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 May 2020
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 ☒
Unaudited Condensed Consolidated Interim Financial Statements
PagSeguro Digital Ltd.
On March 31, 2020 and for the three-month periods ended March 31, 2020 and 2019
Unaudited condensed consolidated interim financial statements
On March 31, 2020 and for the three-month periods ended March 31, 2020 and 2019
Contents
Unaudited condensed consolidated interim financial statements
COVID-19 Management Letter
In December 2019, a novel strain of coronavirus (COVID-19) was reported to have surfaced in Wuhan, China and cases of infected patients have been reported in other jurisdictions, including reported cases in Brazil in, among other locations, the city of São Paulo, where we have our headquarters. On March 11, 2020, the World Health Organization designated COVID-19 as a pandemic. The spread of this virus has caused certain business, market and travel disruption globally and particularly in infected regions. These disruptions include large-scale business shutdowns, quarantine orders and mobility restrictions across Brazil and the world, negative impacts on Brazils and the worlds economy and financial market volatility, including volatility in the price of our shares. These disruptions have already had a direct impact on our TPV in the first quarter of 2020 and in April and May 2020 as most of the Brazilian state capitals have been under partial shutdown since mid-March 2020. Partial shutdowns are affecting all non-food retail stores, shopping malls, cinemas, soccer matches, concerts, public parks, among other businesses. Under the partial shutdowns, bars and restaurants may operate only through home delivery. As a result, we could experience net income shortfalls from operations.
While disruptions are currently expected to be temporary, there is uncertainty around the duration of these disruptions, the possibility of any government intervention or other measures, or the possibility of other economic effects on the stock market, foreign exchange rates and otherwise. The extent to which the consequences of the COVID-19 pandemic impact our results, including the results of our clients, will depend on future developments that are uncertain and cannot be accurately estimated, such as any new information which may emerge concerning the severity of the coronavirus, the potential spread to other regions and actions to contain the coronavirus or treat its impact, among others.
In addition, due to reliance of our POS manufacturers on imported components, we are subject to the risk of shortages and extended lead times in the supply of certain products. However, currently, we believe our inventory levels will allow us to mitigate the short-term impact of COVID-19 on our business.
As a response to COVID-19 we have already taken the following actions, among others:
| The outbreak of COVID-19 presented rapid changes in the Brazilian economy and in the payments industry, accelerating the secular shift from cash to electronic transactions. We entered this crisis leading the financial inclusion process and fostering electronic payment adoption, reaching 5.5 million active merchants and 3.7 million PagBank active users; |
| Increased liquidity and cash position (Cash and Cash Equivalents and Financial Investments increased to R$3,542.9 million, up 46.3% compared to 1Q19) and a depth review of all of our expenses; |
| Our employees are our number one priority. Almost 100% of our workforce is currently working from home; |
| Initiatives to support our merchants: (i) unlimited free wire transfers, (ii) link of payment, (iii) food delivery service PedeFácil, (iv) virtual shopping offering PagPerto, (v) 10% QR Code cash back, and (vi) cash back for COVID-19 related vouchers and Bolsa Merenda (social security benefits to underprivileged students) in the State of Minas Gerais using free PagBank digital accounts; |
| Community matters to us: (i) donating thousands of masks to public hospitals located in the most vulnerable regions of São Paulo, (ii) donating more than 200 thousand kits containing basic food, (iii) promoting online concerts with donations of cash, food and health items to UNICEF Brasil, (iv) we have provided assistance totaling R$30 million to the most vulnerable families in Brazil. |
We have a relevant variable cost structure and are less labor intensive than other acquiring companies, mainly related to TPV, such as processing, interchange, card scheme fees, marketing and chargebacks. Additionally, we believe we are well-prepared and solid in terms of cash and liquidity. However, our results are subject to uncertainties related to the COVID-19 pandemic. At this time, we have not faced any impairment of our assets and we do not believe we will not be able to continue as a going concern based on our current liquidity and current working capital levels.
Unaudited condensed consolidated interim balance sheet
On March 31, 2020 and December 31, 2019
(All amounts in thousands of reais)
Note | March 31, 2020 | December 31, 2019 | ||||||||||
Assets |
||||||||||||
Current assets |
||||||||||||
Cash and cash equivalents |
5 | 3,043,153 | 1,403,955 | |||||||||
Financial investments |
6 | 499,782 | 1,349,666 | |||||||||
Accounts receivable |
7 | 9,268,571 | 10,477,179 | |||||||||
Inventories |
70,211 | 61,936 | ||||||||||
Taxes recoverable |
193,321 | 171,561 | ||||||||||
Other receivables |
71,334 | 84,099 | ||||||||||
|
|
|
|
|||||||||
Total current assets |
13,146,372 | 13,548,396 | ||||||||||
|
|
|
|
|||||||||
Non-current assets |
||||||||||||
Judicial deposits |
6,751 | 5,651 | ||||||||||
Accounts receivable |
7 | 23,730 | 29,943 | |||||||||
Prepaid expenses |
10,893 | 7,215 | ||||||||||
Investment |
1,500 | 1,500 | ||||||||||
Property and equipment |
10 | 607,233 | 399,990 | |||||||||
Intangible assets |
11 | 671,650 | 589,553 | |||||||||
|
|
|
|
|||||||||
Total non-current assets |
1,321,757 | 1,033,852 | ||||||||||
|
|
|
|
|||||||||
Total assets |
14,468,129 | 14,582,248 | ||||||||||
|
|
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.
1
PagSeguro Digital Ltd.
Unaudited condensed consolidated interim balance sheet
On March 31, 2020 and December 31, 2019
(All amounts in thousands of reais)
Note | March 31, 2020 | December 31, 2019 | ||||||||||
Liabilities and equity |
||||||||||||
Current Liabilities |
||||||||||||
Payables to third parties |
12 | 4,691,260 | 5,326,290 | |||||||||
Trade payables |
279,262 | 256,281 | ||||||||||
Payables to related parties |
8 | 35,767 | 22,187 | |||||||||
Salaries and social security charges |
13 | 71,234 | 106,812 | |||||||||
Taxes and contributions |
14 | 124,956 | 124,004 | |||||||||
Provision for contingencies |
15 | 14,716 | 11,849 | |||||||||
Other liabilities |
80,572 | 45,640 | ||||||||||
|
|
|
|
|||||||||
Total current liabilities |
5,297,767 | 5,893,063 | ||||||||||
|
|
|
|
|||||||||
Non-current liabilities |
||||||||||||
Deferred income tax and social contribution |
16 | 766,388 | 630,950 | |||||||||
Other liabilities |
50,328 | 43,287 | ||||||||||
|
|
|
|
|||||||||
Total non-current liabilities |
816,716 | 674,237 | ||||||||||
|
|
|
|
|||||||||
Total liabilities |
6,114,483 | 6,567,300 | ||||||||||
|
|
|
|
|||||||||
Equity |
||||||||||||
Share capital |
17 | 26 | 26 | |||||||||
Capital reserve |
17 | 5,807,884 | 5,781,503 | |||||||||
Other comprehensive income |
17 | 327 | (190 | ) | ||||||||
Equity valuation adjustments |
17 | (22,372 | ) | (22,372 | ) | |||||||
Retained earnings |
17 | 2,631,535 | 2,274,864 | |||||||||
Treasury shares |
17 | (86,042 | ) | (41,267 | ) | |||||||
|
|
|
|
|||||||||
8,331,358 | 7,992,564 | |||||||||||
|
|
|
|
|||||||||
Non-controlling interests |
22,288 | 22,384 | ||||||||||
|
|
|
|
|||||||||
Total equity |
8,353,646 | 8,014,948 | ||||||||||
|
|
|
|
|||||||||
Total liabilities and equity |
14,468,129 | 14,582,248 | ||||||||||
|
|
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.
2
Unaudited condensed consolidated interim statement of income
For the three-month periods ended March 31, 2020 and 2019
(All amounts in thousands of reais unless otherwise stated)
Note | March 31, 2020 | March 31, 2019 | ||||||||
Revenue from transaction activities and other services |
19 | 966,804 | 712,995 | |||||||
Revenue from sales |
19 | | 67,589 | |||||||
Financial income |
19 | 562,268 | 430,504 | |||||||
Other financial income |
19 | 58,223 | 40,248 | |||||||
|
|
|
|
|||||||
Total revenue and income |
1,587,295 | 1,251,336 | ||||||||
Cost of sales and services |
20 | (768,636 | ) | (617,779 | ) | |||||
Selling expenses |
20 | (189,022 | ) | (82,378 | ) | |||||
Administrative expenses |
20 | (85,785 | ) | (92,381 | ) | |||||
Financial expenses |
20 | (45,562 | ) | (5,839 | ) | |||||
Other expenses, net |
20 | (2,136 | ) | (3,582 | ) | |||||
|
|
|
|
|||||||
Profit before income taxes |
496,154 | 449,377 | ||||||||
Current income tax and social contribution |
16 | (3,801 | ) | (50,140 | ) | |||||
Deferred income tax and social contribution |
16 | (135,439 | ) | (89,503 | ) | |||||
|
|
|
|
|||||||
Income tax and social contribution |
(139,240 | ) | (139,643 | ) | ||||||
|
|
|
|
|||||||
Net income for the period |
356,914 | 309,734 | ||||||||
|
|
|
|
|||||||
Attributable to: |
||||||||||
Equity holders of the parent |
356,671 | 309,312 | ||||||||
Non-controlling interests |
243 | 422 | ||||||||
Basic earnings per common share - R$ |
18 | 1,0841 | 0,9666 | |||||||
Diluted earnings per common share - R$ |
18 | 1,0806 | 0,9648 | |||||||
|
|
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.
3
Unaudited condensed consolidated interim statement of comprehensive income
For the three-month periods ended March 31, 2020 and 2019
(All amounts in thousands of reais unless otherwise stated)
March 31, 2020 | March 31, 2019 | |||||||
Net income for the period |
356,914 | 309,734 | ||||||
Other comprehensive income that may be reclassified to the statement of income in subsequent periods Currency translation adjustment |
455 | (628 | ) | |||||
Gain (Loss) on investments designated at fair value through OCI |
62 | (88 | ) | |||||
|
|
|
|
|||||
Other comprehensive income for the period |
357,431 | 309,018 | ||||||
|
|
|
|
|||||
Attributable to |
||||||||
Equity holders of the parent |
357,188 | 308,596 | ||||||
|
|
|
|
|||||
Non-controlling interests |
243 | 422 | ||||||
|
|
|
|
|||||
Net income for the period |
357,431 | 309,018 | ||||||
|
|
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.
4
Unaudited condensed consolidated interim statement of changes in equity
For the three-month periods ended March 31, 2020 and 2019
(All amounts in thousands of reais)
Capital reserve | Profit reserve | |||||||||||||||||||||||||||||||||||||||||
Note | Share capital |
Treasury shares |
Capital reserve |
Share-based long-term incentive plan (LTIP |
Retained earnings |
Equity valuation adjustments |
Other comprehensive income |
Total | Non- controlling interests |
Total equity | ||||||||||||||||||||||||||||||||
On December 31, 2018 |
26 | (39,532 | ) | 5,647,263 | 40,871 | 909,267 | (7,588 | ) | 263 | 6,550,570 | 23,806 | 6,574,376 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Net income for the period |
17 | | | | | 309,312 | | | 309,312 | 422 | 309,734 | |||||||||||||||||||||||||||||||
Currency translation adjustment |
17 | | | | | | | (628 | ) | (628 | ) | | (628 | ) | ||||||||||||||||||||||||||||
Loss on financial assets through other comprehensive income |
17 | | | | | | | (88 | ) | (88 | ) | | (88 | ) | ||||||||||||||||||||||||||||
Non-controlling acquisition |
17 | | | | | | (11,663 | ) | | (11,663 | ) | (2,371 | ) | (14,034 | ) | |||||||||||||||||||||||||||
Shares issued |
17 | | | 10,893 | (10,893 | ) | | | | | | | ||||||||||||||||||||||||||||||
Share based long term incentive plan (LTIP) |
17 | | | | 16,263 | | | | 16,263 | | 16,263 | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
On March 31, 2019 |
26 | (39,532 | ) | 5,658,156 | 46,241 | 1,218,579 | (19,251 | ) | (453 | ) | 6,863,766 | 21,857 | 6,885,623 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Net income for the period |
17 | | | | | 1,056,285 | | | 1,056,285 | 1,006 | 1,057,291 | |||||||||||||||||||||||||||||||
Currency translation adjustment |
17 | | | | | | | 203 | 203 | | 203 | |||||||||||||||||||||||||||||||
Gain on financial assets through other comprehensive income |
17 | | | | | | | 60 | 60 | | 60 | |||||||||||||||||||||||||||||||
Non-controlling acquisition |
17 | | | | | | (3,121 | ) | | (3,121 | ) | (479 | ) | (3,600 | ) | |||||||||||||||||||||||||||
Shares issued |
17 | | | 28,099 | (28,099 | ) | | | | | | | ||||||||||||||||||||||||||||||
Share based long term incentive plan (LTIP) |
17 | | | | 77,106 | | | | 77,106 | | 77,106 | |||||||||||||||||||||||||||||||
Acquisition of treasury shares |
17 | | (1,735 | ) | | | | | | (1,735 | ) | | (1,735 | ) | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
On December 31, 2019 |
26 | (41,267 | ) | 5,686,255 | 95,248 | 2,274,864 | (22,372 | ) | (190 | ) | 7,992,564 | 22,384 | 8,014,948 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Net income for the period |
17 | | | | | 356,671 | | | 356,671 | 243 | 356,914 | |||||||||||||||||||||||||||||||
Currency translation adjustment |
17 | | | | | | | 455 | 455 | | 455 | |||||||||||||||||||||||||||||||
Gain on financial assets through other comprehensive income |
17 | | | | | | | 62 | 62 | | 62 | |||||||||||||||||||||||||||||||
Non-controlling acquisition |
17 | | | | | | | | | (339 | ) | (339 | ) | |||||||||||||||||||||||||||||
Shares issued |
17 | | | 3,628 | (3,628 | ) | | | | | | | ||||||||||||||||||||||||||||||
Share based long term incentive plan (LTIP) |
17 | | | | 26,381 | | | | 26,381 | | 26,381 | |||||||||||||||||||||||||||||||
Acquisition of treasury shares |
17 | | (44,775 | ) | | | | | | (44,775 | ) | | (44,775 | ) | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
On March 31, 2020 |
26 | (86,042 | ) | 5,689,883 | 118,001 | 2,631,535 | (22,372 | ) | 327 | 8,331,358 | 22,288 | 8,353,646 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.
5
Unaudited condensed consolidated interim statement of cash flows
For the three-month periods ended March 31, 2020 and 2019
(All amounts in thousands of reais)
March 31, 2020 | March 31, 2019 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES |
||||||||
Profit before income taxes |
496,154 | 449,377 | ||||||
Expenses (revenues) not affecting cash: |
||||||||
Depreciation and amortization |
59,594 | 26,421 | ||||||
Chargebacks |
70,171 | 32,835 | ||||||
Accrual of provision for contingencies |
4,384 | 609 | ||||||
Share based long term incentive plan (LTIP) |
11,953 | 16,263 | ||||||
Inventory provisions |
| (5,974 | ) | |||||
Other (income) cost, net |
(3,108 | ) | 2,313 | |||||
Changes in operating assets and liabilities |
||||||||
Accounts receivable |
1,047,383 | (904,881 | ) | |||||
Financial investments (mandatory guarantee) |
(120,787 | ) | | |||||
Inventories |
(8,275 | ) | 44,082 | |||||
Taxes recoverable |
(18,137 | ) | 3,707 | |||||
Other receivables |
11,680 | (11,006 | ) | |||||
Other liabilities |
41,993 | 13,440 | ||||||
Payables to third parties |
(643,837 | ) | 43,892 | |||||
Trade payables |
21,602 | (3,045 | ) | |||||
Receivables from (payables to) related parties |
13,580 | (258 | ) | |||||
Salaries and social charges |
(21,149 | ) | (3,340 | ) | ||||
Taxes and contributions |
(4,764 | ) | 104 | |||||
Provision for contingencies |
(1,655 | ) | | |||||
|
|
|
|
|||||
956,782 | (295,461 | ) | ||||||
|
|
|
|
|||||
Income tax and social contribution paid |
(2,190 | ) | (29,356 | ) | ||||
Interest income received |
97,267 | 124,913 | ||||||
|
|
|
|
|||||
NET CASH GENERATED BY (USED IN) OPERATING ACTIVITIES |
1,051,859 | (199,904 | ) | |||||
|
|
|
|
|||||
CASH FLOWS FROM INVESTING ACTIVITIES |
||||||||
Amount paid on acquisitions, net of cash acquired |
| (15,753 | ) | |||||
Purchases of property and equipment |
(231,938 | ) | (30,203 | ) | ||||
Purchases and development of intangible assets |
(118,993 | ) | (80,994 | ) | ||||
Redemption (Acquisition) of financial investments |
983,160 | (1,589,655 | ) | |||||
|
|
|
|
|||||
NET CASH GENERATED BY (USED IN) INVESTING ACTIVITIES |
632,229 | (1,716,605 | ) | |||||
|
|
|
|
|||||
CASH FLOWS FROM FINANCING ACTIVITIES |
||||||||
Acquisition of treasury shares |
(44,775 | ) | | |||||
Transaction with non-controlling interest |
| (13,992 | ) | |||||
Capital increase by non-controlling shareholders |
(115 | ) | 348 | |||||
|
|
|
|
|||||
NET CASH USED IN FINANCING ACTIVITIES |
(44,890 | ) | (13,645 | ) | ||||
|
|
|
|
|||||
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
1,639,198 | (1,930,153 | ) | |||||
|
|
|
|
|||||
Cash and cash equivalents at the beginning of the period |
1,403,955 | 2,763,050 | ||||||
Cash and cash equivalents at the end of the period |
3,043,153 | 832,897 |
The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.
6
Notes to the unaudited condensed consolidated interim financial statements
On March 31, 2020 and for the three-month periods ended March 31, 2020
(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 Brazil 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), Fundo de Investimento em Direitos Creditórios - PagSeguro (FIDC), Tilix Digital S.A. (TILIX), YAMÍ Software & Inovação Ltda. (YAMÍ) and RegistraSeguro S.A. (RegistraSeguro).
In addition to our operations carried out by PagSeguro Brazil, on January 4, 2019, PagSeguro Digital acquired 100% of BBN Banco Brasileiro de Negócios S.A. (renamed BancoSeguro S.A. BancoSeguro in February 2019), through BS Holding Financeira Ltd. (BS Holding), a holding company incorporated under PagSeguro Digital.
On March 15, 2019, PagSeguro Group acquired 10% of the share capital of Netpos Serviços de Informática S.A. (NETPOS). Total consideration paid amounted to R$1,500 which was settled in cash. PagSeguro Group acquired 10% of shares and does not have control of NETPOS operation, based on IFRS 3. NETPOS was not consolidated in these financial statements.
These consolidated financial statements include BS Holding and its subsidiary BancoSeguro and PagSeguro Brazil and its subsidiaries Net+Phone, Boa Compra, BCPS, R2TECH, BIVA, FIDC, TILIX, YAMÍ and RegistraSeguro.
7
PagSeguro Digital Ltd.
Notes to the unaudited condensed consolidated interim financial statements (Continued)
On March 31, 2020 and for the three-month periods ended March 31, 2020
(All amounts in thousands of reais unless otherwise stated)
1. | General information (Continued) |
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, with 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. 11,550,000 new shares were offered by PagSeguro Digital and 26,400,000 shares were offered by the controlling shareholder UOL.
The 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$326.8 million (or R$1,232.6 million), after deducting US$7.9 million (or R$29.9 million) in underwriting discounts and commissions and US$3.1 million (or R$11.9 million) of other offering expenses.
On October 21, 2019, PagSeguro Digital completed its secondary public offering. A number of 16,750,000 shares were offered by the controlling shareholder UOL, the offering price was US$39.00 per common share. The Company did not receive any proceeds from the offering.
8
PagSeguro Digital Ltd.
Notes to the unaudited condensed consolidated interim financial statements (Continued)
On March 31, 2020 and for the three-month periods ended March 31, 2020
(All amounts in thousands of reais unless otherwise stated)
1. | General information (Continued) |
1.3. | Long-Term Incentive Plan (LTIP) and LTP goals |
Members of the Companys 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. In this plan employees (including senior executives) of the Group receive remuneration in the form of share-based payments, whereby employees render services as consideration for equity instruments (equity-settled transactions). The cost of equity-settled transactions is determined by the fair value at the date when the grant is made.
That cost is recognized in personnel expenses (Note 20), together with a corresponding increase in equity over the period in which the service is fulfilled (the vesting period). The cumulative expense recognized for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Groups best estimate of the number of equity instruments that will ultimately vest. The expense in the statement of profit or loss represents the movement in cumulative expense recognized as at the beginning and end of the year. No expense is recognized for awards that do not ultimately vest because service conditions have not been met.
LTIP-Goals plan was established at PagSeguro Brazil on December 18, 2018, as approved by the Companys board of directors. Beneficiaries under the LTIP-Goals plan were granted awards, which may be payable in cash, Class A common shares or a combination of the two, at the discretion of the LTIP-Goals Committee based on the goals established in the Companys corporate results-sharing plan for any given year. If any portion of an award is payable in Class A common shares, the relevant number of Class A will be determined on the last business day of January 2020 for awards related to 2019 and, beginning in 2021, on the last business day of March following the year for which such amount was awarded.
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) as issued by the International Accounting Standard Board. 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.
9
PagSeguro Digital Ltd.
Notes to the unaudited condensed consolidated interim financial statements (Continued)
On March 31, 2020 and for the three-month periods ended March 31, 2020
(All amounts in thousands of reais unless otherwise stated)
2. | Presentation and preparation of the unaudited condensed consolidated interim financial statements and significant accounting policies (Continued) |
These unaudited condensed consolidated interim financial statements for the three-month period ended March 31, 2020 were authorized for issuance by the PagSeguro Digitals Board of Directors on May 25, 2020.
2.1. | Basis of preparation of condensed consolidated interim financial information |
These unaudited condensed consolidated interim financial statements for the three-month period ended March 31, 2020 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, 2019 (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.
2.2. | New accounting pronouncements |
The new and amended standards and interpretations that are issued, but not yet effective, up to the date of issuance of our unaudited condensed consolidated interim financial statements are disclosed below. We intend to adopt these new and amended standards and interpretations, if applicable, when they become effective.
IFRS 17 Insurance Contracts
In May 2017, the IASB issued IFRS 17 Insurance Contracts (IFRS 17), a comprehensive new accounting standard for insurance contracts covering recognition and measurement, presentation and disclosure. Once effective, IFRS 17 will replace IFRS 4 Insurance Contracts (IFRS 4) that was issued in 2005. IFRS 17 applies to all types of insurance contracts (i.e., life, non-life, direct insurance and re-insurance), regardless of the type of entities that issue them, as well as to certain guarantees and financial instruments with discretionary participation features. The Group does not expect the new standard to materially impact its results of operations.
10
PagSeguro Digital Ltd.
Notes to the unaudited condensed consolidated interim financial statements (Continued)
On March 31, 2020 and for the three-month periods ended March 31, 2020
(All amounts in thousands of reais unless otherwise stated)
2. | Presentation and preparation of the unaudited condensed consolidated interim financial statements and significant accounting policies (Continued) |
2.2. | New accounting pronouncements (Continued) |
Amendments to IFRS 3: Definition of a Business
In October 2018, the IASB issued amendments to the definition of a business in IFRS 3 Business Combinations to help entities determine whether an acquired set of activities and assets is a business or not. They clarify the minimum requirements for a business, remove the assessment of whether market participants are capable of replacing any missing elements, add guidance to help entities assess whether an acquired process is substantive, narrow the definitions of a business and of outputs, and introduce an optional fair value concentration test. Since the amendments apply prospectively to transactions or other events that occur on or after the date of first application, the Group will not be affected by these amendments on the date of transition.
3. | Consolidation of subsidiaries |
On March 31, 2020 |
||||||||||||||||||||||||
Company |
Assets | Liabilities | Equity | Net income (loss) for the period |
Ownership - % |
Level | ||||||||||||||||||
Pagseguro Brazil |
15,186,992 | 7,728,178 | 7,458,814 | 350,983 | 99,99 | Direct | ||||||||||||||||||
BS Holding |
437,182 | (35 | ) | 437,217 | 3,586 | 99,99 | Direct | |||||||||||||||||
Net+Phone |
292,147 | 139,973 | 152,174 | (45,787 | ) | 99,99 | Indirect | |||||||||||||||||
Boa Compra |
126,030 | 89,203 | 36,827 | 3,619 | 99,99 | Indirect | ||||||||||||||||||
BCPS |
1,729 | 16 | 1,713 | 79 | 99,50 | Indirect | ||||||||||||||||||
R2TECH |
16,062 | 2,280 | 13,781 | 1,774 | 100,00 | Indirect | ||||||||||||||||||
BIVA |
22,790 | 5,351 | 17,439 | (472 | ) | 100,00 | Indirect | |||||||||||||||||
FIDC |
2,923,804 | 271,270 | 2,652,533 | 466,300 | 100,00 | Indirect | ||||||||||||||||||
TILIX |
11,254 | 12,922 | (1,669 | ) | (971 | ) | 100,00 | Indirect | ||||||||||||||||
BancoSeguro |
2,063,790 | 1,642,965 | 420,825 | 4,441 | 100,00 | Indirect | ||||||||||||||||||
Yamí |
398 | 493 | (94 | ) | (113 | ) | 100,00 | Indirect | ||||||||||||||||
Registra Seguro |
5,000 | | 5,000 | | 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, 2019.
11
PagSeguro Digital Ltd.
Notes to the unaudited condensed consolidated interim financial statements (Continued)
On March 31, 2020 and for the three-month periods ended March 31, 2020
(All amounts in thousands of reais unless otherwise stated)
4. | Segment reporting |
Operating segments are determined based on the information reported and reviewed by the Board of Directors, which is responsible for allocating resources and assessing the performance of the business and to make 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 financial service 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. The international market represents 1.4% and 1.1% for the three-month periods ended March 31, 2020 and twelve-month periods ended 2019, respectively.
5. | Cash and cash equivalents |
March 31, 2020 | December 31, 2019 | |||||||
Short-term bank deposits |
647,341 | 470,073 | ||||||
Short-term investment |
2,395,812 | 933,882 | ||||||
|
|
|
|
|||||
3,043,153 | 1,403,955 | |||||||
|
|
|
|
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. Short-term investments consist mainly of investments in Brazilian Treasury Bonds (LFTs) with an average return of 100% of the Basic Interest Rate (SELIC, currently at 3.75% per year)
6. | Financial investments |
Consists of investments in Brazilian Treasury Bonds (LFTs) with an average return of 100% of the Basic Interest Rate (SELIC, currently at 3.75% per year), invested to comply with certain requirements for authorized payment institutions as set forth by Central Bank of Brazil regulation. This financial asset was classified at fair value through other comprehensive income. Unrealized gains of LFTs as of March 31, 2020 totaled R$34 (R$62 in three-month period ended March 31, 2020).
12
PagSeguro Digital Ltd.
Notes to the unaudited condensed consolidated interim financial statements (Continued)
On March 31, 2020 and for the three-month periods ended March 31, 2020
(All amounts in thousands of reais unless otherwise stated)
7. | Accounts receivable |
March 31, 2020 | December 31, 2019 |
|
||||||||||||||||||||||||||||||||||||||
Visa | Master | Hipercard | Elo | Total | Visa | Master | Hipercard | Elo | Total | |||||||||||||||||||||||||||||||
Legal obligors |
||||||||||||||||||||||||||||||||||||||||
Itaú |
599,666 | 1,933,356 | 581,493 | | 3,114,515 | 727,224 | 2,217,111 | 593,858 | | 3,538,193 | ||||||||||||||||||||||||||||||
Bradesco |
815,351 | 138,539 | | 234,668 | 1,188,558 | 987,984 | 163,725 | | 242,862 | 1,394,571 | ||||||||||||||||||||||||||||||
Banco do Brasil |
618,168 | 111,766 | | 147,832 | 877,766 | 765,341 | 140,774 | | 152,327 | 1,058,442 | ||||||||||||||||||||||||||||||
CEF |
111,413 | 126,875 | | 112,845 | 351,133 | 145,400 | 154,473 | | 122,324 | 422,197 | ||||||||||||||||||||||||||||||
Santander |
213,993 | 871,031 | | | 1,085,025 | 283,348 | 986,777 | | | 1,270,125 | ||||||||||||||||||||||||||||||
Other (iv) |
546,289 | 1,388,119 | | 67,950 | 2,002,359 | 623,224 | 1,538,987 | | 73,677 | 2,235,888 | ||||||||||||||||||||||||||||||
Total card issuers (i) |
2,904,881 | 4,569,687 | 581,493 | 563,295 | 8,619,356 | 3,532,521 | 5,201,847 | 593,858 | 591,190 | 9,919,416 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Cielo Elo |
| | | | 138,521 | | | | | 152,758 | ||||||||||||||||||||||||||||||
Cielo |
| | | | 97 | | | | | 590 | ||||||||||||||||||||||||||||||
Vero |
| | | | 6,067 | | | | | 6,662 | ||||||||||||||||||||||||||||||
Total acquirers (ii) |
| | | | 144,684 | | | | | 160,017 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Other current |
| | | 504,531 | | | | 397,746 | ||||||||||||||||||||||||||||||||
Other non-current |
23,730 | 29,943 | ||||||||||||||||||||||||||||||||||||||
Total other (iii) |
| | | 528,261 | | | | 427,689 | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Total accounts receivable |
2,904,881 | 4,569,687 | 581,493 | 563,295 | 9,292,301 | 3,532,521 | 5,201,847 | 593,858 | 591,190 | 10,507,122 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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, Hipercard or Elo. However, PagSeguro Brazils contractual accounts receivable are with the financial institutions, which are the legal obligors on the accounts receivable. 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, Elo or Hipercard, as applicable, in the event that the legal obligors do not make payment. |
(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. |
(iii) | Other accounts receivable: Mainly related to loans portfolio and receivables with our customers, this amount is presented net of any expected losses. |
(iv) | Refers to other pulverized receivables from legal obligors. |
13
PagSeguro Digital Ltd.
Notes to the unaudited condensed consolidated interim financial statements (Continued)
On March 31, 2020 and for the three-month periods ended March 31, 2020
(All amounts in thousands of reais unless otherwise stated)
7. | Accounts receivable (Continued) |
The maturity analysis of accounts receivable is as follows
March 31, 2020 | December 31, 2019 | |||||||
Due within 30 days |
3,532,861 | 4,901,532 | ||||||
Due within 31 to 120 days |
3,919,840 | 3,924,348 | ||||||
Due within 121 to 180 days |
932,398 | 869,207 | ||||||
Due within 181 to 360 days |
883,473 | 782,092 | ||||||
Due after 360 days |
23,730 | 29,943 | ||||||
|
|
|
|
|||||
9,292,301 | 10,507,122 | |||||||
|
|
|
|
8. | Related-party balances and transactions |
The PagSeguro Group is controlled by UOL (incorporated in Brazil).
i) | Balances and transactions with related parties |
March 31, 2020 | December 31, 2019 | |||||||
Payables | Payables | |||||||
Immediate parent |
||||||||
UOL - sales of services (a) |
9,370 | 10,575 | ||||||
UOL - shared service costs (b) |
14,815 | 4,229 | ||||||
Affiliated companies |
||||||||
UOL Diveo - sales of services (c) |
4,831 | 3,117 | ||||||
Transfolha Transportadora e Distribuição Ltda. |
4,142 | 1,440 | ||||||
Others |
2,609 | 2,826 | ||||||
|
|
|
|
|||||
35,767 | 22,187 | |||||||
|
|
|
|
(a) | Sales of services refers to the purchase of (i) advertising services from UOL. |
(b) | Shared services costs mainly related to (i) payroll costs and (ii) property rental costs that are incurred by the parent company UOL and are charged to PagSeguro Group. |
(c) | Sale of services from the affiliated company UOL Diveo related to colocation services. |
14
PagSeguro Digital Ltd.
Notes to the unaudited condensed consolidated interim financial statements (Continued)
On March 31, 2020 and for the three-month periods ended March 31, 2020
(All amounts in thousands of reais unless otherwise stated)
8. | Related-party balances and transactions (Continued) |
i) | Balances and transactions with related parties (Continued) |
March 31, 2020 | March 31, 2019 | |||||||||||||||
Revenue | Expense | Revenue | Expense | |||||||||||||
Immediate parent |
||||||||||||||||
UOL - shared service costs (a) |
| 31,209 | | 22,844 | ||||||||||||
UOL - sales of services (b) |
631 | 12,231 | 391 | 11,968 | ||||||||||||
Affiliated companies |
||||||||||||||||
UOL Diveo - shared service costs |
| 5 | | 7 | ||||||||||||
UOL Diveo - sales of services (c) |
| 12,474 | | 6,008 | ||||||||||||
Transfolha Transportadora e Distribuição Ltda. |
| 4,221 | | 4,976 | ||||||||||||
Others |
| 2,553 | 9 | 220 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
631 | 62,693 | 400 | 46,023 | |||||||||||||
|
|
|
|
|
|
|
|
(a) | Shared services costs mainly related to (i) payroll costs and (ii) property rental costs that are incurred by the parent company UOL and are charged to PagSeguro. Such costs are included in administrative expenses. |
(b) | Sale of services related to advertising services from UOL. |
(c) | Sale of services from the affiliated company UOL Diveo related to colocation services. |
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 three-month period ended March 31, 2020 amounted to R$2,752 (March 31, 2019 - R$15,711).
15
PagSeguro Digital Ltd.
Notes to the unaudited condensed consolidated interim financial statements (Continued)
On March 31, 2020 and for the three-month periods ended March 31, 2020
(All amounts in thousands of reais unless otherwise stated)
9. | Business combinations |
Acquisition for the year ended December 31, 2019
On January 4, 2019, PagSeguro Group acquired 100% of the share capital and obtained control of BBN Banco de Negócios S.A (renamed BancoSeguro S.A. in February 2019). Total consideration paid in cash amounted to R$59,765 and the total net assets acquired at fair value amounted to R$44,549, which included a separately identified intangible asset with a fair value of R$2,605, presenting the license to operate the banking business, resulting in the recognition of goodwill of R$12,611. The purchase price allocation was concluded and recorded in 2019.
On August 9, 2019, PagSeguro Group acquired 100% of the share capital and obtained control of YAMÍ. Purchase price amounted to R$3,000 and the total net liabilities acquired at fair value amounted to R$310, resulting in the recognition of goodwill of R$3,310. The consideration paid in cash amounted to R$1,350 and the remaining will be paid in installments. The purchase price allocation may be subject to changes in the measurement period as defined in IFRS.
These acquisitions are in accordance with PagSeguro Groups business strategies, ramping up investments on new technologies, products and services for our digital ecosystem.
10. | Property and equipment |
a) | Property and equipment are composed as follows |
March 31, 2020 | ||||||||||||
Cost | Accumulated depreciation |
Net | ||||||||||
Data processing equipment |
65,116 | (22,411 | ) | 42,705 | ||||||||
Machinery and equipment (a) |
602,083 | (48,762 | ) | 553,321 | ||||||||
Furniture and fittings |
3,034 | (465 | ) | 2,569 | ||||||||
Leasehold improvements |
9,642 | (1,860 | ) | 7,782 | ||||||||
Other |
1,426 | (570 | ) | 856 | ||||||||
|
|
|
|
|
|
|||||||
681,301 | (74,068 | ) | 607,233 | |||||||||
|
|
|
|
|
|
|||||||
December 31, 2019 | ||||||||||||
Cost | Accumulated depreciation |
Net | ||||||||||
Data processing equipment |
65,116 | (18,578 | ) | 46,538 | ||||||||
Machinery and equipment (a) |
371,741 | (28,512 | ) | 343,229 | ||||||||
Furniture and fittings |
2,660 | (382 | ) | 2,278 | ||||||||
Leasehold improvements |
8,480 | (1,410 | ) | 7,070 | ||||||||
Other |
1,366 | (491 | ) | 875 | ||||||||
|
|
|
|
|
|
|||||||
449,363 | (49,373 | ) | 399,990 | |||||||||
|
|
|
|
|
|
(a) | Net book value of machinery and equipment includes R$519,215 of POS devices (R$340,011, as of December 31, 2019), which are amortized over 5 years. The depreciation of POS in the three-month period ended March 31, 2020, amounted to R$19,834. |
16
PagSeguro Digital Ltd.
Notes to the unaudited condensed consolidated interim financial statements (Continued)
On March 31, 2020 and for the three-month periods ended March 31, 2020
(All amounts in thousands of reais unless otherwise stated)
10. | Property and equipment (Continued) |
b) | The changes in cost and accumulated depreciation were as follows |
Data processing equipment |
Machinery and equipment (a) |
Furniture and fittings |
Leasehold improvements |
Other | Total | |||||||||||||||||||
On December 31, 2019 |
||||||||||||||||||||||||
Cost |
65,116 | 371,741 | 2,660 | 8,480 | 1,366 | 449,363 | ||||||||||||||||||
Accumulated depreciation |
(18,578 | ) | (28,512 | ) | (382 | ) | (1,410 | ) | (491 | ) | (49,373 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net book value |
46,538 | 343,229 | 2,278 | 7,070 | 875 | 399,990 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
On March 31, 2020 |
||||||||||||||||||||||||
Cost |
||||||||||||||||||||||||
Purchases |
| 230,342 | 374 | 1,162 | 60 | 231,938 | ||||||||||||||||||
Depreciation |
(3,833 | ) | (20,250 | ) | (83 | ) | (450 | ) | (79 | ) | (24,695 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net book value |
42,705 | 553,321 | 2,569 | 7,782 | 856 | 607,233 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
On March 31, 2020 |
||||||||||||||||||||||||
Cost |
65,116 | 602,083 | 3,034 | 9,642 | 1,426 | 681,301 | ||||||||||||||||||
Accumulated depreciation |
(22,411 | ) | (48,762 | ) | (465 | ) | (1,860 | ) | (570 | ) | (74,068 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net book value |
42,705 | 553,321 | 2,569 | 7,782 | 856 | 607,233 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(a) | Net book value of machinery and equipment includes R$519,215 of POS devices (R$340,011, as of December 31, 2019), which are amortized over 5 years. The depreciation of POS in the three-month period ended March 31, 2020, amounted to R$19,834. |
17
PagSeguro Digital Ltd.
Notes to the unaudited condensed consolidated interim financial statements (Continued)
On March 31, 2020 and for the three-month periods ended March 31, 2020
(All amounts in thousands of reais unless otherwise stated)
11. | Intangible assets |
a) | Intangible assets are composed as follows |
March 31, 2020 | ||||||||||||
Cost | Accumulated amortization |
Net | ||||||||||
Expenditures related to software and technology (i) |
893,422 | (335,849 | ) | 557,573 | ||||||||
Software licenses |
71,788 | (16,536 | ) | 55,252 | ||||||||
Goodwill (ii) |
54,858 | | 54,858 | |||||||||
Other |
4,586 | (619 | ) | 3,967 | ||||||||
|
|
|
|
|
|
|||||||
1,024,654 | (353,003 | ) | 671,650 | |||||||||
|
|
|
|
|
|
|||||||
December 31, 2019 | ||||||||||||
Cost | Accumulated amortization |
Net | ||||||||||
Expenditures related to software and technology (i) |
787,970 | (302,031 | ) | 485,939 | ||||||||
Software licenses |
58,247 | (13,492 | ) | 44,755 | ||||||||
Goodwill (ii) |
54,858 | | 54,858 | |||||||||
Other |
4,586 | (585 | ) | 4,001 | ||||||||
|
|
|
|
|
|
|||||||
905,661 | (316,108) | 589,553 | ||||||||||
|
|
|
|
|
|
(i) | The PagSeguro Group capitalizes expenses incurred with the development of platforms, which are amortized over their useful lives of approximately five years. |
(ii) | The balances comprise the goodwill arising from the acquisition of the companies R2Tech, Biva, Tilix, BancoSeguro and YAMÍ. |
18
PagSeguro Digital Ltd.
Notes to the unaudited condensed consolidated interim financial statements (Continued)
On March 31, 2020 and for the three-month periods ended March 31, 2020
(All amounts in thousands of reais unless otherwise stated)
11. | Intangible assets (Continued) |
b) | The changes in cost and accumulated amortization were as follows |
Expenditures with software and technology |
Software licenses | Goodwill | Other | Total | ||||||||||||||||
On December 31, 2019 |
||||||||||||||||||||
Cost |
787,970 | 58,247 | 54,858 | 4,586 | 905,661 | |||||||||||||||
Accumulated amortization |
(302,031 | ) | (13,492 | ) | | (585 | ) | (316,108 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net book value |
485,939 | 44,755 | 54,858 | 4,001 | 589,553 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
On March 31, 2020 |
||||||||||||||||||||
Cost |
||||||||||||||||||||
Additions |
105,452 | 13,541 | | | 118,993 | |||||||||||||||
Amortization |
(33,818 | ) | (3,044 | ) | | (34 | ) | (36,896 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net book value |
557,573 | 55,252 | 54,858 | 3,967 | 671,650 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
On March 31, 2020 |
||||||||||||||||||||
Cost |
893,422 | 71,788 | 54,858 | 4,586 | 1,024,654 | |||||||||||||||
Accumulated amortization |
(335,849 | ) | (16,536 | ) | | (619 | ) | (353,003 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net book value |
557,573 | 55,252 | 54,858 | 3,967 | 671,650 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
19
PagSeguro Digital Ltd.
Notes to the unaudited condensed consolidated interim financial statements (Continued)
On March 31, 2020 and for the three-month periods ended March 31, 2020
(All amounts in thousands of reais unless otherwise stated)
12. | Payables to third parties |
Payables to third parties correspond mainly to amounts to be paid to merchants 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 14 days.
13. | Salaries and social charges |
March 31, 2020 | December 31, 2019 | |||||||
Profit sharing |
15,295 | 50,473 | ||||||
Salaries payable (i) |
| 8,045 | ||||||
Social charges |
9,619 | 9,416 | ||||||
Payroll accruals |
38,387 | 27,503 | ||||||
Payroll taxes (LTIP) |
3,961 | 7,323 | ||||||
Other |
3,973 | 4,052 | ||||||
|
|
|
|
|||||
71,234 | 106,812 | |||||||
|
|
|
|
(i) | PagSeguro changed in 2020 the salary payment policy to the last day of the month. |
14. | Taxes and contributions |
March 31, 2020 | December 31, 2019 | |||||||
Taxes |
||||||||
Services tax (i) |
233,196 | 223,529 | ||||||
Value-added tax on sales and services (ii) |
28,868 | 31,400 | ||||||
Social integration program (iii) |
23,213 | 22,216 | ||||||
Social contribution on revenues (iii) |
142,831 | 136,682 | ||||||
Income tax and social contribution (iv) |
1,639 | 726 | ||||||
Other |
4,024 | 4,489 | ||||||
|
|
|
|
|||||
433,772 | 419,042 | |||||||
|
|
|
|
|||||
Judicial deposits (v) |
||||||||
Services tax (i) |
(117,656 | ) | (108,026 | ) | ||||
Value-added tax on sales and services (ii) |
(28,527 | ) | (31,028 | ) | ||||
Social integration program (iii) |
(22,734 | ) | (21,804 | ) | ||||
Social contribution on revenues (iii) |
(139,899 | ) | (134,180 | ) | ||||
|
|
|
|
|||||
(308,816 | ) | (295,038 | ) | |||||
|
|
|
|
|||||
124,956 | 124,004 | |||||||
|
|
|
|
(i) | Refers to tax on revenues. |
(ii) | Refers to the Value-added Tax on Sales and Services (ICMS) 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. |
(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. |
20
PagSeguro Digital Ltd.
Notes to the unaudited condensed consolidated interim financial statements (Continued)
On March 31, 2020 and for the three-month periods ended March 31, 2020
(All amounts in thousands of reais unless otherwise stated)
15. | Provision for contingencies |
PagSeguro Group is party to labor and civil litigation in progress and are discussing such matters at the administrative and judicial levels, which in some cases the PagSeguro Group has made corresponding judicial deposits. The likelihood of a negative outcome is assessed periodically and adjusted by management, when appropriate. Such assessment includes the opinion of its external legal advisors.
March 31, 2020 | December 31, 2019 | |||||||
Civil |
10,116 | 9,152 | ||||||
Labor |
4,599 | 2,697 | ||||||
|
|
|
|
|||||
14,716 | 11,849 | |||||||
|
|
|
|
The PagSeguro Group is party on tax and civil lawsuits involving risks classified by legal advisors as possible losses, for which no provision was recognized on March 31, 2020, totaling approximately R$45,022 (December 31, 2019 - R$67,401). The PagSeguro Group is not a party to labor lawsuits involving risks classified by management as possible losses.
Below we demonstrate the movements of the provision for contingencies in the three-month period ended March 31, 2020:
On December 31,2019 |
11,849 | |||
|
|
|||
Accrual |
4,384 | |||
Settlement |
(1,655 | ) | ||
Interest |
138 | |||
|
|
|||
On March 31,2020 |
14,716 | |||
|
|
21
PagSeguro Digital Ltd.
Notes to the unaudited condensed consolidated interim financial statements (Continued)
On March 31, 2020 and for the three-month periods ended March 31, 2020
(All amounts in thousands of reais unless otherwise stated)
16. | Income tax and social contribution |
a) | Reconciliation of the deferred income tax and social contribution |
Tax losses | Tax credit | Technological innovation (i) |
Other temporary deductible differences |
Other temporary deductible differences (ii) |
Total | |||||||||||||||||||
Deferred tax |
||||||||||||||||||||||||
On December 31, 2018 |
2,911 | 2,173 | (83,179 | ) | 64,715 | (118,745 | ) | (132,125 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Included in the statement of income |
(1,668 | ) | 1,102 | (4,735 | ) | (2,007 | ) | (82,196 | ) | (89,504 | ) | |||||||||||||
Other |
| | | 51 | | 51 | ||||||||||||||||||
On March 31, 2019 |
1,243 | 3,275 | (87,914 | ) | 62,759 | (200,941 | ) | (221,578 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Included in the statement of income |
48,891 | 2,343 | (73,297 | ) | 68,706 | (478,182 | ) | (431,539 | ) | |||||||||||||||
Other |
| | | 22,167 | | 22,167 | ||||||||||||||||||
On December 31, 2019 |
50,134 | 5,618 | (161,211 | ) | 153,632 | (679,123 | ) | (630,950 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Included in the statement of income |
36,165 | (180 | ) | (24,527 | ) | 20,989 | (167,885 | ) | (135,438 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
On March 31, 2020 |
86,298 | 5,438 | (185,738 | ) | 174,622 | (847,008 | ) | (766,388 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(i) | 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. |
(ii) | The main other liability temporary difference refers to deferred income tax and social contribution related to our FIDC quotas. |
Deferred tax assets are recognized for tax loss carry-forward to the extent that the realization of the related tax benefit through future taxable profits is probable. As of March 31, 2020, Company did not have any unrecognized tax assets. Tax losses do not have expiration date.
b) | Reconciliation of the income tax and social contribution expense |
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 three-month periods ended March 31, 2020 and 2019:
March 31, 2020 | March 31, 2019 | |||||||
Net income before taxes |
496,154 | 449,377 | ||||||
Statutory rate |
34 | % | 34 | % | ||||
|
|
|
|
|||||
Expected income tax and social contribution |
(168,692 | ) | (152,788 | ) | ||||
Income tax and social contribution effect on: |
||||||||
Permanent additions (exclusions) |
||||||||
Gifts |
(97 | ) | (34 | ) | ||||
R&D and technological innovation benefit - Law 11.196/05 (i) |
28,395 | 12,592 | ||||||
Taxation of income abroad |
742 | 376 | ||||||
Other additions |
414 | 211 | ||||||
|
|
|
|
|||||
Income tax and social contribution expense |
(139,240 | ) | (139,643 | ) | ||||
|
|
|
|
|||||
Effective rate |
28 | % | 31 | % | ||||
Income tax and social contribution current |
(3,801 | ) | (50,140 | ) | ||||
Income tax and social contribution deferred |
(135,439 | ) | (89,503 | ) |
(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. |
22
PagSeguro Digital Ltd.
Notes to the unaudited condensed consolidated interim financial statements (Continued)
On March 31, 2020 and for the three-month periods ended March 31, 2020
(All amounts in thousands of reais unless otherwise stated)
17. | Equity |
a) | Share capital |
On March 31, 2020, share capital is represented by 329,013,906 common shares, per value of US$0.000025. Share capital is composed of the following shares for the three-month periods ended March 31, 2020 and the year ended December 31, 2019 and 2018:
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 | |||
Treasury shares |
503,642 | |||
Long-Term Incentive Plan |
3,024,625 | |||
Repurchase of common shares |
(503,642 | ) | ||
|
|
|||
December 31, 2018 shares outstanding |
327,788,874 | |||
|
|
|||
Treasury shares |
15,000 | |||
Long-Term Incentive Plan |
1,066,538 | |||
Repurchase of common shares |
(15,000 | ) | ||
|
|
|||
December 31, 2019 shares outstanding |
328,855,412 | |||
|
|
|||
Treasury shares |
547,543 | |||
Long-Term Incentive Plan |
158,494 | |||
Repurchase of common shares |
(547,543 | ) | ||
|
|
|||
March 31, 2020 shares outstanding |
329,013,906 | |||
|
|
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.
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$326.8 million (or R$1,232.6 million). Refer to Note 1.2 for further details.
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. For the three-month period ended March 31, 2020, the Company recognized reversal of LTIP in the total amount of R$3,628 (R$10,893 in the three-month period ended March 31, 2019).
23
PagSeguro Digital Ltd.
Notes to the unaudited condensed consolidated interim financial statements (Continued)
On March 31, 2020 and for the three-month periods ended March 31, 2020
(All amounts in thousands of reais unless otherwise stated)
17. | Equity (Continued) |
c) | Share based long-term incentive plan (LTIP and LTIP goals) |
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 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.
This arrangement is classified as equity settled. For the three-month period ended March 31, 2020, the Company recognized compensation expenses related to the LTIP and LTIP goals in the total amount of R$26,381 (R$16,263 in the three-month period ended March 31, 2019).
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. On March 31, 2020 total shares granted were 7,087,157, and the total shares issued were 4,249,658, these shares include LTIP goals.
d) | OCI and equity valuation adjustments |
The Company recognizes in these account the accumulated effect of the foreign exchange variation resulting from the conversion of the financial statements of the foreign subsidiary BCPS, amounted in R$455 in the period of three months ended in March 31, 2020 (negative value in R$425 as of December 31, 2019). 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 represented by the accumulated amount of R$22,372 as of March 31, 2020 related to R2TECH, in the amount of R$11,663 (R$11,663 as of December 31, 2019) and BIVA, in the amount of 10,709 (R$10,709 as of December 31, 2019).
24
PagSeguro Digital Ltd.
Notes to the unaudited condensed consolidated interim financial statements (Continued)
On March 31, 2020 and for the three-month periods ended March 31, 2020
(All amounts in thousands of reais unless otherwise stated)
17. | Equity (Continued) |
e) | Treasury shares |
On October 30, 2018, PagSeguro Digitals board of directors authorized a share repurchase program, under which the PagSeguro Group may repurchase up to US$250 million in outstanding Class A common shares traded on the New York Stock Exchange (NYSE). The Companys management is responsible for defining the timing and the number of shares to be acquired, within authorized limits.
During the year ended December 31, 2018 a number of 503,642 shares were repurchased for a total of US$10,119 (average of US$20.09 per share) which corresponds to R$39,532.
During the year ended December 31, 2019 a number of 15,000 shares were repurchased for a total of US$422 (average of US$28.14 per share) which corresponds to R$1,735.
During the three-month period ended March 31, 2020 a number of 547,543 shares were repurchased for a total of US$8,829 (average of US$16.13 per share) which corresponds to R$44,775.
18. | Earnings per share |
a) | Basic |
Basic earnings per share is calculated by dividing net income the profit attributable to equity holders of PagSeguro Digital by the weighted average number of common shares issued and outstanding during the three-month periods ended March 31, 2020 and 2019:
March 31, 2020 |
March 31, 2019 |
|||||||
Profit attributable to stockholders of the Company |
356,671 | 309,312 | ||||||
Weighted average number of outstanding common shares |
328,999,613 | 319,990,379 | ||||||
|
|
|
|
|||||
Basic earnings per share - R$ |
1.0841 | 0.9666 | ||||||
|
|
|
|
25
PagSeguro Digital Ltd.
Notes to the unaudited condensed consolidated interim financial statements (Continued)
On March 31, 2020 and for the three-month periods ended March 31, 2020
(All amounts in thousands of reais unless otherwise stated)
18. | Earnings per share (Continued) |
b) | Diluted |
Diluted earnings per share is calculated by dividing net income attributable to equity holders of PagSeguro Digital by the weighted average number of common shares outstanding during the year plus the weighted average number of common shares that would be issued on conversion of all dilutive potential common shares into common shares. The share in the LTIP are the only shares with potential dilutive effect. In this case, a calculation is done to determine the number of shares that could have been acquired at fair value.
March 31, 2020 |
March 31, 2019 |
|||||||
Profit used to determine diluted earnings per share |
356,671 | 309,312 | ||||||
|
|
|
|
|||||
Weighted average number of outstanding common shares |
328,999,613 | 319,990,379 | ||||||
Weighted average number of shares that would have been issued at average market price |
1,057,274 | 622,392 | ||||||
|
|
|
|
|||||
Weighted average number of common shares for diluted earnings per share |
330,056,887 | 320,612,771 | ||||||
|
|
|
|
|||||
Diluted earnings per share - R$ |
1.0806 | 0.9648 | ||||||
|
|
|
|
19. | Total revenue and income |
March 31, 2020 |
March 31, 2019 |
|||||||
Gross revenue from transaction activities and other services (i) |
1,085,796 | 826,211 | ||||||
Gross revenue from sales (ii) |
| 93,731 | ||||||
Gross financial income (iii) |
567,234 | 436,461 | ||||||
Other financial income (iv) |
58,223 | 40,248 | ||||||
|
|
|
|
|||||
Total gross revenue and income |
1,711,253 | 1,396,651 | ||||||
|
|
|
|
|||||
Deductions from gross revenue from transactions activities and other services (v) |
(118,992 | ) | (113,216 | ) | ||||
Deductions from gross revenue from sales |
| (26,142 | ) | |||||
Deductions from gross financial income (vi) |
(4,966 | ) | (5,957 | ) | ||||
|
|
|
|
|||||
Total deductions from gross revenue and income |
(123,958 | ) | (145,315 | ) | ||||
|
|
|
|
|||||
Total revenue and income |
1,587,295 | 1,251,336 | ||||||
|
|
|
|
(i) | In the three-month period ended March 31, 2020, R$15,130 corresponds to membership fee. |
(ii) | During 2019, the Company changed its POS police to merchants from sale to membership fee. |
(iii) | Includes (a) interest income from early payment of notes payable to third parties and (b) interest on accounts receivable due in installments. |
(iv) | Includes (a) interest of financial investments and (b) gain on exchange variation. |
(v) | Deductions consist of transactions taxes. Additionally, in the three-month period ended March 31, 2020, R$1,482 corresponds to membership fee taxes. |
(vi) | Deductions consist of taxes on financial income. |
26
PagSeguro Digital Ltd.
Notes to the unaudited condensed consolidated interim financial statements (Continued)
On March 31, 2020 and for the three-month periods ended March 31, 2020
(All amounts in thousands of reais unless otherwise stated)
20. | Expenses by nature |
March 31, 2020 |
March 31, 2019 |
|||||||
Transactions costs (i) |
(556,434 | ) | (380,941 | ) | ||||
Cost of goods sold (ii) |
| (147,783 | ) | |||||
Marketing and advertising |
(156,209 | ) | (79,992 | ) | ||||
Personnel expenses (iii) |
(105,028 | ) | (77,790 | ) | ||||
Financial expenses (iv) |
(45,562 | ) | (5,839 | ) | ||||
Chargebacks (v) |
(70,171 | ) | (32,835 | ) | ||||
Depreciation and amortization (vi) |
(59,594 | ) | (26,421 | ) | ||||
Other |
(98,143 | ) | (50,358 | ) | ||||
|
|
|
|
|||||
(1,091,141 | ) | (801,959 | ) | |||||
|
|
|
|
|||||
Classified as: |
||||||||
Cost of services |
(768,636 | ) | (450,075 | ) | ||||
Cost of sales |
| (167,704 | ) | |||||
Selling expenses |
(189,022 | ) | (82,378 | ) | ||||
Administrative expenses |
(85,785 | ) | (92,381 | ) | ||||
Financial expenses |
(45,562 | ) | (5,839 | ) | ||||
Other (expenses) income, net |
(2,136 | ) | (3,582 | ) | ||||
|
|
|
|
|||||
(1,091,141 | ) | (801,959 | ) | |||||
|
|
|
|
(i) | In the three-month period ended March 31, 2020, the increase is mainly represented by R$56,392 related to taxes paid on intercompany sale of POS devices and the amount of R$31.955 related to other costs (mainly related to freight, maintenance of POS and storage). |
(ii) | During 2019, the Company changed its POS police to merchants from sale to membership fee. |
(iii) | Includes R$11,953 and R$16,263 of compensation expenses related to the LTIP for the three-month period ended March 31, 2020 and 2019, respectively. |
(iv) | Relates mainly to the early payment of receivables, which amounted to R$32,822 in the three-month period ended March 31, 2020. |
(v) | Chargebacks refer mainly to losses recognized during the period related to fraud on card processing operations, as detailed in Note 22. |
(vi) | Depreciation and amortization amounts incurred in the period are segregated between costs and expenses as presented below: |
March 31, 2020 |
March 31, 2019 |
|||||||
Depreciation |
||||||||
Cost of sales and services (i) |
(23,139 | ) | (3,227 | ) | ||||
Selling expenses |
(6 | ) | (7 | ) | ||||
Administrative expenses |
(1,549 | ) | (665 | ) | ||||
|
|
|
|
|||||
(24,695 | ) | (3,899 | ) | |||||
|
|
|
|
|||||
Amortization |
||||||||
Cost of sales and services |
(36,260 | ) | (25,356 | ) | ||||
Administrative expenses |
(636 | ) | (341 | ) | ||||
|
|
|
|
|||||
(36,896 | ) | (25,697 | ) | |||||
|
|
|
|
|||||
PIS and COFINS credits (ii) |
1,997 | 3,175 | ||||||
|
|
|
|
|||||
Depreciation and amortization expense, net |
(59,594 | ) | (26,421 | ) | ||||
|
|
|
|
(i) | The depreciation of POS in the three-month period ended March 31, 2020, amounted to R$19,834. |
(ii) | 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. |
27
PagSeguro Digital Ltd.
Notes to the unaudited condensed consolidated interim financial statements (Continued)
On March 31, 2020 and for the three-month periods ended March 31, 2020
(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 financial statements at their carrying amount are substantially similar to their fair value. However, since they do not have an active market (except for the LFT included in financial investments, which is actively traded in the 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:
March 31, 2020 | December 31, 2019 | |||||||
Financial assets |
||||||||
Amortized cost: |
||||||||
Cash and cash equivalents |
3,043,153 | 1,403,955 | ||||||
Accounts receivables |
9,292,301 | 10,507,122 | ||||||
Other receivables |
71,334 | 84,099 | ||||||
Judicial deposits |
6,751 | 5,651 | ||||||
Investment |
1,500 | 1,500 | ||||||
Fair value through other comprehensive income |
||||||||
Financial investments |
499,782 | 1,349,666 | ||||||
|
|
|
|
|||||
12,914,821 | 13,351,993 | |||||||
|
|
|
|
March 31, 2020 | December 31, 2019 | |||||||
Financial liabilities |
||||||||
Amortized cost: |
||||||||
Payables to third parties |
4,691,260 | 5,326,290 | ||||||
Trade payables |
279,262 | 256,281 | ||||||
Trade payables to related parties |
35,767 | 22,187 | ||||||
Other liabilities |
115,100 | 73,129 | ||||||
Fair value through profit or loss |
||||||||
Contingent consideration (included in Other liabilities) |
15,800 | 15,800 | ||||||
|
|
|
|
|||||
5,137,189 | 5,693,687 | |||||||
|
|
|
|
28
PagSeguro Digital Ltd.
Notes to the unaudited condensed consolidated interim financial statements (Continued)
On March 31, 2020 and for the three-month periods ended March 31, 2020
(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.
Market risk
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. In the Group, market risk comprises interest rate risk and foreign currency risk and other price risk, such as equity price risk.
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. As of March 31, 2020, and December 31, 2019, the PagSeguro Group is not materially exposed to the risk of changes in market interest rates mostly due to its capital structure that takes into consideration a reduced amount of debt.
Foreign exchange risk
Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign exchange rates. The Groups exposure to the risk when future commercial transactions or recognized assets or liabilities are denominated in a currency that is not the entitys functional currency. As of March 31, 2020, and December 31, 2019, the PagSeguro Group is not materially exposed to foreign exchange risk.
Equity price risk
The Groups non-listed equity investments are susceptible to market price risk arising from uncertainties about future values of the investment. As of March 31, 2020, and December 31, 2019, the exposure to equity price from such investments was not material.
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 supplemental process and increases the PagSeguro Groups ability to avoid new frauds.
29
PagSeguro Digital Ltd.
Notes to the unaudited condensed consolidated interim financial statements (Continued)
On March 31, 2020 and for the three-month periods ended March 31, 2020
(All amounts in thousands of reais unless otherwise stated)
22. | Financial risk management (Continued) |
Credit risk
Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Group is exposed to credit risk from its operating activities (primarily accounts receivable) and from its financing activities, including deposits with banks and financial institutions, and other financial instruments.
Credit risk is managed on a group basis and for its accounts receivable 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 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 financial metrics and 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.
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 enough 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 enough liquidity to provide adequate margin as determined by the forecasts.
30
PagSeguro Digital Ltd.
Notes to the unaudited condensed consolidated interim financial statements (Continued)
On March 31, 2020 and for the three-month periods ended March 31, 2020
(All amounts in thousands of reais unless otherwise stated)
22. | Financial risk management (Continued) |
Liquidity risk (Continued)
On March 31, 2020, PagSeguro Group held cash and cash equivalents of R$3,043,153 (R$1,403,955 on December 31, 2019).
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 |
||||||||||||||||
On March 31, 2020 |
||||||||||||||||||||
Payables to third parties |
3,687,303 | 668,848 | 178,801 | 156,308 | | |||||||||||||||
Trade payables |
250,621 | 17,904 | 6,070 | 2,226 | 2,441 | |||||||||||||||
Trade payables to related parties |
| 35,767 | | | | |||||||||||||||
On December 31, 2019 |
||||||||||||||||||||
Payables to third parties |
4,308,095 | 686,808 | 173,884 | 157,503 | | |||||||||||||||
Trade payables |
235,838 | 19,472 | | 600 | 371 | |||||||||||||||
Trade payables to related parties |
| 22,187 | | | |
23. | Capital management |
The PagSeguro Group monitors capital based on 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 cash equivalents. Total capital is calculated as equity as shown in the consolidated balance sheet plus net debt.
The PagSeguro Group had no loans on March 31, 2020, and December 31, 2019. Therefore, no gearing ratio is presented.
31
PagSeguro Digital Ltd.
Notes to the unaudited condensed consolidated interim financial statements (Continued)
On March 31, 2020 and for the three-month periods ended March 31, 2020
(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 1 - Quoted prices (unadjusted) in active markets for identical assets and liabilities. |
| Level 2 - Inputs 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 3 - Inputs for the assets and liabilities that are not based on observable market data (that is, unobservable inputs). |
The following table provides the fair value measurement hierarchy of PagSeguro Groups financial assets and financial liabilities as of March 31, 2020:
March 31, 2020 | ||||||||||||
Quoted prices in active markets (Level 1) |
Significant observable inputs (Level 2) |
Significant unobservable inputs (Level 3) |
||||||||||
Financial assets |
||||||||||||
Cash and cash equivalents |
958,909 | 2,084,244 | | |||||||||
Financial investments |
499,782 | | | |||||||||
Accounts receivables |
| 9,292,301 | | |||||||||
Other receivables |
| 71,334 | | |||||||||
Financial liabilities |
||||||||||||
Payables to third parties |
| 4,691,260 | | |||||||||
Trade payables |
| 279,262 | | |||||||||
Trade payables to related parties |
| 35,767 | | |||||||||
Contingent consideration (included in Other liabilities) |
| | 15,800 | |||||||||
Other liabilities |
| 115,100 | |
The PagSeguro Group believes that the financial instruments recognized in these consolidated financial statements at their carrying amount are substantially similar to their fair value. For the financial assets that is basically due to the nature of the receivables that are due from top tier financial institutions subject to low credit risk and are mostly receivable in a short-term period and are measured based on the consideration that the Group expects to receive as part of the transaction processing services.
Financial assets also include the financial investments represented by government bonds with quoted prices in an active market and recognized in the balance sheet based on its fair value.
Financial liabilities are mostly represented by short-term payables to merchants which are paid in accordance with the contract set out with the merchant and other short-term payables to service providers in the normal course of business and, as such, also approximate from their fair values.
32
PagSeguro Digital Ltd.
Notes to the unaudited condensed consolidated interim financial statements (Continued)
On March 31, 2020 and for the three-month periods ended March 31, 2020
(All amounts in thousands of reais unless otherwise stated)
24. | Fair value measurement (Continued) |
Financial liabilities also include the contingent consideration that arose from the acquisition of TILIX in 2018. The total consideration for the purchase was R$19,610, of which R$3,810 was settled in cash and R$15,800 in variable installments, subject to the attainment of specific targets in 2020 (R$4,100) and 2021 (R$11,700), established in the acquisition agreement. The contingent is recognized at fair value at the acquisition date and with changes in fair value recognized in the statement of profit or loss in accordance with IFRS 9 Financial Instruments.
The fair value is determined considering the contractual cash outflows that will be required if the target is achieved and is substantially similar to the carrying amount. The significant unobservable input used in the measurement is the assumed probability-adjusted profit before tax of TILIX. A change in the probability that the target will be achieved would result in the derecognition of such liabilities.
There were no transfers between Levels 1, 2 and 3 during the three-month period ended March 31, 2020.
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: May 28, 2020
PagSeguro Digital Ltd. | ||
By: | /s/ Eduardo Alcaro | |
Name: | Eduardo Alcaro | |
Title: | Chief Financial and Investor Relations Officer, Chief Accounting Officer and Director |