UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 UNDER
THE SECURITIES EXCHANGE ACT OF 1934
For the month of November 2018
Commission File Number: 001-38353
PagSeguro Digital Ltd.
(Name of Registrant)
Av. Brigadeiro Faria Lima, 1384, 4º andar, parte A
São Paulo, SP, 01451-001, Brazil
+55 11 3038 8127
(Address of Principal Executive Office)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F ☒ Form 40-F ☐
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):
Yes ☐ No ☒
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):
Yes ☐ No ☒
PagSeguro Digital Ltd.
Unaudited condensed consolidated interim balance sheet at
(All amounts in thousands of reais)
ASSETS |
Note | September 30, 2018 |
December 31, 2017 |
LIABILITIES AND EQUITY |
Note | September 30, 2018 |
December 31, 2017 |
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CURRENT ASSETS |
CURRENT LIABILITIES | |||||||||||||||||||||||||||
Cash and cash equivalents |
5 | 2,470,059 | 66,767 | Payables to third parties | 12 | 3,702,714 | 3,080,569 | |||||||||||||||||||||
Financial investments |
6 | | 210,103 | Trade payables | 151,621 | 92,444 | ||||||||||||||||||||||
Note receivables |
7 | 7,489,826 | 3,522,349 | Payables to related parties | 8 | 32,263 | 39,101 | |||||||||||||||||||||
Receivables from related parties |
8 | | 124,723 | Salaries and social charges | 13 | 73,497 | 34,269 | |||||||||||||||||||||
Inventories |
72,586 | 61,609 | Taxes and contributions | 14 | 59,720 | 52,064 | ||||||||||||||||||||||
Taxes recoverable |
42,082 | 14,446 | Provision for contingencies | 15 | 6,345 | 4,648 | ||||||||||||||||||||||
Other receivables |
15,979 | 27,956 | Other payables | 20,475 | 15,872 | |||||||||||||||||||||||
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Total current assets |
10,090,532 | 4,027,953 | Total current liabilities | 4,046,635 | 3,318,967 | |||||||||||||||||||||||
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NON-CURRENT ASSETS |
NON-CURRENT LIABILITIES | |||||||||||||||||||||||||||
Judicial deposits |
1,443 | 872 | Deferred income tax and social contribution | 16 | 34,195 | 42,809 | ||||||||||||||||||||||
Prepaid expenses |
1,305 | 160 | Other payables | | 3,590 | |||||||||||||||||||||||
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Deferred income tax and social contribution |
16 | | 37,015 | Total non-current liabilities | 34,195 | 46,399 | ||||||||||||||||||||||
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Property and equipment |
10 | 36,684 | 10,889 | |||||||||||||||||||||||||
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Intangible assets |
11 | 232,396 | 158,868 | TOTAL LIABILITIES | 4,080,830 | 3,365,366 | ||||||||||||||||||||||
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Total non-current assets |
271,828 | 207,804 | ||||||||||||||||||||||||||
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EQUITY | ||||||||||||||||||||||||||||
Share capital | 17 | 26 | 524,577 | |||||||||||||||||||||||||
Legal reserve | 17 | | 30,216 | |||||||||||||||||||||||||
Capital reserve | 17 | 5,657,703 | | |||||||||||||||||||||||||
Equity valuation adjustments | 17 | (6,885 | ) | 55 | ||||||||||||||||||||||||
Profit retention reserve | 17 | 606,831 | 312,047 | |||||||||||||||||||||||||
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6,257,675 | 866,895 | |||||||||||||||||||||||||||
Non-controlling interests | 23,855 | 3,496 | ||||||||||||||||||||||||||
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TOTAL EQUITY | 6,281,530 | 870,391 | ||||||||||||||||||||||||||
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TOTAL ASSETS |
10,362,360 | 4,235,757 | TOTAL LIABILITIES AND EQUITY | 10,362,360 | 4,235,757 | |||||||||||||||||||||||
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The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.
3
PagSeguro Digital Ltd.
Unaudited condensed consolidated interim statement of income
for the three and nine-month periods ended September 30
(All amounts in thousands of reais unless otherwise stated)
Three month period | Nine month period | |||||||||||||||||||
Note | September 30, 2018 |
September 30, 2017 |
September 30, 2018 |
September 30, 2017 |
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Net revenue from transaction activities and other services |
19 | 598,932 | 344,395 | 1,557,028 | 791,215 | |||||||||||||||
Net revenue from sales |
19 | 94,641 | 117,439 | 278,036 | 361,519 | |||||||||||||||
Financial income |
19 | 387,264 | 224,231 | 994,697 | 535,667 | |||||||||||||||
Other financial income |
19 | 56,504 | 572 | 237,395 | 3,937 | |||||||||||||||
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Total revenue and income |
1,137,341 | 686,637 | 3,067,156 | 1,692,337 | ||||||||||||||||
Cost of sales and services |
20 | (550,641 | ) | (348,546 | ) | (1,478,156 | ) | (918,415 | ) | |||||||||||
Selling expenses |
20 | (90,299 | ) | (58,370 | ) | (268,316 | ) | (184,106 | ) | |||||||||||
Administrative expenses |
20 | (164,491 | ) | (41,704 | ) | (492,690 | ) | (107,731 | ) | |||||||||||
Financial expenses |
20 | (7,226 | ) | (21,034 | ) | (26,553 | ) | (63,792 | ) | |||||||||||
Other expenses, net |
20 | (4,150 | ) | (2,309 | ) | (5,160 | ) | (5,035 | ) | |||||||||||
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PROFIT BEFORE INCOME TAXES |
320,534 | 214,674 | 796,281 | 413,258 | ||||||||||||||||
Current income tax and social contribution |
16 | (40,067 | ) | (66,204 | ) | (160,260 | ) | (124,118 | ) | |||||||||||
Deferred income tax and social contribution |
16 | (48,908 | ) | (1,073 | ) | (28,400 | ) | 1,104 | ||||||||||||
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INCOME TAX AND SOCIAL CONTRIBUTION |
(88,975 | ) | (67,277 | ) | (188,660 | ) | (123,014 | ) | ||||||||||||
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NET INCOME FOR THE PERIOD |
231,559 | 147,397 | 607,621 | 290,244 | ||||||||||||||||
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Attributable to: |
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Owners of the Company |
231,286 | 147,046 | 606,831 | 289,839 | ||||||||||||||||
Non-controlling interests |
273 | 352 | 790 | 405 | ||||||||||||||||
Basic earnings per common shareR$ |
0.7385 | 0.5606 | 1.9375 | 1.1050 | ||||||||||||||||
Diluted earnings per common shareR$ |
18 | 0.7370 | 0.5606 | 1.9337 | 1.1050 | |||||||||||||||
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The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.
4
PagSeguro Digital Ltd.
Unaudited condensed consolidated interim statement of comprehensive income
for the three and nine-month periods ended September 30
(All amounts in thousands of reais)
Three month period | Nine month period | |||||||||||||||
September 30, 2018 |
September 30, 2017 |
September 30, 2018 |
September 30, 2017 |
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NET INCOME FOR THE PERIOD |
231,559 | 147,397 | 607,621 | 290,244 | ||||||||||||
OTHER RESULTS |
292 | | 648 | | ||||||||||||
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Total comprehensive income for the period |
231,851 | 147,397 | 608,269 | 290,244 | ||||||||||||
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Attributable to |
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Owners of the Company |
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Net income for the period |
231,578 | 147,046 | 607,479 | 289,839 | ||||||||||||
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Non-controlling interests |
273 | 352 | 790 | 405 | ||||||||||||
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Net income for the period |
231,851 | 147,397 | 608,269 | 290,244 | ||||||||||||
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5
PagSeguro Digital Ltd.
Unaudited condensed consolidated interim statement of changes in equity
(All amounts in thousands of reais)
Capital reserve | Profit reserve | |||||||||||||||||||||||||||||||||||||||||||
Note | Share capital |
Capital reserve |
Share-based long-term incentive plan (LTIP) |
Legal reserve |
Profit retention reserve |
Retained earnings |
Equity valuation adjustments |
Total | Non-controlling interests |
Total equity |
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At December 31, 2016 |
524,577 | | | 6,277 | 96,008 | | | 626,862 | | 626,862 | ||||||||||||||||||||||||||||||||||
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Net income for the period |
17 | | | | | | 289,839 | | 289,839 | 405 | 290,244 | |||||||||||||||||||||||||||||||||
Non-controlling acquisition |
19 | | | | | | | | | 130 | 130 | |||||||||||||||||||||||||||||||||
Distribution of dividends |
19 | | | | | (96,008 | ) | (142,797 | ) | | (238,805 | ) | | (238,805 | ) | |||||||||||||||||||||||||||||
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At September 30, 2017 |
524,577 | | | 6,277 | | 147,042 | | 677,896 | 535 | 678,431 | ||||||||||||||||||||||||||||||||||
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Net income for the period |
17 | | | | | | 188,942 | | 188,942 | (392 | ) | 188,550 | ||||||||||||||||||||||||||||||||
Currency translation adjustment |
17 | | | | | | | 55 | 55 | | 55 | |||||||||||||||||||||||||||||||||
Non-controlling acquisition |
17 | | | | | | | | | 3,353 | 3,353 | |||||||||||||||||||||||||||||||||
Constitution of legal reserve |
17 | | | | 23,939 | | (23,939 | ) | | | | | ||||||||||||||||||||||||||||||||
Distribution of dividends |
17 | | | | | | 2 | | 2 | | 2 | |||||||||||||||||||||||||||||||||
Profit retention reserve |
17 | | | | | 312,047 | (312,047 | ) | | | | | ||||||||||||||||||||||||||||||||
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At December 31, 2017 |
524,577 | | | 30,216 | 312,047 | | 55 | 866,895 | 3,496 | 870,391 | ||||||||||||||||||||||||||||||||||
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Conversion of profit reserve to common shares |
1.1 | (524,556 | ) | 866,819 | | (30,216 | ) | (312,047 | ) | | | | | | ||||||||||||||||||||||||||||||
Net income for the period |
17 | | | | | | 606,831 | | 606,831 | 790 | 607,621 | |||||||||||||||||||||||||||||||||
Currency translation adjustment |
17 | | | | | | | 648 | 648 | | 648 | |||||||||||||||||||||||||||||||||
Non-controlling acquisition |
17 | | | | | | | (7,588 | ) | (7,588 | ) | 19,568 | 11,980 | |||||||||||||||||||||||||||||||
Issurance of common shares in initial public offering, net of offering costs |
17 | 5 | 4,522,278 | | | | | | 4,522,283 | | 4,522,283 | |||||||||||||||||||||||||||||||||
Shares issuedstock option plan |
17 | | 256,860 | (256,860 | ) | | | | | | | | ||||||||||||||||||||||||||||||||
Share based long term incentive plan (LTIP) |
17 | | | 268,606 | | | | | 268,606 | | 268,606 | |||||||||||||||||||||||||||||||||
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At September 30, 2018 |
26 | 5,645,957 | 11,746 | | | 606,831 | (6,885 | ) | 6,257,675 | 23,855 | 6,281,530 | |||||||||||||||||||||||||||||||||
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The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.
6
PagSeguro Digital Ltd.
Unaudited condensed consolidated interim statement of cash flows
for the nine-month periods ended
(All amounts in thousands of reais)
September 30, 2018 |
September 30, 2017 |
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CASH FLOWS FROM OPERATING ACTIVITIES |
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Profit before income taxes |
796,281 | 413,258 | ||||||
Expenses (revenues) not affecting cash: |
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Depreciation and amortization |
62,474 | 36,165 | ||||||
Chargebacks |
50,397 | 35,429 | ||||||
Accrual of provision for contingencies |
2,658 | 746 | ||||||
Share based long term incentive plan (LTIP) |
245,066 | | ||||||
Provision of obsolescence loss |
4,111 | | ||||||
Other financial cost, net |
(700 | ) | 2,310 | |||||
Changes in operating assets and liabilities |
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Note receivables |
(4,281,849 | ) | (1,457,481 | ) | ||||
Changes in receivables subject to early payment |
(1,733,291 | ) | 573,032 | |||||
Changes in receivables not subject to early payment |
(2,548,558 | ) | (2,030,513 | ) | ||||
Inventories |
(15,089 | ) | (45,283 | ) | ||||
Taxes recoverable |
(21,681 | ) | 9,309 | |||||
Other receivables |
4,546 | (3,441 | ) | |||||
Other payables |
515 | 5,275 | ||||||
Payables to third parties |
622,149 | 957,440 | ||||||
Trade payables |
59,224 | 51,556 | ||||||
Receivables from (payables to) related parties |
117,730 | 89,305 | ||||||
Salaries and social charges |
39,228 | 11,760 | ||||||
Taxes and contributions |
34,261 | | ||||||
Provision for contingencies |
(1,317 | ) | (678 | ) | ||||
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(2,281,996 | ) | 105,670 | ||||||
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Income tax and social contribution paid |
(186,554 | ) | (90,318 | ) | ||||
Interest income received |
263,952 | 157,451 | ||||||
Interest paid |
| (9,175 | ) | |||||
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NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES |
(2,204,598 | ) | 163,628 | |||||
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CASH FLOWS FROM INVESTING ACTIVITIES |
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Amount paid on acquisitions |
| (3,346 | ) | |||||
Purchases of property and equipment |
(29,054 | ) | (1,796 | ) | ||||
Purchases and development of intangible assets |
(117,445 | ) | (69,165 | ) | ||||
Redemption of financial investments |
211,116 | 132,107 | ||||||
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NET CASH PROVIDED BY INVESTING ACTIVITIES |
64,617 | 57,800 | ||||||
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CASH FLOWS FROM FINANCING ACTIVITIES |
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Payment of borrowings |
| (199,480 | ) | |||||
Payment of derivative financial instruments |
| (5,833 | ) | |||||
Distribution of dividends |
| (54,273 | ) | |||||
Proceeds from offering of shares |
4,717,874 | | ||||||
Transactional costs |
(189,852 | ) | | |||||
Transaction with non-controlling interest |
(5,389 | ) | | |||||
Capital increase by non-controlling shareholders |
20,639 | | ||||||
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES |
4,543,273 | (259,586 | ) | |||||
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
2,403,292 | (38,158 | ) | |||||
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Cash and cash equivalents at the beginning of the period |
66,767 | 79,969 | ||||||
Cash and cash equivalents at the end of the period |
2,470,059 | 41,811 |
The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.
7
PagSeguro Digital Ltd.
Notes to the unaudited condensed consolidated interim financial statements
at September 30, 2018 and for the three and nine-month periods ended September 30, 2018
(All amounts in thousands of reais unless otherwise stated)
1. | General information |
PagSeguro Digital Ltd. (PagSeguro Digital or the Company) is a holding company, subsidiary of Universo Online S.A. (UOL), referred to together with its subsidiaries as the PagSeguro Group, was incorporated on July 19, 2017. 99.99% of the shares of Pagseguro Internet S.A. (PagSeguro Brazil) were contributed to PagSeguro Digital on January 4, 2018 and, PagSeguro Digital maintains control of PagSeguro Brazil.
PagSeguro Brazil is a privately-held corporation established on January 20, 2006, headquartered in the city of São Paulo, Brazil, and engaged in providing financial technology solutions and services and corresponding related activities, focused principally on micro-merchants and small and medium-sized businesses (SMEs).
PagSeguro Brazils subsidiaries are Net+Phone Telecomunicações Ltda. (Net+Phone), Boa Compra Ltda. (Boa Compra), BCPS Online Services LDA. (BCPS), R2TECH Informática S.A. (R2TECH), BIVACO Holding S.A (BIVA) and Fundo de Investimento em Direitos CreditóriosPagSeguro (FIDC).
These unaudited condensed consolidated interim financial statements include PagSeguro Brazil and its subsidiaries Net+Phone, Boa Compra, BCPS Online Services, R2TECH, BIVA and FIDC.
1.1 | Initial Public Offering (IPO) |
On January 26, 2018, PagSeguro Digital completed its Initial Public Offering (IPO). 50,925,642 new shares were offered by PagSeguro Digital and 70,267,746 shares were offered by the controlling shareholder UOL.
The initial offering price was US$21,50 per common share, for gross proceeds of US$1,095.2 million (or R$3,444.2 million). The Company received net proceeds of US$1,046.0 million (or R$3,289.8 million), after deducting US$43.8 million (or R$137.8 million) in underwriting discounts and commissions and US$5.2 million (or R$16.7 million) of other offering expenses.
The shares offered and sold in the IPO were registered under the Securities Act of 1933, as amended, pursuant to the Companys Registration Statement on Form F-1 (Registration No 333-222292) which was declared effective by the Securities and Exchange Commission on January 26, 2018. The common stock has been traded on the New York Stock Exchange (NYSE) since January 26, 2018, under the symbol PAGS.
1.2 | Follow-on public offering |
On June 26, 2018, PagSeguro Digital completed its follow-on public offering. A number of 11,550,000 new shares were offered by PagSeguro Digital and 26,400,000 shares were offered by the controlling shareholder UOL.
The initial offering price was US$29,25 per common share, for gross proceeds of US$337.8 million (or R$1,274.4 million). The Company received net proceeds of US$329.9 million (or R$1,244.4 million), after deducting US$7.9 million (or R$29.9 million) in underwriting discounts and commissions and US$2.2 million (or R$8.4 million) of other offering expenses.
8
PagSeguro Digital Ltd.
Notes to the unaudited condensed consolidated interim financial statements
at September 30, 2018 and for the three and nine-month periods ended September 30, 2018
(All amounts in thousands of reais unless otherwise stated)
1.3 | Long-Term Incentive Plan (LTIP) |
Members of management participate in a Long-Term Incentive Plan, or LTIP, which was established by UOL for its group companies on July 29, 2015 and has been adopted by PagSeguro Digital. Beneficiaries under the LTIP are selected by UOLs LTIP Committee, which consists of the Chairman and two officers of UOL, and are submitted to our Board of Directors for adoption.
The policy for recognizing and measuring share-based payments in the interim period is described in Note 17.
2. | Presentation and preparation of the unaudited condensed consolidated interim financial statements and significant accounting policies |
These unaudited condensed consolidated interim financial statements, do not include all of the information required for a complete set of financial statements prepared in accordance with International Financial Reporting Standards (IFRS). However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Companys financial position and performance since the last annual financial statements.
These unaudited condensed consolidated interim financial statements for the nine-month period ended September 30, 2018 were authorized for issuance by the PagSeguro Groups Board of Directors on November 12, 2018.
2.1 | Basis of preparation of consolidated interim financial information |
These unaudited condensed consolidated interim financial statements for the nine-month period ended September 30, 2018 have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting as issued by the International Accounting Standard Board.
These unaudited condensed consolidated interim financial statements do not include all the notes of the type normally included in an annual consolidated financial statement. Accordingly, this report is to be read in conjunction with the annual consolidated financial statements for the year ended December 31, 2017 (the Annual Financial Statements).
The accounting policies and critical accounting estimates and judgments adopted are consistent with those of the previous financial year and corresponding interim reporting period.
9
PagSeguro Digital Ltd.
Notes to the unaudited condensed consolidated interim financial statements
at September 30, 2018 and for the three and nine-month periods ended September 30, 2018
(All amounts in thousands of reais unless otherwise stated)
2.2 | New accounting pronoucements |
Effective for periods beginning on or after January 1, 2018
The following new standards have been issued by IASB and are effective for the nine-month ended September 30, 2018:
IFRS 9Financial Instruments: addresses the classification, measurement and recognition of financial assets and liabilities. The complete version of IFRS 9 was issued in July 2014 and is effective as from January 1, 2018. It replaces the guidance included in IAS 39 related to the classification and measurement of financial instruments. The main amendments brought by IFRS 9 are: (i) new criteria for the classification of financial assets; (ii) new impairment model for financial assets, which is based on expected losses, replacing the current model of incurred losses; and (iii) relaxation of the requirements for the adoption of hedge accounting. Management evaluated the new guidelines introduced by IFRS 9 and did not identify any material impact for the PagSeguro Group.
IFRS 15Revenue from Contracts with Customers: this new standard introduces the principles to be applied by an entity to determine the measurement and recognition of revenue. This standard is based on the principle that revenue is recognized when control of a good or service is transferred to a customer, and, therefore, the principle of control replaces the principle of risks and benefits. This standard replaces IAS 11Construction Contracts, IAS 18Revenues and related interpretations, and became effective on January 1, 2018. Management evaluated the new guidelines introduced by IFRS 15 and did not identify any material impact for the PagSeguro Group.
Therefore, changes to standards or new pronouncements applicable to the years presented in the consolidated financial statements were not relevant to the PagSeguro Group, for retrospective disclosure and disclosure of amounts.
Effective for periods beginning on or after January 1, 2019
IFRS 16Leasesthis new standard requires lessees to recognize the liability of the future payments and the right of use of the leased asset for virtually all lease contracts, including operating leases. Certain short-term and low-value contracts may be out of the scope of this new standard. The criteria for recognition and measurement of leases in the financial statements of the lessors are substantially maintained. IFRS 16 is effective for years beginning on or after January 1, 2019 and replaces IAS 17Leases and related interpretations. Management has performed a preliminary assessment and did not identify any material impacts to date.
There are no other IFRS or International Financial Reporting Interpretations Committee (IFRIC) interpretations not yet effective that could have a material impact on the PagSeguro Groups financial statements.
10
PagSeguro Digital Ltd.
Notes to the unaudited condensed consolidated interim financial statements
at September 30, 2018 and for the three and nine-month periods ended September 30, 2018
(All amounts in thousands of reais unless otherwise stated)
3. | Consolidation of subsidiaries |
At September 30, 2018 | ||||||||||||||||||||||
Company |
Assets | Liabilities | Equity | Net income (loss) for the year |
Ownership - % | Level | ||||||||||||||||
Pagseguro Brazil |
15,347,072 | 9,341,991 | 6,005,081 | 474,112 | 99.99 | Direct | ||||||||||||||||
Net+Phone |
1,265,485 | 1,234,955 | 30,529 | (13,428 | ) | 99.99 | Indirect | |||||||||||||||
Boa Compra |
851,790 | 827,205 | 24,586 | 4,624 | 99.99 | Indirect | ||||||||||||||||
BCPS |
2,447 | 214 | 2,233 | 629 | 99.50 | Indirect | ||||||||||||||||
R2TECH |
4,980 | 1,316 | 3,664 | 2,487 | 51.00 | Indirect | ||||||||||||||||
BIVA |
1,613 | 4,791 | (3,178 | ) | (4,105 | ) | 77.35 | Indirect | ||||||||||||||
FIDC |
565,317 | 245,425 | 319,892 | 118,196 | 100.00 | Indirect |
The operational context of the subsidiaries is to be read in conjunction with the annual financial statements for the year ended December 31, 2017.
BIVA:
On January 15, March 12 and April 27, 2018, PagSeguro Brazil acquired an additional interest in BIVA (15.12%, 0.50% and 2.42%, respectively), bringing its total interest to 77.35% of BIVAs total share capital (59.31% as of December 31, 2017). The total amount paid for this acquisition was R$5,389. For more details see Note 9.
FIDC:
On March 29, 2018, two investors contributed capital in the amount of R$ 20 million in the subsidiary, acquiring only senior and mezzanine quotes. At September 30, 2018 the share capital of the FIDC is composed of subordinated quotes, senior quotes and mezzanine quotes. PagSeguro Brasil owns 100% of the subordinated quotes. The senior and mezzanine quotes pay 107% of the Interbank Deposit Certificate (CDI) with annual amortization of interest.
4. | Segment reporting |
Operating segments are reported consistently with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, responsible for allocating resources and assessing the performance of the operating segments, is the Board of Directors, which is also responsible for making the PagSeguro Groups strategic decisions.
Considering that all decisions are based on consolidated reports, and that all decisions related to strategic and financial planning, purchases, investments and the allocation of funds are made on a consolidated basis, the PagSeguro Group and its subsidiaries operate in a single segment, as payment arrangement agents.
The PagSeguro Group is domiciled in Brazil and has revenue arising from local customers and customers located abroad. The main revenue is related to sales from the domestic market. Net revenues from the international market represent 0.85% and 2.0% for the nine-month periods ended September 30, 2018 and 2017, respectively.
11
PagSeguro Digital Ltd.
Notes to the unaudited condensed consolidated interim financial statements
at September 30, 2018 and for the three and nine-month periods ended September 30, 2018
(All amounts in thousands of reais unless otherwise stated)
5. | Cash and cash equivalents |
September 30, 2018 |
December 31, 2017 |
|||||||
Short-term bank deposits |
37,785 | 66,767 | ||||||
Short-term investment |
2,432,274 | | ||||||
|
|
|
|
|||||
2,470,059 | 66,767 | |||||||
|
|
|
|
Cash and cash equivalents are held for the purpose of meeting short-term cash needs and include cash on hand, deposits with banks and other short-term highly liquid investments with original maturities of three-month or less, and with immaterial risk of change in value. The balance as at September 30, 2018 is relatated to excess of cash and cash equivalents proceeds originated from the IPO and the follow-on offering mentioned in Notes 1.1 and 1.2, repectively.
6. | Financial investments |
September 30, 2018 |
December 31, 2017 |
|||||||
Short-term investment |
| 210,103 | ||||||
|
|
|
|
|||||
| 210,103 | |||||||
|
|
|
|
Short-term investments consisted of two repurchase agreements, with an average return of 96.0% of the Interbank Deposit Certificate (CDI). This financial asset was classified as fair value through profit and loss.
12
PagSeguro Digital Ltd.
Notes to the unaudited condensed consolidated interim financial statements
at September 30, 2018 and for the three and nine-month periods ended September 30, 2018
(All amounts in thousands of reais unless otherwise stated)
7. | Note receivables |
September 30, 2018 | December 31, 2017 | |||||||||||||||||||||||||||||||
Legal obligors |
Visa | Master | Hipercard | Total | Visa | Master | Hipercard | Total | ||||||||||||||||||||||||
Itaú |
524,688 | 1,801,467 | 481,658 | 2,807,813 | 237,335 | 751,542 | 250,817 | 1,239,694 | ||||||||||||||||||||||||
Bradesco |
701,859 | 161,485 | | 863,344 | 333,108 | 83,160 | | 416,268 | ||||||||||||||||||||||||
Banco do Brasil |
548,945 | 152,840 | | 701,785 | 287,334 | 84,504 | | 371,838 | ||||||||||||||||||||||||
CEF |
138,200 | 166,989 | | 305,189 | 69,974 | 83,684 | | 153,658 | ||||||||||||||||||||||||
Santander |
237,058 | 784,787 | | 1,021,845 | 122,614 | 310,946 | | 433,560 | ||||||||||||||||||||||||
Other |
348,104 | 962,272 | | 1,310,376 | 141,802 | 393,999 | | 535,801 | ||||||||||||||||||||||||
Total card issuers(i) |
2,498,854 | 4,029,840 | 481,658 | 7,010,352 | 1,192,167 | 1,707,835 | 250,817 | 3,150,819 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
CieloElo |
| | | 311,500 | | | | 151,851 | ||||||||||||||||||||||||
Cielo |
| | | 107,535 | | | | 80,464 | ||||||||||||||||||||||||
Redecard |
| | | 9,678 | | | | 45,289 | ||||||||||||||||||||||||
Amex |
| | | 4,649 | | | | 39,608 | ||||||||||||||||||||||||
Vero |
| | | 10,446 | | | | 21,463 | ||||||||||||||||||||||||
Other |
| | | 23,073 | | | | 31,864 | ||||||||||||||||||||||||
Total acquirers (ii) |
| | | 466,881 | | | | 370,539 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Other |
| | | 12,593 | | | | 991 | ||||||||||||||||||||||||
Total other |
| | | 12,593 | | | | 991 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total note receivables |
2,498,854 | 4,029,840 | 481,658 | 7,489,826 | 1,192,167 | 1,707,835 | 250,817 | 3,522,349 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i) | Card issuers: receivables derived from transactions where PagSeguro Brazil acts as the financial intermediary in operations with the issuing banks, related to the intermediation agreements between PagSeguro Brazil and Visa, Mastercard or Hipercard. However, PagSeguro Brazils contractual note receivables are with the financial institutions, which are the legal obligors on the note receivables. Additionally, amounts due within 27 days of the original transaction, including those that fall due with the first installment of installment receivables, are guaranteed by Visa, Mastercard or Hipercard, as applicable, in the event that the legal obligors do not make payment. PagSeguro Brazil started operating directly as a financial intermediary in 2016. |
(ii) | Acquirers: refers to card processing transactions to be received from the acquirers, which are a third parties acting as financial intermediaries between the issuing bank and PagSeguro Brazil. This balance also includes the receivables from sales of debit and credit card readers. |
13
PagSeguro Digital Ltd.
Notes to the unaudited condensed consolidated interim financial statements
at September 30, 2018 and for the three and nine-month periods ended September 30, 2018
(All amounts in thousands of reais unless otherwise stated)
The maturity analysis of note receivables is as follows:
September 30, 2018 |
December 31, 2017 |
|||||||
Due within 30 days |
4,103,509 | 2,213,929 | ||||||
Due within 31 to 120 days |
2,802,570 | 1,045,825 | ||||||
Due within 121 to 180 days |
429,196 | 114,953 | ||||||
Due within 181 to 360 days |
154,551 | 147,642 | ||||||
|
|
|
|
|||||
7,489,826 | 3,522,349 | |||||||
|
|
|
|
8. | Related-party balances and transactions |
The PagSeguro Group is controlled by UOL (incorporated in Brazil).
i. | Balances and transactions with related parties: |
September 30, 2018 |
December 31, 2017 | |||||||||||
Payables | Receivables | Payables | ||||||||||
Immediate parent |
||||||||||||
UOLcash management (a) |
| 124,721 | | |||||||||
UOLsales of services (b) |
18,532 | | 32,286 | |||||||||
UOLshared service costs |
7,867 | | | |||||||||
Affiliated companies |
||||||||||||
UOL Diveocash management (a) |
| 2 | | |||||||||
UOL Diveosales of services (b) |
| | 621 | |||||||||
UOL Diveoshared service costs |
11 | | | |||||||||
Concurso Virtual S.A. |
| | 1,522 | |||||||||
Transfolha Transportadora e Distribuição Ltda. |
3,176 | | 745 | |||||||||
Livraria da Folha Ltda. |
400 | | 1,078 | |||||||||
Empresa Folha da Manhã S/A |
1,506 | | 2,320 | |||||||||
Others |
771 | | 529 | |||||||||
|
|
|
|
|
|
|||||||
32,263 | 124,723 | 39,101 | ||||||||||
|
|
|
|
|
|
(a) | The receivables transactions with related parties arising from cash management.The remaining balance was fully paid in April 2018. |
(b) | Sales of services refers mainly to the purchase of (i) advertising services from UOL and (ii) services related to technical support in hosting from UOL Diveo Tecnologia Ltda. (UOL Diveo). |
14
PagSeguro Digital Ltd.
Notes to the unaudited condensed consolidated interim financial statements
at September 30, 2018 and for the three and nine-month periods ended September 30, 2018
(All amounts in thousands of reais unless otherwise stated)
Three-month period | Nine-month period | |||||||||||||||||||||||||||||||
September 30, 2018 | September 30, 2017 | September 30, 2018 | September 30, 2017 | |||||||||||||||||||||||||||||
Revenue | Expense | Revenue | Expense | Revenue | Expense | Revenue | Expense | |||||||||||||||||||||||||
Immediate parent |
||||||||||||||||||||||||||||||||
UOLshared service costs (a) |
| 28,693 | | 14,154 | | 89,692 | | 40,609 | ||||||||||||||||||||||||
UOLsales of services (b) |
608 | 13,121 | 261 | 8,842 | 1,640 | 38,924 | 261 | 33,977 | ||||||||||||||||||||||||
Affiliated companies |
||||||||||||||||||||||||||||||||
UOL Diveoshared service costs (c) |
| 127 | | | | 374 | | 24 | ||||||||||||||||||||||||
UOL Diveosales of services (d) |
| 8,398 | | 6,533 | | 20,408 | | 22,593 | ||||||||||||||||||||||||
Transfolha Transportadora e Distribuição Ltda. |
251 | 4,552 | | 108 | 251 | 12,374 | | 8,188 | ||||||||||||||||||||||||
Livraria da Folha Ltda. |
39 | | 55 | | 149 | | 259 | | ||||||||||||||||||||||||
Others |
69 | 27 | 159 | | 376 | 27 | 336 | | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
967 | 54,918 | 475 | 29,637 | 2,416 | 161,799 | 855 | 105,391 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) | Shared services costs mainly related to (i) payroll costs, (ii) IT structure / software and (iii) property rental costs are incurred by the parent company UOL and are charged to PagSeguro Brazil pursuant to contractual agreements. Such costs are included in administrative expenses. The increase in the balance refers to payroll taxes related to LTIP in the three-month period ended September 30, 2018 which amounted to R$ 27,520 and the nine-month period ended September 30, 2018 which amounted to R$ 61,713, and which are paid by the parent company UOL and reimbursed by the PagSeguro Group. |
(b) | Sales of services related to advertising services are incurred by the parent company UOL and are charged to PagSeguro Brazil pursuant to contractual agreements. |
(c) | Shared services costs are incurred by the affiliated company UOL Diveo and are charged to PagSeguro Brazil pursuant to contractual agreements. The main costs are related to IT structure/software. |
(d) | Sales of services from the affiliated company UOL Diveo related to technical support in hosting services (started in 2016) and are charged to PagSeguro Brazil pursuant to contractual agreements. |
15
PagSeguro Digital Ltd.
Notes to the unaudited condensed consolidated interim financial statements
at September 30, 2018 and for the three and nine-month periods ended September 30, 2018
(All amounts in thousands of reais unless otherwise stated)
ii. | Key management compensation |
Key management compensation includes short and long term benefits of PagSeguro Brazils executive officers. The short and long term compensation related to the executive officers for the nine-month period ended September 30, 2018 amounted to R$ 54,282 (September 30, 2017R$ 2,722 includes only short-term benefits).
9. | Business combinations |
The acquisitions described below are in accordance with PagSeguro Digitals business strategies, as well as the products offered by them and their client portfolio.
a) | BCPS |
On January 1, 2017, PagSeguro Brazil acquired 99.5% of the share capital and obtained control of BCPS.
The amount paid in the acquisition was R$406, which was settled in cash on that date. The fair value of the acquired assets, amounting R$568, and the assumed liabilities amounting of R$75 at the acquisition date are substantially similar to their book value. A bargain purchase gain of R$87 arose from the acquisition of BCPS. The impacts of the acquisition were not considered material to PagSeguro Brazil.
b) | R2TECH |
On May 2, 2017, PagSeguro Brazil acquired 51% of the share capital and obtained control of R2TECH. The consideration for the purchase was R$9,200, of which R$2,940 was settled in cash on the acquisition date, R$460 was paid on August 14, 2017 and R$2,300 was paid on April 23, 2018. R$3,500 is variable installment, subject to the attainment of specific targets for the year 2018, established in the acquisition agreement, with payment due up to 10 business days after the conclusion of the Companys audited financial statements. Based on current management expectations, this performance goal will be achieved.
c) | BIVA |
In October, 2017, PagSeguro Brazil acquired control of BIVA with the acquisition of a 51.41% interest.
The total consideration paid for the purchases was R$18,470, which was settled in cash on the acquisition date. The fair value of the assets acquired, in the amount of R$2,350 and the liabilities assumed, in the amount of R$997, on the acquisition date, are substantially similar to their book value.
The goodwill of R$17,117 arising from the acquisition is attributable to the future profitability of the business in synergy with the products offered by the PagSeguro Group. The purchase price allocation may be subject to changes in the measurement period as defined in IFRS.
16
PagSeguro Digital Ltd.
Notes to the unaudited condensed consolidated interim financial statements
at September 30, 2018 and for the three and nine-month periods ended September 30, 2018
(All amounts in thousands of reais unless otherwise stated)
On November 30, 2017, PagSeguro Brazil acquired an additional interest of 7.90% of the issued shares for a purchase consideration of R$ 2,394, increasing PagSeguro Brazils interest to 59.31%. On January 15, March 12 and April 27, 2018, PagSeguro Brazil acquired an additional interest of BIVA (15.12%, 0.50% and 2.42%, respectively), bringing its total interest to 77.35% of BIVAs total share capital (59.31% as of December 31, 2017). The total amount paid for this acquisition was R$5,389.
10. | Property and equipment |
(a) | Property and equipment is composed as follows: |
September 30, 2018 | ||||||||||||
Cost | Accumulated depreciation |
Net | ||||||||||
Data processing equipment |
18,704 | (6,929 | ) | 11,775 | ||||||||
Facilities |
53 | (35 | ) | 18 | ||||||||
Machinery and equipment |
21,231 | (1,622 | ) | 19,609 | ||||||||
Furniture and fittings |
1,419 | (134 | ) | 1,285 | ||||||||
Leasehold improvements |
2,772 | (86 | ) | 2,686 | ||||||||
Vehicles |
1,481 | (170 | ) | 1,311 | ||||||||
|
|
|
|
|
|
|||||||
45,660 | (8,976 | ) | 36,684 | |||||||||
|
|
|
|
|
|
|||||||
December 31, 2017 | ||||||||||||
Cost | Accumulated depreciation |
Net | ||||||||||
Data processing equipment |
11,024 | (5,114 | ) | 5,910 | ||||||||
Facilities |
53 | (23 | ) | 30 | ||||||||
Machinery and equipment |
4,738 | (444 | ) | 4,294 | ||||||||
Furniture and fittings |
397 | (66 | ) | 331 | ||||||||
Leasehold improvements |
263 | (29 | ) | 234 | ||||||||
Vehicles |
132 | (42 | ) | 90 | ||||||||
|
|
|
|
|
|
|||||||
16,607 | (5,718 | ) | 10,889 | |||||||||
|
|
|
|
|
|
17
PagSeguro Digital Ltd.
Notes to the unaudited condensed consolidated interim financial statements
at September 30, 2018 and for the three and nine-month periods ended September 30, 2018
(All amounts in thousands of reais unless otherwise stated)
(b) | The changes in cost and accumulated depreciation were as follows: |
Data processing equipment |
Facilities | Machinery and equipment |
Furniture and fittings |
Leasehold improvements |
Vehicles | Total | ||||||||||||||||||||||
At December 31, 2017 |
||||||||||||||||||||||||||||
Cost |
11,024 | 53 | 4,738 | 397 | 263 | 132 | 16,607 | |||||||||||||||||||||
Accumulated depreciation |
(5,114 | ) | (23 | ) | (444 | ) | (66 | ) | (29 | ) | (42 | ) | (5,718 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Net book value |
5,910 | 30 | 4,294 | 331 | 234 | 90 | 10,889 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
At September 30, 2018 |
||||||||||||||||||||||||||||
Cost |
| |||||||||||||||||||||||||||
Purchases |
7,680 | | 16,493 | 1,022 | 2,509 | 1,349 | 29,053 | |||||||||||||||||||||
Depreciation |
||||||||||||||||||||||||||||
Depreciation |
(1,815 | ) | (12 | ) | (1,178 | ) | (68 | ) | (57 | ) | (128 | ) | (3,258 | ) | ||||||||||||||
Net book value |
11,775 | 18 | 19,609 | 1,285 | 2,686 | 1,311 | 36,684 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
At September 30, 2018 |
||||||||||||||||||||||||||||
Cost |
18,704 | 53 | 21,231 | 1,419 | 2,772 | 1,481 | 45,660 | |||||||||||||||||||||
Accumulated depreciation |
(6,929 | ) | (35 | ) | (1,622 | ) | (134 | ) | (86 | ) | (170 | ) | (8,976 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Net book value |
11,775 | 18 | 19,609 | 1,285 | 2,686 | 1,311 | 36,684 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
PagSeguro Digital Ltd.
Notes to the unaudited condensed consolidated interim financial statements
at September 30, 2018 and for the three and nine-month periods ended September 30, 2018
(All amounts in thousands of reais unless otherwise stated)
11. | Intangible assets |
(a) | Intangible assets are composed as follows: |
September 30, 2018 | ||||||||||||
Cost | Accumulated amortization |
Net | ||||||||||
Expenditures related to software and technology (i) |
376,571 | (178,927 | ) | 197,644 | ||||||||
Software licenses |
15,414 | (3,660 | ) | 11,754 | ||||||||
Customer relationships |
1,981 | (382 | ) | 1,599 | ||||||||
Goodwill (ii) |
21,399 | | 21,399 | |||||||||
|
|
|
|
|
|
|||||||
415,365 | (182,969 | ) | 232,396 | |||||||||
|
|
|
|
|
|
|||||||
December 31, 2017 | ||||||||||||
Cost | Accumulated amortization |
Net | ||||||||||
Expenditures related to software and technology (i) |
241,490 | (115,665 | ) | 125,825 | ||||||||
Software licenses |
9,510 | (2,043 | ) | 7,467 | ||||||||
Customer relationships |
1,981 | (91 | ) | 1,890 | ||||||||
Goodwill (ii) |
23,686 | | 23,686 | |||||||||
|
|
|
|
|
|
|||||||
276,667 | (117,799 | ) | 158,868 | |||||||||
|
|
|
|
|
|
(i) | The PagSeguro Group capitalizes the expenses incurred with the development of platforms, which are amortized over their useful lives, within a range from three to five years. |
(ii) | Goodwill provided on the acquisition of the companies R2TECH and BIVA. |
19
PagSeguro Digital Ltd.
Notes to the unaudited condensed consolidated interim financial statements
at September 30, 2018 and for the three and nine-month periods ended September 30, 2018
(All amounts in thousands of reais unless otherwise stated)
(b) | The changes in cost and accumulated amortization were as follows: |
September 30,2018 | ||||||||||||||||||||
Expenditures with software and technology |
Software licenses |
Customer relationships |
Goodwill (i) | Total | ||||||||||||||||
At December 31, 2017 |
||||||||||||||||||||
Cost |
241,490 | 9,510 | 1,981 | 23,686 | 276,667 | |||||||||||||||
Accumulated amortization |
(115,665 | ) | (2,043 | ) | (91 | ) | | (117,799 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net book value |
125,825 | 7,467 | 1,890 | 23,686 | 158,868 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
At September 30, 2018 |
||||||||||||||||||||
Cost |
||||||||||||||||||||
Additions |
135,081 | 5,904 | | | 140,985 | |||||||||||||||
Acquisition of subsidiary |
| | | (2,287 | ) | (2,287 | ) | |||||||||||||
Amortization |
(63,262 | ) | (1,617 | ) | (291 | ) | | (65,170 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net book value |
197,644 | 11,754 | 1,599 | 21,399 | 232,396 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
At September 30, 2018 |
||||||||||||||||||||
Cost |
376,571 | 15,414 | 1,981 | 21,399 | 415,365 | |||||||||||||||
Accumulated amortization |
(178,927 | ) | (3,660 | ) | (382 | ) | | (182,969 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net book value |
197,644 | 11,754 | 1,599 | 21,399 | 232,396 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
20
PagSeguro Digital Ltd.
Notes to the unaudited condensed consolidated interim financial statements
at September 30, 2018 and for the three and nine-month periods ended September 30, 2018
(All amounts in thousands of reais unless otherwise stated)
12. | Payables to third parties |
September 30, 2018 |
December 31, 2017 |
|||||||
Payables to third parties |
3,702,714 | 3,080,569 | ||||||
|
|
|
|
|||||
3,702,714 | 3,080,569 | |||||||
|
|
|
|
Payables to third parties correspond to amounts to be paid to commercial establishments with respect to transactions carried out by their card holders, net of the intermediation fees and discounts applied. PagSeguro Brazils average settlement terms agreed upon with commercial establishments is up to 30 days.
13. | Salaries and social charges |
September 30, 2018 |
December 31, 2017 |
|||||||
Profit sharing |
14,692 | 15,237 | ||||||
Salaries payable |
3,587 | 2,758 | ||||||
Social charges |
26,940 | 5,102 | ||||||
Payroll accruals |
20,004 | 9,807 | ||||||
Payroll taxes (LTIP) |
6,673 | | ||||||
Other |
1,601 | 1,365 | ||||||
|
|
|
|
|||||
73,497 | 34,269 | |||||||
|
|
|
|
14. | Taxes and contributions |
September 30, 2018 |
December 31, 2017 |
|||||||
Taxes |
||||||||
Services tax (i) |
85,982 | 14,837 | ||||||
Value-added tax on sales and services (ii) |
19,673 | 3,830 | ||||||
Social integration program (iii) |
16,049 | 9,918 | ||||||
Social contribution on revenues (iii) |
98,761 | 59,358 | ||||||
Income tax and social contribution (iv) |
684 | 35,474 | ||||||
Other |
1,701 | 1,264 | ||||||
|
|
|
|
|||||
222,850 | 124,681 | |||||||
|
|
|
|
|||||
Judicial deposits (v) |
||||||||
Services tax (i) |
(36,298 | ) | (11,375 | ) | ||||
Value-added tax on sales and services (ii) |
(15,255 | ) | (2,665 | ) | ||||
Social integration program (iii) |
(15,597 | ) | (8,188 | ) | ||||
Social contribution on revenues (iii) |
(95,980 | ) | (50,389 | ) | ||||
|
|
|
|
|||||
(163,130 | ) | (72,617 | ) | |||||
|
|
|
|
|||||
59,720 | 52,064 | |||||||
|
|
|
|
(i) | Refers to taxes on revenue from transaction activities. |
(ii) | Refers to the Value-added Tax on Sales and Services (ICMS) amounts due by Net+Phone, related to tax substitution and tax rate differential, applied on sales of credit and debit card readers. |
(iii) | Refers mainly to Social Integration Program (PIS) and Social Contribution on Revenues (COFINS) charged on financial income. |
(iv) | Refers to the income tax and social contribution payable on current income taxes and contribution. |
(v) | The PagSeguro Group obtained court decisions to deposit the amount related to the payments in escrow for matters discussed in items i, ii and iii above. |
21
PagSeguro Digital Ltd.
Notes to the unaudited condensed consolidated interim financial statements
at September 30, 2018 and for the three and nine-month periods ended September 30, 2018
(All amounts in thousands of reais unless otherwise stated)
15. | Provision for contingencies |
Some companies of the PagSeguro Group are party to labor and civil litigation in progress and are discussing such matters at the administrative and judicial levels, which, when applicable, are supported by judicial deposits. The provisions for probable losses arising from these matters are estimated and periodically adjusted by management, supported by the opinion of its external legal advisors.
September 30, 2018 |
December 31, 2017 |
|||||||
Civil |
6,025 | 4,326 | ||||||
Labor |
320 | 322 | ||||||
|
|
|
|
|||||
Current |
6,345 | 4,648 | ||||||
|
|
|
|
The PagSeguro Group is a party on tax lawsuits involving risks classified by legal advisors as possible losses, for which no provision was recognized at September 30, 2018, totaling approximately R$ 37,056 (December 31, 2017R$ 25,800). The PagSeguro Group is not a party to civil and labor lawsuits involving risks classified by management as possible losses.
16. | Income tax and social contribution |
(a) | Reconciliation of the deferred income tax and social contribution: |
Tax losses |
Tax credit |
Technological inovation (i) |
Other temporary differences -ASSETS |
Other temporary differences - LIABILITY |
Total | |||||||||||||||||||
Deferred tax |
||||||||||||||||||||||||
At December 31, 2016 |
1,051 | 3,606 | (24,378 | ) | 3,648 | | (16,073 | ) | ||||||||||||||||
Included in the statement of income |
282 | (12,156 | ) | 14,645 | (1,667 | ) | 1,104 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
At September 30, 2017 |
1,333 | 3,606 | (36,534 | ) | 18,293 | (1,667 | ) | (14,969 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Included in the statement of income |
154 | (721 | ) | (4,658 | ) | 14,349 | 51 | 9,175 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
At December 31, 2017 |
1,487 | 2,885 | (41,192 | ) | 32,642 | (1,616 | ) | (5,794 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Included in the statement of income |
1,848 | (541 | ) | (25,185 | ) | 37,062 | (41,584 | ) | (28,400 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
At September 30, 2018 |
3,335 | 2,344 | (66,377 | ) | 69,704 | (43,200 | ) | (34,194 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(i) | The main temporary differences representing the balance of the deferred tax liability refers to the benefit granted by the Technological Innovation Law (Lei do Bem), which reduces the tax charges on the capitalized amount of property and equipment. |
Deferred tax assets are recognized for tax loss carry-forwards to the extent that the realization of the related tax benefit through future taxable profits is probable. Tax losses do not have expiration date.
The estimated realization of deferred tax assets in non-current assets and liabilities is as follows:
September 30, 2018 |
December 31, 2017 | |||||||||||
Liability | Assets | Liability | ||||||||||
2018 |
1,312 | 8,895 | (20,728 | ) | ||||||||
2019 |
(2,060 | ) | 4,040 | (18,008 | ) | |||||||
2020 |
5,326 | 2,111 | (2,454 | ) | ||||||||
2021 |
1,160 | 982 | (1,434 | ) | ||||||||
2022 |
(39,933 | ) | 20,987 | (185 | ) | |||||||
|
|
|
|
|
|
|||||||
(34,195 | ) | 37,015 | (42,809 | ) | ||||||||
|
|
|
|
|
|
22
PagSeguro Digital Ltd.
Notes to the unaudited condensed consolidated interim financial statements
at September 30, 2018 and for the three and nine-month periods ended September 30, 2018
(All amounts in thousands of reais unless otherwise stated)
(b) | Reconciliation of the income tax and social contribution expense: |
At September 30, 2018 and 2017, the PagSeguro Group computed income tax and social contribution under the taxable income method. The following is a reconciliation of the difference between the actual income tax and social contribution expense and the expense computed by applying the Brazilian federal statutory rate for the nine-month periods ended September 30, 2018 and 2017:
Three-month period | Nine -month period | |||||||||||||||
September 30, 2018 |
September 30, 2017 |
September 30, 2018 |
September 30, 2017 |
|||||||||||||
Profit for the period before taxes |
320,534 | 214,674 | 796,281 | 413,258 | ||||||||||||
Statutory rate |
34% | 34% | 34% | 34% | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Expected income tax and social contribution |
(108,982 | ) | (72,989 | ) | (270,736 | ) | (140,508 | ) | ||||||||
Income tax and social contribution effect on: |
||||||||||||||||
Permanent additions (exclusions) |
||||||||||||||||
Gifts |
(169 | ) | (756 | ) | (500 | ) | (1,167 | ) | ||||||||
R&D and technological innovation benefitLaw 11.196/05 (i) |
14,122 | 6,249 | 36,564 | 17,595 | ||||||||||||
Taxation of income abroad (ii) |
5,030 | | 45,124 | | ||||||||||||
Other additions |
1,024 | 219 | 888 | 1,066 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income tax and social contribution expense |
(88,975 | ) | (67,277 | ) | (188,660 | ) | (123,014 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Effective rate |
28% | 31% | 24% | 30% | ||||||||||||
Income tax and social contribution current |
(40,067 | ) | (66,204 | ) | (160,260 | ) | (124,118 | ) | ||||||||
Income tax and social contribution deferred |
(48,908 | ) | (1,073 | ) | (28,400 | ) | 1,104 |
(i) | Refers to the benefit granted by the Technological Innovation Law (Lei do Bem), which reduces the income tax charges, based on the amount invested by the PagSeguro Group on specific intangible assets, see Note 11. |
(ii) | Refers to the benefit based on the local law of the Cayman Islands (The Companies Law of 1960). There is no taxation on the income earned in the companies based in this jurisdiction. As a result of the local tax regulations, all the exchange variantions from dolar to reais which generate income have no tax impacts for PagSeguro Digital. |
23
PagSeguro Digital Ltd.
Notes to the unaudited condensed consolidated interim financial statements
at September 30, 2018 and for the three and nine-month periods ended September 30, 2018
(All amounts in thousands of reais unless otherwise stated)
17. | Equity |
a) | Share capital |
At September 30, 2018, share capital is represented by 327,770,021 common shares, par value of US$0.000025. Share capital is composed of the following shares for the nine-month periods ended September 30, 2018 and the year ended December 31, 2017:
December 31, 2017 shares outstanding |
262,288,607 | |||
|
|
|||
Primary shares offered in the IPO |
50,925,642 | |||
Primary shares offered in the follow-on offering |
11,550,000 | |||
Long-Term Incentive Plan |
3,005,772 | |||
|
|
|||
September 30, 2018 shares outstanding |
327,770,021 | |||
|
|
During the year 2018, shares of PagSeguro Digital were issued as a result of the IPO, follow-on offering and long-term incentive plan, see details in Notes 1.1, 1.2, 1.3 and 17 (c).
Incremental costs directly attributable to the issuance of new shares or options are shown in equity as a deduction, net of tax, from the IPO and follow-on offering gross proceeds.
b) | Capital reserve |
The capital reserve can only be used to increase capital, offset losses, redeem, reimburse or purchase shares or pay cumulative dividends on preferred shares.
On January 26, 2018, 50,925,642 new shares were issued at a price of US$ 21.50 per share representing net proceeds of US$1,046.0 million (or R$3,289.8 million). Refer to Note 1.1 for further details.
On June 26, 2018, 11,550,000 new shares were issued at a price of US$ 29.25 per share representing net proceeds of US$329.9 million (or R$1,244.4 million). Refer to Note 1.2 for further details.
c) | Share based long term incentive plan (LTIP) |
Members of management participate in the LTIP, which was established by UOL for its group companies on July 29, 2015 and has been adopted by PagSeguro Digital. Beneficiaries under the LTIP are selected by UOLs LTIP Committee, which consists of the Chairman and two officers of UOL, and are submitted to our Board of Directors for adoption.
24
PagSeguro Digital Ltd.
Notes to the unaudited condensed consolidated interim financial statements
at September 30, 2018 and for the three and nine-month periods ended September 30, 2018
(All amounts in thousands of reais unless otherwise stated)
On January 26, 2018, beneficiaries under the LTIP were granted rights in the form of notional cash amounts without cash consideration. These rights vest in five equal annual installments starting on the earlier of July 29, 2015 and the beneficiarys employment start date. Under the terms of the LTIP, upon completion of the IPO, the vested portion of each beneficiarys LTIP rights was converted into Class A common shares of PagSeguro Digital at the IPO price (US$ 21.50) which is the assessed fair value at the grant date. As a result, the beneficiaries of the the LTIP received a total of 1,823,727 new Class A common shares upon completion of the IPO.
The unvested portions of each beneficiarys LTIP rights will be settled on each future annual vesting date in shares.
The shares granted under the LTIP are subject to a one-year lock-up period. Any shares that are issued on a subsequent vesting date during the first year after the IPO will be subject to the remainder of that same lock-up period, expiring one year after the IPO. After the close of that one-year period, shares to be granted under the LTIP will no longer be subject to a lock-up.
This arrangement is classified as equity-settled. For the nine-month period ended September 30, 2018, the Company recognized compensation expenses related to the LTIP in the total amount of R$ 268,606.
The maximum number of common shares that can be delivered to beneficiaries under the LTIP may not exceed 3% of our issued share capital at any time. At September 30, 2018 total shares granted were 5,990,796, and the total shares issued were 3,005,772. There were no forfeitures or expirations in the nine-month period ended September 30, 2018.
d) | Dividends |
At the Extraordinary General Shareholders Meeting held on September 29, 2017, PagSeguro Brazils shareholders approved the distribution of (i) R$142,797 of dividends related to the six-month period ended June 30, 2017 and (ii) R$96,008 in additional dividends related to the year ended December 31, 2016. The total dividends distributed amounted to R$238,803, of which R$184,530 was offset against receivables under the centralized cash management with UOL and the balance of R$54,272 was paid in cash by PagSeguro Brazil to UOL.
e) | Equity valuation adjustments |
The Company recognizes in this account the accumulated effect of the foreign exchange variation resulting from the conversion of the financial statements of the foreign subsidiary BCPS, represented by the accumulated amount of R$ 703 as of September 30, 2018 (R$ 55 as of December 31, 2017). This accumulated effect will be reverted to the result of the year as gain or loss only in case of disposal or write-off of the investment.
The Company also recognized in this account the difference between the book value and the amounts paid in the acquisitions of additional interests of the non-controlling shareholders of the subsidiary BIVA, in the amount of R$ 7,588.
25
PagSeguro Digital Ltd.
Notes to the unaudited condensed consolidated interim financial statements
at September 30, 2018 and for the three and nine-month periods ended September 30, 2018
(All amounts in thousands of reais unless otherwise stated)
18. | Earnings per share |
a) | Basic |
Basic earnings per share are calculated by dividing the profit attributable to shareholders of the PagSeguro Group by the weighted average number of common shares issued and outstanding during the nine-month periods ended September 30, 2018 and 2017:
Three-month period | Nine-month period | |||||||||||||||
September 30, 2018 |
September 30, 2017 |
September 30, 2018 |
September 30, 2017 |
|||||||||||||
Profit attributable to shareholders of the Company |
231,286 | 147,046 | 606,831 | 289,839 | ||||||||||||
Weighted average number of outstanding common shares (thousands) |
313,201,136 | 262,288,607 | 313,201,136 | 262,288,607 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Basic earnings per share - R$ |
0.7385 | 0.5606 | 1.9375 | 1.1050 | ||||||||||||
|
|
|
|
|
|
|
|
b) | Diluted |
Diluted earnings per share is calculated by adjusting the weighted average number of common shares outstanding to assume the conversion of all potential common shares with dilutive effects. The share based LTIP is the Companys only category of potential common shares with dilutive effects. In this case, a calculation is done to determine the number of shares that could have been acquired at fair value.
Three-month period | Nine-month period | |||||||||||||||
September 30, 2018 |
September 30, 2017 |
September 30, 2018 |
September 30, 2017 |
|||||||||||||
Profit used to determine diluted earnings per share |
231,286 | 147,046 | 606,831 | 289,839 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Weighted average number of outstanding common shares (thousands) |
313,201,136 | 262,288,607 | 313,201,136 | 262,288,607 | ||||||||||||
Vesting |
2,985,011 | | 2,985,011,11 | | ||||||||||||
Share-based long-term incentive plan (thousands) |
(2,360,509 | ) | | (2,360,509 | ) | | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Weighted average number of common shares for diluted earnings per share (thousands) |
313,825,638 | 262,288,607 | 313,825,638 | 262,288,607 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Diluted earnings per share - R$ |
0.7370 | 0.5606 | 1.9337 | 1.1050 | ||||||||||||
|
|
|
|
|
|
|
|
26
PagSeguro Digital Ltd.
Notes to the unaudited condensed consolidated interim financial statements
at September 30, 2018 and for the three and nine-month periods ended September 30, 2018
(All amounts in thousands of reais unless otherwise stated)
19. | Total revenue and income |
Three-month period | Nine-month period | |||||||||||||||
September 30, 2018 |
September 30, 2017 |
September 30, 2018 |
September 30, 2017 |
|||||||||||||
Gross revenue from transaction activities and other services |
695,791 | 390,076 | 1,809,787 | 899,435 | ||||||||||||
Gross revenue from sales |
125,180 | 161,456 | 382,918 | 502,268 | ||||||||||||
Gross financial income (i) |
401,633 | 235,258 | 1,037,983 | 562,376 | ||||||||||||
Other financial income (ii) |
56,504 | 572 | 237,395 | 3,937 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total gross revenue and income |
1,279,108 | 787,362 | 3,468,083 | 1,968,016 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Deductions from gross revenue from transactions activitiesand other services (iii) |
(96,859 | ) | (45,681 | ) | (252,759 | ) | (108,221 | ) | ||||||||
Deductions from gross revenue from sales (iv) |
(30,539 | ) | (44,017 | ) | (104,882 | ) | (140,749 | ) | ||||||||
Deductions from gross financial income (v) |
(14,369 | ) | (11,027 | ) | (43,286 | ) | (26,709 | ) | ||||||||
Total deductions from gross revenue and income |
(141,767 | ) | (100,725 | ) | (400,927 | ) | (275,679 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total revenue and income |
1,137,341 | 686,637 | 3,067,156 | 1,692,337 | ||||||||||||
|
|
|
|
|
|
|
|
(i) | Includes (a) interest income from early payment of notes payable to third parties and (b) interest on note receivables due in installments. |
(ii) | The increase in the period refers to foreign exchange gain on the currency conversion of the IPO and follow-on offering proceeds for the nine-month period ended September 30, 2018 in the amount of R$ 131,366 and financial income on financial investments classified as cash and cash equivalents for the nine-month period ended on September 30, 2018 in the amount of R$ 99,665 (September 30, 2017R$ 3,236). |
(iii) | Deductions consist of sales taxes. |
(iv) | Deductions are composed of sales taxes and returns. |
(v) | Deductions consist of taxes on financial income. |
27
PagSeguro Digital Ltd.
Notes to the unaudited condensed consolidated interim financial statements
at September 30, 2018 and for the three and nine-month periods ended September 30, 2018
(All amounts in thousands of reais unless otherwise stated)
20. | Expenses by nature |
Three-month period | Nine-month period | |||||||||||||||
September 30, 2018 |
September 30, 2017 |
September 30, 2018 |
September 30, 2017 |
|||||||||||||
Transactions costs |
(326,642 | ) | (181,950 | ) | (855,212 | ) | (427,243 | ) | ||||||||
Cost of goods sold |
(147,679 | ) | (113,902 | ) | (374,194 | ) | (340,091 | ) | ||||||||
Marketing and advertising |
(93,329 | ) | (65,669 | ) | (286,577 | ) | (204,620 | ) | ||||||||
Personnel expenses (i) |
(154,784 | ) | (27,967 | ) | (494,978 | ) | (74,692 | ) | ||||||||
Financial expenses (ii) |
(7,226 | ) | (21,034 | ) | (26,553 | ) | (63,792 | ) | ||||||||
Chargebacks (iii) |
(22,251 | ) | (10,145 | ) | (50,397 | ) | (35,429 | ) | ||||||||
Depreciation and amortization (iv) |
(23,926 | ) | (13,492 | ) | (62,474 | ) | (36,165 | ) | ||||||||
Other |
(40,970 | ) | (37,804 | ) | (120,490 | ) | (97,047 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
(816,807 | ) | (471,963 | ) | (2,270,875 | ) | (1,279,079 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Classified as: |
||||||||||||||||
Cost of services |
(391,009 | ) | (228,678 | ) | (1,059,264 | ) | (534,309 | ) | ||||||||
Cost of sales |
(159,632 | ) | (119,868 | ) | (418,892 | ) | (384,106 | ) | ||||||||
Selling expenses |
(90,299 | ) | (58,370 | ) | (268,316 | ) | (184,106 | ) | ||||||||
Administrative expenses |
(164,491 | ) | (41,704 | ) | (492,690 | ) | (107,731 | ) | ||||||||
Financial expenses |
(7,226 | ) | (21,034 | ) | (26,553 | ) | (63,792 | ) | ||||||||
Other (expenses) income, net |
(4,150 | ) | (2,309 | ) | (5,160 | ) | (5,035 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
(816,807 | ) | (471,963 | ) | (2,270,875 | ) | (1,279,079 | ) | |||||||||
|
|
|
|
|
|
|
|
(i) | The increase refers to compensation expenses related to the LTIP for the nine-month period ended September 30, 2018 in the amount of R$ 245,066, and the respective payroll taxes in the amount of R$ 142,983. For the three-month period ended in September 30, 2018 LTIP related expenses amounted to R$ 74,337, and the respective payroll taxes amounted to R$ 40,964. |
(ii) | Our financial expenses include (a) Financial Operations Tax (IOF) related to the remittance of cash from the Cayman Islands to Brazil in the amount of R$ 17,975 for the nine-month period ended September 30,2018 (September 30, 2017R$0), (b) charges to obtain early payment of receivables owed to us by card issuers to finance our early payment of receivables feature in the amount of R$ 1,465 for the nine-month period ended September 30,2018 (September 30, 2017R$ 56,816). |
(iii) | Chargebacks refer to losses recognized in the period reflecting the risks of fraud associated with card processing operations, as detailed in Note 22 (ii). |
(iv) | The depreciation and amortization amounts incurred in the period are segregated between costs and expenses as presented below: |
28
PagSeguro Digital Ltd.
Notes to the unaudited condensed consolidated interim financial statements
at September 30, 2018 and for the three and nine-month periods ended September 30, 2018
(All amounts in thousands of reais unless otherwise stated)
Three-month period | Nine-month period | |||||||||||||||
September 30, 2018 |
September 30, 2017 |
September 30, 2018 |
September 30, 2017 |
|||||||||||||
Depreciation |
||||||||||||||||
Cost of sales and services |
(1,060 | ) | (233 | ) | (2,206 | ) | (687 | ) | ||||||||
Selling expenses |
(3 | ) | (3 | ) | (6 | ) | (8 | ) | ||||||||
Administrative expenses |
(441 | ) | (171 | ) | (1,046 | ) | (479 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
(1,504 | ) | (407 | ) | (3,258 | ) | (1,174 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Amortization |
||||||||||||||||
Cost of sales and services |
(24,287 | ) | (14,540 | ) | (64,485 | ) | (38,330 | ) | ||||||||
Administrative expenses |
(384 | ) | (30 | ) | (685 | ) | (91 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
(24,671 | ) | (14,570 | ) | (65,170 | ) | (38,421 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
PIS and COFINS credits (*) |
2,249 | 1,485 | 5,954 | 3,430 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Depreciation and amortization expense, net |
(23,926 | ) | (13,492 | ) | (62,474 | ) | (36,165 | ) | ||||||||
|
|
|
|
|
|
|
|
(*) | PagSeguro Brazil has a tax benefit on PIS and COFINS that allows it to reduce the depreciation and amortization expenses when incurred. This tax benefit is recognized directly as a reduction of depreciation and amortization expense. |
29
PagSeguro Digital Ltd.
Notes to the unaudited condensed consolidated interim financial statements
at September 30, 2018 and for the three and nine-month periods ended September 30, 2018
(All amounts in thousands of reais unless otherwise stated)
21. | Financial instruments by category |
The PagSeguro Group estimates the fair value of its financial instruments using available market information and appropriate valuation methodologies for each situation.
The interpretation of market data, as regards the choice of methodologies, requires considerable judgment and the establishment of estimates to reach an amount considered appropriate for each situation. Therefore, the estimates presented may not necessarily indicate the amounts that could be obtained in the current market. The use of different hypotheses to calculate market value or fair value may have a material impact on the amounts obtained. The assets and liabilities presented in this Note were selected based on their relevance.
The PagSeguro Group believes that the financial instruments recognized in these consolidated interim financial statements at their carrying amount are substantially similar to their fair value. However, since they do not have an active market, variations could occur in the event the PagSeguro Group were to decide to settle or realize them in advance.
The PagSeguro Group classifies its financial instruments into the following categories:
September 30, 2018 |
December 31, 2017 |
|||||||
Financial assets |
||||||||
Measured at fair value through profit or loss: |
||||||||
Financial investments |
| 210,103 | ||||||
Loans and receivables: |
||||||||
Cash and cash equivalents |
2,470,059 | 66,767 | ||||||
Note receivables |
7,489,826 | 3,522,349 | ||||||
Receivables from related parties |
| 124,723 | ||||||
Other receivables |
15,979 | 27,956 | ||||||
|
|
|
|
|||||
9,975,864 | 3,951,898 | |||||||
|
|
|
|
September 30, 2018 |
December 31, 2017 |
|||||||
Financial liabilities |
||||||||
Amortized cost: |
||||||||
Payables to third parties |
3,702,714 | 3,080,569 | ||||||
Trade payables |
151,621 | 92,444 | ||||||
Trade payables to related parties |
32,263 | 39,101 | ||||||
Other payables |
20,475 | 15,872 | ||||||
|
|
|
|
|||||
3,907,073 | 3,227,986 | |||||||
|
|
|
|
30
PagSeguro Digital Ltd.
Notes to the unaudited condensed consolidated interim financial statements
at September 30, 2018 and for the three and nine-month periods ended September 30, 2018
(All amounts in thousands of reais unless otherwise stated)
22. | Financial risk management |
The PagSeguro Groups activities expose it to a variety of financial risks: market risk (including currency risk and cash flow or fair value interest rate risk), fraud risk (chargebacks), credit risk and liquidity risk. The PagSeguro Groups overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the PagSeguro Groups financial performance. The PagSeguro Group uses derivative financial instruments to hedge certain risk exposures, when applicable.
Among the main market risk factors that may affect the PagSeguro Groups business are the following:
(i) | Foreign exchange risk |
Foreign exchange risk arises when future commercial transactions or recognized assets or liabilities are denominated in a currency that is not the entitys functional currency. As of September 30, 2018 and December 31, 2017, the PagSeguro Group is not materially exposed to this foreign exchange risk.
(ii) | Fraud Risk (chargeback) |
The PagSeguro Groups sales transactions are susceptible to potentially fraudulent or improper sales and it uses the following two processes to control the fraud risk:
The first process consists of monitoring, on a real time basis, the transactions carried out with credit and debit cards and payment slips, through an anti-fraud system. This process approves or rejects suspicious transactions at the time of the authorization, based on statistical models that are revised on a periodic basis.
The second process detects chargebacks and disputes not identified by the first process. This is a complementary process and increases the PagSeguro Groups ability to avoid new frauds.
(iii) | Credit risk |
Credit risk is managed on a group basis and is limited to the possibility of default by: (a) the card issuers, which have the obligation of transferring to the credit and debit card labels the fees charged for the transactions carried out by their card holders, and/or (b) the acquirers, which are used by the PagSeguro Group to approve transactions with the issuers.
In order to mitigate this risk, PagSeguro Brazil has established a Credit and Liquidity Risk Committee, whose responsibility is to assess the level of risk of each of the card issuers served by the PagSeguro Group, classifying them into three groups:
(i) | card issuers with a low level of risk, with credit ratings assigned by FITCH, S&P and Moodys, which do not require additional monitoring; |
(ii) | card issuers with a medium level of risk, which are also monitored in accordance with the Basel and property, plant and equipment ratios; and |
(iii) | card issuers with a high level of risk, which are assessed by the committee at monthly meetings. |
No credit limits were exceeded during the reporting period, and management does not expect any losses from non-performance by these counterparties in addition to the amounts already recognized as chargebacks, presented under fraud risk.
31
PagSeguro Digital Ltd.
Notes to the unaudited condensed consolidated interim financial statements
at September 30, 2018 and for the three and nine-month periods ended September 30, 2018
(All amounts in thousands of reais unless otherwise stated)
(iv) | Liquidity risk |
The PagSeguro Group manages liquidity risk by maintaining reserves, bank and credit lines for the obtaining borrowings, when deemed appropriate. The PagSeguro Group continuously monitors actual and projected cash flows, and matches the maturity profile of its financial assets and liabilities in order to ensure that the PagSeguro Group has sufficient funds to honor its obligations to third parties and meet its operational needs.
The PagSeguro Group invests surplus cash in interest bearings financial investments, choosing instruments with appropriate maturity or sufficient liquidity to provide adequate margin as determined by the forecasts.
At September 30, 2018, the PagSeguro Group held cash and cash equivalents of R$ 2,470,059 (R$ 66,767 at December 31, 2017).
The table below shows the PagSeguro Groups non-derivative financial liabilities divided into the relevant maturity group based on the remaining period from the balance sheet date and the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.
Due within 30 days |
Due within 31 to 120 days |
Due within 121 to 180 days |
Due within 181 to 360 days |
Due to 361 days or more days |
||||||||||||||||
At September 30, 2018 |
||||||||||||||||||||
Payables to third parties |
3,260,274 | 294,330 | 75,242 | 72,868 | | |||||||||||||||
Trade payables |
131,556 | 15,385 | 1,212 | 1,451 | 2,017 | |||||||||||||||
Trade payables to related parties |
| 32,263 | | | | |||||||||||||||
Other payables |
| | | 20,475 | | |||||||||||||||
At December 31, 2017 |
||||||||||||||||||||
Payables to third parties |
2,890,080 | 133,070 | 31,081 | 26,338 | | |||||||||||||||
Trade payables |
81,152 | 6,032 | 1,740 | 1,083 | 2,437 | |||||||||||||||
Trade payables to related parties |
| | | 39,101 | | |||||||||||||||
Other payables |
| | | 15,872 | |
23. | Capital management |
The PagSeguro Group monitors capital on the basis of the gearing ratio which corresponds to net debt divided by total capital. Net debt is calculated as total borrowings (including current and non-current borrowings as shown in the consolidated balance sheet) less cash and banks. Total capital is calculated as equity as shown in the consolidated balance sheet plus net debt.
The PagSeguro Group had no loans at September 30, 2018, and December 31,2017. Therefore no gearing ratio is presented.
32
PagSeguro Digital Ltd.
Notes to the unaudited condensed consolidated interim financial statements
at September 30, 2018 and for the three and nine-month periods ended September 30, 2018
(All amounts in thousands of reais unless otherwise stated)
24. | Fair value measurement |
Fair value is the price that would be received to sell an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants at the measurement date. A three-level hierarchy is used to measure fair value, as shown below:
◾ | Level 1Quoted prices (unadjusted) in active markets for identical assets and liabilities. |
◾ | Level 2Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices). |
◾ | Level 3Inputs for the assets and liabilities that are not based on observable market data (that is, unobservable inputs). |
The financial investments whose fair value adjustments is classified as Level 1.
There were no transfers between Levels 1, 2 and 3 during the nine-month period ended September 30, 2018.
25. | Events after the reporting period |
i) | Regulations issued by the Brazilian Central Bank |
In December 2014, PagSeguro Brazil applied to the Brazilian Central Bank for the following authorizations: to operate as a payment institution both as an acquirer and as an digital payments account service provider and issuer of prepaid electronic money.
In October 19, 2018, PagSeguro Brazil was authorized by the Brazilian Central Bank, as published in the Federal Official Gazette.
ii) | Share repurchase program |
In a notice to the market on October 30, 2018, PagSeguro Digital announced that its board of directors authorized a share repurchase program, under which the Company may repurchase up to US$250 million in outstanding Class A common shares traded on the New York Stock Exchange (NYSE). The repurchase program will go into effect in the fourth quarter of 2018 and does not have a fixed expiration date.
***
***
33
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: November 29, 2018
PagSeguro Digital Ltd. | ||
By: | /s/ Eduardo Alcaro | |
Name: Eduardo Alcaro Title: Chief Financial and Investor Relations Officer, Chief Accounting Officer and Director |