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Section 1: 6-K (6-K)

6-K
Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16 UNDER

THE SECURITIES EXCHANGE ACT OF 1934

For the month of February 2019

Commission File Number: 001-38353

 

 

PagSeguro Digital Ltd.

(Name of Registrant)

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

São Paulo, SP, 01451-001, Brazil

+55 11 3038 8127

(Address of Principal Executive Office)

 

 

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

 

Form 20-F  ☒   Form 40-F  ☐

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

 

Yes  ☐    No  ☒

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

 

Yes  ☐    No  ☒


Table of Contents

PagSeguro Digital Ltd.

Consolidated Financial Statements at

December 31, 2018 and 2017

and Report of Independent Registered

Public Accounting Firm

 


Table of Contents

PagSeguro Digital Ltd.

Consolidated financial statements

at December 31, 2018 and 2017

Contents

 

Management’s Report on Internal Control over Financial Reporting

     3  

Report of independent registered public accounting firm

     4  
Consolidated financial statements   

Consolidated balance sheets

     6  

Consolidated statements of income

     7  

Consolidated statements of comprehensive income

     8  

Consolidated statements of changes in equity

     9  

Consolidated statements of cash flows

     10  

Notes to the consolidated financial statements

     11  

 

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Table of Contents

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting and for assessing the effectiveness of internal control over financial reporting.

Our internal control over financial reporting is a process designed by, or under the supervision of, our Principal Executive Officer and our Chief Financial and Investor Relations Officer and Chief Accounting Officer, and effected by our board of directors, management and other employees, and is designed to provide reasonable assurance regarding the reliability of financial reporting and of the preparation of our consolidated financial statements for external purposes, in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness of internal control over financial reporting to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with our policies or procedures may deteriorate.

Our management has assessed the effectiveness of our internal control over financial reporting as of December 31, 2018, based upon the criteria established in Internal Controls—Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of Treadway Commission (COSO). Based on this assessment and criteria, our management has concluded that our internal control over financial reporting was effective as of December 31, 2018.

This management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only management’s report this year.

February 18, 2019

 

/s/ Eduardo Alcaro

Eduardo Alcaro

Chief Financial and Investor Relations Officer,

Chief Accounting Officer and Director

 

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LOGO

Report of independent registered

public accounting firm

To the Board of Directors and Stockholders

PagSeguro Digital Ltd.

Opinion on the financial statements

We have audited the accompanying consolidated balance sheets of PagSeguro Digital Ltd. and its subsidiaries (the “Company”) as of December 31, 2018 and 2017, and the related consolidated statements of income, of comprehensive income, of changes in equity and of cash flows for each of the three years in the period ended December 31, 2018, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2018 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

Basis for opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

PricewaterhouseCoopers, Av. Francisco Matarazzo 1400, Torre Toríno, São Paulo, SP, Brasil 05001-903, Caixa Postal 61005

T: (11) 3674-2000, www.pwc.com.br

 

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Table of Contents

LOGO

PagSeguro Digital Ltd.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

São Paulo, February 19, 2019

/s/ PricewaterhouseCoopers Auditores Independentes

We have served as the Company’s auditor since 2015.

 

5


Table of Contents

PagSeguro Digital Ltd.

Consolidated balance sheets

At December 31

(All amounts in thousands of reais)

 

 

 

ASSETS

   Note      December 31, 2018      December 31, 2017     

LIABILITIES AND EQUITY

   Note      December 31, 2018     December 31, 2017  
                   

CURRENT ASSETS

            CURRENT LIABILITIES        

Cash and cash equivalents

     6        2,763,050        66,767     

Payables to third parties

     13        4,324,198       3,080,569  

Financial investments

     7               210,103     

Trade payables

        165,246       92,444  

Note receivables

     8        8,104,679        3,522,349     

Payables to related parties

     9        30,797       39,101  

Receivables from related parties

     9               124,723     

Salaries and social charges

     14        73,936       34,269  

Inventories

        88,551        61,609     

Taxes and contributions

     15        80,093       52,064  

Taxes recoverable

        65,653        14,446     

Provision for contingencies

     16        7,004       4,648  

Other receivables

        20,148        27,956     

Other payables

        29,501       15,872  
     

 

 

    

 

 

          

 

 

   

 

 

 

Total current assets

        11,042,081        4,027,953     

Total current liabilities

        4,710,775       3,318,967  
     

 

 

    

 

 

          

 

 

   

 

 

 
                   

NON-CURRENT ASSETS

            NON-CURRENT LIABILITIES        

Judicial deposits

        1,511        872     

Deferred income tax and social contribution

     17        132,125       42,809  

Prepaid expenses

        968        160     

Other payables

              3,590  
                 

 

 

   

 

 

 

Deferred income tax and social contribution

     17               37,015     

Total non-current liabilities

        132,125       46,399  
                 

 

 

   

 

 

 

Property and equipment

     11        67,104        10,889             
                 

 

 

   

 

 

 

Intangible assets

     12        305,614        158,868     

TOTAL LIABILITIES

        4,842,900       3,365,366  
     

 

 

    

 

 

          

 

 

   

 

 

 

Total non-current assets

        375,197        207,804             
     

 

 

    

 

 

            
                          EQUITY                    
           

Share capital

     18        26       524,577  
           

Legal reserve

     18              30,216  
           

Capital reserve

     18        5,688,134        
           

Equity valuation adjustments

     18        (7,325     55  
           

Profit retention reserve

     18        909,267       312,047  
           

Treasury shares

     18        (39,532      
                 

 

 

   

 

 

 
                    6,550,570       866,895  
                 

 

 

   

 

 

 
           

Non-controlling interests

        23,806       3,496  
                 

 

 

   

 

 

 
           

TOTAL EQUITY

        6,574,376       870,391  
     

 

 

    

 

 

          

 

 

   

 

 

 

TOTAL ASSETS

        11,417,278        4,235,757     

TOTAL LIABILITIES AND EQUITY

        11,417,278       4,235,757  
     

 

 

    

 

 

          

 

 

   

 

 

 

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

 

6


Table of Contents

PagSeguro Digital Ltd.

Consolidated statements of income

Year ended December 31

(All amounts in thousands of reais unless otherwise stated)

 

 

     Note      December 31, 2018     December 31, 2017     December 31,2016  

Net revenue from transaction activities and other services

     20        2,267,103       1,224,261       480,025  

Net revenue from sales

     20        374,612       471,924       260,594  

Financial income

     20        1,414,532       818,624       392,429  

Other financial income

     20        278,445       8,576       5,337  
     

 

 

   

 

 

   

 

 

 

Total revenue and income

        4,334,692       2,523,385       1,138,385  

Cost of sales and services

     21        (2,144,699     (1,324,380     (623,667

Selling expenses

     21        (351,439     (245,759     (199,937

Administrative expenses

     21        (581,668     (153,177     (84,461

Financial expenses

     21        (31,209     (104,544     (68,301

Other expenses, net

     21        (8,054     (12,021     (6,660
     

 

 

   

 

 

   

 

 

 

PROFIT BEFORE INCOME TAXES

        1,217,623       683,504       155,359  

Current income tax and social contribution

     17        (180,884     (214,988     (7,431

Deferred income tax and social contribution

     17        (126,331     10,278       (20,149
     

 

 

   

 

 

   

 

 

 

INCOME TAX AND SOCIAL CONTRIBUTION

        (307,215     (204,710     (27,580
     

 

 

   

 

 

   

 

 

 

NET INCOME FOR THE YEAR

        910,408       478,794       127,779  
     

 

 

   

 

 

   

 

 

 

Attributable to:

         

Owners of the Company

        909,267       478,781       127,186  

Non-controlling interests

        1,141       13       593  

Basic earnings per common share—R$

     19        2.8625       1.8254       0.4849  

Diluted earnings per common share—R$

     19        2.8582       1.8254       0.4849  
     

 

 

   

 

 

   

 

 

 

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

 

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Table of Contents

PagSeguro Digital Ltd.

Consolidated statements of comprehensive income

Years ended December 31

(All amounts in thousands of reais)

 

 

     2018      2017      2016  

NET INCOME FOR THE YEAR

     910,408        478,794        127,779  

Currency translation adjustment

     208        55        —    
  

 

 

    

 

 

    

 

 

 

Total comprehensive income for the year

     910,616        478,849        127,779  
  

 

 

    

 

 

    

 

 

 
        

Attributable to

        

Owners of the Company

     909,475        478,836        127,186  
  

 

 

    

 

 

    

 

 

 

Non-controlling interests

     1,141        13        593  
  

 

 

    

 

 

    

 

 

 

Total comprehensive income for the year

     910,616        478,849        127,779  
  

 

 

    

 

 

    

 

 

 

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

 

8


Table of Contents

PagSeguro Digital Ltd.

Consolidated statements of changes in equity

(All amounts in thousands of reais)

 

 

                              Capital reserve     Profit reserve                          
     Note      Share
capital
    Net parent
Investment
    Treasury
shares
    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, 2015

        441,616       9,730                          757       7,588                   459,691       2,186       461,877  
     

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income for the period

     18                                                   127,186             127,186       593       127,779  

Non-controlling acquisition

     18                                                   2,779             2,779       (2,779      

Capital increase

     18        26,610       36,654                                                  63,264             63,264  

Payout capitalization

        56,351       (46,384                        (267     4,539       (14,239                        

Constitution of legal reserve

     18                                       5,787             (5,787                        

Distribution of interest on own capital

                                                   (26,059           (26,059           (26,059

Profit retention reserve

     18                                             83,881       (83,881                        
     

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

At December 31, 2016

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

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income for the period

     18                                                   478,781             478,781       13       478,794  

Currency translation adjustment

     18                                                         55       55             55  

Non-controlling acquisition

     18                                                                     3,483       3,483  

Constitution of legal reserve

     18                                       23,939             (23,939                        

Equity valuation adjustments

     18                                                                            

Distribution of dividends

     18                                             (96,008     (142,795           (238,803           (238,803

Profit retention reserve

     18                                             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

     18                                                   909,267             909,267       1,141       910,408  

Currency translation adjustment

     18                                                         208       208             208  

Non-controlling acquisition

     18                                                         (7,588     (7,588     19,169       11,581  

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

     18        5                   4,522,278                                      4,522,283             4,522,283  

Shares issued—Share based long term incentive plan (LTIP)

     18                          258,166        (258,166                                          

Share based long term incentive plan (LTIP)

     18                                 299,037                               299,037             299,037  

Acquisition of treasury shares

     18                    (39,532                                          (39,532           (39,532
     

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

At December 31, 2018

        26             (39,532     5,647,263        40,871                   909,267       (7,325     6,550,570       23,806       6,574,376  
     

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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PagSeguro Digital Ltd.

Consolidated statements of cash flows

Years ended December 31

(All amounts in thousands of reais)

 

 

 

     December 31, 2018     December 31, 2017     December 31, 2016  

CASH FLOWS FROM OPERATING ACTIVITIES

      

Profit before income taxes

     1,217,623       683,504       155,359  

Expenses (revenues) not affecting cash:

      

Depreciation and amortization

     95,363       51,571       31,246  

Loss on sale of property

           49        

Chargebacks

     71,491       47,854       31,557  

Accrual of provision for contingencies

     3,745       3,538       603  

Share based long term incentive plan (LTIP)

     264,179              

Unrealizes on derivative instruments

                 6,613  

Inventory provisions

     20,070              

Other financial cost, net

     1       660       5,549  

Changes in operating assets and liabilities

      

Note receivables

     (5,048,464     (2,066,867     (783,954

Changes in receivables subject to early payment

     (1,737,545     1,161,430       406,159  

Changes in receivables not subject to early payment

     (3,310,919     (3,228,297     (1,190,113

Inventories

     (47,012     (40,586     20,181  

Taxes recoverable

     (22,936     8,055       8,579  

Other receivables

     773       (23,495     17,214  

Other payables

     (7,330     (2,046     13,491  

Payables to third parties

     1,243,629       1,776,538       620,940  

Trade payables

     72,579       29,531       25,430  

Receivables from (payables to) related parties

     112,790       (64,400     (214,549

Salaries and social charges

     39,312       13,341       6,618  

Taxes and contributions

     31,764       (3,109     3,867  

Provision for contingencies

     (1,792     486       (42
  

 

 

   

 

 

   

 

 

 
     (1,954,212     414,624       (51,298
  

 

 

   

 

 

   

 

 

 

Income tax and social contribution paid

     (203,631     (166,389     (18,059

Interest income received

     394,643       214,555       146,346  

Interest paid

           (9,175      
  

 

 

   

 

 

   

 

 

 

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

     (1,763,200     453,615       76,989  
  

 

 

   

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

      

Amount paid on acquisitions, net of cash acquired

     (1,813     (22,225      

Purchases of property and equipment

     (61,560     (7,873     (1,996

Purchases and development of intangible assets

     (192,048     (99,673     (70,394

Acquisition of financial investments

           (209,569     (337,098

Redemption of financial investments

     211,116       132,107       206,190  
  

 

 

   

 

 

   

 

 

 

NET CASH USED IN INVESTING ACTIVITIES

     (44,305     (207,233     (203,298
  

 

 

   

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

      

Payment of borrowings

           (199,480      

Proceeds from borrowings

                 199,390  

Payment of derivative financial instruments

           (5,831      

Distribution of dividends

           (54,273      

Proceeds from offering of shares

     4,717,875              

Transaction costs

     (189,852            

Acquisition of treasury shares

     (39,532            

Transaction with non-controlling interest

     (5,389            

Capital increase by non-controlling shareholders

     20,686              
  

 

 

   

 

 

   

 

 

 

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

     4,503,788       (259,584     199,390  
  

 

 

   

 

 

   

 

 

 

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

     2,696,283       (13,202     73,081  
  

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at the beginning of the year

     66,767       79,969       6,888  

Cash and cash equivalents at the end of the year

     2,763,050       66,767       79,969  

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

 

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Table of Contents

PagSeguro Digital Ltd.

Notes to the consolidated financial

statements at December 31, 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”), Fundo de Investimento em Direitos Creditórios—PagSeguro (“FIDC”) and Tilix Digital S.A. (“TILIX”).

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

 

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. 11,550,000 new shares were offered by PagSeguro Digital and 26,400,000 shares were offered by the controlling shareholder UOL.

The offering price was US$29,25 per common share, for gross proceeds of US$337.8 million (or R$1,274.4 million). The Company received net proceeds of US$326.8 million (or R$1,232.6 million), after deducting US$7.9 million (or R$29.9 million) in underwriting discounts and commissions and US$3.1 million (or R$11.9 million) of other offering expenses.

 

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Table of Contents

PagSeguro Digital Ltd.

Notes to the consolidated financial

statements at December 31, 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 18.

 

2.

Preparation of the consolidated financial statements and significant accounting policies

 

2.1

Basis of financial statements

These consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”). The consolidated financial statements are presented in thousands of Brazilian reais, unless otherwise indicated, which is the functional currency of PagSeguro Digital and its subsidiaries.

The consolidated financial statements have been prepared under the historical cost convention, which is modified for certain financial assets and liabilities (including derivative instruments) measured at fair value.

The preparation of financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying PagSeguro Group’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in Note 3.

PagSeguro Group has adopted all pronouncements and interpretations issued by IASB that were in effect at December 31, 2018.

These consolidated financial statements for the years ended December 31, 2018, 2017 and 2016 were approved by PagSeguro Digital’s Board of Directors at a meeting held on February 15, 2019.

 

2.2

Basis of consolidation

Consolidated financial statements

PagSeguro Group consolidates all entities over which PagSeguro Digital has control, when it is exposed or has rights to variable returns on its interest in the investee, and has the ability to govern the investee’s relevant activities.

The subsidiaries included in the consolidation are described in Note 4.

Subsidiaries

Subsidiaries are all entities over which PagSeguro Digital has control. Subsidiaries are fully consolidated from the date on which control is transferred to PagSeguro Digital. They are deconsolidated from the date that control ceases.

 

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Table of Contents

PagSeguro Digital Ltd.

Notes to the consolidated financial

statements at December 31, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

Identifiable assets acquired and liabilities and contingent liabilities assumed for the acquisition of subsidiaries in a business combination are measured initially at their fair values at the acquisition date.PagSeguro Group recognizes any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the fair value of the acquiree’s identifiable net assets. Non-controlling interests are determined upon each acquisition. Acquisition-related costs are accounted for in the statement of income as incurred. These accounting practices do not apply to transactions under common control.

Transactions, balances and unrealized gains on intercompany transactions are eliminated. Unrealized losses are also eliminated, unless the transaction provides evidence of impairment of the asset transferred. The accounting policies of the subsidiaries are changed, where necessary, to ensure consistency with the policies adopted by PagSeguro Group.

 

2.3

Foreign currency translation

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or the dates of valuation where items are remeasured. Foreign exchange gains and losses resulting from the settlement of these transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the statement of income.

 

2.4

Cash and cash equivalents

Cash and cash equivalents are held for the purpose of meeting short-term cash needs and not for investment or any other purposes. PagSeguro Group classifies as cash equivalents a financial investment that can be immediately converted into a known amount of cash and is subject to immaterial risk of change in value. PagSeguro Group classifies financial instruments with original maturities of three months or less as cash equivalents.

 

2.5

Financial instruments—initial recognition and subsequent measurement

i) Financial assets

Initial recognition and measurement

Financial assets are classified in the following categories: financial assets at fair value through profit or amortized cost. The classification depends on the purpose for which the financial assets were acquired. PagSeguro Group does not classify its financial assets at fair value through comprehensive income.

Financial assets carried at fair value through profit or loss are initially recognized at fair value, and transaction costs are expensed in the statement of income. Financial assets include cash and cash equivalents, current financial investments, note receivables, receivables from related parties, and other receivables.

 

 

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Table of Contents

PagSeguro Digital Ltd.

Notes to the consolidated financial

statements at December 31, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

Subsequent measurement

The subsequent measurement of financial assets depends on their classification, which may be as follows:

Loans and receivables

Loans and receivables are carried at amortized cost using the effective interest rate method.

Financial assets at fair value through profit or loss

This category includes derivative financial instruments which do not meet the hedge accounting criteria defined by IFRS 9 – Financial Instruments.

Financial assets at fair value through profit or loss are presented at fair value in the balance sheet, with the corresponding gains or losses recognized in the statement of income.

PagSeguro Group values its financial assets at fair value through profit or loss, as it intends to trade them within a short period of time. Reclassification to loans and receivables depends on the nature of the asset. This valuation does not affect any financial assets designated at fair value through profit or loss at initial recognition, which cannot be subsequently reclassified.

Derecognition

A financial asset or, where applicable, a part of a financial asset or part of a group of similar financial assets, is derecognized when:

 

   

The rights to receive cash flows from the asset expire;

 

   

PagSeguro Group transfers its rights to receive cash flows from the asset, or assumes an obligation to pay the received cash flows in full to a third party under a “pass-through” arrangement; and (a) transfers virtually all the risks and benefits of the asset, or (b) neither transfers nor retains virtually all the risks and benefits of the asset, but transfers control of the asset.

When PagSeguro Group has transferred its rights to receive cash flows from an asset and has not transferred or retained substantially all the risks and benefits of the asset, this asset is recognized to the extent of PagSeguro Group’s continuing involvement in the asset. In such case, PagSeguro Group also recognizes an associated liability.

The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that PagSeguro Group has retained.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of the consideration that PagSeguro Group may be required to repay.

ii) Impairment of financial assets

PagSeguro Group assesses, at the balance sheet date, if there is objective evidence that a financial asset or a group of financial assets is impaired.

A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a “loss event”) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.

 

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Table of Contents

PagSeguro Digital Ltd.

Notes to the consolidated financial

statements at December 31, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

Evidence of impairment may include an indication that the debtors are experiencing significant financial difficulty, probability that the debtor will enter bankruptcy or other financial reorganization, default or delinquency in interest or principal payments, and an indication of a substantial decline in the estimated future cash flows, such as changes in maturity dates or economic conditions related to default.

iii) Financial liabilities

Initial recognition and measurement

Financial liabilities are classified as financial liabilities at fair value through profit or loss, other financial liabilities, or as derivatives designated used for hedge, when appropriate. PagSeguro Group determines the classification of its financial liabilities at initial recognition.

Financial liabilities are initially recognized at fair value plus, in the case of other financial liabilities, directly related transaction costs.

Financial liabilities include payables to third parties, payables to third parties of related parties, trade payables, trade payables of related parties, borrowings, and other payables.

Subsequent measurement

The subsequent measurement of financial liabilities depends on their classification, which may be as follows:

Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss include held-for-trading financial liabilities and financial liabilities designated at fair value through profit or loss at initial recognition.

Financial liabilities are classified as held-for-trading if acquired for sale in the short term. This category includes derivative financial instruments which do not meet the hedge accounting criteria defined by IFRS 9 – Financial Instruments.

Gains and losses on held-for-trading liabilities are recognized in the statement of income.

Other financial liabilities

After initial recognition, interest-bearing borrowings are subsequently measured at amortized cost, using the effective interest rate method, and are recognized in the statement of income.

Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. The effective interest rate amortization is included in “Financial expenses” in the statement of income.

 

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Table of Contents

PagSeguro Digital Ltd.

Notes to the consolidated financial

statements at December 31, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

Derecognition

A financial liability is derecognized when the obligation is discharged, canceled or expires.

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and recognition of a new liability, and the difference in the respective carrying amounts is recognized in the statement of income.

iv) Financial instruments—offsetting

Financial assets and liabilities are presented net in the balance sheet if, and only if, there is an existing and enforceable legal right to offset the amounts recognized and an intention to offset or to realize the asset and settle the liability simultaneously.

v) Fair value of financial instruments

The fair value of financial instruments actively traded in organized markets is determined based on quoted market prices at the balance sheet date, without a deduction of transaction costs.

The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. These techniques include the use of recent arm’s length transactions, reference to other similar instruments, discounted cash flow analysis or other valuation methods.

 

2.6

Note receivables

The amounts are mainly related to receivables from credit/debit card issuers and acquirers originated from transactions through PagSeguro Group platform, and from sales of credit/debit card readers. If collection is expected in one year or less, they are classified as current assets. Otherwise, they are presented as non-current assets.

However the provision for impairment of note receivables, based on PagSeguro Brazil’s risk assessment, is immaterial because the note receivables are mainly comprised of transactions approved by large financial institutions that have a low risk level based on ratings received from major credit rating agencies. Additionally, these financial institutions are the legal obligors to the note receivables. See Note 23.

Note receivables are initially recorded at the present value of expected future cash flows. The note receivables from installment transactions are estimated based on the present value of the future cash flows, using average appropriate terms and rates, which are in accordance with the terms of these transactions.

PagSeguro Group incurs financial expenses when an election to receive early payment of note receivables from financial institutions is made. This financial expense is recognized at the time the financial institution agrees to liquidate a note receivable due in installments on a prepaid basis, and it is recorded as Financial expenses in the statement of income.

 

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Table of Contents

PagSeguro Digital Ltd.

Notes to the consolidated financial

statements at December 31, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

2.7

Inventories

Inventories consist of debit and credit card readers. Inventories are stated at the lower of cost and net realizable value. The cost method used for inventories is the weighted moving average method. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs necessary to make the sale.

 

2.8

Property and equipment

Property and equipment are stated at historical cost less accumulated depreciation. Historical cost includes expenditures that are directly attributable to the acquisition of the items and may also include finance costs related to the acquisition of qualifying assets.

Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with these costs will flow to PagSeguro Group and that such benefits can be reliably measured. The carrying amount of replaced items or parts is derecognized. All other repairs and maintenance expenses are charged to the statement of income during the year in which they are incurred.

The assets’ residual values and useful lives are reviewed at the end of each reporting period, and adjusted on a prospective basis, if appropriate. Depreciation is calculated under the straight-line method, based on the estimated useful lives, as shown below (in years):

 

Data processing equipment

   2.5 to 5 years

Furniture and fittings

   10 years

Facilities

   10 years

Building improvements

   10 years

Machinery and equipment

   5 to 10 years

Vehicles

   5 years

An asset’s carrying amount is immediately written down to its recoverable amount when the asset’s carrying amount is greater than its estimated recoverable amount.

Gains and losses on disposals are determined by comparing the proceeds with the carrying amounts, and are recognized within “Other (expenses) income, net” in the statement of income.

 

2.9

Intangible assets

Software licenses are capitalized on the basis of the costs incurred to acquire the software and bring it to use. These costs are amortized on the straight-line basis over the estimated useful life of the software (three to five years).

Costs associated with maintaining computer software programs are recognized as an expense as incurred. Development costs that are directly attributable to the design and testing of identifiable and unique software products controlled by PagSeguro Group are recognized as intangible assets.

 

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Table of Contents

PagSeguro Digital Ltd.

Notes to the consolidated financial

statements at December 31, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

Directly attributable costs, which are capitalized as part of the software product, include costs incurred with employees and expenses allocated to software development. Borrowing costs incurred during the software development period may also be capitalized.

Other development expenditures that do not meet the capitalization criteria are expensed as incurred. Development costs previously recorded as an expense are not recognized as an asset in a subsequent period, and are presented within “Advisory and consulting services”.

Computer software development costs recognized as assets are amortized over the estimated useful life, which does not exceed five years from the date that technological feasibility is met.

 

2.10

Impairment of non-financial assets

Non-financial assets are at least annually reviewed for impairment to determine whether there are any events or changes in economic and technological conditions or in operations that may indicate that an asset is impaired. When applicable, such evidence is identified through the annual impairment test. In order to assess a non-financial asset, it is necessary to estimate its recoverable amount. The recoverable amount of an asset or cash generating unit is the greater of its value in use and its fair value less costs to sell. When the carrying amount of an asset or cash generating unit exceeds its recoverable amount, a provision for impairment is established.

When estimating the value in use of an asset, the future estimated cash flows are discounted to their present value using a pre-tax discount rate that reflects the weighted average cost of capital for the cash generating unit. The net sales price is determined, whenever possible, based on a firm sales contract entered into on an arm’s length basis, between well-informed and willing parties, adjusted by expenses attributable to the asset sale, or, when there is no firm sales contract, based on the price in an active market, or the most recent transaction price for similar assets.

PagSeguro Group annually assesses whether there is any indication that a previously recognized impairment loss no longer exists or has decreased. If there is such indication, the asset’s recoverable amount is estimated. A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognized. The reversal is limited so that the asset’s carrying amount does not exceed its recoverable amount, nor exceeds the carrying amount that would have been determined, net of depreciation or amortization, had no impairment loss been recognized for the asset in prior years.

 

2.11

Payables to third parties

Payables to third parties refer to funds payable and amounts due to merchants that use PagSeguro Brazil platform. PagSeguro Group recognizes the fair value of the transaction which is the transaction amount, net of the transaction cost.

 

2.12

Provisions

Provisions are recognized when PagSeguro Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated. When PagSeguro Group expects the value of a provision to be reimbursed, in whole or in part (for example, due to an insurance contract) the reimbursement is recognized as a separate asset, but only when the reimbursement is virtually certain. Expenses associated with any provisions are presented in the statement of income, net of any reimbursements.

 

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Table of Contents

PagSeguro Digital Ltd.

Notes to the consolidated financial

statements at December 31, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

PagSeguro Group is a party to legal and administrative proceedings. Provisions are established for all contingencies related to lawsuits for which it is probable that an outflow of funds will be necessary to settle the contingency/obligation and a reasonable estimate can be made. The assessment of the likelihood of loss includes the evaluation of available evidence, the hierarchy of laws, available case law, recent court decisions and their importance in the legal system, as well as the opinion of outside legal counsel. The provisions are reviewed and adjusted to reflect changes in circumstances.

 

2.13

Revenue recognition

Revenue comprises the fair value of the consideration received or receivable for transferring goods or services to a customer in the ordinary course of PagSeguro Group’s activities. Revenue is presented net of sales and excise taxes and returns.

PagSeguro Group’s revenue substantially comprises:

 

   

Revenue from transaction activities and other services: Revenue from fees charged for intermediation of electronic payments, and other services such as prepaid cards, which are recognized at the time the purchase is approved by the financial institution. Revenues from fees charged for intermediation of electronic payments are recognized on a gross basis and related transaction costs are recognized as Cost of sales and services, since PagSeguro Group is considered to be the principal in the intermediation transaction. PagSeguro Group has primary responsibility for providing the services to customers and also directly sets the prices for such services, independently from the related transaction costs agreed between PagSeguro Group and the card schemes or card issuers;

 

   

Revenue from sales: Revenue from sales of credit and debit card readers and similar items, which is recognized when control of a good is transferred to the customers, i.e., on delivery of the equipment. Under Brazilian consumer law, clients have seven days after ordering Point of Sale equipment (“POS devices”) to cancel the purchase. Returns of devices are accounted for as deductions from revenue from sales at the time the equipment is returned;

 

   

Financial income: Recognized as a result of the discount rate charged on the early payments of Payables to third parties (merchants). The income is recognized at the time the merchant agrees to receive a sale in installments on an early payment basis, and it is recorded as Financial income in the statement of income.

 

2.14

Current and deferred income tax and social contribution

Current income tax and social contribution

Tax assets and liabilities for the current year are calculated based on the expected recoverable amount or the amount payable to the tax authorities. The tax rates and tax laws used to calculate the amount are those enacted or substantively enacted at the balance sheet date in the countries where PagSeguro Group operates and generates taxable income.

Current income tax and social contribution related to items recognized directly in equity are recognized in equity. PagSeguro Group periodically evaluates the tax positions involving interpretation of tax regulations and establishes provisions when appropriate.

 

 

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Table of Contents

PagSeguro Digital Ltd.

Notes to the consolidated financial

statements at December 31, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

Deferred taxes

Deferred taxes arise from temporary differences between the tax bases of assets and liabilities and their carrying amounts at the balance sheet date.

Deferred tax liabilities are recognized for all temporary taxable differences, except in the following situations:

 

   

When the deferred tax liability arises from the initial recognition of an asset or liability in a transaction other than a business combination that, at the time of the transaction, affects neither accounting nor taxable profit; and

 

   

On temporary tax differences related to investments in subsidiaries, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognized on all deductible temporary differences and tax loss carryforwards, to the extent that it is probable that taxable profit will be available against which they can be offset, except:

 

   

When the deferred tax asset related to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction other than a business combination that, at the time of the transaction, affects neither accounting nor taxable profit or loss; and

 

   

On the deductible temporary differences associated with investments in subsidiaries. Deferred tax assets are recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and that taxable profit will be available against which the temporary differences can be utilized.

The carrying amount of deferred tax assets is reviewed at each reporting date and a deferred tax asset is recognized to the extent that it is probable that sufficient taxable profit will be available to allow all or part of the deferred tax assets to be utilized. Unrecognized deferred tax assets are re-assessed, at each reporting date and are recognized to the extent that it has become probable that future taxable profits will be available to allow their utilization.

Based on the local law of the Cayman Islands (specifically, the Companies Law of 1960), there is no taxation on the income earned by companies organized in this jurisdiction. Therefore, PagSeguro Digital has no income tax impacts in the Cayman Islands.

For the subsidiaries of PagSeguro Digital, deferred tax assets and liabilities are measured using the prevailing tax rates in the year in which the assets will be realized and the liabilities will be settled. The currently defined tax rates of 25% for income tax and 9% for social contribution are used to calculate deferred taxes.

Deferred tax assets and liabilities are presented on a net basis when there is legally or contractually enforceable right to offset the tax asset against the tax liability, and the deferred taxes are related to the same taxable entity and subject to the same tax authority.

 

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Table of Contents

PagSeguro Digital Ltd.

Notes to the consolidated financial

statements at December 31, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

2.15

Employee benefits – Profit sharing

PagSeguro Group recognizes a liability and an expense for profit sharing subject to achievement of operational targets and performance established and approved at the beginning of each fiscal year. PagSeguro Group recognizes a provision when contractually obliged or when there is a past practice that has created a constructive obligation.

 

2.16

Business combination and goodwill

PagSeguro Group accounts for business combinations using the acquisition method. The cost of an acquisition is measured as the sum of the consideration transferred, based on its fair value on the acquisition date. Costs directly attributable to the acquisition are expensed as incurred. The assets acquired, and liabilities assumed are measured at fair value, classified and allocated according to the contractual terms, economic circumstances and relevant conditions on the acquisition date. Goodwill is measured as the excess of the consideration transferred over the fair value of net assets acquired. If the consideration transferred is smaller than the fair value of net assets acquired, the difference is recognized as a gain on bargain purchase in the statement of income. After initial recognition, goodwill is measured at cost less any accumulated impairment losses.

 

2.17

Treasury shares

Own equity instruments that are reacquired (treasury shares) are recognised at cost and deducted from equity. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the PagSeguro Group’s own equity instruments. Any difference between the carrying amount and the consideration, if reissued, is recognised in equity.

 

2.18

Distribution of dividends and interest on own capital

Distributions of dividends and interest on own capital to PagSeguro Brazil’s shareholders are recognized as a liability in the financial statements at year-end, based on the PagSeguro Brazil’s bylaws, which require the distribution of a minimum of 1% of the profit for the year as dividends. Any amount that exceeds the minimum required is only accrued on the date such distribution is approved by the shareholders at a General Medeting. However, these provisions do not exist under PagSeguro Digital Memorandum of Association.

The tax benefit of interest on own capital is recognized in the statement of income.

 

2.19

New standards and interpretations

 

  (i)

Effective for periods beginning on or after January 1, 2018

IFRS 9 – Financial Instruments

IFRS 9 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 off 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 based on expected losses, replacing the current model based on incurred losses; and (iii) relaxation of the requirements for the adoption of hedge accounting.

 

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Table of Contents

PagSeguro Digital Ltd.

Notes to the consolidated financial

statements at December 31, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

Beginning January 1,2018, management implemented the new guidelines introduced by IFRS 9 and there is no relevant impact for the PagSeguro Group.

IFRS 15—Revenue from Contracts with Customers

IFRS 15, effective as of January 1, 2018, supersedes IAS 11 Construction Contracts, IAS 18 Revenue and related Interpretations and it applies, with limited exceptions, to all revenue arising from contracts with customers. The standard establishes a five-step model to account for revenue arising from contracts with customers and requires that revenue be recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer.

Management evaluated the new guidelines introduced by IFRS 15 and applied the five-step model in order to reassess its revenue recognition criteria. Beggining January 1, 2018, management implemented the new guidelines introduced by IFRS 15 and there is no relevant impact for the PagSeguro Group.

There are no other new standards or interpretations that could have a material impact on the PagSeguro Group’s financial statements.

 

  (ii)

Standards issued but not yet effective

IFRS 16—Leases

IFRS 16 was issued in January 2016 and is effective as of January 1, 2019, replaceing IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model similar to the accounting for finance leases under IAS 17. The standard includes two recognition exemptions for lessees – leases of ‘low-value’ assets (e.g., personal computers) and short-term leases (i.e., leases with a lease term of 12 months or less). At the commencement date of a lease, a lessee will recognise a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset). Lessees will be required to separately recognize the interest expense on the lease liability and the depreciation expense on the right-of-use asset.

Management evaluated the new guidelines introduced by IFRS 16 and did not identify any material impact for the PagSeguro Group

There are no other standards or interpretations not yet effective that could have a material impact on the PagSeguro Group’s financial statements.

 

3.

Critical accounting estimates and judgments

Accounting estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

Based on assumptions, PagSeguro Group makes estimates concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below:

 

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PagSeguro Digital Ltd.

Notes to the consolidated financial

statements at December 31, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

3.1

Estimated useful life of intangible assets

PagSeguro Group uses an estimated useful life to calculate and record the amortization applied to its intangible assets which may differ from the actual term over which the intangible assets are expected to generate benefits for PagSeguro Group.

The amortization of software usage rights is defined based on the effective period of the license contracted.

The amortization of internally developed software is defined based on the period over which the software will generate future economic benefits for PagSeguro Group.

 

3.2

Deferred income tax and social contribution

PagSeguro Group recognizes deferred income tax and social contribution based on future taxable profit estimates for the next ten years. These projections are periodically reviewed and approved by management.

 

3.3

Provision for contingencies

PagSeguro Group recognizes provisions for civil, tax and labor lawsuits. The assessment of probability of loss includes assessing the available evidence and jurisprudence, the hierarchy of laws and most recent court decisions. Provisions are reviewed and adjusted to take into account changes in circumstances such as the applicable limitation period, findings of tax inspections and additional exposures identified based on new issues or court decisions.

 

23


Table of Contents

PagSeguro Digital Ltd.

Notes to the consolidated financial

statements at December 31, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

 

4.

Consolidation of subsidiaries

 

At December 31, 2018

Company

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

Level

Pagseguro Brazil

     12,060,765        5,790,122        6,270,643        776,889        99.99     

Direct

Net+Phone

     1,440,534        1,411,587        28,948        (15,010      99.99     

Indirect

Boa Compra

     980,529        953,979        26,549        6,588        99.99     

Indirect

BCPS

     2,447        373        2,074        911        99.50     

Indirect

R2TECH

     5,813        1,944        3,868        2,691        51.00     

Indirect

BIVA

     1,882        5,349        (3,468      (4,394      77.35     

Indirect

FIDC

     745,236        212,760        532,476        331,179        100.00     

Indirect

TILIX

     4,410        3,975        435               100.00     

Indirect

Operations of the subsidiaries

 

   

PagSeguro Brazil: is engaged in providing financial technology solutions and services and the corresponding related activities. PagSeguro Brazil has investments in the following companies:

 

  o

Net+Phone: Is mainly engaged in acquisition and selling POS devices and similar items. On July 29, 2016, UOL transferred its investment in Net+Phone to PagSeguro Brazil, as a capital contribution, in the amount of R$ 44,317.

 

  o

Boa Compra: Allows its clients to operate in cross-border transactions where the merchant and consumer are located in different countries across Latin America, Spain, Portugal and Turkey. On April 5, 2011, UBN Internet Ltda. (“UBN”), a subsidiary of UOL, acquired a 51% equity interest in Boa Compra. On July 26, 2013, UBN acquired an additional 24% equity interest, increasing its total ownership in Boa Compra to 75%. In May 2016, UBN acquired the remaining 25% equity interest, becoming the owner of 100% of Boa Compra. On July 29, 2016, UBN’s equity interest in Boa Compra was spun off to its parent company UOL. Subsequently, UOL transferred its 99.9% equity interest in Boa Compra to PagSeguro Brazil as a capital contribution, in the total amount of R$ 12,034.

 

  o

BCPS: On January 1, 2017, PagSeguro Brazil acquired 99.5% of the share capital and obtained the control of BCPS. BCPS’s main activity is to serve as Boa Compra’s hub in Portugal and handles part of its account management.

 

  o

R2TECH: On May 2, 2017, PagSeguro Brazil acquired 51.0% of the share capital and obtained the control of R2TECH. R2TECH’s main activity is in the information technology industry, focused on the processing of back-office solutions, including sales reconciliation, gateway solutions and services and the capture of credit cards with acquirers and sub acquirers.

 

  o

BIVA: On October 3, 2017, PagSeguro Brazil acquired a controlling interest of 51.4% in BIVACO Holdings S.A., whose main objective is to acquire participations in other companies, commercial or civil, as partner, shareholder or quotaholder, as well as the management of these holdings.

 

24


Table of Contents

PagSeguro Digital Ltd.

Notes to the consolidated financial

statements at December 31, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

In November 2017, PagSeguro Brazil acquired an additional interest in BIVA, bringing our total interest to 59.3% of BIVA’s total share capital.

In January 15, March 12 and April 27, 2018, PagSeguro Brazil acquired additional interests in BIVA (15.1%, 0.5% and 2.4%, respectively), bringing its total interest to 77.35% of BIVA’s total share capital (59.3% as of December 31, 2017).

BIVA has investments in the following subsidiaries:

 

 

Biva Serviços Financeiros S.A : whose main objective is the intermediation among investors, financial institutions and credit borrowers via an electronic platform;

 

 

Biva Correspondente Bancário Ltda: whose main objective is to structure peer-to-peer financing for small and medium enterprises following the crowdfunding model.

 

 

Biva Securitizadora de Créditos S.A.: whose main objective is to acquire and securitize financial credits.

 

  o

FIDC: On October 4, 2017, FIDC is an investment fund wich was formed to finance the growth of PagSeguro Brazil’s early payment of receivables feature by acquiring payables to third parties held by PagSeguro Brazil (“Assignor”). PagSeguro Brazil consolidates the financial statements of FIDC. The consolidation is justified by the fact that the risks of default and the responsibility for expenses and administration related to the FIDC are linked to subordinated quotas held by the PagSeguro Brazil.

In March 29, 2018, two investors contributed capital in the amount of R$ 20 million in FIDC, acquiring only senior and mezzanine quotas of the FIDC. The senior and mezzanine quotes pay 107% of the Interbank Deposit Certificate (CDI) with annual amortization of interest.

At December 31, 2018, the share capital of FIDC is composed of subordinated quotas, senior quotas and mezzanine quotas. PagSeguro Brasil owns 100% of the subordinated quotas.

 

  o

TILIX: On December 5, 2018, PagSeguro Brazil acquired 100% of the share capital and obtained the control of TILIX. The company provides software development for managing payment solutions for B2C and B2B.

 

25


Table of Contents

PagSeguro Digital Ltd.

Notes to the consolidated financial

statements at December 31, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

 

5.

Segment reporting

Operating segments are reported consistently to the Board of Directors, which is responsible for allocating resources and assessing the performance of the operating segments and to take 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 operate in a single segment, as payment arrangement agents.

PagSeguro Group has revenue arising from Brazilian domestic customers and customers located abroad. The main revenue is related to sales from the Brazilian domestic market. The international market represents 1%, 2% and 5% for the years 2018, 2017 and 2016, respectively.

 

6.

Cash and cash equivalents

 

     December 31, 2018      December 31, 2017  

Short-term bank deposits

     405,227        66,767  

Short-term investments

     2,357,823        —    
  

 

 

    

 

 

 
     2,763,050        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 December 31, 2018 is relatated to an excess of cash and cash equivalents proceeds originated from the IPO and the follow-on offering mentioned in Notes 1.1 and 1.2, respectively.

 

7.

Financial investments

 

     December 31, 2018      December 31, 2017  

Short-term investments

     —          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.

 

26


Table of Contents

PagSeguro Digital Ltd.

Notes to the consolidated financial

statements at December 31, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

8.

Note receivables

 

     December 31, 2018      December 31, 2017  
     Visa      Master      Hipercard      Total      Visa      Master      Hipercard      Total  

Legal obligors

                       

Itaú

     570,463        1,979,994        514,627        3,065,084        237,335        751,542        250,817        1,239,694  

Bradesco

     735,784        170,497        —          906,281        333,108        83,160        —          416,268  

Banco do Brasil

     566,537        153,633        —          720,170        287,334        84,504        —          371,838  

CEF

     133,882        173,208        —          307,090        69,974        83,684        —          153,658  

Santander

     247,950        871,976        —          1,119,926        122,614        310,946        —          433,560  

Other (*)

     386,808        1,069,323        —          1,456,131        141,802        393,999        —          535,801  

Total card issuers (i)

     2,641,424        4,418,631        514,627        7,574,682        1,192,167        1,707,835        250,817        3,150,819  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cielo—Elo

     —          —          —          366,619        —          —          —          151,851  

Cielo

     —          —          —          91,402        —          —          —          80,464  

Redecard

     —          —          —          5,502        —          —          —          45,289  

Amex

     —          —          —          1,188        —          —          —          39,608  

Vero

     —          —          —          4,396        —          —          —          21,463  

Other

     —          —          —          34,367        —          —          —          31,864  

Total acquirers (ii)

     —          —          —          503,474        —          —          —          370,539  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other

     —          —          —          26,523        —          —          —          991  

Total other

     —          —          —          26,523        —          —          —          991  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total note receivables

     2,641,424        4,418,631        514,627        8,104,679        1,192,167        1,707,835        250,817        3,522,349  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(*)

Refers to other pulverized receivables from legal obligors.

 

(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 of the note receivables. Additionally, amounts due within 27 days of the original transaction date, 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 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.

 

 

27


Table of Contents

PagSeguro Digital Ltd.

Notes to the consolidated financial

statements at December 31, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

The maturity analysis of note receivables is as follows:

 

     December 31, 2018      December 31, 2017  

Due within 30 days

     4,323,893        2,213,929  

Due within 31 to 120 days

     3,135,358        1,045,825  

Due within 121 to 180 days

     468,913        114,953  

Due within 181 to 360 days

     176,515        147,642  
  

 

 

    

 

 

 
     8,104,679        3,522,349  
  

 

 

    

 

 

 

 

9.

Related-party balances and transactions

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

i. Balances and transactions with related parties:

 

     December 31,2018      December 31, 2017  
     Payables      Receivables      Payables  

Immediate parent

        

UOL—cash management (a)

     —          124,721        —    

UOL—sales of services (b)

     9,822        —          32,286  

UOL—shared service costs

     10,234        —          —    

Affiliated companies

        

UOL Diveo—cash management (a)

     —          2        —    

UOL Diveo—sales of services (b)

     3,290        —          621  

UOL Diveo—shared service costs

     126        —          —    

Concurso Virtual S.A.

     —          —          1,522  

Transfolha Transportadora e Distribuição Ltda.

     4,336        —          745  

Livraria da Folha Ltda.

     32        —          1,078  

Empresa Folha da Manhã S/A

     2,073        —          2,320  

Others

     884        —          529  
  

 

 

    

 

 

    

 

 

 
     30,797        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”).

 

28


Table of Contents

PagSeguro Digital Ltd.

Notes to the consolidated financial

statements at December 31, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

 

     December 31,2018      December 31, 2017      December 31, 2016  
     Revenue      Expense      Revenue      Expense      Revenue      Expense  

Immediate parent

                 

UOL—shared service costs (a)

     —          105,433        —          58,375        —          31,498  

UOL—sales of services (b)

     2,233        52,115        689        46,976        —          81,007  

Affiliated companies

                 

UOL Diveo—shared service costs (c)

     —          534        —          24        —          1,710  

UOL Diveo—sales of services (d)

     —          26,943        —          28,953        —          18,069  

Transfolha Transportadora e Distribuição Ltda.

     374        18,889        39        15,405        —          5,500  

Livraria da Folha Ltda.

     160        —          319        —          349        —    

Others

     401        54        433        130        395        101  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     3,168        203,967        1,480        149,863        744        137,885  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(a)

Shared services costs mainly related to (i) payroll, (ii) IT structure / software and (iii) property rental which are incurred by the parent company UOL and are charged to PagSeguro Brazil pursuant to cost sharing contractual agreements. Such costs are included in administrative expenses. The increase in the balance refers to payroll taxes related to LTIP payments made in the year ended December 31, 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 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.

i. 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 in 2018 amounted to R$ 99,331 (R$ 3,487 and R$ 2,658 in 2017 and 2016, respectively, includes only short-term benefits).

 

29


Table of Contents

PagSeguro Digital Ltd.

Notes to the consolidated financial

statements at December 31, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

 

10.

Business combinations

 

Acquisitions for the year ended December 31, 2017

      
     Amount of
purchased
books
    Evaluation
adjustment
    Fair value
of assets and
liabilities
acquired
 

The assets and liabilities arising from the acquisitions

      

Cash and cash equivalents

     51             51  

Liquid working capital,

      

Assets acquired

     2,598             2,598  

Liabilities assumed

     (1,312           (1,312

Property, plant and equipment and intangible assets

     643       2,498       3,141  
  

 

 

   

 

 

   

 

 

 

Value of net assets

     1,980       2,498       4,478  
  

 

 

   

 

 

   

 

 

 

Goodwill

     26,184       (2,498     23,686  
  

 

 

   

 

 

   

 

 

 

Bargain purchase gain

     (87           (87
  

 

 

   

 

 

   

 

 

 

Purchase cost

     28,077             28,077  
  

 

 

   

 

 

   

 

 

 

Consideration for the purchase settled in cash

         22,276  
      

 

 

 

Cash and cash equivalents at the subsidiary acquired

         (51
      

 

 

 

Amount paid on acquisitions less cash and cash equivalents acquired

         22,225  
      

 

 

 

 

Acquisition for the year ended December 31, 2018

       
     Amount of
purchased
books
    Evaluation
adjustment
(*)
     Fair value
of assets and
liabilities
acquired
 

The assets and liabilities arising from the acquisition

       

Cash and cash equivalents

     1,996              1,996  

Liquid working capital,

       

Assets acquired

     130              130  

Liabilities assumed

     (3,975            (3,975

Property, plant and equipment and intangible assets

     2,284              2,284  
  

 

 

   

 

 

    

 

 

 

Value of net assets

     435              435  
  

 

 

   

 

 

    

 

 

 

Goodwill

     19,175              19,175  
  

 

 

   

 

 

    

 

 

 

Purchase cost

     19,610              19,610  
  

 

 

   

 

 

    

 

 

 

Consideration for the purchase settled in cash

          3,810  
       

 

 

 

Cash and cash equivalents at the subsidiary acquired

          (1,996
       

 

 

 

Amount paid on acquisitions less cash and cash equivalents acquired

          1,813  
       

 

 

 

 

(*)

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

 

 

30


Table of Contents

PagSeguro Digital Ltd.

Notes to the consolidated financial

statements at December 31, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

The acquisitions described below are in accordance with PagSeguro Group’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$407, which was settled in cash on that date. The fair value of the acquired assets, amounting R$568, and the assumed liabilities amounting to 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 51.0% of the share capital and obtained control of R2TECH. The consideration for the purchase was R$9,200, of which R$3,500 is a variable installment, subject to the attainment of specific targets for the year 2018, established in the acquisition agreement, 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 51.4% interest.

The total consideration paid for the initial purchase 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.

On November 30, 2017, PagSeguro Brazil acquired an additional interest of 7.9% of the issued shares for a purchase consideration of R$ 2,394, increasing PagSeguro Brazil’s interest to 59.3%. On January 15, March 12 and April 27, 2018, PagSeguro Brazil acquired additional interests of BIVA (15.12%, 0.5% and 2.42%, respectively), bringing its total interest to 77.3% of BIVA’s total share capital (59.3% as of December 31, 2017). The total amount paid for these acquisitions was R$5,389.

d) TILIX

On December 5, 2018, PagSeguro Brazil acquired 100.0% of the share capital and obtained the control of TILIX.The total consideration for the purchase was R$19,610, of which R$3,810 was settled in cash and R$15,800 in variable installments, subject to the attainment of specific targets in 2020 (R$4,100) and 2021 (R$11,700), established in the acquisition agreement The fair value of the assets acquired and the liabilities assumed on the acquisition date, are substantially similar to their book value. Based on current management expectations, this performance goal will be achieved.

The purchase price allocation may be subject to changes in the measurement period as defined in IFRS. The goodwill of R$19,175 arising from the acquisition is attributable to the future profitability of the business in synergy with the products offered by the PagSeguro Group.

 

31


Table of Contents

PagSeguro Digital Ltd.

Notes to the consolidated financial

statements at December 31, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

 

11.

Property and equipment

 

(a)

Property and equipment is composed as follows:

 

     December 31, 2018  
     Cost      Accumulated
depreciation
    Net  

Data processing equipment

     23,334        (7,815     15,519  

Facilities

     38        (27     11  

Machinery and equipment

     44,757        (3,096     41,661  

Furniture and fittings

     2,153        (148     2,005  

Building improvements

     6,954        (195     6,759  

Vehicles

     1,371        (222     1,149  
  

 

 

    

 

 

   

 

 

 
     78,607        (11,503     67,104  
  

 

 

    

 

 

   

 

 

 
       
     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  

Building improvements

     263        (29     234  

Vehicles

     132        (42     90  
  

 

 

    

 

 

   

 

 

 
     16,607        (5,718     10,889  
  

 

 

    

 

 

   

 

 

 

 

32


Table of Contents

PagSeguro Digital Ltd.

Notes to the consolidated financial

statements at December 31, 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
    Building
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 December 31, 2018

              

Cost

              

Purchases

     12,310       —         40,019       1,667       6,341       1,238       61,575  

Disposals

     —         (15     —         —         —         —         (15

Acquisition of subsidiary

                       89       351             440  

Depreciation

     (2,701     (4     (2,652     (82     (166     (180     (5,785

Net book value

     15,519       11       41,661       2,005       6,759       1,149       67,104  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

At December 31, 2018

              

Cost

     23,334       38       44,757       2,153       6,954       1,371       78,607  

Accumulated depreciation

     (7,815     (27     (3,096     (148     (195     (222     (11,503
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net book value

     15,519       11       41,661       2,005       6,759       1,149       67,104  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

33


Table of Contents

PagSeguro Digital Ltd.

Notes to the consolidated financial

statements at December 31, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

 

12.

Intangible assets

 

(a)

Intangible assets are composed as follows:

 

     December 31, 2018  
     Cost      Accumulated
amortization
    Net  

Expenditures related to software and technology (i)

     462,282        (211,929     250,353  

Software licenses

     17,227        (4,073     13,154  

Customer relationships

     1,981        (448     1,533  

Goodwill (ii)

     40,574              40,574  
  

 

 

    

 

 

   

 

 

 
     522,064        (216,450     305,614  
  

 

 

    

 

 

   

 

 

 
       
     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 their useful lives, within a range from three to five years.

(ii)

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

 

34


Table of Contents

PagSeguro Digital Ltd.

Notes to the consolidated financial

statements at December 31, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

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

 

     Expenditures with
software and
technology
    Software
licenses
    Customer
relationships
    Goodwill      Total  

At December 31, 2017

           

Cost

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

Accumulated amortization

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

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net book value

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

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

At December 31, 2018

           

Cost

           

Additions

     218,947       7,717                    226,665  

Acquisition of subsidiary

     1,845                   16,888        18,733  

Amortization

     (96,264     (2,030     (357            (98,651
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net book value

     250,353       13,154       1,533       40,574        305,614  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

At December 31, 2018

           

Cost

     462,282       17,227       1,981       40,574        522,065  

Accumulated amortization

     (211,929     (4,073     (448            (216,450
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net book value

     250,353       13,154       1,533       40,574        305,614  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

35


Table of Contents

PagSeguro Digital Ltd.

Notes to the consolidated financial

statements at December 31, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

13.

Payables to third parties

 

     December 31, 2018      December 31, 2017  

Payables to third parties

     4,324,198        3,080,569  
  

 

 

    

 

 

 
     4,324,198        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.

 

14.

Salaries and social charges

 

     December 31, 2018      December 31, 2017  

Profit sharing

     20,653        15,237  

Salaries payable

     4,378        2,758  

Social charges

     8,421        5,102  

Payroll accruals

     14,601        9,807  

Payroll taxes (LTIP)

     23,816         

Other

     2,067        1,365  
  

 

 

    

 

 

 
     73,936        34,269  
  

 

 

    

 

 

 

 

15.

Taxes and contributions

 

     December 31, 2018     December 31, 2017  

Taxes

    

Services tax (i)

     122,241       14,837  

Value-added tax on sales and services (ii)

     23,796       3,830  

Social integration program (iii)

     17,530       9,918  

Social contribution on revenues (iii)

     107,872       59,358  

Income tax and social contribution (iv)

     685       35,474  

Other

     1,919       1,264  
  

 

 

   

 

 

 
     274,043       124,681  
  

 

 

   

 

 

 

Judicial deposits (v)

    

Services tax (i)

     (52,226     (11,375

Value-added tax on sales and services (ii)

     (19,476     (2,665

Social integration program (iii)

     (17,088     (8,188

Social contribution on revenues (iii)

     (105,160     (50,389
  

 

 

   

 

 

 
     (193,950     (72,617
  

 

 

   

 

 

 
     80,093       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 in items “i”, “ii” and “iii” above.

 

 

36


Table of Contents

PagSeguro Digital Ltd.

Notes to the consolidated financial

statements at December 31, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

16.

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.

 

     December 31, 2018      December 31, 2017  

Civil

     6,680        4,326  

Labor

     324        322  
  

 

 

    

 

 

 

Current

     7,004        4,648  
  

 

 

    

 

 

 

Some companies of PagSeguro Group are party to tax lawsuits involving risks classified by legal advisors as possible losses, for which no provision was recognized at December 31, 2018, totaling approximately R$ 50,978 (December 31, 2017—R$ 25,800). PagSeguro Group companies are not party to civil and labor lawsuits involving risks classified by management as possible losses.

 

17.

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              (16,074

Included in the statement of income

     436        (721     (16,814     28,995        (1,616     10,280  
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

At December 31, 2017

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

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Included in the statement of income

     1,424        (712     (41,987     32,073        (117,129     (126,331
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

At December 31, 2018

     2,911        2,173       (83,179     64,715        (118,745     (132,125
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

(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).

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

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

 

      December 31, 2018     December 31,2017  
      Liability     Assets     Liability  
  2018       (8,508     8,895       (20,728
  2019       (13,659     4,040       (18,008
  2020       (15,420     2,111       (2,454
  2021       10,556       982       (1,434
  2022       (105,094     20,987       (185
 

 

 

   

 

 

   

 

 

 
    (132,125     37,015       (42,809
 

 

 

   

 

 

   

 

 

 

 

37


Table of Contents

PagSeguro Digital Ltd.

Notes to the consolidated financial

statements at December 31, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

(b)

Reconciliation of the income tax and social contribution expense:

PagSeguro Group computed income tax and social contribution under the taxable income method. The following is a reconciliation of the difference between the actual income tax and social contribution expense and the expense computed by applying the Brazilian federal statutory rate for the years ended December 31, 2018, 2017 and 2016:

 

     December 31, 2018     December 31, 2017     December 31, 2016  

Profit for the year before taxes

     1,217,623       683,504       155,359  

Statutory rate

     34     34     34
  

 

 

   

 

 

   

 

 

 

Expected income tax and social contribution

     (413,992     (232,391     (52,822

Income tax and social contribution effect on:

      

Permanent additions (exclusions)

      

Gifts

     (352     (375     —    

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

     58,893       24,987       15,898  

Interest on own capital

     —         —         8,860  

Taxation of income abroad (ii)

     45,008              

Other additions

     3,309       3,069       485  
  

 

 

   

 

 

   

 

 

 

Income tax and social contribution expense

     (307,134     (204,711     (27,580
  

 

 

   

 

 

   

 

 

 

Effective rate

     25     30     18

Income tax and social contribution—current

     (180,884     (214,988     (7,431

Income tax and social contribution—deferred

     (126,331     10,278       (20,149

 

(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 PagSeguro Group on specific intangible assets, see Note 11.

 

(ii)

Refers to the benefit based on the local law of the Cayman Islands (specifically, 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 U.S. dollars to reais which generate income have no tax impacts for PagSeguro Digital.

 

38


Table of Contents

PagSeguro Digital Ltd.

Notes to the consolidated financial

statements at December 31, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

18.

Equity

a) Share capital

At December 31, 2018, share capital is represented by 327,285,232 common shares, par value of US$0.000025. Share capital is composed of the following shares for the years ended December 31, 2018 and 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

     3,024,625  

Repurchase of common shares (Note 18 (f))

     (503,642
  

 

 

 

December 31, 2018 shares outstanding

     327,285,232  
  

 

 

 

During the year ended December 31, 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 18 (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$326.8 million (or R$1,232.6 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.

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.

 

39


Table of Contents

PagSeguro Digital Ltd.

Notes to the consolidated financial

statements at December 31, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

The shares granted under the LTIP were subject to a one-year lock-up period, expiring on the first anniversary of the IPO. 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. After the close of that one-year period, shares to be granted under the LTIP are no longer be subject to a lock-up.

This arrangement is classified as equity-settled. For the year ended December 31, 2018, the Company recognized compensation expenses related to the LTIP in the total amount of R$ 299,036.

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 December 31, 2018, total shares granted were 5,896,861, and the total shares issued were 3,024,625. There were no forfeitures or expirations in the year ended December 31, 2018.

d) Dividends

At the Extraordinary General Shareholders Meeting held on September 29, 2017, PagSeguro Brazil’s shareholders approved the distribution of (i) R$142,797 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$ 263 as of December 31, 2018 (R$ 55 as of December 31, 2017). This accumulated effect will be reverted to the result of the year as gain or loss only in case of disposal or write-off of the investment.

The Company also recognized 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, in this account

f) Treasury shares

On October 30, 2018, PagSeguro Digital’s 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 Company’s management is responsible for defining the timing and the number of shares to be acquired, within authorized limits.

During the year ended December 31, 2018 a number of 503,642 shares were repurchased for a total of US$ 10,119,425 (average of US$ 20.09 per share) which corresponds to R$ 39,532.

 

40


Table of Contents

PagSeguro Digital Ltd.

Notes to the consolidated financial

statements at December 31, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

19.

Earnings per share

a) Basic

Basic earnings per share are calculated by dividing the profit attributable to shareholders of PagSeguro Digital by the weighted average number of common shares issued and outstanding during the years ended December 31, 2018, 2017 and 2016:

 

     December 31, 2018      December 31, 2017      December 31, 2016  

Profit attributable to shareholders of the Company

     909,267        478,781        127,186  

Weighted average number of outstanding common shares

     317,647,562        262,288,607        262,288,607  
  

 

 

    

 

 

    

 

 

 

Basic earnings per share—R$

     2.8625        1.8254        0.4849  
  

 

 

    

 

 

    

 

 

 

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.

 

     December 31, 2018     December 31, 2017      December 31, 2016  

Profit used to determine diluted earnings per share

     909,267       478,781        127,186  
  

 

 

   

 

 

    

 

 

 

Weighted average number of outstanding common shares

     317,647,562       262,288,607        262,288,607  

Weighted average number of shares under options

     2,581,716              —    

Weighted average number of shares that would have been issued at average market price

     (2,102,607            —    
  

 

 

   

 

 

    

 

 

 

Adjusted number of shares

     318,126,671       262,288,607        262,288,607  
  

 

 

   

 

 

    

 

 

 
  

 

 

   

 

 

    

 

 

 

Diluted earnings per share—R$

     2.8582       1.8254        0.4849  
  

 

 

   

 

 

    

 

 

 

 

41


Table of Contents

PagSeguro Digital Ltd.

Notes to the consolidated financial

statements at December 31, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

20.

Total revenue and income

 

     December 31,
2018
    December 31,
2017
    December 31,
2016
 

Gross revenue from transaction activities and other services

     2,638,103       1,391,381       543,818  

Gross revenue from sales

     513,795       655,153       371,517  

Gross financial income (i)

     1,464,877       858,410       411,413  

Other financial income (ii)

     278,445       8,576       5,337  
  

 

 

   

 

 

   

 

 

 

Total gross revenue and income

     4,895,220       2,913,520       1,332,085  
  

 

 

   

 

 

   

 

 

 

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

     (371,000     (167,120     (63,793

Deductions from gross revenue from sales (iv)

     (139,183     (183,229     (110,923

Deductions from gross financial income (v)

     (50,345     (39,786     (18,984
  

 

 

   

 

 

   

 

 

 

Total deductions from gross revenue and income

     (560,528     (390,135     (193,700
  

 

 

   

 

 

   

 

 

 

Total revenue and income

     4,334,692       2,523,385       1,138,385  
  

 

 

   

 

 

   

 

 

 

 

(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 year ended December 31, 2018 in the amount of R$ 131,212 and financial income on financial investments classified as cash and cash equivalents for the year ended on December 31, 2018 in the amount of R$ 138,027 (December 31, 2017—R$ 6,722)

(iii)

Deductions consist of sales taxes.

(iv)

Deductions are composed of sales taxes and returns.

(v)

Deductions consist of taxes on financial income.

 

42


Table of Contents

PagSeguro Digital Ltd.

Notes to the consolidated financial

statements at December 31, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

21.

Expenses by nature

 

     December 31, 2018     December 31, 2017     December 31, 2016  

Transactions costs

     (1,246,480     (661,067     (283,630

Cost of goods sold

     (567,807     (451,635     (233,419

Marketing and advertising

     (375,519     (275,394     (204,857

Personnel expenses (i)

     (546,826     (105,794     (63,280

Financial expenses (ii)

     (31,209     (104,544     (68,301

Chargebacks (iii)

     (71,491     (47,854     (31,557

Depreciation and amortization (iv)

     (95,362     (51,571     (31,246

Other

     (182,375     (142,022     (66,737
  

 

 

   

 

 

   

 

 

 
     (3,117,069     (1,839,881     (983,027
  

 

 

   

 

 

   

 

 

 

Classified as:

      

Cost of services

     (1,510,770     (829,661     (357,811

Cost of sales

     (633,929     (494,719     (265,856

Selling expenses

     (351,439     (245,759     (199,937

Administrative expenses

     (581,668     (153,177     (84,461

Financial expenses

     (31,209     (104,544     (68,301

Other (expenses) income, net

     (8,054     (12,021     (6,660
  

 

 

   

 

 

   

 

 

 
     (3,117,069     (1,839,881     (983,027
  

 

 

   

 

 

   

 

 

 

 

(i)

The increase refers to compensation expenses related to the LTIP for the year ended December 31, 2018 in the amount of R$ 264,179, and the respective payroll taxes in the amount of R$ 154,843.

(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 year ended December 31, 2018 (December 31, 2017—R$0), (b) charges to obtain early payment of receivables owed to us by card issuers to finance our early payment of receivables feature in the amount of R$ 1,476 for the year ended December 31,2018 (December 31, 2017—R$ 95,878).

(iii)

Chargebacks refer to losses recognized in the period reflecting the risks of fraud associated with card processing operations, as detailed in Note 23 (ii).

(iv)

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

 

     December 31, 2018     December 31, 2017     December 31, 2016  

Depreciation

      

Cost of sales and services

     (4,012     (1,088     (895

Selling expenses

     (13     (10     (11

Administrative expenses

     (1,760     (714     (371
  

 

 

   

 

 

   

 

 

 
     (5,785     (1,812     (1,277
  

 

 

   

 

 

   

 

 

 

Amortization

      

Cost of sales and services

     (97,856     (54,151     (32,846

Administrative expenses

     (795     (375     (59
  

 

 

   

 

 

   

 

 

 
     (98,651     (54,526     (32,905
  

 

 

   

 

 

   

 

 

 

PIS and COFINS credits (*)

     9,073       4,767       2,936  
  

 

 

   

 

 

   

 

 

 

Depreciation and amortization expense, net

     (95,362     (51,571     (31,246
  

 

 

   

 

 

   

 

 

 

 

(*)

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

 

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PagSeguro Digital Ltd.

Notes to the consolidated financial

statements at December 31, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

 

22.

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 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.

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

PagSeguro Group classifies its financial instruments into the following categories:

 

     December 31,
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

     2,763,050        66,767  

Note receivables

     8,104,679        3,522,349  

Receivables from related parties

            124,723  

Other receivables

     20,148        27,956  
  

 

 

    

 

 

 
     10,887,877        3,951,898  
  

 

 

    

 

 

 

 

     December 31,
2018
     December 31,
2017
 

Financial liabilities

     

Amortized cost:

     

Payables to third parties

     4,324,198        3,080,569  

Trade payables

     165,246        92,444  

Trade payables to related parties

     30,797        39,101  

Other payables

     29,501        19,462  
  

 

 

    

 

 

 
     4,549,742        3,231,576  
  

 

 

    

 

 

 

 

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PagSeguro Digital Ltd.

Notes to the consolidated financial

statements at December 31, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

23.

Financial risk management

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. PagSeguro Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on 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 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 December 31, 2018 and December 31, 2017, PagSeguro Group is not materially exposed to foreign exchange risk.

 

  (ii)

Fraud Risk (chargeback)

PagSeguro Group’s sales transactions are susceptible to potentially fraudulent or improper sales and it uses the following two processes to control 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 ecosystem. 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 PagSeguro Group’s ability to avoid new instances of fraud.

 

  (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 PagSeguro Group to approve transactions with the issuers.

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

 

  (i)

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

 

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Table of Contents

PagSeguro Digital Ltd.

Notes to the consolidated financial

statements at December 31, 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 that PagSeguro Group has sufficient funds to honor its obligations to third parties and meet its operational needs.

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 December 31, 2018, PagSeguro Group held cash and cash equivalents of R$ 2,763,050 (R$ 66,767 at December 31, 2017).

The table below shows 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 December 31, 2018

              

Payables to third parties

     3,968,125        233,694        66,967        55,412        —    

Trade payables

     141,958        18,744        1,358        3,186        —    

Trade payables to related parties

     —          28,869        —          —          —    

Other payables

     —          —          —          29,501        —    

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        —    

 

24.

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.

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

 

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Table of Contents

PagSeguro Digital Ltd.

Notes to the consolidated financial

statements at December 31, 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

25.

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).

At December 31, 2017, PagSeguro Group had financial investments whose fair value adjustments is classified as Level 1. PagSeguro Group did not have any other assets measured at fair value in 2017.

There were no transfers between Levels 1, 2 and 3 during the year ended December 31, 2018.

 

26.

Events after the reporting period

On January 4, 2019, Pagseguro Group acquired 100% of the share capital and obtained control of BBN Banco de Negocios S.A. Total consideration paid amounted to R$ 58,820 and the total net assets acquired amount to R$ 44,162. This acquisition is in accordance with PagSeguro Group’s business strategies, ramping up investments on new technologies, products and services for our digital ecosystem.

***

 

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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: February 21, 2019

 

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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