Annual Report • Mar 15, 2021
Annual Report
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PHAROL, SGPS S.A. 2020 RESULTS ■ PHAROL's net result in 2020 was negative by 14.3 million Euros, essentially justified by: (1) impairment of 11.1 million Euros due to the reduction in the expected value of the credit on Rio Forte, and (2) operating costs in the amount of Euros 3.0 million. ■ The company's equity increased by 33.8 million euros, ending 2020 at 165.4 million euros, reflecting (1) the appreciation of the stake in Oi by 47 million euros and (2) the negative net result in the amount of 14.3 million euros. ■ PHAROL's stake in Oi, which reached 110 million euros at the end of the year, ended the second
half with an appreciation of 47 million euros; the quotation gain (68.8 million euros) was partially offset by the exchange rate effect (21.1 million euros). ■ Following the limited evolution in the bankruptcy process of Rio Forte and the sharp devaluation of the Brazilian currency (and, to a lesser extent, the Paraguayan currency), with a strong depreciation of the value of assets in those countries, the expected amount of credit over Rio Forte suffered reduction of 11.1 million Euros in the year 2020. ■ With the occurrence of the Covid-19 pandemic and the consequent strengthening of the policy of containment and budgetary discipline, a reduction in recurrent operating costs of 29% was obtained, which reached, at the end of the year, 3 million Euros. ■ PHAROL's quotation ended the year 2020 at 12.5 cent./action, which represented an increase compared to 2019 of 23.6%, which was recognized, at the beginning of 2021 by Euronext Lisbon, which awarded it the prize of the highest shareholder remuneration of SMEs in the Lisbon market in 2020. MESSAGE FROM THE CHAIRMAN
in the last quarter of the previous year, ended up concluding 2020 with a strong revaluation. The Brazilian economy revealed the same weaknesses as the rest of the world economies, which led to a Luís Palha da Silva "For a whole generation of managers in Portugal, 2020 will go down in history as the worst year of their lives. Not always with substantial, direct and immediate effects on the activity and business of companies. But, certainly, in the way that all the beliefs and assumptions that hitherto shaped the face of the future and the strategic planning of institutions were shaken. Few, if any, companies have previously placed a pandemic outbreak among the most critical exogenous factors. Pharol will not be among the companies that suffered the most. Equity registered a very sharp increase positive, of 33.8M €, and the price of our shares, which, like many others, had suffered with the abrupt fall of the markets
strong devaluation of the Real. However, in the specific case of Oi, there are several positive developments throughout the year, reflecting the strategic measures implemented by the new Executive Team, managing to strengthen the investment capacity, which is reflected in the good stock market behavior of this new Oi in 2020.
| in the last quarter of the previous year, ended up concluding 2020 with a strong revaluation. The Brazilian economy revealed the same weaknesses as the rest of the world economies, which led to a |
Highlights | ||
|---|---|---|---|
| strong devaluation of the Real. However, in the specific case of Oi, there are several positive developments throughout the year, |
PHAROL | ||
| reflecting the strategic measures implemented by the new Executive Team, managing to strengthen the investment capacity, which is reflected in the good stock market behavior of this new Oi |
(Euro million) | 2020 | 2019 |
| in 2020. |
Recurring EBITDA |
(3.0) | (4.2) |
| Coincidentally, the devaluation of the real is also one of the main, if not the main, explanation for the worsening of the losses suffered |
Net Results |
(14.3) | 20.7 |
| by Pharol in 2020. The abrupt fall of the Brazilian currency (and to a |
(Euro million) | 2020 | 2019 |
| lesser extent of the Paraguayan currency) will have contributed most. to reduce the expected value of assets distributable by |
Assets | 183.3 | 144.1 |
| creditors under this bankruptcy process, which led to an impairment |
Liabilities | 18.0 | 12.6 |
| of € 11.1m in the amount of credit over Rio Forte. As for Pharol's operating costs, whose control continues to be one of the main priorities of the Board of Directors, the downward trend |
Equity | 165.4 | 131.5 |
| continued, driven by the strict monitoring of litigation and personnel expenses." |
Contacts Luís Sousa de Macedo Investor Relations Tel: +351 212 697 698 - 212 697 949 E-mail: [email protected] |
Fax: +351 |
CONSOLIDATED ANNUAL REPORT
2020
| 01. | FINANCIAL REVIEW | 3 |
|---|---|---|
| 02. | BUSINESS PERFORMANCE | 11 |
| 03. | MAIN RISKS AND UNCERTAINTIES | 20 |
| 04. | QUALIFIED HOLDINGS | 22 |
| 05. | OUTLOOK | 24 |
| 06. | STATEMENT FROM THE BOARD OF DIRECTORS | 26 |
| 07. | ACTIVITIES OF THE NON-EXECUTIVE DIRECTORS | 27 |
| 08. | CONSOLIDATED FINANCIAL STATEMENTS | 30 |
"PHAROL", "Group PHAROL", "Group" and "Company" is a reference to the companies that are part of PHAROL, SGPS S.A. or to one of them, depending on the context.
For a whole generation of managers in Portugal, the year 2020 will go down in history as the worst year of their lives. Not always with substantial, direct and immediate effects on the activity and business of companies. But, certainly, in the way that all the beliefs and assumptions that hitherto shaped the face of the future and the strategic planning of institutions were shaken.
Symptomatic is that, although the great majority of companies had long ago abandoned reports based exclusively on profitability assessments and started to present to their Shareholders with volatility management methodologies - risk management analyzes, especially those with a high impact on results and situation patrimonial - few, if any, were those that previously placed a pandemic outbreak among the most critical exogenous factors.
Few have also been those who guessed that the scientific communities, despite some advances at an unexpected speed in the field of vaccination, would demonstrate such inaction and ignorance about the causes and effects of the pandemic over a long period of time, making it difficult and even more zigzagging. decision-making by public authorities.
Urged to come forward with measures, different Governments determined non-selective programs to combat the pandemic that hit economies and sectors in a brutal and indiscriminate manner. In such a way that almost all the registrations of activity decrease in the various areas of the globe ended up being beaten.
PHAROL will not be among the companies that suffered the most. Equity registered a very positive increase, of 33.8M €, and the price of our shares, which, like many others, had suffered with the abrupt fall of the markets in the last quarter of the previous year, ended up concluding 2020 with a strong revaluation, which even allowed to obtain the prize, awarded by Euronext, for the highest shareholder remuneration of SMEs in the Lisbon market in 2020. The positive evolution registered by the participation in Oi contributed decisively to this.
The Brazilian economy revealed the same weaknesses as the rest of the world economies with regard to the effects of the pandemic, aggravated, however, by some political instability that insists on maintaining itself and is one of those responsible for the strong devaluation felt by the real. However, in the specific case of Oi, there are several positive developments throughout the year: the new Executive Team cemented the credibility of its strategy based on investment in FTTH (Fiber to the Home), by exceeding expectations in the number of users achieved, and consolidation of the balance sheet, taking safe steps in the disposal, in whole or in part, of various assets such as the mobile network, antennas or network infrastructures. The investment capacity was thus largely reinforced and explains the good stock market behavior of this new Oi in 2020.
Coincidentally, the devaluation of the real is also one of the main, if not the main, explanation for the worsening of the losses suffered by Pharol in 2020. Although it can be said that, in relation to an asset as contingent as the credit on Rio Forte, there are any number of factors that condition its valuation, the abrupt fall in the Brazilian currency (and to a lesser extent in the Paraguayan currency) contributed most to the reduction in the expected value of assets distributable by creditors in the context of this bankruptcy process, which has a significant part of its salable assets in South American real estate. Accordingly, as it was responsible for and following the evaluation model consistently used with monitoring by the Fiscal Council, External Auditors and ROC, in 2020 PHAROL recorded an impairment of € 11.1M in the amount of credit over Rio Forte.
As for Pharol's operating costs, whose control remains one of the main priorities of the Board of Directors, the downward trend continued, driven by the strict monitoring of litigation and personnel expenses.
The Board of Directors elected, for the term now ending, three pillars of action: the valuation and defense of the value of the assets held, the removal of risks and contingencies that still exist and the tight control of costs. The next General Meeting will elect the new Governing Bodies of Pharol and it is with the feeling of accomplishment (although not complete in some chapters) that the passage of testimony will be made. The Shareholders and the new Board of Directors will be responsible, among others, for the decision to choose between the path that has been followed in recent years, of strong contention, or the bet on a greater diversification of the asset portfolio, based on the vocation of participation manager from Pharol.
To the Shareholders, on behalf of the Board of Directors, I would like to thank all the support received during this mandate.
As at December 31, 2020, PHAROL main assets are composed of (1) 319,414,859 common shares of Oi, S.A. ("Oi"), representing 5,37% (excluding treasury shares) of the total share capital of Oi, (2) debt securities of Rio Forte Investments S.A. ("Rio Forte") with a nominal value of Euro 897 million. Also, PHAROL has a Call Option on 8,538,276.96 common shares and 17,076,553.92 preferred shares of Oi with an exercise price of R\$20.104 per common share and R\$18.529 per preferred share, adjusted by the Brazilian rate CDI plus 1.5% per annum, and with a 6-year maturity. The Call Option has partial expiration dates throughout the period, so the option volume is reduced by 10% at the end of the first year and by 18% per year thereafter and to be corrected for the capital increases meanwhile carried out in Oi. This call option is currently valued at zero Euros.
As of December 31, 2014, after the capital increase of Oi, concluded on May 5, 2014 (the "Oi Capital Increase"), PHAROL held a 39.7% direct and indirect stake in Oi. This included a portion classified as a noncurrent asset held for sale, following the Exchange agreement ("Exchange") entered into on September 8, 2014 and completed on March 8, 2015, and the remaining stake of 22.8% classified as investment in joint ventures and associates and therefore accounted for using the equity method.
On March 30, 2015, the Exchange was completed, whereby PHAROL (1) transferred to Portugal Telecom International Finance, B.V. ("PT Finance"), a subsidiary of Oi, an aggregate amount of 47,434,872 common shares and 94,869,744 preferred shares of Oi, and (2) received from PT Finance debt securities of Rio Forte with a nominal value of Euro 897 million and a call option on the transferred shares ("Call Option"). After the completion of the Exchange, PHAROL held an effective stake of 27.48% in Oi corresponding to the 22.8% stake referred above plus 4.7% due to the decrease in the number of outstanding shares of Oi.
The relevant agreements for the implementation of the New Structure of Oi were signed on July 22, 2015. On September 1, 2015, a General Meeting of Shareholders of Oi was held where the New Structure was approved.
As of September 30, 2015, after the implementation of the New Structure, but prior to the voluntary conversion of preferred shares to ordinary shares of Oi, PHAROL held, directly or indirectly through wholly owned subsidiaries, 84,167,978 common shares and 108,016,749 preferred shares of Oi.
As of October 8, 2015, following the voluntary conversion of preferred shares into common shares of Oi, PHAROL now holds, directly and indirectly through wholly owned subsidiaries, 183,662,204 common shares of Oi, representing 27.18% of total share capital of Oi (excluding treasury shares). PHAROL's voting rights in Oi were limited to 15% of the total common shares of Oi.
With the implementation of the New Structure on July 30, 2015, the shareholders' agreements, through which joint control of Oi was exercised, were terminated. Up to that date, PHAROL accounted for its stake in Oi as an Investment in Joint Ventures. After this date, PHAROL considered it had significant influence over Oi and classifies it as an associate company. As a result, from July 30, 2015 the investment in Oi continued to be accounted for according to the equity method, based on PHAROL's economic stake in Oi's results.
On April 29 and May 19, 2016, PHAROL, due to a corporate reorganization, transferred direct ownership of 128,213,478 common shares issued by Oi S.A., to its 100% owned subsidiary BRATEL B.V.. Due to the Corporate Reorganization, BRATEL B.V. now directly holds (and PHAROL indirectly holds) 183,662,204 common shares of Oi S.A., which represented 22.24% of Oi S.A.'s entire share capital (27.18% excluding treasury shares).
On 15 September 2017, in order to concentrate all its operations in Luxembourg, PHAROL transferred the ownership of all the shares that BRATEL BV has in Oi SA to its subsidiary BRATEL S.à.r.l., 100% owned by BRATEL B.V.
In December 2017, and after the decision by the Court of the 7th Business Court of Rio de Janeiro (which it handles the Judicial Recovery of Oi) and which decided to withdraw the rights of the members of the Board of Directors of Oi in the approval of the Judicial Recovery Plan, it was understood that PHAROL lost the significant influence it had until then on its associate Oi. Consequently, on 31 December 2017, PHAROL began to measure its investment in Oi at market value and classify it as "Financial Assets".
Oi S.A., in the disclosure of its consolidated results for 2017, announced that it had restated its Consolidated Equity on January 1, 2016 and December 31, 2016, amounting to BRL 18 billion and BRL 19 billion, respectively. Following this restatement, PHAROL's investment in Oi, being recorded under the equity method, was restated and valued at zero in the periods of January 1, 2016 and December 31, 2016.
On July 20, 2018, following the homologation of the Capital Increase through the conversion of debt into shares, Oi's share capital increased from 825,760,902 shares for a total of 2,340,060,505 shares, was a dilution of PHAROL's participation in Oi to less than 8%.
On January 9, 2019, as part of the capital increase due to the Entry of New Resources, Oi went from 2,340,060,505 shares to a total of 5,954,205,001 shares representing its share capital, with a dilution of PHAROL's stake in Oi to less than 4%, even though it partially accompanied the referred capital increase.
On April 2, 2019, with the approval of an agreement between PHAROL and Oi on January 8, 2019, in which Oi committed itself to reimburse PHAROL for the damages for damages suffered through Oi's actions and resources for the acquisition of Oi shares subscribed in the aforementioned capital increase, PHAROL now holds a 5.51% interest in Oi's share capital.
During 2020, PHAROL sold all preferred shares of Oi and a small portion of common shares, resulting in a final stake of 5.37% of Oi's share capital.
In 2020, PHAROL's negative results were essentially caused by the lack of developments in Rio Forte's bankruptcy process. To this inactivity helped the depreciation of economies in Latin America, justified, it is true, by the effects of the Covid-19 pandemic. Devaluations of the real and, to a lesser extent, of the Paraguayan peso led to a further downward revision of the amount to be recovered for Rio Forte's debts.
With regard to the Covid-19 Pandemic, which emerged with a special impact on the economy at a global level in the first quarter of 2020, there was no direct impact at the operational level at PHAROL. Indirect consequences were mainly seen in PHAROL's holdings, determined by the aforementioned devaluations of the real with respect to Oi and the real and the Paraguayan peso in the appreciation of credit over Rio Forte. However, it should be noted that, as a result of a strong appreciation of Oi's share price, PHAROL's equity has grown significantly and its own share has evolved very favorably, having even allowed obtaining the best remuneration award for listed SMEs. at Euronext Lisbon, in 2020.
The net loss for 2020 was Euro 14.3 million, which compares with a gain of Euro 20.7 million in the same period of 2019.
The net loss in 2020 mainly reflects (1) a loss of Euro 1.1 million due to the reduction in the expected value of Rio Forte, and (2) costs of external supplies and services and personnel costs respectively at Euro 1.2 and 1.5 million.
The net result for 2019 reflects (1) the gain in associates because of the compensation for damages under the Agreement between Oi and Bratel Sarl of 35.7 million Euros, (2) a loss of Euro 11.6 million due to the reduction in the expected value of Rio Forte essentially justified by the devaluation of Rio Forte's assets in Latin America justified mainly by the exchange devaluation, and, and (3) operating costs in the amount of Euro 3 million.
| CONSOLIDATED INCOME STATEMENT | ||
|---|---|---|
| Euro million | ||
| 2020 | 2019 | |
| Wages and salaries | 1.5 | 1.6 |
| Supplies, external services and other expenses | 1.4 | 2.3 |
| Indirect taxes | 0.2 | 0.4 |
| Loss before financial results and taxes | (3.0) | (4.2) |
| Depreciations | 0.1 | 0.1 |
| Earnings before interest and taxes | (3.1) | (4.3) |
| Net other gains | 0.0 | (12.6) |
| Loss before financial results and taxes | (3.1) | 8.2 |
| Net interest income | (0.0) | (0.0) |
| Losses in associates | - | (36.8) |
| Net losses on financial assets and other investments | 11.1 | 11.6 |
| Net other financial losses (gains) | 0.0 | 0.0 |
| Loss before taxes | (14.3) | 33.4 |
| Income taxes | 0.0 | 12.7 |
| Attributable to equity holders of PHAROL, SGPS S.A. | (14.3) | 20.7 |
Consolidated operating costs amounted to 3 million Euros in 2020 compared to 4.2 million Euros in 2019 following a cost reduction in all items with a special focus on legal services and advisory services.
Net losses on financial assets and other investments as of December 31, 2020 and 2019 include the reduction of the expected recovery of credits on Rio Forte.
Results before tax in 2020 amounted to 14.3 million Euros.
The net result attributable to PHAROL Shareholders recorded a loss of 14.3 million Euros in 2020, which compares with a profit of 20.7 million Euros in 2019. The net loss in 2020 essentially reflects (1) the consolidated operating costs of 3 million Euros, and (2) a loss of 11.1 million Euros due to the reduction in the expected value of the recovery of credits on Rio Forte.
The net result in 2019 essentially reflects (1) the reimbursement of damages under the Agreement between Oi and Bratel Sarl in the amount of 36.8 million Euros; (2) a loss of 11.6 million Euros due to the reduction in the expected amount of recovery of credits on Rio Forte and (3) the consolidated operating costs of 4.2 million Euros.
| Consolidated Statement of Financial Position | ||
|---|---|---|
| Euro million | ||
| 2020 | 2019 | |
| ASSETS | ||
| Cash and cash equivalents | 20.7 | 17.9 |
| Accounts receivable | 0.1 | 0.1 |
| Tangible assets | 0.2 | 0.3 |
| Taxes receivable | 0.0 | 0.1 |
| Financials assets | 110.3 | 62.6 |
| Other assets | 52.0 | 63.0 |
| Total assets | 183.3 | 144.1 |
| LIABILITIES | ||
| Short-term debt | 0.2 | 0.3 |
| Accounts payable | 0.3 | 0.2 |
| Accrued expenses | 0.9 | 0.8 |
| Taxes payable | 0.1 | 0.2 |
| Other liabilities | 16.4 | 11.1 |
| Total liabilities | 18.0 | 12.6 |
| Total equity | 165.4 | 131.5 |
| Total liabilities and shareholders' equity | 183.3 | 144.1 |
The accompanying notes form an integral part of these financial statements.
The cash position is Euro 20.7 million at the end of fiscal year 2020.The cash position and accounts receivable net of liabilities associated with gross debt, accounts payable, accrued costs, taxes payable and potential amounts payable to the Portuguese Tax Authority, shown in the caption "Other liabilities", represented 2.9 million Euros on December 31, 2020 and 5.6 million Euros on December 31, 2019.
Financial assets correspond essentially to PHAROL's effective investment in Oi, 5.37% on December 31, 2019 and 5.51% in 2018, which is recorded at market value.
The other assets on December 31, 2020 and 2019, in the amounts of 51 million Euros and 63 million Euros respectively, correspond to the best estimate of the fair values of the assets related to the debt instruments issued by Rio Forte, whose value nominal value amounts to 897 million Euros.
Equity amounted to Euro 165,4 million on December 31, 2020 compared to Euro 131.5 million on December 31, 2019, an increase of Euro 33.8 million, mainly reflecting (1) the negative net income generated in 2020 in the amount of 14.3 million Euros, and (2) gains on financial assets recognized directly in the amount of 51,2 million Euros and (3) acquisition of own shares in the amount of 3 million of Euros.
In the 3Q, despite the pandemic, Oi maintained delivery on the operational and transformational fronts. The approval of the amendment to the plan at AGC paved the way for sustainability.
• + 3.5% growth in Total Revenue in the quarterly comparison - The robust growth in fiber revenue and signs of recovery in mobility and B2B were mainly responsible for the performance
Oi continues to successfully stabilize and improve its operations, redefine its strategic model and deliver a strong acceleration of its fiber optic plan.
The approval of the amendment to the judicial recovery plan at the AGC in September was a firm validation of the ambitious model to accelerate growth, enable the creation of the largest infrastructure company in Brazil and bring Oi back to long-term sustainability.
The structural separation model allows combining strong growth and financial sustainability for Oi and InfraCo.
The addition to the plan also allows for a significant injection of funds into the company, through UPI auctions, helping to ensure both investments over time and the critical reduction of the company's longterm debt.
Transformation continues to be pursued ceaselessly through integrated execution programs.
The management team and the board of directors are committed to implementing the new strategic model with rigor and speed.
| in R\$ million | |||
|---|---|---|---|
| 3T19 | 2T20 | 3T20 | |
| Operational Revenues | 5,001 | 4,544 | 4,706 |
| Brazil | 4,955 | 4,490 | 4,648 |
| Residential | 1,803 | 1,583 | 1,625 |
| Personal Mobility | 1,763 | 1,619 | 1,706 |
| B2B | 1,357 | 1,265 | 1,294 |
| Other Services | 32 | 24 | 23 |
| International Operations | 46 | 54 | 58 |
| Routine Operating Costs and Expenses | 3,627 | 3,185 | 3,244 |
| Brazil | 3,552 | 3,025 | 3,212 |
| International Operations | 75 | 160 | 32 |
| Routine EBITDA | 1,374 | 1,359 | 1,462 |
| Non-routine Items | 521 | 0 | 22 |
| Expenses on Impairment Losses | -3,342 | 0 | 0 |
| EBITDA | -1,447 | 1,359 | 1,485 |
| EBITDA Margin (%) | -28.9% | 29.9% | 31.6% |
| Depreciation and Amortization | 1,752 | 1,725 | 1,740 |
| EBIT | -3,199 | -366 | -255 |
| Financial Expenses | -3,875 | -3,983 | -2,961 |
| Financial Income | 1,499 | 856 | 636 |
| Net Earnings (Loss) Before Tax and Social Contribution | -5,575 | -3,493 | -2,580 |
| Income Tax and Social Contribution | -209 | -1 | 1 |
| Consolidated Net Earnings (Loss) | -5,784 | -3,493 | -2,580 |
| Margin % | -115.6% | -76.9% | -54.8% |
Below we list all the events that occurred between January 1, 2020 and March 15, 2021, that can be read in full at PHAROL's website (www.pharol.pt).
The main changes in qualifying holdings of PHAROL were as follows:
06/Jan/2020 | Grupo Visabeira SGPS, S.A. reported that it sold a total of 1,700,000 shares, representing 0.1896% of the share capital and voting rights of PHAROL.
As a result of the sales, Grupo Visabeira SGPS, S.A. became the holder of 12,367,041 shares, representing 1.3795% of the share capital and voting rights of PHAROL.
Furthermore, pursuant to the provisions of article 20 of the Portuguese Securities Code, in view of the existing holdings, Fernando Campos Nunes (NIF: 175,776,083) is deemed to be responsible for the total of 12,367,041 shares representing the share capital of PHAROL SGPS, SA, corresponding to 1.3795% of the share capital and voting rights.
26/Feb/2020 | Abante Asesores, S.A. reported that holds a qualified holding through 18,200,000 shares, representing 2.03% of PHAROL's share capital and voting rights since August 28, 2019.
09/Sep/2020 | Abante Asesores, S.A. reported that it reduced its stake to 17,856,292 shares, representing 1.99% of PHAROL's share capital and voting rights on 8 September 2020.
16/Dec/2020 | Real Vida Seguros SA reported that it reduced its stake to 10,000,000 shares, representing 1.12% of PHAROL's share capital and voting rights on December 11, 2020.
4/Jan/2021 | Grupo Visabeira SGPS, S.A. reported that it sold a total of 2,400,000 shares on the stock exchange, representing 0.2677% of PHAROL's share capital and voting rights.
As a result of the sales, Grupo Visabeira SGPS, S.A. became the holder of 9,967,041 shares, representing 1.1118% of PHAROL's share capital and voting rights. He also informed that the existing shares are considered to be attributable to Fernando Campos Nunes (TIN: 175.776.083).
Below we list the main corporate events of PHAROL:
08/Jan/2020 | PHAROL informs that, at the Extraordinary General Meeting of Shareholders, on Second Date, the Shareholders resolved:
1: Reduce the minimum and maximum number of members of the Company's Board of Directors, with the consequent amendment to paragraph 1 of Article Eighteenth of the Company's Bylaws, which will now read as follows: "The Board of Directors is composed of a minimum of three and a maximum of seven members";
2: As a result of the approval of the reduction of the maximum and minimum number of members of the Board of Directors and amendment of the Company's bylaws, under the scope of point One, approve the termination of functions by dismissal, with immediate effect, of the directors, Aristóteles Luiz Menezes Vasconcellos Drummond, Jorge Augusto Santiago das Neves and Nelson Sequeiros Rodriguez Tanure who, on 12.6.2019, had already resigned from his duties as a member of the Board of Directors.
29/Jan/2020 | PHAROL informed following the indirect sale, by Oi, of its participation in Unitel, SA, and as agreed in the Private Instrument of Transaction and Other Covenants, signed between PHAROL and Oi on January 8, 2019, Oi, through the PT Participações SGPS, SA, made a deposit in a guarantee account in the amount of 34,340,803.32 Euros, intended to guarantee PHAROL in case of eventual condemnation in tax contingencies under Oi's responsibility.
27/Mar/2020 | PHAROL informs that, at Annual General Meeting, it was decided by the Shareholders to approve:
Below we list other relevant PHAROL events:
26/Feb/2020 | PHAROL informed about the Report of Judicial Administrators in the insolvency process of Rio Forte (Rapport nº 14 des Curateurs), relative to December 31, 2019, available at www.espiritosantoinsolvencies.lu
16/Mar/2020 | PHAROL informed that it has been notified of the decision taken in administrative offence proceeding initiated by the Portuguese Securities Commission ("CMVM") against PHAROL and several former directors, due to the fact that the disclosure of consolidated reports and accounts for the years 2012 and 2013 and the first quarter of 2014, as well as the corporate governance reports for the years 2012 and 2013, did not comply with the information requirements.
PHAROL was sentenced to a single penalty of one million euros, and CMVM considered that "(a) an opportunity to the issuer and its new board of directors shall be granted, in order to proceed in compliance with the law and that (b) a limitation of the material impact of the penalty on the company is fair, under appropriate conditions" and therefore decided to partially suspend the penalty, in the amount of seven hundred and fifty thousand euros, for a period of two years.
Thus, if PHAROL appeal do not be accepted, the fine to be paid will be limited to two hundred and fifty thousand euros.
03/Jun/2020 | PHAROL informed that the Board of Directors of PHAROL has approved the termination of its ADS/ADR programme.
Following the delisting of the ADSs from the New York Stock Exchange ("NYSE") back in 2015, and subsequently ADSs being traded only in the U.S. over-the-counter market, this decision allows the COMPANY to reduce costs and consolidate Euronext Lisbon as PHAROL's primary market.
Termination will be implemented in accordance with the provisions of the Deposit Agreement and will take effect at 5:00PM (Eastern Time) on September 03, 2020.
01/Jul/2020 | PHAROL informed about the Report of Judicial Administrators in the insolvency process of Rio Forte (Rapport nº 15 des Curateurs), relative to April 30, 2020, available at www.espiritosantoinsolvencies.lu
27/Oct/2020 | PHAROL informed about the acquisition of own shares. The process of own acquisitions took place between October 22, 2020 and February 3, 2021 and PHAROL now holds a total of 84,346,018 own shares, corresponding to 9.4082% of its share capital.
28/Out/2020 | PHAROL informed about the Report of Judicial Administrators in the insolvency process of Rio Forte (Rapport nº 16 des Curateurs), relative to august 31, 2020, available at www.espiritosantoinsolvencies.lu
05/Fev/2020 | PHAROL informed about the Report of Judicial Administrators in the insolvency process of Rio Forte (Rapport nº 17 des Curateurs), relative to December 31, 2020, available at www.espiritosantoinsolvencies.lu
11/Feb/2021 | PHAROL informed that Jorge Telmo Maria Freire Cardoso resigned, on February 10, 2021, the respective post of non-executive member of the Board of Directors of PHAROL.
Below we list the other material events of Oi:
24/Jan/2020 | Oi informed that its indirect subsidiary Africatel Holdings BV ("Africatel") has just sold and transferred all the shares issued by the Portuguese holding company PT Ventures SGPS SA ("PT Ventures") to the Angolan company Sociedade Nacional de Combustíveis de Angola, Empresa Publica - Sonangol EP ("Sonangol"). The total value of the transaction is US \$ 1 billion, of which: (i) US \$ 699.1 million paid to Africatel by Sonangol on this date, (ii) US \$ 60.9 million already paid to Africatel before the transfer of the shares of PT Ventures; and (ii) US \$ 240 million, fully guaranteed by a letter of guarantee issued by a firsttier bank, to be paid unconditionally by Sonangol to Africatel until July 31, 2020, with Africatel being guaranteed a minimum monthly flow of US \$ 40 million , starting in February 2020.
30/Jan/2020 | Oi informed that it entered into a private instrument of promise to sell property owned by itself, for the amount of R \$ 120.5 million, continuing its project to sell non-core assets, in line with the provisions of its Judicial Recovery Plan and in its Strategic Plan.
05/Feb/2020 | Oi informed about the conclusion of the subscription and payment of the 1st issue of simple debentures, not convertible into shares, of the type with real guarantee, with additional personal guarantee, in a single series, for private placement, of its subsidiary Oi Móvel SA - In Judicial Recovery , in the amount of R \$ 2.5 billion, pursuant to Clause 5.3 of the Judicial Reorganization Plan.
10/Feb/2020 | Oi informed about the decision issued by the Directing Council of the National Telecommunications Agency - Anatel that suspended the special monitoring carried out up to this date based on Judgment No. 226, of May 3, 2019, as it considers that the short-term liquidity risk has been resolved Company and its subsidiaries.
10/Feb/2020 | Oi informed that, in addition to the Notice to the Market dated January 30, 2020, the sale of the property of its property for the amount of R \$ 120.5 million, was concluded on February 21, with the transfer of said property to the buyer and the financial settlement of the transaction.
28/Feb/2020 | Oi informed that together with its subsidiaries in judicial reorganization, it filed a petition before the Court of the 7th Business Court of Rio de Janeiro exposing its interest in bringing to the creditors' deliberation, in a new General Meeting of Creditors, an amendment to the Recovery Plan Approved court, aiming at achieving greater operational and financial flexibility to continue its investment project and the fulfilment of its strategic transformation plan ("Strategic Plan"), both of which have already been widely disclosed to the market.
02/Mar/2020 | Oi informed that together with its subsidiaries under judicial reorganization, filed a petition before the Court of the 7th Business Court of Rio de Janeiro exposing its interest in bringing to the creditors' deliberation, in a new General Meeting of Creditors, an amendment to the Recovery Plan Approved court, aiming at achieving greater operational and financial flexibility to continue its investment project and the fulfillment of its strategic transformation plan, both of which have already been widely disclosed to the market.
10/Mar/2020 | Oi informed that, in line with the implementation of its Strategic Plan for transforming its operations, Oi's financial advisor, Bank of America Merrill Lynch, received comments from third parties interested in the Company's mobile business.
11/May/2020 | Oi reported that the risk rating agency Standard & Poors announced the issuer review from "B" to "B-" on a global scale and from "brA-" to 'brBBB' on a national scale.
15/Jun/2020 | Oi released 1Q20 results.
15/Jun/2020 | Oi informed that the Company filed before the Court of the 7th Business Court of Rio de Janeiro a proposal to add to the approved Judicial Recovery Plan.
18/Jul/2020 | Oi informed that received a binding, irrevocable and irreversible proposal, from Highline do Brasil II Infraestrutura de Telecomunicações SA, for the acquisition of the isolated production unit to be formed with 100% of the shares issued by the special purpose company that will gather the assets and liabilities related to the activities of outdoor and indoor telecommunication sites for radio frequency transmission of the Company and its subsidiaries ("UPI Torres" and "Empresas Oi", respectively). According to the proposal, subject to certain conditions, Highline committed itself to acquire UPI Torres, in case it is the winner of a competitive process under Law No. 11,101 / 2005, for the amount of R \$ 1,076,740,878.00, established based on revenue telecommunication sites.
22/Jul/2020 | Oi informed that entered into an Exclusivity Agreement with Highline, which presented the best binding offer, above the established minimum price, for the acquisition of the Oi Companies' mobile telephony operation ("UPI Ativos Móveis"), as provided for in the amendment to the Plan Judicial Reorganization filed.
28/Jul/2020 | Oi informed that received a revised binding offer submitted jointly by Telefônica Brasil SA, TIM SA and Claro SA, in the amount of R \$ 16,500,000,000.00, plus the commitment to enter into longterm contracts for the provision of transmission capacity services. with Oi.
07/Aug/2020 | Oi informed that entered into an Exclusivity Agreement with Telefônica Brasil S.A., TIM S.A. and Claro S.A with the purpose of negotiating exclusively with the Bidders the documents and attachments related to the Revised Offer.
13/Aug/2020 | Oi informed that it has entered into confidentiality agreements with certain holders of the 10% / 12% Senior PIK Toggle Notes due in 2025 issued by Oi and guaranteed, for the purpose of sharing certain material non-public information to promote discussions regarding the alteration of the proposal of Amendment to the Judicial Recovery Plan and a possible change in the deed of issue of the Notes in order to allow the consummation of the operations provided for in the Amendment to the Plan.
13/Aug/2020 | Oi informed that it filed an updated version of the proposed amendment to the Judicial Reorganization Plan approved with the Court of Rio de Janeiro with some specific adjustments. The updated version of the Addendum to the PRJ reflects the various interactions with creditors, potential investors and other stakeholders, including those conducted before the mediator appointed by the Court of Rio de Janeiro, which ended on August 6, 2020, in order to discuss improvements to the Amendment to the PRJ and, thus, seek to make its approval viable at the New General Meeting of Creditors.
13/Aug/2020 | Oi released 2Q20 results.
31/Aug/2020 | Oi informed that it started the Marketing Sounding process to prospect for investors interested in the acquisition of its pay TV business, covering the entire infrastructure for the provision of services using DTH technology, through the transfer of assets and liabilities. The Company also informed that it hired the BTG Pactual bank as its financial advisor to conduct the Marketing Sounding process, which aims to reach the largest possible number of interested parties.
07/Sep/2020 | Oi informed that concluded the negotiations between the Company and Telefônica Brasil SA, TIM SA and Claro SA on the main terms related to the sale of the mobile telephony operation of Oi and its subsidiaries, the Company accepted, on this date, the revised binding proposal submitted jointly by the Proponents. According to the Binding Proposal, subject to certain conditions, the Bidders undertook to acquire UPI Ativos Móveis, in case they are the winners of a competitive process pursuant to Law No. 11.101/2005, for the amount of R \$ 16,500,000,000.00, of the of which R \$ 756,000,000.00 refers to transition services to be provided for up to 12 months by Oi to Proponents, plus the commitment to enter into long-term contracts for the provision of transmission capacity services with Oi, in the modality take or pay, whose net present value calculated for purposes and as provided for in the Amendment to the Judicial Recovery Plan, is R \$ 819 million.
08/Sep/2020 | Oi reported that the creditors of the Company and its subsidiaries, meeting at a regularly installed Creditors' General Meeting, approved the Amendment to the Reorganization's Judicial Recovery Plan.
16/Sep/2020 | Oi released the consolidated synthetic voting map for remote voting ballots, referring to the exercise of voting rights at the Extraordinary General Meeting of September 17, 2020.
17/Sep/2020 | Law Firm Arnoldo Wald released Oi's Monthly Judicial Reorganization Activities Report.
17/Sep/2020 | Oi informed about the term of non-installation of the extraordinary general meeting due to the absence of shareholders representing at least 2/3 (two thirds) of the capital with the right to vote at this meeting, a necessary quorum.
06/Oct/2020 | Oi informed that the Court of the 7th Corporate Court of the District of the Capital of the State of Rio de Janeiro ratified the Amendment to the Judicial Reorganization Plan of the Company and its subsidiaries undergoing judicial reorganization, approved at the General Meeting of Creditors held on September 8, 2020, having rejected all allegations of procedural nullities of AGC, dismissed the allegation of unequal treatment among creditors and rejected requests for nullity of the voting quorum and approval of the Addendum to the PRJ, as they did not contain defects in their formation and will. The decision also set a period of 12 months for closing the judicial recovery of the Recovering Parties, counted from the date of publication of the decision, which may be extended, if there is a need to finalize the acts related to the disposals of the assets provided for in the Amendment to the PRJ.
08/Oct/2020 | Oi informed about the second call of the Extraordinary General Meeting for October 16, 2020.
09/Oct/2020 | Oi informed about the launch of an Exit Incentive Plan, aiming to reduce approximately 2 thousand jobs, which can represent up to 15% of its workforce.
09/Oct/2020 | Oi reported that the risk rating agency Standard & Poors announced the review of the credit rating assigned to the Company, reducing the issuer's credit rating from "CC" to "SD" on a global scale and from "brCC" to 'SD' on a national scale. The 'CCC-' issue rating remains unchanged. The agency stressed that it does not attribute perspectives to the 'SD' or 'D' issuer credit ratings because they express a condition and not a prospective opinion of the probability of default.
14/Oct/2020 | Oi informed that it received a request submitted jointly by the shareholder Bratel S.À.R.L. (holder of representative shares¹ of 5.68% of the common shares and 5.53% of the share capital of Oi) and by Polo Capital Gestão de Recursos Ltda., as representative of the shareholders Polo Fundo de Investimento em Valores, Polo Norte Master Multimarket Investment Fund, Polo Long BIAS Multimarket Investment Fund and Macro Macro Multimarket Investment Fund (jointly holding representative shares of 0.36% of common shares and 0.35% of Oi's share capital), for adoption multiple voting process in the election of the members of the Board of Directors for a term of office until the Annual General Meeting that approves the financial statements for the fiscal year ended on December 31, 2020, to be resolved at the Extraordinary General Meeting of the Company.
16/Oct/2020 | Oi informed that the risk rating agency Standard & Poors announced the revision of the credit rating attributed to the Company, raising the issuer's credit rating from "SD" to "CCC +" on a global scale and from "SD" to "brBB" on a national scale with a stable outlook. Additionally, the issue rating was also raised from "CCC-" to "CCC +". The agency pointed out that the stable outlook reflects the view that Oi does not face liquidity pressure in the short term.
16/Oct/2020 | Oi disclosed the minutes of the extraordinary general meeting.
26/Nov/2020 | Oi informed that due to the presentation of the only closed proposal for the acquisition of UPI Torres, the Judicial Reorganization Court ratified Highline's proposal as the winner of the competitive procedure for the sale of UPI Torres, after the favorable manifestations of the Public Ministry of the State of Rio de Janeiro. Janeiro and the Judicial Administrator, in the amount of R \$ 1,066,902,827.00 to be paid in cash, as described in the Material Fact published on August 13, 2020, subject to the terms and conditions set forth in the respective binding proposal and in the respective Purchase Agreement and Sale of Shares set out in Attachment 5.3.9.2 of the Amendment to the PRJ.
26/Nov/2020 |Oi informed that due to the presentation of the only closed proposal for the acquisition of the UPI Data Center, the Judicial Reorganization Court ratified Titan's proposal as the winner of the competitive procedure for the sale of the UPI Data Center, after the favorable manifestations of the Public Prosecutor of the State of Rio de Janeiro and the Judicial Administrator, in the amount of R \$ 325,000,000.00 to be paid as follows: (i) a cash installment in the amount of R \$ 250,000,000.00; and (ii) the remaining amount of R \$ 75,000,000.00 in installments to be paid in the form and term provided for in the respective binding proposal and in the respective Share Purchase and Sale Agreement set out in Attachment 5.3.9.3 of the Amendment to the PRJ.
27/Nov/2020 |Oi informed that it entered into jointly with Telemar Norte Leste SA - In Judicial Recovery ("Telemar") and with OI Móvel SA - In Judicial Recovery ("Oi Móvel"), on the one hand, and the National Telecommunications Agency ("Anatel "), On the other hand, represented, in the said act, in the form of the Law, by the Attorney General's Office - AGU, Transaction Instrument on Oi Group's non-tax debts with Anatel, registered in Active Debt until the date of execution of the Transaction Instrument, in the total amount of R \$ 14,333,922,589.20, pursuant to Law No. 13,988 / 2020, including all applicable fines, charges and interest on late payments. Subject to the terms of the Transaction Instrument entered into, Anatel was granted by Grupo Oi, irrevocably and irreversibly, a 50% discount on the value of each of the consolidated debts, respecting, in accordance with the law, the discount to the value of the principal due so that the total debt to be paid by the Oi Group is R \$ 7,205,518,845.30, updated for the month of November 2020, in 84 months. The signed Transaction Instrument also establishes that the 32 initial installments will be settled through the conversion into income, in favor of the Federal Government, of judicial deposits made by the Company and linked to the guarantee for the debts transacted, maintaining the bank guarantees presented by the Company in the lawsuits, still in force, for the agreed term. The Transaction Instrument entered into complies with the provisions of Clause 4.3.4 of the Company's original Judicial Reorganization Plan - PRJ, with the adjustments provided for in Clause 6.5 of the Amendment to the Judicial Reorganization Plan, both approved by the Creditors at the Creditors' General Meeting.
07/Dec/2020 | Oi informed that, in line with the implementation of its Strategic Transformation Plan and following the commitment established when calling for its Extraordinary General Meeting, its management signed a contract with the consultancy Egon Zehnder to start an evaluation process of its Board of Directors.
14/Dec/2020 |Oi informed that the Company, Telemar Norte Leste SA - In Judicial Recovery and Oi Móvel SA - In Judicial Recovery, entered into, on December 11, 2020, with Titan Venture Capital e Investimentos Ltda., The Purchase and Sale Agreement of Actions through UPI and Other Covenants, with the purpose of selling the UPI Data Center to Titan, winner of the competitive procedure carried out on November 26, 2020, in accordance with the Amendment to the Judicial Recovery Plan approved by the Court of the 7th Corporate Court of the District of the Capital of the State of Rio de Janeiro on October 5, 2020. Upon completion of the Transaction, Titan will pay for the acquisition of the UPI Data Center in the amount of R \$ 325,000,000.00, as follows: (i) a portion to cash in the amount of R \$ 250,000,000.00; and (ii) the remaining amount, of R \$ 75,000,000.00, in installments to be paid in the form and term provided for in the Contract.
14/Dec/2020 | Oi informed that due to the presentation of the only closed proposal for the acquisition of UPI Ativos Móveis, the Judicial Reorganization Court ratified the Proposers' proposal as the winner of the competitive procedure for the sale of UPI Ativos Móveis, after the favorable manifestations of the Public Ministry of the State of Rio de Janeiro and the Judicial Administrator, in the amount of R \$ 16.5 billion, of which R \$ 756 million refer to transition services to be provided for up to 12 months by Oi to Proponents, plus the commitment to enter into long-term provision of transmission capacity services to Oi, in the take or pay modality, whose net present value (NPV), calculated for purposes and as provided for in the Amendment to the PRJ, is R \$ 819 million, values that will be paid in cash, subject to the terms and conditions provided for in the respective binding proposal and in the respective Share Purchase and Sale Agreement set out in Annex 5.3.9.1 of the Amendment to the RP J.
22/Dec/2020 | Oi released the presentation of APIMEC 2020.
24/Dec/2020 | Oi informed that the Company, Telemar Norte Leste SA - In Judicial Reorganization and Oi Móvel SA - In Judicial Reorganization signed, on this date, with the Highline, the Share Purchase and Sale Agreement through UPI and Other Covenants, with the purpose of object of the sale of UPI Torres to Highline, whose proposal of R \$ 1,066,902,827.00, subject to price adjustments under the Contract, was the winner of the competitive procedure carried out on November 26, 2020, in accordance with the Amendment to the Plan of Judicial Recovery approved by the Court of the 7th Business Court of the District of the Capital of the State of Rio de Janeiro on October 5, 2020.
15/Jan/2021 | Oi informed that the Company's Annual Shareholders' Meeting will be held on April 30, 2021.
25/Jan/2021 | Oi informed that it received, on January 22, 2021, binding proposals from third parties for the partial acquisition of UPI InfraCo, all above the minimum amount defined in the Amendment to the PRJ.
29/Jan/2021 | Oi informed that, together with Telefônica Brasil S.A., TIM S.A. and Claro S.A, the Contract for the Purchase and Sale of Shares and Other Covenants, which has as its object the sale of the SPEs Mobile Assets to the Buyers. The Agreement provides for the payment by Buyers of R \$ 16.5 billion, of which R \$ 756 million refer to transition services to be provided by Oi to Buyers for up to 12 months, as well as the execution of a long-term contract. provision of transmission capacity services to Oi and some of its subsidiaries, in the take or pay modality, whose net present value (NPV), calculated for purposes and as provided for in the PRJ Amendment, is R \$ 819 million. The effective conclusion of the Transaction, with the transfer of the shares of the Mobile Active SPEs to the Buyers is subject to the approval of CADE and the prior consent of Anatel, as well as compliance with the usual precedent conditions for operations of this nature, provided for in the Contract.
04/Feb/2021 | Oi informed that, in view of the conditions of the binding offer for the partial acquisition of UPI InfraCo presented jointly by Globenet Cabos Submarinos SA, BTG Pactual Economia Real Investment Fund in Multi-Strategy Participations and other investment funds managed or controlled by companies that are members of the BTG Group , entered into, on this date, an Exclusivity Agreement with the Bidders, for a limited period of time, with the objective of negotiating exclusively with the Bidders the terms and conditions, as well as the documents and attachments related to the Offer. The Agreement aims to guarantee security and speed to the negotiations in progress between the parties and to allow that, if the negotiations of conditions and documents between the parties are satisfactorily concluded, Oi will be able to guarantee to the Proponents the right to cover ("right to top" ) other proposals received in the competitive process of disposal of UPI InfraCo. The Agreement is effective until March 6, 2021 and will be automatically renewed for a further period of 30 (thirty) days, unless there is a manifestation to the contrary by either party.
18/Feb/2021 | Oi informed that its indirect subsidiary Brasil Telecom Comunicação Multimídia SA, chosen to be used as SPE InfraCo in the context of the competitive process of partial disposal of UPI InfraCo, pursuant to the Amendment to the Judicial Reorganization Plan, signed, on this date, the deed of issue of debentures convertible into shares, of the type with real guarantee, for private placement, of the 1st issue of BTCM, in the total amount of up to R \$ 2,500,000,000.00. The subscription of the Debentures will be led by Brookfield Asset Management and will include the participation of Farallon Latin America Investimentos and Prisma Capital.
05/Mar/2021 | Oi informed that the Exclusivity Agreement signed with Globenet Cabos Submarinos SA, BTG Pactual Economia Real Investment Fund in Multi-Strategy Participations and other investment funds managed or controlled by companies that are members of the BTG Group and effective until March 6, 2021, will be automatically renewed for an additional and final period of 30 days, effective until April 5, 2021.
The risk factors and events described below may eventually adversely or significantly affect PHAROL's financial position and, consequently, cause a decrease or increase in the market price of common shares.
| Macro Risk |
Sub-Risk | Risk Factors |
|---|---|---|
| Now with Oi in day-to-day management (although still formally in | ||
| Judicial Reorganization) and in the implementation of its Strategic | ||
| Plan, the main risk that PHAROL is subject to through Oi is Oi's | ||
| financial and operational performance, namely from its ability to | ||
| Oi's Performance | execution of the asset sale plan and to generate results and cash | |
| flow and to pay dividends. Consequently, PHAROL's performance | ||
| through Oi is also subject to and dependent on the performance | ||
| Economic | of the Brazilian economy. | |
| Risks | ||
| PHAROL is subject to the potential economic shocks that a | ||
| COVID-19 | pandemic can cause in the economies in which society operates | |
| and may have a direct effect on the market value of the assets in | ||
| which PHAROL has a stake. | ||
| Information Security | PHAROL is exposed on a daily basis to security risks, including the | |
| availability, integrity and confidentiality of the information. | ||
| Foreign currency exchange rate risks relate mainly to PHAROL's | ||
| investment in Oi (Brazil). Any exchange rate fluctuations of the | ||
| Real against the Euro affect the valorization of Oi shares held by | ||
| Exchange Rates | PHAROL, and therefore impact PHAROL's results and financial | |
| position. | ||
| The society does not have a policy to cover the value of the | ||
| Financial | financial investment. | |
| Risks | Interest rate risks basically relate to financial expenses and the | |
| floating interest rate debt and cash applications. PHAROL is | ||
| indirectly exposed to this risk specially in Brazil. It should be | ||
| Interest Rate | noted that PHAROL has no bank debt as of December 31, | |
| 2020.Market interest rates also affect the discount rates used for | ||
| impairment testing to the various assets of the company. | ||
| PHAROL is mainly subject to credit risks in its treasury | ||
| applications. In order to dilute these risks, in July 2014 the Board | ||
| Treasury Applications | of Directors defined a policy for treasury applications and this | |
| policy has reviewed in 2019. | ||
| Default by Rio Forte as to the reimbursement of the instruments that PHAROL holds following the execution of the Exchange |
The Rio Forte Instruments currently held by PHAROL, are not guaranteed by assets. Therefore, even though there may exist amounts available for reimbursement to Rio Forte's creditors the right to reimbursement of PHAROL will be shared pro rata with the other unsecured creditors of Rio Forte and only after the repayment of all debts to any secured creditors, and after confirmation of the validity of the credits. PHAROL evaluates this instrument every year, with the supervision of the Fiscal Council and External Audit |
|
|---|---|---|
| Legal Risks |
Court proceedings | PHAROL may incur in liabilities in connection with litigation or other future proceedings and incur in defense costs in such litigation or other proceedings. Any liability incurred could adversely affect PHAROL's financial situation. In accordance with the agreements with Oi, Oi is responsible for |
| Tax contingencies | the payment of all contingencies until May 5, 2014 and PHAROL remains and severally liable for these contingencies. |
As at December 31, 2020, qualified holdings represented 19.56% of PHAROL share capital, as follows:
| DATE OF INFORMATION |
ENTITIES | NO. OF SHARES |
% OF CAPITAL |
% OF VOTING RIGHTS |
|---|---|---|---|---|
| 31/05/2012 | Telemar Norte Leste S.A. | 89,651,205 | 10.00% | 10.00% |
| Telemar's sole shareholder is OI S.A | ||||
| Total attributable | 89,651,205 | 10.00% | 10.00% | |
| 02/04/2018 | Novo Banco S.A. | 85,665,125 | 9.56% | 9.56% |
| Directly | 85,665,125 | |||
| Shares held by companies in a controlling or group relationship with Novo Banco, S.A. |
916 | |||
| Shares held by directors and members of the Corporate Bodies |
595 | |||
| Total attributable | 85,666,636 | 9.56% | 9.56% |
Under the terms of article 9, number 1 c), of Regulation number 5/2008 of CMVM, the following information is presented with respect to the qualified holdings held by the board members and supervisory bodies in PHAROL's share capital, which the company was informed about regarding December 31, 2020 or the previous date, as indicated:
• Pedro Zañartu Gubert Morais Leitão does not own any securities of PHAROL or any other companies that are in a control or group relationship. He was appointed for the Board of Directors of PHAROL on May 29, 2015.
The fiscal council does not own any shares of PHAROL.
The managing-director Luís Maria Viana Palha da Silva is also member of the Board of Directors.
The Statutory Auditor does not own any shares of PHAROL.
Pharol remains focused on its main objective: to maximize shareholder value. To this end, our strategy is essentially based on 3 pillars: 1) maximizing the value of its assets; 2) Cost rationalization; and 3) Mitigation of risks and contingencies.
With regard to maximizing the value of its investments, and, in its most relevant stake, the Brazilian telecommunications company Oi, Pharol is on December 31, 2020 the 2nd largest shareholder with a 5.37% stake. In this participation, Pharol has tried to contribute constructively to the recovery and growth of the company, having managed to recover in 2020 the presence in Oi's management, thus being able to monitor its main asset more closely. In the same year, the company presented an excellent performance in terms of market indicators, with its price (OiBR3) ending the year at R \$ 2.2 per share, which represented an increase of 153% in the year, and is a confirmation of market acceptance of the strategy implemented by the new executive team.
At Rio Forte, there is still a certain procedural apathy, and in Luxembourg there were no significant developments in the legal processes in which Pharol is involved: the list of creditors accepted by the insolvency administrators of the company remains unpublished and some court decisions and expert work have been delayed considerably. In Portugal, already in the second half of 2020, it became known that Rio Forte was accused in the case of Espírito Santo universe, and the consequences that this may have on the course of the bankruptcy process in Luxembourg are not yet clear. It is thus clear that this is a highly complex and slow process, with no time limit in sight.
Regarding the other lawsuits and disputes, during the year 2020, Pharol saw the Court of Appeal, fully annul the payment of the fine that had been imposed by the CMVM, having, however, maintained the penalty applied to former administrators. This decision further reinforced the confidence in the success that the Board of Directors believes it has in partially recovering the damages caused by the Former Directors and Auditor to Pharol.
In view of the slowness and complexity of the processes for recovering the value of assets, largely dictated by the procedural intricacies in which they are involved (Judicial Recovery at Oi and the liquidation of Rio Forte on several jurisdictional fronts), the Pharol Board of Directors has coming to focus on the advantages of a strategic diversification of its portfolio, based on its competences as manager of participations and leveraged by fiscal efficiency in investment. With this diversification, the Company believes that it can maximize and enhance existing synergies with the capacity already installed at Pharol.
In terms of operational control and cost rationalization, in this fiscal year 2020, due to the pandemic, extraordinary steps were taken in cost management and rationalization, and it was possible to achieve, in the operational chapter, a reduction of 27% compared to the same period. 2019.
Affected in its routines by the pandemic Covid-19, Pharol maintained throughout the year all its activities without loss of quality and complying with plans and timetables, although, by virtue of the respect of the sanitary and legal norms in force, it adapted the regimes of work of its Employees, promoting teleworking, distance and rotation, whenever possible and necessary.
In view of the extended timetable that the current circumstances in the different processes foresee, the policy of keeping in treasury the resources indispensable for the operation of the company in the coming years was also pursued.
For the purposes of article 245 of the Portuguese Securities Code, the members of the Board of Directors of PHAROL, SGPS S.A., identified hereunder, hereby declare, in their capacity and within their functions as described therein, that, as far as they are aware, and based on information that they have had access to, through the Board of Directors and/or Executive Committee, as applicable, while in office:
Lisbon, March 15, 2021
Luís Maria Viana Palha da Silva, Chairman of the Board of Directors and Managing Director
Avelino Cândido Rodrigues, Board Member
Jorge Telmo Maria Freire Cardoso, Board Member
Maria do Rosário Amado Pinto Correia, Board Member
Maria Leonor Martins Ribeiro Modesto, Board Member
Pedro Zañartu Gubert Morais Leitão, Board Member
According to its Regulations, PHAROL's Board of Directors has restated the commitment to provide its Non-Executive members with effective powers to monitor, evaluate and supervise the executive management of the Company.
During 2020, PHAROL's Non-Executive Directors could carry out their duties effectively and without constraints of any kind. In this context, the following activities are highlighted:
On December 31, 2020, PHAROL's Board includes 4 independent directors corresponding to 80% of the Non-Executive directors and more than 66,7% of the Board members, with an active and assiduous participation in the Board meetings.
Additionally, the concentration of the Chairman / Managing Director roles has not prejudiced in any way the effective performance of the functions of the Non-Executive Directors, being particularly adequate to the current stage of PHAROL's life, for the following reasons:
• The Non-Executive Directors frequently attending the meetings of the Board of Directors, which were held in a significant number (12 meetings), as well as informal meetings and presentations with Non-Executive Directors intended to clarify and debate specific issues concerning the financial information and the business of the Company.
In addition to these activities, it is important to note that, having the Company opted for the classic corporate governance model, its supervisory body is a Fiscal Council which, in the performance of their legal and regulatory duties, as well as those laid down in the articles of association, as described in the Company's Corporate Governance Report, presents the result of its activities in autonomous reports and opinions, including the report of supervisory activity and the opinions on the individual and consolidated annual reports, to be issued each year.
CONSOLIDATED FINANCIAL STATEMENTS
| Euro | |||
|---|---|---|---|
| Notes | 2020 | 2019 | |
| COSTS, LOSSES AND (INCOME) | |||
| Wages and salaries | 6 | 1,451,771 | 1,572,023 |
| Supplies, external services and other expenses | 7 | 1,369,916 | 2,312,077 |
| Indirect taxes | 8 | 175,156 | 353,795 |
| Depreciation | 102,504 | 111,476 | |
| Net other losses (gains) | 23,083 | (12,581,664) | |
| 3,122,430 | (8,232,294) | ||
| Income (loss) before financial results and taxes | (3,122,430) | 8,232,294 | |
| FINANCIAL LOSSES AND (GAINS) | |||
| Net interest income | 9 | (1,246) | (10,840) |
| Net foreign currency exchange losses | 26,154 | (4,637) | |
| Net losses on other non-current assets | 14 | 11,116,693 | 11,617,900 |
| Net losses on financial assets | 13 | - | (36,812,568) |
| Net other financial expenses | 21,739 | 43,217 | |
| 11,163,341 | (25,166,928) | ||
| Income (loss) before taxes | (14,285,771) | 33,399,223 | |
| Income taxes | 10 | 30,145 | 12,655,388 |
| NET INCOME | (14,315,915) | 20,743,834 | |
| Attributable to equity holders of the parent | (14,315,915) | 20,743,834 | |
| Earnings per share | |||
| Basic and Diluted | 11 | (0.02) | 0.02 |
| Euro | ||
|---|---|---|
| Notes | 2020 | 2019 |
| (14,315,915) | 20,743,834 | |
| 11,134 | ||
| (33,290,229) | ||
| 51,173,110 | (33,279,095) | |
| 36,857,195 | (12,535,261) | |
| 36,857,195 | (12,535,261) | |
| 3,073 51,170,037 |
| Euro | |||
|---|---|---|---|
| Notes | 2020 | 2019 | |
| ASSETS | |||
| Current Assets | |||
| Cash and cash equivalents | 19 | 20,729,910 | 17,948,653 |
| Accounts receivable | 138,017 | 140,500 | |
| Taxes receivable | 38,144 | 53,836 | |
| Prepaid expenses | 72,032 | 13,850 | |
| Total current assets | 20,978,103 | 18,156,839 | |
| Non-Current Assets | |||
| Tangible assets | 193,957 | 309,388 | |
| Financials assets | 13 | 110,255,384 | 62,625,391 |
| Other non-current assets | 14 | 51,905,456 | 63,022,881 |
| Total non-current assets | 162,354,798 | 125,957,661 | |
| Total assets | 183,332,900 | 144,114,500 | |
| LIABILITIES | |||
| Current Liabilities | |||
| Accounts payable | 15 | 334,283 | 173,598 |
| Accrued expenses | 16 | 896,867 | 809,587 |
| Taxes payable | 132,597 | 220,924 | |
| Other current liabilities | 17 | 16,406,713 | 11,100,627 |
| Total current liabilities | 17,770,460 | 12,304,737 | |
| Non-Current Liabilities | |||
| Medium and long-term debt | 189,847 | 263,427 | |
| Total non-current liabilities | 189,847 | 263,427 | |
| Total liabilities | 17,960,307 | 12,568,164 | |
| SHAREHOLDERS' EQUITY | |||
| Share capital | 18 | 26,895,375 | 26,895,375 |
| Treasury shares | 18 | (184,873,844) | (181,842,907) |
| Legal reserve | 18 | 6,773,139 | 6,773,139 |
| Reserve for treasury shares | 18 | 191,844,164 | 188,813,227 |
| Other reserves and accumulated earnings | 18 | 124,733,759 | 90,907,501 |
| Total equity | 165,372,593 | 131,546,335 | |
| Total liabilities and shareholders' equity | 183,332,900 | 144,114,500 |
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY PERIODS ENDED DECEMBER 31, 2020 AND 2019
| Euro | |||||||
|---|---|---|---|---|---|---|---|
| Other reserves | |||||||
| and | |||||||
| Share | Treasury | Legal | Reserve for | accumulated | Equity excluding non | Total | |
| capital | shares | reserve | treasury shares | earnings | controlling interests | equity | |
| Balance as at December 31, 2018 | 26,895,375 | (179,675,995) | 6,773,139 | 186,646,315 | 105,609,675 | 146,248,509 | 146,248,509 |
| Acquisition of own shares | - | (2,166,912) | - | 2,166,912 | (2,166,912) | (2,166,912) | (2,166,912) |
| Income (expenses) recognized directly in equity | - | - | - | - | (33,279,095) | (33,279,095) | (33,279,095) |
| Income recognized in the income statement | - | - | - | - | 20,743,834 | 20,743,834 | 20,743,834 |
| Balance as at December 31, 2019 | 26,895,375 | (181,842,907) | 6,773,139 | 188,813,227 | 90,907,501 | 131,546,335 | 131,546,335 |
| Balance as at December 31, 2018 | 26,895,375 | (181,842,907) | 6,773,139 | 188,813,227 | 90,907,501 | 131,546,335 | 131,546,335 |
| Acquisition of own shares | - | (3,030,937) | - | 3,030,937 | (3,030,937) | (3,030,937) | (3,030,937) |
| Income (expenses) recognized directly in equity | - | - | - | - | 51,173,110 | 51,173,110 | 51,173,110 |
| Income recognized in the income statement | - | - | - | - | (14,315,915) | (14,315,915) | (14,315,915) |
| Balance as at December 31, 2020 | 26,895,375 | (184,873,844) | 6,773,139 | 191,844,164 | 124,733,759 | 165,372,593 | 165,372,593 |
| Euro | |||
|---|---|---|---|
| Notes | 2020 | 1S19 | |
| OPERATING ACTIVITIES | |||
| Payments to suppliers | 19.a | (1,451,730) | (3,123,439) |
| Payments to employees | (1,342,528) | (1,667,360) | |
| Payments relating to income taxes | (111,202) | (56,006) | |
| Other cash receipts, net | 19.b | 5,236,031 | (473,229) |
| Cash flows from operating activities (1) | 2,330,570 | (5,320,034) | |
| INVESTING ACTIVITIES | |||
| Cash receipts resulting from: | |||
| Tangible and intangible assets | - | 8,000 | |
| Interest and related income | 1,246 | 7,508 | |
| Capital gains and other equity instruments | 19.c | 3,495,076 | - |
| 3,496,323 | 15,508 | ||
| Payments resulting from: | |||
| Financial investments | - | (12,610,973) | |
| Tangible and intangible assets | (1,815) | (48,130) | |
| (1,815) | (12,659,103) | ||
| Cash flows from investing activities (2) | 3,494,508 | (12,643,595) | |
| FINANCING ACTIVITIES | |||
| Payments resulting from: | |||
| Loans repaid | (10,040) | (22,412) | |
| Interest and related expenses | (3,758) | (4,740) | |
| Purchase of own shares | 19.d | (3,031,244) | (2,166,912) |
| (3,045,042) | (2,194,064) | ||
| Cash flows from financing activities (3) | (3,045,042) | (2,194,064) | |
| Cash and cash equivalents at the beginning of the period | 17,948,653 | 38,090,992 | |
| Change in cash and cash equivalents (4)=(1)+(2)+(3) | 2,780,037 | (20,157,693) | |
| Effect of exchange differences | 1,221 | 15,354 | |
| Cash and cash equivalents at the end of the period | 19.e | 20,729,910 | 17,948,653 |
(Amounts stated in Euros, except where otherwise mentioned)
On December 31, 2020, PHAROL now holds, indirectly through wholly owned subsidiaries, 319,414,859 common shares of Oi, S.A. ("Oi"), representing 5,37% of the total share capital of Oi (excluding treasury shares).
Based on the agreements concluded on March 30, 2015 between PHAROL and Oi, PHAROL currently holds Rio Forte debt securities with a nominal value of Euro 897 million and a Call Option for shares of Oi. On March 30, 2020, once part of the call option reached maturity, PHAROL holds the call option on 8,538,276.96 common shares and 17,076,553.92 preferred shares of Oi.
The consolidated financial statements for the financial year ending on December 31, 2020 were approved by the Board of Directors and authorized for issue on March 15, 2021, but still subject to approval at the Shareholders' General Meeting, pursuant to applicable legislation.
The consolidated financial statements are presented in Euros since this is the operating currency of PHAROL. The financial statements of the investing companies given in foreign currency were converted to Euros according to the accounting policies described in Note 3.
The PHAROL consolidated financial statements were prepared according to the International Financial Reporting Standards ("IFRS") as adopted by the European Union, including all interpretations of the International Financial Reporting Interpretation Committee ("IFRIC") that were in effect on January 1, 2020, approved for adoption by the European Union (EU).
The consolidated financial statements were prepared on the assumption of continuity of operations.
In the preparation of the consolidated financial statements in compliance with IFRS, the Board of Directors adopted certain assumptions and estimates that affect the reported assets and liabilities, as well as income and costs relating to the reported periods (Note 3).
PHAROL fully consolidated the financial statements of all controlled companies. A company is considered to be controlled when the Group is exposed, or has rights, to variable returns resulting from its involvement with the investee and has the ability to affect those returns through the same power it exercises over that company. In situations where the Group has, in substance, control of other entities established for a specific purpose, even if it does not possess a majority of the voting rights, they are consolidated using the full consolidation method.
When there is a participation of third parties in the equity and net income of the consolidated companies is presented separately in the Consolidated Statement of Financial Position and the Consolidated Income Statement, respectively, in the "Non-controlling Interests" caption.
The assets, liabilities and contingent liabilities of a subsidiary are measured at their respective fair value at the acquisition date. Any excess of the cost of acquisition over the fair value of identifiable net assets is recorded as goodwill. In cases when the cost of acquisition is less than the fair value of identifiable net assets, the difference is recorded as a gain in the consolidated statement of results for the year. The interests of non-controlling shareholders are presented by the respective proportion of the fair value of identifiable assets and liabilities.
The results of subsidiaries acquired or sold during the period are included in the Consolidated Income Statement from the date of acquisition or up to the effective date of disposal, respectively.
Transactions and balances between subsidiaries are eliminated on consolidation. Capital gains arising from transactions between Group companies are also eliminated in the consolidation process.
Where necessary, adjustments are made to the financial statements of subsidiaries with a view to standardizing their accounting policies with the Group.
The PHAROL Group consists of the following companies:
| dec/20 | dec/19 | |||||
|---|---|---|---|---|---|---|
| Type of | ||||||
| Company | Head office | Company | Activity | Direct | Effective | Effective |
| Bratel BV | Amsterdam | Subsidiaries | Management of investments | Pharol SGPS (100%) | 100% | 100% |
| PT Brasil | São Paulo | Subsidiaries | Management of investments | Bratel BV (100%) | 100% | 100% |
| Bratel S.a.r.l. | Luxembourg | Subsidiaries | Management of investments | Bratel BV (100%) | 100% | 100% |
In addition, it should be noted that PHAROL as of December 31, 2020 and 2019 held an indirect interest through its subsidiary Bratel S.a.r.l. in the capital of Oi of 5.37% and 5,51% (excluding treasury shares ), respectively.
Assets realizable up to one year from the date of the Consolidated Statement of Financial Position are classified as current. Liabilities are also classified as current when they are due in less than one year or when there is no unconditional right to defer their liquidation for a period of at least 12 months after the date of the Consolidated Statement of Financial Position.
Tangible assets are stated at acquisition cost, net of accumulated depreciation, investment subsidies and accumulated impairment losses, if any. Acquisition cost includes: (1) the amount paid to acquire the asset; (2) direct expenses related to the acquisition process; and (3) the estimated cost of dismantling or removal of the assets.
They are depreciated on a straight-line basis from the month they are available for use, during its expected useful life. The amortization period of tangible assets is monitored annually and adjusted whenever necessary to reflect its economic useful life. The amount of the asset to be depreciated is reduced by any residual estimated value. The depreciation rates used correspond to the following estimated average economic useful lives:
| Years | |
|---|---|
| Buildings and other constructions | 3 - 50 |
| Transportation equipment | 4 - 8 |
| Tools | 4 - 8 |
| Administrative equipment | 3 - 10 |
| Other tangible fixed assets | 4 - 8 |
Estimated losses resulting from the replacement of equipment before the end of their economic useful lives are recognized as a deduction to the corresponding asset's carrying value, against results of the period, as well as any impairment of these assets. The cost of recurring maintenance and repairs is charged to net income as incurred. Costs associated with significant renewals and betterments are capitalized if any future economic benefits are expected and those benefits can be reliably measured.
The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the assets, and is recognized in the Consolidated Income Statement under the caption "Gains on disposals of fixed assets, net" when occurred.
When existing, intangible assets are stated at acquisition cost, net of accumulated amortization and accumulated impairment losses, if any. Intangible assets are recognized only if any future economic benefits are expected and those benefits as well as the cost of the asset can be reliably measured.
The Group performs impairment tests for these assets if any event or change results in an indication of impairment. In case of any such indication, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss.
Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. The recoverable amount is the higher of i) fair value less cost to sell, and ii) the value in use. In assessing fair value less cost to sell, the amount that could be received from an independent entity is considered, reduced by direct costs related to the sale. In assessing the value in use, the estimated future cash flows are discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the specific risk to the asset.
If the recoverable amount of an asset is estimated to be less than its carrying amount, an impairment loss is recognized immediately in the Consolidated Income Statement.
Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset in prior periods. A reversal of an impairment loss is recognized immediately in net income.
Provisions are recognized when the Group has a present obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where any of the above-mentioned criteria does not exist, or is not accomplished, the Group discloses the event as a contingent liability, unless the cash outflow is remote.
Provisions for restructuring are only recognized if a detailed and formal plan exists and if the plan is communicated to the related parties.
Provisions are updated on the date of the Consolidated Statement of Financial Position, considering the best estimate of the Group's management.
Obligations for dismantling and removal costs are recognized from the month the assets are in use and if a reliable estimate of the obligation is possible (Notes 3.b). The amount of the obligation is discounted, being the corresponding effect of time value recognized in net income, under the caption "Net interest expense".
Financial assets and liabilities are recognized in the Consolidated Statement of Financial Position when the Group becomes a party of the respective contractual relationship.
Accounts receivable, loans granted and other accounts receivable that have fixed or defined payments and that are not quoted in an active market are classified as accounts receivable or loans granted.
Accounts receivable do not have implicit interest, are presented at the respective nominal value deducted from estimated losses in yield, calculated essentially based (a) on the age of the balance receivable and (b) on the credit profile of the specific debtor.
The investment in Oi's shares (5.37% on December 31, 2020 and 5.51% on December 31, 2018) is measured at fair value through other comprehensive income, with gains and losses arising from changes in fair value recognized directly in other comprehensive income, in accordance with IFRS9.
Investments in debt securities issued by Rio Forte are measured by the best estimate of their fair value at each reporting date, with changes in fair value being recognized in the income statement.
Financial liabilities and equity instruments issued by the Group are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all its liabilities.
Equity instruments issued by the Group are recognized based on their proceeds, net of any issuance costs.
Trade payables are recognized at nominal value, which is substantially similar to their fair value.
Treasury shares are recognized as a deduction to shareholders' equity, under the caption "Treasury shares", at acquisition cost, and gains or losses obtained in the disposal of those shares are recorded under "Accumulated earnings".
The amounts included under "Cash and Cash Equivalents" correspond to the cash values, bank deposits, terms deposits and others, maturing in three months or less and that may be immediately callable with insignificant risk of change in value. The heading "Cash and Cash Equivalents" also includes deposits from clients and other entities that were not yet compensated. For the purposes of the Consolidated Cash Flow Statement, the heading "Cash and Cash Equivalents" also includes bank overdrafts included on the Consolidated Statement of Financial Standing under the heading "Short-Term Debt", where applicable.
The Company recognizes a right to use an asset and a lease liability on the start date of the lease. The right to use the asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made on or before the start date, in addition to any initial direct costs incurred, as well as an estimate of dismantling and removal costs of the underlying asset (if applicable), less any incentives granted.
The liability of the lease is initially recognized at the present value of the rent not yet paid at the date of the lease, discounting the interest at an interest rate implicit in the lease, or in the event that it is not possible to determine this rate easily, using the rate incremental interest rate. In general, the Company uses its incremental interest rate as the discount rate to be applied.
Lease payments included in the measurement of the lease liability include the following:
• payment of penalties for terminating the contract, if it is reasonably certain that the lessee cancels the contract.
Liability for leases is remeasured when there are changes in future payments arising from a change in the rate or index or rate, if there is a change in the Company's estimate of the amount that must be paid under a residual value guarantee, or if the Company changes your assessment of the purchase option, its extension or termination.
When the liability for leases is remeasured, the value of the right to use is also adjusted, or a profit or loss is recorded in the income statement, if the carrying amount of the right of use asset was already reduced to zero.
The Group presents the rights to use assets and liabilities for leases in items duly segregated in the consolidated statement of financial position.
The Company does not recognize as asset use rights or lease liability, lease agreements of less than 12 months or low value lease. The Company recognizes the expenses associated with these leases, as an exercise cost during the life of the contracts.
The right to use the asset is depreciated using the straight-line method, based on the lowest of the useful life of the asset's right to use or the end of the lease term. The estimated useful life of the right-of-use assets is determined on the same basis as for the remaining tangible assets.
The right to use the asset is periodically reduced by impairment losses, and adjusted for certain variations in the obligation for leases associated with the asset.
The calculation of residual values of assets, estimated useful lives and discount rates are based on premises of lease agreements (or similar assets) and are defined based on Management's judgment, as well as the best practices in use by the sector.
Income tax for the period is recognized in accordance with IAS 12 Income Taxes ("IAS 12") and is comprised of current tax and deferred tax.
Within income tax for the period, in addition to current tax, the effect of the deferred tax is also recognized, calculated based on the difference between the carrying amount of the assets and liabilities at a given time and the corresponding amount for tax purposes.
Deferred tax liabilities are generally recognized for all taxable temporary differences and deferred tax assets are only recognized when there is reasonable assurance that they may be used to reduce future taxable profit, or when there is an offset with deferred tax liabilities that are expected to reverse in the same period. Deferred tax assets are reviewed at the date of the Consolidated Statement of Financial Position and are reduced when it is no longer probable that they will be used in the future.
Tax amounts, either in respect of current or deferred tax, resulting from transactions or events recognized directly in shareholders' equity are recorded directly in those captions. The impact of changes in the tax rate is recognized in net income, except when it relates to items recognized directly in shareholders' equity, in which case the impact is also recognized directly in shareholders' equity.
Transactions denominated in foreign currencies are translated to the Euro at the exchange rates prevailing at the time the transactions are made. At the date of the Consolidated Statement of Financial Position, assets and liabilities denominated in foreign currencies are adjusted to reflect the exchange rates prevailing at such date. The resulting gains or losses on foreign exchange transactions are recognized in net income. Exchange differences on non-monetary items, including goodwill, and on monetary items representing an extension of the related investment and where settlement is not expected in the foreseeable future, are recognized directly in shareholders' equity under the caption "Cumulative foreign currency translation adjustments", and included in the Consolidated Statement of Comprehensive Income.
The financial statements of subsidiaries operating in other countries are translated to Euro, using the following exchange rates:
• Assets and liabilities at the exchange rates prevailing at the date of the Consolidated Statement of Financial Position;
• Profit and loss items at the average exchange rates for the reported period;
• Cash flow items at the average exchange rates for the reported period, where these rates approximate the effective exchange rates (and in the remaining cases, at the rate effective on the day the transaction occurred); and
• Share capital, reserves and retained earnings at historical exchange rates.
The effect of translation differences is recognized in shareholders' equity under the caption "Cumulative foreign currency translation adjustments" and is included in the Consolidated Statement of Comprehensive Income. In accordance with IAS 21, when a reduction of PHAROL's investment in a foreign entity occurs, through the sale or reimbursement of share capital, the accumulated effect of translation differences is transferred to the Consolidated Income Statement, considering the proportion of the reduction occurred.
PHAROL choose to use the exception under IFRS 1 relating to cumulative translation adjustments as of January 1, 2004 and transferred this amount from "Foreign currency translation adjustments" to "Accumulated earnings". As from January 1, 2004, the Group has been recognizing all translation adjustments directly in shareholders' equity and therefore these amounts are transferred to net income only if and when the related investments are disposed off or there is a repayment of the investment made.
Borrowing costs that are directly attributable to the acquisition, construction or production of an asset that qualifies as part of the cost of that asset are capitalized. Other borrowing costs obtained are recognized as an expense in the period in which they are incurred in accordance with the accrual principle and in accordance with the effective interest rate method.
The Consolidated Statement of Cash Flows is prepared under IAS 7, using the direct method. PHAROL classifies as "Cash and cash equivalents" all highly liquid investments, with original maturity of up to three months and an insignificant risk of change in fair value. The "Cash and cash equivalents" item presented in the Consolidated Statement of Cash Flows also includes overdrafts, classified in the Consolidated Statement of Financial Position under "Short-term debt".
Cash flows are classified in the Consolidated Statement of Cash Flows according to three main categories, depending on their nature: (1) operating activities; (2) investing activities; and (3) financing activities. Cash flows from operating activities include primarily collections from clients, payments to suppliers, payments to employees, payments relating to post retirement benefits and net payments relating to income taxes and indirect taxes. Cash flows from investing activities include primarily acquisitions and disposals of financial investments, dividends received from associated companies and purchase and sale of property, plant and equipment. Cash flows from financing activities include primarily borrowings and repayments of debt, payments relating to interest and related expenses, acquisition of treasury shares and payments of dividends to shareholders.
Events occurring after the date of the Consolidated Statement of Financial Position that could influence the value of the assets and liabilities existing on the date of said statement are considered when preparing the financial statements for the period. These events, if significant, are disclosed in the notes to the consolidated financial statements.
When preparing the consolidated financial statements in accordance with IFRS, PHAROL's Board of Directors uses estimates and assumptions that affect the application of accounting policies and reported amounts. Estimates and judgments are continually evaluated and are based on experience and other factors, including expectations of future events that are believed to be probable under the circumstances on which the estimates are based, or as a result of new information or more experience. The main accounting estimates reflected in the consolidated financial statements are as follows:
(a) Valuation of the investment in Oi – On May 5, 2014, the Company valued its new stake in Oi based on Oi's reference share price in the capital increase on that date, having as of that date, appropriated its stake in Oi's income using the equity method. Additionally, from September 8, 2014, onwards, the portion of the investment to be delivered within the scope of the Exchange Agreement was classified as a non-current asset held for sale, and measured at fair value up till the execution of the Exchange Agreement on March 30, 2015. As at December 31, 2019 and 2018, the measurement of the Company's investment in Oi was based on its market value, namely the stock price, given that PHAROL has lost its significant influence. Until December 2017, this investment was valued by the equity method.
The estimates were determined based on the best information available during the preparation of the consolidated financial statements, however, situations may arise in subsequent periods which, not foreseeable at that time, were not taken into consideration in these estimates. In accordance with IAS 8, changes to estimates which occur after the reporting date of the consolidated financial statements are applied prospectively in net income.
New standards, interpretations and changes, with entry into force as of January 1, 2020
Changes to references to the revised IFRS Conceptual Framework (Regulation 2019/2075, of 29 November)
made ensure that the definition of "material" is consistent across all IFRS. Applicable to annual periods beginning on or after 1 January 2020.
These amendments to IFRS 3 improve the definition of concentration of business activity, helping entities to determine whether a given acquisition actually refers to a business activity or just a set of assets. In addition to the definition change, this amendment provides some additional guidance. Applicable to annual periods beginning on or after 1 January 2020.
New rules, interpretations and amendments, with date of entry into force for years beginning on or after January 1, 2021
Amendments to IFRS 16: Concessions related to COVID in terms of rents (Commission Regulation 2020/1434, of 9 October)
Currently, according to IFRS 4 Insurance Contracts, the effective date for application of IFRS 9, after the temporary exemption, is January 1, 2021. In order to align the term of this temporary exemption with the effective date for the application of IFRS 17 - Insurance Contracts, after the changes made on June 25, 2020, the IASB extended the application of the exemption from application of IFRS 9 with IFRS 4 until January 1, 2023.
Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16: Reference interest rate reform - Phase 2 (Commission Regulation 2021/25, 13 January 2021)
These amendments complement those issued in 2019 and focus on the effects on the financial statements when an entity replaced an old interest rate benchmark with an alternative benchmark as a result of the reform.
These changes are effective for annual periods beginning on or after January 1, 2021.
Additionally, until the date of approval of these financial statements, the following standards and interpretations are still issued by the IASB, not yet endorsed by the European Union:
This standard allows adopters of IFRSs for the first time to continue to recognize regulatory assets and liabilities in accordance with the policy followed under the previous standard. However, to allow comparability with entities that already adopt IFRS and do not recognize regulatory assets / liabilities, these amounts must be disclosed in the financial statements separately. Applicable to years beginning on or after January 1, 2016, the European Commission having decided not to start the process of endorsing this transitional rule and to wait for the final rule to be issued by the IASB.
IFRS 17 solves the comparison problem created by IFRS 4 by requiring that all insurance contracts be accounted for in a consistent manner, thus benefiting both investors and insurance companies. Insurance obligations are accounted for using current values instead of historical cost. The information is updated regularly, providing more useful information to users of the financial statements. Applicable to years beginning on or after 1 January 2023, this new standard is still subject to endorsement by the European Union.
Applicable to years beginning on or after 1 January 2022, these changes are still subject to endorsement by the European Union.
These changes to IAS 1 require entities to disclose material information about their accounting policies instead of disclosing significant accounting policies. The amendments to IFRS Practice Statement 2 provide guidance on how the concept of materiality should be applied in disclosures about accounting policies.
Applicable to years beginning on or after 1 January 2023, these changes are still subject to endorsement by the European Union.
These changes clarify how entities should distinguish changes in accounting policies from changes in accounting estimates. This distinction is important because changes in accounting estimates are applied prospectively only to transactions and other future events, but changes in accounting policies are generally applied retrospectively to transactions and other past events.
As at December 31, 2020 and 2019, assets and liabilities denominated in foreign currencies were translated to Euros using the following exchange rates to the Euro:
| Currency | 2020 | 2019 |
|---|---|---|
| Real | 6.3735 | 4.5157 |
| USD | 1.2271 | 1.1234 |
During the years 2020 and 2019, the financial statements, income statements and cash flows of subsidiaries and joint ventures denominated in foreign currencies were translated to euros using the following exchange rates to the Euro:
| Currency | 2020 | 2019 |
|---|---|---|
| Real | 5.8943 | 4.4134 |
| USD | 1.1422 | 1.1195 |
The composition of this caption in the 2020 and 2019 financial years is as follows:
| Euro | ||
|---|---|---|
| 2020 | 2019 | |
| Fixed and variable remuneration | 1,138,408 | 1,286,325 |
| Social security | 214,228 | 257,201 |
| Other | 99,136 | 28,497 |
| 1,451,771 | 1,572,023 |
The composition of this caption in the 2020 and 2019 financial years is as follows:
| Euro | ||
|---|---|---|
| 2020 | 2019 | |
| Specialized work (i) | 802,226 | 1,270,418 |
| Insurance | 312,055 | 283,734 |
| Travel | 15,477 | 83,322 |
| Other | 240,157 | 674,603 |
| 1,369,916 | 2,312,077 |
(i) In 2020 e 2019 this caption reflects mainly financial and legal services occurred in operational scope concerning the Oi investment in Brazil.
The composition of this caption in the 2020 and 2019 financial years is as follows:
| Euro | ||
|---|---|---|
| 2020 | 2019 | |
| VAT | 173,692 | 261,424 |
| Other | 1,464 | 92,371 |
| 175,156 | 353,795 |
The composition of this caption in the 2020 and 2019 financial years is as follows:
| Euro | ||
|---|---|---|
| 2020 | 2019 | |
| Net interest earned | ||
| Related to cash and cash equivalents (i) | (1,246) | (10,840) |
| (1,246) | (10,840) |
(i) Interest income obtained in 2020 and 2019 essentially relates to cash amounts applied in term deposits by PHAROL.
In 2020, companies located in mainland Portugal are subject to Corporate Income Tax at a base rate of 21.0%, plus (1) up to a maximum of 1.5% of taxable income through a municipal tax, and (2) a state surcharge levied at the rates of 3.0% on taxable income between Euro 1.5 million and Euro 7.5 million, 5.0% on taxable income between Euro 7.5 million and Euro 35 million and 9.0% on taxable income in excess of Euro 35.0 million, resulting in a maximum aggregate tax rate of approximately 31.5% for taxable income higher than Euro 35 million. When calculating taxable income to which the above tax rate is applied, nontax-deductible amounts are added to or subtracted from accounting records.
The composition of the corporate income tax for as at December 31, 2020 and 2019 is as follows:
| Euro | ||
|---|---|---|
| 2020 | 2019 | |
| Income tax | ||
| Income tax - current | 30,145 | 12,655,388 |
| 30,145 | 12,655,388 |
In 2019, and following the signing of the aforementioned agreement with Oi, this item essentially reflects the reversal of refunds received from the Tax Authority relating to IRC from previous years, which had been recorded as income in the first half of 2018, in the amount of 12,542,510 euros.
Earnings per share for 2020 and 2019 were as follows:
| Euro | |||
|---|---|---|---|
| 2020 | 2019 | ||
| Net loss attributable to equity holders of Pharol | (1) | (14,315,915) | 20,743,834 |
| Weighted average common shares outstanding in | |||
| the period | (2) | 834,065,573 | 846,440,786 |
| Earnings per share from continuing operations | |||
| Basic and diluted | (1)/(2) | (0.02) | 0.02 |
On December 31, 2020 and 2019, this caption has the following composition:
| Euro | ||||
|---|---|---|---|---|
| 31 Dec 2019 | 31 Dec 2018 | |||
| Receivable | Payable | Receivable | Payable | |
| Current taxes | ||||
| Operations in Portugal | ||||
| Value-added tax | - | 10,309 | - | 1,783 |
| Income taxes | - | 25,494 | - | 107,495 |
| Personnel income tax witholdings | - | 24,082 | - | 30,239 |
| Social Security Contributions | - | 68,429 | - | 74,873 |
| Other | - | 119 | - | 102 |
| - | 128,432 | - | 214,493 | |
| Taxes in foreign countries | - | 4,165 | - | 6,432 |
| - | 132,597 | - | 220,924 | |
| Non-current taxes | ||||
| Taxes in foreign countries | 38,144 | - | 53,836 | - |
| 38,144 | 132,597 | 53,836 | 220,924 |
This caption corresponds to the investment in Oi, which since December 2017 has been measured at fair value. Until that date, Oi was classified as associate and measured by the equity method.
On September 8, 2014, as explained above, PHAROL entered into an Exchange Agreement with Oi, for the Exchange of a portion of Oi shares held directly by PHAROL for the Rio Forte Investment and the Call Option over the shares. The Exchange was completed on March 30, 2015, after obtaining all necessary approvals. Because of the Exchange, the portion of the investment in Oi delivered in connection with the Exchange was classified as a non-current asset held for sale and measured at fair value based on the price of Oi shares until the Exchange Agreement date. The remaining interest of 22.8%, including the interests of 15.9% and 3.0% held directly by PHAROL and Bratel Brasil, respectively, and the interest of 3.9% owned indirectly through the controlling holding companies of Oi, remained classified as an investment in joint ventures, measured according to the equity method of accounting. After the Exchange Agreement, on March 30, 2015, the interest was 27.5%.
As referred to above, leading up to the New Ownership Structure of Oi, the Shareholder Agreements through which Oi was jointly controlled were terminated on July 30, 2015. The simplification of the structure occurred on September 1, 2015, and led to the incorporation by Oi of several assets at fair value that were not previously booked by the holding companies.
As a result of the transaction, PHAROL's effective share in Oi reduced from 27.5% to 27.4%. Furthermore, during 2015, changes to Oi's bylaws were approved, which included a 15% limitation on the voting rights of any individual shareholder.
On October 8, 2015, Oi's Board of Directors homologated the voluntary conversion of Oi's preferred shares into common shares ("Voluntary Conversion of PSs"), approved the effective conversion of the preferred shares, object to the conversion manifestations in BM&FBovespa and in the Bank of Brazil, and accepted the conversion solicitations presented by the holders of American Depository Shares ("ADSs") representative of preferred shares ("Preferred ADSs"). The ADSs representative of the new common shares, resulting from the Offer to Exchange, related with the Voluntary Conversion of PSs, were issued on October 13, 2015. Following this operation, PHAROL's effective stake in Oi decreased from 27.4% to 27.2%.
In accordance with IAS 28 – Investments in Associates and Joint Ventures, there is a presumption that significant influence exists when voting rights are higher than 20%. For voting rights less than 20%, there should be clear indications through which significant influence may be exercised. The limitation to 15% of PHAROL's voting rights, considering the remaining available voting rights, represented as at December 31, 2016, an effective voting right of 18.83%. By analogy, IFRS 10 – Consolidated financial statements consider that control may occur when there is a concentration of significant voting rights, with the remainder of voting rights largely dispersed ("de facto control"). In Oi's shareholder structure, over 30% of ordinary shares are dispersed in free float, and two other shareholders besides PHAROL have voting rights of between 5% and 9% each.
However, in December 2017, and after the decision by the 7th Business Court of the District of the Capital of the State of Rio de Janeiro, which handled the Judicial Recovery ("Judgment"), which decided to withdraw the rights of the members of the Council Board of Directors of Oi in the approval of Oi's Judicial Recovery Plan in which Oi is located, and subsequent events, it was understood that PHAROL had lost the significant influence it had until then on its associate Oi SA.
Therefore, since December 31, 2017, PHAROL started to record its investment in Oi at market value, and it was classified as "Financial Assets".
Therefore, on December 31, 2020 and 2019, the accounting for Oi Investment, is as follows:
| 2020 | 2019 | ||
|---|---|---|---|
| Stock Price Oi (ON) | R\$ | 2.20 | 0.86 |
| Stock Price Oi (PN) | R\$ | 2.82 | 1.23 |
| Shares Outstanding (ON) | Million | 5,796 | 5,796 |
| Shares Outstanding (PN) | Million | 156 | 156 |
| Market Cap. | R\$ Million | 13,192 | 5,177 |
| Number of shares owned by PHAROL (ON) | Million | 319.4 | 326.3 |
| Number of shares owned by PHAROL (PN) | Million | - | 1.8 |
| % Participation | % | 5.37% | 5.51% |
| Market value R\$ | R\$ Million | 702.7 | 282.8 |
| Market value Eur. | Eur. Million | 110.3 | 62.6 |
This caption includes an estimated future recovery of 51.9 million Euros related to the debt instruments issued by Rio Forte on 31 December 2020.
Regarding the debt instruments issued by Rio Forte, after having learned the Report of Judicial Administrators in the Rio Forte insolvency process (Rapport nº 4 des Curateurs), dated August 31, 2016, available at www.espiritosantoinsolvencies.lu , PHAROL initiated efforts to analyze the financial, accounting and legal implications of what is contained in point 2.1.6., which is transcribed in free translation:
The information currently available to the Judicial Administrators does not allow an estimate to be made, either of the total recovery, or of the recovery to be made by the company in bankruptcy.
It cannot be ruled out that judicial foreclosure and the possible rights of third parties involved will prevent for a prolonged period, or even definitively, the bankruptcy estate from recovering and distributing certain assets. In fact, it is not excluded that the judicial authorities have the objective of confiscating the assets now being held."
PHAROL's Management, after due diligence and supported by the analysis of its advisors, concluded, by a principle of prudence, that the expected values of recovery of assets by the mass of the insolvent and, consequently, by PHAROL, with Rio Forte had reduced. PHAROL's investment in Rio Forte's securities was initially valued at fair value upon its initial recognition on March 30, 2015, and subsequently measured at amortized cost less any impairment losses. Based on the basic principles set out in IAS 39 (currently IFRS 9), Management, based on the information available, used its judgment in the definition of assumptions that culminated in a credit appreciation of Rio Forte by 85.7 million Euros at 31 December 2016. This reflects a value of about 9.5% of the nominal value, against approximately 15% of the nominal value at 31 December 2015, which determined the accounting of an impairment in the amount of € 48.8M.
Additionally, in December 2017, after the update of the amount of credit complaints considered in the last report of the Judicial Administrators was higher than previously considered, the debt recovery valuation was revised downwards again, having registered at 8.32 % of recovery, which is equivalent to a reduction of 11.1 million Euros to the amount of 74.6 million Euros. At 31 December 2018, the debt recovery amount remained at 8.32%.
In April 2019 and 5 years after the filing of the Rio Forte credit claim, a new report by the Judicial Administrators was published on 30 April 2019, which essentially points to: 1) postponement of the results of the conclusion of the analysis. debt declarations; and 2) downward revision of Rio Forte's asset value in Latin America; Accordingly, and based on these new factors, the recovery in debt recovery was once again revised downwards to 7.19% of nominal value recovery, equivalent to a reduction of 10.1 million euros. Euro to the amount of Euro 64.5 million. At the end of 2019 and after the analysis of the last report issued by the Judicial Administrators, with effect on December 31, 2019, it was once again revised downwards, with the face value recovery set at 7.02 %, which is equivalent to an additional reduction of 1.5 million Euros to a total recovery amount of 63 million Euros. On December 31, 2020, a new downward revision of the nominal value recovery was carried out to 5.79%, essentially justified by the depreciation of assets held by Rio Forte in Latin America, which is equivalent to a reduction of 11.1 million of Euros to the amount of 51.9 million Euros.
Additionally, and still within the scope of the credit on Rio Forte, PHAROL in December 2017 learned of a statement from the curators of Espírito Santo International, SA, ("ESI") in which they declare that this bankrupt company will evaluate the possibility to sue PHAROL, asking for the latter to be ordered to reimburse 750 million Euros, without specifying the grounds for that request.
Following this statement, already in January 2019, PHAROL was notified by ESI's curatorship, as a precautionary measure to interrupt any limitation period, with a view to an eventual cancellation of Notes payments made by ESI during January 2014.
After analyzing the aforementioned subpoena, PHAROL considers the probability of being able, on the basis of the alleged facts, to be able to obtain any condemnation of PHAROL under the subpoenaed terms highly remote. Accordingly, PHAROL has not made any provision in its financial statements.
As at December 31, 2020 and 2019, the composition of this caption is as follows:
| Euro | ||
|---|---|---|
| 2020 | 2019 | |
| Current accounts payable | ||
| Current suppliers Others |
271,498 62,785 334,283 |
164,454 9,144 173,598 |
As at December 31, 2020 and 2019, the composition of this caption is as follows:
| Euro | ||
|---|---|---|
| 2020 | 2019 | |
| Accrued expenses | ||
| Supplies and external services | 507,531 | 522,513 |
| Vacation pay and bonuses | 356,116 | 221,259 |
| Others | 33,220 | 65,815 |
| 896,867 | 809,587 |
As at December 31, 2020 and 2019, the composition of this caption is as follows:
| Euro | ||
|---|---|---|
| 2019 | 2018 | |
| 84,617,476 | 84,617,476 | |
| Bank and other guarantees presented to the tax authorities | ||
| 84,617,476 | 84,617,476 |
The bank and other guarantees presented to the tax authorities essentially include Euro 85 million on December 31, 2020 and 2019, respectively, related to the tax assessments received by PHAROL. The company presented legal challenges to these assessments and, in accordance with the Portuguese Law, provided collateral, in order to avoid the initiation of enforcement proceedings, which, in the absence of guarantee or payment of the contested tax, would continue until the request of a pledge of sufficient assets to cover the requested tax. The Portuguese Law, while always allowing for the appeal over taxes liquidated by the tax authorities, only suspends enforcement proceedings upon payment of the tax, or the provision of a guarantee. Providing a guarantee, thereby, avoids the payment of tax before the appeal decision or attachment of assets in enforcement proceedings. The change in the value of the guarantees provided in 2018 occurred due to cancellation due to the expiration of part of the guarantees.
These guarantees were presented by PHAROL as the controlling company of the consolidated tax in the years in question, even though, as at December 31, 2020, the contingencies associated to these guarantees are not the Company's responsibility, having been contractually transferred to Oi, while PHAROL remains r and severally liable for these contingencies. Notwithstanding the expiration and consequent cancellation of part of the Guarantees, the tax proceedings are still ongoing and Oi is responsible for them and may amount to up to 393 million euros. According to the agreements with Oi, Oi is obliged to substitute the bank guarantees provided by PHAROL to the tax authority for guarantees provided by Oi. In cases where this substitution is not possible, Oi has undertaken to provide guarantees with the same value in favor of PHAROL.
As such, as of December 31, 2020, a Pledge Agreement for shares of Telemar Norte Leste is in force with a maximum amount up to the limit of the potential liabilities currently in existence.
In 2019, following the Private Instrument of Transaction and Other Covenants, signed between PHAROL and Oi on January 8, 2019, which clarified the destination to be given to the refunds of the Tax Authority, these were recognized under the heading "Other Current Liabilities".
In January 2020, as agreed in the aforementioned Instrument, Oi, through PT Participações SGPS, SA, has deposited in escrow 34,340,803.32 Euros, as a guarantee to PHAROL in the event of tax contingencies that shall be incurred by Oi.
The share capital of PHAROL, which is fully subscribed and paid in, was as at December 31, 2020 and 2019, Euro 26,895,375, represented by 896,512,500 common shares, with a nominal value of three Euro cents each.
As at December 31, 2020 and 2019, the composition of this caption is as follows:
| Euro | ||
|---|---|---|
| 2020 | 2019 | |
| Shares held by PHAROL | 184,873,844 | 181,842,907 |
| 184,873,844 | 181,842,907 |
As at December 31, 2020 PHAROL held 74,822,140 treasury shares, corresponding to 8.35% of the share capital PHAROL
Commercial law and PHAROL's articles of association provide that at least 5% of the net annual income must be appropriated to strengthen the legal reserve until this reserve represents 20% of the share capital. This reserve is not available for distribution to shareholders, unless on company liquidation, but may be used to absorb losses, once all other reserves have been exhausted, or for incorporation in the share capital. As at December 31, 2020 and 2019, the legal reserve was Euro 6,773,139 and was already fully incorporated, corresponding to more than 20% of the share capital.
The reserve for treasury shares relates to the recognition of a non-distributable reserve equivalent to the nominal value of the cancelled shares, or to the acquisition cost of treasury shares held by PHAROL. This reserve has the same legal regime as the legal reserve. As at December 31, 2020 and 2019, this reserve relates to shares cancelled on December 20, 2007, March 24, 2008, and December 10, 2008, in the amount of Euro 6,970,320, as well as the treasury shares acquired between 2014, 2016, 2019 and 2020, amounting to Euro 184,873,844.
As at December 31, 2020 and 2019, this caption was made up as follows:
| Euro | ||
|---|---|---|
| 2020 | 2019 | |
| Retained earning | 131,099,665 | 110,355,831 |
| Net income | (14,315,915) | 20,743,834 |
| Free reserves | 105,209,244 | 105,209,244 |
| Cumulative foreign currency translation adjustments (i) | (43,137) | (46,210) |
| Income and expenses recognized directly in equity (ii) | (97,216,097) | (145,355,197) |
| 124,733,759 | 90,907,501 |
(i) The variation of this caption reflects mainly the exchange effect arising from the transfer of the subsidiary Pharol Brasil.
(ii) On December 31, 2020 and 2019, with IFS9 application, the investment of the associate Oi, which started to be classified as an investment in equity instruments at fair value through other comprehensive income, all the fair value changes occurred in this investment were recognized in equity.
In 2020 and 2019, payments to suppliers mainly reflect payments of as third party suppliers and consultants.
In 2020, other net receipts essentially include reimbursements made by the Portuguese Tax Authority in relation to taxes paid in previous years.
In 2020, this heading relates to the sale of shares of the company Oi S.A..
In 2020, this item refers to the acquisition of 24,750,426 treasury shares.
At 31 December 2020 and 2019, the composition of this caption is as follows:
| Euro | ||
|---|---|---|
| 2020 | 2019 | |
| Cash and cash equivalents | ||
| Cash | 2,823 | 1,247 |
| Demand deposits | 20,727,087 | 9,947,407 |
| Time deposits | - | 8,000,000 |
| 20,729,910 | 17,948,653 |
During the years ended December 31, 2020 and 2019, the fixed remuneration of the Board members, which was established by the Remuneration Committee, amounted to Euro 503.8 and 627 thousand, respectively. On December 31, 2020 and 2019, no share-based payment was in force, nor any termination benefit program.
The Company believes that it is relevant to disclose outstanding balances and transactions with its main shareholders, namely those with a qualified holding of more than 2% in PHAROL's share capital, and with all the entities reported by these shareholders as being part of the respective economic groups. The tables below present the balances as at December 31, 2020 and 2019, and the transactions occurred in the years ended December 31, 2020 and 2019 between PHAROL and the entities that are identified as shareholders with qualified holding and respective economic groups:
| Euro | ||||
|---|---|---|---|---|
| 2020 | 2019 | |||
| Cash and bank deposits | ||||
| Shareholder | ||||
| Novo Banco | 2,836,027 | 5,389,599 | ||
| 2,836,027 | 5,389,599 | |||
| Euro | ||||
| 2020 | 2019 | |||
| Net interest | Net interest | |||
| Costs and losses | income | Costs and losses | income | |
| Shareholder | ||||
| Novo Banco | 252 | 469 | 922 | 3,849 |
| 252 | 469 | 922 | 3,849 |
PHAROL is exposed basically to (i) market risks related with changes in currency exchange rates and interest rates, (ii) credit risks. The main objective of risk management at PHAROL is to reduce these risks to an acceptable level.
Currency exchange risks are essentially related with PHAROL investments in Brazil. On December 31, 2020 and 2019, net exposure (assets less liabilities, net of non-controlling interests) in Brazil amounted to R\$702,5 million (Euro 101,2 million) and R\$282 million (Euro 62.5 million), respectively. Risks relative to Company investments in operations abroad basically concern Oi investments. PHAROL does not have any contracted derivative instrument to hedge currency exchange risk associated with investments in foreign companies.
The effect on PHAROL's equity resulting from hypothetical changes in relevant risk variables is the impact of the valuation (devaluation) of the Real against the Euro in 0.1, from 6.37 to 6.47 (6.27), would be an increase (decrease) in net assets on December 31, 2020, of approximately Euro 1.7 million (Euro 1.8 million), corresponding to adjustments in currency exchange conversion for investments in Brazil.
Credit risk is essentially associated with the risk of a counterpart defaulting on contractual obligations, resulting in a financial loss to the Group. PHAROL is essentially subject to credit risk in its operational and treasury activities.
Criteria used to calculate adjustments to accounts receivable are based on a recoverability analysis of accounts receivable on a regular basis.
On December 31, 2020, the receivables balance was not considered as significant.
Risks associated with treasury activities essentially result from investments made by the Group in cash investments. As mentioned before, in order to mitigate this risk, PHAROL put into place an investment diversification policy as of July 2014, so that investment in a financial institution is not greater than 34% of the total treasury applications. Thus, it ensures that amounts are invested in short term applications in diverse and reputed financial institutions.
PHAROL is also subject to credit risk in its investment in Rio Forte Investments, but has adjusted the value accordingly. In addition, and in connection with the Rio Forte debt instruments, PHAROL was informed of a statement from the curators of Espírito Santo International, SA ("Insolvency"), stating that this bankrupt company is going to sue PHAROL for the conviction of this company refund of EUR 750 million, without specifying the grounds for such a request.
Following this announcement, as of January 2019, PHAROL was summoned by the curator of Espírito Santo International, SA, as a precautionary measure to interrupt any limitation period, with a view to canceling ESI Notes payments during the month of January 2014.
After analyzing the abovementioned summons, PHAROL considers it highly remote that, on the basis of the alleged facts, it is possible to obtain any conviction of PHAROL in the terms provided. Accordingly, PHAROL has recorded any provision in its financial statements.
• Oi's stock price evolution between December 31, 2019, and March 12, 2021, can be found below:
| 31 dec 20 | 12 mar 21 | |
|---|---|---|
| Oi ON share price (Reais) | 2.2 | 1.86 |
| Exchange rate Real/Euro | 6.3735 | 6.6421 |
| Oi ON share price (Euro) | 0.35 | 0.28 |
• Following the measures enacted by the Government in January 2021 that forced a new general containment, PHAROL implemented a response plan with the objective of maintaining the normal functioning of its services during the period in which these measures are maintained.
Despite the high uncertainty regarding the current economic situation, PHAROL does not anticipate significant impacts on the development of its activity or the continuity of its operations.
REPORT AND OPINION OF THE FISCAL COUNCIL
To the Shareholders of PHAROL, SGPS S.A.
In compliance with the provisions of paragraph g) of number 1 of article 420Q of the Commercial Companies Code, it is incumbent upon us, as members of the Fiscal Council of "PHAROL, SGPS S.A." (hereinafter "PHAROL"). issue the annual report on our supervisory action as well as give an opinion on the management report and consolidated financial statements presented by the Board of Directors for the year ended December 31, 2020, and also our assessment of the respective legal certification accounts and audit report issued by the company of statutory auditors.
The Supervisory Board regularly performed the functions of its competence, through periodic meetings with those responsible for the relevant areas, as well as the additional information and clarifications obtained, including the presentation of the main trends and developments in terms of management development. and PHAROL's activity.
The Supervisory Board also assessed the financial information produced in the course of the 2020 financial year, having carried out the analyzes and verifications deemed convenient and necessary.
The work of the Supervisory Board has always consisted in complying with the legally established matters, in permanently monitoring PHAROL's activity, and in verifying that the individual consolidated statements have been prepared in accordance with the accounting framework in force.
During the fiscal year of 2020, the Fiscal Council met eleven times, having developed several actions, of which the following stand out:
i) Inspection of the quality, integrity and effectiveness of the internal control and risk management systems;
ii) Supervision of the preparation of consolidated financial information;
iii) Verification of the regularity of the accounting records and the accuracy of the documents consolidated accountability;
iv) Appreciation of the accounting policies and valuation criteria adopted by PHAROL as to their adequacy and consistency, which aim to ensure the presentation of a true and appropriate image of the financial position and results;
v) Verification of the conformity of the consolidated financial statements with the applicable legal requirements;
vi) Analysis of the consolidated financial information disclosed.
Under the terms of the internal regulation that defines the rules and procedures to be adopted in the System of Qualified Participation of Undue Practices (Whistleblowing), the Fiscal Council became aware of the semiannual reports of the activity developed by the Nucleus for Analysis of Qualified Participations, dated 8 July 2020 and January 4, 2021, with no Participations occurring during the 2020 financial year.
The Supervisory Board, within the scope of its functions, exercised its powers in terms of supervising the qualifications, independence and exercise of functions of the external auditor and statutory auditor, having also met regularly with him, who always provided all clarifications, technical and accounting, deemed necessary.
It also became aware of the results of the audit and external audit work on the consolidated financial statements for the year 2020, which comprise the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of financial position, the consolidated statement of changes in equity, consolidated statement of cash flows and respective notes.
The statutory auditor and external auditor followed the process of preparing PHAROL's consolidated financial statements, having informed the Supervisory Board of its conclusions and its agreement regarding the documents prepared by the Board of Directors.
Through the additional report sent to the Supervisory Board, the statutory auditor and external auditor communicated the relevant aspects of the work carried out and the respective conclusions.
The Fiscal Council became aware of the legal certification of the accounts on the consolidated financial information for the financial year 2020, issued with a reservation and two emphases, by the statutory auditor and external auditor, a document that deserved his agreement.
It is the understanding of the statutory auditor and external auditor that consists of relevant audit matters:
i) Measurement of investment in Oi, S.A.
ii) Measurement of investment in debt securities issued by Rio Forte Investments,
In these areas, audit procedures and tests were deemed relevant in the circumstances.
In the course of its duties, the Supervisory Board confirmed that the report of the Board of Directors refers to the most relevant aspects of the activity during the year and is consistent with the consolidated financial statements for the year.
Also within the scope of its powers, and as provided for in number 5 of article 420 of the Commercial Companies Code, the Board also verified that the PHAROL Corporate Governance Report disclosed includes the elements required under the terms of article 2452 - A of the Securities Code.
The Fiscal Council declares that, as far as it is aware, the information provided for in paragraph a) of number 1 of article 245 of the Portuguese Securities Code, for the consolidated accounts for the year ended December 31, 2020:
i) It was prepared in accordance with the applicable accounting standards, giving a true and appropriate image of the assets and liabilities, the financial situation and the results of PHAROL and the companies included in the consolidation perimeter;
ii) Faithfully exposes the evolution of PHAROL's business, performance and position and the companies included in the consolidation perimeter;
iii) It contains a description of the main risks and uncertainties that PHAROL faces in its activity.
Based on the aforementioned report, the steps taken as well as the conclusions contained in the legal certification of the accounts and audit report and the additional report to the supervisory body on the consolidated financial information, and taking into account the information received from the Board of Directors, the services of PHAROL and the statutory auditor and external auditor, the Supervisory Board is of the opinion that the General Meeting approves the management report and the consolidated financial statements for the financial year 2020.
Finally, the members of the Fiscal Council express their recognition and recognition to the Board of Directors, the main responsible persons and other employees of PHAROL thanks for the collaboration provided in the performance of the duties.
Lisbon, March 15, 2021
_____________________________________________ José Maria Ribeiro da Cunha — Chairman
_____________________________________________ Isabel Maria Beja Gonçalves Novo — Member
_____________________________________________ João Manuel Pisco de Castro - Member
STATUTORY AUDITORS' CERTIFICATION AND AUDIT REPORT
| Key audit matters | Synthesis of audit response | ||
|---|---|---|---|
| Measurement of Oi, SA investment | |||
| The equity investment in Oi, SA (voting rights of 5,51%) is presented as financial assets measured by the market value. Oi, SA is a large entity with high public and media profile, being highly relevant to the Group financial statements. Oi, SA is under a judicial reorganization process since June 2016. The respective financial statements are audited by other auditors. Related disclosures: Notes 2, 3 and 13 to the present consolidated financial statements. |
The audit response involved, in synthesis, the performance of the following procedures: Confirmation of the shares held by the Group as at December 31, 2020, through the verification of the documentation from the custodian banks where these shares are deposited. Verification of the adequate form of classification and measurement of this investment, bearing in mind the provisions of the applicable IFRS. Obtaining and analysing the independent auditor's review report on the most recent available individual and consolidated financial statements (as at September 30, 2020) of Oi, SA; Analysis and validation of the calculations inherent to the measurement by market value; Evaluation of the reasonableness of the financial statements' disclosures. |
| Key audit matters | Synthesis of audit response | ||
|---|---|---|---|
| Measurement of the investment in debt securities issued by Rio Forte Investments, SA | |||
| At March 30, 2015 the debt securities issued by Rio Forte Investments, SA (Rio Forte) were returned to the Group, following the performance of the exchange contract signed on September 8, 2014 between Oi Group and the Group. Rio Forte is under an insolvency process taking place in Luxembourg, with high public and media profile. This investment is relevant within the scope of the Group financial statements and the respective measurement involves significant judgements. Related disclosures: Notes 3, 14 and 22 to the present consolidated financial statements. |
The audit response involved, in synthesis, the performance of the following procedures: Analysis of the information present in the reports and announcements issued by the Rio Forte insolvency curators; Analysis of the judgements made by the management in determining the recoverable amount of the debt securities at December 31, 2020; Circularization of the banks where the debt securities are deposited; Monitoring of possible developments arising from an announcement issued by the insolvency curators of Espírito Santo International, SA issued in November 14, 2017 and the corresponding subpoena in the meanwhile received in 2019; Circularization of the lawyers that handle the insolvency process and analysis and appraisal of the respective response about the expected outcome for Pharol of the subpoena received from ESI referred before. Evaluation of the reasonableness of the financial statements' disclosures. |
CORPORATE GOVERNANCE REPORT 2020
| NTRODUCTION 8 | |
|---|---|
| PART I – INFORMATION ON SHAREHOLDER STRUCTURE, ORGANIZATION AND CORPORATE GOVERNANCE 9 |
|
| A. | SHAREHOLDER STRUCTURE 9 |
| I. | CAPITAL STRUCTURE 9 |
| CAPITAL STRUCTURE 9 | |
| RESTRICTIONS TO SHARE TRANSFERABILITY, SUCH AS CONSENT CLAUSES FOR DISPOSAL, OR LIMITATIONS TO SHARE OWNERSHIP9 |
|
| NUMBER OF OWN SHARES, CORRESPONDING CAPITAL PERCENTAGE AND CORRESPONDING VOTING RIGHTS PERCENTAGE9 |
|
| SIGNIFICANT AGREEMENTS INCLUDING CHANGE OF CONTROL CLAUSES 9 | |
| RENOVATION / REVOCATION OF DEFENSIVE MEASURES, IN PARTICULAR THOSE PROVIDING FOR THE RESTRICTION OF THE NUMBER OF VOTES THAT MAY BE HELD OR EXERCISED BY A SINGLE SHAREHOLDER10 |
|
| SHAREHOLDERS' AGREEMENTS OF WHICH THE COMPANY IS AWARE AND MIGHT LEAD TO RESTRICTIONS IN THE TRANSFER OF SECURITIES OR VOTING RIGHTS10 |
|
| II. SHAREHOLDINGS AND BONDS 10 |
|
| OWNERS OF QUALIFIED HOLDINGS, PERCENTAGE OF CAPITAL AND VOTES ATTRIBUTABLE, SOURCE AND CAUSES FOR ATTRIBUTION 10 |
|
| NUMBER OF SHARES AND BONDS HELD BY THE MEMBERS OF THE MANAGEMENT AND SUPERVISORY BODIES11 |
|
| SPECIAL POWERS OF THE MANAGEMENT BODY, NOTABLY AS REGARDS CAPITAL INCREASE RESOLUTIONS 11 |
|
| SIGNIFICANT COMMERCIAL RELATIONSHIPS BETWEEN OWNERS OF QUALIFIED HOLDINGS AND THE COMPANY 11 |
|
| B. | CORPORATE BODIES AND COMMITTEES 12 |
| I. | GENERAL MEETING OF SHAREHOLDERS 12 |
| IDENTIFICATION OF THE MEMBERS OF THE BOARD OF THE GENERAL MEETING OF SHAREHOLDERS, COMMENCEMENT AND EXPIRATION OF TERM OF OFFICE 13 |
|
| POSSIBLE LIMITATIONS ON VOTING RIGHTS 13 | |
| MAXIMUM PERCENTAGE OF VOTING RIGHTS THAT MAY BE EXERCISED BY A SINGLE SHAREHOLDER OR BY SHAREHOLDERS CONNECTED TO THE FORMER THROUGH ANY OF THE RELATIONSHIPS SET FORTH IN ARTICLE 20.1 OF THE PORTUGUESE SECURITIES CODE 14 |
|
| SHAREHOLDER RESOLUTIONS WHICH, ACCORDING TO THE BYLAWS, CAN ONLY BE ADOPTED WITH QUALIFIED MAJORITY, APART FROM THOSE LEGALLY PROVIDED FOR 15 |
|
| II. MANAGEMENT AND SUPERVISION 15 |
|
| IDENTIFICATION OF THE CORPORATE GOVERNANCE MODEL15 | |
| BYLAW RULES ON THE PROCEDURAL AND MATERIAL REQUIREMENTS FOR THE APPOINTMENT AND REPLACEMENT OF THE MEMBERS OF THE BOARD OF DIRECTORS 16 |
|
| COMPOSITION OF THE BOARD OF DIRECTORS 16 | |
| EXECUTIVE AND NON-EXECUTIVE BOARD MEMBERS AND INDEPENDENCE CRITERIA17 | |
| PROFESSIONAL QUALIFICATIONS AND OTHER RELEVANT CURRICULUM ELEMENTS OF THE MEMBERS OF THE BOARD OF DIRECTORS 18 |
|
| FAMILY, PROFESSIONAL OR COMMERCIAL RELATIONSHIPS, FREQUENT AND SIGNIFICANT, |
| OF THE MEMBERS OF THE BOARD OF DIRECTORS WITH OWNERS OF QUALIFIED HOLDINGS ABOVE 2% OF THE VOTING RIGHTS18 |
|
|---|---|
| DISTRIBUTION OF POWERS AMONG THE VARIOUS CORPORATE BODIES, COMMITTEES AND/OR DEPARTMENTS OF THE COMPANY 18 |
|
| MANAGEMENT BODY 18 | |
| Board of Directors 18 | |
| Powers of the Chairman of the Board of Directors 21 | |
| Managing-Director 21 | |
| Powers of the Managing Director 22 | |
| SUPERVISORY BODIES 22 | |
| Fiscal Council 22 | |
| Statutory Auditor24 | |
| COMMITTEES AND SUPPORTING STRUCTURES 24 | |
| OPERATING RULES OF THE BOARD OF DIRECTORS 24 | |
| NUMBER OF MEETINGS OF THE BOARD OF DIRECTORS AND DEGREE OF ATTENDANCE OF EACH MEMBER 25 |
|
| INDICATION OF THE CORPORATE BODIES EMPOWERED TO CARRY OUT THE PERFORMANCE EVALUATION OF EXECUTIVE DIRECTORS 25 |
|
| PRE-DETERMINED CRITERIA FOR THE PERFORMANCE EVALUATION OF EXECUTIVE DIRECTORS 25 |
|
| AVAILABILITY OF EACH MEMBER OF THE BOARD OF DIRECTORS AND INDICATION OF FUNCTIONS EXERCISED SIMULTANEOUSLY IN OTHER COMPANIES, INSIDE AND OUTSIDE THE GROUP, AND OTHER RELEVANT ACTIVITIES EXERCISED BY THE MEMBERS OF THE BOARD OF DIRECTORS 25 |
|
| COMMITTEE CREATED WITHIN THE BOARD OF DIRECTORS AND LOCAL FOR THE CONSULTATION OF ITS OPERATING RULE25 |
|
| COMPOSITION OF THE EXECUTIVE COMMITTEE AND/OR IDENTIFICATION OF MANAGING DIRECTORS 25 |
|
| DUTIES OF EACH COMMITTEE CREATED WITHIN THE BOARD OF DIRECTORS AND SUMMARY OF THE ACTIVITIES DEVELOPED IN THE EXERCISE OF SUCH DUTIES 26 |
|
| III. SUPERVISION 26 | |
| IDENTIFICATION OF THE SUPERVISORY BODY 26 | |
| COMPOSITION OF THE FISCAL COUNCIL26 | |
| IDENTIFICATION OF THE MEMBERS OF THE FISCAL COUNCIL COMMITTEE CONSIDERED INDEPENDENT UNDER ARTICLE 414,5 OF THE PORTUGUESE COMPANIES CODE 26 |
|
| PROFESSIONAL QUALIFICATIONS AND OTHER RELEVANT CURRICULUM ELEMENTS OF THE MEMBERS OF THE FISCAL COUNCIL26 |
|
| OPERATING RULES OF THE FISCAL COUNCIL26 | |
| NUMBER OF MEETINGS OF THE FISCAL COUNCIL AND DEGREE OF ATTENDANCE OF EACH MEMBER27 |
|
| AVAILABILITY OF EACH MEMBER OF THE FISCAL COUNCIL AND INDICATION OF FUNCTIONS EXERCISED SIMULTANEOUSLY IN OTHER COMPANIES, INSIDE AND OUTSIDE THE GROUP, AND OTHER RELEVANT ACTIVITIES EXERCISED BY THE MEMBERS OF THE FISCAL COUNCIL27 |
|
| PROCEDURES AND CRITERIA APPLICABLE TO THE INTERVENTION OF THE SUPERVISORY BODY WHEN HIRING ADDITIONAL SERVICES FROM THE EXTERNAL AUDITOR27 |
|
| OTHER DUTIES OF THE SUPERVISORY BODIES27 |
| IV. STATUTORY AUDITOR (REVISOR OFICIAL DE CONTAS / ROC) 27 | |
|---|---|
| IDENTIFICATION OF THE STATUTORY AUDITOR AND OF ITS REPRESENTING PARTNER27 | |
| NUMBER OF YEARS DURING WHICH THE STATUTORY AUDITOR PERFORMS DUTIES CONSECUTIVELY IN THE COMPANY AND/OR GROUP 28 |
|
| OTHER SERVICES RENDERED TO THE COMPANY BY THE STATUTORY AUDITOR28 | |
| V. EXTERNAL AUDITOR 28 |
|
| IDENTIFICATION OF THE EXTERNAL AUDITOR AND OF ITS REPRESENTING PARTNER, AS WELL AS THEIR RESPECTIVE REGISTRY NUMBER BEFORE THE CMVM 28 |
|
| NUMBER OF YEARS DURING WHICH THE EXTERNAL AUDITOR AND ITS REPRESENTING PARTNER PERFORM DUTIES CONSECUTIVELY IN THE COMPANY AND/OR GROUP28 |
|
| POLICY AND PERIOD FOR THE ROTATION OF THE EXTERNAL AUDITOR AND OF ITS REPRESENTING PARTNER28 |
|
| CORPORATE BODY RESPONSIBLE FOR THE EVALUATION OF THE EXTERNAL AUDITOR AND FREQUENCY FOR SUCH EVALUATION 28 |
|
| SERVICES, OTHER THAN AUDITING SERVICES, PROVIDED BY THE EXTERNAL AUDITOR TO THE COMPANY AND/OR ENTITIES IN A CONTROL RELATIONSHIP, AS WELL AS INDICATION OF INETRNAL PROCEDURES FOR THE PURPOSES OF APPROVING THE HIRING OF THOSE SERVICES AND REASONS FOR SUCH HIRING29 |
|
| INDICATION OF THE AMOUNT OF ANNUAL REMUNERATION PAID TO THE AUDITOR AND OTHER INDIVIDUALS OR CORPORATIONS IN THE SAME NETWORK SUPPORTED BY THE COMPANY AND OR BY CORPORATIONS IN A CONTROL OR GROUP RELATIONSHIP, AS WELL AS SPECIFICATION OF THE PERCENTAGE OF EACH TYPE OF SERVICE29 |
|
| C. INTERNAL ORGANIZATION 29 |
|
| I. BYLAWS 29 |
|
| RULES APPLICABLE TO AMENDMENT TO THE BYLAWS OF THE COMPANY 29 | |
| Constitutive quorum for the General Meeting of Shareholders 29 | |
| Resolution quorum for the General Meeting of Shareholders 29 | |
| II. WHISTLEBLOWING 29 |
|
| WHISTLEBLOWING29 | |
| III. INTERNAL CONTROL AND RISK MANAGEMENT 30 | |
| Internal Control System 30 | |
| PERSONS, BODIES OR COMMITTEES RESPONSIBLE FOR INTERNAL AUDITING AND/OR IMPLEMENTATION OF INTERNAL CONTROL SYSTEMS31 |
|
| HIERARCHICAL AND/OR FUNCTIONAL DEPENDENCE RELATIONS VIS-À-VIS OTHER CORPORATE BODIES OR COMMITTEES31 |
|
| OTHER FUNCTIONAL AREAS HAVING RISK CONTROL POWERS ROLE31 | |
| MAIN ECONOMIC, FINANCIAL AND LEGAL RISKS TO WHICH THE COMPANY IS EXPOSED IN THE CONDUCT OF ITS BUSINESS32 |
|
| RISK IDENTIFICATION, ASSESSMENT, MONITORING, CONTROL AND MANAGEMENT PROCEDURE 34 |
|
| Risk Management Procedure 34 | |
| Risk monitoring, control and management35 | |
| MAIN ELEMENTS OF INTERNAL CONTROL AND RISK MANAGEMENT SYSTEMS IMPLEMENTED IN THE COMPANY IN CONNECTION WITH THE FINANCIAL INFORMATION DISCLOSURE PROCEDURE 35 |
|
| IV. INVESTOR SUPPORT 36 | |
| INVESTOR SUPPORT OFFICE, COMPOSITION, DUTIES, INFORMATION PROVIDED BY THE |
| SAME AND CONTACT DETAILS 36 | ||
|---|---|---|
| REPRESENTATIVE FOR RELATIONS WITH THE MARKET37 | ||
| INFORMATION ON RESPONSE PROPORTION AND PERIOD TO INFORMATION REQUESTS MADE DURING THE YEAR OR PENDING FROM PREVIOUS YEARS37 |
||
| V. | INTERNET WEBSITE 37 | |
| ADDRESS37 | ||
| LOCATION OF INFORMATION ON THE COMPANY NAME, ITS NATURE OF PUBLIC COMPANY, REGISTERED OFFICE AND OTHER DATA PURSUANT TO ARTICLE 171 OF THE PORTUGUESE COMPANIES CODE37 |
||
| LOCATION OF INFORMATION ON THE BYLAWS AND OPERATING RULES OF THE CORPORATE BODIES AND/OR COMMITTEES 38 |
||
| LOCATION OF INFORMATION ON THE IDENTITY OF THE MEMBERS OF THE CORPORATE BODIES, THE REPRESENTATIVE FOR RELATIONS WITH THE MARKET, THE INVESTOR RELATIONS OFFICE OR EQUIVALENT, THEIR DUTIES AND ACCESS DETAILS38 |
||
| LOCATION WHERE THE COMPANY MAKES AVAILABLE THE FINANCIAL STATEMENTS, WHICH MUST BE ACCESSIBLE FOR FIVE YEARS AT LEAST, AS WELL AS A SCHEDULE OF CORPORATE EVENTS, DISCLOSED AT THE BEGINNING OF EACH HALF-YEAR, INCLUDING, AMONG OTHERS, GENERAL MEETINGS OF SHAREHOLDERS, DISCLOSURE OF THE ANNUAL, HALF-YEAR AND, IF APPLICABLE, QUARTERLY FINANCIAL STATEMENTS38 |
||
| LOCATION WHERE THE COMPANY MAKES AVAILABLE NOTICES OF THE GENERAL MEETING OF SHAREHOLDERS AND ALL PREPARATORY AND SUBSEQUENT INFORMATION RELATED TO THE SAME 38 |
||
| LOCATION WHERE THE COMPANY MAKES AVAILABLE THE HISTORICAL COLLECTION WITH THE RESOLUTIONS PASSED AT THE GENERAL MEETINGS OF SHAREHOLDERS, THE SHARE CAPITAL THEREIN REPRESENTED AND THE VOTING RESULTS, REGARDING THE PREVIOUS THREE YEARS 38 |
||
| D. | REMUNERATION 39 | |
| I. | COMPETENCE FOR DETERMINATION 39 | |
| COMPETENCE FOR THE DETERMINATION OF THE REMUNERATION OF CORPORATE BODIES, MEMBERS OF THE EXECUTIVE COMMITTEE OR MANAGING DIRECTOR AND COMPANY OFFICERS 39 |
||
| II. | COMPENSATION COMMITTEE 39 | |
| COMPOSITION OF THE COMPENSATION COMMITTEE, INCLUDING THE IDENTIFICATION OF THE PERSONS OR CORPORATIONS HIRED TO SUPPORT IT AND INDEPENDENCE STATEMENT REGARDING EACH OF ITS MEMBERS AND CONSULTANTS 39 |
||
| KNOWLEDGE AND EXPERIENCE OF THE MEMBERS OF THE COMPENSATION COMMITTEE IN THE MATTER OF REMUNERATION POLICY 39 |
||
| III. REMUNERATION STRUCTURE 40 | ||
| DESCRIPTION OF THE REMUNERATION POLICY FOR THE MEMBERS OF THE MANAGEMENT AND SUPERVISORY BODIES AS REFERRED TO UNDER ARTICLE 2 OF LAW NO. 28/2009 OF 19 JUNE 2009 40 |
||
| INFORMATION ON HOW THE REMUNERATION IS STRUCTURED IN ORDER TO PERMIT THE ALIGNMENT OF THE DIRECTORS' INTERESTS WITH LONG TERM INTERESTS OF THE COMPANY, AS WELL AS HOW THE REMUNERATION IS BASED ON PERFORMANCE AND DISINCENTIVES EXCESSIVE RISK TAKING 40 |
||
| REFERENCE, IF APPLICABLE, TO THE EXISTENCE OF A VARIABLE COMPONENT OF THE REMUNERATION AND INFORMATION ON THE WAY AS SUCH COMPONENT DEPENDS ON PERFORMANCE EVALUATION 40 |
||
| DEFERMENT OF PAYMENT OF THE VARIABLE COMPONENT OF THE REMUNERATION, MENTIONING THE DEFERMENT PERIOD40 |
| AGREEMENT EXECUTED AS TO SUCH SHARES, NOTABLY HEDGING OR RISK TRANSFER AGREEMENTS, THE LIMIT THEREOF, AND THEIR RELATIONSHIP TO THE AMOUNT OF THE OVERALL ANNUAL REMUNERATION 40 |
|---|
| CRITERIA ON WHICH THE ALLOCATION OF A VARIABLE REMUNERATION IN OPTIONS IS BASED, AND INDICATION OF DEFERMENT PERIOD AND EXERCISE PRICE 41 |
| MAIN PARAMETERS OF AND GROUNDS FOR ANY ANNUAL BONUS SYSTEM AND ANY OTHER NON-PECUNIARY BENEFITS 41 |
| MAIN CHARACTERISTICS OF COMPLEMENTARY PENSION OR EARLY RETIREMENT SYSTEMS FOR DIRECTORS, SPECIFYING WHETHER THE SAME WERE SUBJECT TO APPRAISAL, IN INDIVIDUAL TERMS, BY THE GENERAL MEETING OF SHAREHOLDERS 41 |
| IV. REMUNERATION DISCLOSURE 41 |
| REMUNERATION INDIVIDUALLY AND GLOBALLY EARNED BY THE MEMBERS OF THE COMPANY'S MANAGEMENT BODY 41 |
| AMOUNTS PAID, FOR ANY REASON WHATSOEVER, BY OTHER COMPANIES IN A CONTROL OR GROUP RELATIONSHIP OR SUBJECT TO COMMON CONTROL41 |
| REMUNERATION PAID IN THE FORM OF PROFIT SHARING AND/OR BONUS PAYMENT, AND THE REASONS WHY SUCH BONUSES AND/OR PROFIT SHARING WERE GRANTED 42 |
| COMPENSATIONS PAID OR DUE TO FORMER EXECUTIVE DIRECTORS IN RESPECT OF TERMINATION OF OFFICE DURING THE FINANCIAL YEAR 42 |
| REMUNERATION INDIVIDUALLY AND GLOBALLY EARNED BY THE MEMBERS OF THE COMPANY'S SUPERVISORY BODY 42 |
| INDICATION OF THE REMUNERATION OF THE CHAIRMAN OF THE BOARD OF THE GENERAL MEETING OF SHAREHOLDERS42 |
| V. AGREEMENTS WITH REMUNERATION IMPLICATIONS 42 |
| CONTRACTUAL LIMITATION AS ESTABLISHED FOR ANY COMPENSATION TO BE PAID UPON REMOVAL WITHOUT JUST CAUSE OF A DIRECTOR, AND ITS RELATIONSHIP WITH THE VARIABLE COMPONENT OF THE REMUNERATION42 |
| AGREEMENTS WITH MEMBERS OF THE BOARD AND OFFICERS PROVIDING FOR COMPENSATION IN THE EVENT OF TERMINATION OF OFFICE FOLLOWING A CHANGE OF CONTROL 42 |
| VI. SHARE ALLOTMENT OR STOCK OPTION PLANS 43 |
| CONTROL MECHANISMS PLANNED FOR ANY EMPLOYEE CAPITAL HOLDING SYSTEM TO THE EXTENT THAT VOTING RIGHTS ARE NOT EXERCISED BY SUCH EMPLOYEES43 |
| E. RELATED PARTY TRANSACTIONS 43 |
| I. CONTROL MECHANISMS AND PROCEDURES 43 |
| MECHANISMS IMPLEMENTED BY THE COMPANY TO CONTROL RELATED PARTY TRANSACTIONS (IAS 24) 43 |
| TRANSACTIONS SUBJECT TO CONTROL 46 |
| INTERVENTION OF THE SUPERVISORY BODY IN THE PRIOR EVALUATION OF TRANSACTIONS WITH OWNERS OF A QUALIFIED HOLDING46 |
| II. TRANSACTION DETAILS 47 |
| LOCATION, IN THE ANNUAL FINANCIAL STATEMENTS, WHERE INFORMATION ON RELATED PARTY TRANSACTIONS, IN ACCORDANCE WITH IAS 24, IS AVAILABLE 47 |
| PART II – CORPORATE GOVERNANCE EVALUATION 48 |
| IDENTIFICATION OF THE CORPORATE GOVERNANCE CODE ADOPTED 48 |
| STATEMENT OF COMPLIANCE WITH THE CORPORATE GOVERNANCE CODE ADOPTED48 |
| APPENDIX I 57 |
| Functions performed by members of the management body in other companies57 |
| Professional qualifications and professional activities performed during the last 5 years58 | |
|---|---|
| CV data of the members of the Compensation Committee60 | |
| CV data of the members of the Fiscal Council62 | |
| Professional qualifications and professional activities performed during the last 5 years63 | |
| APPENDIX II 68 | |
| APPENDIX III 72 | |
| Code of Ethics 72 |
PHAROL, SGPS SA, is headquartered at Rua Joshua Benoliel, 1, 2C, Edifício Amoreiras Square, 1250-133 Lisboa, with a share capital of EUR 26,895,375.00, registered on the Commercial Registry Office under unique registration and personal number collective 503215058 ("PHAROL" or "Company") is public listed company, issuer of securities admitted to trading on the regulated market of Euronext Lisbon.
In this report, PHAROL complies with the recommendations contained in the Corporate Governance Code of the Portuguese Institute of Corporate Governance ("CGS IPCG") which entered into force on January 1, 2018, revised in 2020, and continues to prepare the Report in accordance with the annex to Regulation of CMVM nº 4/2013 of January 1, 2014 and with the circular issued by the same Commission on January 28, 2020. This Report intends to reflect the adjustment and the pertinence of each recommendation to the reality and conjuncture of the Company with reflecting its classic corporate governance model and the provisions of paragraph a) of no. 1 of article 278 of the Commercial Companies Code.
The structure and investment of the PHAROL Group as of December 31, 2020 are as follows:
The share capital in PHAROL is 26,895,375 Euros and it is fully paid up and represented by 896,512,500 common shares with a par value of three Euro cents each.
All PHAROL ordinary shares are admitted to trading on the Euronext Lisbon regulated market.
On June 3, 2020, PHAROL's Board of Directors decided to terminate its American Depositary Receipts (ADR) program.
This decision is part of the cost reduction strategy and consolidation of Euronext Lisbon as the primary trading market for PHAROL shares, started in 2015 with the delisting of the ADSs from the New York Stock Exchange ("NYSE") and trading in the United States of America only over the counter.
The termination was carried out in accordance with the procedures provided for in the deposit agreement in effect, taking effect on September 3, 2020.
The Company does not adopt any specific limitations as to share transferability. However, the Bylaws provide that shareholders carrying out, directly or indirectly, a business competing with the business of companies in a control relationship with PHAROL may not be the owners, without the prior authorisation of the General Meeting of shareholders, of ordinary shares representing more than 10% of the share capital in the Company.
On 31 December 2020, the Company held 74,822,140 own shares, corresponding to 8,35% of PHAROL share capital.
The voting rights inherent to the own shares are suspended, in accordance with the applicable legislation.
There are no significant agreements entering into force in the event of change in control in PHAROL. There are no measures requiring payment or assumption of fees by the Company in the event of change of control or change in the composition of the Board of Directors and which appear likely to impair the free transfer of shares and free assessment by shareholders of the performance of Board members.
RENOVATION / REVOCATION OF DEFENSIVE MEASURES, IN PARTICULAR THOSE PROVIDING FOR THE RESTRICTION OF THE NUMBER OF VOTES THAT MAY BE HELD OR EXERCISED BY A SINGLE SHAREHOLDER
PHAROL's Bylaws include a limitation on the counting of votes whereby any votes in excess of 10% of the total voting rights corresponding to the share capital cast by a single shareholder of ordinary shares, directly or through a representative, in his own name or as a representative of another shareholder, shall not be counted (article 13, 10).
The Company's bylaws provide a limitation on the counting of votes. On 24 May 2016, the discussion of this point was taken to the Shareholders' Meeting and it was decided to keep this limitation.
Also, the Regulation of the Board of Directors approved at the beginning of 2020 is stipulated that, providing for the Company's bylaws a limitation on the number of votes that can be hold or exercised by a single shareholder, individually or in concert with others, the Board of Directors must promote that, at least every 5 years, should it be submitted to deliberation by the general meeting the change or maintenance of this statutory requirement.
Taking into account the foregoing, at the Annual General Meeting to be held in 2021, a new proposal will be brought to the consideration of shareholders regarding the maintenance (or not) of the release of the articles of association regarding this matter.
SHAREHOLDERS' AGREEMENTS OF WHICH THE COMPANY IS AWARE AND MIGHT LEAD TO RESTRICTIONS IN THE TRANSFER OF SECURITIES OR VOTING RIGHTS
The Company has no knowledge of the existence of any shareholders' agreements that might lead to restrictions in the transfer of securities or voting rights.
OWNERS OF QUALIFIED HOLDINGS, PERCENTAGE OF CAPITAL AND VOTES ATTRIBUTABLE, SOURCE AND CAUSES FOR ATTRIBUTION
As of 31 December 2020, qualified holdings represented about 19.56% of PHAROL share capital, as follows:
| DATE OF INFORMATION |
ENTITIES | NO. OF SHARES |
% OF CAPITAL |
% OF VOTING RIGHTS |
|---|---|---|---|---|
| 31/05/2012 | Telemar Norte Leste S.A. | 89,651,205 | 10.00% | 10.00% |
| Telemar' s sole shareholder is OI S.A | ||||
| Total attributable | 89,651,205 | 10.00% | 10.00% | |
| 02/04/2018 | Novo Banco S.A. | 85,665,125 | 9.56% | 9.56% |
| Directly | 85,665,125 | |||
| Shares held by companies in a controlling or group relationship with Novo Banco, S.A. |
916 | |||
| Shares held by directors and members of the Corporate Bodies |
595 | |||
| Total attributable | 85,666,636 | 9.56% | 9.56% |
PHAROL has a diversified shareholder structure, with around 45% of its share capital held by foreign shareholders, essentially divided between Brazil, North America (US and Canada) and Europe, representing 10%, 4% and 30% respectively of the shareholder basis. The Portuguese market represents around 55% of the shareholder basis.
Source: Interbolsa (December 2020)
For further information on the source and cause of the qualified holdings, please refer to the section called "Qualified Holdings" on the annual management report.
Updated information on qualified holdings in the Company may be consulted at www.pharol.pt and on CMVM website.
Regarding this matter, please see item 17 of Part I below.
Members of the supervisory bodies do not hold PHAROL shares.
The powers of PHAROL's Board of Directors are described in item 21 below.
Prior to the resolution of the General Meeting setting parameters for capital reinforcement or reinforcement, PHAROL's bylaws authorize the Board of Directors, with the favourable opinion of the Fiscal Council, to resolve to increase the capital stock by one or more times, and by cash inflows, in value up to 80,000,000 euros. The total amount of the authorized capital increase includes not only the nominal value of the issue(s) and the issue premium(s). For the calculation of the overall limit of 80,000,000.00, convertible bonds issued under Article 8 of the bylaws shall always be taken into account.
SIGNIFICANT COMMERCIAL RELATIONSHIPS BETWEEN OWNERS OF QUALIFIED HOLDINGS AND THE COMPANY
PHAROL does not have significant commercial relationships with holders of any qualifying holdings.
Nevertheless, PHAROL and Oi still have a Call Option Agreement under which PHAROL holds a call option to repurchase Oi shares that were the subject of the Exchange Agreement entered into in September 2014. Currently, this option concern over 8,538,276.96 common shares and 17,076,553.92 preferred shares of Oi, with an exercise price of 20.104 reais for common shares and 18.529 reais for preferred shares, to be adjusted by the Brazilian CDI rate plus one, 5% per year from March 30, 2015, and a maturity of 6 years, with the possibility of exercising the option for PHAROL at 10% at the end of the first year and at 18% at the end of each subsequent year, and yet to be corrected for the capital increases meanwhile carried out in Oi. This call option is currently valued at zero Euros.
Relevant transactions executed during 2020 with other owners of qualified holdings, who are not related parties, are described in Note 21 the consolidated financial statements included in the Report and Consolidated Accounts 2020. There are no other relevant commercial relations between owners of qualified holdings and the Company.
PHAROL/BRATEL and Oi reached a consensus to close and extinguish judicial and extrajudicial disputes in Brazil, Portugal and in all the different countries where were discussions involving companies from both Groups and was signed an agreement to that effect on 9 January 2019.
In addition to other previously existing guarantees, Oi, as stipulated in the said agreement, through PT Participações SGPS, SA, in January 2020, made a deposit in a guarantee account in the amount of Eur. 34,340,803.32 intended to guarantee the PHAROL in case of eventual condemnation in tax contingencies under Oi's responsibility, thus ending all disputes then existing with this company.
The General Meeting of shareholders ordinarily meets once a year or whenever it is requested to the Chairman of Board of the General Meeting of shareholders by the Board of Directors, the Fiscal Council or by shareholders representing at least 2% of the share capital.
Shareholders may participate directly in the General Meeting or appoint their representatives, within the broadest terms provided for under the Portuguese Companies Code, using the form available at www.pharol.pt and the specific information given in the respective notice.
The Compensation Committee is represented in all General Meetings.
The Chairman of the Board of the General Meeting of shareholders is also provided with logistic support as required to carry out his duties, and the shareholders may contact the Board of the General Meeting of shareholders as follows:
Presidente da Mesa da Assembleia Geral Rua Joshua Benoliel, 1, 2C, Edifício Amoreiras Square, 1250-133, Lisboa Tel. - + 351800207369 Fax - + 351 212697949 E -mail: [email protected]
| Board of the General Meeting of Shareholders | |
|---|---|
| Diogo Lacerda Machado | Chairman |
| Maria de Lourdes Cunha Trigoso | Secretary |
The members of the Board of the General Meeting of Shareholders were elected on 25 May 2018 to complete the 2018-2020.
Under the Company's Bylaws, each share grants the right to one vote. Only shareholders entitled to vote on the record date (i.e., on the fifth trading day prior to the General Meeting) and in compliance with the procedures and periods set forth in the notice.
Within the framework of American Depositary Receipts (ADR) or Global Depositary Receipts (GDR) programmes having as their object Company shares, the holders of ADR or GDR were deemed to be the shareholders, while the entity in whose name the shares were registered were deemed a simple representative of the shareholders, provided however that such shareholders complied with the conditions set forth in the Bylaws for the exercise of such right. These conditions were communicated to the holders of the right to vote in each notice for the General Meeting of shareholders.
As previously mentioned, PHAROL's Board of Directors has decided to terminate its ADR program, whose termination took effect on September 3, 2020.
According to article 13 of the Company's Bylaws, the votes cast by a single holder of ordinary shares, directly or through a representative, in his own name or as a representative of another shareholder, that exceed 10% of the total voting rights corresponding to the share capital shall not be counted. Shares held by a person in situations as provided for under article 20 of the Portuguese Securities Code shall be deemed to belong to the shareholder, and the limitation on the counting of votes cast by each person affected by the said provision shall be proportional to the number of votes held and cast.
There are no shares not granting voting rights, without prejudice to the limitations described above.
The Company Bylaws provide that the voting by correspondence or by electronic means may encompass all matters contained in the notice, under the terms and conditions set forth therein, and votes cast in this way shall be considered at the time of the counting by adding the same to the voting rights exercised in the course of the General Meeting.
The Bylaws further provide that the terms and conditions for voting by correspondence or by electronic means shall be defined by the Chairman of the Board of the General Meeting of shareholders in the notice, in order to ensure their authenticity, regularity, security, reliability and confidentiality up to the time of voting rights exercised in their course of the General Meeting.
Correspondence vote authenticity shall be ensured before the Chairman of the Board of the General Meeting of shareholders by means of a communication with a legally acknowledged signature, in the case of corporations, or, in the case of individuals, with a simple signature together with a photocopy of the relevant identity card. In order to guarantee vote confidentiality, said communication shall be sent in a closed envelope that will only be considered at the time of vote counting.
In respect of voting by electronic means, and according to the Company's practice, shareholders may vote
through the website www.pharol.pt in observance of the requirements established thereon, provided that, by the time and date scheduled on the notice for the General Meeting of shareholders, they deliver to the Chairman of the Board of the General Meeting a communication, prepared in accordance with the form made available on that same website, with a legally acknowledged signature (or, for individuals, a simple signature together with a copy of the relevant identity card), and setting out the post address to where the email and password should be sent by the Company.
Votes cast by correspondence or by electronic means are deemed as negative votes as to any resolution proposals submitted after such votes were cast. The presence at a General Meeting of a shareholder who had exercised his voting rights by correspondence or by electronic means, or of his representative, determines the revocation of the vote so cast.
According to PHAROL's practice, the procedure for voting by correspondence shall be as follows:
The period for receipt of declarations of vote by correspondence according to PHAROL practice is 3 business days prior to the date of the General Meeting.
PHAROL' s Bylaws do not provide for any system of detachment of patrimonial rights pertaining to the shares.
Considering the above described mechanisms for the participation and vote at the General Meeting, PHAROL promotes shareholder participation through voting by correspondence, by electronic means and by duly appointed representative in accordance with the legal and bylaw rules above.
MAXIMUM PERCENTAGE OF VOTING RIGHTS THAT MAY BE EXERCISED BY A SINGLE SHAREHOLDER OR BY SHAREHOLDERS CONNECTED TO THE FORMER THROUGH ANY OF THE RELATIONSHIPS SET FORTH IN ARTICLE 20.1 OF THE PORTUGUESE SECURITIES CODE
Regarding this matter, please see item 12 of Part I above.
SHAREHOLDER RESOLUTIONS WHICH, ACCORDING TO THE BYLAWS, CAN ONLY BE ADOPTED WITH QUALIFIED MAJORITY, APART FROM THOSE LEGALLY PROVIDED FOR
Under article 14 of the Company's Bylaws, the General Meeting of shareholders resolves, on a first or subsequent call, by a majority of votes cast, without prejudice to any qualified majority as required in cases as provided for by law.
In this way, the constitutive and resolute quorum of the General Meeting of shareholders established under PHAROL' s Bylaws is no different from that established under the Portuguese Companies Code.
PHAROL follows a governance model, which is based on the existence of a Board of Directors and a Statutory Auditor ("ROC") elected by the General Meeting of shareholders upon a proposal by the Fiscal Council. In 2017, the Board of Directors appointed a Managing Director with an operational role, and predicted the existence of a Monitoring Committee, which, however, was not fulfilled considering the small size of the company and the high frequency of meetings of the Board of Directors, which end up filling, in this way, that monitoring role.
In any case, a proposal to amend the bylaws is foreseen at the next Annual General Meeting, which, for the reasons mentioned, does not maintain the obligation to create that Monitoring Committee.
PHAROL' organisation structure further includes a Compensation Committee elected by the General Meeting of shareholders, which is responsible for determining the remunerations of the members of corporate bodies.
The members of the corporate bodies and of the Board of the General Meeting of Shareholders are elected for a three-year term of office, and they may be re-elected one or more times within the limits of the law.
The Fiscal Council, together with the External Audit, performs the supervisory functions that derive from the applicable laws and regulations.
PHAROL currently has as its only fundamental objectives the management of two assets: the social participation in the Brazilian company Oi and the possible recovery of credit in the scope of the bankruptcy of Rio Forte.
To ensure its operational functioning, PHAROL has 8 permanent employees and the support of several external consultants and advisory services in the legal, financial and accounting areas.
In this context of such a reduced structure and dimension, the existence of 6 Directors, of which 4 are independent, from the Supervisory Board and the ROC, seem sufficient to efficiently guarantee the functions that are entrusted to the Company's management, including of risks.
On 31 December 2020, PHAROL' governance model could be schematised as follows:
The members of the Board of Directors are elected by the General Meeting of shareholders as described in item 17 of Part I below.
The Bylaws determine that the absence of any director from more than half the ordinary meetings of the Board of Directors during one financial year, in a consecutive way or not, without a justification acceptable to the Board of Directors, shall be deemed as a definitive absence of such director. Such definitive absence shall be declared by the Board of Directors, and the director in question shall be replaced as provided for by law and the Bylaws.
On January 8, 2020, the amendment to the bylaws was decided at the General Meeting, and at present, the Board of Directors is composed of a minimum number of 3 and a maximum of 7 members.
The Company is also subject to the provisions of Law no. 62/2017, of August 1 (regime of balanced representation between women and men in the administrative and supervisory bodies of the entities of the public sector and companies listed). Under the terms of this law, the proportion of persons of each sex reassigned to each management and supervisory body of each company may not be less than 20% from the first elective general meeting after January 1, 2018.
Furthermore, on October 30, 2020, PHAROL approved its Plan for Gender Equality 2020-2021, a document that can be consulted on the Society's website at www.pharol.pt
The term of office of the directors is three years, and may be re-elected one or more times, within the limits established by law.
On December 31, 2020, the board of directors effectively in office was as follows:
| Members (date of first appointment) | Board of Directors |
Independence (1) |
No. of shares |
|---|---|---|---|
| Luís Maria Viana Palha da Silva (2015) | President | No | 200,000 |
| Avelino Cândido Rodrigues (2019) | Member | Yes | |
| Jorge Telmo Maria Freire Cardoso (2014) (*) | Member | No | |
| Maria do Rosário Amado Pinto Correia (2015) | Member | Yes | 40 |
| Maria Leonor Martins Ribeiro Modesto (2018) | Member | Yes | |
| Pedro Zañartu Gubert Morais Leitão (2015) | Member | Yes |
(*) He submitted his resignation request on February 10, 2021.
The Board of Directors non-executive members are the majority of the directors in office.
The Managing-Director reported on all of the relevant matters to all other members of the Board of Directors.
As referred to in item 17 above, as at 31 December 2020 the Company distinguishes executive and nonexecutive directors. In the same item, those directors that are considered independent are identified.
As at 31 December 2020, the Board of Directors of PHAROL has 4 independent directors, from among 6 members of the Board.
The number of non-executive and independent directors is adequate in relation to the provisions of Recommendations III.2 to III.4 of the IPCG Code, with a number of directors non-executives who meet the independence requirements of more than 1/3 and meeting the conditions for the effective performance of the Board of Directors in relation to the size of the Company. This ensures strategic decision-making regarding the company's risk profile, constructive supervision of the results achieved, as well as the ability to influence an efficient decision-making process and implement appropriate governance, sustainability and ethical conduct practices.
All directors deemed independent by PHAROL, as of 31 December 2020, as set out in item 17 above, meet the conditions required for the performance of their duties and compliance with their obligations to act diligently and in the interest of the Company in an independent manner. Thus, the Board of Directors considers that the Company's management body includes a number of independent members that is appropriate to its size and shareholder structure.
According to PHAROL's Internal Regulation no. 3/2017, the members of the Board of Directors of the Company, must send to the Chairman of the Board, within 10 business days as from their election or cooptation, and no later than 31 January of each year, declarations prepared in accordance with an Appendix to the said Internal Regulation.
Where the independence situation of any member of the Board of Directors is subsequently changed, the director in question must send to the Chairman of the Board an updated declaration, in the 10 business days following such subsequent change.
The Board of Directors assesses the independence of its non-executive members, on the basis of such declarations, as well as of any other information of which the Board may be aware.
The composition and qualifications of the members of the Board of Directors of PHAROL are defined in the internal regulations of this Board, referred in point 21 of this report.
PHAROL also complies with the provisions of Article 245-A of the CVM and with the balanced representation regime between women and men between the management and supervisory bodies of public sector entities and listed companies, law 62/2017.
In accordance with Recommendation I.2.1., the curricula of the members of this body follow in Annex I, describing the criteria and conditions related to the respective profile, including individual attributes and diversity requirements.
FAMILY, PROFESSIONAL OR COMMERCIAL RELATIONSHIPS, FREQUENT AND SIGNIFICANT, OF THE MEMBERS OF THE BOARD OF DIRECTORS WITH OWNERS OF QUALIFIED HOLDINGS ABOVE 2% OF THE VOTING RIGHTS
As at 31 December 2020, no member of the board of directors has no family, professional or commercial relationships, frequent and significant, with owners of qualified holdings above 2% of the voting rights, except:
Pursuant to the Bylaws, the Board of Directors is the corporate body responsible for managing the Company's businesses and practicing all acts regarding the corporate scope that are not within the powers of other corporate bodies. It establishes the strategic orientation of PHAROL and monitors the day-to-day management delegated to the Managing Director, designated in 2017 to ensure the existence of a structure more suited to the management needs of PHAROL.
On February 28, 2020, a new regulation of the Board of Directors was approved, governed by the following
The Board of Directors will perform its duties in accordance with the corporate interest and with the applicable legal and statutory provisions, taking into account the general objectives and fundamental principles of the Company, the long-term interests of its shareholders and other investors and the sustainable development of the activity corporate structure of the Company and its subsidiary company (ies). Corporate governance should promote and enhance the performance of companies and the capital markets and consolidate the confidence of investors, workers and the general public in the quality and transparency of management and supervision and in the sustained development of society.
The Company's Board of Directors is composed of the members elected in accordance with the applicable legal and statutory provisions framed in an open and transparent culture with respect for diversity.
The Directors, whose profiles will have to correspond to criteria and requirements of technical competence, independence, integrity, loyalty, availability, experience and gender diversity, will develop their respective qualifications, knowledge and experience with a view to the exercise of their duties and competences and the fulfilment respective duties and functions.
The duties and powers of the Board of Directors are as follows:
by a single shareholder, individually or in consultation with other shareholders, the Board of Directors must promote that, at least every 5 years the amendment or maintenance of this statutory provision is subject to deliberation by the general meeting.
l) Appointing and removing the General Secretary and the Company Secretary and their alternate(s).
Within the delegation of powers, the Board of Directors assigned the Managing Director all powers necessary for the day-to-day management of the Company, except for those matters that are not delegable pursuant to article 407 of the Portuguese Companies Code listed below:
No authority of the Board of Directors is delegated as regards: (i) the determination of the Company's general strategy and policies, and strategic decisions due to their amount, risk or special features, notably, regarding this latter, as a consequence of such matters being reserved to the powers of the Board of Directors pursuant to its Internal Regulation.
Regarding the Monitoring Committee, it is explained in item 15 the solution adopted.
Notwithstanding the Fiscal Council's powers, the Board of Directors is also responsible for ensuring the Company practice effective internal control and risk management procedures, in accordance with the rules of procedure. The application structures of these systems are described in C.III of Part I of this report.
Other than any matters excluded by law, the Board of Directors is forbidden from passing resolutions on matters assigned by the Bylaws to the General Meeting of shareholders. Shareholders, in their turn, may only resolve on management matters at the request of the management body.
All members of the Board of Directors take informed decisions on the matters submitted to them.
The Board of Directors during 2020 met with high frequency, having held 11 meetings, between ordinary and extraordinary meetings.
The Board discussed the main issues relevant to the Company, namely discussing its Strategic Plan and approving the Budget, as well as all other matters of importance to the Company's management. Budgetary deviations and in-depth strategic options were regularly assessed for each of the assets included in PHAROL's portfolio.
The Board of Directors met with the Audit Board whenever necessary or imposed by the rules and regulations and received periodic information notes on the main issues and decisions made by the Chief Executive Officer.
The participation and contribution of all Directors for the evaluation and deliberation of all situations brought to the Board was a constant.
Due to the information received from the Managing Director and the regularity with which the Board met, the Board of Directors has maintained that it is not necessary for a Commission to follow up on it.
The Board of Directors maintained a Self-Assessment model, which was guaranteed to be anonymous and confidential, covering a wide range of 21 items.
In this questionnaire were evaluated the composition and decision-making process of the Board of Directors, covering various topics such as the respective size, diversity and independence, quality of the information that allows monitoring its strategic objectives and risk assessment, as well as the quality of the decisions taken and focus on the main issues, within the Council's competence.
In another context, matters relating to the responsibility of the Board of Directors, the role and leadership of the President and the performance of the Secretary Company in terms of supporting the President and the Board itself were evaluated.
Pursuant to the Bylaws and to the Board of Directors' internal operating rules, the Chairman of the Board of Directors is entrusted with the following duties:
Since 2017, the Board of Directors delegated on a Managing-Director the daily management of the Company, according to the respective delegation of powers, retaining supervision and control functions.
On February 28, 2020, a new regulation of the Managing-Director was approved, which has a description of his powers and delegation of powers.
Within the scope of these Regulations, it is incumbent upon the Managing-Director to decide the instructions or guidelines to be given by the Company to the directors of its subsidiary companies, regarding the matters referred to in its delegation of powers, under the terms and in compliance with the provisions of the applicable law.
The Managing Director is responsible for the management of the daily management of the Company, in accordance with the terms of the Portuguese Companies Code and the Bylaws.
Within the quantitative limits established by the Board of Directors, it is the responsibility of the Chief Executive Officer, namely:
a) propose to the Board of Directors the goals and management policies of the Company;
As a supervisory body, the Fiscal Council has, in addition to all other powers established in the law or the Bylaws, the following specific rules:
clearance or a declaration of impossibility of issuing such clearance, besides including a statement signed by each of its members, as provided for in Art. 245(1)(c) of the Portuguese Securities Market Code;
The Fiscal Council also has the following duties:
a) Analyse and issue its opinion on relevant issues related to accounting and auditing aspects and the impact on the financial statements caused by alterations to account standards applicable to the Company and to its accounting policies;
Under articles 420,1(c), (d), (e) & (f) and 446,3 of the Portuguese Companies Code, it is the duty of the Statutory Auditor to control the regularity of the books, accounting records and documents supporting the same, as the Statutory Auditor deems fit and appropriate, the extension of cash and inventory of any kind of assets or values owned or received as collateral, deposit or otherwise by the Company, and furthermore the accuracy of individual and consolidated financial statements, as well as that the accounting policies and criteria adopted by the Company lead to a correct assessment of its assets and results.
Following entry into force of Decree-Law no. 185/2009 of 12 August 2009, similarly to the Statutory Auditor, it also became the duty of the Statutory Auditor to verify whether the Company's governance report disclosed each year includes all legally required data as regards, inter alia, qualified shareholdings in the Company capital, identification of shareholders of special rights and description of such rights, any restrictions in respect of voting rights, rules applicable to appointment and replacement of directors, Bylaw amendment and powers and resolutions of the management body, and the main constituents of the internal control and risk management systems implemented in the Company in connection with the financial information disclosure procedure.
The full text of the Board of Directors regulation may be consulted on the Company's website, link:
Under the terms of article 24 of the Bylaws and the Board's Internal Regulation, the Board of Directors shall meet, at least, every three months of each year, and shall meet in extraordinarily sessions whenever convened by its Chairman, by two Directors or by the Fiscal Council. Detailed minutes are drawn up from these meetings.
The Board of Directors may not work without the presence of the majority of its members in office. The Chairman of the Board of Directors may, when clearly urgent, waive the presence of such majority if the same is ensured through voting by correspondence or through a power of attorney, although a director may not represent more than one other director.
The resolutions of the Board of Directors are passed by a majority of votes cast, and the Chairman has a
casting vote.
NUMBER OF MEETINGS OF THE BOARD OF DIRECTORS AND DEGREE OF ATTENDANCE OF EACH MEMBER
During the 2020 financial year, 11 meetings of the Board of Directors took place. The degree of attendance of directors at these meetings of the Board of Directors of PHAROL was 100%
INDICATION OF THE CORPORATE BODIES EMPOWERED TO CARRY OUT THE PERFORMANCE EVALUATION OF EXECUTIVE DIRECTORS
The Compensation Committee determines the remunerations of the members with executive functions based on objective criteria as approved by such Committee.
Furthermore, pursuant to the law, the General Meeting of shareholders makes an annual general appraisal of the management (and supervision) of the Company.
PRE-DETERMINED CRITERIA FOR THE PERFORMANCE EVALUATION OF EXECUTIVE DIRECTORS
On March 27, 2020, the General Meeting of Shareholders adopted the Declaration of the Compensation Committee on the Remuneration Policy for the members of the management and supervisory bodies, included on Appendix II.
The functions exercised by the Company' directors in other companies as well as their other relevant activities are shown in Appendix I, there being highlighted the duties performed and the attendance and active participation of the directors in the meetings of the Board of Directors (in respect of all its members) – see item 23 of Part I above – evidence the availability of each member of the Board of Directors to perform duties as director of the Company.
COMMITTEE CREATED WITHIN THE BOARD OF DIRECTORS AND LOCAL FOR THE CONSULTATION OF ITS OPERATING RULE
The Regulation for the Monitoring Committee may be consulted on the Company's website, link:
http://conteudos.pharol.pt/Documents/EN/Regulation/2015/06\_June/RegulamentoComissaoAcompanha mento\_en.pdf
COMPOSITION OF THE EXECUTIVE COMMITTEE AND/OR IDENTIFICATION OF MANAGING DIRECTORS
According to the Bylaws, the Board of Directors appoints the Managing Director.
As of December 31, 2020, the Managing Director was the Chairman of the Board of Directors, Luís Maria
Viana Palha da Silva
Regarding this matter, please see items 21 and 27 of Part I above.
COMPOSITION
The supervisory body is the Fiscal Council.
Pursuant the Company Bylaws, the Fiscal Council is composed of three effective members and one alternate member, appointed by the General Meeting of shareholders.
On December 31, 2020, the Fiscal Council was composed as follows:
| José Maria Rego Ribeiro da Cunha | Chairman |
|---|---|
| Isabel Maria Beja Gonçalves Novo | Member |
| João Manuel Pisco de Castro | Member |
| Paulo Ribeiro da Silva | Alternate member |
IDENTIFICATION OF THE MEMBERS OF THE FISCAL COUNCIL COMMITTEE CONSIDERED INDEPENDENT UNDER ARTICLE 414,5 OF THE PORTUGUESE COMPANIES CODE
The Fiscal Council members meet the requirements on incompatibilities, independence and specialization arising from legal and regulatory requirements to Corporate issuers of securities admitted to trading on a regulated market.
The curricula of the members of PHAROL's Fiscal Council are shown in Appendix I.
All powers of the Fiscal Council are described in the Company's Bylaws, in addition to the Fiscal Council having adopted an internal regulation of operation, approved unanimously by all members of the Fiscal Council on October 29, 2015 and reviewed on November 9, 2020, which may be consulted at the following link:
https://pharol.pt/en-us/governo-sociedade/Pages/Conselho-Fiscal.aspx
According to such Regulation, the Fiscal Council meets at least once every three months, on the day and at the place established by its Chairman, although extraordinary meetings may be called upon by its Chairman or at the request of a majority of its members.
The Fiscal Council shall not function without the presence of the majority of its members in office. Its Chairman may, when clearly urgent or there is a justified impossibility, waive the presence of that majority if the same is ensured through voting by correspondence or by power of attorney.
The Fiscal Council's resolutions are approved by a majority of the votes cast, and its Chairman has a casting vote.
NUMBER OF MEETINGS OF THE FISCAL COUNCIL AND DEGREE OF ATTENDANCE OF EACH MEMBER
During the 2020 financial year, 11 meetings of the Fiscal Council took place. The degree of attendance of each member to these meetings was 100%.
AVAILABILITY OF EACH MEMBER OF THE FISCAL COUNCIL AND INDICATION OF FUNCTIONS EXERCISED SIMULTANEOUSLY IN OTHER COMPANIES, INSIDE AND OUTSIDE THE GROUP, AND OTHER RELEVANT ACTIVITIES EXERCISED BY THE MEMBERS OF THE FISCAL COUNCIL
The functions exercised by the members of PHAROL's Fiscal Council in other companies as well as their other relevant activities are shown in Appendix I.
PROCEDURES AND CRITERIA APPLICABLE TO THE INTERVENTION OF THE SUPERVISORY BODY WHEN HIRING ADDITIONAL SERVICES FROM THE EXTERNAL AUDITOR
In the year 2020, PHAROL did not contract to the external auditor or any entity with a group relationship or that incorporate the same network, for any other services than audit services.
Regarding this matter, please see item 21 of Part I above.
The Statutory Auditor effective for the period from2018-2020 is BDO & Associados, SROC, Lda., registered in the Statutory Auditor's Professional Association ("OROC") under no. 29 and at CMVM under no.20161384, represented by its partner and manager Rui Carlos Lourenço Helena, registered at OROC as Statutory Auditor, under no. 923.
The firm BDO & Associados, SROC. Lda., performs duties as Statutory Auditor in the Company since 29 May 2015. Pursuant to its duties, PHAROL's Fiscal Council confirmed the independence of the Statutory Auditor and appraised its work during the 2020 financial year.
In 2020, the Statutory Auditor also rendered the external audit service to PHAROL and there are no other services rendered.
IDENTIFICATION OF THE EXTERNAL AUDITOR AND OF ITS REPRESENTING PARTNER, AS WELL AS THEIR RESPECTIVE REGISTRY NUMBER BEFORE THE CMVM
PHAROL's current External Auditor, appointed in 2015 for the purposes of article 8 of the Portuguese Securities Code, is BDO & Associados – SROC, Lda., registered at OROC under no. 29 and at CMVM under no. 20161384, and it is represented by its partner and director Rui Carlos Lourenço Helena, registered at OROC as Statutory Auditor under no. 923.
NUMBER OF YEARS DURING WHICH THE EXTERNAL AUDITOR AND ITS REPRESENTING PARTNER PERFORM DUTIES CONSECUTIVELY IN THE COMPANY AND/OR GROUP
PHAROL's current External Auditor is BDO & Associados – SROC, Lda., registered at OROC under no. 29 and at CMVM under no. 20161384, began its functions in March 2015.
POLICY AND PERIOD FOR THE ROTATION OF THE EXTERNAL AUDITOR AND OF ITS REPRESENTING PARTNER
There is no internal policy for the External Auditor's mandatory rotation, apart from the one legally applicable to public interest entities. The mandatory rotation period applicable to the Statutory Auditor that represents the External Auditor in the performance of its duties results from article 54,2 of the OROC Statutes (7 years).
The Fiscal Council annually evaluates the External Auditor's performance and independence, as described in the annual Report of the Fiscal Council's activities.
Pursuant to its duties, the Company's Fiscal Council assessed and confirmed the independence of BDO & Associados, SROC, Lda., and appraised its work relating to the 2020 financial audit of the Company.
SERVICES, OTHER THAN AUDITING SERVICES, PROVIDED BY THE EXTERNAL AUDITOR TO THE COMPANY AND/OR ENTITIES IN A CONTROL RELATIONSHIP, AS WELL AS INDICATION OF INETRNAL PROCEDURES FOR THE PURPOSES OF APPROVING THE HIRING OF THOSE SERVICES AND REASONS FOR SUCH HIRING
There were no services other than auditing services provided to the Company or to the companies in a control relationship with PHAROL by the External Auditor beyond the role of the Statutory Auditor.
INDICATION OF THE AMOUNT OF ANNUAL REMUNERATION PAID TO THE AUDITOR AND OTHER INDIVIDUALS OR CORPORATIONS IN THE SAME NETWORK SUPPORTED BY THE COMPANY AND OR BY CORPORATIONS IN A CONTROL OR GROUP RELATIONSHIP, AS WELL AS SPECIFICATION OF THE PERCENTAGE OF EACH TYPE OF SERVICE
BDO & Associados, SROC, Lda. for the external audit and Statutory Auditor simultaneously will represent a total cost of 42,000 euros to which VAT is added at the legal rate, referring to 2020.
RULES APPLICABLE TO AMENDMENT TO THE BYLAWS OF THE COMPANY
The PHAROL's Bylaws do not establish a constitutive quorum higher than that established by law.
Where an amendment to the Bylaws is at issue, the General Meeting of shareholders may only resolve on a first call, if shareholders owning shares corresponding to at least one-third of the share capital are present or represented. On a second call, no such requirement exists, and the General Meeting may resolve on any matter whatever the number of shareholders present.
The PHAROL's Bylaws do not establish a resolution quorum higher than that established by law.
Decisions regarding the amendment of the Bylaws must be approved by a minimum of two thirds of the votes cast, whether the General Meeting meets first or second call, unless, in the latter case, shareholders holding at least half of the share capital, and such resolutions may then be taken by a majority of the votes cast (paragraphs 3 and 4 of article 386 of the Portuguese Companies Code).
The Board of Directors may move the Company's headquarters within the national territory and decide to increase the share capital, provided, in this case, previously authorized by the General Meeting and with the favourable opinion of the Fiscal Council, which will determine changes to the bylaws of the Company.
In December 2016, PHAROL revised a set of procedures called regarding to the rules and the procedure to adopt in the System for Disclosure of Unethical Practices or Whistleblowing.
Within Whistleblowing, "Unethical Practices e/or irregularities" mean all acts or omissions, wilful or negligent, performed within the activities of the companies pertaining to PHAROL, that may have an impact on the financial statements or information sent to the Portuguese regulatory authority, CMVM, or those that cause damage to PHAROL's assets and reputation.
Suitable safety measures were implemented for the protection of information and data contained in communications. In particular, restricted access will be guaranteed, from a physical and logical perspective to the System servers, and the means for gathering and filing information must be exclusive to the System.
Both confidentiality of the communication and anonymity of the person reporting will be ensured at all times, unless the person concerned unequivocally intends and declaresotherwise.
In no case is any kind of retaliation against those that make the said communications tolerated.
Disclosure of Unethical Practices (Whistleblowing).is available on the Company's website
http://pharol.pt/en-us/governo-sociedade/participacao-praticas-indevidas/pages/enquadramento.aspx
The Internal Control System implemented at PHAROL was based on an internationally acknowledged model – COSO (Committee of Sponsoring Organisations of the Treadway Commission) – making use of the layers established according to such model, notably: (i) Entity Level Controls; (ii) IT Level Controls; and (iii) Process Level Controls.
PHAROL designed a manual and implemented controls for the most representative business cycles within the Company. As to lesser business cycles, and within the framework of improvement of internal control and risk management environment, PHAROL defined a set of minimum internal control requirements.
PHAROL´s internal control manual and most relevant business cycles may be summarised in the table below:
The identification and design of the controls that are relevant to financial reporting, whether preventive, detective or corrective, are documented in the proper manual according to the layers established by COSO. The manual is revised where changes in the processes occur or periodically, in order to attest their adhesion to the reality of PHAROL's operations.
Currently, PHAROL has already identified around 62 controls, of which 39 are considered as key controls.
The internal control system is checked by the External Auditors and the External Auditors also verify the implementation of remuneration policies and systems in force in the Company.
The Fiscal Council monitors PHAROL permanently as follows:
The internal control system is monitored by the Board of Directors, which identifies the risks of the company, the results of the risk management process, the materiality level of financial reporting and proposes the implementation of measures.
Given the size of the company, is not implemented an internal audit system and these activities are ensured when necessary by the External Auditor.
The annual plan in respect of the External Audit and Risk Management function, in which the audits to be carried out and their scope are defined, is annually approved by the Managing Director and informed to the Fiscal Council of PHAROL. The objective of these audit procedures is to ensure that internal control mechanisms are in place to ensure the reliability and integrity of financial and operational reports, operational efficiency and compliance with applicable laws and regulations.
The progress of the execution of the annual audit plan as defined, as well as the aggregate results of audits carried out, are reported to the Fiscal Council and to Managing Director for the follow-up of the progress of the internal control and risk management system and definition of action plans for mitigation and resolution of risks detected.
Risk Management is promoted by the Board of Directors and the Managing Director in such a way as to identify, assess and manage uncertainties, threats and opportunities that might affect the pursuance of the plan and strategic goals, to decide on the level of exposure and overall risk limits to be undertaken by PHAROL in its different activities and to ensure that management risk policies and procedures are followed.
PHAROL risk level results from the degree of the Board's acceptance for risk, which is kept within limits according to criteria as agreed between the Board of Directors, the Managing Director and the Fiscal Council, this latter under legal terms, responsible for evaluating the effectiveness of the Risk Management System under the fiscal, legal, economic and financial viewpoint.
Risk Management is entrusted to the Board of Directors, performed by the Managing Director, although it depends on the supervision of the Fiscal Council.
MAIN ECONOMIC, FINANCIAL AND LEGAL RISKS TO WHICH THE COMPANY IS EXPOSED IN THE CONDUCT OF ITS BUSINESS
Among the various risks that may adversely affect the business of PHAROL, the following should be highlighted:
| Macro Risk |
Sub-Risk | Risk Factors | Mitigation Measures |
|---|---|---|---|
| Economic Risks |
Oi's Performance |
Now with Oi in day-to-day management (although still formally in Judicial Reorganization) and in the implementation of its Strategic Plan, the main risk that PHAROL is subject to through Oi is Oi's financial and operational performance, namely from its ability to execution of the asset sale plan and to generate results and cash flow and to pay dividends. Consequently, PHAROL's performance through Oi is also subject to and dependent on the performance of the Brazilian economy. |
PHAROL continues to monitor the Judicial Recovery process and, whenever necessary, intervene through legal means to guarantee its rights as a shareholder. PHAROL also evaluates and analyzes Oi's investment every six months. |
| COVID-19 | PHAROL is subject to the potential economic shocks that a pandemic can cause in the economies in which society operates and may have a direct effect on the market value of the assets in which PHAROL has a stake. |
PHAROL monitors the evolution of the pandemic crisis on a daily basis. |
|
| Information Security |
PHAROL is exposed on a daily basis to security risks, including the availability, integrity and confidentiality of the information. |
PHAROL has implemented backup, firewall and antivirus procedures in its systems, as well as building security, in order to mitigate risks related to information security. |
|
| Financial Risks |
Exchange Rates | Foreign currency exchange rate risks relate mainly to PHAROL's investment in Oi (Brazil). Any exchange rate fluctuations of the Real against the Euro affect the valorization of Oi shares held by PHAROL, and therefore impact PHAROL's results and financial position. The society does not have a policy to cover the value of the financial investment. |
The Company, in order to reduce exchange rate risk, can hedge its position using derivatives for which there is a market, however, it currently does not have a policy to cover the value of the financial investment. |
| Interest Rate | Interest rate risks basically relate to financial expenses and the floating interest rate debt and cash applications. PHAROL is indirectly exposed to this risk specially in Brazil. It should be noted that PHAROL has no bank debt as of December 31, 2020.Market interest |
On December 31, 2020 PHAROL has no debt. |
| rates also affect the discount rates used for impairment testing to the various assets of the company. |
|||
|---|---|---|---|
| Treasury Applications |
PHAROL is mainly subject to credit risks in its treasury applications. |
In order to dilute these risks, in July 2014 the Board of Directors defined a policy for treasury applications and this policy has reviewed in 2019. |
|
| Default by Rio Forte as to the reimbursement of the instruments that PHAROL holds following the execution of the Exchange |
The Rio Forte Instruments currently held by PHAROL, are not guaranteed by assets. Therefore, even though there may exist amounts available for reimbursement to Rio Forte's creditors the right to reimbursement of PHAROL will be shared pro rata with the other unsecured creditors of Rio Forte and only after the repayment of all debts to any secured creditors, and after confirmation of the validity of the credits. |
PHAROL evaluates this instrument every year, with the supervision of the Fiscal Council and External Audit and closely monitors Rio Forte's insolvency process taking place in Luxembourg. |
|
| Legal | Court proceedings |
PHAROL may incur in liabilities in connection with litigation or other future proceedings and incur in defense costs in such litigation or other proceedings. Any liability incurred could adversely affect PHAROL's financial situation. |
The Board of Directors subcontracts the risk analysis as to court proceedings to external lawyers and consultants, to know, for each claim, their assessment as to PHAROL's liability (probable, possible and remote occurrence), the status of the proceedings, the amounts involved, provisioned and paid, and what steps should be taken to defend PHAROL's interests. |
| Risks | Disputes or investigations triggered under the Rio Forte Instruments or the Business Combination |
The Rio Forte Instruments and the Business Combination carried specific risks due to the complexity of Rio Forte's insolvency process and the Business Combination with Oi. |
PHAROL has hired a team of Luxembourg lawyers specialized in insolvency proceedings to ensure the closest possible monitoring of the Rio Forte Instruments. It also has other legal advisors in Portugal who follow the Business Combination with Oi from the beginning and, whenever necessary, request legal advice from specialists in Brazilian law. |
| Tax contingencies |
In accordance with the agreements with Oi, Oi is responsible for the payment of all contingencies until May 5, 2014 and PHAROL remains and severally liable for these contingencies. |
Oi has deposited in escrow Eur.34,340,803.32 as a guarantee to PHAROL in the event of tax contingencies that shall be incurred by Oi. |
The Risk Management procedure implemented in PHAROL is based on an internationally acknowledged methodology – COSO II, developed by the Committee of Sponsorship Organisations of the Treadway Commission. This approach is based on the identification and analysis of key value drivers and uncertainty factors that might affect value generation and compliance with the plan and strategic goals.
PHAROL's priority commitment consists in the implementation of mechanisms for assessment and management of risks that might affect its operations. Such mechanisms are based on an integrated transversal risk management model, which seeks to ensure, implementation of good corporate governance practices and transparency in communication to the market and shareholders.
The whole process is monitored and supervised by the Fiscal Council. Within the functions of this body regarding the supervision of the efficiency of the risk management system, we point out the analysis of the quality, integrity and effectiveness of the risk management system and internal control system, including the annual review of its adequacy and effectiveness, and generally monitoring the execution of the functions performed by the Managing Director.
Considering PHAROL's need for clear assessment and management mechanisms for the risks affecting its businesses, the following components were defined in the implementation of the risk assessment and management procedure:
The table below shows the risks currently identified at the level of the Risk Management Model of PHAROL on which all risk management procedures are developed.
| Oi's Performance | |
|---|---|
| Economic Risks | COVID-19 |
| Information Security | |
| Exchange rates | |
| Interest rates | |
| Financial Risks | Credit |
| Liquidity | |
| Default by Rio Forte as to the reimbursement of the instruments that PHAROL holds following the execution of the Exchange |
| Agreements with Oi / Business Combination | |
|---|---|
| Court proceedings | |
| Legal Risks | Disputes or investigations triggered under the Rio Forte Instruments or the |
| Business Combination |
In its risk assessment, the Board of Directors and Managing Director considers the existence of predictable and unpredictable events. While most events are recurrent and have already been dealt with in already prepared management programs and budgets, there are events that are often unpredictable. The Board of Directors and Managing Director assesses the risks that may cause a significant impact on the Company, taking into account both the inherent risk of materialization of the risk and the residual risk (the risk that still exists after measures have been taken by the Board of Directors and the Managing Director).
The Board of Directors allocates responsibilities to the Managing Director in order to formalise procedures that are aligned with the strategy and exposure level/risk tolerance determined for PHAROL, in such a way as to identify:
Operational implementation of the risk management methodology is an interactive cyclical process that may be summarised in the following table:
| Risk Management Methodology | |
|---|---|
| Identifies main risks affecting PHAROL; | |
| Board of Directors | Decides on action and prioritisation of mitigating |
| actions. | |
| Implement policies and controls in accordance with | |
| Managing Director | the strategy set by the Board of Directors. |
| Monitors the implementation of controls. | |
| Supervises and evaluates risk management model; | |
| Fiscal Council | Proposes improvements & changes to model; |
| Reviews the main risks. |
MAIN ELEMENTS OF INTERNAL CONTROL AND RISK MANAGEMENT SYSTEMS IMPLEMENTED IN THE COMPANY IN CONNECTION WITH THE FINANCIAL INFORMATION DISCLOSURE PROCEDURE
The wider scope of the internal control system implemented by PHAROL includes existing controls both as to the accuracy and completeness of disclosures and as to compliance thereof with the Company's financial information. At the beginning of the process, the Managing Director, together with the Company services, the External Auditor and the Statutory Auditor, establish a timeline for the process and identify the participants/responsibility aimed at the preparation/disclosure of the financial information.
Before approval by the Board of Directors and by the Managing Director, financial information disclosures are submitted to the Fiscal Council within the context of the Company's governance model. Both the Board's approval and the Fiscal Council's opinion are preceded by a set of validation and accuracy procedures carried out by the Company services.
It is PHAROL's policy to supply clear and transparent information, on a regular basis, to its shareholders and other members of the financial community.
The purpose of the Investor Relations Office consists in ensuring adequate relations with shareholders, investors, analysts and financial markets in general, in particular with the Markets and Stock Exchanges where PHAROL is listed and the respective regulatory entity: CMVM.
PHAROL regularly prepares communications and press releases on interim and annual results, as well as any inside information affecting the Company. It also provides all sorts of clarifications to the financial community in general – shareholders, investors and analysts.
The financial information that is disclosed is previously audited and validated by the External Auditors and by the Management and Supervisory Bodies.
In addition, material information in relation to its activity or to the securities issued is disclosed immediately and publicly, and shareholders and other stakeholders may access it through the company's website.
Any interested party may have access to the Investor Relations Office through the following contacts:
| Luís Sousa de Macedo | |
|---|---|
| Investor Relations Director | |
| Telephone: | +351.212.697.698 |
| Fax: | +351.212.697.949 |
| E-mail: | [email protected] |
| Address: | Rua Joshua Benoliel, 1, 2C - Edifico Amoreiras Square 1250-133 Lisboa - Portugal |
| Company Switchboard: | +351.212.697.690 |
| Website: | www.pharol.pt |
In addition to other information, PHAROL keeps the following information updated on its website, in Portuguese and in English:
The identity of the members of the corporate bodies and of the representative for relations with the market;
Duties of and access means to the Investor Relations Office as described above;
Regarding this matter, please see item 56.
The Investor Relations Office regularly receives calls with various questions, including clarifications on dividends, General Meetings of shareholders and others, typically answered immediately, when the information is public.
Also, receives requests by e-mail or post and depending on the technical complexity of the query it may take longer to answer, but typically it takes less than five business days.
Therefore, PHAROL believes that its Investor Relations Office ensures a permanent contact with investors, analysts and the market in general as well as a treatment of investors' requests.
PHAROL makes available, through its website, www.pharol.pt ,all information of a legal nature or on corporate governance, updates on the conduct of the business of the Company, as well as a complete set of Company financial and operational data, in order to facilitate inspection and access to such information by PHAROL's shareholders, financial analysts and other parties concerned.
LOCATION OF INFORMATION ON THE COMPANY NAME, ITS NATURE OF PUBLIC COMPANY, REGISTERED OFFICE AND OTHER DATA PURSUANT TO ARTICLE 171 OF THE PORTUGUESE COMPANIES CODE
All information pursuant to article 171 of the Portuguese Companies Code may be found on PHAROL website at:
http://pharol.pt/en-us/a-empresa/pages/informacao-corporativa.aspx
LOCATION OF INFORMATION ON THE BYLAWS AND OPERATING RULES OF THE CORPORATE BODIES AND/OR COMMITTEES
The bylaws and operating rules of the corporate bodies and of the committees created within the Board of Directors may be found on PHAROL' website at:
http://pharol.pt/en-us/governo-sociedade/pages/estatutos.aspx
http://pharol.pt/en-us/governo-sociedade/pages/conselho-fiscal.aspx
http://pharol.pt/en-us/governo-sociedade/comissoes-internas/pages/enquadramento.aspx
LOCATION OF INFORMATION ON THE IDENTITY OF THE MEMBERS OF THE CORPORATE BODIES, THE REPRESENTATIVE FOR RELATIONS WITH THE MARKET, THE INVESTOR RELATIONS OFFICE OR EQUIVALENT, THEIR DUTIES AND ACCESS DETAILS
The identity of the members of the corporate bodies, the representative for relations with the market, the Investor Relations Office or equivalent, their duties and access details may be found on PHAROL' website at:
http://pharol.pt/en-us/governo-sociedade/pages/conselho-administracao.aspx
http://pharol.pt/en-us/governo-sociedade/pages/conselho-fiscal.aspx
http://pharol.pt/en-us/contactos/pages/relacao-investidores.aspx
LOCATION WHERE THE COMPANY MAKES AVAILABLE THE FINANCIAL STATEMENTS, WHICH MUST BE ACCESSIBLE FOR FIVE YEARS AT LEAST, AS WELL AS A SCHEDULE OF CORPORATE EVENTS, DISCLOSED AT THE BEGINNING OF EACH HALF-YEAR, INCLUDING, AMONG OTHERS, GENERAL MEETINGS OF SHAREHOLDERS, DISCLOSURE OF THE ANNUAL, HALF-YEAR AND, IF APPLICABLE, QUARTERLY FINANCIAL STATEMENTS
The financial statements, as well as the schedule of corporate events may be found on PHAROL' website at:
https://pharol.pt/en-us/informacao-financeira/relatorios/pages/2020.aspx
http://pharol.pt/en-us/informacao-financeira/calendario-financeiro/Pages/calendario-financeiro.aspx
LOCATION WHERE THE COMPANY MAKES AVAILABLE NOTICES OF THE GENERAL MEETING OF SHAREHOLDERS AND ALL PREPARATORY AND SUBSEQUENT INFORMATION RELATED TO THE SAME
Notices of the General Meeting of Shareholders and all preparatory and subsequent information related to the same may be found on PHAROL's website at:
http://pharol.pt/en-us/governo-sociedade/assembleia-geral-acionistas/Pages/assembleia-geralacionistas.aspx
LOCATION WHERE THE COMPANY MAKES AVAILABLE THE HISTORICAL COLLECTION WITH THE RESOLUTIONS PASSED AT THE GENERAL MEETINGS OF SHAREHOLDERS, THE SHARE CAPITAL THEREIN REPRESENTED AND THE VOTING RESULTS, REGARDING THE PREVIOUS THREE YEARS
The historical collection with the resolutions passed at the Company's General Meetings of
shareholders, the share capital therein represented and the voting results may be found on PHAROL' website at:
http://pharol.pt/en-us/governo-sociedade/assembleia-geral-acionistas/Pages/assembleia-geralacionistas.aspx
The Compensation Committee is elected by the shareholders at a General Meeting and serves the purpose of defining the remuneration policy of the members of the corporate bodies, determining the remunerations applicable and taking into consideration the performance and the economic position of the Company.
For the completion of this task, the Compensation Committee continuously follows up and evaluates the directors' and the Company's performance, checking the extent to which the proposed targets have been achieved. The Compensation Committee meets whenever necessary.
Within the delegation of powers, the remuneration policy applicable to the PHAROL's officers is determined by the Managing Director.
COMPOSITION OF THE COMPENSATION COMMITTEE, INCLUDING THE IDENTIFICATION OF THE PERSONS OR CORPORATIONS HIRED TO SUPPORT IT AND INDEPENDENCE STATEMENT REGARDING EACH OF ITS MEMBERS AND CONSULTANTS
On December 31, 2020, the following members of the Remuneration Committee (also known as the Remuneration Committee) were elected:
Notwithstanding the necessary articulation of this committee with the Board of Directors, the composition of the Compensation Committee seeks to obtain the highest possible level of independence of its members from the members of the management body.
No member of the Compensation Committee is a member of any corporate body or committee within the Company, and no member of the Compensation Committee has any family connection to any member of the management body by way of marriage, kindred or affinity in a direct line and up to and including the third degree.
All members of the Compensation Committee have knowledge and experience in the matter of
remuneration policy. Some of them belong or have belonged to compensation committees of other listed companies. Appendix I hereto sets out the most relevant curriculum elements of the members of the Compensation Committee.
DESCRIPTION OF THE REMUNERATION POLICY FOR THE MEMBERS OF THE MANAGEMENT AND SUPERVISORY BODIES AS REFERRED TO UNDER ARTICLE 2 OF LAW NO. 28/2009 OF 19 JUNE 2009
The remuneration policy for executive and non-executive members of the Board of Directors (such policy including the members of the supervisory body) in force during the 2020 financial year is described on the statement of the Compensation Committee on this matter as approved by the Annual General Meeting of Shareholders on 29 March 2019, pursuant to article 2,1 of Law no. 28/2009, of 19 June 2009 and Decree-Law no. 225/2008, of 20 November.
Such declaration is reproduced in Appendix II hereto.
At the same time, the remuneration policy applicable to non-executive members of the Board of Directors does not include any variable component, i.e., the value of which dependant on the performance of the Company or its value.
INFORMATION ON HOW THE REMUNERATION IS STRUCTURED IN ORDER TO PERMIT THE ALIGNMENT OF THE DIRECTORS' INTERESTS WITH LONG TERM INTERESTS OF THE COMPANY, AS WELL AS HOW THE REMUNERATION IS BASED ON PERFORMANCE AND DISINCENTIVES EXCESSIVE RISK TAKING
As result from the remuneration policy approved at the General Meeting of 27 March 2020 and presented in Annex II, the remuneration was based on a fixed and variable component.
REFERENCE, IF APPLICABLE, TO THE EXISTENCE OF A VARIABLE COMPONENT OF THE REMUNERATION AND INFORMATION ON THE WAY AS SUCH COMPONENT DEPENDS ON PERFORMANCE EVALUATION
Regarding this matter, please see the statement of the Compensation Committee Appendix II hereto.
DEFERMENT OF PAYMENT OF THE VARIABLE COMPONENT OF THE REMUNERATION, MENTIONING THE DEFERMENT PERIOD
Regarding this matter, please see the statement of the Compensation Committee Appendix II hereto.
CRITERIA ON WHICH THE ALLOCATION OF A VARIABLE REMUNERATION IN SHARES IS BASED; EXECUTIVE DIRECTORS KEEPING ANY SHARES GRANTED THEM IN THE COMPANY; ANY AGREEMENT EXECUTED AS TO SUCH SHARES, NOTABLY HEDGING OR RISK TRANSFER AGREEMENTS, THE LIMIT THEREOF, AND THEIR RELATIONSHIP TO THE AMOUNT OF THE OVERALL ANNUAL REMUNERATION
Not applicable, since the remuneration policy in force does not include the allocation of a variable remuneration in shares.
CRITERIA ON WHICH THE ALLOCATION OF A VARIABLE REMUNERATION IN OPTIONS IS BASED, AND INDICATION OF DEFERMENT PERIOD AND EXERCISE PRICE
Not applicable, since the remuneration policy in force does not include the allocation of a variable remuneration in options.
MAIN PARAMETERS OF AND GROUNDS FOR ANY ANNUAL BONUS SYSTEM AND ANY OTHER NON-PECUNIARY BENEFITS
In 2020, there were no bonuses, annual bonuses or non-pecuniary benefit systems of any nature whatsoever in force in PHAROL.
MAIN CHARACTERISTICS OF COMPLEMENTARY PENSION OR EARLY RETIREMENT SYSTEMS FOR DIRECTORS, SPECIFYING WHETHER THE SAME WERE SUBJECT TO APPRAISAL, IN INDIVIDUAL TERMS, BY THE GENERAL MEETING OF SHAREHOLDERS
No PHAROL director is covered by complementary pension or early retirement system plan.
REMUNERATION INDIVIDUALLY AND GLOBALLY EARNED BY THE MEMBERS OF THE COMPANY'S MANAGEMENT BODY
Pursuant to Law no. 28/2009 of 19 June 2009, individual and global gross remunerations paid to the members of the management body are shown hereinafter:
| Board of Directors (year of designation) | Fixed Remuneration 2020 |
Variable Remuneration 2020 |
|
|---|---|---|---|
| Luís Maria Viana Palha da Silva (2015) | 255,500 € | 16,513 € | |
| Aristóteles Luiz Menezes Vasconcellos Drummond (2017) | (1) | 35,000 € | |
| Avelino Cândido Rodrigues (2019) | 35,000 € | ||
| Jorge Augusto Santiago das Neves (2017) | (1) | 35,000 € | |
| Jorge Telmo Maria Freire Cardoso (2014) | (2) | 35,000 € | |
| Maria do Rosário Amado Pinto Correia (2015) | 35,000 € | ||
| Maria Leonor Martins Ribeiro Modesto (2018) | 35,000 € | ||
| Nelson Sequeiros Rodriguez Tanure (2017) | (1) | 3,331 € | |
| Pedro Zañartu Gubert Morais Leitão (2015) | 35,000 € | ||
| Total | 503.831 € | 16,513 € |
(1) Exonerated on 8 January 2020.
(2) Resigned on February 11, effective March 31, 2021.
AMOUNTS PAID, FOR ANY REASON WHATSOEVER, BY OTHER COMPANIES IN A CONTROL OR GROUP RELATIONSHIP OR SUBJECT TO COMMON CONTROL
During 2020, no amounts were paid to PHAROL's members of the Board of Directors by companies in a control or group relationship or subject to common control.
REMUNERATION PAID IN THE FORM OF PROFIT SHARING AND/OR BONUS PAYMENT, AND THE REASONS WHY SUCH BONUSES AND/OR PROFIT SHARING WERE GRANTED
The remuneration policy of the members of the Board of Directors in 2020, which was presented to the General Meeting of shareholders March 27, 2020, does not predict the provide for the allocation, in general terms, of this type of remuneration.
COMPENSATIONS PAID OR DUE TO FORMER EXECUTIVE DIRECTORS IN RESPECT OF TERMINATION OF OFFICE DURING THE FINANCIAL YEAR
During the year 2020, there is no compensation paid for the contract termination of executive directors.
REMUNERATION INDIVIDUALLY AND GLOBALLY EARNED BY THE MEMBERS OF THE COMPANY'S SUPERVISORY BODY
The remuneration of the Fiscal Council is composed of a fixed annual amount based on the Company's situation and market practices without the existence of a variable remuneration.
The gross remuneration of the Fiscal Council for the year 2019 was as follows:
| Fiscal Council | Remunerations 2020 |
|---|---|
| José Maria Rego Ribeiro da Cunha | 49,000 € |
| Isabel Maria Beja Gonçalves Novo | 31,500 € |
| João Manuel Pisco de Castro | 31,500 € |
| (1) Paulo Ribeiro da Silva |
0 € |
| Total | 112,000 € |
(1) Alternate member.
INDICATION OF THE REMUNERATION OF THE CHAIRMAN OF THE BOARD OF THE GENERAL MEETING OF SHAREHOLDERS
The Chairman of the Board of the General Meeting, Diogo Lacerda Machado, for his functions at General Meetings granting the gross remuneration of Euro, 12,000.
CONTRACTUAL LIMITATION AS ESTABLISHED FOR ANY COMPENSATION TO BE PAID UPON REMOVAL WITHOUT JUST CAUSE OF A DIRECTOR, AND ITS RELATIONSHIP WITH THE VARIABLE COMPONENT OF THE REMUNERATION
There are no agreements that establish a right to compensations upon removal without just cause of a director, other than the ones provided by law.
AGREEMENTS WITH MEMBERS OF THE BOARD AND OFFICERS PROVIDING FOR COMPENSATION IN THE EVENT OF TERMINATION OF OFFICE FOLLOWING A CHANGE OF CONTROL
There are no agreements between PHAROL and the members of the management body or officers providing for compensation in the event of resignation, removal without just cause or termination of employment relationship following a change of control in the Company.
The information set forth in items 85 to 87 of the form attached to CMVM Regulation no, 4/2013 is not applicable to PHAROL, as during the 2020 financial year, the Company did not adopt any share allotment or share call option plans, nor did any such plans remain in force, in regard to PHAROL directors, employees or any third parties.
CONTROL MECHANISMS PLANNED FOR ANY EMPLOYEE CAPITAL HOLDING SYSTEM TO THE EXTENT THAT VOTING RIGHTS ARE NOT EXERCISED BY SUCH EMPLOYEES
Not applicable, since there is no system specifically providing for any share capital holding by employees in the Company.
In order to ensure compliance with PHAROL's obligations, internal control procedures are adopted to (i) identify and ensure the transparency of the decision-making process related to transactions with related parties and/or with shareholders with qualified participation, (ii) determine the transactions whose disclosure is mandatory or relevant, and (iii) establish internal responsibilities in relation to the identification of related parties and transactions carried out.
For this purpose, it is mandatory to comply with the following provisions of the internal regulations regarding the transactions of PHAROL, SGPS S.A. (PHAROL) and respective subsidiaries with related parties and shareholders with qualified participation:
b) transactions with related parties that do not meet the requirements set out in paragraph 1.1 above.
c) PHAROL transactions or its subsidiaries to be carried out with shareholders with qualified participation or entities that are in one of the relationships provided for in article 20 of the securities code, or respective renewals, whose aggregate value per entity is greater than euro 1,000 .000 (one million euros) per year;
a) The accumulated annual amount of the transaction corresponds to at least euro 100,000 (one hundred thousand euros);
b) In the case of a loan, investment or other form of advance of funds (regardless of guarantees).
3.3. Proposals for transactions that do not correspond to normal market conditions for similar transactions cannot be approved, being sent to the Board of Directors for compliance with the provisions of section 2 above.
4.1. Transactions with related parties or with holders of qualified participation relating to:
a) purchases of goods or provision of contracted services in compliance with the internal rules regarding purchases, suppliers and service providers that are in force at the time of contracting;
b) banking operations of PHAROL and subsidiaries, such as collection, payment, deposits and other financial investments, short and medium term financing operations, issuance of commercial paper, foreign exchange operations, hedging derivatives and bank guarantees provided they do not exceed the aggregate value of euro 300,000 (three hundred thousand euros) per year;
c) where the consideration is determined based on official quotations (for example, contracts on exchange rates or interest and commodities), if the agreed intervals correspond to normal market practices;
d) where the consideration is determined on the basis of tariffs or fees fixed by the competent regulatory authorities.
4.2. The following transactions are also exempted from the approval procedure provided for in section 2 above:
a) transactions carried out between companies in a controlling or group relationship with PHAROL or between these and PHAROL;
b) the payment by the PHAROL group of the remuneration of the main corporate members and key employees for the exercise of their functions;
c) operations accessible to all employees or shareholders of the PHAROL group under equivalent conditions;
d) the contracting of technical services, namely legal or tax consultancy, whenever the approval procedure provided for in this article may compromise their timely provision, taking into account the specificity of the services to be provided, namely taking into account the qualifications and degree of knowledge required for the provision of the services in question, as well as the deadline for their execution;
e) transactions that constitute the execution of transactions already contracted under general contracts already in force at PHAROL group.
current activity and in market conditions.
a) Transactions carried out between PHAROL and its subsidiaries, provided that they are in a controlling relationship with the company and no party related to PHAROL has an interest in that subsidiary;
b) Transactions related to directors' remuneration, or to certain elements of that remuneration;
c) the transactions proposed to all shareholders under the same terms in which the equal treatment of all shareholders and the protection of the interests of the company are ensured;
e) transactions that constitute a mere execution of transactions already disclosed under this provision.
For the purposes of internal control of transactions with related parties and / or with holders of qualified participation, a division of powers and responsibilities is established within the PHAROL group.
In 2020, there were no transactions subject to the rules described in paragraph 89.
In this respect, reference is made to point 89 of Part I above.
LOCATION, IN THE ANNUAL FINANCIAL STATEMENTS, WHERE INFORMATION ON RELATED PARTY TRANSACTIONS, IN ACCORDANCE WITH IAS 24, IS AVAILABLE
Information on related party transactions is available on Note 20 to the consolidated financial statements for the year 2020. There were no transactions with related parties to disclose in respect of the fiscal year ended on 31 December 2020.
Information on the transactions executed during the fiscal year ended on 31 December 2019 with owners of qualified holdings who are not related parties in accordance with IAS 24 is available in Note 212 to the consolidated financial statements for the year of 2020.
As previously mentioned, the Company has adopted the Corporate Governance Code of IPCG, ensuring an adequate level of protection of shareholders' interests and transparency of Corporate Governance.
PHAROL is also subject to other internal standards adopted in its corporate governance structure such as various internal rules of conduct and transparency, specifically the Code of Ethics, the Rules on Management Transactions, Related Party Transactions and Transactions with Qualified Holders.
PHAROL, held in 2020 the management model delegating the day-to-day management to Managing-Director.
PHAROL complies with the recommendations set out in the IPCG Corporate Governance Code, which entered into force on January 1, 2018, reviewed in 2020.
Within this context, PHAROL's corporate governance model and principles:
PHAROL adopts the IPCG Recommendations published in June 2018, available here:
The items in Part I of this Corporate Governance Report that contain a description of the measures taken by the Company for compliance with the IPCG Recommendations are identified hereunder.
| RECOMMENDATION ACCORDING TO THE MULTIPLE RECOMMENDATIONS TABLE |
Compliance | Report |
|---|---|---|
| I. GENERAL PROVISIONS | ||
| I.1. Company's relationship with investors and disclosure |
||
| I.1.1. The company must establish mechanisms that ensure, in an appropriate and rigorous form, the timely disclosure of information to its governing bodies, shareholders, investors and other stakeholders, financial analysts and the market in general. |
Complied | Items 56, 58 and 59 |
| I.2. Diversity in the composition and functioning of the company's governing bodies |
||
| I.2.1. Companies must establish criteria and requirements related to the profile of new members of corporate bodies appropriate to the function to be performed, and, in addition to individual attributes (such as competence, independence, integrity, availability and experience), these profiles must consider diversity requirements, paying particular attention to gender, which can contribute to the improvement of the organ's performance and to the balance in its composition. |
Complied | Items 19, 21 and Appendix I |
| I.2.2. (1) The management body must have internal regulations - namely on the exercise of the respective attributions, chairmanship, frequency of meetings, operation and duties of its members - fully disclosed on the company's website. I.2.2. (2) Idem in relation to the supervisory body. I.2.2. (3) Idem applies to internal commissions. I.2.2. (4) Minutes of the meetings of the management body must be prepared. |
Complied Complied Not Applicable Complied |
Items 21, 22, 27, 31, 34 and 61 |
|---|---|---|
| I.2.2. (5) Idem in relation to the supervisory body. | Complied | |
| I.2.2. (6) Idem in relation to internal committees. | Not Applicable | |
| I.2.3. (1) The composition of the management, supervisory bodies and their internal commissions must be disclosed through the company's website. I.2.3. (2) The number of annual meetings of the |
Complied | Items 17, 22, 23, 27, 31, 34, 35, 59 and 61 |
| management, supervisory bodies and their internal commissions must be disclosed through the company's website. |
Complied | |
| I.2.4. A whistleblowing policy should be adopted to ensure the appropriate means for communicating and handling them, safeguarding the confidentiality of the information transmitted and the identity of the notifier, whenever requested. |
Complied | Items 21 and 49 |
| I.3. Relationship between corporate bodies | ||
| I.3.1. The bylaws or other equivalent measures adopted by the company must establish mechanisms to ensure that, within the limits of the applicable legislation, members of the management and supervisory bodies are permanently guaranteed access to all information and employees of the company for the assessment of performance, the situation and the prospects for the development of the company, including, in particular, the minutes, the documentation to support the decisions taken, the notices and the archive of the meetings of the executive management body, without prejudice to access to any other documents or persons to whom clarifications may be requested. |
Complied | Items 22, 34 and 61 |
| I.3.2. Each company body and committee must ensure, in a timely and appropriate manner, the flow of information, from the beginning of the respective notices and minutes, necessary for the exercise of the legal and statutory powers of each of the other bodies and commissions. |
Complied | Items 22, 34 and 61 |
| I.4. Conflicts of interest | ||
| I.4.1. By internal regulation or equivalent, the members of the management and supervisory bodies and internal commissions are bound to inform the respective body or commission whenever there are facts that may constitute or cause a conflict between their interests and the social interest. |
Complied | Items 22, 34 and 89 |
| I.4.2. Procedures should be adopted to ensure that the member in conflict does not interfere in the decision making process, without prejudice to the duty to provide information and clarifications requested by the body, the committee or the respective members. |
Complied | Items 22, 34 and 89 |
| I.5. Related party transactions | ||
| I.5.1. The management body must disclose, in the government report or in another publicly available way, the internal procedure for verifying transactions with related parties. |
Complied | Items 21 and 89 |
| I.5.2. The management body must communicate to the supervisory body the results of the internal procedure for verifying transactions with related parties, including the transactions under analysis, at least every six months. |
Complied | Items 21, 89 and 90 |
|---|---|---|
| II. SHAREHOLDERS AND GENERAL MEETING | ||
| II.1. (1) The company should not set an excessively high number of shares necessary to grant the right to one vote, |
Complied | Item 12 |
| II.1. (2) and must make explicit in the government report their option whenever it implies deviation from the principle that each share corresponds to one vote. |
Not Applicable | |
| II.2. The company must not adopt mechanisms that make it difficult for shareholders to take decisions, namely by setting a deliberative quorum higher than that provided for by law. |
Complied | Item 14 |
| II.3. The company must implement adequate means for the participation of shareholders in the General Meeting at a distance, in terms proportional to its size. |
Complied | Item 12 |
| II.4. The company must also implement adequate means for exercising the right to vote at a distance, including by correspondence and electronically. |
Complied | Item 12 |
| II.5. The bylaws that provide a limitation of the number of votes that can be held or exercised by a single shareholder, individually or in consultation with other shareholders, should also provide that, at least every five years, it is subject to deliberation. by the general meeting the alteration or maintenance of this statutory provision - without quorum requirements aggravated in relation to the legal one - and that, in this resolution, all votes cast are counted without that limitation working. |
Complied | Items 5 and 21 |
| II.6. Measures that determine payments or the assumption of charges by the company should not be adopted in the event of a change of control or a change in the composition of the management body and that appear likely to harm the economic interest in the transfer of shares and free appreciation by shareholders performance of administrators. |
Complied | Item 4 |
| III. NON-EXECUTIVE ADMINISTRATION AND | ||
| SUPERVISION III.1. Without prejudice to the legal functions of the chairman of the board of directors, if he is not independent, the independent directors must designate a coordinator among themselves to, inter alia, (i) act, whenever necessary, as an interlocutor with the chairman of the board of directors and with the other administrators, (ii) ensure that they have the set of conditions and means necessary for the performance of their duties; and (iii) coordinating them in the performance evaluation by the management body provided for in recommendation V.1.1. |
Explain | Items 15 and 18 The designation of a lead independent director does not bring added value given the reduced structure of the company and the size of the board. Within the scope of their duties, all directors decide together after being previously informed and clarified. As for the board's self assessment process, this is done through responses on an electronic platform |
| and the coordination of it is ensured by the Secretary-General. |
||
|---|---|---|
| III.2. (1) The number of non-executive members of the management body must be adequate to the size of the company and the complexity of the risks inherent in its activity, but sufficient to efficiently ensure the functions entrusted to them and must be included in the government report the formulation of this adequacy judgment. |
Complied | Items 15, 17, 18, 21 and 31 |
| III.2. (2) Idem in relation to the number of members of the supervisory body. III.2. (3) Idem applies to the number of members of the |
Complied Not Applicable |
|
| commission for financial matters. III.3. In any case, the number of non-executive directors must be greater than that of executive directors. |
Complied | Items 17, 18 and 21 |
| III.4. Each company must include a number of not less than one third but always plural, of non-executive directors who fulfil the requirements for independence. For the purposes of this recommendation, a person who is not associated with any specific interest group in the company, nor is under any circumstances likely to affect his/her exemption from analysis or decision, is considered to be independent, namely by virtue of: i) Having exercised for more than twelve years, in a continuous or interspersed manner, functions in any body of the company; ii) Having been a collaborator of the company or company that is in a controlling or group relationship with it in the last three years; iii) Having, in the last three years, provided services or established a significant commercial relationship with the company or with a company that is in a dominant or group relationship, either directly or as a partner, administrator, manager or person manager collective; iv) Be the beneficiary of remuneration paid by the company or by a company that is in a controlling or group relationship with it in addition to the remuneration resulting from the exercise of the functions of director; v) Live in a de facto union or be a spouse, relative or similar in a straight line and up to the 3rd degree, including, in the collateral line, of company directors, managers of a legal person holding a qualified interest in the company or of natural persons directly or indirectly with qualified participation; vi) Be a holder of a qualified shareholding or representative of a shareholder with a qualifying shareholding. |
Complied | Items 17 and 18 |
| III.5. The provision in paragraph (i) of recommendation III.4 does not preclude the qualification of a new director as independent if, between the end of his duties in any body of the company and his new appointment, at least three years have elapsed (cooling‐off period). |
Not Applicable | Item 17 |
| III.6. (1) With respect to the powers conferred on it by law, the supervisory body assesses and pronounces on the strategic lines, prior to its final approval by the management body. III.6. (2) Idem in relation to the risk policy. |
Complied Complied |
Item 21 and 34 |
|---|---|---|
| III.7. (1) Companies must have a specialized committee on corporate governance. |
Not Applicable | Items 15 and 21 |
| III.7. (2) Idem applies to the matter of appointments. III.7. (3) Idem applies to the matter of performance evaluation. |
Not Applicable Explain |
Given the nature and objectives of the company and its small size, it is not necessary to set up several internal committees. Considering, in particular, the close and frequent monitoring that the Board of Directors does of all matters that could be the responsibility of these committees. And it is in this line of reasoning, despite the fact that the Board of Directors approved, on June 30, 2015, a Monitoring Committee and the respective competences, led to the fact that filling the posts of that Committee was not considered a priority. Also, in this option, the costs associated with it continued to weigh given the decision taken by the Compensation Committee that fixed certain amounts of remuneration for the performance of those posts. The Board of Directors keeps this matter under review. |
| IV. EXECUTIVE MANAGEMENT |
| IV.1. The management body must approve, by means of internal regulation or by equivalent means, the performance regime of the executive directors applicable to the exercise by them of executive functions in entities outside the group. |
Complied | Items 21 and 22 PHAROL complies with the provisions of Art. 398 of the Portuguese Companies Code. In addition, the sole executive director has full time duties. |
|---|---|---|
| IV.2. (1) The management body must ensure that the company acts in accordance with its objectives and should not delegate powers, namely, with regard to: i) definition of the company's strategy and main policies; |
Complied | Items 21 and 22 |
| IV.2. (2) ii) organization and coordination of the business structure; |
Complied | |
| IV.2. (3) iii) matters that should be considered strategic due to their amount, risk or special characteristics. |
Complied | |
| IV.3. In the annual report, the management body explains in what terms the strategy and the main policies defined seek to ensure the long-term success of society and what are the main resulting contributions to the community in general. |
Complied | Annual Report, Item 6. |
| V. PERFORMANCE ASSESSMENT, REMUNERATION AND APPOINTMENTS |
||
| V.1. Annual Performance Assessment | ||
| V.1.1. (1) The management body should assess its performance annually, taking into account the fulfilment of the company's strategic plan and budget, risk management, its internal functioning and the contribution of each member to the effect, and the relationship between society's bodies and commissions. |
Complied | Item 21 |
| V.1.1. (2) Idem in relation to the performance of the committees of the management body. V.1.1. (3) Idem in relation to the performance of executive directors. |
Not Applicable Complied |
|
| V.2. Remuneration | ||
| V.2.1. The company must set up a remuneration committee, the composition of which ensures its independence from management, which may be the remuneration committee designated under the terms of article 399 of the Portuguese Companies Code. |
Complied | Items 67 and 68 |
| V.2.2. The setting of remunerations should be the responsibility of the remuneration committee or the general meeting, on the proposal of that committee. |
Complied | Items 67 and 68 and Appendix II |
| V.2.3. For each mandate, the remuneration committee or the general meeting, on a proposal from that committee, must also approve the maximum amount of all compensation to be paid to the member of any body or committee of the company due to the respective termination of functions, proceeding the disclosure of said situation and amounts in the government report or in the remuneration report. |
Complied | Items 80, 83 and 84 |
| V.2.4. In order to provide information or clarifications to the shareholders, the chairman or, when unable to do so, another member of the remuneration committee must be present at the annual general meeting and at any other meetings if the respective agenda includes a matter related to the remuneration of the members of corporate bodies |
Complied | Part I, Item B I. – General Meeting |
| and commissions or if such presence has been required by shareholders. |
||
|---|---|---|
| V.2.5. Within the company's budgetary limitations, the remuneration committee must be able to freely decide whether to hire, by the company, the necessary or convenient consultancy services for the exercise of its functions. |
Complied | Appendix II |
| V.2.6. The remuneration committee must ensure that those services are provided independently and that the respective providers are not contracted to provide any other services to the company itself or to others that are in a controlling or group relationship without the express authorization of the committee. |
Not Applicable | Appendix II |
| V.2.7. In view of the alignment of interests between the company and the executive directors, part of their remuneration must be of a variable nature that reflects the sustained performance of the company and does not encourage the taking of excessive risks. |
Complied | Appendix II |
| V.2.8. A significant part of the variable component must be partially deferred over time, for a period of not less than three years, associating it, necessarily, to the confirmation of the sustainability of performance, under the terms defined in the company's internal regulations. |
Complied | Appendix II |
| V.2.9. When the variable remuneration comprises options or other instruments directly or indirectly dependent on the value of the shares, the beginning of the exercise period must be deferred for a period of not less than three years. |
Not Applicable | Appendix II |
| V.2.10. The remuneration of non-executive directors must not include any component whose value depends on the performance of the company or its value. |
Complied | Appendix II |
| V.3. Appointments | ||
| There was no elective general |
||
| V.3.1. The company must, under the terms it deems appropriate, but in a manner susceptible of demonstration, promote that the proposals for the election of the members of the governing bodies are accompanied by reasons regarding the adequacy of the profile, knowledge and curriculum to the function to be performed by each candidate. |
Not Applicable | meeting in 2020. However, with an elective general meeting scheduled for 2021, recommendations regarding proposals for the election of members of governing bodies will be complied. |
| V.3.2. Unless the size of the company does not justify it, the function of monitoring and supporting the appointments of senior managers should be assigned to an appointments committee. |
Explain | Item 15 |
| V.3.3. This commission includes a majority of independent non-executive members. |
Not Applicable |
| VI. RISK MANAGEMENT | ||
|---|---|---|
| VI.1. (1) The management body must discuss and approve the strategic plan. |
Complied | Items 21 and 54 |
| VI.1. (2) The management body must discuss and approve the company's risk policy, which includes the setting of limits in terms of risk-taking. |
Complied | |
| VI.2. The supervisory body must organize itself internally, implementing periodic control mechanisms and procedures in order to ensure that the risks effectively incurred by the company are consistent with the objectives set by the management body. |
Complied | Items 21, 34 and 54 |
| VI.3. The internal control system, comprising the functions of risk management, compliance and internal audit, must be structured in terms appropriate to the size of the company and the complexity of the risks inherent in its activity, with the supervisory body evaluating it and, in within the scope of its competence to monitor the effectiveness of this system, propose any necessary adjustments. |
Complied | Items 21, 34 and 54 |
| VI.4. The supervisory body must give its opinion on the work plans and resources allocated to the services of the internal control system, including the risk management, compliance and internal audit functions, and may propose any necessary adjustments. |
Complied | Items 21, 34 and 54 |
| VI.5. The supervisory body should be the recipient of the reports made by the internal control services, including the functions of risk management, compliance and internal audit, at least when matters related to the rendering of accounts, identification or resolution of conflicts of interests and the detection of potential irregularities |
Complied | Items 21 and 34 |
| VI.6. (1) Based on its risk policy, the company should establish a risk management function, identifying (i) the main risks to which it is subject in the development of its activity, |
Complied | Items 53, 54 and 55 |
| VI.6. (2) (ii) the probability of their occurrence and their impact, |
Complied | |
| VI.6. (3) (iii) the instruments and measures to be adopted in view of the respective mitigation and |
Complied | |
| VI.6. (4) (iv) the monitoring procedures, aiming at their monitoring. |
Complied | |
| VI.7. The company must establish procedures for inspection, periodic assessment and adjustment of the internal control system, including an annual assessment of the degree of internal compliance and the performance of that system, as well as the prospect of changing the risk framework previously defined. |
Complied | Items 21 and 51 |
| VII. FINANCIAL INFORMATION | ||
| VII.1. Financial Information | ||
| VII.1.1. The internal regulation of the supervisory body should require that it supervise the adequacy of the process of preparation and disclosure of financial information by the management body, including the adequacy of accounting policies, estimates, judgments, relevant disclosures and their consistent application among exercises, in a duly documented and communicated manner. |
Complied | Items 21 and 34 |
| VII.2. Statutory audit and inspection |
| VII.2.1. Through internal regulations, the supervisory body must define, under the terms of the applicable legal regime, the inspection procedures aimed at ensuring the independence of the statutory auditor. |
Complied | Items 21 and 34 |
|---|---|---|
| VII.2.2. (1) The supervisory body should be the main interlocutor of the statutory auditor in the company and the first recipient of the respective reports, |
Complied | Items 21 and 34 |
| VII.2.2. (2) it is incumbent upon him, namely, to propose the respective remuneration and to ensure that, within the company, the appropriate conditions for the provision of services are ensured. |
Complied | |
| VII.2.3. The supervisory body must annually assess the work carried out by the statutory auditor, its independence and suitability for the exercise of functions and propose to the competent body its dismissal or the termination of the contract for the provision of its services whenever there is just cause for that purpose. |
Complied | Items 21 and 45 |
APPENDIX I
The functions performed by each director in companies other than PHAROL are as follows:
Director of Bratel B.V. Director of Bratel S.à.r.l. Chairman of the Board of the General Meeting and Member of the General and Supervisory Council of EDP – Energias de Portugal, S.A. Non-executive Director of Nutrinveste
In 2007 entered, as a founding partner, in the constitution of the "ACR & Associados – Sociedade de Advogados R.L."
Founding Partner and Managing Partner of "ACR & Associados – Sociedade de Advogados R.L." – registered with the Portuguese Bar Association
Member of the Portuguese Bar Association Member of the Brazilian Bar Association
Non-Executive Member of the Board of Directors of Enternext, S.A.
Board Member of Sixty Degrees – Sociedade Gestora de Fundos de Investimento Mobiliário, S.A.
Board Member and CEO of Experienced Management S.A.
Member of the Advisory Board of Fundiestamo - Sociedade Gestora de Fundos de Investimento Imobiliário, S.A.
Lecturer of undergraduate and Executive Education programs at Catolica Lisbon School of Economics Coordinator of Executive Education programs at Catolica Lisbon School of Business and Economics
Full Professor, Católica Lisbon School of Business and Economics, June 2008 to present Managing Partner of Modelling Mind, Lda. since June 2010
Vice-Chairman of the Board of Directors of Prio SGPS Managing Partner of MoteDAlma Lda. Managing Partner of Fikonline-Internet e Energia Lda.
Member of the Board Director of Oi, S.A since 2015 to 2018 | Vice Chairman of the Board of Directors da Galp Energia, SGPS, S.A. | Member of the Board of Directors of Petróleos de Portugal – Petrogal, S.A. | Member of the Board of Directors of Galp Exploração e Produção Petrolífera, S.A. | Member of the Board of Directors of GDP – Gás de Portugal, SGPS, S.A. (redenominated Galp Gas & Power, SGPS, S.A. in February 12, 2015) | Member of the Board of Directors of Galp Gás Natural Distribuição, S.A. | Member of the Board of Directors of Galp Energia, S.A. | Member of the Board of Directors of Galp Energia España, S.A. | Member of the Board of Directors of Galp Energia E&P B.V. | Member of the Board of Directors of Galp Exploração e Produção (Timor-Leste), S.A. | Chairman of the Board of Directors of Galp Marketing International, S.A. | Chairman of the Management Board of Petrogal Angola, Lda. | Chairman of the Management Board of Petrogal Guiné-Bissau, Lda. | Chairman of the Management Board of Petrogal Moçambique, Lda. | Chairman of the Executive Board of Galp Moçambique, Lda. | Chairman of the Board of Directors of Galp Gambia, Limited | Chairman of the Board of Directors of Galp Swaziland, Limited | Chairman of the Board of Directors of CLC – Companhia Logística de Combustíveis, S.A. | Director of Galp Sinopec Brazil Services B.V. | Member of the Board of Directors of Petrogal Brasil, S.A. | Member of the Board of Directors of Galp Energia Brasil, S.A. | Member of the Technologic and Scientific Committee of ISPG – Instituto de Petróleo e Gás, Associação para a Investigação e Formação Avançada | Chairman of APETRO – Associação Portuguesa de Empresas Petrolíferas | Non-Executive Director of Kasmunaygas | Chairman of the Board of AEM – Associação dos Emitentes Portugueses | Member of the Board of Directors (non executive) of NYSE Euronext and Member of Audit Committee of NYSE Euronext | Chairman of the Audit Committee of the Companies Tranquilidade Vida, Logo, Açoreana and Seguradoras Unidas, S.A. | Chairman of the Audit Committee of Fórum para a Competitividade | Chairman of the Board of EPIS - Empresários pela Inclusão Social | Degree in Business Management from Universidade Católica Portuguesa | AMP – University of Pennsylvania – Wharton School of Economics.
Degree in Economics from Instituto Superior de Economia | Degree in Business Management from Universidade Católica Portuguesa | AMP - University of Pennsylvania - Wharton School of Economics
Degree in Law
Post-graduation course in Capital Markets, Financial Institutions and Products Course in the Contracting of goods and Services with the Government's Public Administration and I.T. Agreements
Law Degree at the Faculty of Law of the University of Lisbon | Post-Graduation in Markets, Institutions and Financial Instruments - Faculty of Economics, Universidade Nova de Lisboa, Faculty of Law, Universidade Nova de Lisboa and Porto Derivatives Exchange, Portugal | Course on Procurement of Goods and Services in Public Administration and Computer Contracting
Member of the Executive Board of Directors of Novo Banco, S.A. from September 2014 to November 2020 | Chairman of the Board of Directors of E.S. Tech Ventures, SGPS, S.A. from July 2016 to December 2020 | Member of the Board of Directors of NB Finance, Ltd. from April 2015 to November 2020 | Non-Executive Chairman of the Board of Directors of BESV, S.A. from April 2017 to December 2018 | Non-Executive Member of the Board of Directors of BESV, S.A. from April 2016 to April 2017 | Member of the Board of Directors and Member of the Executive Committee of Caixa Geral de Depósitos, S.A. from July 2013 to September 2014 | Non-Executive Vice Chairman of the Board of Directors of Banco Caixa Totta Angola, S.A. from April 2014 to September 2014 | Non-Executive Chairman of the Board of Directors of Caixa Capital – Sociedade de Capital de Risco, S.A. from March 2014 to September 2014 | Non-Executive Chairman of the Board of Directors of Caixa Desenvolvimento, SGPS, S.A. from March 2014 to September 2014 | Non-Executive Vice Chairman of the Board of Directors of Banco Caixa Geral Brasil, S.A. from September 2013 to September 2014 | Non-Executive Chairman of the Board of Directors of Caixa – Banco de Investimento, S.A. from August 2013 to September 2014 | Non-Executive Member of the Board of Directors of Caixa Seguros e Saúde, SGPS, S.A. from August 2013 to September 2014 | Non-Executive Member of the Board of Directors of Gerbanca, SGPS, S.A. from August 2013 to September 2014 | Non-Executive Member of the Board of Directors of Partang, SGPS, S.A. from September 2013 to September 2014 | Non-Executive Chairman of the Board of Directors da Wolfpart, SGPS, S.A. from November 2013 to September 2014 | Non-Executive Member of the Board of Directors of Grupo Visabeira, SGPS, S.A. from April 2014 to September 2014.
Graduate in Economics by Universidade Nova de Lisboa | MBA by Insead
Managing Director of Rocotota, Lda. | Managing Director at Rolling Power, Lda. | Alternate Board Member and Member of the Remuneration Committee at Oi S.A. from 2016 to 2018 | Executive Consultant at CEA – Catolica from 2016 to 2018 | Chairman of Ferreira Marques & Irmão / Topázio from 2012 to 2016 | Senior Advisor at Bewith and CEA/CLSBE from 2008 to 2012 | Director of Gestão do Conhecimento of PT Comunicações, Director of Qualidade e Satisfação do Cliente in Grupo Portugal Telecom, Board Member of PT Asia, Chairman da CTTC – Archway (Pequim) and CEO da Macau Cable TV from 2003 to 2008 | Head of Office da OgilvyOne from 1994 to 2002 | Publisher of the Marie Claire magazine from 1992 to 1994 | Director of Client Service at McCann – Erickson from 1987 to 1992 | Financial Products Manager, Director of the Direct Mail in CTT – Correios de Portugal from 1981 to 1987
Master of Business by Universidade Nova de Lisboa | MBA by Wharton School | Degree in Economics by Universidade Católica de Lisboa.
President of the Scientific Council of Católica Lisbon School of Business and Economics, October 2015-January 2019 | Director of CEA (Centre for Applied Studies) of Universidade Católica Portuguesa, December 2008 to January 2017
Agregação, Universidade Católica Portuguesa, July 2004 | Docteur en Sciences Economiques, Université Catholique de Louvain and European Doctoral Program, Belgium September 1987 | Licenciatura in Economics, Universidade Católica Portuguesa, 1980.
Non-Executive Director of Villas Boas ACE, S.A. | Member of the Board of Directors of Oi, S.A. from 2015 to 2017
Graduated in Business Management from Universidade Católica Portuguesa de Lisboa | Masters in Business Management from Kellogg Graduate School of Management at Northwestern University in Chicago, EUA.
Member of the Compensation Committee since 2013.
Graduate in Business Organisation and Management, ISCTE - Instituto Universitário de Lisboa (1981), MBA, Universidade Nova de Lisboa (1984), Doctor in Management, ISCTE (2001).
He has a corporate career of over 20 years in management positions in the banking, consulting and financial services fields. He was Director of ISCTE Business School from 2003 to 2012 and President of INDEG/ISCTE from 2005 to 2012. He is a Professor at ISCTE Business School since 2005. He has a large experience as consultant in the areas of strategy, corporate assessment and risk management for Portuguese and international corporations. He is the author of various reference works in the financial field. He has held leadership positions in various Boards of Directors and Supervisory Boards in Portuguese listed corporations.
Chairman of the Audit Board of Mysticinvest Holding S.A. since 2019 | Chairman of the Board of Directors (non-executive) of SDC Investimentos, SGPS, S.A. from 2013 to 2016 | Chairman of the Instituto Português de Corporate Governance since 2016 | Member of the General and Supervisory Council from 2009 to 2018; Member of the Audit Committee (2009/2015) and Performance and Competition (2012/2015) and Chairman of the Audit Committee of EDP - Energias de Portugal, S.A. from 2015 to 2019.
Member of the Compensation Committee of PHAROL, SGPS S.A. (ex- Portugal Telecom, SGPS S.A.) since 2009 (suspended from August 2012 to March 2014).
Graduated in Management & Business Administration, Universidade Católica Portuguesa (1982). Certified in the International Directors Program, INSEAD, France (2019/2020). Several other training programs in INSEAD.
Non-Executive Independent Director of Endesa Energia, the largest electricity production, distribution and commercialization company in Spain, since 2015, also Chairman of the Audit and Compliance Committee from 2020 (member of the Audit and Compliance Committee and the Nomination and Remuneration Committee from 2015 to 2020). Member of the Board of Cotec Portugal since 2015 (Chairman from 2015 to 2018).
During 25 years up to 2008, he held various positions in investment, corporate and retail banking, including CEO of Banco Mello and Executive Member of the Board of Directors of Millennium BCP, (the # 1 private sector bank in Portugal) then from 2010 to 2012, was CEO of Cimpor – Cimentos de Portugal SGPS, S.A., at that time an international cement group operating in 12 countries, from 2008 to 2012. Non-Executive Independent Director of EDP Renováveis (also member of the Audit Committee and later of the Remuneration Committee), Chief Executive Officer (CEO) of CTT – Portugal Post from 2012 to 2019, where he leaded its privatization and Chairman of Banco CTT since inception in 2015 to 2019.
Non-Executive Independent Director of Endesa Energia, Spain, from 2015, also member of the Audit and Compliance Committee and the Nomination and Remuneration Committee from 2015 to 2020 and Chairman of the Audit and Compliance Committee since 2020 | Chief Executive Officer (CEO) of CTT – Correios de Portugal, S.A. from 2012 to 2019, also Chairman of the Board of Directors from 2012 to 2017 and Vice Chairman from 2017 to 2019 and member of the Corporate Governance, Evaluation and Nominations Commission from 2014 to 2016 | Chairman of the Board of Directors of Banco CTT from 2015 to 2019, also Chairman of the Board's Remuneration Commission and member of the Selection Commission from 2015 to 2019 and Chairman of the Shareholders Remuneration Commission from 2016 to 2019 | Chairman of CTT Expresso – Serviços Postais e Logística, S.A. from 2014 to 2019 | Chairman of Tourline Express Mensajeria, S.L.U from 2014 to 2019 | Member of the Board of Directors of Fundação Portuguesa de Comunicações from 2012 to 2019 | Chairman of the General Meeting of Shareholders of Correio Expresso de Moçambique, S.A. since 2013 | Member of the Board of Directors of International Post Corporation from 2014 to 2017 | Chairman of the Board of Cotec Portugal from 2015 to 2018, Member of the Board from 2018 | Member of the Board of AEM – Associação de Empresas Emitentes de Valores Cotados em Mercado from 2014 to 2017 | Member of the General Council of Clube Naval de Cascais from 2006 to 2020, Vice-Commodore from 2016 to 2020.
Educational background and professional training
Graduated in Business Management (Universidade Católica Portuguesa, Lisbon) MBA (Harvard Business School) PhD in Management (Iscte-IUL)
Professional activity in the past five years
Current Positions:
Chairman of the "Audit Committee" ("Conselho Fiscal") of Montepio Holding, Banco BEM, Montepio Crédito and Montepio Valor since 2018 | Member of the "Audit Committee" ("Conselho Fiscal") of BMO-GAM Portugal since 2017 | Member of the Board of the "Ordem dos Economistas" since 2018 | Visiting Assistant Professor in Iscte-IUL since 2005 | Director of the Executive MBA of Iscte Executive Education since 2004 | Management Consultant.
Past Positions:
Non-executive Member of the Board of Directors of Caixa Geral de Depósitos from July 2013 to August 2016 | Member of the Audit Committee of Caixa Geral de Depósitos from July 2013 to August 2016 | Member of the Remuneration Committee of Caixa Geral de Depósitos from 2015 to August 2016 | Associate Dean of Iscte Business School from 2014 to 2017.
Degree in Finance from Instituto Superior de Ciências Económicas e Financeiras (ISCEF – 1972)
Between 1975 and 1977 worked as auditor at the international company Arthur Andersen & Co.
In 1981 he passed a Statutory Auditor examination. He is the member 497 of the Certified Auditor's Association.
Between 1977 and 1981 worked as auditor manager at the chartered accountant company "António Almeida e Augusto Martins Moreira, SROC".
In 1981 he joined and has become partner of "Amável Calhau, Ribeiro da Cunha & Associados", having been since managing partner in the company until 2018, performing several professional works within the following areas: auditing, evaluation of companies and consulting, among others.
In 2018, as part of a restructuring, he constituted JM Ribeiro da Cunha & Associados, SROC, Lda., a company of which is also a managing partner.
JM Ribeiro da Cunha & Associados, SROC is:
Since 1981, also, he has been working as Chartered Accountant in representation of the above-mentioned company, either as Statutory Auditor or integrating Supervisory Boards, in a great deal of companies covering several business activity sectors, such as: Financial Institutions and Insurance, Industry and Construction, Public Entities, Services, Tourism, Commerce, etc.
On a personal basis he worked as supervisory board in:
He works as Chairman or Member of the Supervisory Board of the following non-profits institutions:
Educational background and professional training
International Management Programme – INSEAD, Fontainebleau Post graduation in Finance (European Business Certificate) – South Bank University, London Graduated in Business Management and Organisation – Instituto Superior de Ciências do Trabalho e da Empresa (ISCTE)
Managing for Success – BNP Paribas, Brussels Leadership for Growth – Fortis Bank, Mello Certificate of Proficiency in English – Universidade de Cambridge, Lisbon Diplôme Supérieur d'Études Françaises Modernes – Alliance Française, Lisbon Pedagogical Skills Certificate – F607896/2013, Lisbon
Professional activity in the past five years
Current Positions:
Member of the Supervisory Board of Best – Banco Eletrónico de Serviço Total, S.A. (since December 2016) Member of the Supervisory Board of PHAROL, SGPS S.A. (since May 2015) Financial and Business Advisory (since April 2013)
Past Positions:
Head of the Credit Analysis Department, BNP Paribas Fortis – Portuguese Branch (September 2010 – October 2012)
Head of Credits, Fortis Bank – Portuguese Branch (October 1995 – September 2010) Vice-Chairman of Federação de Triatlo de Portugal (December 2012 - January 2017),
Director of Grupo Visabeira, SGPS S.A. Director of Visabeira Constructel, S.A. Director of Real Life – Tecnologias de Informação, S.A. Chairman of Vista Alegre USA Director da Constructel (Rússia) Director of Birla – Visabeira LTD
President of MOB – Indústria de Mobiliário, S.A. to 2017 | President of Faianças da Capoa – Indústria de Cerâmica, S.A. to 2017 | President of Pinewells, S.A. to 2017 | President of Visagreen, S.A. to 2017 | Director of Visacasa, S.A. to 2017 | Director of Constructel (Belgium) to 2017 | Director of Constructel Sweden AB to 2017 | Director of Constructel (UK) até 2017 | Director of Constructel Gmbh to 2017 | Director of Constructel (France) to 2017 | President of Instituto de Gestão Financeira e de Infra-Estruturas da Justiça, I.P. from 2007 to 2009 | Member of the Board of Directors of Grupo Visabeira SGPS S.A. from 2002 to 2007 | Member of the Board of Director of Visabeira Telecomunicações e Construção, SGPS S.A. from 2002 to 2006 | Director of Visabeira Serviços SGPS, S.A. from 2003 to 2005
Graduated in Electrotechnical Engineering, Telecommunications and Electronics track from Instituto Superior Técnico (1983) | MBA from Faculdade de Economia, Universidade de Lisboa (1990).
Educational background and professional training
Graduated in Financial Audit – ISCAL – Instituto Superior de Contabilidade e Administração de Lisboa
Post-graduated in Corporate Finance – INDEG/ISCTE Post-graduated in Security and Computer Auditing – ISTEC – Instituto Superior de Tecnologias Avançadas
Professional activity in the past five years
Partner of JM Ribeiro da Cunha & Associados, SROC, Lda. since 2018 Partner Manager of BRAVI – Fiscalidade e Consultoria, Lda., since November 2017
In line with recommendations I.2.1 of the Corporate Governance Code of the Portuguese Institute of Corporate Governance 2018 ("IPCG Code"), revised in 2020, PHAROL provides this complementary information to the curricula of the governing bodies on the individual attributes and diversity requirements of them, which can contribute to their effective performance.
This document, focusing on the curricula presented by the members of the Board of Directors, Fiscal Council and Compensation Committee, is intended to contribute to a more detailed and objective analysis of the members of these bodies, materializing the specification of the criteria and requirements relating to individual attributes as set out in the IPCG Company Government Code.
The composition of these bodies is appropriate to the size of the company and its activity. It allows the promotion of an effective functioning and performance of the Board of Directors, considering aspects such as (i) the legal framework (composition of 3 to 7 members, in accordance with the statutes of PHAROL, and Recommendations III.2 to III.4 of IPCG code regarding the appropriate number of executives, nonexecutive and independent directors), (ii) the necessary skills, experience and knowledge and (iii) the appropriate level of diversity.
In the field of academic training and in accordance with the respective curricula, the members of the Board have complementary training at the international level, which includes Masters, MBA's and PhDs. We point out that the administrators Dr. Luis Palha da Silva, Dr. Maria do Rosário Pinto Correia, Dr. Pedro Morais Leitão, Dr. Jorge Freire Cardoso and Dr. Maria Leonor Ribeiro Modesto, all have training in economics and management.
The members of the FC have the qualifications required and adequate to carry out these functions with qualifications, training and solid knowledge in auditing or accounting.
The curricula presented by all members of the FC show a vast experience in the exercise of functions in supervisory bodies in multiple sectors. The President of the FC, Dr. José Maria Ribeiro da Cunha, with a wide accumulated experience of more than 30 years of professional life, is also a ROC, has performed the duties of an audit officer, was a member of the supervisory bodies of large companies in various sectors. activities such as Financial Institutions and Insurance, Industry, public entities, services. He also has extensive experience in company valuation and consultancy.
Dr. João Manuel Pisco de Castro, member of the FC, has extensive experience in executive management of companies, in executive and non-executive positions, both national and international.
Dr. Isabel Maria Gonçalves Novo also presents a curriculum with a solid background and extensive experience in the area of supervision, of which we highlight Financial and Management Consulting and her role in the management of the Risk and Credit Analysis department at a Financial Institution.
The alternate member of the FC, Dr. Paulo Ribeiro da Silva, also has experience in the areas of accounting and taxation.
The members of the FC have experience in the financial and risk management areas and, on the whole, training and experience in listed companies.
Regarding the competence and experience of the members of the Board, the following stand out:
The six members that make up the Board have extensive management experience and have held positions of direction and administration, which gives them capabilities and strategic vision, promoting strong competence in the area of leadership of the Company.
The Chairman of the Board of Directors, Dr. Luis Palha da Silva, has skills, knowledge and extensive experience in executive management in management functions in listed and large companies. The top management positions that he held, contribute very positively to his performance as Chief Executive Officer, namely in the context of the company's future planning.
Almost all the members of the Board of Directors have extensive experience in the international domain, having performed management functions in international companies or in Portuguese companies with international expansion. This experience was decisive for the acquisition of cultural background, a transversal element to all of them. Can be seen from the respective curricula, the administrators are Dr Luis Palha da Silva, Dr Maria do Rosário Pinto Correia, Dr Pedro Morais Leitão and Dr Jorge Freire Cardoso. Also, at the international level, and in the area of Law and top academic area, the administrator, Dr Avelino Cândido Rodrigues and the administrator, Dr Maria Leonor Ribeiro Modesto, stand out, respectively.
Board members have developed their training and / or professional career in consulting activities or in management functions that have allowed them to acquire solid skills in the areas of finance, investment and risk management.
In this context, the expertise of the member of the Board of Directors, Dr. Avelino Cândido Rodrigues, stands out for his training in Law and extensive professional experience in the various legal fields, both in Portugal and in Brazil.
The skills in this area are highlighted by the Chairman of the Board of Directors and Chief Executive Officer, Dr. Luis Palha da Silva, who has several years of professional experience in executive and non-executive positions in companies with strong corporate governance components, responsibility and ethics, such as Jerónimo Martins and Galp Energia. He also currently serves on the EDP Supervisory Board.
The members of the Board of Directors and CF meet the necessary conditions to exercise their functions and fulfill their duties of diligent action and in the interest of the Company, with impartiality and impartiality, since the rules regarding conflicts of interest are still in force at PHAROL, in particular:
(a) within the scope of the deliberations of the Board of Directors (when the administrators in conflict are prevented from participating and voting);
(b) with respect to transactions with related parties, which are subject to principles and procedures
approved by the Board of Directors and by the FC aimed at promoting the pursuit of the social interest.
The Board and FC have demonstrated the ability to maintain compliance with legal and conduct duties in relation to the activity they have been developing and have the conditions for the performance of functions in the interest of the Company and in accordance with standards of loyalty and integrity.
It is PHAROL's practice to have in the list of its management elements indicated by shareholders with qualified holdings and with a long-term investment perspective for closer monitoring of the Company's management.
As for the strategic definition and assessment of the risks inherent to the company, the supervisory functions of non-executive and independent directors are guaranteed.
FC members declare that they comply with the independence requirements defined by law (according to the national criteria laid down in Article 414 of the Commercial Companies Code and on the basis of the information provided by them).
The members of the Board of Directors and CF have shown their full willingness to carry out their duties, closely monitoring the company's activity, either through meetings or through regular reports by the Chief Executive Officer.
PHAROL complies with Law No. 62/2017 and promotes gender diversity in all its governing bodies.
The curricula referred to in this document show a balance between, on the one hand, renewal/rotation and, on the other hand, retention of knowledge given the permanence of functions in the Company of Board and FC since 2018, including the President of the Board (who simultaneously serves as Delegated Director of the Company), as well as the Chairman of the Fiscal Council.
The composition of the Board and FC present diversification at the age level allowing an adjusted balance between the need for extensive experience suitable for the performance of the required functions and the necessary openness to new challenges.
The three members of the Compensation Committee, Dr. António Sarmento Gomes Mota, Dr. Francisco Lacerda and Dr. Pedro Miguel Ribeiro de Almeida Fontes Falcão as a whole, for their academic background, extensive experience in administration and consulting, demonstrate skills, experience and knowledge in the areas of remuneration policy, human resources, international area, financial and risk area, leadership and legal and regulatory area.
Following a more detailed deepening of the curricula presented by the members of the Board of Directors, members of the Fiscal Council and members of the Compensations Committee, bodies elected by PHAROL shareholders in 2018, it is concluded that, in addition to the components of diversity and individual characteristics (such as seniority, cultural background and gender), they have skills, knowledge, skills and experience that are crucial for them to , as a whole, meet the necessary conditions to pursue the best interests of the Company and its Shareholders.
Pursuant to Law no. 28/2009, of 19 June, and Decree-Law no. 225/2008, of 20 November, the Remuneration Committee hereby submits to the company's General Meeting the following declaration on its remuneration policy applicable to the members of the management and supervisory bodies.
The year of 2019 represented the second year of the current mandate of the governing bodies. The Remuneration Committee understood that there was no reason to introduce any changes to the policy defined at the beginning of this term, which received the approval of the shareholders and which is summarized in the following points.
The remuneration of the non-executive members of the Board of Directors and of the members of the Fiscal Council consists of a fixed annual remuneration (divided into 14 times per year), without attendance fees.
There was no change in the fixed wages in force that reflect a level of remuneration appropriate to the responsibility of the functions performed and promoting their good performance.
No form of variable remuneration is provided for non-executive members of the management body and the supervisory body.
The remuneration of Executive Directors, which has been implemented since March 27, 2017 in the remuneration of the Chief Executive Officer, comprises a fixed component and a variable component and a variable component.
In the definition of the variable remuneration, it was sought to ensure a reasonable balance between the disincentive to excessive risk taking and the effective alignment of management interests with the interests of Shareholders and the Company.
The fixed remuneration component did not change in relation to 2018 and takes into account (i) the fact that executive management is concentrated in a single person (Chief Executive Officer) and (ii) that the Chief Executive Officer accumulates the functions of Chairman of the Company's Board of Directors.
The variable remuneration is associated with the performance of the Chief Executive Officer. The allocation of variable remuneration takes into account the different degrees of achievement in relation to the specific objectives previously approved, associated with objective, simple, transparent and measurable performance indicators. The Remuneration Committee kept the two criteria defined for this mandate unchanged, namely: the Total Shareholder Return (TSR) of the Company's shares (80% weight) and the Operational Efficiency of the Company, measured by the relationship between budgeted recurring costs and real (20% weight).
The variable remuneration has a maximum value corresponding to 100% of the value of the annual fixed remuneration (and consequently 50% of the total annual remuneration), a limit that drops to 50% in the 2nd and following years of the mandate, if the accumulated TSR is not positive.
The variable remuneration will be paid in cash, 50% in the month following the date of approval of accounts by the General Shareholders' Meeting and 50% with a deferral of 3 years and subject to verification of the positive performance of the Company in the period considered, to be carried out by the Remuneration Committee, which will take into account the financial sustainability and economic situation of the Company as well as the sector in which it operates, in addition to exceptional factors that are not under management control and that may affect the performance of the Company.
These principles and indicators for determining the variable component of remuneration aim to ensure a clear alignment between the interests of the executive director and the interests of the Company, through an incentive and compensation policy that allows the attraction, motivation and maintenance of the best professionals.
The Remuneration Committee further understands that, due to the nature and objectives of the Company, in the event of any extraordinary event that represents an undeniable and measurable creation of value for shareholders, it can be considered, during the year in which the event becomes final, the attribution of an equally extraordinary prize to the Chief Executive Officer, under the terms to be defined in time and in view of the specific characterization of such event, and if it is proposed in a reasoned manner by the Company's Board of Directors.
In 2019 and according to the calculation of the values of the indicators mentioned above, there was no place for the attribution of the annual variable remuneration.
However, the Remuneration Committee received a proposal approved by the Board of Directors of the Company to allocate an extraordinary premium to the Managing Director in an amount equivalent to an interval between 0.25% and 0.75% of the benefit obtained for the Company resulting from the agreement entered into with the OI and that the Board of Directors found, in a documented way, to be between 34.8 and 36.8 million euros, depending on the dates and respective quotations (of exchange rate and OI share) that may be considered in the quantification of the referred benefit.
The Remuneration Committee, having considered that it values in a very positive way all the intense, consistent and very demanding work carried out by the Managing-Director in the search, first, and the realization, at the end, of an understanding with OI that appears to be objectively and adequately quantified the financial advantage of the agreement (receipt of money and shares), he understood that he should comply with the proposal presented by the Board of Directors of the Company in order to approve an extraordinary premium for the Managing Director. Regarding the amount, the Commission believes that it should also take into account the Company's performance in 2018, particularly with regard to the creation of value for shareholders in which, unfortunately, a negative value (measured by TSR) was obtained. Thus, it decided to attribute an extraordinary premium to the Managing Director of 147,000 euros, which corresponds to 50% of his fixed annual remuneration. This premium respect the 50% limit that the Commission defined in its remuneration policy statement whenever TSR is negative. The prize awarded complies with the proposed range (0.25 to 0.75%) by the Company's Board of Directors in relation to the percentage of the premium amount on the benefit that the Board determined resulting from the agreement with OI. Using the lowest value of the benefit valuation, 34.8 million euros, the premium of 147,000 euros represents 0.42%.
Currently, there are no plans for the attribution of shares or stock options in force in the Company for the current mandate.
In the event that an Executive Director ceases to function, for any reason other than dismissal for cause, the payment of the variable remuneration amounts determined and which are deferred can only be made at the time of the termination of the management relationship if, until that date, there are sufficient and sustained indications that the performance of the Company will be predictably positive in the remaining period in terms that would, in all probability, allow the payment of the deferred component.
The reversal through the retention and / or return of the variable remuneration whose payment already constitutes an acquired right may be required, by resolution of the Remuneration Committee, if (i) there is a judicial condemnation of a Director for unlawful performance that determines changes adverse effects on the company's equity situation; (ii) there is a serious or fraudulent non-compliance with the code of conduct or internal rules with significant impact, or situations that justify a just cause for dismissal; (iii) and/or false statements and/or errors and omissions that are materially relevant in the financial statements to which the Director's conduct has contributed decisively.
The variable remuneration of the Company's Executive Directors is dependent on their performance, as well as on sustainability and the ability to achieve certain strategic objectives of the Company.
The current remuneration policy also allows a globally reasonable balance between the fixed and variable components and the deferral of a significant part of the variable remuneration, with its payment conditional on the non-affectation of the positive performance of the Company over that period as described above. In this way, it seeks to contribute to the maximization of long-term performance and the disincentive of excessive risk taking.
Still with a view to reinforcing the component of evaluating the performance of the Directors, unless agreed or resolved by the Remuneration Committee to the contrary, the Company and its Directors must act in accordance with the following principles:
In 2019, the values approved in 2018 for the President and Secretary of the General Meeting board were maintained.
The Company's Statutory Auditor is remunerated in accordance with normal remuneration practices and conditions for similar services, following the conclusion of a service provision contract with the company, following a proposal by the Fiscal Council.
The Board of Directors has always assured the Remuneration Committee, within the economic possibilities of the company, the possibility of using external consultants to support the activities carried out. In 2019, as in 2018, the Remuneration Committee understood that it was not necessary to resort to that type of support.
Lisbon, 2 March 2020
On behalf of the Remuneration Committee
António Gomes Mota
Presidente"
PHAROL's Code of Ethics, approved in 2016, applies to all employees of the Company in order to guarantee a set of common ethical standards. Its implementation is permanently monitored by the management bodies.
The full text of the PHAROL's Code of Ethics is available for consultation on the Company's official website (www.PHAROL.pt) and may also be made available through the Investor Relations Office.
Investor Relations
Luís Sousa de Macedo Investor Relations Director PHAROL, SGPS S.A. Rua Joshua Benoliel, 1, 2c Edifício Amoreiras Square 1250-133 Lisboa, Portugal Tel: +351 21 269 7698 Fax: +351 21 269 7949 E-mail: [email protected]
Shareholders, investors, analysts and other interested parties should send their requests for information and clarifications (annual, half year, and quarter reports, press releases, etc.).
Depositary bank Deutsche Bank Trust Company Americas ADR Division Floor 27 60 Wall Street New York 10005-2836 Fax: +1(732)544-6346
Holders of ADRs may also request additional information directly from PHAROL's depositary bank for ADRs in New York.
All publications and communications, as well as information regarding the businesses performed by the Company, are available on PHAROL's Internet page, at the following address: www.pharol.pt
Rua Joshua Benoliel, 1, 2c Edifício Amoreiras Square 1250-133 Lisboa, Portugal Tel: +351 21 269 7690 Registered With The Commercial Registry Office Of Lisbon Under No. 503 215 058
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