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Section 1: 6-K (FORM 6-K)

Form 6-K
Table of Contents

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 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 ☒

 


Table of Contents

PagSeguro Digital Ltd.

Unaudited Condensed Consolidated Interim

Financial Statements at March 31, 2018 and for the

three-month periods ended March 31, 2018 and 2017

 


Table of Contents

PagSeguro Digital Ltd.

Unaudited condensed consolidated interim financial statements

at March 31, 2018 and for the three-month period ended March 31, 2018 and 2017

Contents

 

Unaudited condensed consolidated interim balance sheets

     1  

Unaudited condensed consolidated interim statements of income

     2  

Unaudited condensed consolidated interim statements of comprehensive income

     3  

Unaudited condensed consolidated interim statements of changes in equity

     4  

Unaudited condensed consolidated interim statements of cash flows

     5  

Notes to the unaudited condensed consolidated interim financial statements

     6  

 


Table of Contents

PagSeguro Digital Ltd.

Unaudited condensed consolidated interim balance sheets at

(All amounts in thousands of reais)

 

 

ASSETS

   Note      March 31,
2018
     December 31,
2017
    

LIABILITIES AND EQUITY

   Note      March 31,
2018
    December 31,
2017
 

CURRENT ASSETS

            CURRENT LIABILITIES        

Cash and cash equivalents

     5        2,545,389        66,767     

Payables to third parties

     12        2,975,297       3,080,569  

Financial investments

     6        —          210,103     

Trade payables CP

        119,155       92,444  

Note receivables

     7        4,883,321        3,522,349     

Payables to related parties

     8        44,973       39,101  

Receivables from related parties

     8        909        124,723     

Salaries and social charges

     13        26,192       34,269  

Inventories

        61,602        61,609     

Taxes and contributions CP

     14        57,862       52,064  

Taxes recoverable

        18,008        14,446     

Provision for contingencies

     15        5,213       4,648  

Other receivables

        18,834        27,956     

Other payables

        23,028       15,872  
     

 

 

    

 

 

          

 

 

   

 

 

 

Total current assets

        7,528,063        4,027,953      Total current liabilities         3,251,720       3,318,967  
     

 

 

    

 

 

          

 

 

   

 

 

 

NON-CURRENT ASSETS

            NON-CURRENT LIABILITIES        

Judicial deposits

        1,198        872     

Deferred income tax and social contribution

     16        63,226       42,809  

Prepaid expenses LP

        506        160     

Other payables

        3,624       3,590  
                 

 

 

   

 

 

 

Deferred income tax and social contribution

     16        63,822        37,015      Total non-current liabilities         66,850       46,399  
                 

 

 

   

 

 

 

Property and equipment

     10        11,065        10,889             
                 

 

 

   

 

 

 

Intangible assets

     11        190,638        158,868      TOTAL LIABILITIES         3,318,570       3,365,366  
     

 

 

    

 

 

          

 

 

   

 

 

 

Total non-current assets

        267,229        207,804             
     

 

 

    

 

 

            
            EQUITY        
           

Share capital

     17        25       524,577  
           

Legal reserve

     17        —         30,216  
           

Capital reserve

     17        4,311,782       —    
           

Equity valuation adjustments

     17        (6,701     55  
           

Profit retention reserve

     17        148,378       312,047  
                 

 

 

   

 

 

 
                    4,453,484       866,895  
                 

 

 

   

 

 

 
            Non-controlling interests         23,238       3,496  
                 

 

 

   

 

 

 
            TOTAL EQUITY         4,476,722       870,391  
     

 

 

    

 

 

          

 

 

   

 

 

 

TOTAL ASSETS

        7,795,292        4,235,757      TOTAL LIABILITIES AND EQUITY         7,795,292       4,235,757  
     

 

 

    

 

 

          

 

 

   

 

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.

 

1


Table of Contents

PagSeguro Digital Ltd.

Unaudited condensed consolidated interim statements of income

three-month periods ended

(All amounts in thousands of reais unless otherwise stated)

 

 

 

     Note      March 31, 2018     March 31, 2017  

Net revenue from transaction activities and other services

     19        442,848       190,425  

Net revenue from sales

     19        93,986       118,438  

Financial income

     19        274,838       138,808  

Other financial income

     19        116,360       836  
     

 

 

   

 

 

 

Total revenue and income

        928,032       448,508  

Cost of sales and services

     20        (444,762     (242,893

Selling expenses

     20        (83,614     (71,106

Administrative expenses

     20        (219,024     (32,520

Financial expenses

     20        (16,524     (19,218

Other expenses, net

     20        (1,109     (594
     

 

 

   

 

 

 

PROFIT BEFORE INCOME TAXES

        163,000       82,177  

Current income tax and social contribution

     16        (20,935     (19,085

Deferred income tax and social contribution

     16        6,391       (2,468
     

 

 

   

 

 

 

INCOME TAX AND SOCIAL CONTRIBUTION

        (14,544     (21,553
     

 

 

   

 

 

 

NET INCOME FOR THE PERIOD

        148,456       60,624  
     

 

 

   

 

 

 

Attributable to:

       

Owners of the Company

        148,378       60,625  

Non-controlling interests

        78       (1

Basic earnings per common share—R$

        0.4988       0.2311  

Diluted earnings per common share—R$

     18        0.4969       0.2311  
     

 

 

   

 

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.

 

2


Table of Contents

PagSeguro Digital Ltd.

Unaudited condensed consolidated interim statements of comprehensive income

three-month periods ended

(All amounts in thousands of reais)

 

 

 

     March 31, 2018      March 31, 2017  

Net income for the period

     148,456        60,624  

Other results

     67        55  
  

 

 

    

 

 

 

Total comprehensive income for the period

     148,523        60,679  
  

 

 

    

 

 

 

Attributable to

     

Owners of the Company

     

Net income for the period

     148,445        60,680  
  

 

 

    

 

 

 

Non-controlling interests

     78        (1
  

 

 

    

 

 

 

Net income for the period

     148,523        60,679  
  

 

 

    

 

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.

 

3


Table of Contents

PagSeguro Digital Ltd.

Unaudited condensed consolidated interim statements 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
 

At December 31, 2016

        524,577       —          —         6,277       96,008       —         —         626,862       —         626,862  
     

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income for the period

     17        —         —          —         —         —         60,625       —         60,625       (1     60,624  
     

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

At March 31, 2017

        524,577       —          —         6,277       96,008       60,625       —         687,487       (1     687,486  
     

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income for the period

     17        —         —          —         —         —         418,156       —         418,156       14       418,170  

Currency translation adjustment

     17        —         —          —         —         —         —         55       55       —         55  

Non-controlling acquisition

     17        —         —          —         —         —         —         —         —         3,483       3,483  

Constitution of legal reserve

     17        —         —          —         23,939       —         (23,939     —         —         —         —    

Distribution of dividends

     17        —         —          —         —         (96,008     (142,795     —         (238,803     —         (238,803

Profit retention reserve

     17        —         —          —         —         312,047       (312,047     —         —         —         —    
     

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

At December 31, 2017

        524,577       —          —         30,216       312,047       —         55       866,895       3,496       870,391  
     

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Capital restructuring

     1.1        (524,556     866,819        —         (30,216     (312,047     —         —         —         —         —    

Net income for the period

     17        —         —          —         —         —         148,378       —         148,378       78       148,456  

Non-controlling acquisition

     17        —         —          —         —         —         —         (6,756     (6,756     19,664       12,908  

Issurance of common shares in initial public offering, net of offering costs

     17        4       3,289,802        —         —         —         —         —         3,289,806       —         3,289,806  

Shares issued—stock option plan

     17        —         126,540        (126,540     —         —         —         —         —         —         —    

Share based long term incentive plan (LTIP)

     17        —         —          155,160       —         —         —         —         155,160       —         155,160  
     

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

At March 31, 2018

        25       4,283,161        28,621       —         —         148,378       (6,701     4,453,484       23,238       4,476,722  
     

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.

 

4


Table of Contents

PagSeguro Digital Ltd.

Unaudited condensed consolidated interim statements of cash flows

three-month periods ended

(All amounts in thousands of reais)

 

 

 

     Note      March 31, 2018     March 31, 2017  

CASH FLOWS FROM OPERATING ACTIVITIES

       

Profit before income taxes

        163,000       82,177  

Expenses (revenues) not affecting cash:

       

Depreciation and amortization

        18,007       10,762  

Chargebacks

     19        14,438       17,434  

Accrual of provision for contingencies

        725       272  

Share based long term incentive plan (LTIP)

        130,303       —    

Provision of obsolescence loss

        (1,686     —    

Other financial cost, net

        274       3,446  

Changes in operating assets and liabilities

       

Note receivables

        (1,449,214     (229,126

Changes in receivables subject to early payment

        (1,137,210     150,113  

Changes in receivables not subject to early payment

        (312,004     (379,239

Inventories

        1,693       (13,365

Taxes recoverable

        (2,700     (15,942

Other receivables

        3,948       (351

Other payables

        7,193       3,015  

Payables to third parties

        (105,272     138,716  

Trade payables

        25,633       31,011  

Receivables from (payables to) related parties

        129,643       (47,440

Salaries and social charges

        (8,077     (3,710

Taxes and contributions

        19,350       23,982  

Provision for contingencies

        (331     (1
     

 

 

   

 

 

 
        (1,053,073     880  
     

 

 

   

 

 

 

Income tax and social contribution paid

        (34,806     (156

Interest income received

        73,804       56,111  

Interest paid

        —         (9,174
     

 

 

   

 

 

 

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

        (1,014,075     47,662  
     

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

       

Purchases of property and equipment

     9        (976     (52

Purchases and development of intangible assets

     10        (29,695     (21,266

Redemption of financial investments

        211,116       113,742  
     

 

 

   

 

 

 

NET CASH PROVIDED BY INVESTING ACTIVITIES

        180,445       92,424  
     

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

       

Payment of borrowings

        —         (199,480

Payment of derivative financial instruments

        —         (5,831

Proceeds from offering of shares

        3,444,875    

Transactional costs

        (147,972     —    

Transaction with non-controlling interest

     9c        (4,650     —    

Capital increase by non-controlling shareholders

     3        20,000       —    
     

 

 

   

 

 

 

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

        3,312,253       (205,311
     

 

 

   

 

 

 

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

        2,478,622       (65,225
     

 

 

   

 

 

 

Cash and cash equivalents at the beginning of the period

        66,767       79,969  

Cash and cash equivalents at the end of the period

        2,545,389       14,744  

The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.

 

5


Table of Contents

PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial

statements at March 31, 2018 and for the three-month period ended March 31, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

1. General information

PagSeguro Digital Ltd. (“PagSeguro Digital” or “Company”) is a holding company, subsidiary of Universo Online S.A. (“UOL”), referred to together with its subsidiaries as “PagSeguro Group”, was incorporated on July 19, 2017. Pagseguro Internet S.A. (“PagSeguro Brazil”) was contributed to PagSeguro Digital on January 4, 2018 . PagSeguro Digital has control of 99.99% of the shares 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 the corresponding related activities, focused principally on micro-merchants and small and medium-sized businesses (“SMEs”).

The PagSeguro Brazil’s 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 Creditórios—PagSeguro (“FIDC”).

These consolidated financial statements include PagSeguro Brazil and its subsidiaries Net+Phone, Boa Compra, BCPS Online Services, R2TECH, BIVACO and FIDC.

 

1.1 Initial Public Offering (“IPO”)

On January 26, 2018, PagSeguro Digital completed its Initial Public Offering (IPO). A number of 50,925,642 shares were new shares offered by PagSeguro Digital and 70,267,746 shares were offered by the controlling shareholder UOL.

The initial offer 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 initial public offering were registered under the Securities Act of 1933, as amended, pursuant to the Company’s 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 are traded on the New York Stock Exchange (NYSE) since January 26, 2018, under the symbol “PAGS”.

 

6


Table of Contents

PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial

statements at March 31, 2018 and for the three-month period ended March 31, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

1.2 Long-Term Incentive Plan (“LTIP”)

Members of our 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 Ltd. Beneficiaries under the LTIP are selected by UOL’s LTIP Committee, which consists of our 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 consolidated interim financial statements, which are unaudited, 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 Company’s financial position and performance since the last annual financial statements.

These unaudited consolidated financial statements for the three-month period ended March 31, 2018 were authorized for issuance by the PagSeguro Group’s Board of Directors on May 28, 2018.

 

2.1 Basis of preparation of consolidated interim financial information

This unaudited consolidated interim financial report for the three-month period ended March 31, 2018 has been prepared in accordance with International Accounting Standard 34, “Interim Financial Reporting” as issued by the International Accounting Standard Board.

This unaudited condensed consolidated interim financial report does not include all the notes of the type normally included in an annual financial report. 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.

 

7


Table of Contents

PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial

statements at March 31, 2018 and for the three-month period ended March 31, 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 three-month ended March 31, 2018:

IFRS 9—“Financial 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 15—“Revenue 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 replace the principle of risks and benefits. This standard replace IAS 11—“Construction Contracts”, IAS 18—“Revenues” and related interpretations, and becomes 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 PagSeguro Group, for retrospective disclosure and disclosure of amounts.

Effective for periods beginning on or after January 1, 2019

IFRS 16—“Leases”—this 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 17—“Leases” and related interpretations. Management has performed a preliminary assessment and did not identify any material impacts to date.

There are no other IFRS or IFRIC interpretations not yet effective that could have a material impact on PagSeguro Group financial statements.

 

8


Table of Contents

PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial

statements at March 31, 2018 and for the three-month period ended March 31, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

3. Consolidation of subsidiaries

 

At March 31, 2018

Company

   Assets      Liabilities      Equity      Net income
(loss) for the
period
     Ownership – %     

Level

PagSeguro Brazil

     12,158,276        7,848,351        4,309,925        57,768        99,99     

Direct

Net+Phone

     1,101,314        1,066,680        34,634        (9,323      99,99     

Indirect

Boa Compra

     700,068        679,402        20,666        705        99,99     

Indirect

BCPS

     1,559        291        1,268        319        99,50     

Indirect

R2TECH

     3,188        858        2,330        764        51,00     

Indirect

BIVA

     2,464        2,217        (247      (1,174      74,93     

Indirect

FIDC

     259,710        71,357        188,353        6,657        90,00     

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 and March 12, 2018, PagSeguro Brazil acquired an additional interest of BIVA (15.12% and 0.50%, respectively), bringing total interest to 74.93% of BIVA’s total share capital (59.31% as of December 31, 2017). The total amount paid for this acquisition was R$4,650. 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 PagSeguro Brazil’s equity ownership is 90% in the FIDC as of March 31, 2018 (100% as of December 31, 2017). On March 31, 2018 the share capital of the FIDIC 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 Group 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 mainly revenue is related sales from domestic market. Net revenues from the international market represents 2% and 2% for the three-month periods ended March31, 2018 and 2017, respectively.

 

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PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial

statements at March 31, 2018 and for the three-month period ended March 31, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

5. Cash and cash equivalents

 

     March 31, 2018      December 31, 2017  

Short-term bank deposits

     20,694        66,767  

Short-term investment

     2,524,695        —    
  

 

 

    

 

 

 
     2,545,389        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. Balance amount as at March 31, 2018 is relatated to excess of cash and cash equivalents proceeds originated from the IPO transaction mentioned in Note 1.1.

 

6. Financial investments

 

     March 31, 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.

 

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PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial

statements at March 31, 2018 and for the three-month period ended March 31, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

7. Note receivables

 

     March 31,2018      December 31,2017  

Legal obligors

     Visa        Master        Hipercard        Total        Visa        Master        Hipercard        Total  

Itaú

     349,272        1,128,312        311,450        1,789,034        237,335        751,542        250,817        1,239,694  

Bradesco

     449,645        119,721        —          569,366        333,108        83,160        —          416,268  

Banco do Brasil

     364,329        103,753        —          468,082        287,334        84,504        —          371,838  

CEF

     95,462        118,096        —          213,558        69,974        83,684        —          153,658  

Santander

     164,853        468,908        —          633,761        122,614        310,946        —          433,560  

Other

     214,628        584,640        —          799,268        141,802        393,999        —          535,801  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total card issuers (i)

     1,638,189        2,523,430        311,450        4,473,069        1,192,167        1,707,835        250,817        3,150,819  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cielo – Elo

     —          —          —          173,879        —          —          —          151,851  

Cielo

     —          —          —          107,394        —          —          —          80,464  

Redecard

     —          —          —          38,204        —          —          —          45,289  

Amex

     —          —          —          49,409        —          —          —          39,608  

Vero

     —          —          —          16,605        —          —          —          21,463  

Other

     —          —          —          22,939        —          —          —          31,864  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total acquirers (ii)

     —          —          —          408,429        —          —          —          370,539  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other1

     —          —          —          1,823        —          —          —          991  

Total other

     —          —          —          1,823        —          —          —          991  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total note receivables

     1,638,189        2,523,430        311,450        4,883,321        1,192,167        1,707,835        250,817        3,522,349  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(i) Card issuers: receivables derived from transactions where the 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, the PagSeguro Brazil´s 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: refer to card processing transactions to be received from the acquirers, which are a third parties acting as a financial intermediaries between the issuing bank and PagSeguro Brazil. This balance also includes the receivables from sales of debit and credit card readers.

 

 

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PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial

statements at March 31, 2018 and for the three-month period ended March 31, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

The maturity analysis of note receivables is as follows:

 

     March 31, 2018      December 31, 2017  

Due within 30 days

     2,647,347        2,213,929  

Due within 31 to 120 days

     1,763,293        1,045,825  

Due within 121 to 180 days

     140,265        114,953  

Due within 181 to 360 days

     332,416        147,642  
  

 

 

    

 

 

 
     4,883,321        3,522,349  
  

 

 

    

 

 

 

 

8. Related-party balances and transactions

PagSeguro Group is controlled by UOL (incorporated in Brazil).

 

i. Balances and transactions with related parties:

 

     March 31, 2018      December 31, 2017  
     Receivables      Payables      Receivables      Payables  

Immediate parent

           

UOL—cash management (a)

     909        —          124,721        —    

UOL—sales of services (b)

     —          22,124        —          32,286  

UOL—shared service costs

     —          11,958        —          —    

Affiliated companies

           

UOL Diveo Tecnologia Ltda.—cash management (a)

     —          —          2        —    

UOL Diveo Tecnologia Ltda.—sales of services (b)

     —          3,558        —          621  

UOL Diveo Tecnologia Ltda.—shared service costs

     —          90        —          —    

Concurso Virtual S.A.

     —          1,479        —          1,522  

Transfolha Transportadora e Distribuição Ltda.

     —          1,869        —          745  

Livraria da Folha Ltda.

     —          1,143        —          1,078  

Empresa Folha da Manhã S.A.

     —          1,707        —          2,320  

Others

     —          1,045        —          529  
  

 

 

    

 

 

    

 

 

    

 

 

 
     909        44,973        124,723        39,101  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(a) The receivables/payables transactions with related parties arising from cash management were ended at the date of the IPO. The remaining balance of R$ 909 was fully paid during the month of April 2018.
(b) Sale of services refers mainly to purchase of (i) advertising services from UOL and (ii) services related to technical support in hosting from UOL Diveo Tecnologia Ltda.

 

 

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PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial

statements at March 31, 2018 and for the three-month period ended March 31, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

     March 31, 2018      March 31, 2017  
     Revenue      Expense      Revenue      Expense  

Immediate parent

           

UOL—shared service costs (a)

     —          43,041        —          12,044  

UOL—sales of services (b)

     468        12,921        —          12,703  

Affiliated companies

           

UOL Diveo—shared service costs (c)

     —          123        —          25  

UOL Diveo—sales of services (d)

     —          6,542        —          4,748  

Concurso Virtual S.A.

     28        —          34        —    

Edgar de Abreu Ltda.

     149        —          40        —    

Transfolha Transportadora e Distribuição Ltda.

     —          2,624        —          3,814  

Livraria da Folha Ltda.

     71        —          135        —    

Others

     22        —          11        —    
  

 

 

    

 

 

    

 

 

    

 

 

 
     738        65,251        220        33,334  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(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 amount of R$28,400, which are paid by the parent company UOL and reimbursed by the PagSeguro Group.
(b) Sale 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) Sale 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.

 

ii. Key management compensation

Key management compensation includes short and long term benefits of PagSeguro Brazil’s executive officers. At March 31, 2018, the short and long term compensation related to the executive officers for the three-month period ended March 31, 2018 amounted to R$27,845 (March 31, 2017—R$878 includes only short-term).

 

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Table of Contents

PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial

statements at March 31, 2018 and for the three-month period ended March 31, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

9. Business combinations

The acquisitions described below are in accordance with PagSeguro’s Digital 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 the 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 some specific targets for the year of 2018, established in the acquisition agreement, with payment deadline up to 10 business days after the conclusion of the Company’s audited financial statements. Based on current management expectations, this performance goal will be achieved.

c) BIVA

On October, 2017, PagSeguro Brazil acquired control with the acquisition of a 51.41% interest in Bivaco Holding SA.

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 PagSeguro Group. The purchase price allocation may be subject to changes in the measurement period as defined in IFRS.

On November 30, 2017, the PagSeguro Brazil acquired the additional interest of 7.90% of the issued shares for a purchase consideration of R$2,394, increasing PagSeguro Brazil’s interest to 59.31%. On January 15 and March 12, 2018, PagSeguro Brazil acquired additional interests of 15.12% and 0.50%, respectively, for a purchase consideration of R$4,650. The carrying amount of the non-controlling interests in BIVA on the dates of acquisition was R$221. The Group derecognized non-controlling interests of R$ 221 and recorded a decrease in equity attributable to owners of the parent of R$6,823.

 

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PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial

statements at March 31, 2018 and for the three-month period ended March 31, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

10. Property and equipment

 

(a) Property and equipment is composed as follows:

 

     March 31, 2018  
     Cost      Accumulated
depreciation
    Net  

Data processing equipment

     11,262        (5,647     5,615  

Facilities

     53        (24     29  

Machinery and equipment

     5,469        (681     4,788  

Furniture and fittings

     397        (76     321  

Leasehold improvements

     263        (39     224  

Vehicles

     140        (52     88  
  

 

 

    

 

 

   

 

 

 
     17,583        (6,518     11,065  
  

 

 

    

 

 

   

 

 

 
    

 

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  
  

 

 

    

 

 

   

 

 

 

 

(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 March 31, 2018

              

Opening balance

     5,910       30       4,294       331       234       90       10,889  

Additions

     238       —         731       —         —         7       976  

Depreciation

     (533     (1     (237     (10     (10     (9     (800
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net book value

     5,615       29       4,788       321       224       88       11,065  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

At March 31, 2018

              

Cost

     11,262       53       5,469       397       263       139       17,583  

Accumulated depreciation

     (5,647     (24     (681     (76     (39     (51     (6,518
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net book value

     5,615       29       4,788       321       224       88       11,065  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

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PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial

statements at March 31, 2018 and for the three-month period ended March 31, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

11. Intangible assets

 

(a) Intangible assets are composed as follows:

 

     March 31, 2018  
     Cost      Accumulated
amortization
    Net  

Expenditures related to software and technology (i)

     291,666        (134,293     157,373  

Software licenses

     12,529        (2,398     10,131  

Customer relationships

     1,981        (246     1,735  

Goodwill (ii)

     21,399        —         21,399  
  

 

 

    

 

 

   

 

 

 
     327,575        (136,937     190,638  
  

 

 

    

 

 

   

 

 

 
    

 

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) PagSeguro Group capitalizes the expenses incurred with the development of platforms, which are amortized over the useful lives, within a range from three to five years.
(ii) Goodwill provided on the acquisition of the companies R2TECH and BIVA.

 

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Table of Contents

PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial

statements at March 31, 2018 and for the three-month period ended March 31, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

(b) The changes in cost and accumulated amortization were as follows:

 

     Expenditures
with software
and technology
    Software
licenses
    Customer
relationships
    Goodwill     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 March 31, 2018

          

Opening balance

     125,825       7,467       1,890       23,686       158,868  

Cost

          

Additions

     50,176       3,019       —         —         53,195  

Others

     —         —         —         (2,287     (2,287

Amortization

          

Amortization

     (18,628     (355     (155     —         (19,138
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net book value

     157,373       10,131       1,735       21,399       190,638  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

At March 31, 2018

          

Cost

     291,666       12,529       1,981       21,399       327,575  

Accumulated amortization

     (134,293     (2,398     (246     —         (136,937
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net book value

     157,373       10,131       1,735       21,399       190,638  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

12. Payables to third parties

 

     March 31, 2018      December 31, 2017  

Payables to third parties

     2,975,297        3,080,569  
  

 

 

    

 

 

 
     2,975,297        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 Brazil’s average settlement terms agreed upon with commercial establishments is up to 30 days.

 

13. Salaries and social charges

 

     March 31, 2018      December 31, 2017  

Profit sharing

     4,943        15,237  

Salaries payable

     2,962        2,758  

Social charges

     4,618        5,102  

Payroll accruals

     12,624        9,807  

Other

     1,045        1,365  
  

 

 

    

 

 

 
     26,192        34,269  
  

 

 

    

 

 

 

 

 

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Table of Contents

PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial

statements at March 31, 2018 and for the three-month period ended March 31, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

14. Taxes and contributions

 

     March 31, 2018      December 31, 2017  
Taxes      

Services tax (i)

     34,008        14,837  

Value-added tax on sales and services (ii)

     13,439        3,830  

Social integration program (iii)

     11,878        9,918  

Social contribution on revenues (iii)

     71,773        59,358  

Income tax and social contribution (iv)

     20,995        35,474  

Other

     1,501        1,264  
  

 

 

    

 

 

 
     153,594        124,681  
  

 

 

    

 

 

 

Judicial deposits (v)

     

Services tax

     (15,525)        (11,375)  

Value-added tax on sales and services

     (6,685)        (2,665)  

Social integration program

     (10,277)        (8,188)  

Social contribution on revenues

     (63,245)        (50,389)  
  

 

 

    

 

 

 
     (95,732)        (72,617)  
  

 

 

    

 

 

 
     57,862        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) PagSeguro Group obtained court decisions to deposit the amount related to the payments in escrow for matters discussed initems “i”, “ii” and “iii” above.

 

 

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PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial

statements at March 31, 2018 and for the three-month period ended March 31, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

15. Provision for contingencies

Some companies of 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.

 

     March 31, 2018      December 31, 2017  

Civil

     4,895        4,326  

Labor

     318        322  
  

 

 

    

 

 

 

Current

     5,213        4,648  
  

 

 

    

 

 

 

PagSeguro Group is a party on tax lawsuits involving risks classified by legal advisors as possible losses, for which no provision was recognized at March 31, 2018, totaling approximately R$22,160 (December 31, 2017—R$ 25,800). 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) 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     3,647        —         (16,074

Included in the statement of income

     (874     —         (4,354     2,759        —         (2,468
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

At March 31, 2017

     177       3,606       (28,732     6,406        —         (18,542
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Included in the statement of income

     1,310       (721     (12,460     26,236        (1,616     12,748  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

At December 31, 2017

     1,487       2,885       (41,192     32,642        (1,616     (5,794
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Included in the statement of income

     3,934       (180     (11,344     23,054        (9,073     6,391  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

At March 31, 2018

     5,421       2,705       (52,536     55,696        (10,689     597  

 

(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.

 

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PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial

statements at March 31, 2018 and for the three-month period ended March 31, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

The estimated realization of deferred tax assets in non-current assets and liabilities is as follows:

 

     March 31, 2018     December 31, 2017  
     Assets      Liability     Assets      Liability  

2018

     24,883        (24,509     8,895        (20,728

2019

     7,974        (21,789     4,040        (18,008

2020

     6,045        (6,235     2,111        (2,454

2021

     982        (4,999     982        (1,434

2022

     23,938        (5,694     20,987        (185
  

 

 

    

 

 

   

 

 

    

 

 

 
     63,822        (63,226     37,015        (42,809
  

 

 

    

 

 

   

 

 

    

 

 

 

 

(b) Reconciliation of the income tax and social contribution expense

At March 31, 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 three-month periods ended March 31, 2018 and 2017:

 

     March 31, 2018     March 31, 2017  

Profit for the period before taxes

     163,000       82,177  

Statutory rate

     34%       34%  
  

 

 

   

 

 

 

Expected income tax and social contribution

     (55,420     (27,940

Income tax and social contribution effect on:

    

Permanent additions (exclusions)

    

Gifts and other non-deductible expenses

     (364     (37

Research & development and technological innovation benefit—Law 11.196/05 (i)

     13,553       5,551  

No taxable earnings (ii)

     30,916       —    

Other additions

     (3,228     874  
  

 

 

   

 

 

 

Income tax and social contribution expense

     (14,544     (21,552
  

 

 

   

 

 

 

Effective rate

     9%       26%  

Income tax and social contribution—current

     (20,935     (19,085

Income tax and social contribution—deferred

     6,391       (2,468

 

(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 some specific property and equipment.
(ii) Refers to the benefit granted by based on the local law of Cayman (The Companies Law of 1960), there is no taxation on the income earned in the companies based in this locality. As a result of the local tax regulations, all the exchange variantions from dolar to reais which generates income has no tax impacts for the PagSeguro Digital.

 

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PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial

statements at March 31, 2018 and for the three-month period ended March 31, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

 

17. Equity

 

  a) Share capital

At March 31, 2018, share capital is represented by 315,037,963 common shares of par value of US$0.000025 each. Share capital is composed of the following shares for the three-month periods ended March 31, 2018 and year ended December 31, 2017:

 

December 31, 2017 shares outstanding

     262,288,607  

New shares were offered in PaSeguro Digital IPO process (i)

     50,925,642  

Shares issued related to the LTIP (i)

     1,823,727  
  

 

 

 

March 31, 2018 shares outstanding

     315,037,976  
  

 

 

 

 

(i) During the year 2018, shares of PagSeguro Digital were issued as a result of the initial public offering and long-term incentive plan, see details in note 1.1, and note 1.2 and 17 (c).

Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the IPO gross proceeds.

 

  b) Capital reserve

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, as described in Note 1.1, issued 50,925,642 new shares at a price of US$ 21.50 per share were issued , representing net proceeds of US$1,046.0 million (or R$3,289.8 million). Refer to Note 1.1 for further details.

 

  c) Share based long term incentive plan (LTIP)

Members of our 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 Ltd. Beneficiaries under the LTIP are selected by UOL’s LTIP Committee, which consists of the Company’s Chairman and two officers of UOL, and submitted to the Company’s Board of Directors.

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 July 29, 2015, or the date of employeement, the earliest of both dates. Under the terms of the LTIP, upon completion of the IPO, the vested portion of each beneficiary’s 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 exercised a total of 1,823,727 new Class A common shares upon completion of the IPO.

 

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Table of Contents

PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial

statements at March 31, 2018 and for the three-month period ended March 31, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

The unvested portions of each beneficiary’s 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 three-moths period ended March 31, 2018, the Company recognized compensation expenses related to the LTIP in the total amount of R$155,160.

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. The total shares granted were 5,292,738, so the outstanding shares as of March 31, 2018 were 3,469,011. There was no forfeitures or expirations in the three months ended March 31, 2018.

There are no shares, which are vested and exercisable as of March 31, 2018.

 

  d) Dividends

At the Extraordinary General Shareholders Meeting held on September 29, 2017, PagSeguro Brazil’s shareholders approved the distribution of (i) R$142,795 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$ 122 as of March 31, 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$ 6,756.

 

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Table of Contents

PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial

statements at March 31, 2018 and for the three-month period ended March 31, 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 three-month periods ended March 31, 2018 and 2017:

 

     March 31,
2018
     March 31,
2017
 

Profit attributable to stockholders of the Company

     148,378        60,624  

Weighted average number of outstanding common shares (thousands)

     297,454,853        262,288,607  
  

 

 

    

 

 

 

Basic earnings per share—R$

     0.4988        0.2311  
  

 

 

    

 

 

 

 

  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 Company has as category of potential common shares with dilutive effects only share-based long-term incentive plan. In this case, a calculation is done to determine the number of shares that could have been acquired at fair value.

 

     March 31,
2018
    March 31,
2017
 

Profit used to determine diluted earnings per share

     148,378       60,624  
  

 

 

   

 

 

 

Weighted average number of outstanding common shares (thousands)

     297,454,853       262,288,607  

Number of shares under option

     3,469,011       —    

Nmber of shares that would have been

     (2,339,734     —    
  

 

 

   

 

 

 

Weighted average number of common shares for diluted earnings per share (thousands)

     298,584,130       262,288,607  
  

 

 

   

 

 

 

Diluted earnings per share—R$

     0.4969       0.2311  
  

 

 

   

 

 

 

 

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Table of Contents

PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial

statements at March 31, 2018 and for the three-month period ended March 31, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

 

19. Total revenue and income

 

     March 31,
2018
    March 31,
2017
 

Gross revenue from transaction activities and other services

     514,074       217,252  

Gross revenue from sales

     129,678       166,221  

Gross financial income (i)

     288,419       145,743  

Other financial income(ii)

     116,360       836  
  

 

 

   

 

 

 

Total gross revenue and income

     1,048,531       530,052  
  

 

 

   

 

 

 

Deductions from gross revenue from transactions activities and other services (iii)

     (71,226     (26,827

Deductions from gross revenue from sales (iv)

     (35,692     (47,783

Deductions from gross financial income (v)

     (13,581     (6,934
  

 

 

   

 

 

 

Total deductions from gross revenue and income

     (120,499     (81,544
  

 

 

   

 

 

 

Total revenue and income

     928,032       448,508  
  

 

 

   

 

 

 

 

(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 primary offer proceeds for the three-month period ended March 31, 2018 in the amount of R$89,866, and financial income on financial investments classified as cash and cash equivalents for the three-month period ended on March 31, 2018 in the amount of R$25,694 (March 31, 2017—R$360).
(iii) Deductions consist of sales taxes.
(iv) The deductions are composed by sales taxes and returns.
(v) Deductions consist of taxes on financial income.

 

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Table of Contents

PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial

statements at March 31, 2018 and for the three-month period ended March 31, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

 

20. Expenses by nature

 

     March 31,
2018
    March 31,
2017
 

Transactions costs

     (247,161     (104,861

Cost of goods sold

     (99,444     (100,402

Marketing and advertising

     (90,939     (69,769

Personnel expenses (i)

     (242,353     (20,311

Financial expenses (ii)

     (16,524     (19,218

Chargebacks (iii)

     (14,438     (17,434

Depreciation and amortization (iv)

     (18,007     (10,762

Other

     (36,167     (23,574
  

 

 

   

 

 

 
     (765,033     (366,331
  

 

 

   

 

 

 

Classified as:

    

Cost of services

     (328,806     (125,041

Cost of sales

     (115,956     (117,852

Selling expenses

     (83,614     (71,106

Administrative expenses

     (219,024     (32,520

Financial expenses

     (16,524     (19,218

Other expenses, net

     (1,109     (594
  

 

 

   

 

 

 
     (765,033     (366,331
  

 

 

   

 

 

 

 

(i) The increase refers to compensation expenses related to sthe LTIP for the three-month period ended March 31, 2018 in the amount of R$ 130,303 and the respective payroll taxes in the amount of R$ 80,270.
(ii) Our financial expenses include (a) Financial Operations Tax (IOF) related to the remittance of cash from Cayman to Brazil in the amount of R$ 13,135 for the three-month period ended March 31,2018 (March 31, 2017—R$0), (b) charges to obtain early payment of receivables owed to us by card issuers to finance our early payment of receivables feature in the amount of R$ 1,465 for the three-month period ended March 31,2018 (March 31, 2017—R$16,382).
(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:

 

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Table of Contents

PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial

statements at March 31, 2018 and for the three-month period ended March 31, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

 

     March 31,
2018
    March 31,
2017
 

Depreciation

    

Cost of sales and services

     (511     (225

Selling expenses

     (1     (3

Administrative expenses

     (288     (146
  

 

 

   

 

 

 
     (800     (374
  

 

 

   

 

 

 

Amortization

    

Cost of sales and services

     (18,800     (11,234

Administrative expenses

     (140     (30
  

 

 

   

 

 

 
     (18,940     (11,264
  

 

 

   

 

 

 

PIS and COFINS credits (*)

     1,733       876  
  

 

 

   

 

 

 

Depreciation and amortization expense, net

     (18,007     (10,762
  

 

 

   

 

 

 

 

(*) PagSeguro Brazil has a tax benefit on PIS and COFINS that allows to reduce the depreciation and amortization expenses when incurred. This tax benefit is recognized directly as a reduction of depreciation and amortization expense.

 

21. Financial instruments by category

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 to 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.

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.

PagSeguro Group classifies its financial instruments into the following categories:

 

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Table of Contents

PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial

statements at March 31, 2018 and for the three-month period ended March 31, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

 

     March 31,
2018
     December 31,
2017
 

Financial assets

     

Measured at fair value through profit or loss:

     

Financial investments

     —          210,103  

Amortized cost:

     

Cash and cash equivalents

     2,545,389        66,767  

Note receivables

     4,883,321        3,522,349  

Receivables from related parties

     909        124,723  

Other receivables

     18,834        27,956  
  

 

 

    

 

 

 
     7,448,453        3,951,898  
  

 

 

    

 

 

 

 

     March 31,
2018
     December 31,
2017
 

Financial liabilities

     

Amortized cost:

     

Payables to third parties

     2,975,297        3,080,569  

Trade payables

     119,156        92,444  

Trade payables to related parties

     44,973        39,101  

Other payables

     26,652        15,872  
  

 

 

    

 

 

 
     3,166,077        3,227,986  
  

 

 

    

 

 

 

 

22. Financial risk management

PagSeguro Group 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 Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the PagSeguro Group’s financial performance. PagSeguro Group uses derivative financial instruments to hedge certain risk exposures, when applicable.

Among the main market risk factors that may affect the PagSeguro Group’s business are the following ones:

 

  (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 entity’s functional currency. As of March 31, 2018 and December 31, 2017, the PagSeguro Group is not materially exposed to this foreign exchange risk.

 

  (ii) Fraud Risk (chargeback)

The PagSeguro Group’s sales transactions are susceptible to potentially fraudulent or improper sales and it uses two processes to control the fraud risk as such:

 

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Table of Contents

PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial

statements at March 31, 2018 and for the three-month period ended March 31, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

The first one 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 Group’s ability to avoid new frauds.

 

  (iii) Credit risk

Credit risk is managed on a group basis and are 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 PagSeguro Group to approve transactions with the issuers.

In order to mitigate this risk, the PagSeguro Group 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 Moody’s, 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.

 

  (iv) Liquidity risk

PagSeguro Group manages liquidity risk by maintaining reserves, bank and credit lines for the obtaining borrowings, when deemed appropriate. PagSeguro Group continuously monitors actual and projected cash flows, and matches the maturity profile of its financial assets and liabilities in order to ensure the PagSeguro Group has sufficient funds to honor its obligations to third parties and meet its operational needs.

PagSeguro Group invests cash surplus in interest bearings financial investments, choosing instruments with appropriate maturity or sufficient liquidity to provide adequate margin as determined by the forecasts.

At March 31, 2018, the PagSeguro Group held cash and cash equivalents of R$ 2,545,389 (R$ 66,767 at December 31, 2017).

 

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Table of Contents

PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial

statements at March 31, 2018 and for the three-month period ended March 31, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

The table below shows the PagSeguro Group’s 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 March 31, 2018

              

Payables to third parties

     2,759,059        150,703        35,515        30,020        —    

Trade payables

     103,868        8,980        1,894        2,055        2,358  

Trade payables to related parties

     —          44,973        —          —          —    

Other payables

     —          —          —          23,028        3,624  

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

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.

During the three-month period ended March 31, 2018, the PagSeguro Group’s strategy was to maintain a gearing ratio of up to 20%. PagSeguro Group had no loans at March 31, 2018, and December 31,2017 therefore no gearing ratio is presented.

 

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 financial investments whose fair value adjustments is classified as Level 1.

There were no transfers between Levels 1, 2 and 3 during the three-month period ended March 31, 2018.

***

 

 

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Table of Contents

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 29, 2018

 

 

PagSeguro Digital Ltd.

 

By:  

/s/ Eduardo Alcaro

Name:   Eduardo Alcaro
Title:   Chief Financial and Investor Relations Officer, Chief Accounting Officer and Director
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