Oi(OIBRQ) - 2021 Q3 - Quarterly Report

Company Data This section details the company's share capital structure as of September 30, 2021 Capital Breakdown Outlines the company's paid-in and treasury share capital for common and preferred stock as of Q3 2021 Capital Breakdown as of 09/30/2021 (in thousands of shares) | Category | Common Shares | Preferred Shares | Total | | :--- | :--- | :--- | :--- | | Paid-in Capital | 5,796,478 | 157,727 | 5,954,205 | | In Treasury | 30 | 1,812 | 1,842 | Individual Financial Statements Presents the company's standalone financial performance, including balance sheets, income, and cash flow statements Individual Balance Sheets Shows a significant increase in total assets to R$55.3 billion, driven by a merger and held-for-sale assets Assets Individual Assets (in thousands of BRL) | Line Item | 09/30/2021 | 12/31/2020 | | :--- | :--- | :--- | | Current Assets | 15,332,497 | 6,017,124 | | Cash and cash equivalents | 785,300 | 1,952,680 | | Accounts receivable | 3,538,029 | 1,400,570 | | Held-for-sale assets | 4,840,885 | 100,622 | | Non-current Assets | 39,997,369 | 32,508,078 | | Long-term receivables | 17,421,914 | 15,160,428 | | Property, plant and equipment | 15,078,244 | 6,948,832 | | Intangible assets | 2,662,169 | 3,045,378 | | Total Assets | 55,329,866 | 38,525,202 | Liabilities and Equity Individual Liabilities and Equity (in thousands of BRL) | Line Item | 09/30/2021 | 12/31/2020 | | :--- | :--- | :--- | | Current Liabilities | 6,704,680 | 3,044,306 | | Trade payables | 2,676,984 | 970,071 | | Non-current Liabilities | 47,563,377 | 27,729,404 | | Borrowings and financing | 22,081,725 | 12,935,035 | | Other payables | 21,282,192 | 12,679,013 | | Total Liabilities | 54,268,057 | 30,773,710 | | Shareholders' Equity | 1,061,809 | 7,751,492 | | Total Liabilities and Equity | 55,329,866 | 38,525,202 | Individual Statements of Profit or Loss Reports a net loss of R$6.7 billion for the nine months to September 2021, a notable improvement from 2020 Individual Profit or Loss Highlights (YTD, in thousands of BRL) | Line Item | YTD 09/30/2021 | YTD 09/30/2020 | | :--- | :--- | :--- | | Net operating revenue | 4,724,165 | 2,521,231 | | Gross profit | 716,443 | 506,252 | | Share of results of investees | (3,938,627) | (8,582,934) | | Financial income (expenses) | (3,090,060) | (2,995,067) | | Profit/loss for the period | (6,711,199) | (12,327,833) | | Basic earnings per share (R$) | (1.13) | (2.07) | Individual Statements of Comprehensive Income Details a comprehensive loss of R$6.7 billion for the nine months to September 2021, driven by the net loss Individual Comprehensive Income (YTD, in thousands of BRL) | Line Item | YTD 09/30/2021 | YTD 09/30/2020 | | :--- | :--- | :--- | | Profit for the period | (6,711,199) | (12,327,833) | | Other comprehensive income | 5,434 | 650,646 | | Comprehensive income for the period | (6,705,765) | (11,677,187) | Individual Statements of Cash Flows Shows a net cash decrease of R$1.2 billion, with significant outflows from investing and operating activities Individual Cash Flow Summary (YTD, in thousands of BRL) | Line Item | YTD 09/30/2021 | YTD 09/30/2020 | | :--- | :--- | :--- | | Net cash from operating activities | (109,964) | (717,588) | | Net cash from investing activities | (1,484,374) | 2,328,865 | | Net cash from financing activities | 430,304 | (246,930) | | Increase (decrease) in cash | (1,167,380) | 1,550,046 | | Cash at beginning of period | 1,952,680 | 949,967 | | Cash at end of period | 785,300 | 2,500,013 | Individual Statement of Changes in Equity Highlights a sharp R$6.7 billion decrease in shareholders' equity, primarily due to the period's net loss Individual Changes in Equity (YTD 09/30/2021, in thousands of BRL) | Line Item | Amount | | :--- | :--- | | Opening balance (01/01/2021) | 7,751,492 | | Profit (loss) for the period | (6,711,199) | | Other comprehensive income | 5,434 | | Share-based compensation | 16,082 | | Closing balance (09/30/2021) | 1,061,809 | Individual Statements of Value Added Shows a negative wealth for distribution of R$333.5 million, with lenders and lessors as primary recipients Individual Distribution of Value Added (YTD, in thousands of BRL) | Category | YTD 09/30/2021 | YTD 09/30/2020 | | :--- | :--- | :--- | | Wealth for distribution | (333,456) | (4,941,547) | | Personnel | 446,196 | 255,848 | | Taxes and fees | 922,850 | 576,510 | | Lenders and lessors | 5,008,697 | 6,553,928 | | Shareholders (Retained earnings/losses) | (6,711,199) | (12,327,833) | Consolidated Financial Statements Presents the group's combined financial position, performance, and cash flows, including all subsidiaries Consolidated Balance Sheets Shows total assets of R$75.5 billion, with a significant increase in held-for-sale assets to R$34.4 billion Assets Consolidated Assets (in thousands of BRL) | Line Item | 09/30/2021 | 12/31/2020 | | :--- | :--- | :--- | | Current Assets | 46,291,077 | 33,795,738 | | Cash and cash equivalents | 3,020,184 | 4,107,941 | | Accounts receivable | 4,238,128 | 3,974,238 | | Held-for-sale assets | 34,413,026 | 20,771,942 | | Non-current Assets | 29,238,271 | 40,044,049 | | Property, plant and equipment | 16,508,439 | 24,135,058 | | Intangible assets | 3,171,501 | 3,697,821 | | Total Assets | 75,529,348 | 73,839,787 | Liabilities and Equity Consolidated Liabilities and Equity (in thousands of BRL) | Line Item | 09/30/2021 | 12/31/2020 | | :--- | :--- | :--- | | Current Liabilities | 23,469,967 | 18,013,108 | | Liabilities associated to held-for-sale assets | 13,937,803 | 9,195,376 | | Non-current Liabilities | 50,980,265 | 48,056,769 | | Borrowings and financing | 31,071,532 | 25,918,777 | | Total Liabilities | 74,450,232 | 66,069,877 | | Consolidated Shareholders' Equity | 1,079,116 | 7,769,910 | | Total Liabilities and Equity | 75,529,348 | 73,839,787 | Consolidated Statements of Profit or Loss Reports a consolidated net loss of R$6.7 billion for the nine months to September 2021, driven by financial expenses Consolidated Profit or Loss Highlights (YTD, in thousands of BRL) | Line Item | YTD 09/30/2021 | YTD 09/30/2020 | | :--- | :--- | :--- | | Net operating revenue | 6,716,892 | 7,027,560 | | Gross profit | 1,479,360 | 2,018,457 | | Financial income (expenses) | (6,486,212) | (10,821,576) | | Consolidated profit/loss for the period | (6,713,827) | (12,326,728) | | Basic earnings per share (R$) | (1.13) | (2.07) | Consolidated Statements of Comprehensive Income Details a consolidated comprehensive loss of R$6.7 billion, almost entirely reflecting the period's net loss Consolidated Comprehensive Income (YTD, in thousands of BRL) | Line Item | YTD 09/30/2021 | YTD 09/30/2020 | | :--- | :--- | :--- | | Consolidated profit for the period | (6,713,827) | (12,326,728) | | Other comprehensive income | 6,951 | 699,710 | | Consolidated comprehensive income | (6,706,876) | (11,627,018) | Consolidated Statements of Cash Flows Shows a net cash decrease of R$1.1 billion, with significant financing inflows offsetting operational outflows Consolidated Cash Flow Summary (YTD, in thousands of BRL) | Line Item | YTD 09/30/2021 | YTD 09/30/2020 | | :--- | :--- | :--- | | Net cash from operating activities | (1,631,817) | 3,539,622 | | Net cash from investing activities | (3,576,281) | (1,548,142) | | Net cash from financing activities | 4,163,879 | 1,184,677 | | Increase (decrease) in cash | (1,087,757) | 3,381,165 | | Cash at beginning of period | 4,107,941 | 2,081,945 | | Cash at end of period | 3,020,184 | 5,463,110 | Consolidated Statement of Changes in Equity Highlights a R$6.7 billion decline in consolidated equity, driven by the net loss for the period Consolidated Changes in Equity (YTD 09/30/2021, in thousands of BRL) | Line Item | Amount | | :--- | :--- | | Opening balance (01/01/2021) | 7,769,910 | | Profit (loss) for the period | (6,713,827) | | Other comprehensive income | 6,951 | | Share-based compensation | 16,082 | | Closing balance (09/30/2021) | 1,079,116 | Consolidated Statements of Value Added Details the R$4.2 billion in wealth generated and its distribution to stakeholders, primarily lenders and lessors Consolidated Distribution of Value Added (YTD, in thousands of BRL) | Category | YTD 09/30/2021 | YTD 09/30/2020 | | :--- | :--- | :--- | | Wealth for distribution | 4,237,584 | 3,376,836 | | Personnel | 1,230,218 | 1,251,484 | | Taxes and fees | 2,236,284 | 2,184,399 | | Lenders and lessors | 7,484,909 | 12,267,681 | | Shareholders (Retained earnings/losses) | (6,713,827) | (12,326,728) | Notes to the Financial Statements Provides detailed disclosures on accounting policies, risk management, and key financial statement items General Information and Judicial Reorganization Details the company's operations under a Judicial Reorganization Plan focused on divesting assets to fund fiber optics Judicial Reorganization Plan (JRP) - The company is operating under a court-supervised Judicial Reorganization Plan (JRP), which was amended and approved in September 2020[57] - The JRP's strategy is to achieve financial flexibility by selling specific business units (UPIs) to fund investments in its core fiber optics business and repay creditors[52][58] - The court supervision period was extended until March 31, 2022, to allow for the completion of the UPI sales[60][61] Sale of Isolated Productive Units (UPIs) - The JRP mandates the sale of several UPIs, including Mobile Assets, InfraCo, and TVCo, to raise funds[320] - An investment agreement was signed with Globenet for the partial sale of UPI InfraCo for R$12.9 billion[90][91] - The sale of UPI InfraCo received final approval from the antitrust authority CADE in November 2021 and is pending ANATEL's approval[93][94][356] Corporate Restructuring and Mergers - As part of the reorganization, Oi merged its wholly-owned subsidiary Telemar on May 3, 2021, consolidating its assets and liabilities[95] Summary of Merged Net Assets from Telemar (May 3, 2021) | Description | Amount (in thousands of BRL) | | :--- | :--- | | Total Assets Acquired | 29,804,012 | | Total Liabilities Assumed | (23,641,995) | | Merged Net Assets | 6,162,017 | Significant Accounting Policies Outlines the IFRS-based accounting principles used, including the key classification of UPIs as discontinued operations - The financial statements are prepared in accordance with IAS 34 / CPC 21 (R1) for interim reporting[105] - Comparative balances for the income statement, cash flow, and other statements were restated to segregate discontinued operations (UPIs) in accordance with CPC 31/IFRS 5[108] - Key accounting judgments and estimates include impairment of long-lived assets, provisions for lawsuits, and the fair value of financial liabilities[109] Financial Instruments and Risk Management Details the company's significant exposure to foreign exchange and interest rate risks and its hedging strategies Market Risk (Foreign Exchange and Interest Rate) - The company's debt is significantly exposed to market risks, with 61.4% of borrowings and financing exposed to foreign exchange fluctuations and 32.3% subject to floating interest rates (mainly CDI)[136][150] Sensitivity Analysis of Market Risks (Consolidated) | Scenario | Impact on Profit/Loss (in thousands of BRL) | | :--- | :--- | | 50% BRL Depreciation | (8,831,980) | | 50% Increase in Interest Rates | (3,030,370) | Credit and Liquidity Risk - Credit risk is managed by diversifying the customer portfolio and investing with prime financial institutions; 91.0% of consolidated cash investments are with counterparties rated AAA, AA, A, or sovereign[157][158] - Liquidity has been reinforced in 2021 through several financing activities, including a R$2.5 billion debenture issue for InfraCo (FTTH expansion) and a US$880 million Senior Bond issuance by Oi Móvel[161][162] Held-for-Sale Assets and Discontinued Operations Reports R$34.4 billion in assets held for sale and a R$536.1 million profit from these discontinued operations - Assets and liabilities related to the disposal of UPI Mobile Assets, UPI InfraCo, and UPI TVCo are classified as held for sale[320] Consolidated Held-for-Sale Balances (in thousands of BRL) | Category | 09/30/2021 | 12/31/2020 | | :--- | :--- | :--- | | Assets Held for Sale | 34,413,026 | 20,771,942 | | Property, plant and equipment | 30,052,350 | 17,297,887 | | Liabilities Associated to Held-for-Sale Assets | 13,937,803 | 9,195,376 | | Leases payable | 7,093,509 | 5,636,122 | Profit (Loss) from Discontinued Operations (in thousands of BRL) | Period | Amount | | :--- | :--- | | YTD 09/30/2021 | 536,096 | | YTD 09/30/2020 | (475,076) | Other Key Notes Covers key disclosures on revenue, debt, provisions, contingent liabilities, and the impact of COVID-19 Revenue, Expenses, and Segment Reporting - The company operates as a single reportable segment, "Telecommunications in Brazil," which excludes discontinued operations[294] Consolidated Net Operating Revenue by Segment (YTD 09/30/2021, in thousands of BRL) | Segment | Revenue | | :--- | :--- | | Residential | 3,851,899 | | SMEs/Corporate (B2B) | 2,624,558 | | Other | 69,674 | | Total Brazil Telecom | 6,546,131 | Debt and Provisions Consolidated Debt and Provisions (09/30/2021, in thousands of BRL) | Category | Amount | | :--- | :--- | | Total Borrowings and Financing | 31,339,944 | | Provisions (Probable Loss) | 5,327,248 | | Contingent Liabilities (Possible Loss) | 31,307,147 | COVID-19 and Other Information - The company has maintained operations during the COVID-19 pandemic with measures like remote work for ~71% of staff and safety protocols for field workers, reporting no material deviations in operations or results[339][340][344] - An independent internal investigation regarding "Operation: Mapa da Mina" was completed and did not identify any indications of illegalities committed by the Company[337]