | |
|---|---|---|
| US Dollar | 1.1234 | 1.0956 |
| Angolan Kwanza | 536.2617 | 562.4569 |
| British Pound | 0.8508 | 0.8864 |
| Mozambican Metical | 68.7000 | 73.300 |
| Canadian Dollar | 1.4598 | 1.5617 |
| Swiss Franc | 1.0854 | 1.0585 |
| Real | 4.5157 | 5.7001 |
In the quarters ended on 31 March 2019 and 2020, the income statements of subsidiaries expressed in foreign currencies were converted to euros at the average exchange rates of the currencies of their countries of origin against the euro, which exchange rate used is at the end of the period. The average exchange rates used are as follows:
| 3M 19 | 3M 20 | |
|---|---|---|
| US Dollar | 1.1358 | 1.1002 |
| Angolan Kwanza | 356.9470 | 546.1848 |
| Mozambican Metical | 71.5033 | 71.3733 |
Financial charges related to borrowings are recognised as costs in accordance with the accruals principle, except in the case of loans incurred (whether these are generic or specific) for the acquisition, construction or production of an asset that takes a substantial period (over one year) to be ready for use, which are capitalised in the acquisition cost of that asset.
Investment property mainly includes buildings held to generate rents rather than for use in the production or supply of goods or services, or for administrative purposes, or for sale in the ordinary course of business. These are measured initially at cost.
Subsequently, the Group uses the cost model for the valuation of investment property since use of the fair value model would not result in material differences.
An investment property is eliminated from the statement of financial position on disposal or when the investment property is taken permanently out of use and no financial benefit is expected from its disposal.
The Group measures part of the financial assets, such as financial assets available for sale, and some of its nonfinancial assets, such as investment properties, at fair value on the date of the financial statements.
The fair value measurement assumes that the asset or liability is exchanged in an orderly transaction among market participants to sell the asset or transfer the liability at the measurement date under current market conditions. The fair value measurement is based on the assumption that the transaction to sell the asset or transfer the liability may occur:
On the main market of the assets and liabilities, or
In the absence of a primary market, it is assumed that the transaction occurs in the most advantageous market. This is what maximises the amount that would be received for selling asset or minimises the amount that would be paid to transfer the liability, after considering transaction costs and transport costs.
Since different entities and businesses within a single entity can have access to different markets, the main or most advantageous market for the same asset or liability can vary from one entity to another, or even between businesses within the same entity, but it is assumed that they are accessible to the Group.
liability, assuming that market participants would use the asset to maximise its value.
The Group uses valuation techniques appropriate to the circumstances whenever there is information to measure the fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.
All assets and liabilities measured at fair value or of which disclosure is mandatory, are rated on a fair value hierarchy, which ranks data in three levels to be used in the measurement at fair value, and detailed below:
Level 1 Listed and unadjusted market prices, in active markets for identical assets or liabilities that the entity can access at the measurement date;
Level 2 -
Level 3 - valuation techniques using inputs not based on observable market data, based on unobservable inputs.
The fair value measurement is classified in the same fair value hierarchy level at the lowest level of input, which is significant to the measurement as a whole.
Financial assets and liabilities are offset and presented at the net amount when, and only when, the Group has the right to offset the recognised amounts and intends to settle for the net amount.
Personnel expenses are recognised when the service is rendered by employees independently of their date of payment. Here are some specificities:
c) Labour Compensation Fund (FCT) and the Labour Compensation Guarantee Fund (FGCT). Based on the publication of Law No. 70/2013 and subsequent regulation by Order No. 294-A / 2013, entered into force on 1 October the Labour Compensation Fund schemes (FCT) and the Guarantee Fund Compensation of Labour (FGCT). In this context, companies that hire a new employee are required to deduct a percentage of the respective salary for these two new funds (0.925% to 0.075% and the FCT for FGCT), in order to ensure, in the future, the partial payment the compensation for dismissal. Considering the characteristics of each Fund, the following is considered:
The monthly deliveries to FGCT, made by the employer are recognised as expense in the period to which they relate.
The monthly deliveries to FCT, made by the employer are recognised as a financial asset, in the caption "Other non- of the entity, measured at fair value with changes recognised in the respective results.
which the risk of change in value is negligible. For purposes of the statement of cash flows, the balance of cash and cash equivalents also include bank overdrafts included in the statement of financial position under "Borrowings".
The statement of cash flows is divided into operating, investing, and financing activities.
Operating activities include cash received from customers and payments to suppliers, staff and others related to operating activities. Under "Other cash receipts / (payments) related with operating activity" includes the amount received and subsequent payments related to assignments without recourse, coordinated by the Banco Comercial Português and Caixa Geral de Depósitos, and these operations do not involve any change in the accounting treatment of the underlying receivables or in the relationship with their clients.
The cash flows included in investing activities include acquisitions and disposals of investments in subsidiaries and cash received and payments arising from the purchase and sale of tangible and intangible assets, amongst others.
Financing activities include cash received and payments relating to borrowings, the payment of interest and similar costs, finance leases, the purchase and sale of own shares and the payment of dividends.
Events occurring after the date of the statement of financial position, which provide additional information about conditions that existed at that date, are considered in the preparation of financial statements for the quarter.
Events occurring after the date of the statement of financial position, which provide information on conditions that occur after that date, are disclosed in the notes to the financial statements, when they are materially relevant.
estimates that affect the statement of financial position and the reported results. These estimates are based on the best information and knowledge about past and/or present events and on the operations that the Company considers it may implement in the future. However, at the date of completion of such operations, their results may differ from these estimates.
Changes to these estimates that occur after the date of approval of the consolidated financial statements will be corrected in the income statement in a prospective manner, in accordance with IAS 8 - "Accounting Policies, Changes in Accounting Estimates and Errors".
The estimates and assumptions that imply a greater risk of giving rise to a material adjustment in assets and liabilities are described below:
To determine the entities to be included in the consolidation perimeter, the Group assesses the extent to which it is exposed, or has rights, to variability in return from its involvement with that entity and can take possession of them through the power it holds over this entity.
The decision that an entity must be consolidated by the Group requires the use of judgment, estimates, and assumptions to determine the extent to which the Group is exposed to return variability and the ability to take possession of them through its power.
Other assumptions and estimates could lead to the Group's consolidation perimeter being different, with direct impact on the consolidated financial statements.
The determination of a possible impairment loss can be triggered by the occurrence of various events, such as the availability of future financing, the cost of capital or other market, economic and legal changes or changes
The identification and assessment of impairment indicators, the estimation of future cash flows, and the calculation of the recoverable value of assets involve a high degree of judgment by the Board.
Goodwill is annually subjected to impairment tests or whenever there are indications of a possible loss of value in accordance with the criteria described in Note 8. The recoverable values of the cash-generating units to which goodwill is allocated are determined based on the calculation of current use values. These calculations require the use of estimates by management.
The life of an asset is the period during which the Company expects that an asset will be available for use and this should be reviewed at least at the end of each financial year.
The determination of the useful lives of assets, the amortisation/depreciation method to be applied, and the estimated losses resulting from the replacement of equipment before the end of its useful life due to technological obsolescence is crucial in determining the amount of amortisation/depreciation to be recognised in the consolidated income statement each period.
concerned and taking account of the practices adopted by companies in the sectors in which the Group operates.
The capitalised costs with the audiovisual content distribution rights acquired for commercialisation in the various windows of exhibition are amortised over the period of exploration of the respective contracts. Additionally, these assets are subject to impairment tests whenever there are indications of changes in the pattern generation of future revenue underlying each contract.
The Group determines the end of the lease as the non-cancelable part of the lease term, together with any periods covered by an option to extend the lease if it is reasonably certain that it will be exercised, or any periods covered by an option to terminate the lease agreement, if it is reasonably certain that it will not be exercised.
The Group has the option, under some of its lease agreements, to lease its assets for additional periods. NOS assesses the reasonableness of exercising the option to renew the contract. That is, NOS considers all the relevant factors that create an economic incentive for exercising the renewal. After the start date, the Group reevaluates the termination of the contract if there is a significant event or changes in circumstances that are under control and affect its ability to exercise (or not exercise) the renewal option (a change in strategy of business).
The Group periodically reviews any obligations arising from past events, which should be recognised or disclosed. The subjectivity involved in determining the probability and amount of internal resources required to meet obligations may give rise to significant adjustments, either due to changes in the assumptions made, or due to the future recognition of provisions previously disclosed as contingent liabilities.
Deferred income tax assets are recognised only when there is strong assurance that there will be future taxable income available to use the temporary differences or when there are deferred tax liabilities whose reversal is expected in the same period in which the deferred tax assets are reversed. The assessment of deferred income tax assets is undertaken by management at the end of each period taking account of the expected future performance of the Group.
The credit risk on the balances of accounts receivable is assessed at each reporting date, using a collection matrix based on the historical past collections adjusted from the future expectation of collections evolution, to determine the uncollectability rate. The expected credit losses of the accounts receivable are thus adjusted for the assessment made, which may differ from the effective risk that will incurred in the future.
When the fair value of an asset or liabilities is calculated, on an active market, the respective market price is used. valuation techniques generally accepted in the market, based on market assumptions, are used.
The Group applies evaluation techniques for unlisted financial instruments, such as derivatives, financial instruments at fair value and instruments measured at amortised cost. The most frequently used valorisation models are models of discounted cash flows and option models, which incorporate, for example, interest rate and market volatility curves.
For certain types of more complex derivatives, more advanced valuation models are used containing assumptions and data that are not directly observable in the market, for which the Group uses internal estimates and assumptions.
During the quarters ended on 31 March 2019 and 2020, errors, estimates and changes in material accounting policies relating to prior years were not recognised.
The changes in the consolidation perimeter, during the financial years ended on 31 December 2019, were:
During the quarter ended on 31 March 2020, did not occur changes in the consolidation perimeter.
The business segments are as follows:
Assets and liabilities by segment at 31 December 2019 and 31 March 2020 are shown below:
| TELCO | AUDIOVISUALS | ELIMINATIONS | GROUP | |
|---|---|---|---|---|
| ASSETS | ||||
| NON - CURRENT ASSETS: | ||||
| Tangible assets | 1,021,538 | 13,275 | - | 1,034,813 |
| Intangible assets | 921,600 | 92,466 | - | 1,014,066 |
| Contract costs | 163,101 | - | - | 163,101 |
| Rights of use | 182,799 | 35,584 | - | 218,383 |
| Investments in jointly controlled companies and associated companies | 73,733 | 47,655 | (103,144) | 18,244 |
| Accounts receivable - other | 76,141 | 2,923 | (75,000) | 4,064 |
| Deferred income tax assets | 69,158 | 11,270 | - | 80,428 |
| Other non-current assets | 565 | 676 | - | 1,241 |
| TOTAL NON - CURRENT ASSETS | 2,508,637 | 203,849 | (178,144) | 2,534,342 |
| CURRENT ASSETS: | ||||
| Inventories | 33,393 | 688 | - | 34,081 |
| Account receivables | 364,176 | 64,494 | (38,830) | 389,840 |
| Contract assets | 68,059 | - | - | 68,059 |
| Prepaid expenses | 42,426 | 1,845 | (317) | 43,954 |
| Other current assets | 2,923 | 2,158 | - | 5,081 |
| Cash and cash equivalents | 11,988 | 831 | - | 12,819 |
| TOTAL CURRENT ASSETS | 522,966 | 70,016 | (39,148) | 553,834 |
| TOTAL ASSETS | 3,031,603 | 273,865 | (217,292) | 3,088,176 |
| SHAREHOLDER'S EQUITY | ||||
| Share capital | 5,152 | 36,756 | (36,756) | 5,152 |
| Capital issued premium | 854,219 | - | - | 854,219 |
| Own shares | (14,655) | - | - | (14,655) |
| Legal reserve | 1,030 | 88 | (88) | 1,030 |
| Other reserves and accumulated earnings | 47,416 | 22,145 | (53,520) | 16,041 |
| Net income | 135,892 | 19,925 | (12,323) | 143,494 |
| EQUITY BEFORE NON - CONTROLLING INTERESTS | 1,029,054 | 78,914 | (102,687) | 1,005,281 |
| Non-controlling interests | 7,042 | 7,042 | ||
| TOTAL EQUITY | 1,036,095 | - 78,914 |
- (102,687) |
1,012,322 |
| LIABILITIES | ||||
| NON - CURRENT LIABILITIES: | ||||
| Borrowings Provisions |
1,165,451 | 110,614 | (59,218) | 1,216,847 |
| 88,064 667 |
6,895 | - | 94,959 667 |
|
| Accrued expenses Other non-current liabilities |
- | - | ||
| Deferred income tax liabilities | 9,243 | - | - | 9,243 |
| 11,189 | 437 | - | 11,626 | |
| TOTAL NON - CURRENT LIABILITIES | 1,274,615 | 117,946 | (59,218) | 1,333,343 |
| CURRENT LIABILITIES: | ||||
| Borrowings | 161,469 | 24,177 | (42,365) | 143,281 |
| Accounts payable | 281,767 | 19,746 | (8,179) | 293,334 |
| Tax payable | 65,469 | 2,733 | - | 68,202 |
| Accrued expenses | 186,056 | 22,201 | (4,531) | 203,726 |
| Other current liabilities | 26,131 | 8,149 | (311) | 33,969 |
| TOTAL CURRENT LIABILITIES | 720,893 | 77,005 | (55,387) | 742,511 |
| TOTAL LIABILITIES | 1,995,508 | 194,951 | (114,605) | 2,075,854 |
| TOTAL LIABILITIES AND SHAREHOLDER´S EQUITY | 3,031,603 | 273,865 | (217,292) | 3,088,176 |
| 31-03-2020 | ||||
|---|---|---|---|---|
| TELCO | AUDIOVISUALS | ELIMINATIONS | GROUP | |
| ASSETS | ||||
| NON - CURRENT ASSETS: | ||||
| Tangible assets | 1,029,154 | 13,526 | - | 1,042,680 |
| Intangible assets | 919,088 | 89,950 | - | 1,009,038 |
| Contract costs | 162,028 | - | - | 162,028 |
| Rights of use | 181,473 | 34,102 | - | 215,575 |
| Investments in jointly controlled companies and associated companies | 68,306 | 47,781 | (103,144) | 12,943 |
| Accounts receivable - other | 103,104 | (19,474) | (80,000) | 3,630 |
| Deferred income tax assets | 74,816 | 11,237 | - | 86,053 |
| Other non-current assets | 525 | 672 | - | 1,197 |
| TOTAL NON - CURRENT ASSETS | 2,538,494 | 177,794 | (183,144) | 2,533,144 |
| CURRENT ASSETS: | ||||
| Inventories | 36,602 | 742 | - | 37,344 |
| Account receivables | 344,755 | 58,749 | (29,491) | 374,013 |
| Prepaid expenses | 34,118 | 2,021 | - | 36,139 |
| Other current assets | (46,510) | 3,174 | 50,600 | 7,264 |
| Cash and cash equivalents | 64,670 | 723 | - | 65,393 |
| CURRENT ASSETS OF CONTINUING OPERATING UNITS | 433,635 | 65,409 | 21,109 | 520,153 |
| Assets for sale | 32,354 | - | - | 32,354 |
| TOTAL CURRENT ASSETS | 465,989 | 65,409 | 21,109 | 552,507 |
| TOTAL ASSETS | 3,004,483 | 243,203 | (162,035) | 3,085,651 |
| SHAREHOLDER'S EQUITY | ||||
| 5,152 | 36,756 | 5,152 | ||
| Share capital | (36,756) | |||
| Capital issued premium Own shares |
854,219 | - | - | 854,219 |
| (9,325) 1,030 |
- 1,374 |
- | (9,325) 1,030 |
|
| Legal reserve | 176,817 | 16,231 | (1,374) | 154,982 |
| Other reserves and accumulated earnings Net income |
14,597 | 1,539 | (38,066) | |
| EQUITY BEFORE NON - CONTROLLING INTERESTS | (26,491) | (10,355) | ||
| 1,042,490 | 55,900 | (102,687) | 995,703 | |
| Non-controlling interests | 6,657 | - | - | 6,657 |
| TOTAL EQUITY | 1,049,147 | 55,900 | (102,687) | 1,002,360 |
| LIABILITIES | ||||
| NON - CURRENT LIABILITIES: | ||||
| Borrowings | 1,257,875 | 117,741 | (79,999) | 1,295,617 |
| Provisions | 88,843 | 6,653 | - | 95,496 |
| Accrued expenses | 521 | - | - | 521 |
| Other non-current liabilities | 9,383 | - | - | 9,383 |
| Deferred income tax liabilities | 10,831 | 408 | - | 11,239 |
| TOTAL NON - CURRENT LIABILITIES | 1,367,453 | 124,802 | (79,999) | 1,412,256 |
| CURRENT LIABILITIES: | ||||
| Borrowings | 83,201 | 12,437 | (14,763) | 80,875 |
| Accounts payable | 269,511 | 30,660 | (12,066) | 288,105 |
| Tax payable | 22,333 | 540 | 50,600 | 73,473 |
| Accrued expenses | 155,944 | 17,315 | (3,120) | 170,139 |
| Other current liabilities | 26,705 | 1,549 | - | 28,254 |
| TOTAL CURRENT LIABILITIES | 557,694 | 62,501 | 20,651 | 640,846 |
| Liabilities directly associated with assets held for sale | 30,189 | - | - | 30,189 |
| TOTAL LIABILITIES | 587,883 | 62,501 | 20,651 | 671,035 |
| TOTAL LIABILITIES | 1,955,336 | 187,303 | (59,348) | 2,083,291 |
| TOTAL LIABILITIES AND SHAREHOLDER´S EQUITY | 3,004,483 | 243,203 | (162,035) | 3,085,651 |
The results by segment and investments in tangible and intangible assets, contract costs and rights of use for the quarters ended on 31 March 2019 and 2020 are shown below:
| 3M 19 RESTATED | ||||
|---|---|---|---|---|
| TELCO | AUDIOVISUALS ELIMINATIONS | GROUP | ||
| REVENUES: | ||||
| Services rendered | 319,589 | 22,820 | (10,940) | 331,469 |
| Sales | 15,882 | 3,581 | (39) | 19,424 |
| Other operating revenues | 5,255 | 265 | (508) | 5,012 |
| 340,726 | 26,666 | (11,487) | 355,905 | |
| COSTS, LOSSES AND GAINS: | ||||
| Wages and salaries | 17,585 | 2,494 | - | 20,079 |
| Direct costs | 96,631 | 5,652 | (8,756) | 93,527 |
| Costs of products sold | 13,790 | 131 | (5) | 13,916 |
| Marketing and advertising | 6,432 | 1,740 | (1,883) | 6,289 |
| Support services | 21,064 | 416 | (501) | 20,979 |
| Supplies and external services | 26,676 | 2,433 | (342) | 28,767 |
| Other operating losses / (gains) | 107 | 14 | - | 121 |
| Taxes | 8,729 | 35 | - | 8,764 |
| Provisions and adjustments | 3,375 | (81) | - | 3,294 |
| 194,389 | 12,834 | (11,487) | 195,736 | |
| EBITDA | 146,337 | 13,832 | - | 160,169 |
| Depreciation, amortisation and impairment losses | 88,734 | 8,586 | - | 97,320 |
| Other losses / (gains), net | 3,230 | 93 | - | 3,323 |
| INCOME BEFORE LOSSES / (GAINS) PARTICIPATED COMPANIES, | ||||
| FINANCIAL RESULTS AND TAXES | 54,373 | 5,153 | - | 59,526 |
| Net losses / (gains) of affiliated companies | (157) | (41) | - | (198) |
| Financial costs | 5,409 | 219 | - | 5,628 |
| Net foreign exchange losses / (gains) | (32) | 83 | - | 51 |
| Net losses / (gains) on financial assets | (6,703) | (1,724) | 8,424 | (3) |
| Net other financial expenses / (income) | 718 | 12 | - | 731 |
| (765) | (1,451) | 8,424 | 6,209 | |
| INCOME BEFORE TAXES | 55,139 | 6,604 | (8,424) | 53,318 |
| Income taxes | 10,069 | 1,301 | - | 11,370 |
| NET INCOME EARNINGS PER SHARES FROM CONTINUING OPERATIONS | 45,069 | 5,303 | (8,424) | 41,948 |
| Net consolidated income from discontinued operadtions | 423 | - | - | 423 |
| NET INCOME | 45,492 | 5,303 | (8,424) | 42,371 |
| CAPEX | 81,740 | 5,526 | - | 87,266 |
| EBITDA - CAPEX | 64,597 | 8,306 | - | 72,903 |
EBITDA = Operational Result + Depreciation, amortisation and impairment losses + Restructuring costs + Losses / (gains) on sale of assets + Other losses / (gains) non-recurrent
CAPEX = Increases in tangible and intangible assets, contract costs and rights of use
| 3M 20 | ||||
|---|---|---|---|---|
| TELCO | AUDIOVISUALS ELIMINATIONS | GROUP | ||
| REVENUES: | ||||
| Services rendered | 313,040 | 18,287 | (9,103) | 322,224 |
| Sales | 15,162 | 3,104 | (47) | 18,219 |
| Other operating revenues | 4,694 | 408 | (161) | 4,941 |
| 332,896 | 21,799 | (9,311) | 345,384 | |
| COSTS, LOSSES AND GAINS: | ||||
| Wages and salaries | 18,552 | 2,596 | - | 21,148 |
| Direct costs | 94,111 | 4,534 | (7,970) | 90,675 |
| Costs of products sold | 14,684 | 80 | (8) | 14,756 |
| Marketing and advertising | 6,427 | 1,208 | (2,270) | 5,365 |
| Support services | 21,109 | 360 | 6 | 21,475 |
| Supplies and external services | 25,515 | 1,167 | 928 | 27,610 |
| Other operating losses / (gains) | 131 | 16 | 3 | 150 |
| Taxes | 8,196 | 44 | - | 8,240 |
| Provisions and adjustments | 3,398 | (161) | - | 3,237 |
| 192,123 | 9,844 | (9,311) | 192,656 | |
| EBITDA | 140,773 | 11,955 | - | 152,728 |
| Depreciation, amortisation and impairment losses | 90,022 | 10,452 | - | 100,474 |
| Other losses / (gains), net | 44,393 | 1,344 | (1) | 45,736 |
| INCOME BEFORE LOSSES / (GAINS) PARTICIPATED COMPANIES, | 159 | 1 | ||
| FINANCIAL RESULTS AND TAXES | 6,358 | 6,518 | ||
| Net losses / (gains) of affiliated companies | 8,951 | (126) | (1) | 8,824 |
| Financial costs | 4,103 | 560 | 1 | 4,664 |
| Net foreign exchange losses / (gains) | 54 | 97 | (1) | 150 |
| Net losses / (gains) on financial assets | (24,387) | (2,046) | 26,491 | 58 |
| Net other financial expenses / (income) | 838 | 2 | 1 | 841 |
| (10,441) | (1,513) | 26,491 | 14,537 | |
| INCOME BEFORE TAXES | 16,799 | 1,672 | (26,490) | (8,019) |
| Income taxes | 2,719 | 133 | - | 2,852 |
| NET INCOME EARNINGS PER SHARES FROM CONTINUING OPERATIONS | 14,080 | 1,539 | (26,490) | (10,871) |
| Net consolidated income from discontinued operadtions | 138 | - | - | 138 |
| NET INCOME | 14,218 | 1,539 | (26,490) | (10,733) |
| CAPEX | 92,754 | 6,765 | - | 99,520 |
| EBITDA - CAPEX | 48,019 | 5,190 | - | 53,208 |
EBITDA = Operational Result + Depreciation, amortisation and impairment losses + Restructuring costs + Losses / (gains) on sale of assets + Other losses / (gains) non-recurrent
CAPEX = Increases in tangible and intangible assets, contract costs and rights of use
Transactions between segments are performed on market terms and conditions in a comparable way to transactions performed with third parties.
At 31 March 2020, fully consolidated foreign companies represent 1% of assets (at 31 December 2019: 1%) and their turnover is less than 1% of consolidated turnover.
The accounting policies set out in IFRS 9 for financial instruments were applied to the following items:
| 31-12-2019 | ||||||
|---|---|---|---|---|---|---|
| FINANCIAL ASSETS |
DERIVATIVES | FINANCIAL LIABILITIES |
TOTAL FINANCIAL ASSETS AND LIABILITIES |
NON FINANCIAL ASSETS AND LIABILITIES |
TOTAL | |
| ASSETS | ||||||
| Available-for-sale financial assets | 439 | - | - | 439 | - | 439 |
| Accounts receivable - trade (Note 16) | 361,711 | - | - | 361,711 | - | 361,711 |
| Accounts receivable - other (Note 12) | 7,640 | - | - | 7,640 | 24,552 | 32,192 |
| Cash and cash equivalents (Note 20) | 12,819 | - | - | 12,819 | - | 12,819 |
| TOTAL FINANCIAL ASSETS | 382,609 | - | - | 382,609 | 24,552 | 407,161 |
| LIABILITIES | ||||||
| Borrowings (Note 23) | - | - | 1,360,127 | 1,360,127 | - | 1,360,127 |
| Derivative financial instruments (Note 19) | - | 400 | - | 400 | - | 400 |
| Accounts payable - trade (Note 27) | - | - | 259,501 | 259,501 | - | 259,501 |
| Accounts payable - other (Note 28) | - | - | 37,577 | 37,577 | 112 | 37,689 |
| Accrued expenses (Note 25) | - | - | 204,393 | 204,393 | - | 204,393 |
| TOTAL FINANCIAL LIABILITIES | - | 400 | 1,861,598 | 1,861,998 | 112 | 1,862,110 |
| 31-03-2020 | ||||||
|---|---|---|---|---|---|---|
| FINANCIAL ASSETS |
DERIVATIVES | FINANCIAL LIABILITIES |
TOTAL FINANCIAL ASSETS AND LIABILITIES |
NON FINANCIAL ASSETS AND LIABILITIES |
TOTAL | |
| ASSETS | ||||||
| Available-for-sale financial assets | 399 | - | - | 399 | - | 399 |
| Derivative financial instruments (Note 19) | - | 17 | - | 17 | - | 17 |
| Accounts receivable - trade (Note 16) | 285,416 | - | - | 285,416 | - | 285,416 |
| Accounts receivable - other (Note 12) | 6,563 | - | - | 6,563 | 18,174 | 24,737 |
| Cash and cash equivalents (Note 20) | 65,393 | - | - | 65,393 | - | 65,393 |
| TOTAL FINANCIAL ASSETS | 357,771 | 17 | - | 357,788 | 18,174 | 375,962 |
| LIABILITIES | ||||||
| Borrowings (Note 23) | - | - | 1,376,492 | 1,376,492 | - | 1,376,492 |
| Derivative financial instruments (Note 19) | - | 823 | - | 823 | - | 823 |
| Accounts payable - trade (Note 27) | - | - | 252,712 | 252,712 | - | 252,712 |
| Accounts payable - other (Note 28) | - | - | 39,112 | 39,112 | 154 | 39,266 |
| Accrued expenses (Note 25) | - | - | 170,660 | 170,660 | - | 170,660 |
| TOTAL FINANCIAL LIABILITIES | - | 823 | 1,838,976 | 1,839,799 | 154 | 1,839,953 |
Considering its nature, the balances of the amounts to be paid and received to/from state and other public as the nature of such balances are not included in the scope of IFRS 7.
The Board of Directors believes that the fair value of the breakdown of financial instruments recorded at amortised cost or registered at the present value of the payments does not differ significantly from their book value. This decision is based in the contractual terms of each financial instrument.
judicial risks, which are described in the Management Report.
In the quarters ended on 31 March 2019 and 2020, the movements in this item were as follows:
| 31-12-2018 | INCREASES | DISPOSALS AND WRITE -OFFS |
TRANSFERS AND OTHERS |
31-03-2019 | |
|---|---|---|---|---|---|
| ACQUISITION COST | |||||
| Lands | 838 | - | - | - | 838 |
| Buildings and other constructions | 388,170 | 1,454 | (137) | 4,516 | 394,003 |
| Basic equipment | 2,278,623 | 11,753 | (424) | 35,470 | 2,325,422 |
| Transportation equipment | 567 | - | - | - | 567 |
| Tools and dies | 1,406 | - | - | - | 1,406 |
| Administrative equipment | 189,070 | 787 | (55) | 272 | 190,074 |
| Other tangible assets | 42,553 | 75 | - | 86 | 42,714 |
| Tangible assets in-progress | 55,220 | 33,932 | - | (47,030) | 42,122 |
| 2,956,447 | 48,001 | (616) | (6,686) | 2,997,146 | |
| ACCUMULATED DEPRECIATION AND IMPAIRMENT LOSSES | |||||
| Buildings and other constructions | 213,822 | 2,007 | (635) | 544 | 215,738 |
| Basic equipment | 1,493,105 | 34,362 | (272) | - | 1,527,195 |
| Transportation equipment | 516 | 1 | - | - | 517 |
| Tools and dies | 1,316 | 11 | - | - | 1,327 |
| Administrative equipment | 179,428 | 1,283 | (38) | - | 180,673 |
| Other tangible assets | 41,905 | 198 | - | - | 42,103 |
| 1,930,092 | 37,862 | (945) | 544 | 1,967,553 | |
| 1,026,355 | 10,139 | 329 | (7,230) | 1,029,593 |
ntangible
| 31-12-2019 | INCREASES | DISPOSALS AND WRITE | TRANSFERS AND | 31-03-2020 | |
|---|---|---|---|---|---|
| -OFFS | OTHERS | ||||
| ACQUISITION COST | |||||
| Land | 838 | - | - | - | 838 |
| Buildings and other constructions | 404,434 | 654 | - | 4,071 | 409,159 |
| Basic equipment | 2,456,116 | 10,274 | (33) | 29,867 | 2,496,224 |
| Transportation equipment | 508 | - | - | (1) | 507 |
| Tools and dies | 1,487 | - | - | - | 1,487 |
| Administrative equipment | 189,992 | 649 | (99) | 69 | 190,611 |
| Other tangible assets | 43,125 | 22 | - | 156 | 43,303 |
| Tangible assets in-progress | 39,574 | 35,565 | - | (35,981) | 39,158 |
| 3,136,074 | 47,164 | (132) | (1,819) | 3,181,287 | |
| ACCUMULATED DEPRECIATION AND IMPAIRMENT LOSSES | |||||
| Buildings and other constructions | 222,826 | 2,662 | - | (5) | 225,483 |
| Basic equipment | 1,654,724 | 32,963 | (23) | 472 | 1,688,136 |
| Transportation equipment | 504 | 1 | - | (1) | 504 |
| Tools and dies | 1,369 | 13 | - | - | 1,382 |
| Administrative equipment | 179,235 | 1,191 | (87) | 9 | 180,348 |
| Other tangible assets | 42,603 | 151 | (5) | 5 | 42,754 |
| 2,101,261 | 36,981 | (115) | 480 | 2,138,607 | |
| 1,034,813 | 10,183 | (17) | (2,299) | 1,042,680 |
At 31 March 2020, the tangible assets net value is composed mainly by basic equipment, namely:
Tangible and intangible assets include interests and other financial expenses incurred directly related to the construction of certain tangible or intangible assets in progress.
At 31 March 2020, total net value of these costs amounted to 13.6 million euros (31 December 2019: 13.7 million euros). The amount of interest capitalised in the periods ended on 31 March 2020 amounted to 0.2 million euros (31 December 2019: 1 million euros).
In the quarters ended on 31 March 2019 and 2020, the movements in this item were as follows:
| 31-12-2018 | INCREASES | DISPOSALS AND WRITE -OFFS |
TRANSFERS AND OTHERS |
31-03-2019 | |
|---|---|---|---|---|---|
| ACQUISITION COST | |||||
| Industrial property and other rights | 1,521,380 | 966 | - | 28,291 | 1,550,637 |
| Goodwill | 641,400 | - | - | - | 641,400 |
| Intangible assets in-progress | 50,211 | 11,425 | - | (21,640) | 39,996 |
| 2,212,991 | 12,391 | - | 6,651 | 2,232,033 | |
| ACCUMULATED AMORTISATION AND IMPAIRMENT LOSSES | |||||
| Industrial property and other rights | 1,191,312 | 19,374 | - | - | 1,210,686 |
| Other intangible assets | 2,423 | - | - | - | 2,423 |
| 1,193,735 | 19,374 | - | - | 1,213,109 | |
| 1,019,256 | (6,983) | - | 6,651 | 1,018,924 |
(Note 7).
| 31-12-2019 | INCREASES | DISPOSALS AND WRITE -OFFS |
TRANSFERS AND OTHERS |
31-03-2020 | |
|---|---|---|---|---|---|
| ACQUISITION COST | |||||
| Industrial property and other rights | 1,634,046 | 478 | - | 7,775 | 1,642,299 |
| Goodwill | 641,400 | - | - | - | 641,400 |
| Intangible assets in-progress | 23,201 | 16,606 | - | (5,539) | 34,268 |
| 2,298,647 | 17,084 | - | 2,236 | 2,317,967 | |
| ACCUMULATED AMORTISATION AND IMPAIRMENT LOSSES | |||||
| Industrial property and other rights | 1,281,835 | 24,348 | - | 391 | 1,306,574 |
| Intangible assets in-progress | 2,746 | - | - | (391) | 2,355 |
| 1,284,581 | 24,348 | - | - | 1,308,929 | |
| 1,014,066 | (7,264) | - | 2,236 | 1,009,038 |
At 31 March 2020, the item "Industrial property and other rights" includes mainly:
(1) A net amount of 108.4 million euros (31 December 2019: 110.5 million euros) mainly related to the investment, net of amortisation, made in the development of the UMTS network by NOS SA, including: (i) 34.3 million euros (31 December 2019: 35 million euros) related to the license, (ii) 11.5 million euros (31 December 2019: 11.7 million euros) related to the agreement signed in 2002 between Oni Way and the other three mobile telecommunication operators with activity in Portugal, (iii) 3.5 million euros (31 December 2019: 3.6 million e v) 50.2 the net amount of 5.9 million euros (31 December 2019: 6.1 million euros) corresponding to the valuation of the license in the fair value allocation process resulting from the merger;
Increases in the quarter ended on 31 March 2020 correspond mainly to movies and television series rights of use, for an amount of 5.2 million euros, and acquisition and development of software, for an amount of 11.9 million euros.
Goodwill was allocated to the cash-generating units of each reportable segment, as follows:
| 31-12-2019 | 31-03-2020 | |
|---|---|---|
| Telco | 564,799 | 564,799 |
| Audiovisuals | 76,601 | 76,601 |
| 641,400 | 641,400 |
In this context of uncertainty regarding the level of evolution and contagion of the virus, strong economic slowdown and estimated changes to the consumption pattern of the Portuguese (Note 46), the business plans prepared in the year of 2019, are under review in face of the new reality.
It is difficult to project the potential impact of this shock, however, there are already negative impacts in some business areas, namely, the closure of cinemas, a drop in equipment sales and revenues from premium sports channels.
For these reasons, in the first quarter of 2020, a review of the impairment tests was carried out, and in the specific case of the Audiovisual segment, a 50% drop in the operating margin of the cinema ticket sales business and the respective distribution of films was simulated, which support the recoverability of the carrying amount of Goodwill.
In the quarters ended on 31 March 2019 and 2020, the movements in this item were as follows:
| 31-12-2018 | INCREASES | DISPOSALS AND WRITE-OFFS |
31-03-2019 | |
|---|---|---|---|---|
| ACQUISITION COST | ||||
| Cost of attracting customers | 362,641 | 17,988 | - | 380,629 |
| Costs of fulfilling customer contracts | 152,054 | 8,881 | - | 160,935 |
| 514,694 | 26,870 | - | 541,564 | |
| ACCUMULATED AMORTIZATIONS AND IMPAIRMENT LOSSES | ||||
| Cost of attracting customers | 260,712 | 17,266 | - | 277,978 |
| Costs of fulfilling customer contracts | 91,035 | 8,171 | - | 99,206 |
| 351,746 | 25,437 | - | 377,183 | |
| 162,948 | 1,433 | - | 164,381 |
| 31-12-2019 | INCREASES | DISPOSALS AND WRITE-OFFS |
31-03-2020 | |
|---|---|---|---|---|
| ACQUISITION COST | ||||
| Cost of attracting customers | 427,519 | 15,223 | - | 442,742 |
| Costs of fulfilling customer contracts | 189,594 | 8,756 | - | 198,350 |
| 617,113 | 23,979 | - | 641,092 | |
| ACCUMULATED AMORTIZATIONS AND IMPAIRMENT LOSSES | - | |||
| Cost of attracting customers | 327,650 | 16,565 | - | 344,215 |
| Costs of fulfilling customer contracts | 126,362 | 8,487 | - | 134,849 |
| 454,012 | 25,052 | - | 479,064 | |
| 163,101 | (1,073) | - | 162,028 |
contracts. These costs are amortized, systematically and consistently, with the transfer to customers of goods or services to which the asset is related (between 2 and 4 years).
In the quarters ended on 31 March 2019 and 2020, the movements in this item were as follows:
| 31-12-2018 | INCREASES | DISPOSALS AND WRITE-OFFS |
31-03-2019 | |
|---|---|---|---|---|
| ACQUISITION COST | ||||
| Telecommunications towers and rooftops | 122,014 | 624 | - | 122,638 |
| Movie theatres | 84,816 | 1,254 | - | 86,070 |
| Transponders | 92,395 | - | - | 92,395 |
| Equipments | 99,145 | 2,897 | - | 102,042 |
| Buildings | 65,282 | (269) | - | 65,013 |
| Fiber optic rental | 34,157 | - | - | 34,157 |
| Stores | 14,768 | (463) | - | 14,305 |
| Others | 22,290 | (324) | - | 21,966 |
| 534,867 | 3,719 | - | 538,586 | |
| ACCUMULATED DEPRECIATION AND IMPAIRMENT LOSSES | ||||
| Telecommunications towers and rooftops | 81,614 | 2,586 | - | 84,200 |
| Movie theatres | 67,326 | 1,486 | - | 68,812 |
| Transponders | 50,859 | 1,483 | - | 52,342 |
| Equipments | 53,365 | 3,887 | - | 57,252 |
| Buildings | 33,803 | 1,783 | - | 35,586 |
| Fiber optic rental | 24,696 | 763 | - | 25,459 |
| Stores | 9,659 | 488 | - | 10,147 |
| Others | 13,061 | 2,170 | - | 15,231 |
| 334,383 | 14,646 | - | 349,029 | |
| 200,484 | (10,927) | - | 189,557 |
| 31-12-2019 | INCREASES | DISPOSALS AND WRITE-OFFS |
31-03-2020 | |
|---|---|---|---|---|
| ACQUISITION COST | ||||
| Telecommunications towers and rooftops | 139,010 | 4,478 | - | 143,488 |
| Movie theatres | 108,681 | 327 | - | 109,008 |
| Transponders | 91,907 | - | - | 91,907 |
| Equipments | 118,564 | 2,681 | - | 121,245 |
| Buildings | 68,603 | 485 | (16) | 69,072 |
| Fiber optic rental | 33,065 | - | - | 33,065 |
| Stores | 17,838 | 228 | - | 18,066 |
| Others | 31,324 | 3,093 | (48) | 34,369 |
| 608,993 | 11,292 | (65) | 620,220 | |
| ACCUMULATED DEPRECIATION AND IMPAIRMENT LOSSES | ||||
| Telecommunications towers and rooftops | 93,237 | 2,556 | - | 95,793 |
| Movie theatres | 72,093 | 1,790 | 1,700 | 75,583 |
| Transponders | 56,671 | 1,468 | - | 58,139 |
| Equipments | 69,091 | 4,414 | - | 73,505 |
| Buildings | 45,043 | 1,679 | (1,717) | 45,005 |
| Fiber optic rental | 26,674 | 762 | - | 27,436 |
| Stores | 11,975 | 548 | - | 12,523 |
| Others | 15,825 | 872 | (37) | 16,660 |
| 390,610 | 14,089 | (54) | 404,645 | |
| 218,383 | (2,797) | (11) | 215,575 |
The caption "Rights of Use" refers to assets associated with lease contracts, resulting from the application of IFRS 16 on January 1, 2019. These assets are amortized according to the duration of the respective agreement.
At 31 December 2019 and 31 March 2020, this item was composed as follows:
| 31-12-2019 | 31-03-2020 | |
|---|---|---|
| INVESTMENTS - EQUITY METHOD | ||
| Sport TV | 4,544 | - |
| Dreamia | 3,369 | 3,472 |
| Finstar* | 8,635 | 7,569 |
| Mstar | 1,151 | 1,321 |
| Upstar | 391 | 404 |
| Big Picture 2 Films | 154 | 177 |
| ASSETS | 18,244 | 12,943 |
* Consolidated from Finstar and ZAP Media
on 31 March 2019 and 2020 were as follows:
| 3M 19 | 3M 20 | |
|---|---|---|
| RESTATED | ||
| AS AT JANUARY 1 | 19,585 | 18,244 |
| Gains / (losses) of exercise (Note 35) | 196 | (341) |
| Impairment (Note 35) | - | (3,896) |
| Changes in equity i) | 234 | (1,064) |
| AS AT MARCH 31 | 20,014 | 12,943 |
i) Amounts related to changes in equity of the companies registered by the equity method of consolidation are mainly related to foreign exchange impacts of the investment in currencies other than euro.
The Group's interest in the results and assets and liabilities of the jointly controlled companies and associated companies in the quarters ended on 31 December 2019 and 31 March 2020, is as follows:
| 31-12-2019 | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| ENTITY | ASSETS | LIABILITIES | EQUITY | REVENUE | NET INCOME | % HELD | GAIN/(LOSS) ATTRIBUTED TO THE GROUP |
||
| Sport TV* | 184,333 | 166,158 | 18,175 | 199,021 | (3,570) | 25.00% | (893) | ||
| Dreamia | 14,384 | 7,646 | 6,738 | 2,309 | (529) | 50.00% | (265) | ||
| Finstar** | 183,058 | 154,273 | 28,785 | 161,522 | 4,388 | 30.00% | 1,316 | ||
| Mstar | 13,002 | 9,165 | 3,837 | 24,767 | 1,893 | 30.00% | 568 | ||
| Upstar | 79,057 | 77,754 | 1,303 | 32,908 | 101 | 30.00% | 30 | ||
| Big Picture 2 Films | 2,653 | 1,883 | 770 | 6,397 | 144 | 20.00% | 29 | ||
| 476,487 | 416,879 | 59,608 | 426,923 | 2,426 | 787 |
* The equity is adjusted, against liabilities, totalling 10.2 million euros resulting from supplementary payments rendered by other two shareholders which are above the held percentage.
** Consolidated of Finstar and ZAP Media
| 31-03-2020 | ||||||||
|---|---|---|---|---|---|---|---|---|
| ENTITY | ASSETS | LIABILITIES | EQUITY | REVENUE | NET INCOME | % HELD | GAIN/(LOSS) ATTRIBUTED TO THE GROUP |
|
| Sport TV* | 144,586 | 129,004 | 15,582 | 46,269 | (2,592) | 25.00% | (648) | |
| Dreamia | 14,772 | 7,827 | 6,945 | 814 | 207 | 50.00% | 104 | |
| Finstar** | 186,053 | 160,823 | 25,230 | 53,978 | (270) | 30.00% | (81) | |
| Mstar | 11,184 | 6,780 | 4,404 | 7,505 | 828 | 30.00% | 248 | |
| Upstar | 66,579 | 65,231 | 1,348 | 7,797 | 44 | 30.00% | 13 | |
| Big Picture 2 Films | 2,996 | 2,112 | 884 | 2,540 | 114 | 20.00% | 23 | |
| 426,170 | 371,777 | 54,393 | 118,903 | (1,668) | (341) |
* The equity is adjusted, against liabilities, totalling 10.2 million euros resulting from supplementary payments rendered by other two shareholders which are above the held percentage.
** Consolidated of Finstar and ZAP Media
Consolidated adjustments are reflected in the indicators presented in the tables above.
In 31 March 2020, the assets, liabilities and results of jointly controlled companies Finstar and ZAP Media (Finstar Group) are:
| 31-03-2020 | |||||||
|---|---|---|---|---|---|---|---|
| ENTITY | NON - CURRENT ASSETS |
CURRENT ASSETS |
NON - CURRENT LIABILITIES |
CURRENT LIABILITIES |
EQUITY | REVENUE | NET INCOME |
| Finstar | 25,897 | 113,432 | 18,175 | 125,037 | 14,292 | 48,005 | (1,816) |
| ZAP Media | 19,475 | 8,180 | 6,738 | 28,267 | (612) | 5,973 | (1,314) |
The differences between the individual accounts (prepared in accordance with Angolan regulations) and the Finstar Group correspond, predominantly, to the annulment of balances and transactions between the companies and the adjustment because the companies are in a hyperinflationary economy from 2017 to September 2019 (IAS 29).
The Group has several controls regarding the reporting process of its jointly controlled and associated companies. The amounts included in the reported financial statements are subject to audit in cases where it is legally required. In the remaining cases and in those where the audit has not been completed, specific review procedures are carried out by the Group.
The Board of Directors believes that the recent seizure of assets to Mrs. Isabel dos Santos, in the specific case of the shares held by her in Finstar and ZAP Media (where she holds 70% of the capital), does not change the control profile, in this case joint control as defined in IFRS 11, and thus relevant consequences for the operational management of companies and NOS are not expected, besides to restrictions on the distribution of dividends (Note 12)
At 31 December 2019 and 31 March 2020, this item was composed as follows:
| 31-12-2019 | 31-03-2020 | |||
|---|---|---|---|---|
| CURRENT | NON CURRENT | CURRENT | NON CURRENT | |
| Accounts receivables i) | 5,608 | 5,032 | 4,479 | 5,180 |
| Advances to suppliers | 24,552 | - | 18,176 | - |
| 30,160 | 5,032 | 22,655 | 5,180 | |
| Impairment of other receivable | (2,032) | (968) | (1,548) | (1,550) |
| 28,128 | 4,064 | 21,107 | 3,630 |
i) At 31 March 2020, the amount of accounts receivable corresponds mainly to dividends (Note 11), shortterm loans, medium and long-
The summary of movements in impairment of other receivable in other accounts receivable is as follows:
| 3M 19 | |
|---|---|
| RESTATED | 3M 20 |
| AS AT JANUARY 1 967 |
3,000 |
| Increases (Note 34) 183 |
102 |
| (8) Utilizations / Others |
(4) |
| AS AT MARCH 31 1,142 |
3,098 |
At 31 December 2019 and 31 March 2020, these items were composed as follows:
| 31-12-2019 | 31-03-2020 | |||
|---|---|---|---|---|
| RECEIVABLE | PAYABLE | RECEIVABLE | PAYABLE | |
| NON CURRENT | ||||
| Debt regularization | 149 | - | 149 | - |
| 149 | - | 149 | - | |
| CURRENT | ||||
| Value-added tax | 4,211 | 19,102 | 6,376 | 15,638 |
| Income taxes | - | 43,428 | - | 50,600 |
| Personnel income tax witholdings | - | 3,597 | - | 5,323 |
| Social Security contributions | - | 1,913 | - | 1,842 |
| Others | 420 | 162 | 421 | 70 |
| 4,631 | 68,202 | 6,797 | 73,473 | |
| 4,780 | 68,202 | 6,946 | 73,473 |
At 31 December 2019 and 31 March 2020, the amounts of IRC (Corporate Income Tax) receivable and payable were composed as follows:
| 31-12-2019 | 31-03-2020 |
|---|---|
| Estimated current tax on income (25,969) |
(25,453) |
| (43,402) Tax processes |
(51,102) |
| Payments on account 20,593 |
20,591 |
| Withholding income taxes 4,096 |
4,115 |
| Others 1,254 |
1,249 |
| (43,428) | (50,600) |
processes, of which highlights:
i) Future credits transferred: for the financial year ended at 31 December 2010, NOS SA was notified of the Report of Tax Inspection, when it is considered that the increase, when calculating the taxable profit for the year 2008, of the amount of 100 million euros, with respect to initial price of future credits transferred to securitization, is inappropriate. Given the principle of periodisation of taxable income, NOS SA was subsequently notified of the improper deduction of the amount of 20 million euros in the calculation of taxable income between 2009 and 2013. Given that the increase made in 2008 was not accepted due to
not complying with Article 18 of the CIRC, also in the years following, the deduction corresponding to credits generated in that year, will eliminate the calculation of taxable income, to meet the annual amortisation hired as part of the operation (20 million per year for 5 years). NOS SA challenged the decisions regarding the 2009 to 2013 fiscal year and will appeal for the judicial review in due time the decision regarding the 2008 to 2013 fiscal year. Regarding the year 2008, the Administrative and Fiscal Court of Porto has already decided unfavourably, in March 2014. The company has appealed;
NOS and its subsidiaries are subject to IRC - Corporate Income Tax - at the rate of 21% on taxable amount (taxable profit less eventual tax losses subject to deduction), plus IRC surcharge at the maximum rate of 1.5% on taxable profit, giving an aggregate rate of approximately 22.5%. Additionally, following the introduction of austerity measures approved by Law 66-B/2012 of 31 December, and respective addendum published by Law 2/2014 of euros and 7.5 million euros, by
In the calculation of taxable income, amounts, which are not fiscally allowable, are added to or subtracted from the book results. These differences between accounting income and taxable income may be of a temporary or permanent nature.
NOS is taxed in accordance with the Special Regime for Taxation of Corporate Groups, which covers the companies in which it directly or indirectly holds at least 75% of their share capital and which fulfil the requirements of Article 69 of the IRC Code.
The companies covered by the Special Regime for Taxation of Corporate Groups in 2020 are:
NOS Inovação
NOS Internacional SGPS
Under current legislation, tax declarations are subject to review and correction by tax authorities for a period of four years, except when tax losses have occurred or tax benefits have been obtained, whose term, in these cases, matches the deadline to use them. It should be noted that in the event of inspections, appeals, or disputes in progress, these periods might be extended or suspended.
The Board of Directors of NOS, based on information from its tax advisers, believes that these and any other revisions and corrections to these tax declarations, as well as other contingencies of a fiscal nature, will not have a significant effect on the consolidated financial statements as at 31 March 2020.
NOS and its associated companies have reported deferred tax relating to temporary differences between the taxable basis and the book amounts of assets and liabilities, and tax losses carried forward at the date of the statement of financial position.
The movements in deferred tax assets and liabilities for the quarters ended on 31 March 2019 and 31 March 2020 were as follows:
| DEFERRED TAXES OF THE PERIOD |
||||
|---|---|---|---|---|
| 31-12-2018 | INCOME (NOTE B) |
EQUITY | 31-03-2019 | |
| DEFERRED INCOME TAX ASSETS | ||||
| Impairment of other receivable | 4,796 | (24) | - | 4,772 |
| Inventories | 1,610 | 104 | - | 1,714 |
| Other provision and adjustments | 51,956 | (2,446) | - | 49,510 |
| Intragroup gains | 22,098 | (904) | - | 21,194 |
| Liabilities recorded as part of the allocation of fair value to the liabilities acquired in the merger |
4,943 | - | - | 4,943 |
| Assets recognised under application of IFRS 16 (Note 2.1) | 8,763 | (8,763) | - | - |
| Derivatives | 238 | 35 | (88) | 185 |
| 94,404 | (11,998) | (88) | 82,318 | |
| DEFERRED INCOME TAX LIABILITIES | ||||
| Revaluations of assets as part of the allocation of fair value to the assets acquired in the merger |
2,846 | (77) | - | 2,769 |
| Derivatives | 7 | 58 | 8 | 73 |
| Others | 2,270 | 2 7 | - | 2,297 |
| 5,123 | 8 | 8 | 5,139 | |
| NET DEFERRED TAX | 89,281 | (12,006) | (96) | 77,179 |
| DEFERRED TAXES OF THE PERIOD |
||||
|---|---|---|---|---|
| 31-12-2019 | INCOME (NOTE B) |
EQUITY | 31-03-2020 | |
| DEFERRED INCOME TAX ASSETS | ||||
| Impairment of other receivable | 1,471 | 6,194 | - | 7,665 |
| Inventories | 1,871 | 55 | - | 1,926 |
| Other provision and adjustments | 51,825 | (344) | - | 51,481 |
| Intragroup gains | 20,091 | (372) | - | 19,719 |
| Liabilities recorded as part of the allocation of fair value to the liabilities acquired in the merger |
5,080 | - | - | 5,080 |
| Derivatives | 90 | 60 | 32 | 182 |
| 80,428 | 5,593 | 32 | 86,053 | |
| DEFERRED INCOME TAX LIABILITIES | ||||
| Revaluations of assets as part of the allocation of fair value to the assets acquired in the merger |
2,799 | (44) | - | 2,755 |
| Derivatives | - | - | - | - |
| Intra-group leases | 6,324 | (331) | - | 5,993 |
| Others | 2,503 | (12) | - | 2,491 |
| 11,626 | (387) | - | 11,239 | |
| NET DEFERRED TAX | 68,802 | 5,980 | 32 | 74,814 |
At 31 March 2020, the deferred tax assets related to the other provisions and adjustments are mainly due: i) Impairments and acceleration of amortisations beyond the acceptable fiscally and other adjustments in fixed tangible assets and intangible assets, amounted to 40.9 million euros (31 December 2019: 40.3 million euros; and ii) Other provisions amounted to 9.8 million euros (31 December 2019: 11.5 million euros).
At 31 March 2020, the deferred tax liability is related to the revaluation of assets relates mainly to lease agreements between Group companies and the appreciation of telecommunications licenses, and other assets at the merger of Group companies.
At 31 March 2020, deferred tax assets were not recognised for an amount of 1.3 million euros, corresponding mainly to tax incentives.
Deferred tax assets were recognised when it is probable that taxable profits will occur in future that may be used to absorb tax losses or deductible tax differences. This assessment was based on the business plans of the
At 31 March 2020, the tax rate used to calculate the deferred tax assets relating to tax losses carried forward was 21% (2019: 21%). In the case of temporary differences, the rate used was 22.5% (2019: 22.5%) increased to a maximum of 6.99% (2019: 6.99%) of state surcharge when the taxation of temporary differences in the estimated period of application of the state surcharge was perceived as likely. Tax benefits, related to deductions from taxable income, are considered 100%, and in some cases, their full acceptance is conditional upon the approval of the authorities that grants such tax benefits.
Under the terms of Article 88 of the IRC Code, the Company is subject to autonomous taxation on a series of charges at the rates set out in that Article.
Additionally, under the terms of current legislation in Portugal, tax losses generated from 2012 to 2013 and from 2014 to 2016 may be carried forward for a period of five years and twelve years, respectively, after their occurrence and may be deducted from taxable profits generated during that period, up to a limit of 75% of the taxable profit, in 2012 and 2013, and 70% of taxable profit from 2014 to 2016. For tax losses generated in taxation periods that begin on or after 1 January 2017, the carryover is over a five-year period up to the limit of 70% of the taxable profit.
In the quarters ended on 31 March 2019 and 31 March 2020, the reconciliation between the nominal and effective rates of tax was as follows:
| 3M 19 RESTATED |
3M 20 | |
|---|---|---|
| Income before taxes | 53,318 | (8,019) |
| Statutory tax rate | 22.5% | 22.5% |
| ESTIMATED TAX | 11,997 | (1,804) |
| Permanent differences i) | (3) | 2,187 |
| Differences in tax rate of group companies | (535) | (32) |
| Tax benefits ii) | (2,800) | 2,179 |
| State surcharge | 1,890 | (352) |
| Autonomous taxation | 187 | 205 |
| Others | 635 | 469 |
| INCOME TAXES | 11,370 | 2,852 |
| Effective Income tax rate | 21.3% | -35.6% |
| Income tax | (636) | 8,832 |
| Deferred tax | 12,006 | (5,980) |
| 11,370 | 2,852 |
i) At 31 March 2019 and 2020, the permanent differences were composed as follows
| 3M 19 RESTATED |
3M 20 |
|---|---|
| Equity method (Note 35) | (198) 8,824 |
| Others | 184 897 |
| (14) 9,721 |
|
| 22.5% 22.5% |
|
| (3) 2,187 |
ii) This item corresponds to the amount of deferred taxes and the use of tax benefits for which there was no record of deferred taxes: SIFIDE (Business Research and Development Tax Incentives System), a tax benefit introduced by Law 40/2005 of 3 August and RFAI (Investment Tax Incentive Regime) introduced by Law 10/2009 of 10 March; and provisions for used tax incentives.
At 31 December 2019 and 31 March 2020, this item was composed as follows:
| 31-12-2019 | 31-03-2020 | |
|---|---|---|
| INVENTORIES | ||
| Telco | 39,476 | 42,878 |
| Audiovisuals | 1,278 | 1,334 |
| 40,754 | 44,212 | |
| IMPAIRMENT OF INVENTORIES | ||
| Telco | (6,083) | (6,276) |
| Audiovisuals | (590) | (592) |
| (6,673) | (6,868) | |
| 34,081 | 37,344 |
The movements occurred in impairment adjustments were as follows:
| 3M 19 | 3M 20 | |
|---|---|---|
| RESTATED | ||
| AS AT JANUARY 1 | 6,167 | 6,673 |
| Increase and decrease - Cost of products sold (Note 32) | 397 | 652 |
| Utilizations / Others | 2 | (456) |
| AS AT MARCH 31 | 6,566 | 6,869 |
At 31 December 2019 and 31 March 2020, this item was as follows:
| 31-12-2019 | 31-03-2020 | |
|---|---|---|
| Trade receivables | 451,086 | 429,046 |
| Unbilled revenues i) | 64,754 | 46,657 |
| 515,840 | 475,703 | |
| Impairment of trade receivable | (154,128) | (190,287) |
| 361,712 | 285,416 |
i) The amounts to be invoiced correspond mainly to the value of contractual obligations already met or partially met and whose invoicing will occur subsequently.
impairments.
The movements occurred in impairment adjustments were as follows:
| 3M 19 | ||
|---|---|---|
| RESTATED | 3M 20 | |
| AS AT JANUARY 1 | 139,822 | 154,128 |
| Increases and decreases (Note 34) | 6,005 | 3,582 |
| Penalties - i) | 3,759 | 3,174 |
| Other losses / (gains) non-recurrent (Note 38) | - | 28,239 |
| Losses/ (Gains) in participated companies (Note 35) | - | 4,135 |
| Utilizations / Others | (6,660) | (2,971) |
| AS AT MARCH 31 | 142,926 | 190,287 |
i) Penalties correspond to the estimated amount of uncollectible invoiced penalties recognised in the financial year, deducted from revenue, as described in Note 43.6.
At 31 December 2019 and 31 March 2020, this item was as follows:
| 31-12-2019 | 31-03-2020 | |
|---|---|---|
| Contract assets | 68,059 | 67,490 |
| 68,059 | 67,490 |
The contract assets correspond to discounts, attributed to customers at the time of the sale of equipment (included in the telecommunications packages) and which are allocated to monthly fees / services rendered, within the scope of the allocation of credits to different types of performance obligations, according to IFRS 15. These assets are deferred, at the time of sale of the equipment, and recognised over the contract period (service rendered).
At 31 December 2019 and 31 March 2020, this item was composed as follows:
| 31-12-2019 | 31-03-2020 | |
|---|---|---|
| Programming costs i) | 22,232 | 10,189 |
| Costs of litigation procedure activity ii) | 6,686 | 3,289 |
| Insurance | 824 | 552 |
| Advertising | 183 | 2,663 |
| Others iii) | 14,029 | 19,446 |
| 43,954 | 36,139 |
i) Programming costs correspond to costs inherent to the availability of channels, namely fixed fees, billed in advance. This cost is recognised in the period in which the channel is made available and transmitted, and recognised as a programming cost, in the Consolidated Income Statement.
ii) Deferred costs related to collection actions correspond to services paid in advance to external entities as part of the processes for recovering customer debts / collection actions. These costs are recognised as the service is provided.
Expenses to be recognised from various supplies and external services, such as specialised works, maintenance and repair work and others, billed in advance by suppliers (quarterly or annual billing), the respective expense being recognised in the income statement as the service is provided.
At 31 March 2020, NOS had contracted two interest rate swaps totalling 150 million euros (31 December 2019: 150 million euros) whose swap maturities expire in 2022. The fair value of interest rate swaps, in the negative amount of 17 thousand euros (31 December 2019: negative amount of 38 thousand euros), was recorded in liabilities, aga
At 31 March 2020, NOS had contracted two own shares derivatives, in the amount of 1,681 thousand euros (31 December 2019: 2,640 thousand euros), maturing in March 2021 and 2022, in order to cover the delivery of share plans liquidated in cash.
At the date of the statement of the financial position there were foreign currency forwards open for 1,846 thousand euros (31 December 2019: 5,085 thousand euros), whose fair value amounts to a negative net amount of 15 thousand euros (2019: negative in 16 thousand euros).
| 31-12-2019 | |||||
|---|---|---|---|---|---|
| ASSETS | LIABILITIES | ||||
| NOTIONAL | CURRENT | NON CURRENT | CURRENT | NON CURRENT | |
| Interest rate swaps | 150,000 | - - |
- | 38 | |
| Equity Swaps | 2,640 | - - |
119 | 227 | |
| Exchange rate forward | 5,085 | - - |
16 | - | |
| 157,725 | - - |
135 | 265 | ||
| 31-03-2020 | |||||
| ASSETS | LIABILITIES | ||||
| NOTIONAL | CURRENT | NON CURRENT | CURRENT | NON CURRENT | |
| Interest rate swaps | 150,000 | - - |
- | 17 | |
| Equity swaps | 1,681 | - - |
336 | 469 | |
| Exchange rate forward | 1,846 | 17 - |
2 | - | |
| 153,527 | 17 - |
338 | 485 |
| 31-12-2018 | RESULT | EQUITY | 31-03-2019 | |
|---|---|---|---|---|
| Fair value interest rate swaps | (1,211) | - | 389 | (822) |
| Fair value exchange rate forward | 32 | 24 | - | 56 |
| Fair value equity swaps | 153 | 76 | 35 | 264 |
| DERIVATIVES | (1,026) | 100 | 424 | (502) |
| Deferred income tax liabilities | (7) | (58) | (8) | (73) |
| Deferred income tax assets | 238 | 35 | (88) | 185 |
| DEFERRED INCOME TAX | 231 | (23) | (96) | 112 |
| (795) | 77 | 328 | (390) | |
| 31-12-2019 | RESULT | EQUITY | 31-03-2020 | |
|---|---|---|---|---|
| Fair value interest rate swaps | (38) | 0 | 21 | (17) |
| Fair value exchange rate forward | (16) | 31 | - | 15 |
| Fair value equity swaps | (346) | (295) | (164) | (805) |
| DERIVATIVES | (400) | (264) | (143) | (807) |
| Deferred income tax liabilities | - | - | - | - |
| Deferred income tax assets | 90 | 60 | 32 | 182 |
| DEFERRED INCOME TAX | 90 | 6 0 | 32 | 182 |
| (310) | (204) | (111) | (625) |
At 31 December 2019 and 31 March 2020, this item was composed as follows:
| 31-12-2019 | 31-03-2020 | |
|---|---|---|
| Cash | 857 | 311 |
| Terms deposits i) | 11,962 | 65,082 |
| 12,819 | 65,393 |
i) by NOS.
At 31 December 2019 and 31 March 2020, the share capital of NOS was 5,151,613.80 euros, represented by 515,161,380 shares registered book-entry shares, with a nominal value of 1 euro cent per share.
| 31-12-2019 | 31-03-2020 | |||
|---|---|---|---|---|
| NUMBER OF | % SHARE | NUMBER OF | % SHARE | |
| SHARES | CAPITAL | SHARES | CAPITAL | |
| ZOPT, SGPS, SA (1) | 268,644,537 | 52.15% | 268,644,537 | 52.15% |
| MFS Investment Management | 11,049,477 | 2.14% | 11,049,477 | 2.14% |
| Norges Bank | 10,891,068 | 2.11% | 10,891,068 | 2.11% |
| TOTAL | 290,585,082 | 56.41% | 290,585,082 | 56.41% |
The main shareholders as of 31 December 2019 and 31 March 2020 are:
On 27 August 2013, following the completion of the merger between ZON and Optimus SGPS, the Company's share capital was increased by 856,404,278 euros, corresponding to the total number of issued shares (206,064,552 shares), based on the closing market price of 27 August 2013. The capital increase is detailed as follows:
Additionally, the premium for issue of shares was deducted for an amount of 125 thousand euros related to costs with the respective capital increase.
The capital issued premium is subject to the same rules as for legal reserves and can only be used:
Company law regarding own shares requires the establishment of a non-distributable reserve of an amount equal to the purchase price of such shares, which becomes frozen until the shares are disposed of or distributed. In
addition, the applicable accounting rules determine that gains or losses on the disposal of own shares are stated in reserves.
At 31 March 2020 there were 1,651,545 own shares, representing 0.3206% of share capital (31 December 2019: 2,595,541 own shares, representing 0.5038% of the share capital).
Movements in the quarters ended on 31 March 2019 and 2020 were as follows:
| QUANTITY | VALUE | |
|---|---|---|
| BALANCE AS AT 1 JANUARY 2019 | 2,069,356 | 12,132 |
| Distribution of own shares - share incentive scheme | (624,194) | (3,659) |
| Distribution of own shares - other remunerations | (57,691) | (339) |
| BALANCE AS AT 31 MARCH 2019 | 1,387,471 | 8,134 |
| BALANCE AS AT 1 JANUARY 2020 | 2,595,541 | 14,655 |
| Distribution of own shares - share incentive scheme | (853,702) | (4,820) |
| Distribution of own shares - other remunerations | (90,294) | (510) |
| BALANCE AS AT 31 MARCH 2020 | 1,651,545 | 9,325 |
be used to build up the legal reserve until it corresponds to 20% of the share capital. This reserve cannot be distributed except in the event of liquidation of the company, but it may be used to absorb losses after all other reserves have been exhausted, or for incorporation in the share capital.
Under Portuguese law, the amount of distributable reserves is determined according to the individual financial statements of the company prepared in accordance with IAS / IFRS. Thus, on 31 March 2020, NOS had reserves, which by their nature are considered distributable for an amount of approximately 421.2 million euros, not including the net income.
The movements of the non-controlling interests occurred during the quarters ended on 31 March 2019 and 2020 and the results attributable to non-controlling interests for the year are as follows:
| 31-12-2018 | ATTRIBUTABLE PROFITS |
OTHERS | 31-03-2019 | |
|---|---|---|---|---|
| NOS Madeira | 5,660 | 29 | (9) | 5,680 |
| NOS Açores | 1,636 | (119) | (1) | 1,516 |
| 7,296 | (90) | (10) | 7,196 | |
| 31-12-2019 | ATTRIBUTABLE PROFITS |
OTHERS | 31-03-2020 | |
| NOS Madeira | 5,502 | (271) | (5) | 5,226 |
| NOS Açores | 1,540 | (107) | (2) | 1,431 |
| 7,042 | (378) | (7) | 6,657 |
| 31-12-2019 | 31-03-2020 | |||
|---|---|---|---|---|
| CURRENT | NON-CURRENT | CURRENT | NON-CURRENT | |
| LOANS - NOMINAL VALUE | 82,851 | 1,024,667 | 1,106,667 | |
| Debenture loan | - | 575,000 | - | 575,000 |
| Commercial paper | 55,000 | 413,000 | - | 495,000 |
| Foreign loans | 18,333 | 36,667 | 18,333 | 36,667 |
| Bank overdrafts | 9,518 | - | 2,988 | - |
| LOANS - ACCRUALS AND DEFERRALS | 1,770 | (2,848) | 1,744 | (2,267) |
| LOANS - AMORTISED COST | 84,621 | 1,021,819 | 23,065 | 1,104,400 |
| LEASES | 58,660 | 195,028 | 57,810 | 191,217 |
| 143,281 | 1,216,847 | 80,875 | 1,295,617 |
At 31 December 2019 and 31 March 2020, the composition of borrowings was as follows:
During the quarter ended on 31 March 2020, the average cost of debt of the used lines was approximately 1.1% (2019: 1.5%).
At 31 March 2020 there is no default in terms of capital, interest, conditions for redemption on loans payable or other commitments.
At 31 March 2020, NOS has a total amount of 575 million euros of bonds issued, respectively, with maturity after one year:
At 31 March 2020, an amount of 886 thousand euros, corresponding to interest and commissions, was added -
At 31 March 2020, the Company has borrowings of 540 million euros in the form of commercial paper. The total amount contracted, under underwriting securities, is of 845 million euros, corresponding to fourteen programmes, with six banks, 670 million euros of which bear interest at market rates and 175 million euros are issued in fixed rate. Commercial paper programmes with maturities over one-year totalling 665 million euros are classified as nonmaturity dates and because they are underwritten by the organiser. As such, this amount, although having a current maturity, it was classified as non-current for presentation purposes in the financial position statement.
At 31 March 2020 an amount of 446 thousand euros, corresponding to interest and commissions, was added to this -
In November 2013, NOS signed a Finance Contract with the European Investment Bank for an amount of 110 million euros to support the development of the mobile broadband network in Portugal. In June 2014, the total amount of funds was used. This contract matures in a maximum period of 8 years from the use of the funds, with partial amortisations of 18.3 million euros per year as of June 2017. At 31 March 2020, the amount in borrowings corresponds to 55 million euros.
At 31 March 2020, an amount of 1,855 thousand euros was deducted from this amount, corresponding to the benefit associated with the fact that the loan with BEI is at a subsidised rate.
All bank borrowings contracted (apart from BEI loan of 55 million euros, from public issuance of bonds of 300 million euros from two commercial paper program of 75 and 100 million euros issued in fixed rate, besides finance leases) are negotiated at variable short-term interest rates and their book value is therefore broadly similar to their fair value.
At 31 December 2019 and 31 March 2020, the leases refer mainly to rental agreements for telecommunications towers, movie theaters, equipment, shops and vehicles, exclusive acquisition of satellite capacity and rights to use distribution network capacity.
| 31-12-2019 | 31-03-2020 | |
|---|---|---|
| Until 1 year | 65,160 | 63,637 |
| Between 1 and 5 years | 149,804 | 162,840 |
| Over 5 years | 62,146 | 41,686 |
| 277,110 | 268,163 | |
| Future financial costs (lease) | (23,422) | (19,136) |
| PRESENT VALUE OF LEASE LIABILITIES | 253,688 | 249,027 |
| 31-12-2019 | 31-03-2020 | |
|---|---|---|
| Until 1 year | 58,660 | 57,810 |
| Between 1 and 5 years | 136,823 | 152,600 |
| Over 5 years | 58,205 | 38,617 |
| 253,688 | 249,027 |
The maturities of the loans obtained are as follows:
| 31-12-2019 | 31-03-2020 | |||||
|---|---|---|---|---|---|---|
| UNTIL 1 YEAR | BETWEEN 1 | AND 5 YEARS OVER 5 YEARS UNTIL 1 YEAR | BETWEEN 1 | AND 5 YEARS OVER 5 YEARS | ||
| Debenture loan | 2,334 | 573,221 | - | 2,470 | 573,416 | - |
| Commercial paper | 55,648 | 362,949 | 50,000 | 493 | 444,953 | 50,000 |
| Foreign loans | 17,121 | 35,649 | - | 17,114 | 36,031 | - |
| Bank overdrafts | 9,518 | - | - | 2,988 | - | - |
| Leases | 58,660 | 136,823 | 58,205 | 57,810 | 152,600 | 38,617 |
| 143,281 | 1,108,642 | 108,205 | 80,875 | 1,207,000 | 88,617 |
At 31 December 2019 and 31 March 2020, the provisions were as follows:
| 31-12-2019 | 31-03-2020 |
|---|---|
| Dismantling and removal of assets - ii) 39,032 |
39,751 |
| Contingent liabilities - iii) 23,827 |
23,827 |
| Contingencies - other - iv) 1,837 |
1,576 |
| 94,959 | 95,496 |
Therefore:
NOS, SA, NOS Madeira and NOS Açores which were also contested and for which it was before also presented bail by NOS SGPS in order to avoid the promotion of respective tax enforcement processes. The guarantees that have been accepted by ANACOM.
It is the opinion of the Board of Directors of NOS that these extraordinary contributions to Universal Service (not designated through a tender procedure) flagrantly violate the Directive of Universal Service. Moreover, considering the existing legal framework since NOS began its activity, the request of payment of the extraordinary contribution violates the principle of the protection of confidence, recognised on a legal and constitutional level in Portuguese domestic law. For these reasons, NOS has judicially challenged either the approval of audit results of the net cost of universal service related to the pre-competitive period, and the liquidation of each extraordinary contribution, once the Board of Directors is convinced it will be successful in challenges already undertaken;
iv) The amount under the caption "Contingencies - other" refers to provisions for risks related to miscellaneous events/disputes of various kinds, the settlement of which may result in outflows of cash, and other likely liabilities related to several transactions from previous periods, and whose outflow of cash is probable, namely, costs charged to the current period or previous years, for which it is not possible to estimate reliably the time of occurrence of the expense.
| 31-12-2018 | INCREASES | DECREASES | OTHERS | 31-03-2019 | |
|---|---|---|---|---|---|
| Litigation and other | 58,369 | 1,483 | (3,964) | - | 55,888 |
| Dismantling and removal of assets | 34,626 | 113 | (9) | 1,468 | 36,198 |
| Contingent liabilities | 32,055 | - | - | - | 32,055 |
| Contingencies - other | 3,765 | 1,485 | (28) | (2,343) | 2,879 |
| 128,815 | 3,081 | (4,001) | (875) | 127,020 |
During the quarter ended on 31 March 2019, movements in provisions were as follows:
During the quarter ended on 31 March 2019, increases refer mainly to provisions for legal and other claims plus interests and charges and the reductions refer to the reassessment of several contingencies.
During the quarter ended on 31 March 2020, movements in provisions, were as follows:
| 31-12-2019 | INCREASES | DECREASES | OTHERS | 31-03-2020 | |
|---|---|---|---|---|---|
| Litigation and other | 30,263 | 628 | (549) | - | 30,342 |
| Dismantling and removal of assets | 39,032 | 68 | (4) | 655 | 39,751 |
| Contingent liabilities | 23,827 | - | - | - | 23,827 |
| Contingencies - other | 1,837 | 435 | (11) | (685) | 1,576 |
| 94,959 | 1,131 | (564) | (30) | 95,496 |
During the quarter ended on 31 March 2020, the increases refer mainly to provisions for legal and other claims plus interests and charges and the reductions refer, predominantly, to the reassessment and prescription of several contingencies.
The net movements for the quarters ended on 31 March 2019 and 2020 reflected in the income statement under Provisions were as follows:
| 3M 19 | |
|---|---|
| RESTATED | 3M 20 |
| Provisions and adjustments (Note 34) (2,893) |
(447) |
| Other losses / (gains) non-recurrent (Note 37 e 38) | 1,285 438 |
| Interests - dismantling | 104 64 |
| Other interests | 584 512 |
| (920) INCREASES AND DECREASES IN PROVISIONS |
567 |
At 31 December 2019 and 31 March 2020, this item was composed as follows:
| 31-12-2019 | 31-03-2020 | |
|---|---|---|
| NON-CURRENT | ||
| Others | 667 | 521 |
| 667 | 521 | |
| CURRENT | ||
| Invoices to be issued by operators i) | 73,113 | 55,669 |
| Vacation pay and bonuses | 25,545 | 21,148 |
| Professional services | 10,703 | 12,201 |
| Advertising | 14,916 | 10,895 |
| Content and film rights | 13,313 | 10,764 |
| Programming services | 11,058 | 10,491 |
| Investments in tangible and intangible assets | 20,046 | 8,753 |
| Costs of litigation procedure activity | 8,614 | 8,185 |
| Comissions | 6,198 | 5,449 |
| Energy and water | 4,660 | 4,526 |
| Maintenance and repair | 1,788 | 3,316 |
| Other accrued expenses | 13,772 | 18,742 |
| 203,726 | 170,139 |
i) Amounts related to invoices to be billed by operators, mainly international operators, regarding interconnection costs related with international traffic and roaming services.
| 31-12-2019 | 31-03-2020 | |||
|---|---|---|---|---|
| CURRENT | NON-CURRENT | CURRENT | NON-CURRENT | |
| Advanced billing i) | 33,436 | - | 27,519 | - |
| Investment subsidy ii) | 398 | 5,123 | 397 | 5,025 |
| 33,834 | 5,123 | 27,916 | 5,025 |
At 31 December 2019 and 31 March 2020, this item was composed as follows:
i) This item relates mainly to the billing of Pay TV services regarding the following month to the report phones and purchase of telecommunications minutes yet unused.
ii) Deferred income related to the implicit subsidy when the BEI loans were obtained at interest rates below market value (Note 23).
At 31 December 2019 and 31 March 2020, this item was composed as follows:
| 31-12-2019 | 31-03-2020 | |
|---|---|---|
| Suppliers current account | 257,824 | 250,263 |
| Invoices in reception and conference | 1,675 | 2,449 |
| 259,499 | 252,712 |
At 31 December 2019 and 31 March 2020, this item was composed as follows:
| 31-12-2019 | 31-03-2020 | |
|---|---|---|
| NON-CURRENT | ||
| Assignment of receivables without recourse i) | 3,855 | 3,873 |
| 3,855 | 3,873 | |
| CURRENT | ||
| Fixed assets suppliers | 27,689 | 30,542 |
| Assignment of receivables without recourse i) | 4,865 | 3,813 |
| Advances from customers | 112 | 154 |
| Others | 1,169 | 884 |
| 33,835 | 35,393 | |
| 37,690 | 39,266 |
i) NOS Comunicações, SA materialised a credit assignment transaction, that was coordinated by Banco Comercial Português and Caixa Geral de Depósitos, which it ceded future credits, amounting 63.9 million euros, to be generated by a portfolio of Corporate customers. In the quarter ended on 31 March 2020, the balance amounts to 7.7 million euros. This does not imply any change in the accounting treatment of the receivables or in the relationship with their customers.
Consolidated operating revenues, for the quarters ended on 31 March 2019 and 2020, were as follows:
| 3M 19 | ||
|---|---|---|
| RESTATED | 3M 20 | |
| SERVICES RENDERED: | ||
| Communications service revenues (i) | 307,225 | 301,614 |
| Revenue distribution and cinematographic exhibition (ii) | 10,556 | 8,207 |
| Advertising revenue (iii) | 5,184 | 4,412 |
| Production and distribution of content and channels (iv) | 7,514 | 7,401 |
| Others | 990 | 590 |
| 331,469 | 322,224 | |
| SALES: | ||
| Telco v) | 15,877 | 15,152 |
| Audiovisuals and cinema exhibition vi) | 3,547 | 3,067 |
| 19,424 | 18,219 | |
| OTHER OPERATING REVENUES: | ||
| Telco | 4,921 | 4,695 |
| Audiovisuals and cinema exhibition | 91 | 246 |
| 5,012 | 4,941 | |
| 355,905 | 345,384 |
These operating revenues are shown net of inter-company eliminations.
In the quarters ended on 31 March 2019 and 2020, this item was composed as follows:
| 3M 19 | ||
|---|---|---|
| RESTATED | 3M 20 | |
| Remuneration | 15,038 | 16,039 |
| Social taxes | 4,071 | 4,206 |
| Social benefits | 480 | 473 |
| Other | 490 | 430 |
| 20,079 | 21,148 |
In the quarters ended on 31 March 2019 and 2020, the average number of employees of the companies included in the consolidation was 2,453 and 2,488, respectively. At 31 March 2020, the number of employees of the companies included in the consolidation was 2,478 employees.
The costs of compensations paid to employees, since they are non-recurring costs, are recorded in the item
In the quarters ended on 31 March 2019 and 2020, this item was composed as follows:
| 3M 19 | ||
|---|---|---|
| RESTATED | 3M 20 | |
| Exhibition costs | 50,052 | 49,213 |
| Traffic costs | 22,859 | 18,770 |
| Capacity costs | 11,939 | 12,291 |
| Costs related to corporate customers services | 5,544 | 7,560 |
| Shared advertising revenues | 3,133 | 2,841 |
| 93,527 | 90,675 |
In the quarters ended on 31 March 2019 and 2020, this item was composed as follows:
| 3M 19 RESTATED |
3M 20 | |
|---|---|---|
| Costs of products sold | 13,519 | 14,104 |
| Increases / (decreases) in inventories impairments (Note 15) | 397 | 652 |
| 13,916 | 14,756 |
In the quarters ended on 31 March 2019 and 2020, this item was composed as follows:
| 3M 19 | 3M 20 | |
|---|---|---|
| RESTATED | ||
| SUPPORT SERVICES: | ||
| Administrative support and others | 9,241 | 9,312 |
| Call centers and customer support | 7,861 | 8,809 |
| Information systems | 3,877 | 3,354 |
| 20,979 | 21,475 | |
| SUPPLIES AND EXTERNAL SERVICES: | ||
| Maintenance and repair | 10,294 | 10,465 |
| Electricity | 5,798 | 5,614 |
| Professional services | 2,716 | 2,758 |
| Communications | 1,547 | 1,096 |
| Travel and accommodation | 1,161 | 825 |
| Fees | 697 | 776 |
| Installation and removal of terminal equipment | 1,671 | 686 |
| Other supplies and external services | 4,885 | 5,390 |
| 28,767 | 27,610 |
In the quarters ended on 31 March 2019 and 2020, these items were composed as follows:
| 3M 19 RESTATED |
3M 20 | |
|---|---|---|
| Provisions (Note 24) | (2,893) | (447) |
| Impairment of account receivables - trade (Note 16) | 6,005 | 3,582 |
| Impairment of account receivables - others (Note 12) | 183 | 102 |
| Others | (1) | - |
| 3,294 | 3,237 |
In the quarters ended on 31 March 2019 and 2020, this item was composed as follows:
| 3M 19 RESTATED |
3M 20 | |
|---|---|---|
| EQUITY METHOD (NOTE 11) | ||
| Sport TV | 456 | 648 |
| Dreamia | (39) | (103) |
| Finstar | (241) | 81 |
| Mstar | (353) | (249) |
| Upstar | (17) | (13) |
| Others | (2) | (23) |
| (196) | 341 | |
| OTHERS i) | (2) | 8,483 |
| (198) | 8,824 |
i) During the quarter ended on 31 March 2020, as a result of the estimated negative impacts with the spread of the new coronavirus COVID-19 (Note 46), namely, a significant drop in revenue related to premium sports channels, an impairment for the financial investment of Sport TV in the amount of 3.9 million euros (Note 11) was recognised.
Additionally, also taking into account the estimated negative impacts with the spread of the new coronavirus COVID-19 (Note 46), and the destabilization of the Angolan economy with the drop in oil demand, impairments were recognised for the value of dividends and other accounts receivable from the Angolan subsidiary Finstar, in the amount of 4.6 million euros (Notes 12 and 16).
In the quarters ended on 31 March 2019 and 2020, this item was composed as follows:
| 3M 19 | ||
|---|---|---|
| RESTATED | 3M 20 | |
| TANGIBLE ASSETS | ||
| Buildings and other constructions | 2,007 | 2,662 |
| Basic equipment | 34,362 | 32,963 |
| Transportation equipment | 1 | 1 |
| Tools and dies | 11 | 13 |
| Administrative equipment | 1,283 | 1,191 |
| Other tangible assets | 198 | 151 |
| 37,862 | 36,981 | |
| INTANGIBLE ASSETS | ||
| Industrial property and other rights | 19,374 | 24,348 |
| 19,374 | 24,348 | |
| CONTRACT COSTS | ||
| Contract costs | 25,437 | 25,052 |
| 25,437 | 25,052 | |
| RIGHTS OF USE | ||
| Rights of use | 14,646 | 14,089 |
| 14,646 | 14,089 | |
| INVESTIMENT PROPERTY | ||
| Investment property | 1 | 4 |
| 1 | 4 | |
| 97,320 | 100,474 |
In the quarters ended on 31 March 2019 and 2020, this item was composed as follows:
| 3M 19 RESTATED |
3M 20 | |
|---|---|---|
| Personnel compensation | 1,485 | 438 |
| Supplies and external services related to reestructuring process | 101 | - |
| Personnel costs related to non-recurrent projects | 327 | 140 |
| 1,913 | 578 |
In the quarters ended on 31 March 2019 and 2020, the other non-recurring costs / (gains) was composed as follows:
| 3M 19 | 3M 20 | |
|---|---|---|
| RESTATED | ||
| COSTS: | ||
| Losses resulting from COVID-19 impacts (Note 46) i) | - | 40,606 |
| Others | 1,592 | 4,577 |
| 1,592 | 45,183 | |
| TOTAL | 1,592 | 45,183 |
rate for the next 3 years, and identification of customers particularly affected by the current crisis, namely, in the cinema business;
In the quarters ended on 31 March 2019 and 2020, financing costs and other financial expenses / (income) were composed as follows:
| 3M 19 RESTATED |
3M 20 | |
|---|---|---|
| FINANCING COSTS: | ||
| INTEREST EXPENSE: | ||
| Borrowings | 3,441 | 2,629 |
| Finance leases | 2,718 | 1,575 |
| Derivatives | 396 | 19 |
| Others | 553 | 1,194 |
| 7,108 | 5,417 | |
| INTEREST EARNED | (1,480) | (753) |
| 5,628 | 4,664 | |
| NET OTHER FINANCIAL EXPENSES / (INCOME): | ||
| Comissions and guarantees | 530 | 710 |
| Others | 201 | 131 |
| 731 | 841 |
Interest earned mainly corresponds to default interests charged to customers.
Earnings per share for the quarters ended on 31 March 2019 and 2020 were calculated as follow:
| 3M 19 RESTATED |
3M 20 | |
|---|---|---|
| Consolidated net income attributable to shareholders | 42,461 | (10,355) |
| Number of ordinary shares outstanding during the period (weighted average) |
513,326,896 | 512,887,420 |
| Basic earnings per share - euros | 0.08 | (0.02) |
| Diluted earnings per share - euros | 0.08 | (0.02) |
| 3M 19 RESTATED |
3M20 | |
| Consolidated net income attributable to shareholders from continuing operations |
42,038 | (10,493) |
| Number of ordinary shares outstanding during the period (weighted average) |
513,326,896 | 512,887,420 |
| Basic earnings per share - euros | 0.08 | (0.02) |
| Diluted earnings per share - euros | 0.08 | (0.02) |
In the above periods, there were no diluting effects on net earnings per share, so the diluted earnings per share are equal to the basic earnings per share.
At 31 December 2019 and 31 March 2020, the Group had furnished sureties, guarantees, and comfort letters in favour of third parties corresponding to the following situations:
| 31-12-2019 | 31-03-2020 | |
|---|---|---|
| Tax authorities i) | 26,852 | 26,852 |
| Others ii) | 10,515 | 10,471 |
| 37,367 | 37,323 |
i) At 31 December 2019 and 31 March 2020, this amount relates to guarantees demanded by the tax authorities in connection with tax proceedings contested by the Company and its subsidiaries (Note 43).
ii) At 31 December 2019 and 31 March 2020, this amount mainly relates to guarantees provided in connection with Municipal Wayleave Tax proceedings and guarantees provided to cinema owners, and bank guarantees given to providers of satellite capacity renting services.
In connection with the finance obtained by Upstar from Banco Comercial Português, totalling 10 million euros, NOS signed a promissory note, proportional to the participation held, of 30% of the loan.
During the first quarterly of 2015, 2016, 2017 and 2018, and following the settlement notes to CLSU 2007-2009, 2010-2011, 2012-2013 and 2014, respectively, NOS constituted guarantees in favour of the Universal Service Compensation Fund in the amount of 23.6 million euros, 16.7 million euros, 17.5 million euros and 3.0 million euros, respectively, in order to prevent the introduction of tax enforcement proceedings in order to enforce recovery of the amounts paid.
In addition to the guarantees required by the tax authorities, sureties were set up for the current fiscal processes, which NOS was a surety for NOS SA for an amount of 14.1 million euros.
Of the loans obtained, in addition to being subject to the Group complying with its operating, legal and fiscal obligations, 100% are subject to cross-default, Pari Passu and Negative Pledge clauses and 90% to ownership clauses.
In addition, approximately 26% of the total loans obtained require that the consolidated net financial debt does not exceed 3 times consolidated EBITDA, approximately 3% of the total loans obtained require that the consolidated net financial debt does not exceed 3.5 times consolidated EBITDA, approximately 1% of the total loans obtained require that the consolidated net financial debt does not exceed 4 times consolidated EBITDA and approximately 10% require that the consolidated net financial debt does not exceed 5 times consolidated EBITDA.
EBITDA = Operational Result + Depreciation, amortisation and impairment losses + Integration costs + Losses / (gains) on sale of assets + Other losses / (gains) non-recurrent
In December 2015, NOS signed a contract with Sport Lisboa e Benfica - Futebol SAD and Benfica TV, SA of Channel. The contract began in 2016/2017 sports season, had an initial duration of three years, and might be renewed by decision of either party up to a total of 10 sports seasons, with the overall financial consideration reaching the amount of 400 million euros, divided into progressive annual amounts.
Also in December 2015, NOS signed a contract with Sporting Clube de Portugal - Futebol SAD and Sporting and Communication Platforms, S.A. for the assignment of the following rights:
The contract will last 10 seasons, concerning the rights indicated in 1) and 2) above, starting in July 2018, 12 seasons in the case of the rights stated in 3) starting in July 2017 and 12 and a half seasons in the case of the rights mentioned in 4) beginning in January 2016, with the overall financial consideration amounting to 446 million euros, divided into progressive annual amounts.
Also in December 2015, NOS SA has signed contracts regarding the television rights of home senior team football games with the following sports clubs:
The contracts will begin in the 2019/2020 sports season and last up to 7 seasons, apart from the contract with Sporting Clube de Braga - Futebol, SAD which lasts 9 seasons.
During the year of 2016, NOS SA has signed contracts regarding the television rights of home senior team football games with the following sports clubs:
The contracts will begin in the 2019/2020 sports season and last up to 3 seasons.
In May 2016, NOS and Vodafone have agreed on reciprocal availability, for several sports seasons, of sports content (national and international) owned by the companies, in order to assure to both companies, directly by the assigning party or indirectly through the transfer to third party content distribution channels or models, the availability of broadcasting rights of the sports clubs home football games, as well as the broadcasting and distribution rights of sports and sports clubs channels, whose rights are owned by each of the companies in each moment. The agreement came into force from the beginning of the sports season 16/17, assuring access to channel where these football games are broadcast.
Considering that the contract signed allowed for the possibility of extending the agreement to the other operators, in July 2016 MEO and Cabovisão joined the agreement, ending the lack of availability of Porto Canal every Pay TV client can have access to every relevant sports content, regardless of which operator they use.
Following the agreement signed with the remaining operators, as a counterpart of the reciprocal provision of rights, the global costs are shared according with retailer telecommunications revenues and Pay TV market shares.
The estimated cash flows are estimated as follows:
| Seasons | 2019/20 | following |
|---|---|---|
| Estimated cash-flows with the contract signed by NOS with the sports entities* | ||
| NOS estimated cash-flows for the contracts signed by NOS (net amounts charged to the operators) and for the contracts signed by the remaining operators |
* Includes games and channels broadcasting rights, advertising and others.
NOS and Vodafone Portugal celebrated on 29 September 2017 an agreement of infrastructure development and sharing with a nationwide scope. This partnership allows the two Operators providing their commercial offers under a shared network at the beginning of 2018.
The agreement covers the reciprocal sharing of dark fibre in approximately 2.6 million of homes in which each of the entities shares with the other one an equivalent investment value, in other words, they share similar goods. It is assumed that both companies retain full autonomy, independence, and confidentiality concerning the solutions they might decide to implement, that did not originate any impact on the consolidated financial statements (according to IAS 16, this exchange of similar non-monetary assets will be presented on a net basis).
The partnership has also been extended to mobile infrastructure sharing where it is agreed a minimum sharing of 200 mobile towers.
Transactions and balances between NOS and companies of the NOS Group were eliminated in the consolidation process and are not subject to disclosure in this note.
The balances at 31 December 2019 and 31 March 2020 and transactions in the quarters ended on 31 March 2019 and 2020 between NOS Group and its associated companies, joint ventures and other related parties are as follows:
| ACCOUNTS RECEIVABLES AND PREPAID EXPENSES |
ACCOUNTS PAYABLE AND DEFERRED INCOME |
||
|---|---|---|---|
| 23,780 | 45,026 | - | |
| Big Picture 2 Films | 41 | 625 | - |
| Sport TV | 23,739 | 44,401 | - |
| JOINTLY CONTROLLED COMPANIES | 18,029 | 3,834 | 2,923 |
| Dreamia Holding BV | - | - | 2,923 |
| Dreamia SA | 2,623 | 2,465 | - |
| Finstar | 7,654 | 10 | - |
| Mstar | 14 | - | - |
| Upstar | 7,066 | 1,217 | - |
| ZAP Media | 672 | 142 | - |
| OTHER RELATED PARTIES | 10,014 | 8,734 | - |
| Banco BIC Português, S.A. | 372 | - | - |
| Centro Colombo- Centro Comercial, S.A. | 140 | 7 | - |
| Digitmarket-Sistemas de Informação,SA | 273 | 222 | - |
| EFACEC Engenharia e Sistemas | 2 1 | 1,388 | - |
| EFACEC Serviços Corporativos | 480 | - | - |
| ITRUST - Cyber Security and Intellig.,SA | 317 | 510 | - |
| Maiashopping- Centro Comercial, S.A. | 293 | 1 | - |
| MDS Corretor de Seguros, SA | 107 | - | - |
| Modelo Continente Hipermercados,SA | 704 | 81 | - |
| Norteshopping-Centro Comercial, S.A. | 121 | 6 | - |
| Olivedesportos - Publicidade, Televisão e Media | - | 3,792 | - |
| RACE-Refrig. & Air Condit.Engineering,SA | 99 | 321 | - |
| SC - Sociedade de Consultoria, SA | 171 | - | - |
| Sierra Portugal, SA | 510 | (5) | - |
| 682 | - | - | |
| UNITEL S.a.r.l. | 2,468 | 1,564 | - |
| UNITEL T+ Telecomunicações, S.A. | 179 | 290 | - |
| Worten-Equipamento para o Lar,SA | 1,679 | 540 | - |
| Other related parties | 1,398 | 18 | - |
| 51,823 | 57,594 | 2,923 |
| SERVICES RENDERED |
SUPPLIES AND EXTERNAL SERVICES |
INTEREST GAINS | |
|---|---|---|---|
| ASSOCIATED COMPANIES | 482 | 20,395 | - |
| Big Picture 2 Films | 37 | 807 | - |
| Sport TV | 445 | 19,588 | - |
| JOINTLY CONTROLLED COMPANIES | 3,877 | 25 | 649 |
| Dreamia Holding BV | - | - | 35 |
| Dreamia SA | 988 | (23) | - |
| Finstar | 463 | - | - |
| Mstar | 9 | - | - |
| Upstar | 2,351 | 47 | 614 |
| ZAP Media | 6 6 | - | - |
| OTHER RELATED PARTIES | 7,386 | 6,150 | (25) |
| Banco BIC Português, S.A. | 568 | - | - |
| Cascaishopping- Centro Comercial, S.A. | 4 | 224 | - |
| Centro Colombo- Centro Comercial, S.A. | 4 | 500 | - |
| Digitmarket | 117 | 432 | - |
| EFACEC Engenharia e Sistemas | 26 | 743 | - |
| EFACEC Serviços Corporativos | 271 | - | - |
| S21SEC Portugal- Cybersecuruty Serv., S.A. | 11 | 576 | - |
| Maiashopping- Centro Comercial, S.A. | 2 | 164 | - |
| Modelo Continente Hipermercados,SA | 769 | (10) | - |
| MDS Corretor de Seguros, SA | 133 | 30 | - |
| Norteshopping-Centro Comercial, S.A. | 4 | 372 | - |
| SC-Consultadoria,SA | 394 | - | - |
| Sonae Arauco Portugal, S.A. | 110 | - | - |
| Sierra Portugal, SA | 646 | 79 | - |
| 1,449 | - | - | |
| UNITEL S.a.r.l. | 846 | 283 | - |
| Centro Vasco da Gama-Centro Comercial,SA | 4 | 263 | - |
| We Do Consulting-SI,SA | 135 | 1,650 | - |
| Worten-Equipamento para o Lar,SA | 736 | 391 | - |
| Other related parties | 1,157 | 453 | (25) |
| 11,745 | 26,569 | 624 |
| ACCOUNTS RECEIVABLES AND PREPAID EXPENSES |
ACCOUNTS PAYABLE AND DEFERRED INCOME |
BORROWINGS | |
|---|---|---|---|
| ASSOCIATED COMPANIES | 11,182 | 63,768 | - |
| Big Picture 2 Films | 34 | 459 | - |
| Sport TV | 11,148 | 63,309 | - |
| JOINTLY CONTROLLED COMPANIES | 18,629 | 2,859 | 2,907 |
| Dreamia Holding BV | 40 | - | 2,907 |
| Dreamia SA | 3,002 | 1,407 | - |
| Finstar | 10,445 | 71 | - |
| Mstar | 10 | - | - |
| Upstar | 4,394 | 1,239 | - |
| ZAP Media | 738 | 142 | - |
| OTHER RELATED PARTIES | 9,543 | 3,988 | - |
| Banco BIC Português, S.A. | 166 | - | - |
| Centro Colombo- Centro Comercial, S.A. | 144 | 11 | - |
| Digitmarket-Sistemas de Informação,SA | 160 | 133 | - |
| EFACEC Energia - Máquinas e Equipamentos | 136 | - | - |
| EFACEC Engenharia e Sistemas | 2 2 | 998 | - |
| EFACEC Serviços Corporativos | 479 | - | - |
| S21SEC Portug-Cyber Security Services,SA | 309 | 420 | - |
| Maiashopping- Centro Comercial, S.A. | 54 | (119) | - |
| Modelo Continente Hipermercados,SA | 592 | 3 | - |
| MDS Corretor de Seguros, SA | 207 | - | - |
| Norteshopping-Centro Comercial, S.A. | 122 | 7 | - |
| SC-Consultadoria,SA | 195 | - | - |
| Sierra Portugal, SA | 526 | (4) | - |
| Solinca - Health & Fitness, SA | 102 | - | - |
| 695 | - | - | |
| SDSR - Sports Division SR, S.A. | 124 | - | - |
| UNITEL S.a.r.l. | 2,723 | 1,777 | - |
| UNITEL T+ | 102 | 190 | - |
| Worten-Equipamento para o Lar,SA | 1,405 | 534 | - |
| Other related parties | 1,280 | 38 | - |
| 39,354 | 70,615 | 2,907 |
| SERVICES RENDERED |
SUPPLIES AND EXTERNAL SERVICES |
INTEREST GAINS | |
|---|---|---|---|
| ASSOCIATED COMPANIES | 574 | 31,866 | - |
| Big Picture 2 Films | 53 | 1,321 | - |
| Sport TV | 521 | 30,545 | - |
| JOINTLY CONTROLLED COMPANIES | 3,560 | 90 | 37 |
| Dreamia Holding BV | - | - | 24 |
| Dreamia SA | 823 | 56 | 1 3 |
| Finstar | 2,448 | - | - |
| MSTAR | 8 | - | - |
| Upstar | 215 | 34 | - |
| ZAP Media | 66 | - | - |
| OTHER RELATED PARTIES | 6,196 | 3,817 | - |
| Banco BIC Português, S.A. | 408 | - | - |
| Cascaishopping- Centro Comercial, S.A. | 4 | 220 | - |
| Centro Colombo- Centro Comercial, S.A. | 4 | 508 | - |
| Digitmarket-Sistemas de Informação,SA | 23 | 327 | - |
| EFACEC Engenharia e Sistemas | 1 7 | 393 | - |
| EFACEC Serviços Corporativos | 366 | - | - |
| Gaiashopping I- Centro Comercial, S.A. | 4 | 105 | - |
| S21SEC Portug-Cyber Security Services,SA | 1 0 | 534 | - |
| Maiashopping- Centro Comercial, S.A. | 2 | 101 | - |
| Modelo Continente Hipermercados,SA | 1,057 | 1 9 | - |
| MDS Corretor de Seguros, SA | 191 | - | - |
| Norteshopping-Centro Comercial, S.A. | 4 | 499 | - |
| SC-Consultadoria,SA | 247 | - | - |
| Sierra Portugal, SA | 597 | 29 | - |
| Solinca - Health & Fitness, SA | 111 | - | - |
| 1,077 | - | - | |
| SDSR - Sports Division SR, S.A. | 101 | - | - |
| Centro Vasco da Gama-Centro Comercial,SA | 4 | 268 | - |
| Worten-Equipamento para o Lar,SA | 905 | 407 | - |
| Other related parties | 1,064 | 407 | - |
| 10,330 | 35,772 | 37 |
The Company regularly performs transactions and signs contracts with several parties within the NOS Group. Such transactions were performed on normal market terms for similar transactions, as part of the contracting companies' current activity.
"Other related parties" the balances and transactions with entities whose amounts are less than 100 thousand euros.
• NOS SA, NOS Açores and NOS Madeira brought actions for judicial review of of the payment of the Annual Fee of Activity (for 2009, 2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017, 2018 and 2019) as Electronic Communications Services Networks Supplier, and furthermore the refund of the amounts that meanwhile were paid within the scope of the mentioned acts of settlement was requested. The settlements for the year 2018 were impugned in the first semester of 2019. The settlements of the year 2019 will be impugned until the final of first semester of 2020.
The settlement amounts are, respectively, as follows:
• NOS SA: 2009: 1,861 thousand euros, 2010: 3,808 thousand euros, 2011: 6,049 thousand euros, 2012: 6,283 thousand euros, 2013: 7,270 thousand euros, 2014: 7,426 thousand euros, 2015: 7,253 thousand euros, 2016: 8,242 thousand euros, 2017: 9,099 thousand euros, 2018: 10,303 thousand euros and 2019: 10,169 thousand euros;
This fee is a percentage decided annually by ANACOM ( communications revenues. NOS SA, NOS Açores and NOS Madeira claim, namely: i) addition to defects of unconstitutionality and illegality, related to the inclusion in the cost accounting of ANACOM of the provisions made by the latter, due to judicial proceedings against the latter (including these appeals of the activity rate) and ii) that only revenues from the electronic communications business per se, subject to regulation by ANACOM, should be considered for the purposes of the application of the percentage and the calculation of the fee payable, and that revenues from television content should be excluded.
Four sentences on the matter were given, i.e. in December 2012, in September 2017, in April 2018 and in May 2018, respectively, within the scope of the contestation of the annual rate of 2009, 2010 (NOS Comunicações) and 2012 (Ex-ZON and also Ex-Optimus). The first judgment ruled in favour of the respective contestation, only based on lack of prior hearing, but ordered ANACOM to pay interest. ANACOM submitted an appeal concerning that decision, but the Court of Appeal declined it by decision in July 2013. The three remain decisions judge also, in turn, ruled in favour of the respective contestations, but, this time for fundamental reasons, annulled the contested act by unlawfulness with the legal consequences, namely imposing the refund of the tax that was paid but still not refunded to NOS and ordering ANACOM to pay compensatory interest. These decisions were the subject of an appeal from ANACOM to the Tribunal Central Administrativo Sul (Central Administrative Court South), where it is pending.
The remaining proceedings are awaiting trial and/or decision.
• During the first quarter of 2017, NOS was notified by ANACOM of the initiation of an infraction process related to communications of prices update at the end of 2016. On this date, it is impossible to determine what the scope of the infraction proceedings is to be.
During the course of the 2003 to 2019 financial years, some companies of the NOS Group were the subject of tax inspections for the 2001 to 2017 financial years. Following these inspections, NOS SGPS, as the controlling company of the Tax Group, and companies not covered by Tax Group, were notified of the corrections made to the Group's tax losses, to VAT and stamp tax and to make the payments related to the corrections made to the above exercises. The total amount of the notifications unpaid is about 28.9 million euros, added interest, and charges. These settlement notes, which totally were contested, are the respective lawsuits in progress.
Based on the advice obtained from the process representatives and tax consultants, the Board of Directors maintains the belief in a favourable outcome, which is why these proceedings are maintained in court. However, in accordance with the principle of prudence, an assessment of the group's level of exposure to these proceedings is made periodically, in the light of the evolution of case law, and consequently the provisions recorded for this purpose are adjusted. The Group provided the bank guarantees demanded by the tax authorities, in connection with these proceedings, as stated in Note 41.
• In 2011, NOS SA brought an action in Lisbon Judicial Court against MEO, claiming payment of 22.4 million euros, for damages suffered by NOS SA, arising from violations of the Portability Regulation by MEO, in particular, the large number of unjustified refusals of portability requests by MEO in the period between February 2008 and February 2011. The court declared the compulsory performance of expert evidence of technical nature. At the same time, it was requested by NOS and accepted by the Court an economic and financial expert analysis, which has already started. The related expert report has already been made available to the Court and parties. Therefore, awaits the scheduling of the court hearing. At the same time, NOS requested, and it was accepted by the Court, to carry out an economic-financial survey, and the expert report was completed in June 2018. MEO argued for the nullity of the expert report, and NOS submitted a response. The Court rejected the nullity of the expert report for lack of legal basis and questioned the parties that had requested the appearance of the experts at the final hearing, to clarify which points, in their view, had not been made clear in the expert report. MEO reiterated the request for the experts to appear at the final hearing to provide clarifications, while NOS, in turn, waived their presence. At the beginning of March 2020, the parties were notified of the scheduled judicial due diligence for 17 April 2020, with a view to scheduling the acts to be carried out at the final hearing, establishing the number of sessions and their likely duration, as well as the designation of the respective dates and, also, attempted conciliation. However, in view of the contingency period in which we find ourselves, this judicial process was cancelled. It is the understanding of the Board of Directors, corroborated by the attorneys accompanying the process, that it is, in formal and substantive terms, likely that NOS SA will be able to win the lawsuit, due to MEO already having been convicted for the same offences by ANACOM, however, it is not possible to determine the outcome of the action.
In March 2018, NOS was notified of a lawsuit brought by DECO against NOS, MEO and NOWO, in which a declaration of nullity of the obligation to pay the price increases imposed on customers at the end of 2016 is requested. In April and May 2 fixed at EUR 60,000. By order of October 2018, the Local Civil Court declared itself incompetent to hear the case, whereas the Central Civil Court of the same Court had jurisdiction to hear the case. Referring the case to the Central Court, a prior hearing was scheduled for October 8, 2019, which was then cancelled due to the judge declaring himself unable to hear the case. The process has already been redistributed and the previous hearing was scheduled for 23 April 2020. However, in view of the contingency period in which we find ourselves, the above mentioned judicial procedure was cancelled. The Board of Directors is convinced that the arguments used by the author are not justified, which is why it is believed that the outcome of the proceeding should not result in significant impacts for the Group's financial statements.
At 31 December 2019, accounts receivable and accounts payable include 37,139,253 euros and 43,475,093 euros, respectively, resulting from a dispute between the subsidiary NOS SA and, essentially, the operator MEO Serviços de Comunicação e Multimédia, S.A. (previously named TMN Telecomunicações Móveis Nacionais, S.A.), in relation to the non-definition of interconnection tariffs of 2001. In what concerns to that dispute with MEO, the result was totally favourable to NOS S.A., having already become final.
The general conditions that affect the agreement and termination of this contract between NOS and its clients, establish that if the products and services provided by the client can no longer be used prior to the end of the binding period, the client is obliged to pay damages immediately.
Until December 31st, 2014, the revenue from penalties, in the face of the inherent uncertainties, was only recognised at the time of receipt, and on 31 December 2019, the amounts receivable by NOS SA, NOS Madeira and NOS Açores from these invoiced compensations amounted to 47,789 thousand euros. During the financial year ended on 31 December 2019, receipts in the amount of 1,028 thousand euros of the issued invoice as of 31 December 2014 were recognised as revenues.
From 1 January 2015, revenue from penalties is recognised considering an estimated collectability rate considering the Group's collection history. The penalties invoiced are recorded as accounts receivable and the uncollectible calculated values of these amounts are recorded as impairment by deducting the revenue recognised at the time of invoicing (Note 16).
In 2020, due to the foreseeable sharp reduction in the collection of these penalties, as a direct consequence of the slowdown in the Portuguese economy due to the measures adopted to combat the new coronavirus COVID-19, NOS recognised expected credits losses to all penalties billed to customers and not provisioned, in the amount of approximately 7.0 million euros (Note 38).
On 23 April 2014, the General Meeting approved the Regulation on Short and Medium-Term Variable Remuneration, which establishes the terms of the Share Incentive Scheme ("NOS Plan"). This plan aimed at more senior employees with the vesting taking place three years being awarded, assuming that the employee is still with the company during that period.
At 31 March 2020, the unvested plans are:
| NUMBER OF | |
|---|---|
| SHARES | |
| NOS PLAN | |
| Plan 2017 | 15,835 |
| Plan 2018 | 862,635 |
| Plan 2019 | 737,393 |
During the quarter ended on 31 March 2020, the movements that occurred in the plans are detailed as follows:
| NOS PLAN 2017 |
NOS PLAN 2018 |
NOS PLAN 2019 |
TOTAL | |
|---|---|---|---|---|
| BALANCE AS AT 31 DECEMBER 2019: | 856,299 | 866,098 | 739,162 | 2,461,559 |
| MOVEMENTS IN THE PERIOD: | ||||
| Vested | (849,443) | (2,928) | (1,331) | (853,702) |
| Cancelled / elapsed / corrected (1) | 8,979 | (535) | (438) | 8,006 |
| BALANCE AS AT 31 MARCH 2020 | 15,835 | 862,635 | 737,393 | 1,615,863 |
(1) Refers mainly to correction made for dividends paid, exit of employees not entitled to the vesting of shares and other adjustments resulting from the way the shares are vested.
The share plans costs are recognised over the year between the awarding and vesting date of those shares. The responsibility is calculated taking into consideration the share price at award date of each plan, for plans settled in shares, or at the closing date, for plans settled in cash. As at 31 March 2020, the outstanding responsibility related to these plans is 3,224 thousand euros and is recorded in Reserves, for an amount of 2,704 thousand euros, for plans liquidated in shares and in Accrued expenses, for an amount of 520 thousand euros, for plans liquidated in cash.
The costs recognised in previous years and in the period, and its liabilities are as follows:
| ACCRUED EXPENSES |
RESERVES | TOTAL | |
|---|---|---|---|
| Costs recognised in previous years related to plans as at 31 December 2019 | 1,443 | 4,891 | 6,334 |
| Costs of plans vested in the period | - | (3,892) | (3,892) |
| Costs incured in the period and others | (923) | 1,705 | 782 |
| TOTAL COST OF THE PLANS | 520 | 2,704 | 3,224 |
Exceptionally, in the first quarter of 2020, the plans to be settled in cash due in the year, were paid in shares.
fully owned subsidiary and to supply NOS group companies with wholesale international voice and SMS services, which were previously provided by NOS ICS.
With this transaction NOS will increase its focus on its core telecom business whilst optimizing the underlying cost structure for international voice and SMS traffic.
Completion of this agreement is subject to non-opposition by the Competition Authority.
During the period ended on 31 March 2020, considering the approval of the transaction in March 2020, NOS ICS was classified as an asset held for sale and a discontinued operating unit, with the restatement of comparative periods being made in the consolidated statement results.
In the quarters ended on 31 March 2019 and 2020, the contributions to the results of this discontinued operating unit are as follows:
| 3M 19 | 3M 20 | |
|---|---|---|
| REVENUES: | 29,411 | 28,430 |
| COSTS, LOSSES AND GAINS: | ||
| Wages and salaries | 83 | 87 |
| Direct costs | 28,697 | 27,844 |
| Supplies and external services | 85 | 97 |
| Taxes | - | 145 |
| Depreciation, amortisation and impairment losses | - | 2 |
| 28,865 | 28,175 | |
| INCOME BEFORE FINANCIAL RESULTS AND TAXES | 546 | 255 |
| Net foreign exchange losses / (gains) | - | 6 |
| Net other financial expenses / (income) | - | 1 |
| - | 7 | |
| INCOME BEFORE TAXES | 546 | 248 |
| Income taxes | 123 | 111 |
| NET CONSOLIDATED INCOME FROM DISCONTINUED OPERATIONS | 423 | 138 |
| EARNINGS PER SHARES | ||
| Basic - euros | 0.00 | 0.00 |
| Diluted - euros | 0.00 | 0.00 |
At 31 March 2020, contributions to the statement of the financial position of the assets and liabilities of this discontinued operating unit have the following composition:
| 31-03-2020 | |
|---|---|
| ASSETS | |
| NON - CURRENT ASSETS | |
| Tangible assets | 1 |
| Rights of use | 6 |
| Deferred income tax assets | 6 |
| Other non-current assets | 2 |
| TOTAL NON - CURRENT ASSETS | 15 |
| CURRENT ASSETS: | |
| Accounts receivable | 32,313 |
| Prepaid expenses | 14 |
| Cash and cash equivalents | 12 |
| TOTAL CURRENT ASSETS | 32,339 |
| TOTAL ASSETS HELD FOR SALE | 32,354 |
| LIABILITIES | |
| NON - CURRENT LIABILITIES | |
| Borrowings | 1 |
| TOTAL NON - CURRENT LIABILITIES | 1 |
| CURRENT LIABILITIES: | |
| Borrowings | 6 |
| Accounts payable - trade | 17,620 |
| Tax payable | 300 |
| Accrued expenses | 12,262 |
| TOTAL CURRENT LIABILITIES | 30,188 |
| TOTAL LIABILITIES DIRECTLY ASSOCIATED WITH THE ASSETS HELD FOR SALE | 30,189 |
In the period ended March 31, 2020, cash flows from operating activities amounted to 12 thousand euros.
With the emergence, spread and infection of the new coronavirus COVID-19, several measures were taken to contain the virus with very significant estimated impacts on the Portuguese economy, as well as in other economies, namely, limitations on travel rights and closure of several facilities and establishments.
As a result of the population's confinement measures, people and companies were and are being forced to adapt to a new reality, transforming the way they work and the way we socialize.
In the uncertainty posed by this threat, it is essential that companies design and implement, in a timely manner, structured and efficient contingency plans that guarantee employee protection and business continuity or that, at least, mitigate the resulting effects.
In this context, from the very first moment, NOS has a permanent COVID-19 Monitoring Office, whose mission is to provide the organization with the necessary conditions to manage this risk, as well as to analyse and monitor the evolution of the different phases. The main objectives of the COVID-19 Monitoring Office are to ensure that NOS, its Companies, its Employees and Partners are prepared to face the COVID-19 Pandemic, in order to:
Both objectives are supported by a coherent and structured communication on the topic with the different stakeholders and a high-level articulation with official authorities, in particular with the General Health Directorate.
Our main concern is of course the health and well-being of all our employees. To ensure employee health and safety and business continuity, from an early stage we implemented a number of protective measures such as remote work practices, on site personal protection, travel restrictions to employees and visitors and also restrictions to participate in non-essential events and meetings and reinforced hygiene measures.
We are committed to support our customers during the current COVID-19 public health crisis. At a time when many Portugueses are changing their habits and routines and working remotely, keeping our customers connected is the main objective of NOS. To this end, we facilitate access to services, through data offers, suspension of monthly payment of premium sports channels, reinforcement of the ability to implement business services and guaranteeing a safe and secure service in our stores, in order to safeguard our customers, employees and partners. The NOS Telecommunications Network supports a set of basic services of our society, which include our National Health System. In this context of global health emergency, the maintenance of Portuguese communications is a fundamental task.
This is a situation of uncertainty and very dynamic, which makes it extremely difficult to estimate impacts, which always have to consider several scenarios and countless variables. Evidence of this difficulty is the historical drops and sharp volatility of exchanges, all over the world.
The impacts on NOS were already felt in the results of the first quarter of 2020, with a drop in consolidated EBITDA of 4.6%, which shows a reduction in activity in:
On the other hand, the projections made for the Portuguese economy, led to a reassessment of projections and estimates, which resulted in the reinforcement, in the first quarter of 2020, of impairments of accounts receivable (28.2 million euros) and other costs recognised, related to onerous contracts (10.8 million euros) 8.5 million euros (Note 35). A review of the impairment tests was also carried out, with no evidence of impairment being concluded, either in Goodwill or in other types of assets.
In terms of the projection of future impacts, these will depend on the extent, namely timing, of the spread of the virus and the respective containment measures, making it difficult to predict the scale of the impact, in the knowledge, however, that it will occur in the areas mentioned above. NOS 'capital structure is within the 2x Net Financial Debt / EBITDA After Leasings Payments (EBITDA - Leasings Payments (Capital and Interest)) threshold, so the Board of Directors believes that the company will overcome the negative impacts caused by this crisis, without jeopardizing business continuity.
was informed by this company of the communication received from the Central Criminal Investigation Court of Lisbon (hereinafter Tribunal) to proceed to the preventive seizure of 26.075% of the share capital of NOS, SGPS, SA, corresponding to half of the shareholding in NOS held by ZOPT and, indirectly, by the companies Unitel International Holdings, BV and
Under the terms of the aforementioned decision, the foreclosed shares are deprived of the exercise of voting rights and the right to receive dividends, the latter of which must be deposited with Caixa Geral de Depósitos, S.A. at the court's discretion.
The other half of ZOPT's participation in NOS share capital, corresponding to an identical percentage of 26.075% - and which, at least in line with the criterion used by the Court, embodies the 50% held in ZOPT by SONAECOM - was not subject to seizure, nor the rights attached to it were subject to any limitation.
On 14 April 2020, NOS Comunicações, SA and Cellnex Telecom, SA entered into an agreement whose purpose is to transfer to Cellnex the shares representing the entire share capital of NOS Towering, SA, encompassing the disposal of approximately 2,000 sites (towers and rooftops)..
The parties also signed a long-term agreement whereby Cellnex will provide the NOS Group with active network hosting over the passive infrastructure acquired, for a period of 15 years, automatically renewed for equal periods. In addition, this agreement foresees a perimeter increase of up to 400 additional sites over the next 6 years.
The execution of these agreements is subject to the verification of the usual conditions in this type of transaction, notably, if applicable, the non-opposition by the Competition Authority.
The potential value of the agreements to be reached over a 6-year period is 550 million euros, with an upfront payment of approximately 375 million euros. The expected impact on pro forma operating cash flow for NOS in year 1 is approximately 22 million euros.
This agreement will enable NOS to continuously optimize and expand its state-of-the-art mobile network, while reinforcing its ability to invest in the long-term value of the company. By joining forces with Cellnex in Portugal, through this strategic partnership, NOS ensures the supply of current and future needs of its passive mobile infrastructure. In addition to this agreement, NOS will continue to pursue other investment efficiency opportunities. The approval of this transaction, which constitutes a sale and lease back, occurred after the date of the statement of financial position.
These financial statements are a translation of financial statements originally issued in Portuguese in accordance with International Financial Reporting Standards (IAS / IFRS) as adopted by the European Union and the format and disclosures required by those Standards, some of which may not conform to or be required by generally accepted accounting principles in other countries. In the event of discrepancies, the Portuguese language version prevails.
| COMPANY | HEADQUARTER | SHARE | PERCENTAGE OF OWNERSHIP | |||
|---|---|---|---|---|---|---|
| Company | S | PRINCIPAL ACTIVITY | HOLDER | EFFECTIVE | DIRECT 31-03-2019 31-03-2020 |
EFFECTIVE 31-03-2020 |
| NOS, SGPS, S.A. (Holding) | Lisbon | Management of investments | - | - | - | - |
| Empracine - Empresa Promotora de Atividades Cinematográficas, Lda. |
Lisbon | Movies exhibition | Lusomundo SII |
100% | 100% | 100% |
| Fundo de Capital de Risco NOS 5G (a) | Lisbon | Invest and support the development of companies that aim to commercialize technologies and products that result from scientific and technological research |
NOS | - | 100% | 100% |
| Lusomundo - Sociedade de investimentos imobiliários SGPS, SA |
Lisbon | Management of Real Estate | NOS | 100% | 100% | 100% |
| Lusomundo Imobiliária 2, S.A. | Lisbon | Management of Real Estate | Lusomundo SII |
100% | 100% | 100% |
| Lusomundo Moçambique, Lda. | Maputo | Movies exhibition and commercialization of other public events | NOS | 100% | 100% | 100% |
| NOS Sistemas, S.A. ('NOS Sistemas') | Lisbon | Rendering of consulting services in the area of information | Cinemas NOS SA |
100% | 100% | 100% |
| NOS Sistemas España, S.L. | Madrid | systems Rendering of consulting services in the area of information |
NOS SA | 100% | 100% | 100% |
| systems Ponta Delgada Distribution of television by cable and satellite and operation of |
NOS SA | 84% | 84% | 84% | ||
| NOS Açores Comunicações, S.A. | telecommunications services in the Azores area Management of social participations in other companies as an |
|||||
| NOS Audiovisuais, SGPS, S.A. | Lisbon | indirect form of economic activity | NOS | 100% | 100% | 100% |
| NOS Property, S.A. (b) | Luxembourg Management of investments Implementation, operation, exploitation and offer of networks |
NOS | 100% | 100% | 100% | |
| NOS Comunicações, S.A. | Lisbon | and rendering services of electronic comunications and related resources; offer and commercialisation of products and equipments of electronic communications |
NOS | 100% | 100% | 100% |
| NOS Corporate Center, S.A. (c) | Lisbon | Service rendered of business support and management and administration consultancy services, including accounting, logistics, administrative, financial, tax, human resources services and any other services that are subsequent or related to previous activities. The company may also perform any other services. activities that are complementary, subsidiary or ancillary to those referred to in the preceding paragraph, directly or through participation in any other form of association, temporary or permanent, with other companies and / or other entities governed by public or private law. |
NOS SA | - | 100% | 100% |
| NOS Inovação, S.A. | Matosinhos | Achievement and promotion of scientific activities and research and development as well as the demonstration, dissemination, technology transfer and formation in the fields of services and information systems and fixed solutions and last generation mobile, television, internet, voice and data, and licensing and engineering services and consultancy |
NOS | 100% | 100% | 100% |
| NOS International Carrier Services, S.A. (c) | Lisbon | Service rendered and exploitation of electronic communications, namely, service rendered of national and international voice and SMS traffic transport services, as well as associated support signaling. The company may also perform any other activities that are complementary, subsidiary or ancillary. referred to in the preceding paragraph, directly or through participation in any other forms of association, temporary or permanent, with other companies and / or other entities governed by public or private law. |
NOS SA | - | 100% | 100% |
| NOS Internacional, SGPS, S.A. | Lisbon | Management of social participations in other companies as an indirect form of economic activity |
NOS | 100% | 100% | 100% |
| NOS Lusomundo Audiovisuais, S.A. | Lisbon | Import, distribution, commercialization and production of audiovisual products |
NOS Audiovisuais SGPS |
100% | 100% | 100% |
| NOS Lusomundo Cinemas , S.A. | Lisbon | Movies exhibition and commercialization of other public events | NOS | 100% | 100% | 100% |
| NOS Lusomundo TV, Lda. | Lisbon | Movies distribution, editing, distribution, commercialization and production of audiovisual products |
NOS Audiovisuais |
100% | 100% | 100% |
| NOS Madeira Comunicações, S.A. | Funchal | Distribution of television by cable and satellite and operation of | NOS SA | 78% | 78% | 78% |
| NOSPUB, Publicidade e Conteúdos, S.A. | Lisbon | telecommunications services in the Madeira area Comercialization of cable tv contents |
NOS | 100% | 100% | 100% |
| Construção e Gestão de Redes de Comunicações, S.A. ('Artis') |
Matosinhos | Design, construction, management and exploitation of electronic communications networks and their equipment and infrastructure, management of technologic assets and rendering of related services |
NOS SA | 100% | 100% | 100% |
| Lisbon | Implementation, installation and exploitation of towers and other sites for the instalment of telecommunications equipment |
NOS SA | 100% | 100% | 100% | |
| NOS Wholesale, S.A. (c) | Lisbon | Trade, service rendered and exploitation of wholesale offerings of national and international electronic communications services and related services, namely information and communication technology services Rendering of consulting services and support to contract management in roaming business. The organization of the material and human resources necessary for the commercialization, promotion and operation of electronic communications networks and circuits. The company may also perform any other activities that are complementary, subsidiary or ancillary to those referred to in the preceding paragraphs, directly or through participation in any other form of association, temporary or permanent, with other |
NOS SA | 0 % | 100% | 100% |
| Lisbon | companies and / or other entities governed by public or private Purchase, sale, renting and operation of property and |
NOS SA | 100% | 100% | 100% | |
| ('Per-Mar') Sontária - Empreendimentos Imobiliários, S.A. ('Sontária') |
Lisbon | commercial establishments Realisation of urbanisation and building construction, planning, urban management, studies, construction and property management, buy and sale of properties and resale of purchased |
NOS SA | 100% | 100% | 100% |
| for that purpose | ||||||
| Teliz Holding B.V. | Amsterdam Management of group financing activities | NOS | 100% | 100% | 100% |
(a) Fund subscription in December 2019
(b) On 1st October 2019, the company NOS Communications S.à r.l. changed its headquarters to Lisbon and changed its name to Nos Property, S.A..
(c) Constitution on 1st August 2019, by split of NOS Comunicações, S.A
| PRINCIPAL ACTIVITY | SHARE | PERCENTAGE OF OWNERSHIP | ||||
|---|---|---|---|---|---|---|
| COMPANY | HE ADOUARTERS | HOLDER | EFFECTIVE | DIRECT | EFFECTIVE | |
| 31-03-2019 | 31-03-2020 | 31-03-2020 | ||||
| Big Picture 2 Films, S.A. | Oeiras | Import, distribution, commercialization and production of audiovisual products |
NOS Audiovisua is |
20.00% | 20.00% | 20.00% |
| Big Picture Films, S.L. | Madrid | Distribution and commercialization of movies | Big Picture 2 Films, S.A. |
20.00% | 100.00% | 20.00% |
| Sport TV Portugal, S.A. | Lisbon | Conception, production, realization and commercialization of sports programs for telebroadcasting, purchase and resale of the rights to broadcast sports programs for television and provision of publicity services |
NOS | 25.00% | 25.00% | 25.00% |
| COMPANY | HEADQUARTERS | PRINCIPAL ACTIVITY | SHARE HOLDER |
PERCENTAGE OF OWNERSHIP | ||
|---|---|---|---|---|---|---|
| EFFECTIVE | DIRECT | EFFECTIVE | ||||
| 31-03-2019 31-03-2020 | 31-03-2020 | |||||
| Dreamia Holding B.V. | Amsterdam | Management of investments | NOS Audiovisuais |
50.00% | 50.00% | 50.00% |
| Dreamia - Serviços de Televisão, S.A. | Lisbon | Conception, production, realization and commercialization of audiovisual contents and provision of publicity services |
Dreamia Holding BV |
50.00% | 100.00% | 50.00% |
| FINSTAR - Sociedade de Investimentos e Participações, S.A. |
Luanda | Distribution of television by satellite, operation of telecommunications services |
Teliz Holding B.V. |
30.00% | 30.00% | 30.00% |
| MSTAR, SA | Maputo | Distribution of television by satellite, operation of telecommunications services |
NOS | 30.00% | 30.00% | 30.00% |
| Upstar Comunicações S.A. | Vendas Novas | Electronic communications services provider, production, commercialization, broadcasting and distribution of audiovisual contents |
NOS | 30.00% | 30.00% | 30.00% |
| ZAP Media S.A. | Luanda | Projects development and activities in the areas of entertainment, telecommunications and related technologies, the production and distribution of the contents and the design, implementation and operation of infrastructure and related facilities |
FINSTAR | 30.00% | 100.00% | 30.00% |
| ZAP Cinemas, S.A. (a) | Luanda | Projects development and activities in the areas of entertainment, telecommunications and related technologies, the production and distribution of the contents and the design, implementation and operation of infrastructure and related facilities |
FINSTAR | 30.00% | - | - |
| ZAP Publishing, S.A. (a) | Luanda | Projects development and activities in the areas of entertainment, telecommunications and related technologies, the production and distribution of the contents and the design, implementation and operation of infrastructure and related facilities |
ZAP Media | 30.00% | - | - |
(a) Companies liquidated and dissolved in December 2019
Financial investments whose participation is less than 50% were considered as joint arrangements due to shareholder agreements that confer joint control.
| COMPANY | HEADQUARTERS | PRINCIPAL ACTIVITY | SHARE HOLDER |
PERCENTAGE OF OWNERSHIP | ||
|---|---|---|---|---|---|---|
| EFFECTIVE | DIRECT | EFFECTIVE | ||||
| 31-03-2019 31-03-2020 31-03-2020 | ||||||
| Associação Laboratório Colaborativo em Transformação Digital - DTX |
Guimarães | Research applied to different areas associated with digital | NOS | |||
| transformation to encourage cooperation between R&D units, | Inovação, | 4.92% | 4.92% | 4.92% | ||
| educational institutions and the productive sector | S.A. | |||||
| Fundo TechTransfer | Lisboa | Invest and support the development of companies that aim to | NOS | 4.20% | ||
| commercialize technologies and products that result from | Inovação, | - | 4.20% | |||
| scientific and technological research | S.A. | |||||
| Turismo da Samba (Tusal), SARL (a) | Luanda | n.a. | NOS | 30.00% | 30.00% | 30.00% |
| Filmes Mundáfrica, SARL (a) | Luanda | Movies exhibition | NOS | 23.91% | 23.91% | 23.91% |
| Companhia de Pesca e Comércio de | Luanda | n.a. | NOS | 15.76% | 15.76% | 15.76% |
| Angola (Cosal), SARL (a) | ||||||
| Lusitânia Vida - Companhia de Seguros, | Lisboa | Insurance services | NOS | 0.03% | 0.03% | 0.03% |
| S.A ("Lusitânia Vida") | ||||||
| Lusitânia - Companhia de Seguros, S.A | Lisboa | Insurance services | NOS | 0.02% | 0.02% | 0.02% |
| ("Lusitânia Seguros") |
(a) The financial investments in these companies are fully provisioned.
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