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05/20/2013

Dividend Policy and History

Dividend Policy and History

Amounts Available for Distribution

The Company‘s Board of Directors must manifest on the distribution of net income relative to the previous fiscal year, which will be analyzed and deliberated on by the shareholders.

In compliance with Brazilian Corporate Law, the net income of a company is defined as the result in a specific fiscal year, less any accrued losses from prior fiscal years, the provision for income tax, the provision for social contribution tax and profit sharing by employees and the administrators.

The calculation of net profit and the allocation to reserves in any given fiscal year are determined based on the audited and consolidated financial statements of the Company for the prior fiscal year.

Pursuant to Brazilian Corporate Law, the amount corresponding to net profit, as adjusted, is available for distribution to shareholders in any fiscal year, and may be:

  • Reduced by the amounts allocated to the legal reserve;
  • Reduced by the amounts allocated to the statutory reserves, if any;
  • Reduced by the amounts allocated to the contingency reserve, if any;
  • Reduced by the amounts allocated to the retained profit reserve, if any;
  • Reduced by the amounts allocated to the unearned profit reserve;
  • Increased by the reversal of contingency reserves recorded in prior years; and
  • Increased by the amounts allocated to the unearned profit reserve when realized and if not absorbed by losses.

The allocation of profit to the statutory reserves and of the unearned profit reserve may not be approved in a fiscal year if it prevents the distribution of the mandatory dividend.

Reserves

Pursuant to Brazilian Corporate Law, companies generally present two main reserve accounts: (1) retained profits reserves; and (2) capital reserves.

Retained Profits Reserves: Pursuant to Brazilian Corporate Law, its shareholders may decide in a shareholders’ meeting, upon proposal of its management team, to retain a portion of its net income, as previously provided for in an approved capital expenditure budget. The allocation of its net income to a retained earnings reserve may not be made prior to the payment of the mandatory dividend.

The balance of its profit reserve accounts, except for contingencies, may not exceed its capital stock. Should the balance exceed this limit, a shareholders’ meeting would be held for shareholders to vote on whether the excess should be used to pay in subscribed and unpaid capital, or to increase the capital stock or to distribute dividends.

Legal Reserve: Sonae Sierra Brasil is required to maintain a legal reserve to which it must allocate 5.0% of its annual net income until the aggregate amount of the reserve equals 20.0% of its paid in capital. However, they are not required to make any allocations to its legal reserve in a year in which the legal reserve, when added to its other established capital reserves, exceeds 30.0% of its capital stock or to offset losses. The amounts allocated to such reserve must be approved by its shareholders in a shareholders’ meeting and may only be used to increase its capital stock. Therefore, they are not available for the payment of dividends.

Capital Reserves: Pursuant to Brazilian Corporate Law, the capital reserves are comprised of goodwill (ágio) reserves in the subscription of shares. For companies listed on the Novo Mercado, capital reserves may only be used to (i) absorb losses that exceed accumulated earnings and profit reserves; (ii) redeem, repay or buy its common shares and (iii) increase its share capital. Its capital reserves include premiums, tax incentives and grants for investments. Amounts allocated to its capital reserves are not included in the calculation of the mandatory dividend.

Mandatory Shareholder Payments

Brazilian Corporate Law requires that the bylaws of Brazilian companies specify a minimum percentage of the available profits for the yearly distribution of dividends by the company, known as the mandatory dividend, which must be paid to shareholders as either dividends or interest on shareholders’ equity (as established by Law No. 9,249/95). Pursuant to its bylaws and Brazilian Corporate Law, a minimum of 25.0% of its adjusted net income must be directed for the distribution and payment of the mandatory dividend to its shareholders. In addition, the payment of mandatory dividends to its shareholders may be limited to the amount of realized net income in a given year, provided the difference is recorded as unrealized profit reserve. Its calculation of net income and allocations to reserves for any year, as well as the amounts available for distribution, are determined on the basis of its annual financial statements prepared in accordance with Brazilian Corporate Law.

The yearly dividend declaration requires approval by the shareholders’ meeting and depends on several factors, including its operating results, financial condition, cash requirements, future perspectives and other factors that shareholders and the Board of Directors deemed relevant. While pursuant to Brazilian Corporate Law, the Company is required to pay mandatory dividends every year, they are also allowed to suspend such dividend distribution if its board of directors reports to its shareholders at the annual shareholders’ meeting that the distribution would not be advisable in light of its financial condition. The fiscal council, if in place at the time, would review any suspension of the mandatory dividend. In addition, its management would be required to submit a report to the CVM describing the reasons for such suspension. Net income not distributed by virtue of a suspension would be allocated to a separate reserve and, if not absorbed by subsequent losses, would be required to be distributed as dividends as soon as the financial condition of the company permits such payment.

According to Brazilian Corporate Law, the participants at a shareholders’ meeting of a publicly traded company may decide, provided there is no opposition from any shareholder present at the meeting, the payment of dividends in a smaller amount than the mandatory dividend, or decide to withhold the total net income, only to raise funds through maturing and non-convertible debentures.

Dividends paid as interest on shareholders’ equity are deductible expenses for purposes of the Corporate Income Tax (Imposto de Renda Pessoa Jurídica), or IRPJ and the Social Contribution on Net Income (Contribuição Social Sobre o Lucro Líquido), or CSLL.

Dividends

Sonae Sierra Brasil is required by Brazilian Corporate Law and its bylaws to hold an annual shareholders’ meeting no later than four months after the end of the fiscal year, at which time, among other matters, its shareholders will vote on the destination of the results of the fiscal year and on the distribution of an annual dividend. The payment of annual dividends is based on its audited financial statements prepared for the immediately preceding year.

Any holder of its common shares at the time a dividend is declared is entitled to receive dividends. Pursuant to Brazilian Corporate Law, dividends are generally required to be paid within 60 days following the date on which the dividend is declared, unless the shareholders’ resolution sets another payment date, which must occur before the end of the year in which the dividend is declared.

Shareholders have a three year period from the date of the dividend payment to claim the dividends or interest on shareholders’ equity attributed to its shares, after which the aggregate amount of any unclaimed dividend would legally revert to them.

Pursuant to the bylaws, its board of directors may declare interim dividends or pay interest on shareholders’ equity based on the profits or profit reserves reported in the semi annual financial statements. Additionally, the board of directors may require that they draw up balance sheets for periods shorter than six months and declare interim dividends or distribute interest on shareholders’ equity based on the profits or profit reserves reported in these balance sheets, provided the total dividends paid in each six month period should not exceed the aggregate amount of its capital reserves. Pursuant to the bylaws, the board of directors may declare interim dividends or pay interest on shareholders’ equity based on the accumulated profits or profit reserves reported in the annual or semi annual financial statements. Payments of interim dividends or interest on shareholders’ equity may be offset against the amount of the mandatory dividend relating to the net income of the year in which the interim dividends were paid.

Interest Attributable to Shareholders’ Equity

Since January 1, 1996, Brazilian corporations are permitted to pay interest to shareholders and treat those payments as a deductible expense for the purposes of calculating Brazilian income tax and, since 1997, the social contribution tax. The amount of the tax deduction in each year is limited to the greater of (i) 50.0% of its net income (after deduction of the provision for social contribution on net profits but before taking into account the provision for income tax and interest on shareholders’ equity) for the period in respect of which the payment is made; and (ii) 50.0% of retained earnings. The payment of Interest Attributable to Shareholders’ Equity is an alternative to the payment of dividends. The rate applied in calculating interest on shareholders’ equity cannot exceed the prorated daily variation in the Long Term Interest Rate index (Taxa de Juros de Longo Prazo). Payments of interest on shareholders’ equity, net of withholding income tax, may be computed as part of the mandatory dividend distribution. Pursuant to applicable laws, the Company is required to pay to its shareholders an amount sufficient to ensure that the net amount they receive in respect of interest on shareholders’ equity, after payment of any applicable withholding tax plus the amount of distributed dividends, is at least equivalent to the mandatory dividend amount.

Historical Data for Shareholder Payments

The table below presents the dividends and interest on capital distributed to the shareholders of Sonae Sierra Brasil within the periods indicated.

Period Fiscal year ended December 31, 2014 Fiscal year ended December 31, 2013 Fiscal year ended December 31, 2012 Fiscal year ended December 31, 2011 Fiscal year ended December 31, 2010
Net income adjusted for dividends (in R$ thousand) 149,122 225,951 185,531 231,050 139,194
Dividends distributed (in R$ thousand) 34,773 34,772 26,748 24,456 2,939
Percentage of dividend by adjusted net income 23% 15% 14% 11% 2%
Dividend distributed by class and type R$0.45 / ON Share R$0.45 / ON Share R$0.35 / ON Share R$0.32 / ON Share R$0.01 / ON Share
Dividend payment date May 20, 2015 May 15, 2014 May 15, 2013 May 15, 2012 May 20, 2011
Return as a ratio of shareholders‘ equity 1% 1% 1% 1% 1%
Net income retained (in R$ thousand) 111,841 108,720 132,191 154,143 99,175
Retention approval date AGM on April 29, 2015 AGM on April 29, 2014 AGM on April 25, 2013 AEGM on April 25, 2012 AGM on April 28, 2011