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Section 1: 6-K (6-K)

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 November 2018

Commission File Number: 001-38353

 

 

PagSeguro Digital Ltd.

(Name of Registrant)

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

São Paulo, SP, 01451-001, Brazil

+55 11 3038 8127

(Address of Principal Executive Office)

 

 

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

Form 20-F  ☒                     Form 40-F  ☐

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

Yes  ☐                     No  ☒

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

Yes  ☐                     No  ☒

 


PagSeguro Digital Ltd.

Unaudited condensed consolidated interim balance sheet at

(All amounts in thousands of reais)

 

 

 

ASSETS

   Note      September 30,
2018
     December 31,
2017
    

LIABILITIES AND EQUITY

     Note      September 30,
2018
    December 31,
2017
 

CURRENT ASSETS

              CURRENT LIABILITIES          

Cash and cash equivalents

     5        2,470,059        66,767        Payables to third parties        12        3,702,714       3,080,569  

Financial investments

     6               210,103        Trade payables           151,621       92,444  

Note receivables

     7        7,489,826        3,522,349        Payables to related parties        8        32,263       39,101  

Receivables from related parties

     8               124,723        Salaries and social charges        13        73,497       34,269  

Inventories

        72,586        61,609        Taxes and contributions        14        59,720       52,064  

Taxes recoverable

        42,082        14,446        Provision for contingencies        15        6,345       4,648  

Other receivables

        15,979        27,956        Other payables           20,475       15,872  
     

 

 

    

 

 

          

 

 

   

 

 

 

Total current assets

        10,090,532        4,027,953        Total current liabilities           4,046,635       3,318,967  
     

 

 

    

 

 

          

 

 

   

 

 

 

NON-CURRENT ASSETS

              NON-CURRENT LIABILITIES          

Judicial deposits

        1,443        872        Deferred income tax and social contribution        16        34,195       42,809  

Prepaid expenses

        1,305        160        Other payables                 3,590  
                 

 

 

   

 

 

 

Deferred income tax and social contribution

     16               37,015        Total non-current liabilities           34,195       46,399  
                 

 

 

   

 

 

 

Property and equipment

     10        36,684        10,889             
                 

 

 

   

 

 

 

Intangible assets

     11        232,396        158,868        TOTAL LIABILITIES           4,080,830       3,365,366  
     

 

 

    

 

 

          

 

 

   

 

 

 

Total non-current assets

        271,828        207,804             
     

 

 

    

 

 

            
              EQUITY          
              Share capital        17        26       524,577  
              Legal reserve        17              30,216  
              Capital reserve        17        5,657,703        
              Equity valuation adjustments        17        (6,885     55  
              Profit retention reserve        17        606,831       312,047  
                 

 

 

   

 

 

 
                    6,257,675       866,895  
              Non-controlling interests           23,855       3,496  
                 

 

 

   

 

 

 
              TOTAL EQUITY           6,281,530       870,391  
     

 

 

    

 

 

          

 

 

   

 

 

 

TOTAL ASSETS

        10,362,360        4,235,757        TOTAL LIABILITIES AND EQUITY           10,362,360       4,235,757  
     

 

 

    

 

 

          

 

 

   

 

 

 

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

 

3


PagSeguro Digital Ltd.

Unaudited condensed consolidated interim statement of income

for the three and nine-month periods ended September 30

(All amounts in thousands of reais unless otherwise stated)

 

 

            Three month period     Nine month period  
     Note      September 30,
2018
    September 30,
2017
    September 30,
2018
    September 30,
2017
 

Net revenue from transaction activities and other services

     19        598,932       344,395       1,557,028       791,215  

Net revenue from sales

     19        94,641       117,439       278,036       361,519  

Financial income

     19        387,264       224,231       994,697       535,667  

Other financial income

     19        56,504       572       237,395       3,937  
     

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue and income

        1,137,341       686,637       3,067,156       1,692,337  

Cost of sales and services

     20        (550,641     (348,546     (1,478,156     (918,415

Selling expenses

     20        (90,299     (58,370     (268,316     (184,106

Administrative expenses

     20        (164,491     (41,704     (492,690     (107,731

Financial expenses

     20        (7,226     (21,034     (26,553     (63,792

Other expenses, net

     20        (4,150     (2,309     (5,160     (5,035
     

 

 

   

 

 

   

 

 

   

 

 

 

PROFIT BEFORE INCOME TAXES

        320,534       214,674       796,281       413,258  

Current income tax and social contribution

     16        (40,067     (66,204     (160,260     (124,118

Deferred income tax and social contribution

     16        (48,908     (1,073     (28,400     1,104  
     

 

 

   

 

 

   

 

 

   

 

 

 

INCOME TAX AND SOCIAL CONTRIBUTION

        (88,975     (67,277     (188,660     (123,014
     

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME FOR THE PERIOD

        231,559       147,397       607,621       290,244  
     

 

 

   

 

 

   

 

 

   

 

 

 

Attributable to:

           

Owners of the Company

        231,286       147,046       606,831       289,839  

Non-controlling interests

        273       352       790       405  

Basic earnings per common share—R$

        0.7385       0.5606       1.9375       1.1050  

Diluted earnings per common share—R$

     18        0.7370       0.5606       1.9337       1.1050  
     

 

 

   

 

 

   

 

 

   

 

 

 

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

 

4


PagSeguro Digital Ltd.

Unaudited condensed consolidated interim statement of comprehensive income

for the three and nine-month periods ended September 30

(All amounts in thousands of reais)

 

 

     Three month period      Nine month period  
     September 30,
2018
     September 30,
2017
     September 30,
2018
     September 30,
2017
 

NET INCOME FOR THE PERIOD

     231,559        147,397        607,621        290,244  

OTHER RESULTS

     292        —          648         
  

 

 

    

 

 

    

 

 

    

 

 

 

Total comprehensive income for the period

     231,851        147,397        608,269        290,244  
  

 

 

    

 

 

    

 

 

    

 

 

 
           

Attributable to

           

Owners of the Company

           

Net income for the period

     231,578        147,046        607,479        289,839  
  

 

 

    

 

 

    

 

 

    

 

 

 

Non-controlling interests

     273        352        790        405  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income for the period

     231,851        147,397        608,269        290,244  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

 

5


PagSeguro Digital Ltd.

Unaudited condensed consolidated interim statement of changes in equity

(All amounts in thousands of reais)

 

 

 

                  Capital reserve     Profit reserve                          
     Note      Share
capital
    Capital
reserve
     Share-based
long-term
incentive
plan (LTIP)
    Legal
reserve
    Profit
retention
reserve
    Retained
earnings
    Equity
valuation
adjustments
    Total     Non-controlling
interests
    Total
equity
 

At December 31, 2016

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

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income for the period

     17                                       289,839             289,839       405       290,244  

Non-controlling acquisition

     19                                                         130       130  

Distribution of dividends

     19                                 (96,008     (142,797           (238,805           (238,805
     

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

At September 30, 2017

        524,577                    6,277             147,042             677,896       535       678,431  
     

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
                        

Net income for the period

     17                                       188,942             188,942       (392     188,550  

Currency translation adjustment

     17                                             55       55             55  

Non-controlling acquisition

     17                                                         3,353       3,353  

Constitution of legal reserve

     17                           23,939             (23,939                        

Distribution of dividends

     17                                       2             2             2  

Profit retention reserve

     17                                 312,047       (312,047                        
     

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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                                       606,831             606,831       790       607,621  

Currency translation adjustment

     17                                             648       648             648  

Non-controlling acquisition

     17                                             (7,588     (7,588     19,568       11,980  

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

     17        5       4,522,278                                      4,522,283             4,522,283  

Shares issued—stock option plan

     17              256,860        (256,860                                          

Share based long term incentive plan (LTIP)

     17                     268,606                               268,606             268,606  
     

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

At September 30, 2018

        26       5,645,957        11,746                   606,831       (6,885     6,257,675       23,855       6,281,530  
     

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

 

6


PagSeguro Digital Ltd.

Unaudited condensed consolidated interim statement of cash flows

for the nine-month periods ended

(All amounts in thousands of reais)

 

 

 

     September 30,
2018
    September 30,
2017
 

CASH FLOWS FROM OPERATING ACTIVITIES

    

Profit before income taxes

     796,281       413,258  

Expenses (revenues) not affecting cash:

    

Depreciation and amortization

     62,474       36,165  

Chargebacks

     50,397       35,429  

Accrual of provision for contingencies

     2,658       746  

Share based long term incentive plan (LTIP)

     245,066        

Provision of obsolescence loss

     4,111        

Other financial cost, net

     (700     2,310  

Changes in operating assets and liabilities

    

Note receivables

     (4,281,849     (1,457,481

Changes in receivables subject to early payment

     (1,733,291     573,032  

Changes in receivables not subject to early payment

     (2,548,558     (2,030,513

Inventories

     (15,089     (45,283

Taxes recoverable

     (21,681     9,309  

Other receivables

     4,546       (3,441

Other payables

     515       5,275  

Payables to third parties

     622,149       957,440  

Trade payables

     59,224       51,556  

Receivables from (payables to) related parties

     117,730       89,305  

Salaries and social charges

     39,228       11,760  

Taxes and contributions

     34,261        

Provision for contingencies

     (1,317     (678
  

 

 

   

 

 

 
     (2,281,996     105,670  
  

 

 

   

 

 

 

Income tax and social contribution paid

     (186,554     (90,318

Interest income received

     263,952       157,451  

Interest paid

           (9,175
  

 

 

   

 

 

 

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

     (2,204,598     163,628  
  

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

    

Amount paid on acquisitions

           (3,346

Purchases of property and equipment

     (29,054     (1,796

Purchases and development of intangible assets

     (117,445     (69,165

Redemption of financial investments

     211,116       132,107  
  

 

 

   

 

 

 

NET CASH PROVIDED BY INVESTING ACTIVITIES

     64,617       57,800  
  

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

    

Payment of borrowings

           (199,480

Payment of derivative financial instruments

           (5,833

Distribution of dividends

           (54,273

Proceeds from offering of shares

     4,717,874        

Transactional costs

     (189,852      

Transaction with non-controlling interest

     (5,389      

Capital increase by non-controlling shareholders

     20,639        
  

 

 

   

 

 

 

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

     4,543,273       (259,586
  

 

 

   

 

 

 

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

     2,403,292       (38,158
  

 

 

   

 

 

 

Cash and cash equivalents at the beginning of the period

     66,767       79,969  

Cash and cash equivalents at the end of the period

     2,470,059       41,811  

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

 

7


PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements

at September 30, 2018 and for the three and nine-month periods ended September 30, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

1.

General information

PagSeguro Digital Ltd. (“PagSeguro Digital” or the “Company”) is a holding company, subsidiary of Universo Online S.A. (“UOL”), referred to together with its subsidiaries as the “PagSeguro Group”, was incorporated on July 19, 2017. 99.99% of the shares of Pagseguro Internet S.A. (“PagSeguro Brazil”) were contributed to PagSeguro Digital on January 4, 2018 and, PagSeguro Digital maintains control of PagSeguro Brazil.

PagSeguro Brazil is a privately-held corporation established on January 20, 2006, headquartered in the city of São Paulo, Brazil, and engaged in providing financial technology solutions and services and corresponding related activities, focused principally on micro-merchants and small and medium-sized businesses (“SMEs”).

PagSeguro 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 unaudited condensed consolidated interim financial statements include PagSeguro Brazil and its subsidiaries Net+Phone, Boa Compra, BCPS Online Services, R2TECH, BIVA and FIDC.

 

1.1

Initial Public Offering (“IPO”)

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

The initial offering price was US$21,50 per common share, for gross proceeds of US$1,095.2 million (or R$3,444.2 million). The Company received net proceeds of US$1,046.0 million (or R$3,289.8 million), after deducting US$43.8 million (or R$137.8 million) in underwriting discounts and commissions and US$5.2 million (or R$16.7 million) of other offering expenses.

The shares offered and sold in the IPO were registered under the Securities Act of 1933, as amended, pursuant to the 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 has been traded on the New York Stock Exchange (NYSE) since January 26, 2018, under the symbol “PAGS”.

 

1.2

Follow-on public offering

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

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

 

8


PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements

at September 30, 2018 and for the three and nine-month periods ended September 30, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

1.3

Long-Term Incentive Plan (“LTIP”)

Members of management participate in a Long-Term Incentive Plan, or LTIP, which was established by UOL for its group companies on July 29, 2015 and has been adopted by PagSeguro Digital. Beneficiaries under the LTIP are selected by 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 unaudited condensed consolidated interim financial statements, do not include all of the information required for a complete set of financial statements prepared in accordance with International Financial Reporting Standards (“IFRS”). However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Company’s financial position and performance since the last annual financial statements.

These unaudited condensed consolidated interim financial statements for the nine-month period ended September 30, 2018 were authorized for issuance by the PagSeguro Group’s Board of Directors on November 12, 2018.

 

2.1

Basis of preparation of consolidated interim financial information

These unaudited condensed consolidated interim financial statements for the nine-month period ended September 30, 2018 have been prepared in accordance with International Accounting Standard 34, “Interim Financial Reporting” as issued by the International Accounting Standard Board.

These unaudited condensed consolidated interim financial statements do not include all the notes of the type normally included in an annual consolidated financial statement. Accordingly, this report is to be read in conjunction with the annual consolidated financial statements for the year ended December 31, 2017 (the “Annual Financial Statements”).

The accounting policies and critical accounting estimates and judgments adopted are consistent with those of the previous financial year and corresponding interim reporting period.

 

9


PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements

at September 30, 2018 and for the three and nine-month periods ended September 30, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

2.2

New accounting pronoucements

Effective for periods beginning on or after January 1, 2018

The following new standards have been issued by IASB and are effective for the nine-month ended September 30, 2018:

IFRS 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 replaces the principle of risks and benefits. This standard replaces IAS 11—“Construction Contracts”, IAS 18—“Revenues” and related interpretations, and became effective on January 1, 2018. Management evaluated the new guidelines introduced by IFRS 15 and did not identify any material impact for the PagSeguro Group.

Therefore, changes to standards or new pronouncements applicable to the years presented in the consolidated financial statements were not relevant to the PagSeguro Group, for retrospective disclosure and disclosure of amounts.

Effective for periods beginning on or after January 1, 2019

IFRS 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 International Financial Reporting Interpretations Committee (“IFRIC”) interpretations not yet effective that could have a material impact on the PagSeguro Group’s financial statements.

 

10


PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements

at September 30, 2018 and for the three and nine-month periods ended September 30, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

3.

Consolidation of subsidiaries

 

At September 30, 2018

Company

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

Level

Pagseguro Brazil

     15,347,072        9,341,991        6,005,081        474,112        99.99      Direct

Net+Phone

     1,265,485        1,234,955        30,529        (13,428      99.99      Indirect

Boa Compra

     851,790        827,205        24,586        4,624        99.99      Indirect

BCPS

     2,447        214        2,233        629        99.50      Indirect

R2TECH

     4,980        1,316        3,664        2,487        51.00      Indirect

BIVA

     1,613        4,791        (3,178      (4,105      77.35      Indirect

FIDC

     565,317        245,425        319,892        118,196        100.00      Indirect

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

BIVA:

On January 15, March 12 and April 27, 2018, PagSeguro Brazil acquired an additional interest in BIVA (15.12%, 0.50% and 2.42%, respectively), bringing its total interest to 77.35% of 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. At September 30, 2018 the share capital of the FIDC is composed of subordinated quotes, senior quotes and mezzanine quotes. PagSeguro Brasil owns 100% of the subordinated quotes. The senior and mezzanine quotes pay 107% of the Interbank Deposit Certificate (CDI) with annual amortization of interest.

 

4.

Segment reporting

Operating segments are reported consistently with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, responsible for allocating resources and assessing the performance of the operating segments, is the Board of Directors, which is also responsible for making the PagSeguro Group’s strategic decisions.

Considering that all decisions are based on consolidated reports, and that all decisions related to strategic and financial planning, purchases, investments and the allocation of funds are made on a consolidated basis, the PagSeguro Group and its subsidiaries operate in a single segment, as payment arrangement agents.

The PagSeguro Group is domiciled in Brazil and has revenue arising from local customers and customers located abroad. The main revenue is related to sales from the domestic market. Net revenues from the international market represent 0.85% and 2.0% for the nine-month periods ended September 30, 2018 and 2017, respectively.

 

11


PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements

at September 30, 2018 and for the three and nine-month periods ended September 30, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

5.

Cash and cash equivalents

 

     September 30,
2018
     December 31,
2017
 

Short-term bank deposits

     37,785        66,767  

Short-term investment

     2,432,274         
  

 

 

    

 

 

 
     2,470,059        66,767  
  

 

 

    

 

 

 

Cash and cash equivalents are held for the purpose of meeting short-term cash needs and include cash on hand, deposits with banks and other short-term highly liquid investments with original maturities of three-month or less, and with immaterial risk of change in value. The balance as at September 30, 2018 is relatated to excess of cash and cash equivalents proceeds originated from the IPO and the follow-on offering mentioned in Notes 1.1 and 1.2, repectively.

 

6.

Financial investments

 

     September 30,
2018
     December 31,
2017
 

Short-term investment

            210,103  
  

 

 

    

 

 

 
            210,103  
  

 

 

    

 

 

 

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

 

12


PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements

at September 30, 2018 and for the three and nine-month periods ended September 30, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

7.

Note receivables

 

     September 30, 2018      December 31, 2017  

Legal obligors

   Visa      Master      Hipercard      Total      Visa      Master      Hipercard      Total  

Itaú

     524,688        1,801,467        481,658        2,807,813        237,335        751,542        250,817        1,239,694  

Bradesco

     701,859        161,485               863,344        333,108        83,160               416,268  

Banco do Brasil

     548,945        152,840               701,785        287,334        84,504               371,838  

CEF

     138,200        166,989               305,189        69,974        83,684               153,658  

Santander

     237,058        784,787               1,021,845        122,614        310,946               433,560  

Other

     348,104        962,272               1,310,376        141,802        393,999               535,801  

Total card issuers(i)

     2,498,854        4,029,840        481,658        7,010,352        1,192,167        1,707,835        250,817        3,150,819  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cielo—Elo

                          311,500                             151,851  

Cielo

                          107,535                             80,464  

Redecard

                          9,678                             45,289  

Amex

                          4,649                             39,608  

Vero

                          10,446                             21,463  

Other

                          23,073                             31,864  

Total acquirers (ii)

                          466,881                             370,539  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other

                          12,593                             991  

Total other

                          12,593                             991  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total note receivables

     2,498,854        4,029,840        481,658        7,489,826        1,192,167        1,707,835        250,817        3,522,349  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(i)

Card issuers: receivables derived from transactions where PagSeguro Brazil acts as the financial intermediary in operations with the issuing banks, related to the intermediation agreements between PagSeguro Brazil and Visa, Mastercard or Hipercard. However, PagSeguro 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: refers to card processing transactions to be received from the acquirers, which are a third parties acting as financial intermediaries between the issuing bank and PagSeguro Brazil. This balance also includes the receivables from sales of debit and credit card readers.

 

13


PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements

at September 30, 2018 and for the three and nine-month periods ended September 30, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

The maturity analysis of note receivables is as follows:

 

     September 30,
2018
     December 31,
2017
 

Due within 30 days

     4,103,509        2,213,929  

Due within 31 to 120 days

     2,802,570        1,045,825  

Due within 121 to 180 days

     429,196        114,953  

Due within 181 to 360 days

     154,551        147,642  
  

 

 

    

 

 

 
     7,489,826        3,522,349  
  

 

 

    

 

 

 

 

8.

Related-party balances and transactions

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

 

i.

Balances and transactions with related parties:

 

     September 30,
2018
     December 31, 2017  
     Payables      Receivables      Payables  

Immediate parent

        

UOL—cash management (a)

            124,721         

UOL—sales of services (b)

     18,532               32,286  

UOL—shared service costs

     7,867                

Affiliated companies

        

UOL Diveo—cash management (a)

            2         

UOL Diveo—sales of services (b)

                   621  

UOL Diveo—shared service costs

     11                

Concurso Virtual S.A.

                   1,522  

Transfolha Transportadora e Distribuição Ltda.

     3,176               745  

Livraria da Folha Ltda.

     400               1,078  

Empresa Folha da Manhã S/A

     1,506               2,320  

Others

     771               529  
  

 

 

    

 

 

    

 

 

 
     32,263        124,723        39,101  
  

 

 

    

 

 

    

 

 

 

 

(a)

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

(b)

Sales of services refers mainly to the purchase of (i) advertising services from UOL and (ii) services related to technical support in hosting from UOL Diveo Tecnologia Ltda. “(UOL Diveo)”.

 

14


PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements

at September 30, 2018 and for the three and nine-month periods ended September 30, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

 

     Three-month period      Nine-month period  
     September 30, 2018      September 30, 2017      September 30, 2018      September 30, 2017  
     Revenue      Expense      Revenue      Expense      Revenue      Expense      Revenue      Expense  

Immediate parent

                       

UOL—shared service costs (a)

            28,693               14,154               89,692               40,609  

UOL—sales of services (b)

     608        13,121        261        8,842        1,640        38,924        261        33,977  

Affiliated companies

                       

UOL Diveo—shared service costs (c)

            127                             374               24  

UOL Diveo—sales of services (d)

            8,398               6,533               20,408               22,593  

Transfolha Transportadora e Distribuição Ltda.

     251        4,552               108        251        12,374               8,188  

Livraria da Folha Ltda.

     39               55               149               259         

Others

     69        27        159               376        27        336         
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     967        54,918        475        29,637        2,416        161,799        855        105,391  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(a)

Shared services costs mainly related to (i) payroll costs, (ii) IT structure / software and (iii) property rental costs are incurred by the parent company UOL and are charged to PagSeguro Brazil pursuant to contractual agreements. Such costs are included in administrative expenses. The increase in the balance refers to payroll taxes related to LTIP in the three-month period ended September 30, 2018 which amounted to R$ 27,520 and the nine-month period ended September 30, 2018 which amounted to R$ 61,713, and which are paid by the parent company UOL and reimbursed by the PagSeguro Group.

(b)

Sales of services related to advertising services are incurred by the parent company UOL and are charged to PagSeguro Brazil pursuant to contractual agreements.

(c)

Shared services costs are incurred by the affiliated company UOL Diveo and are charged to PagSeguro Brazil pursuant to contractual agreements. The main costs are related to IT structure/software.

(d)

Sales of services from the affiliated company UOL Diveo related to technical support in hosting services (started in 2016) and are charged to PagSeguro Brazil pursuant to contractual agreements.

 

15


PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements

at September 30, 2018 and for the three and nine-month periods ended September 30, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

ii.

Key management compensation

Key management compensation includes short and long term benefits of PagSeguro Brazil’s executive officers. The short and long term compensation related to the executive officers for the nine-month period ended September 30, 2018 amounted to R$ 54,282 (September 30, 2017—R$ 2,722 includes only short-term benefits).

 

9.

Business combinations

The acquisitions described below are in accordance with PagSeguro Digital’s business strategies, as well as the products offered by them and their client portfolio.

 

a)

BCPS

On January 1, 2017, PagSeguro Brazil acquired 99.5% of the share capital and obtained control of BCPS.

The amount paid in the acquisition was R$406, which was settled in cash on that date. The fair value of the acquired assets, amounting R$568, and the assumed liabilities amounting of R$75 at the acquisition date are substantially similar to their book value. A bargain purchase gain of R$87 arose from the acquisition of BCPS. The impacts of the acquisition were not considered material to PagSeguro Brazil.

 

b)

R2TECH

On May 2, 2017, PagSeguro Brazil acquired 51% of the share capital and obtained control of R2TECH. The consideration for the purchase was R$9,200, of which R$2,940 was settled in cash on the acquisition date, R$460 was paid on August 14, 2017 and R$2,300 was paid on April 23, 2018. R$3,500 is variable installment, subject to the attainment of specific targets for the year 2018, established in the acquisition agreement, with payment due up to 10 business days after the conclusion of the 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 of BIVA with the acquisition of a 51.41% interest.

The total consideration paid for the purchases was R$18,470, which was settled in cash on the acquisition date. The fair value of the assets acquired, in the amount of R$2,350 and the liabilities assumed, in the amount of R$997, on the acquisition date, are substantially similar to their book value.

The goodwill of R$17,117 arising from the acquisition is attributable to the future profitability of the business in synergy with the products offered by the PagSeguro Group. The purchase price allocation may be subject to changes in the measurement period as defined in IFRS.

 

16


PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements

at September 30, 2018 and for the three and nine-month periods ended September 30, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

On November 30, 2017, PagSeguro Brazil acquired an additional interest of 7.90% of the issued shares for a purchase consideration of R$ 2,394, increasing PagSeguro 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 its 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:

 

     September 30, 2018  
     Cost      Accumulated
depreciation
    Net  

Data processing equipment

     18,704        (6,929     11,775  

Facilities

     53        (35     18  

Machinery and equipment

     21,231        (1,622     19,609  

Furniture and fittings

     1,419        (134     1,285  

Leasehold improvements

     2,772        (86     2,686  

Vehicles

     1,481        (170     1,311  
  

 

 

    

 

 

   

 

 

 
     45,660        (8,976     36,684  
  

 

 

    

 

 

   

 

 

 
     December 31, 2017  
     Cost      Accumulated
depreciation
    Net  

Data processing equipment

     11,024        (5,114     5,910  

Facilities

     53        (23     30  

Machinery and equipment

     4,738        (444     4,294  

Furniture and fittings

     397        (66     331  

Leasehold improvements

     263        (29     234  

Vehicles

     132        (42     90  
  

 

 

    

 

 

   

 

 

 
     16,607        (5,718     10,889  
  

 

 

    

 

 

   

 

 

 

 

17


PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements

at September 30, 2018 and for the three and nine-month periods ended September 30, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

 

(b)

The changes in cost and accumulated depreciation were as follows:

 

     Data
processing
equipment
    Facilities     Machinery
and
equipment
    Furniture
and
fittings
    Leasehold
improvements
    Vehicles     Total  

At December 31, 2017

              

Cost

     11,024       53       4,738       397       263       132       16,607  

Accumulated depreciation

     (5,114     (23     (444     (66     (29     (42     (5,718
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net book value

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

At September 30, 2018

              

Cost

                  

Purchases

     7,680             16,493       1,022       2,509       1,349       29,053  

Depreciation

              

Depreciation

     (1,815     (12     (1,178     (68     (57     (128     (3,258

Net book value

     11,775       18       19,609       1,285       2,686       1,311       36,684  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

At September 30, 2018

              

Cost

     18,704       53       21,231       1,419       2,772       1,481       45,660  

Accumulated depreciation

     (6,929     (35     (1,622     (134     (86     (170     (8,976
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net book value

     11,775       18       19,609       1,285       2,686       1,311       36,684  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

18


PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements

at September 30, 2018 and for the three and nine-month periods ended September 30, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

 

11.

Intangible assets

 

(a)

Intangible assets are composed as follows:

 

     September 30, 2018  
     Cost      Accumulated
amortization
    Net  

Expenditures related to software and technology (i)

     376,571        (178,927     197,644  

Software licenses

     15,414        (3,660     11,754  

Customer relationships

     1,981        (382     1,599  

Goodwill (ii)

     21,399              21,399  
  

 

 

    

 

 

   

 

 

 
     415,365        (182,969     232,396  
  

 

 

    

 

 

   

 

 

 
     December 31, 2017  
     Cost      Accumulated
amortization
    Net  

Expenditures related to software and technology (i)

     241,490        (115,665     125,825  

Software licenses

     9,510        (2,043     7,467  

Customer relationships

     1,981        (91     1,890  

Goodwill (ii)

     23,686              23,686  
  

 

 

    

 

 

   

 

 

 
     276,667        (117,799     158,868  
  

 

 

    

 

 

   

 

 

 

 

(i)

The PagSeguro Group capitalizes the expenses incurred with the development of platforms, which are amortized over their useful lives, within a range from three to five years.

(ii)

Goodwill provided on the acquisition of the companies R2TECH and BIVA.

 

19


PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements

at September 30, 2018 and for the three and nine-month periods ended September 30, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

(b)

The changes in cost and accumulated amortization were as follows:

 

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

At December 31, 2017

          

Cost

     241,490       9,510       1,981       23,686       276,667  

Accumulated amortization

     (115,665     (2,043     (91           (117,799
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net book value

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

At September 30, 2018

          

Cost

          

Additions

     135,081       5,904                   140,985  

Acquisition of subsidiary

                       (2,287     (2,287

Amortization

     (63,262     (1,617     (291           (65,170
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net book value

     197,644       11,754       1,599       21,399       232,396  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

At September 30, 2018

          

Cost

     376,571       15,414       1,981       21,399       415,365  

Accumulated amortization

     (178,927     (3,660     (382           (182,969
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net book value

     197,644       11,754       1,599       21,399       232,396  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

20


PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements

at September 30, 2018 and for the three and nine-month periods ended September 30, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

12.

Payables to third parties

 

     September 30,
2018
     December 31,
2017
 

Payables to third parties

     3,702,714        3,080,569  
  

 

 

    

 

 

 
     3,702,714        3,080,569  
  

 

 

    

 

 

 

Payables to third parties correspond to amounts to be paid to commercial establishments with respect to transactions carried out by their card holders, net of the intermediation fees and discounts applied. PagSeguro Brazil’s average settlement terms agreed upon with commercial establishments is up to 30 days.

 

13.

Salaries and social charges

 

     September 30,
2018
     December 31,
2017
 

Profit sharing

     14,692        15,237  

Salaries payable

     3,587        2,758  

Social charges

     26,940        5,102  

Payroll accruals

     20,004        9,807  

Payroll taxes (LTIP)

     6,673         

Other

     1,601        1,365  
  

 

 

    

 

 

 
     73,497        34,269  
  

 

 

    

 

 

 

 

14.

Taxes and contributions

 

     September 30,
2018
    December 31,
2017
 

Taxes

    

Services tax (i)

     85,982       14,837  

Value-added tax on sales and services (ii)

     19,673       3,830  

Social integration program (iii)

     16,049       9,918  

Social contribution on revenues (iii)

     98,761       59,358  

Income tax and social contribution (iv)

     684       35,474  

Other

     1,701       1,264  
  

 

 

   

 

 

 
     222,850       124,681  
  

 

 

   

 

 

 

Judicial deposits (v)

    

Services tax (i)

     (36,298     (11,375

Value-added tax on sales and services (ii)

     (15,255     (2,665

Social integration program (iii)

     (15,597     (8,188

Social contribution on revenues (iii)

     (95,980     (50,389
  

 

 

   

 

 

 
     (163,130     (72,617
  

 

 

   

 

 

 
     59,720       52,064  
  

 

 

   

 

 

 

 

(i)

Refers to taxes on revenue from transaction activities.

(ii)

Refers to the Value-added Tax on Sales and Services (ICMS) amounts due by Net+Phone, related to tax substitution and tax rate differential, applied on sales of credit and debit card readers.

(iii)

Refers mainly to Social Integration Program (PIS) and Social Contribution on Revenues (COFINS) charged on financial income.

(iv)

Refers to the income tax and social contribution payable on current income taxes and contribution.

(v)

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

 

21


PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements

at September 30, 2018 and for the three and nine-month periods ended September 30, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

15.

Provision for contingencies

Some companies of the PagSeguro Group are party to labor and civil litigation in progress and are discussing such matters at the administrative and judicial levels, which, when applicable, are supported by judicial deposits. The provisions for probable losses arising from these matters are estimated and periodically adjusted by management, supported by the opinion of its external legal advisors.

 

     September 30,
2018
     December 31,
2017
 

Civil

     6,025        4,326  

Labor

     320        322  
  

 

 

    

 

 

 

Current

     6,345        4,648  
  

 

 

    

 

 

 

The PagSeguro Group is a party on tax lawsuits involving risks classified by legal advisors as possible losses, for which no provision was recognized at September 30, 2018, totaling approximately R$ 37,056 (December 31, 2017—R$ 25,800). The PagSeguro Group is not a party to civil and labor lawsuits involving risks classified by management as possible losses.

 

16.

Income tax and social contribution

 

(a)

Reconciliation of the deferred income tax and social contribution:

 

     Tax
losses
     Tax
credit
    Technological
inovation (i)
    Other
temporary
differences
-ASSETS
     Other
temporary
differences -
LIABILITY
    Total  

Deferred tax

              

At December 31, 2016

     1,051        3,606       (24,378     3,648              (16,073

Included in the statement of income

     282          (12,156     14,645        (1,667     1,104  
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

At September 30, 2017

     1,333        3,606       (36,534     18,293        (1,667     (14,969
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Included in the statement of income

     154        (721     (4,658     14,349        51       9,175  
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

At December 31, 2017

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

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Included in the statement of income

     1,848        (541     (25,185     37,062        (41,584     (28,400
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

At September 30, 2018

     3,335        2,344       (66,377     69,704        (43,200     (34,194
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

(i)

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

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

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

 

     September 30,
2018
    December 31, 2017  
     Liability     Assets      Liability  

2018

     1,312       8,895        (20,728

2019

     (2,060     4,040        (18,008

2020

     5,326       2,111        (2,454

2021

     1,160       982        (1,434

2022

     (39,933     20,987        (185
  

 

 

   

 

 

    

 

 

 
     (34,195     37,015        (42,809
  

 

 

   

 

 

    

 

 

 

 

22


PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements

at September 30, 2018 and for the three and nine-month periods ended September 30, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

(b)

Reconciliation of the income tax and social contribution expense:

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

 

     Three-month period     Nine -month period  
     September 30,
2018
    September 30,
2017
    September 30,
2018
    September 30,
2017
 

Profit for the period before taxes

     320,534       214,674       796,281       413,258  

Statutory rate

     34%       34%       34%       34%  
  

 

 

   

 

 

   

 

 

   

 

 

 

Expected income tax and social contribution

     (108,982     (72,989     (270,736     (140,508

Income tax and social contribution effect on:

        

Permanent additions (exclusions)

        

Gifts

     (169     (756     (500     (1,167

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

     14,122       6,249       36,564       17,595  

Taxation of income abroad (ii)

     5,030             45,124        

Other additions

     1,024       219       888       1,066  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income tax and social contribution expense

     (88,975     (67,277     (188,660     (123,014
  

 

 

   

 

 

   

 

 

   

 

 

 

Effective rate

     28%       31%       24%       30%  

Income tax and social contribution current

     (40,067     (66,204     (160,260     (124,118

Income tax and social contribution deferred

     (48,908     (1,073     (28,400     1,104  

 

(i)

Refers to the benefit granted by the Technological Innovation Law (Lei do Bem), which reduces the income tax charges, based on the amount invested by the PagSeguro Group on specific intangible assets, see Note 11.

(ii)

Refers to the benefit based on the local law of the Cayman Islands (The Companies Law of 1960). There is no taxation on the income earned in the companies based in this jurisdiction. As a result of the local tax regulations, all the exchange variantions from dolar to reais which generate income have no tax impacts for PagSeguro Digital.

 

23


PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements

at September 30, 2018 and for the three and nine-month periods ended September 30, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

17.

Equity

 

a)

Share capital

At September 30, 2018, share capital is represented by 327,770,021 common shares, par value of US$0.000025. Share capital is composed of the following shares for the nine-month periods ended September 30, 2018 and the year ended December 31, 2017:

 

December 31, 2017 shares outstanding

     262,288,607  
  

 

 

 

Primary shares offered in the IPO

     50,925,642  

Primary shares offered in the follow-on offering

     11,550,000  

Long-Term Incentive Plan

     3,005,772  
  

 

 

 

September 30, 2018 shares outstanding

     327,770,021  
  

 

 

 

During the year 2018, shares of PagSeguro Digital were issued as a result of the IPO, follow-on offering and long-term incentive plan, see details in Notes 1.1, 1.2, 1.3 and 17 (c).

Incremental costs directly attributable to the issuance of new shares or options are shown in equity as a deduction, net of tax, from the IPO and follow-on offering gross proceeds.

 

b)

Capital reserve

The capital reserve can only be used to increase capital, offset losses, redeem, reimburse or purchase shares or pay cumulative dividends on preferred shares.

On January 26, 2018, 50,925,642 new shares were issued at a price of US$ 21.50 per share representing net proceeds of US$1,046.0 million (or R$3,289.8 million). Refer to Note 1.1 for further details.

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

 

c)

Share based long term incentive plan (LTIP)

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

 

24


PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements

at September 30, 2018 and for the three and nine-month periods ended September 30, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

On January 26, 2018, beneficiaries under the LTIP were granted rights in the form of notional cash amounts without cash consideration. These rights vest in five equal annual installments starting on the earlier of July 29, 2015 and the beneficiary’s employment start date. 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 received 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 nine-month period ended September 30, 2018, the Company recognized compensation expenses related to the LTIP in the total amount of R$ 268,606.

The maximum number of common shares that can be delivered to beneficiaries under the LTIP may not exceed 3% of our issued share capital at any time. At September 30, 2018 total shares granted were 5,990,796, and the total shares issued were 3,005,772. There were no forfeitures or expirations in the nine-month period ended September 30, 2018.

 

d)

Dividends

At the Extraordinary General Shareholders Meeting held on September 29, 2017, PagSeguro Brazil’s shareholders approved the distribution of (i) R$142,797 of dividends related to the six-month period ended June 30, 2017 and (ii) R$96,008 in additional dividends related to the year ended December 31, 2016. The total dividends distributed amounted to R$238,803, of which R$184,530 was offset against receivables under the centralized cash management with UOL and the balance of R$54,272 was paid in cash by PagSeguro Brazil to UOL.

 

e)

Equity valuation adjustments

The Company recognizes in this account the accumulated effect of the foreign exchange variation resulting from the conversion of the financial statements of the foreign subsidiary BCPS, represented by the accumulated amount of R$ 703 as of September 30, 2018 (R$ 55 as of December 31, 2017). This accumulated effect will be reverted to the result of the year as gain or loss only in case of disposal or write-off of the investment.

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

 

25


PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements

at September 30, 2018 and for the three and nine-month periods ended September 30, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

18.

Earnings per share

 

a)

Basic

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

 

     Three-month period      Nine-month period  
     September 30,
2018
     September 30,
2017
     September 30,
2018
     September 30,
2017
 

Profit attributable to shareholders of the Company

     231,286        147,046        606,831        289,839  

Weighted average number of outstanding common shares (thousands)

     313,201,136        262,288,607        313,201,136        262,288,607  
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic earnings per share - R$

     0.7385        0.5606        1.9375        1.1050  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

b)

Diluted

Diluted earnings per share is calculated by adjusting the weighted average number of common shares outstanding to assume the conversion of all potential common shares with dilutive effects. The share based LTIP is the Company’s only category of potential common shares with dilutive effects. In this case, a calculation is done to determine the number of shares that could have been acquired at fair value.

 

     Three-month period      Nine-month period  
     September 30,
2018
    September 30,
2017
     September 30,
2018
    September 30,
2017
 

Profit used to determine diluted earnings per share

     231,286       147,046        606,831       289,839  
  

 

 

   

 

 

    

 

 

   

 

 

 
         

Weighted average number of outstanding common shares (thousands)

     313,201,136       262,288,607        313,201,136       262,288,607  

Vesting

     2,985,011              2,985,011,11        

Share-based long-term incentive plan (thousands)

     (2,360,509          (2,360,509      
  

 

 

   

 

 

    

 

 

   

 

 

 

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

     313,825,638       262,288,607        313,825,638       262,288,607  
  

 

 

   

 

 

    

 

 

   

 

 

 

Diluted earnings per share - R$

     0.7370       0.5606        1.9337       1.1050  
  

 

 

   

 

 

    

 

 

   

 

 

 

 

26


PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements

at September 30, 2018 and for the three and nine-month periods ended September 30, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

19.

Total revenue and income

 

     Three-month period     Nine-month period  
     September 30,
2018
    September 30,
2017
    September 30,
2018
    September 30,
2017
 

Gross revenue from transaction activities and other services

     695,791       390,076       1,809,787       899,435  

Gross revenue from sales

     125,180       161,456       382,918       502,268  

Gross financial income (i)

     401,633       235,258       1,037,983       562,376  

Other financial income (ii)

     56,504       572       237,395       3,937  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total gross revenue and income

     1,279,108       787,362       3,468,083       1,968,016  
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     (96,859     (45,681     (252,759     (108,221

Deductions from gross revenue from sales (iv)

     (30,539     (44,017     (104,882     (140,749

Deductions from gross financial income (v)

     (14,369     (11,027     (43,286     (26,709

Total deductions from gross revenue and income

     (141,767     (100,725     (400,927     (275,679
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue and income

     1,137,341       686,637       3,067,156       1,692,337  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(i)

Includes (a) interest income from early payment of notes payable to third parties and (b) interest on note receivables due in installments.

(ii)

The increase in the period refers to foreign exchange gain on the currency conversion of the IPO and follow-on offering proceeds for the nine-month period ended September 30, 2018 in the amount of R$ 131,366 and financial income on financial investments classified as cash and cash equivalents for the nine-month period ended on September 30, 2018 in the amount of R$ 99,665 (September 30, 2017—R$ 3,236).

(iii)

Deductions consist of sales taxes.

(iv)

Deductions are composed of sales taxes and returns.

(v)

Deductions consist of taxes on financial income.

 

27


PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements

at September 30, 2018 and for the three and nine-month periods ended September 30, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

20.

Expenses by nature

 

     Three-month period     Nine-month period  
     September 30,
2018
    September 30,
2017
    September 30,
2018
    September 30,
2017
 

Transactions costs

     (326,642     (181,950     (855,212     (427,243

Cost of goods sold

     (147,679     (113,902     (374,194     (340,091

Marketing and advertising

     (93,329     (65,669     (286,577     (204,620

Personnel expenses (i)

     (154,784     (27,967     (494,978     (74,692

Financial expenses (ii)

     (7,226     (21,034     (26,553     (63,792

Chargebacks (iii)

     (22,251     (10,145     (50,397     (35,429

Depreciation and amortization (iv)

     (23,926     (13,492     (62,474     (36,165

Other

     (40,970     (37,804     (120,490     (97,047
  

 

 

   

 

 

   

 

 

   

 

 

 
     (816,807     (471,963     (2,270,875     (1,279,079
  

 

 

   

 

 

   

 

 

   

 

 

 

Classified as:

        

Cost of services

     (391,009     (228,678     (1,059,264     (534,309

Cost of sales

     (159,632     (119,868     (418,892     (384,106

Selling expenses

     (90,299     (58,370     (268,316     (184,106

Administrative expenses

     (164,491     (41,704     (492,690     (107,731

Financial expenses

     (7,226     (21,034     (26,553     (63,792

Other (expenses) income, net

     (4,150     (2,309     (5,160     (5,035
  

 

 

   

 

 

   

 

 

   

 

 

 
     (816,807     (471,963     (2,270,875     (1,279,079
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(i)

The increase refers to compensation expenses related to the LTIP for the nine-month period ended September 30, 2018 in the amount of R$ 245,066, and the respective payroll taxes in the amount of R$ 142,983. For the three-month period ended in September 30, 2018 LTIP related expenses amounted to R$ 74,337, and the respective payroll taxes amounted to R$ 40,964.

(ii)

Our financial expenses include (a) Financial Operations Tax (IOF) related to the remittance of cash from the Cayman Islands to Brazil in the amount of R$ 17,975 for the nine-month period ended September 30,2018 (September 30, 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 nine-month period ended September 30,2018 (September 30, 2017—R$ 56,816).

(iii)

Chargebacks refer to losses recognized in the period reflecting the risks of fraud associated with card processing operations, as detailed in Note 22 (ii).

(iv)

The depreciation and amortization amounts incurred in the period are segregated between costs and expenses as presented below:

 

28


PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements

at September 30, 2018 and for the three and nine-month periods ended September 30, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

     Three-month period     Nine-month period  
     September 30,
2018
    September 30,
2017
    September 30,
2018
    September 30,
2017
 

Depreciation

        

Cost of sales and services

     (1,060     (233     (2,206     (687

Selling expenses

     (3     (3     (6     (8

Administrative expenses

     (441     (171     (1,046     (479
  

 

 

   

 

 

   

 

 

   

 

 

 
     (1,504     (407     (3,258     (1,174
  

 

 

   

 

 

   

 

 

   

 

 

 

Amortization

        

Cost of sales and services

     (24,287     (14,540     (64,485     (38,330

Administrative expenses

     (384     (30     (685     (91
  

 

 

   

 

 

   

 

 

   

 

 

 
     (24,671     (14,570     (65,170     (38,421
  

 

 

   

 

 

   

 

 

   

 

 

 

PIS and COFINS credits (*)

     2,249       1,485       5,954       3,430  
  

 

 

   

 

 

   

 

 

   

 

 

 

Depreciation and amortization expense, net

     (23,926     (13,492     (62,474     (36,165
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(*)

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

 

29


PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements

at September 30, 2018 and for the three and nine-month periods ended September 30, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

21.

Financial instruments by category

The PagSeguro Group estimates the fair value of its financial instruments using available market information and appropriate valuation methodologies for each situation.

The interpretation of market data, as regards the choice of methodologies, requires considerable judgment and the establishment of estimates to reach an amount considered appropriate for each situation. Therefore, the estimates presented may not necessarily indicate the amounts that could be obtained in the current market. The use of different hypotheses to calculate market value or fair value may have a material impact on the amounts obtained. The assets and liabilities presented in this Note were selected based on their relevance.

The PagSeguro Group believes that the financial instruments recognized in these consolidated interim financial statements at their carrying amount are substantially similar to their fair value. However, since they do not have an active market, variations could occur in the event the PagSeguro Group were to decide to settle or realize them in advance.

The PagSeguro Group classifies its financial instruments into the following categories:

 

     September 30,
2018
     December 31,
2017
 

Financial assets

     

Measured at fair value through profit or loss:

     

Financial investments

            210,103  

Loans and receivables:

     

Cash and cash equivalents

     2,470,059        66,767  

Note receivables

     7,489,826        3,522,349  

Receivables from related parties

            124,723  

Other receivables

     15,979        27,956  
  

 

 

    

 

 

 
     9,975,864        3,951,898  
  

 

 

    

 

 

 

 

     September 30,
2018
     December 31,
2017
 

Financial liabilities

     

Amortized cost:

     

Payables to third parties

     3,702,714        3,080,569  

Trade payables

     151,621        92,444  

Trade payables to related parties

     32,263        39,101  

Other payables

     20,475        15,872  
  

 

 

    

 

 

 
     3,907,073        3,227,986  
  

 

 

    

 

 

 

 

30


PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements

at September 30, 2018 and for the three and nine-month periods ended September 30, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

22.

Financial risk management

The PagSeguro Group’s 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. The PagSeguro Group uses derivative financial instruments to hedge certain risk exposures, when applicable.

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

 

(i)

Foreign exchange risk

Foreign exchange risk arises when future commercial transactions or recognized assets or liabilities are denominated in a currency that is not the entity’s functional currency. As of September 30, 2018 and December 31, 2017, the PagSeguro Group is not materially exposed to this foreign exchange risk.

 

(ii)

Fraud Risk (chargeback)

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

The first process consists of monitoring, on a real time basis, the transactions carried out with credit and debit cards and payment slips, through an anti-fraud system. This process approves or rejects suspicious transactions at the time of the authorization, based on statistical models that are revised on a periodic basis.

The second process detects chargebacks and disputes not identified by the first process. This is a complementary process and increases the PagSeguro Group’s ability to avoid new frauds.

 

(iii)

Credit risk

Credit risk is managed on a group basis and is limited to the possibility of default by: (a) the card issuers, which have the obligation of transferring to the credit and debit card labels the fees charged for the transactions carried out by their card holders, and/or (b) the acquirers, which are used by the PagSeguro Group to approve transactions with the issuers.

In order to mitigate this risk, PagSeguro Brazil has established a Credit and Liquidity Risk Committee, whose responsibility is to assess the level of risk of each of the card issuers served by the PagSeguro Group, classifying them into three groups:

 

(i)

card issuers with a low level of risk, with credit ratings assigned by FITCH, S&P and 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.

 

31


PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements

at September 30, 2018 and for the three and nine-month periods ended September 30, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

(iv)

Liquidity risk

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

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

At September 30, 2018, the PagSeguro Group held cash and cash equivalents of R$ 2,470,059 (R$ 66,767 at December 31, 2017).

The table below shows the PagSeguro 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 September 30, 2018

              

Payables to third parties

     3,260,274        294,330        75,242        72,868         

Trade payables

     131,556        15,385        1,212        1,451        2,017  

Trade payables to related parties

            32,263                       

Other payables

                          20,475         

At December 31, 2017

              

Payables to third parties

     2,890,080        133,070        31,081        26,338         

Trade payables

     81,152        6,032        1,740        1,083        2,437  

Trade payables to related parties

                          39,101         

Other payables

                          15,872         

 

23.

Capital management

The PagSeguro Group monitors capital on the basis of the gearing ratio which corresponds to net debt divided by total capital. Net debt is calculated as total borrowings (including current and non-current borrowings as shown in the consolidated balance sheet) less cash and banks. Total capital is calculated as equity as shown in the consolidated balance sheet plus net debt.

The PagSeguro Group had no loans at September 30, 2018, and December 31,2017. Therefore no gearing ratio is presented.

 

32


PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements

at September 30, 2018 and for the three and nine-month periods ended September 30, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

24.

Fair value measurement

Fair value is the price that would be received to sell an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants at the measurement date. A three-level hierarchy is used to measure fair value, as shown below:

 

Level 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 nine-month period ended September 30, 2018.

 

25.

Events after the reporting period

 

i)

Regulations issued by the Brazilian Central Bank

In December 2014, PagSeguro Brazil applied to the Brazilian Central Bank for the following authorizations: to operate as a payment institution both as an acquirer and as an digital payments account service provider and issuer of prepaid electronic money.

In October 19, 2018, PagSeguro Brazil was authorized by the Brazilian Central Bank, as published in the Federal Official Gazette.

 

ii)

Share repurchase program

In a notice to the market on October 30, 2018, PagSeguro Digital announced that its board of directors authorized a share repurchase program, under which the Company may repurchase up to US$250 million in outstanding Class A common shares traded on the New York Stock Exchange (NYSE). The repurchase program will go into effect in the fourth quarter of 2018 and does not have a fixed expiration date.

***

***

 

 

33


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: November 29, 2018

 

PagSeguro Digital Ltd.
By:   /s/ Eduardo Alcaro

Name: Eduardo Alcaro

Title: Chief Financial and Investor Relations Officer,

Chief Accounting Officer and Director

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