Oi(OIBRQ) - 2021 Q2 - Quarterly Report

Company Information This section provides an overview of the company's capital structure as of June 30, 2021 Capital Breakdown As of June 30, 2021, the company's total capital consisted of 6,598,224 thousand shares, with 645,832 thousand shares held in treasury, primarily composed of common shares Capital Breakdown as of 06/30/2021 (in thousands of shares) | Category | Common Shares | Preferred Shares | Total | | :--- | :--- | :--- | :--- | | Paid-in Capital | 6,440,497 | 157,727 | 6,598,224 | | In Treasury | 644,020 | 1,812 | 645,832 | Individual Financial Statements This section presents the company's individual financial statements, including balance sheets, statements of profit or loss, comprehensive income, cash flows, changes in equity, and value added Individual Balance Sheets The individual balance sheet shows a significant increase in total assets to BRL 58.3 billion, primarily driven by a surge in held-for-sale assets and property, plant, and equipment, while shareholders' equity decreased Assets Total individual assets increased to BRL 58.3 billion as of June 30, 2021, largely due to a substantial rise in current assets, specifically 'Held-for-sale assets', and a more than doubling of 'Property, plant and equipment' Individual Assets Summary (in thousands of BRL) | Line Item | 06/30/2021 | 12/31/2020 | | :--- | :--- | :--- | | Total assets | 58,281,742 | 38,525,202 | | Current assets | 18,354,187 | 6,017,124 | | Cash and cash equivalents | 603,278 | 1,952,680 | | Held-for-sale assets | 6,652,288 | 100,622 | | Non-current assets | 39,927,555 | 32,508,078 | | Property, plant and equipment | 15,003,298 | 6,948,832 | Liabilities and Equity Total individual liabilities and equity reached BRL 58.3 billion, with total liabilities rising to BRL 52.4 billion, mainly due to increased non-current borrowings and other payables, while shareholders' equity declined Individual Liabilities and Equity Summary (in thousands of BRL) | Line Item | 06/30/2021 | 12/31/2020 | | :--- | :--- | :--- | | Total liabilities and shareholders' equity | 58,281,742 | 38,525,202 | | Current liabilities | 7,351,675 | 3,044,306 | | Non-current liabilities | 45,069,044 | 27,729,404 | | Borrowings and financing | 20,591,205 | 12,935,035 | | Shareholders' equity | 5,861,023 | 7,751,492 | | Retained earnings/accumulated losses | (30,156,502) | (28,257,917) | Individual Statements of Profit or Loss For the six months ended June 30, 2021, the company reported a net loss of BRL 1.90 billion, a significant improvement from the BRL 9.69 billion loss in the same period of 2020, mainly due to lower financial expenses and a positive result from discontinued operations Individual Profit/Loss Summary (in thousands of BRL) | Line Item | YTD 06/30/2021 | YTD 06/30/2020 | | :--- | :--- | :--- | | Net operating revenue | 2,638,986 | 1,579,128 | | Gross profit | 373,480 | 228,364 | | Profit (loss) before financial income (expenses) | (1,379,822) | (6,967,141) | | Financial income (expenses) | (886,022) | (2,186,050) | | Profit/loss for the period | (1,898,585) | (9,689,449) | Individual Earnings Per Share (BRL per share) | Share Type | YTD 06/30/2021 | YTD 06/30/2020 | | :--- | :--- | :--- | | Common shares (ON) | -0.32000 | -1.63000 | | Preferred shares (PN) | -0.32000 | -1.63000 | Individual Statements of Comprehensive Income For the six months ended June 30, 2021, the total comprehensive loss was BRL 1.90 billion, a significant reduction from the BRL 9.58 billion loss in the prior-year period, primarily due to the lower net loss Individual Comprehensive Income (in thousands of BRL) | Line Item | YTD 06/30/2021 | YTD 06/30/2020 | | :--- | :--- | :--- | | Profit for the period | (1,898,585) | (9,689,449) | | Other comprehensive income | (5,289) | 108,619 | | Comprehensive income for the period | (1,903,874) | (9,580,830) | Individual Statements of Cash Flows For the six months ended June 30, 2021, net cash used in operating activities increased to BRL 971.7 million, while investing activities reversed to a net use of BRL 951.3 million, resulting in an overall decrease in cash and cash equivalents of BRL 1.35 billion Individual Cash Flow Summary (in thousands of BRL) | Line Item | YTD 06/30/2021 | YTD 06/30/2020 | | :--- | :--- | :--- | | Net cash from operating activities | (971,687) | (624,370) | | Net cash from investing activities | (951,301) | 1,979,221 | | Net cash from financing activities | 574,824 | (209,004) | | Increase (decrease) in cash and cash equivalents | (1,349,402) | 1,305,940 | | Cash and cash equivalents at the end of the period | 603,278 | 2,255,907 | Individual Statement of Changes in Equity Shareholders' equity decreased from BRL 7.75 billion at the beginning of 2021 to BRL 5.86 billion at June 30, 2021, primarily driven by the net loss for the period Individual Changes in Equity YTD 2021 (in thousands of BRL) | Line Item | Amount | | :--- | :--- | | Opening balance (01/01/2021) | 7,751,492 | | Total comprehensive income | (1,903,874) | | Profit for the period | (1,898,585) | | Capital transactions with shareholders | 13,405 | | Closing balance (06/30/2021) | 5,861,023 | Individual Statements of Value Added For the six months ended June 30, 2021, the total wealth for distribution was BRL 506.9 million, a significant turnaround from a negative BRL 3.96 billion in the prior year, primarily distributed to lenders and lessors and taxes Individual Wealth Distribution YTD (in thousands of BRL) | Line Item | YTD 06/30/2021 | YTD 06/30/2020 | | :--- | :--- | :--- | | Wealth for distribution | 506,941 | (3,961,276) | | Personnel | 268,312 | 158,274 | | Taxes and fees | 510,967 | 385,149 | | Lenders and lessors | 1,626,247 | 5,184,750 | | Shareholders (Retained earnings/Loss) | (1,898,585) | (9,689,449) | Consolidated Financial Statements This section presents the company's consolidated financial statements, including balance sheets, statements of profit or loss, comprehensive income, cash flows, changes in equity, and value added Consolidated Balance Sheets The consolidated balance sheet shows total assets remaining relatively stable at BRL 74.9 billion, with a significant shift from non-current to current assets, while consolidated shareholders' equity decreased Assets Consolidated total assets were BRL 74.9 billion as of June 30, 2021, with a major change being the increase in current assets to BRL 43.8 billion, primarily due to 'Held-for-sale assets' rising to BRL 33.6 billion, offset by a decrease in non-current assets Consolidated Assets Summary (in thousands of BRL) | Line Item | 06/30/2021 | 12/31/2020 | | :--- | :--- | :--- | | Total assets | 74,894,122 | 73,839,787 | | Current assets | 43,849,483 | 33,795,738 | | Cash and cash equivalents | 1,430,238 | 4,107,941 | | Held-for-sale assets | 33,627,961 | 20,771,942 | | Non-current assets | 31,044,639 | 40,044,049 | | Property, Plant And Equipment | 17,160,981 | 24,135,058 | Liabilities and Equity Consolidated total liabilities and equity stood at BRL 74.9 billion, with total liabilities increasing to BRL 69.0 billion, driven by a rise in current liabilities, while consolidated shareholders' equity fell to BRL 5.88 billion Consolidated Liabilities and Equity Summary (in thousands of BRL) | Line Item | 06/30/2021 | 12/31/2020 | | :--- | :--- | :--- | | Total liabilities and shareholders' equity | 74,894,122 | 73,839,787 | | Current liabilities | 26,321,969 | 18,013,108 | | Liabilities associated to held-for-sale assets | 13,146,285 | 9,195,376 | | Non-current liabilities | 42,696,409 | 48,056,769 | | Borrowings and financing | 22,715,366 | 25,918,777 | | Consolidated shareholders' equity | 5,875,744 | 7,769,910 | Consolidated Statements of Profit or Loss For the six months ended June 30, 2021, the consolidated net loss was BRL 1.90 billion, a substantial improvement from the BRL 9.75 billion loss in the same period of 2020, mainly due to significantly lower financial expenses and a positive contribution from discontinued operations Consolidated Profit/Loss Summary (in thousands of BRL) | Line Item | YTD 06/30/2021 | YTD 06/30/2020 | | :--- | :--- | :--- | | Net operating revenue | 4,473,101 | 4,716,730 | | Gross profit | 1,162,030 | 1,436,010 | | Profit (loss) before financial income (expenses) | (34,148) | (467,375) | | Financial income (expenses) | (2,226,048) | (8,765,246) | | Consolidated profit/loss for the period | (1,902,343) | (9,747,190) | | Attributable to the Company owner | (1,898,585) | (9,689,449) | Consolidated Earnings Per Share (BRL per share) | Share Type | YTD 06/30/2021 | YTD 06/30/2020 | | :--- | :--- | :--- | | Common shares (ON) | -0.32000 | -1.63000 | | Preferred shares (PN) | -0.32000 | -1.63000 | Consolidated Statements of Comprehensive Income The consolidated comprehensive loss for the six months ended June 30, 2021, was BRL 1.91 billion, a significant improvement from the BRL 9.64 billion loss in the prior-year period, driven by the reduced net loss Consolidated Comprehensive Income (in thousands of BRL) | Line Item | YTD 06/30/2021 | YTD 06/30/2020 | | :--- | :--- | :--- | | Consolidated profit for the period | (1,902,343) | (9,747,190) | | Other comprehensive income | (5,228) | 108,619 | | Consolidated comprehensive income for the period | (1,907,571) | (9,638,571) | | Attributable to the Company owner | (1,903,874) | (9,580,830) | Consolidated Statements of Cash Flows For the six months ended June 30, 2021, net cash used in operating activities was BRL 2.43 billion, a sharp reversal from the prior year, resulting in a total decrease in cash and cash equivalents of BRL 2.68 billion Consolidated Cash Flow Summary (in thousands of BRL) | Line Item | YTD 06/30/2021 | YTD 06/30/2020 | | :--- | :--- | :--- | | Net cash from operating activities | (2,428,154) | 1,704,392 | | Net cash from investing activities | (1,937,852) | 283,819 | | Net cash from financing activities | 1,689,821 | 1,566,000 | | Increase (decrease) in cash and cash equivalents | (2,677,703) | 3,768,708 | | Cash and cash equivalents at the end of the period | 1,430,238 | 5,850,653 | Consolidated Statement of Changes in Equity Consolidated shareholders' equity decreased from BRL 7.77 billion at the start of 2021 to BRL 5.88 billion by June 30, 2021, almost entirely due to the total comprehensive loss for the period Consolidated Changes in Equity YTD 2021 (in thousands of BRL) | Line Item | Amount | | :--- | :--- | | Opening balance (01/01/2021) | 7,769,910 | | Total comprehensive income | (1,907,571) | | Profit for the period | (1,902,343) | | Capital transactions with shareholders | 13,405 | | Closing balance (06/30/2021) | 5,875,744 | Consolidated Statements of Value Added For the six months ended June 30, 2021, the company generated wealth for distribution of BRL 3.33 billion, an increase from the prior year, primarily distributed to lenders and lessors and taxes, with a negative distribution to shareholders Consolidated Wealth Distribution YTD (in thousands of BRL) | Line Item | YTD 06/30/2021 | YTD 06/30/2020 | | :--- | :--- | :--- | | Wealth for distribution | 3,331,386 | 2,285,748 | | Personnel | 763,264 | 780,149 | | Taxes and fees | 1,445,588 | 1,438,687 | | Lenders and lessors | 3,024,877 | 9,814,102 | | Shareholders (Retained earnings/Loss) | (1,902,343) | (9,747,190) | Notes to the Financial Statements This section provides detailed notes supporting the financial statements, covering general information, financial instruments, property, plant and equipment, borrowings, segment reporting, held-for-sale assets, and subsequent events Note 1. General Information This note details Oi S.A.'s status as a company under judicial reorganization, its operations as a major Brazilian telecommunications concessionaire, and its international activities, including the Judicial Reorganization Plan and its amendment Company Operations and Concession Agreements Oi S.A. is a major Switched Fixed-line Telephony Services (STFC) concessionaire in Brazil, operating under ANATEL licenses, with concession agreements effective until December 31, 2025, and subject to regulatory review - Oi operates as a STFC concessionaire in Brazil's Region II and holds licenses for long-distance and mobile services nationwide through its subsidiaries[30][31] - The company's STFC concession agreements with ANATEL are valid until December 31, 2025, with ongoing discussions about revising the terms and potentially migrating to a private law regime[34][38][39] - ANATEL concluded in February 2020 that the short-term liquidity risk was extinguished, revoking special monitoring obligations, despite the company's judicial reorganization[41][42] Judicial Reorganization The company has been under judicial reorganization since June 2016, with the Judicial Reorganization Plan (JRP) approved in late 2017, involving capital increases and DIP financing to restructure debt and fund operations - The Judicial Reorganization Proceeding began on June 20, 2016, with the plan approved by creditors in December 2017 and ratified by the court in January 2018[45][46][47] - A second capital increase ('Capital Increase - New Funds') was completed in January 2019, raising BRL 4.0 billion in new funds[49][53] - Oi Móvel issued BRL 2.5 billion in debentures in December 2019 and another BRL 2.0 billion in July 2021 as part of Debtor in Possession (DIP) financing to support operations during the reorganization[56][64] - The company requested and was granted an extension of judicial oversight beyond the initial two-year period to complete the complex actions required by the JRP[67][69] Amendment to the Judicial Reorganization Plan (JRP) and Strategic Plan An amendment to the JRP was approved in September 2020 to provide greater flexibility for the company's strategic transformation, focusing on fiber optics expansion through the structural separation and sale of five Isolated Production Units (UPIs) - The Amendment to the JRP, approved in September 2020, aims to create a more efficient structure by segregating and selling assets to fund fiber optic expansion[73][75][77] - The plan involves creating and selling five Isolated Production Units (UPIs): UPI Mobile Assets, UPI Towers, UPI Datacenter, UPI InfraCo, and UPI TVCo[80] - UPI Towers: The sale to Highline do Brasil was completed on March 30, 2021, for approximately BRL 1.07 billion[110][113] - UPI Datacenter: The sale to Titan Venture Capital was completed on March 15, 2021, for BRL 325 million[117][120] - UPI Mobile Assets: A joint bid from Telefonica Brasil, TIM, and Claro for BRL 16.5 billion was declared the winner in December 2020, pending regulatory approval from CADE and ANATEL[105][107] - UPI InfraCo: A joint bid from Globenet and BTG Pactual was declared the winner in July 2021 for the partial sale (majority control) of the fiber infrastructure unit, valuing the unit at an EV of BRL 20 billion and pending regulatory approval[89][96][97] Merger of Telemar On May 3, 2021, the concessions held by the wholly-owned subsidiary Telemar were transferred to Oi S.A., followed by Telemar's merger into the parent company, resulting in the absorption of its net assets valued at BRL 6.16 billion Net Assets from Telemar Merger (in thousands of BRL) | Description | Amount | | :--- | :--- | | Total Assets Acquired | 29,735,186 | | Total Liabilities Assumed | (23,573,169) | | Merged net assets | 6,162,017 | - The merger of Telemar into Oi S.A. became effective on May 3, 2021, after the transfer of its concessions, representing an upstream merger with no impact on the consolidated financial statements[141][142][143] Going Concern The financial statements are prepared on a going concern basis, assuming the successful outcome of the judicial reorganization, though management acknowledges material uncertainties remain despite progress in discharging obligations - The financial statements are prepared on a going concern basis, but management notes that material uncertainties related to the judicial reorganization exist[144][145] Key Financial Position Indicators (in thousands of BRL) | Indicator | 06/30/2021 (Consolidated) | 12/31/2020 (Consolidated) | | :--- | :--- | :--- | | Shareholders' equity | 5,875,744 | 7,769,910 | | Working capital | 17,527,514 | 15,782,630 | - The company reports no material deviations in operations or results due to the COVID-19 pandemic as of the reporting date, having intensified digitalization and implemented safety protocols[147] Note 3. Financial Instruments and Risk Analysis This note outlines the company's financial instruments and its management of market, credit, and liquidity risks, including foreign exchange and interest rate exposures, and mitigation strategies Financial Risk Management The company manages financial risks through a three-level process, primarily addressing foreign exchange and interest rate exposures, with foreign currency debt partially hedged and credit risk considered low due to diversified counterparties - The company's activities expose it to market risk (currency and interest rate), credit risk, and liquidity risk, managed through policies approved by the Board of Directors[173][174] - Foreign exchange risk: Approximately 62.9% of borrowings and financing are exposed to foreign currency fluctuations, with NDFs and offshore cash used as hedges[178][179] - Interest rate risk: Approximately 37.1% of debt is subject to floating interest rates, with the most material exposure being to the CDI rate[191] Sensitivity Analysis Summary (Consolidated) | Risk Factor | Scenario | Impact on Profit/Loss (in thousands of BRL) | | :--- | :--- | :--- | | Foreign Exchange | 25% Real Depreciation | (4,103,871) | | Interest Rate | 25% Rate Increase | (1,126,960) | Note 16. Property, Plant and Equipment Consolidated net Property, Plant, and Equipment (PP&E) decreased to BRL 17.16 billion at June 30, 2021, primarily due to the reclassification of assets to 'held-for-sale' as part of the UPI divestment strategy Consolidated PP&E Movement (in thousands of BRL) | Line Item | 12/31/2020 | 06/30/2021 | | :--- | :--- | :--- | | PP&E, net | 24,135,058 | 17,160,981 | | Cost of PP&E (gross) | 113,887,205 | 94,528,136 | | Accumulated depreciation | (89,752,147) | (77,367,155) | - The decrease in PP&E is mainly due to the transfer of assets to 'held-for-sale' (BRL 20.7 billion gross cost) and the recognition of Indefeasible Rights of Use (IRU) agreements with UPI InfraCo[253][255] - As of June 30, 2021, the residual balance of returnable assets indispensable for STFC services was BRL 8.67 billion on a consolidated basis[257] Note 19. Borrowings and Financing As of June 30, 2021, consolidated borrowings and financing totaled BRL 26.56 billion, composed of Senior Notes, debentures, and loans, with debt covenants with BNDES temporarily stayed until at least May 2022 Consolidated Borrowings and Financing by Type (in thousands of BRL) | Type | 06/30/2021 | 12/31/2020 | | :--- | :--- | :--- | | Senior Notes | 8,663,369 | 9,000,226 | | Debentures (Public & Private) | 10,792,034 | 10,851,658 | | Financial institutions (BNDES, etc.) | 15,594,584 | 15,676,994 | | Total (before discounts/costs) | 40,696,875 | 41,518,821 | | Total (net) | 26,556,025 | 26,343,734 | - Debt is primarily indexed to fixed rates (BRL 15.7 billion), CDI (BRL 5.4 billion), and TJLP (BRL 4.4 billion)[269] - Debt covenants with BNDES are temporarily suspended as per the Amendment to the JRP, avoiding the risk of accelerated maturity[273] Note 28. Segment Reporting The company identifies a single reportable operating segment: Telecommunications in Brazil, which excludes discontinued operations, with net operating revenue for the first six months of 2021 decreasing to BRL 4.36 billion - The company has one reportable operating segment: Telecommunications in Brazil[317] Telecommunications in Brazil - Net Operating Revenue by Service (YTD, in thousands of BRL) | Service Category | 06/30/2021 | 06/30/2020 (Restated) | | :--- | :--- | :--- | | Residential | 2,551,602 | 2,530,538 | | Fixed-line services | 1,111,974 | 1,484,360 | | Broadband | 1,415,921 | 1,027,779 | | SMEs/Corporate (B2B) | 1,757,590 | 2,032,995 | | Total Net Operating Revenue | 4,359,165 | 4,613,687 | Note 30. Held-for-Sale Assets and Discontinued Operations This note details assets and liabilities classified as held for sale, primarily related to the UPIs and international operations, with consolidated held-for-sale assets totaling BRL 33.6 billion and associated liabilities of BRL 13.1 billion Held-for-Sale Assets and Associated Liabilities (Consolidated, in thousands of BRL) | Category | 06/30/2021 | 12/31/2020 | | :--- | :--- | :--- | | Held-for-sale assets | 33,627,961 | 20,771,942 | | Sale of UPIs | 33,505,563 | 20,625,007 | | International operations | 75,846 | 99,633 | | Liabilities associated to held-for-sale assets | 13,146,285 | 9,195,376 | | Sale of UPIs | 13,116,663 | 9,152,947 | - The operations of UPI Mobile Assets, UPI InfraCo, and UPI TVCo are classified as discontinued operations due to the coordinated divestment plan[346] Profit (Loss) from Discontinued Operations (in thousands of BRL) | Period | Amount | | :--- | :--- | | YTD 06/30/2021 | 367,259 | | YTD 06/30/2020 | (548,343) | Note 32. Events After the Reporting Period Subsequent to the reporting period, on July 30, 2021, the company completed two significant financing events: the 2nd issue of Oi Móvel debentures, raising BRL 2.0 billion, and an international Notes issue totaling US$880 million - On July 30, 2021, Oi Móvel completed a private placement of debentures amounting to BRL 2.0 billion[372] - On July 30, 2021, Oi Móvel completed a Notes issue totaling US$880 million, using part of the proceeds to repay its BRL 2.5 billion 1st issue debentures[373]