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

Form 6-K

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 August 2018

Commission File Number: 001-38353

 

 

PagSeguro Digital Ltd.

(Name of Registrant)

Av. Brigadeiro Faria Lima, 1384, 4º andar, parte A

São Paulo, SP, 01451-001, Brazil

+55 11 3038 8127

(Address of Principal Executive Office)

 

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

 

Form 20-F  ☒

  Form 40-F  ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

 

Yes  ☐

   No  ☒

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

 

Yes  ☐

   No  ☒


 

PagSeguro Digital Ltd.

Unaudited Condensed Consolidated Interim

Financial Statements at June 30, 2018 and for the

three and six-month periods ended June 30, 2018 and 2017

 


PagSeguro Digital Ltd.

Unaudited condensed consolidated interim financial statements at June 30, 2018 and for the three and six-month periods ended June 30, 2018 and 2017

Contents

 

Unaudited condensed consolidated interim balance sheet

     1  

Unaudited condensed consolidated interim statement of income

     2  

Unaudited condensed consolidated interim statement of comprehensive income

     3  

Unaudited condensed consolidated interim statement of changes in equity

     4  

Unaudited condensed consolidated interim statement of cash flows

     5  

Notes to the unaudited condensed consolidated interim financial statements

     6  

 


PagSeguro Digital Ltd.

Unaudited condensed consolidated interim balance sheet at

(All amounts in thousands of reais)

 

 

 

ASSETS

   Note      June 30,
2018
     December 31,
2017
    

LIABILITIES AND EQUITY

   Note      June 30,
2018
    December 31,
2017
 

CURRENT ASSETS

            CURRENT LIABILITIES        

Cash and cash equivalents

     5        2,913,482        66,767     

Payables to third parties

     12        3,084,786       3,080,569  

Financial investments

     6        —          210,103     

Trade payables

        156,811       92,444  

Note receivables

     7        6,172,106        3,522,349     

Payables to related parties

     8        33,615       39,101  

Receivables from related parties

     8        —          124,723     

Salaries and social charges

     13        62,651       34,269  

Inventories

        54,355        61,609     

Taxes and contributions

     14        82,823       52,064  

Taxes recoverable

        17,884        14,446     

Provision for contingencies

     15        5,319       4,648  

Other receivables

        17,508        27,956     

Other payables

        22,098       15,872  
     

 

 

    

 

 

          

 

 

   

 

 

 

Total current assets

        9,175,335        4,027,953      Total current liabilities         3,448,103       3,318,967  
     

 

 

    

 

 

          

 

 

   

 

 

 

NON-CURRENT ASSETS

            NON-CURRENT LIABILITIES        

Judicial deposits

        1,345        872     

Deferred income tax and social contribution

     16        —         42,809  

Prepaid expenses

        451        160     

Other payables

        —         3,590  
                 

 

 

   

 

 

 

Deferred income tax and social contribution

     16        14,714        37,015      Total non-current liabilities                  46,399  
                 

 

 

   

 

 

 

Property and equipment

     10        20,884        10,889             
                 

 

 

   

 

 

 

Intangible assets

     11        204,443        158,868      TOTAL LIABILITIES         3,448,103       3,365,366  
     

 

 

    

 

 

          

 

 

   

 

 

 

Total non-current assets

        241,837        207,804             
     

 

 

    

 

 

            
            EQUITY        
           

Share capital

     17        26       524,577  
           

Legal reserve

     17        —         30,216  
           

Capital reserve

     17        5,577,286       —    
           

Equity valuation adjustments

     17        (7,177     55  
           

Profit retention reserve

     17        375,546       312,047  
                 

 

 

   

 

 

 
                    5,945,681       866,895  
            Non-controlling interests         23,388       3,496  
                 

 

 

   

 

 

 
            TOTAL EQUITY         5,969,069       870,391  
     

 

 

    

 

 

          

 

 

   

 

 

 

TOTAL ASSETS

        9,417,172        4,235,757      TOTAL LIABILITIES AND EQUITY         9,417,172       4,235,757  
     

 

 

    

 

 

          

 

 

   

 

 

 

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

 

1


PagSeguro Digital Ltd.

Unaudited condensed consolidated interim statement of income

for the three and six-month periods ended June 30

(All amounts in thousands of reais unless otherwise stated)

 

 

 

            Three-month period     Six-month period  
     Note      June 30,
2018
    June 30,
2017
    June 30,
2018
    June 30,
2017
 

Net revenue from transaction activities and other services

     19        515,249       256,395       958,097       446,820  

Net revenue from sales

     19        89,409       125,642       183,395       244,080  

Financial income

     19        332,595       172,628       607,433       311,436  

Other financial income

     19        64,532       2,529       180,892       3,365  
     

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue and income

        1,001,785       557,194       1,929,817       1,005,701  

Cost of sales and services

     20        (482,753     (326,976     (927,515     (569,869

Selling expenses

     20        (94,404     (54,630     (178,018     (125,736

Administrative expenses

     20        (109,174     (33,507     (328,198     (66,027

Financial expenses

     20        (2,804     (23,540     (19,328     (42,758

Other (expenses) income, net

     20        98       (2,132     (1,010     (2,726
     

 

 

   

 

 

   

 

 

   

 

 

 

PROFIT BEFORE INCOME TAXES

        312,748       116,409       475,748       198,585  

Current income tax and social contribution

     16        (99,258     (38,829     (120,193     (57,914

Deferred income tax and social contribution

     16        14,117       4,645       20,508       2,177  
     

 

 

   

 

 

   

 

 

   

 

 

 

INCOME TAX AND SOCIAL CONTRIBUTION

        (85,141     (34,184     (99,685     (55,737
     

 

 

   

 

 

   

 

 

   

 

 

 
     

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME FOR THE PERIOD

        227,607       82,225       376,063       142,848  
     

 

 

   

 

 

   

 

 

   

 

 

 

Attributable to:

           

Owners of the Company

        227,168       82,170       375,546       142,794  

Non-controlling interests

        439       54       517       53  

Basic earnings per common share—R$

        0.7417       0.3133       1.2262       0.5444  

Diluted earnings per common share—R$

     18        0.7386       0.3133       1.2210       0.5444  
     

 

 

   

 

 

   

 

 

   

 

 

 

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

 

2


PagSeguro Digital Ltd.

Unaudited condensed consolidated interim statement of comprehensive income

for the three and six-month periods ended June 30

(All amounts in thousands of reais)

 

 

     Three-month period      Six-month period  
     June 30,
2018
     June 30,
2017
     June 30,
2018
     June 30,
2017
 

NET INCOME FOR THE PERIOD

     227,607        82,225        376,063        142,848  

OTHER RESULTS

     356        —          356        55  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total comprehensive income for the period

     227,963        82,225        376,419        142,903  
  

 

 

    

 

 

    

 

 

    

 

 

 

Attributable to

           

Owners of the Company

           

Net income for the period

     227,524        82,170        375,902        142,850  
  

 

 

    

 

 

    

 

 

    

 

 

 

Non-controlling interests

     439        54        517        53  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income for the period

     227,963        82,225        376,419        142,903  
  

 

 

    

 

 

    

 

 

    

 

 

 

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

 

 

3


PagSeguro Digital Ltd.

Unaudited condensed consolidated interim statement of 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        —         —          —         —         —         142,794       —         142,794       53        142,847  
     

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

At June 30, 2017

        524,577       —          —         6,277       96,008       142,794       —         769,656       53        769,709  
     

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net income for the period

     17        —         —          —         —         —         335,987       —         335,987       14        336,001  

Currency translation adjustment

     17        —         —          —         —         —         —         55       55       —          55  

Non-controlling acquisition

     17        —         —          —         —         —         —         —         —         3,430        3,430  

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  
     

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Conversion of profit reserve to common shares

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

Net income for the period

     17        —         —          —         —         —         375,546       —         375,546       517        376,063  

Currency translation adjustment

     17        —         —          —         —         —         —         356       356       —          356  

Non-controlling acquisition

     17        —         —          —         —         —         —         (7,588     (7,588     19,375        11,787  

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

     17        5       4,525,780        —         —         —         —         —         4,525,785       —          4,525,785  

Shares issued—stock option plan

     17        —         138,667        (138,667     —         —         —         —         —         —          —    

Share based long term incentive plan (LTIP)

     17        —         —          184,687       —         —         —         —         184,687       —          184,687  
     

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

At June 30, 2018

        26       5,531,266        46,020       —         —         375,546       (7,177     5,945,681       23,388        5,969,069  
     

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

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

 

4


PagSeguro Digital Ltd.

Unaudited condensed consolidated interim statement of cash flows

for the six-month periods ended

(All amounts in thousands of reais)

 

 

 

     June 30, 2018     June 30, 2017  

CASH FLOWS FROM OPERATING ACTIVITIES

    

Profit before income taxes

     475,748       198,584  

Expenses (revenues) not affecting cash:

    

Depreciation and amortization

     38,548       22,673  

Chargebacks

     28,146       25,284  

Accrual of provision for contingencies

     1,135       568  

Share based long term incentive plan (LTIP)

     162,410       —    

Provision of obsolescence loss

     2,745       —    

Other financial cost, net

     (1,195     1,899  

Changes in operating assets and liabilities

    

Note receivables

     (2,838,067     (779,202

Changes in receivables subject to early payment

     (1,581,614     334,174  

Changes in receivables not subject to early payment

     (1,256,453     (1,113,376

Inventories

     4,508       (33,502

Taxes recoverable

     265       43,011  

Other receivables

     3,958       (1,941

Other payables

     2,404       2,183  

Payables to third parties

     4,218       496,108  

Trade payables

     64,091       41,932  

Receivables from (payables to) related parties

     119,130       (3,976

Salaries and social charges

     1,356       4,546  

Taxes and contributions

     22,291       (34,935

Provision for contingencies

     (795     —    
  

 

 

   

 

 

 
     (1,909,104     (16,767
  

 

 

   

 

 

 

Income tax and social contribution paid

     (110,844     (30,966

Interest income received

     160,164       111,604  

Interest paid

     —         (9,175
  

 

 

   

 

 

 

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

     (1,859,784     54,696  
  

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

    

Amount paid on acquisitions

     —         (3,348

Purchases of property and equipment

     (11,749     (396

Purchases and development of intangible assets

     (66,363     (44,328

Redemption of financial investments

     211,116       131,871  
  

 

 

   

 

 

 

NET CASH PROVIBED BY INVESTING ACTIVITIES

     133,004       83,799  
  

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

    

Payment of borrowings

     —         (199,480

Payment of derivative financial instruments

     —         (5,831

Proceeds from offering of shares

     4,744,900       —    

Transactional costs

     (186,349     —    

Transaction with non-controlling interest

     (5,390     —    

Capital increase by non-controlling shareholders

     20,334       —    
  

 

 

   

 

 

 

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

     4,573,495       (205,311
  

 

 

   

 

 

 

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

     2,846,715       (66,816
  

 

 

   

 

 

 

Cash and cash equivalents at the beginning of the period

     66,767       79,969  

Cash and cash equivalents at the end of the period

     2,913,482       13,153  

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

 

5


PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements

at June 30, 2018 and for the three and six-month periods ended June 30, 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 new shares were 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 IPO 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”.

 

1.2

Follow-on public offering

On June 26, 2018, PagSeguro Digital completed its follow-on public offering. A number of 11,550,000 new shares were offered by PagSeguro Digital and 26,400,000 shares were offered by the controlling shareholder UOL.

The initial offer price was US$29,25 per common share, for gross proceeds of US$337.8 million (or R$1,274.4 million). The Company received net proceeds of US$329.9 million (or R$1,244.4 million), after deducting US$7.9 million (or R$29.9 million) in underwriting discounts and commissions and US$2.2 million (or R$8.4 million) of other offering expenses.

 

6


PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements

at June 30, 2018 and for the three and six-month periods ended June 30, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

 

1.3

Long-Term Incentive Plan (“LTIP”)

Members of management participate in a Long-Term Incentive Plan, or LTIP, which was established by UOL for its group companies on July 29, 2015 and has been adopted by PagSeguro Digital. Beneficiaries under the LTIP are selected by UOL’s LTIP Committee, which consists of the Chairman and two officers of UOL, and are submitted to our Board of Directors for adoption.

The policy for recognizing and measuring share-based payments in the interim period is described in Note 17.

 

2.

Presentation and preparation of the unaudited condensed consolidated interim financial statements and significant accounting policies

These 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 six-month period ended June 30, 2018 were authorized for issuance by the PagSeguro Group’s Board of Directors on August 09, 2018.

 

2.1

Basis of preparation of consolidated interim financial information

This unaudited consolidated interim financial report for the six-month period ended June 30, 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


PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements

at June 30, 2018 and for the three and six-month periods ended June 30, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

2.2

New accounting pronoucements

Effective for periods beginning on or after January 1, 2018

The following new standards have been issued by IASB and are effective for the six-month ended June 30, 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


PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements

at June 30, 2018 and for the three and six-month periods ended June 30, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

 

3.

Consolidation of subsidiaries

 

     At June 30, 2018

Company

   Assets      Liabilities      Equity      Net income
(loss) for
the year
     Ownership—%     

Level

Pagseguro Brazil

     13,015,329        8,318,926        4,696,403        257,624        99.99      Direct

Net+Phone

     1,155,847        1,123,324        32,523        (11,434      99.99      Indirect

Boa Compra

     775,205        752,336        22,869        2,908        99.99      Indirect

BCPS

     2,027        199        1,827        590        99.50      Indirect

R2TECH

     3,824        1,187        2,637        1,460        51.00      Indirect

BIVA

     2,570        960        (1,610      (2,537      77.35      Indirect

FIDC

     258,674        20,980        237,694        35,998        100.00      Indirect

The operational context of the subsidiaries is to be read in conjunction with the annual financial statements for the year ended December 31, 2017.

BIVA:

On January 15, March 12 and April 27, 2018, PagSeguro Brazil acquired an additional interest of BIVA (15.12%, 0.50% and 2.42%, respectively), bringing total interest to 77.35% of BIVA’s total share capital (59.31% as of December 31, 2017). The total amount paid for this acquisition was R$5,389. For more details see note 9.

FIDC:

On March 29, 2018, two investors contributed capital in the amount of R$ 20 million in the subsidiary, acquiring only senior and mezzanine quotes. On June 30, 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 1.5% and 3.0% for the six-month periods ended June 30, 2018 and 2017, respectively.

 

9


PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements

at June 30, 2018 and for the three and six-month periods ended June 30, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

5.

Cash and cash equivalents

 

     June 30, 2018      December 31, 2017  

Short-term bank deposits

     57,829        66,767  

Short-term investment

     2,855,653        —    
  

 

 

    

 

 

 
     2,913,482        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 June 30, 2018 is relatated to excess of cash and cash equivalents proceeds originated from the IPO and the follow-on transactions mentioned in Notes 1.1 and 1.2.

 

6.

Financial investments

 

     June 30, 2018      December 31, 2017  

Short-term investment

     —          210,103  
  

 

 

    

 

 

 
            210,103  
  

 

 

    

 

 

 

Short-term investments consisted of two repurchase agreements, with an average return of 96.0% of the Interbank Deposit Certificate (CDI). This financial asset was classified as fair value through profit and loss.

 

 

10


PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements

at June 30, 2018 and for the three and six-month periods ended June 30, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

 

7.

Note receivables

 

     June 30, 2018      December 31, 2017  
Legal obligors    Visa      Master      Hipercard      Total      Visa      Master      Hipercard      Total  

Itaú

     445,866        1,478,391        414,410        2,338,667        237,335        751,542        250,817        1,239,694  

Bradesco

     585,649        141,858        —          727,507        333,108        83,160        —          416,268  

Banco do Brasil

     460,545        132,943        —          593,488        287,334        84,504        —          371,838  

CEF

     116,641        145,625        —          262,266        69,974        83,684        —          153,658  

Santander

     202,738        626,398        —          829,136        122,614        310,946        —          433,560  

Other

     266,482        770,499        —          1,036,981        141,802        393,999        —          535,801  

Total card issuers(i)

     2,077,921        3,295,714        414,410        5,788,045        1,192,167        1,707,835        250,817        3,150,819  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cielo—Elo

     —          —          —          214,399        —          —          —          151,851  

Cielo

     —          —          —          93,170        —          —          —          80,464  

Redecard

     —          —          —          21,877        —          —          —          45,289  

Amex

     —          —          —          14,570        —          —          —          39,608  

Vero

     —          —          —          11,805        —          —          —          21,463  

Other

     —          —          —          27,527        —          —          —          31,864  

Total acquirers (ii)

     —          —          —          383,348        —          —          —          370,539  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other

     —          —          —          713        —          —          —          991  

Total other

     —          —          —          713        —          —          —          991  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total note receivables

     2,077,921        3,295,714        414,410        6,172,106        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.

 

11


PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements

at June 30, 2018 and for the three and six-month periods ended June 30, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

The maturity analysis of note receivables is as follows:

 

     June 30, 2018      December 31, 2017  

Due within 30 days

     3,289,220        2,213,929  

Due within 31 to 120 days

     2,309,059        1,045,825  

Due within 121 to 180 days

     323,964        114,953  

Due within 181 to 360 days

     249,863        147,642  
  

 

 

    

 

 

 
     6,172,106        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:

 

     June 30, 2018      December 31, 2017  
     Payables      Receivables      Payables  

Immediate parent

        

UOL—cash management (a)

     —          124,721        —    

UOL—sales of services (b)

     15,865        —          32,286  

UOL—shared service costs

     7,030        —          —    

Affiliated companies

        

UOL Diveo Tecnologia Ltda.—cash management (a)

     —          2        —    

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

     2,163        —          621  

UOL Diveo Tecnologia Ltda.—shared service costs

     41        —          —    

Concurso Virtual S.A.

     983        —          1,522  

Transfolha Transportadora e Distribuição Ltda.

     3,306        —          745  

Livraria da Folha Ltda.

     497        —          1,078  

Empresa Folha da Manhã S.A.

     2,937        —          2,320  

Edgar de Abreu Ltda.

     471        —          —    

Others

     322        —          529  
  

 

 

    

 

 

    

 

 

 
     33,615        124,723        39,101  
  

 

 

    

 

 

    

 

 

 

 

(a)

The receivables transactions with related parties arising from cash management.The remaining balance was fully paid in April 2018.

 

(b)

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.

 

12


PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements

at June 30, 2018 and for the three and six-month periods ended June 30, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

 

     Three-month period      Six-month period  
     June 30, 2018      June 30, 2017      June 30, 2018      June 30, 2017  
     Revenue      Expense      Revenue      Expense      Revenue      Expense      Revenue      Expense  

Immediate parent

                       

UOL—shared service costs (a)

     —          17,958        —          14,411        —          60,999        —          26,455  

UOL—sales of services (c)

     564        12,882        —          12,432        1,032        25,803        —          25,135  

Affiliated companies

                       

UOL Diveo—shared service costs (e)

     —          124        —          —          —          247        —          25  

UOL Diveo—sales of services (f)

     —          5,468        —          11,312        —          12,010        —          16,060  

Concurso Virtual S.A.

     10        —          32        —          38        —          66        —    

Edgar de Abreu Ltda.

     33        —          33        —          182        —          73        —    

Transfolha Transportadora e Distribuição Ltda.

     —          5,198        —          4,266        —          7,822        —          8,080  

Livraria da Folha Ltda.

     39        —          69        —          110        —          204        —    

Others

     65        —          27        —          87        —          38        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     711        41,630        161        42,421        1,449        106,881        381        75,755  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(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 three-month period ended june 30, 2018 amounted to 5,793 and six-month period ended june 30, 2018 amounted to R$ 34,193, 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.

 

 

13


PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements

at June 30, 2018 and for the three and six-month periods ended June 30, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

ii.

Key management compensation

Key management compensation includes short and long term benefits of PagSeguro Brazil’s executive officers. At June 30, 2018, the short and long term compensation related to the executive officers for the six-month period ended june 30, 2018 amounted to R$ 39,047 (June 30, 2017—R$ 2,124 includes only short-term).

 

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

In 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.

 

14


PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements

at June 30, 2018 and for the three and six-month periods ended June 30, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

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, March 12 and April 27, 2018, PagSeguro Brazil acquired an additional interest of BIVA (15.12%, 0.50% and 2.42%, respectively), bringing total interest to 77.35% of BIVA’s total share capital (59.31% as of December 31, 2017). The total amount paid for this acquisition was R$5,389.

 

10.

Property and equipment

 

(a)

Property and equipment is composed as follows:

 

     June 30, 2018  
     Cost      Accumulated
depreciation
    Net  

Data processing equipment

     13,999        (6,146     7,853  

Facilities

     53        (25     28  

Machinery and equipment

     11,297        (1,079     10,218  

Furniture and fittings

     651        (82     569  

Leasehold improvements

     807        (46     761  

Vehicles

     1,549        (94     1,455  
  

 

 

    

 

 

   

 

 

 
     28,356        (7,472     20,884  
  

 

 

    

 

 

   

 

 

 
       
     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  
  

 

 

    

 

 

   

 

 

 

 

 

15


PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements

at June 30, 2018 and for the three and six-month periods ended June 30, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

 

(b)

The changes in cost and accumulated depreciation were as follows:

 

     June 30, 2018  
     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 June 30, 2018

              

Cost

                 —    

Purchases

     2,975       —         6,559       254       544       1,417       11,749  

Depreciation

              

Depreciation

     (1,032     (2     (635     (16     (17     (52     (1,754

Net book value

     7,853       28       10,218       569       761       1,455       20,884  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

At June 30, 2018

              

Cost

     13,999       53       11,297       651       807       1,549       28,356  

Accumulated depreciation

     (6,146     (25     (1,079     (82     (46     (94     (7,472
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net book value

     7,853       28       10,218       569       761       1,455       20,884  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

16


PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements

at June 30, 2018 and for the three and six-month periods ended June 30, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

11.

Intangible assets

 

(a)

Intangible assets are composed as follows:

 

     June 30, 2018  
     Cost      Accumulated
amortization
    Net  

Expenditures related to software and technology (i)

     324,632        (155,390     169,242  

Software licenses

     15,009        (2,875     12,134  

Customer relationships

     1,982        (314     1,668  

Goodwill (ii)

     21,399        —         21,399  
  

 

 

    

 

 

   

 

 

 
     363,022        (158,579     204,443  
  

 

 

    

 

 

   

 

 

 
       
     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.

 

 

17


PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements

at June 30, 2018 and for the three and six-month periods ended June 30, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

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

 

     June 30, 2018  
     Expenditures
with
software and
technology (i)
    Software
licenses
    Customer
relationships
    Goodwill (ii)     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  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cost

          

Additions

     83,141       5,500       1       —         88,642  

Acquisition of subsidiary

     —         —         —         (2,287     (2,287

Amortization

          

Amortization

     (39,725     (832     (223     —         (40,780
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net book value

     169,241       12,135       1,668       21,399       204,443  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

At June 30, 2018

          

Cost

     324,631       15,010       1,982       21,399       363,022  

Accumulated amortization

     (155,390     (2,875     (314     —         (158,579
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net book value

     169,241       12,135       1,668       21,399       204,443  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

18


PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements

at June 30, 2018 and for the three and six-month periods ended June 30, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

12.

Payables to third parties

 

     June 30, 2018      December 31, 2017  

Payables to third parties

     3,084,786        3,080,569  
  

 

 

    

 

 

 
     3,084,786        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

 

     June 30, 2018      December 31, 2017  

Profit sharing

     9,799        15,237  

Salaries payable

     3,214        2,758  

Social charges

     4,945        5,102  

Payroll accruals

     16,374        9,807  

Payroll taxes (LTIP)

     27,026        —    

Other

     1,293        1,365  
  

 

 

    

 

 

 
     62,651        34,269  
  

 

 

    

 

 

 

 

14.

Taxes and contributions

 

     June 30, 2018     December 31, 2017  

Taxes

    

Services tax (i)

     57,300       14,837  

Value-added tax on sales and services (ii)

     14,823       3,830  

Social integration program (iii)

     13,870       9,918  

Social contribution on revenues (iii)

     84,870       59,358  

Income tax and social contribution (iv)

     35,864       35,474  

Other

     1,533       1,264  
  

 

 

   

 

 

 
     208,260       124,681  
  

 

 

   

 

 

 

Judicial deposits (v)

    

Services tax (i)

     (23,148     (11,375

Value-added tax on sales and services (ii)

     (11,301     (2,665

Social integration program (iii)

     (12,719     (8,188

Social contribution on revenues (iii)

     (78,269     (50,389
  

 

 

   

 

 

 
     (125,437     (72,617
  

 

 

   

 

 

 
     82,823       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.

 

 

19


PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements

at June 30, 2018 and for the three and six-month periods ended June 30, 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.

 

     June 30, 2018      December 31, 2017  

Civil

     5,023        4,326  

Labor

     296        322  
  

 

 

    

 

 

 

Current

     5,319        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 June 30, 2018, totaling approximately R$ 36,171 (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        —         (2,469
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

At June 30, 2017

     177       3,606       (28,732     6,406        —         (18,543
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Included in the statement of income

     1,310       (721     (12,460     26,236        (1,616     12,749  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

At December 31, 2017

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

Included in the statement of income

     2,527       (361     (15,585     50,626        (16,699     20,508  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

At June 30, 2018

     4,014       2,524       (56,777     83,268        (18,315     14,714  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

(i)

The main temporary differences representing the balance of the deferred tax liability refers to the benefit granted by the Technological Innovation Law (Lei do Bem), which reduces the tax charges on the capitalized amount of property and equipment.

Deferred tax assets are recognized for tax loss carry-forwards to the extent that the realization of the related tax benefit through future taxable profits is probable. Tax losses do not have expiration date.

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

 

     June 30, 2018     December 31, 2017  
     Assets     Assets      Liability  

2018

     9,743       8,895        (20,728

2019

     5,370       4,040        (18,008

2020

     (19,383     2,111        (2,454

2021

     (441     982        (1,434

2022

     19,425       20,987        (185
  

 

 

   

 

 

    

 

 

 
     14,714       37,015        (42,809
  

 

 

   

 

 

    

 

 

 

 

 

20


PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements

at June 30, 2018 and for the three and six-month periods ended June 30, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

 

(b)

Reconciliation of the income tax and social contribution expense

At June 30, 2018 and 2017, the PagSeguro Group computed income tax and social contribution under the taxable income method. The following is a reconciliation of the difference between the actual income tax and social contribution expense and the expense computed by applying the Brazilian federal statutory rate for the six-month periods ended June 30, 2018 and 2017:

 

     Three-month period     Six-month period  
     June 30,
2018
    June 30,
2017
    June 30,
2018
    June 30,
2017
 

Profit for the period before taxes

     312,748       116,407       475,748       198,584  

Statutory rate

     34     34     34     34
  

 

 

   

 

 

   

 

 

   

 

 

 

Expected income tax and social contribution

     (106,334     (39,578     (161,754     (67,519

Income tax and social contribution effect on:

        

Permanent additions (exclusions)

        

Gifts and other non-deductible expenses

     35       (374     (329     (411

R&D and technological innovation benefit—Law 11.196/05 (i)

     8,889       5,795       22,442       11,346  

Taxation of income abroad (ii)

     9,178       —         40,094       —    

Other additions

     3,091       (27     (137     847  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income tax and social contribution expense

     (85,141     (34,184     (99,684     (55,737
  

 

 

   

 

 

   

 

 

   

 

 

 

Effective rate

     27     29     21     28

Income tax and social contribution—current

     (99,257     (38,829     (120,193     (57,914

Income tax and social contribution—deferred

     14,117       4,645       20,508       2,177  

 

(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 intangible assets refer note 11.

 

(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.

 

 

21


PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements

at June 30, 2018 and for the three and six-month periods ended June 30, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

17.

Equity

 

a)

Share capital

At June 30, 2018, share capital is represented by 326,684,418 common shares of par value of US$0.000025 each. Share capital is composed of the following shares for the six-month periods ended June 30, 2018 and year ended December 31, 2017:

 

December 31, 2017 shares outstanding

     262,288,607  

 

  

 

 

 

New shares issued—IPO process

     50,925,642  

New shares issued related to the long-term incentive plan (LTIP)

     1,823,727  
  

 

 

 

March 31, 2018 shares outstanding

     315,037,976  

 

  

 

 

 

New shares issued – Follow-on process

     11,550,000  

New shares issued related to the long-term incentive plan (LTIP)

     96,442  
  

 

 

 

June 30, 2018 shares outstanding

     326,684,418  

 

  

 

 

 

During the year 2018, shares of PagSeguro Digital were issued as a result of the initial public offering, 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 issue of new shares or options are shown in equity as a deduction, net of tax, from the IPO and Follow-on 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, 50,925,642 new shares were issued 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.

On June 26, 2018, 11,550,000 new shares were issued at a price of US$ 29.25 per share were issued , representing net proceeds of US$329.9 million (or R$1,244.4 million). Refer to Note 1.2 for further details.

 

c)

Share based long term incentive plan (LTIP)

Members of management participate in the LTIP, which was established by UOL for its group companies on July 29, 2015 and has been adopted by PagSeguro Digital. Beneficiaries under the LTIP are selected by UOL’s LTIP Committee, which consists of the Chairman and two officers of UOL, and are submitted to our Board of Directors for adoption.

 

22


PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements

at June 30, 2018 and for the three and six-month periods ended June 30, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

On January 26, 2018, beneficiaries under the LTIP were granted rights in the form of notional cash amounts without cash consideration. These rights vest in five equal annual installments starting on 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.

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 six-month period ended June 30, 2018, the Company recognized compensation expenses related to the LTIP in the total amount of R$ 184,687.

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 5,764,401, so the outstanding shares as of June 30, 2018 were 1,920,169. There was no forfeitures or expirations in the six-month period ended June 30, 2018.

During the quarter ended June 30, 2018, 96,442 additional shares were granted in April, 2018 at an exercice average price of US$ 38.11 . On this way, the outstanding shares as of June 30, 2018 are 326,684,418. There was no forfeitures or expirations in the six-month period ended June 30, 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$ 411 as of June 30, 2018 (R$ 55 as of December 31, 2017). This accumulated effect will be reverted to the result of the year as gain or loss only in case of disposal or write-off of the investment.

The Company also recognized in this account the difference between the book value and the amounts paid in the acquisitions of additional interests of the non-controlling shareholders of the subsidiary BIVA, in the amount of R$ 7,588.

 

23


PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements

at June 30, 2018 and for the three and six-month periods ended June 30, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

18.

Earnings per share

 

a)

Basic

Basic earnings per share are calculated by dividing the profit attributable to shareholders of the PagSeguro Group by the weighted average number of common shares issued and outstanding during the Six-month periods ended June 30, 2018 and 2017:

 

     Three-month period      Six-month period  
     June 30,
2018
     June 30,
2017
     June 30,
2018
     June 30,
2017
 

Profit attributable to stockholders of the Company

     227,168        82,170        375,546        142,794  

Weighted average number of outstanding common shares (thousands)

     306,278,562        262,288,607        306,278,562        262,288,607  
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic earnings per share—R$

     0.7417        0.3133        1.2262        0.5444  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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.

 

     Three-month period      Six-month period  
     June 30,
2018
    June 30,
2017
     June 30,
2018
    June 30,
2017
 

Profit used to determine diluted earnings per share

     227,168       82,170        375,546       142,794  
  

 

 

   

 

 

    

 

 

   

 

 

 

Weighted average number of outstanding common shares (thousands)

     306,278,562       262,288,607        306,278,562       262,288,607  

Vesting

     3,844,232       —          3,844,232,00       —    

Share-based long-term incentive plan (thousands)

     (2,539,194     —          (2,539,194     —    
  

 

 

   

 

 

    

 

 

   

 

 

 

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

     307,583,600       262,288,607        307,583,600       262,288,607  
  

 

 

   

 

 

    

 

 

   

 

 

 

Diluted earnings per share—R$

     0.7386       0.3133        1.2210       0.5444  
  

 

 

   

 

 

    

 

 

   

 

 

 

 

24


PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements

at June 30, 2018 and for the three and six-month periods ended June 30, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

19.

Total revenue and income

 

     Three-month period     Six-month period  
     June 30,
2018
    June 30,
2017
    June 30,
2018
    June 30,
2017
 

Gross revenue from transaction activities and other services

     599,922       292,107       1,113,997       509,359  

Gross revenue from sales

     128,060       174,592       257,738       340,813  

Gross financial income (i)

     347,931       181,375       636,350       327,118  

Other financial income (ii)

     64,532       2,528       180,892       3,365  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total gross revenue and income

     1,140,445       650,603       2,188,977       1,180,656  
  

 

 

   

 

 

   

 

 

   

 

 

 

Deductions from gross revenue from transactions activitiesand other services (iii)

     (84,673     (35,712     (155,900     (62,540

Deductions from gross revenue from sales (iv)

     (38,651     (48,950     (74,343     (96,733

Deductions from gross financial income (v)

     (15,336     (8,749     (28,917     (15,683

Total deductions from gross revenue and income

     (138,660     (93,412     (259,160     (174,955
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue and income

     1,001,785       557,191       1,929,817       1,005,701  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(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 and follow on for the six-month period ended June 30, 2018 in the amount of R$ 117,245, and financial income on financial investments classified as cash and cash equivalents for the six-month period ended on June 30, 2018 in the amount of R$ 59,687 (June 30, 2017—R$ 2,442).

 

(iii)

Deductions consist of sales taxes.

 

(iv)

The deductions are composed by sales taxes and returns.

 

(v)

Deductions consist of taxes on financial income.

 

25


PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements

at June 30, 2018 and for the three and six-month periods ended June 30, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

20.

Expenses by nature

 

     Three-month period     Six-month period  
     June 30,
2018
    June 30,
2017
    June 30,
2018
    June 30,
2017
 

Transactions costs

     (281,408     (140,432     (528,569     (245,293

Cost of goods sold

     (127,071     (125,787     (226,515     (226,189

Marketing and advertising

     (102,308     (69,182     (193,248     (138,951

Personnel expenses (i)

     (97,841     (26,414     (340,194     (46,725

Financial expenses (ii)

     (2,804     (23,540     (19,328     (42,758

Chargebacks (iii)

     (13,708     (7,849     (28,146     (25,284

Depreciation and amortization (iv)

     (20,541     (11,910     (38,548     (22,673

Other

     (43,356     (35,669     (79,522     (59,244
  

 

 

   

 

 

   

 

 

   

 

 

 
     (689,037     (440,785     (1,454,069     (807,116
  

 

 

   

 

 

   

 

 

   

 

 

 

Classified as:

        

Cost of services

     (339,449     (180,589     (668,255     (305,631

Cost of sales

     (143,304     (146,387     (259,260     (264,239

Selling expenses

     (94,404     (54,630     (178,018     (125,736

Administrative expenses

     (109,174     (33,507     (328,198     (66,027

Financial expenses

     (2,804     (23,540     (19,328     (42,758

Other (expenses) income, net

     98       (2,131     (1,010     (2,726
  

 

 

   

 

 

   

 

 

   

 

 

 
     (689,037     (440,785     (1,454,069     (807,116
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(i)

The increase refers to compensation expenses related to the LTIP for the six-month period ended June 30, 2018 in the amount of R$ 162,410 and the respective payroll taxes in the amount of R$ 82,913.

 

(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$ 13,826 for the six-month period ended June 30,2018 (June 30, 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 six-month period ended June 30, 2018 (June 30, 2017—R$ 37,171).

 

(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:

 

26


PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements

at June 30, 2018 and for the three and six-month periods ended June 30, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

 

     Three-month period     Six-month period  
     June 30,
2018
    June 30,
2017
    June 30,
2018
    June 30,
2017
 

Depreciation

        

Cost of sales and services

     (634     (229     (1,145     (454

Selling expenses

     (1     (3     (3     (6

Administrative expenses

     (318     (162     (606     (309
  

 

 

   

 

 

   

 

 

   

 

 

 
     (953     (395     (1,754     (769
  

 

 

   

 

 

   

 

 

   

 

 

 

Amortization

        

Cost of sales and services

     (21,398     (12,555     (40,198     (23,789

Administrative expenses

     (161     (31     (301     (61
  

 

 

   

 

 

   

 

 

   

 

 

 
     (21,559     (12,585     (40,499     (23,850
  

 

 

   

 

 

   

 

 

   

 

 

 

PIS and COFINS credits (*)

     1,972       1,070       3,705       1,946  
  

 

 

   

 

 

   

 

 

   

 

 

 

Depreciation and amortization expense, net

     (20,541     (11,910     (38,548     (22,673
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(*)

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.

 

27


PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements

at June 30, 2018 and for the three and six-month periods ended June 30, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

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:

 

     June 30, 2018      December 31, 2017  

Financial assets

     

Measured at fair value through profit or loss:

     

Financial investments

     —          210,103  

Loans and receivables:

     

Cash and cash equivalents

     2,913,482        66,767  

Note receivables

     6,172,106        3,522,349  

Receivables from related parties

     —          124,723  

Other receivables

     17,508        27,956  
  

 

 

    

 

 

 
     9,103,096        3,951,898  
  

 

 

    

 

 

 

 

     June 30, 2018      December 31, 2017  

Financial liabilities

     

Amortized cost:

     

Payables to third parties

     3,084,786        3,080,569  

Trade payables

     156,811        92,444  

Trade payables to related parties

     33,615        39,101  

Other payables

     22,098        15,872  
  

 

 

    

 

 

 
     3,297,310        3,231,576  
  

 

 

    

 

 

 

 

28


PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements

at June 30, 2018 and for the three and six-month periods ended June 30, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

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 June 30, 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:

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.

 

29


PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements

at June 30, 2018 and for the three and six-month periods ended June 30, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

(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 June 30, 2018, the PagSeguro Group held cash and cash equivalents of R$ 2,913,482 (R$ 66,767 at December 31, 2017).

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 June 30, 2018

              

Payables to third parties

     2,855,234        152,862        40,740        35,950        —    

Trade payables

     139,587        13,343        279        2,204        1,398  

Trade payables to related parties

     —          33,615        —          —          —    

Other payables

     —          —          —          22,098        —    

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        —    

 

30


PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements

at June 30, 2018 and for the three and six-month periods ended June 30, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

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 six-month period ended June 30, 2018, the PagSeguro Group’s strategy was to maintain a gearing ratio of up to 20%. PagSeguro Group had no loans at June 30, 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 six-month period ended June 30, 2018.

***

 

31


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:    August 30, 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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