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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 August 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

Unaudited Condensed Consolidated

Interim Financial Statements

PagSeguro Digital Ltd.

At June 30, 2019 and for the three and six-month periods ended

June 30, 2019 and 2018

 


Table of Contents

PagSeguro Digital Ltd.

Unaudited condensed consolidated interim financial statements

At June 30, 2019 and for the three and six-month periods ended June 30, 2019 and 2018

 

Contents

 

Unaudited condensed consolidated interim financial statements

  

Unaudited condensed consolidated interim balance sheet

     1  

Unaudited condensed consolidated interim statement of income

     3  

Unaudited condensed consolidated interim statement of comprehensive income

     4  

Unaudited condensed consolidated interim statement of changes in equity

     5  

Unaudited condensed consolidated interim statement of cash flows

     6  

Notes to the unaudited condensed consolidated interim financial statements

     7  

 


Table of Contents

PagSeguro Digital Ltd.

Unaudited condensed consolidated interim balance sheet

At June 30, 2019 and December 31, 2018

(All amounts in thousands of reais)

 

 

     Note      June 30,
2019
     December 31,
2018
 

Assets

        

Current assets

        

Cash and cash equivalents

     5        254,767        2,763,050  

Financial investments

     6        1,761,745        —    

Accounts receivable

     7        9,859,199        8,104,679  

Inventories

        78,494        88,551  

Taxes recoverable

        100,161        65,653  

Other receivables

        41,709        20,148  
     

 

 

    

 

 

 

Total current assets

        12,096,075        11,042,081  
     

 

 

    

 

 

 

Non-current assets

        

Judicial deposits

        2,907        1,511  

Accounts receivable

     7        12,260        —    

Prepaid expenses

        5,001        968  

Investment

        1,500        —    

Property and equipment

     10        146,739        67,104  

Intangible assets

     11        425,941        305,614  
     

 

 

    

 

 

 

Total non-current assets

        594,348        375,197  
     

 

 

    

 

 

 

Total assets

        12,690,423        11,417,278  
     

 

 

    

 

 

 

 

1


Table of Contents
     Note      June 30,
2019
    December
31, 2018
 

Liabilities and equity

       

Current liabilities

       

Payables to third parties

     12        4,581,475       4,324,198  

Trade payables

        239,508       165,246  

Payables to related parties

     8        34,858       30,797  

Salaries and social charges

     13        108,984       73,936  

Taxes and contributions

     14        109,130       80,093  

Provision for contingencies

     15        8,264       7,004  

Other payables

        16,267       29,501  
     

 

 

   

 

 

 

Total current liabilities

        5,098,486       4,710,775  
     

 

 

   

 

 

 

Non-current liabilities

       

Deferred income tax and social contribution

     16        358,625       132,125  

Other payables

        15,800       —    
     

 

 

   

 

 

 

Total non-current liabilities

        374,425       132,125  
     

 

 

   

 

 

 

Total liabilities

        5,472,911       4,842,900  
     

 

 

   

 

 

 

Equity

       

Share capital

     17        26       26  

Capital reserve

     17        5,715,888       5,688,134  

Equity valuation adjustments

     17        (22,785 )      (7,325

Profit retention reserve

     17        1,540,979       909,267  

Treasury shares

     17        (39,532 )      (39,532
     

 

 

   

 

 

 
        7,194,576       6,550,570  
     

 

 

   

 

 

 

Non-controlling interests

        22,936       23,806  
     

 

 

   

 

 

 

Total equity

        7,217,512       6,574,376  
     

 

 

   

 

 

 

Total liabilities and equity

        12,690,423       11,417,278  
     

 

 

   

 

 

 

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

 

2


Table of Contents

PagSeguro Digital Ltd.

Unaudited condensed consolidated interim statement of income

For the three and six-month periods ended June 30, 2019 and 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

     Note      Three-month period     Six-month period  
   June 30, 2019     June 30, 2018     June 30, 2019     June 30, 2018  

Net revenue from transaction activities and other services

     19        798,949       515,249       1,511,944       958,097  

Net revenue from sales

     19        63,454       89,409       131,043       183,395  

Financial income

     19        497,167       332,595       927,671       607,433  

Other financial income

     19        30,176       64,532       70,424       180,892  
     

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue and income

        1,389,746       1,001,785       2,641,082       1,929,817  

Cost of sales and services

     20        (684,393 )      (482,753     (1,302,172 )      (927,515

Selling expenses

     20        (131,679 )      (94,404     (214,057 )      (178,018

Administrative expenses

     20        (109,856 )      (109,174     (202,237 )      (328,198

Financial expenses

     20        (2,204 )      (2,804     (8,043 )      (19,328

Other expenses, net

     20        (491 )      98       (4,073 )      (1,010
     

 

 

   

 

 

   

 

 

   

 

 

 

Profit before income taxes

        461,123       312,748       910,500       475,748  

Current income tax and social contribution

     16        (1,349 )      (99,258     (51,489 )      (120,193

Deferred income tax and social contribution

     16        (137,017 )      14,117       (226,520 )      20,508  
     

 

 

   

 

 

   

 

 

   

 

 

 

Income tax and social contribution

        (138,366 )      (85,141     (278,009 )      (99,685
     

 

 

   

 

 

   

 

 

   

 

 

 

Net income for the period

        322,757       227,607       632,491       376,063  
     

 

 

   

 

 

   

 

 

   

 

 

 

Attributable to:

           

Owners of the Company

        322,400       227,168       631,712       375,546  

Non-controlling interests

        357       439       779       517  

Basic earnings per common share – R$

     18        1.0071       0.7417       1.9734       1.2262  

Diluted earnings per common share – R$

     18        0.9805       0.7386       1.9212       1.2210  
     

 

 

   

 

 

   

 

 

   

 

 

 

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

 

3


Table of Contents

PagSeguro Digital Ltd.

Unaudited condensed consolidated interim statement of comprehensive income

For the three and six-month periods ended June 30, 2019 and 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

     Three-month period      Six-month period  
     June 30,2019      June 30,2018      June 30,2019     June 30,2018  

Net income for the period

     322,757        227,607        632,491       376,063  

Currency translation adjustment

     22        356        (606     356  

Fair value of financial investments through OCI

     19        —          (69     —    
  

 

 

    

 

 

    

 

 

   

 

 

 

Total comprehensive income for the period

     322,798        227,963        631,816       376,419  
  

 

 

    

 

 

    

 

 

   

 

 

 

Attributable to

          

Owners of the Company

          

Net income for the period

     322,400        227,524        631,037       375,902  
  

 

 

    

 

 

    

 

 

   

 

 

 

Non-controlling interests

     358        439        779       517  
  

 

 

    

 

 

    

 

 

   

 

 

 

Net income for the period

     322,798        227,963        631,816       376,419  
  

 

 

    

 

 

    

 

 

   

 

 

 

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

 

4


Table of Contents

PagSeguro Digital Ltd.

Unaudited condensed consolidated interim statement of changes in equity

For the six-month periods ended June 30, 2019 and 2018

(All amounts in thousands of reais)

 

 

     Note      Share
capital
    Treasury
shares
    Capital reserve     Profit reserve      Equity
valuation

adjustments
    Total     Non-controlling
interests
    Total
equity
 
  Capital
reserve
     Share-based
long-term
incentive
plan (LTIP)
    Legal
reserve
    Profit
retention

reserve
    Retained
earnings
 

At December 31, 2017

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

Conversion of profit reserve to common; shares

     17        (524,556     —         866,819        —         (30,216     (312,047     —          —         —         —         —    

Net income for the period

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

Currency translation adjustment

     17        —         —         —          —         —         —         —          356       356       —         356  

Non-controlling acquisition

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

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

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

Shares issued—Stock options plan

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

Shares based long term incentive plan (LTIP)

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

At June 30, 2018

        26       —         5,527,764        46,020       —         —         375,546        (7,177     5,942,179       23,388       5,965,567  

Net income for the period

     17        —         —         —          —         —         —         533,721        —         533,721       624       534,345  

Currency translation adjustment

     17        —         —         —          —         —         —         —          (148     (148     —         (148

Non-controlling acquisition

     17        —         —         —          —         —         —         —          —         —         (206     (206

Shares issued—stock option plan

     17        —         —         119,499        (119,499     —         —         —          —         —         —         —    

Share based long term incentive plan (LTIP)

     17        —         —         —          114,350       —         —         —          —         114,350       —         114,350  

Acquisition of treasury shares

     17        —         (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  

Net income for the period

     17        —         —         —          —         —         —         631,712        —         631,712       779       632,491  

Currency translation adjustment

     17        —         —         —          —         —         —         —          (606     (606     —         (606

Loss on financial assets through other comprehensive income

     17        —         —         —          —         —         —         —          (69     (69     —         (69

Non-controlling acquisition

     17        —         —         —          —         —         —         —          (14,785     (14,785     (1,649     (16,434

Shares issued—stock option plan

     17        —         —         11,201        (11,201     —         —         —          —         —         —         —    

Share based long term incentive plan (LTIP)

     17        —         —         —          27,754       —         —         —          —         27,754       —         27,754  
     

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

At June 30, 2019

        26       (39,532     5,658,464        57,424       —         —         1,540,979        (22,785     7,194,576       22,936       7,217,512  
     

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

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

 

5


Table of Contents

PagSeguro Digital Ltd.

Unaudited condensed consolidated interim statement of cash flows

For the six-month periods ended June 30, 2019 and 2018

(All amounts in thousands of reais)

 

 

     June 30, 2019     June 30, 2018  

Cash flows from operating activities

    

Profit before income taxes

     910,500       475,748  

Expenses (revenues) not affecting cash:

    

Depreciation and amortization

     48,135       38,548  

Chargebacks

     74,483       28,146  

Accrual of provision for contingencies

     848       1,135  

Share based long term incentive plan (LTIP)

     27,754       162,410  

Inventory provisions

     6,918       2,745  

Other financial cost, net

     30,783       (1,195

Changes in operating assets and liabilities

    

Accounts receivable

     (1,979,920     (2,838,067

Inventories

     3,139       4,508  

Taxes recoverable

     (13,999     265  

Other receivables

     (22,944     3,958  

Other payables

     3,791       2,404  

Payables to third parties

     257,277       4,218  

Trade payables

     73,668       64,091  

Receivables from (payables to) related parties

     4,061       119,130  

Salaries and social charges

     35,048       1,356  

Taxes and contributions

     6,073       22,291  

Provision for contingencies

     —         (795
  

 

 

   

 

 

 
     (534,385     (1,909,104
  

 

 

   

 

 

 

Income tax and social contribution paid

     (52,122     (110,844

Interest income received

     138,658       160,164  
  

 

 

   

 

 

 

Net cash used in operating activities

     (447,849     (1,859,784
  

 

 

   

 

 

 

Cash flows from investing activities

    

Amount paid on acquisitions, net of cash acquired

     (15,753     —    

Purchases of property and equipment

     (90,348     (11,749

Purchases and development of intangible assets

     (148,528     (66,363

Acquisition of financial investments

     (1,790,118     —    

Redemption of financial investments

     —         211,116  
  

 

 

   

 

 

 

Net cash provided (used in) investing activities

     (2,044,747     133,004  
  

 

 

   

 

 

 

Cash flows from financing activities

    

Proceeds from offering of shares

     —         4,744,900  

Transactional costs

     —         (186,349

Transaction with non-controlling interest

     (15,992     (5,390

Capital increase by non-controlling shareholders

     305       20,334  
  

 

 

   

 

 

 

Net cash provided (used in) financing activities

     (15,687     4,573,495  
  

 

 

   

 

 

 

Increase (decrease) in cash and cash equivalents

     (2,508,283     2,846,715  
  

 

 

   

 

 

 

Cash and cash equivalents at the beginning of the period

     2,763,050       66,767  

Cash and cash equivalents at the end of the period

     254,767       2,913,482  

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

 

6


Table of Contents

PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements

At June 30, 2019 and for the three and six-month periods ended June 30, 2019

(All amounts in thousands of reais unless otherwise stated)

 

 

1.

General information

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

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

PagSeguro Brazil subsidiaries are Net+Phone Telecomunicações Ltda. (“Net+Phone”), Boa Compra Ltda. (“Boa Compra”), BCPS Online Services LDA. (“BCPS”), R2TECH Informática S.A. (“R2TECH”), BIVACO Holding S.A (“BIVA”), Fundo de Investimento em Direitos Creditórios—PagSeguro (“FIDC”) and Tilix Digital S.A. (“TILIX”).

In addition to our operations carried out by PagSeguro Brazil, on January 4, 2019, PagSeguro Digital acquired 100% of BBN Banco Brasileiro de Negócios S.A. (renamed BancoSeguro S.A. “BancoSeguro” in February 2019), through BS Holding Financeira Ltd. (“BS Holding”), a holding company incorporated under PagSeguro Digital.

On March 15, 2019, PagSeguro Group acquired 10% of the share capital of Netpos Serviços de Informática S.A. (“NETPOS”). Total consideration paid amounted to R$1,500 which was settled in cash. PagSeguro Group acquired 10% of shares and does not have control of NETPOS operation, based on IFRS 3. NETPOS was not consolidated in these interim financial statements.

These unaudited condensed consolidated interim financial statements include BS Holding and its subsidiary BancoSeguro and 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.

 

7


Table of Contents

PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements (Continued)

At June 30, 2019 and for the three and six-month periods ended June 30, 2019

(All amounts in thousands of reais unless otherwise stated)

 

 

1.

General information (Continued)

 

  1.1.

Initial Public Offering (“IPO”) (Continued)

The shares offered and sold in the IPO were registered under the Securities Act of 1933, as amended, pursuant to the Company’s Registration Statement on Form F-1 (Registration No. 333-222292) which was declared effective by the Securities and Exchange Commission on January 26, 2018. The common stock has been traded on the New York Stock Exchange (NYSE) since January 26, 2018, under the symbol “PAGS”.

 

  1.2.

Follow-on public offering

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

The initial offering price was US$29,25 per common share, for gross proceeds of US$337.8 million (or R$1,274.4 million). The Company received net proceeds of US$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.

 

  1.3.

Long-Term Incentive Plan (“LTIP”)

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

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

 

2.

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

These unaudited condensed consolidated interim financial statements do not include all of the information required for a complete set of financial statements prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standard Board. However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Company’s financial position and performance since the last annual financial statements.

 

8


Table of Contents

PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements (Continued)

At June 30, 2019 and for the three and six-month periods ended June 30, 2019

(All amounts in thousands of reais unless otherwise stated)

 

 

2.

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

These unaudited condensed consolidated interim financial statements for the six-month period ended June 30, 2019 were authorized for issuance by the PagSeguro Digital’s Board of Directors on August 05, 2019.

 

  2.1.

Basis of preparation of condensed consolidated interim financial information

These unaudited condensed consolidated interim financial statements for the six-month period ended June 30, 2019 have been prepared in accordance with International Accounting Standard 34, “Interim Financial Reporting” as issued by the International Accounting Standard Board.

These unaudited condensed consolidated interim financial statements do not include all the notes of the type normally included in an annual consolidated financial statement. Accordingly, this report is to be read in conjunction with the annual consolidated financial statements for the year ended December 31, 2018 (the “Annual Financial Statements”).

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

 

  2.2.

New accounting pronouncements

Effective for periods beginning on or after January 1, 2019

The accounting policies adopted in the preparation of the unaudited condensed consolidated interim financial statements are consistent with those followed in the preparation of the annual consolidated financial statements for the year ended December 31, 2018, except for the adoption of new standards effective as January 1st, 2019. The Company applies, for the first time, IFRS 16—Leases as well as other amendments and interpretations that apply for the first time in 2019. As required by IAS 34, the nature and effect of these changes are disclosed below. Those changes, however, did not have material impacts on the unaudited condensed consolidated interim financial statements.

 

9


Table of Contents

PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements (Continued)

At June 30, 2019 and for the three and six-month periods ended June 30, 2019

(All amounts in thousands of reais unless otherwise stated)

 

 

2.

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

 

  2.2.

New accounting pronouncements (Continued)

Effective for periods beginning on or after January 1, 2019 (Continued)

The following new standards have been issued by IASB and are effective for the six-month ended June 30, 2019:

IFRS 16—Leases

This new standard requires lessees to recognize the liability of the future payments and the right of use of the leased asset for virtually all lease contracts, including operating leases. Certain short-term and low-value contracts may be out of the scope of this new standard. The criteria for recognition and measurement of leases in the financial statements of the lessors are substantially maintained. IFRS 16 is effective for years beginning on or after January 1, 2019 and replaces IAS 17—“Leases” and related interpretations. Management has performed an assessment and did not identify any material impacts to date. Therefore, changes to standards or new pronouncements applicable to the years presented in the consolidated financial statements were not relevant to the PagSeguro Group, for retrospective disclosure and disclosure of amounts.

IFRIC Interpretation 23 Uncertainty over Income Tax Treatment

The Interpretation addresses the accounting for income taxes when tax treatments involve uncertainty that affects the application of IAS 12 Income Taxes. The Interpretation specifically addresses the following:

 

   

Whether an entity considers uncertain tax treatments separately;

 

   

The assumptions an entity makes about the examination of tax treatments by taxation authorities;

 

   

How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates; and

 

   

How an entity considers changes in facts and circumstances

An entity has to determine whether to consider each uncertain tax treatment separately or together with one or more other uncertain tax treatments. The approach that better predicts the resolution of the uncertainty needs to be followed. The interpretation did not have an impact on the unaudited condensed consolidated interim financial statements.

 

10


Table of Contents

PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements (Continued)

At June 30, 2019 and for the three and six-month periods ended June 30, 2019

(All amounts in thousands of reais unless otherwise stated)

 

 

2.

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

 

  2.2.

New accounting pronouncements (Continued)

Effective for periods beginning on or after January 1, 2019 (Continued)

Annual Improvements 2015-2017 Cycle

IFRS 3 Business Combinations

The amendments clarify that, when an entity obtains control of a business that is a joint operation, it applies the requirements for a business combination achieved in stages, including remeasuring previously held interests in the assets and liabilities of the joint operation at fair value. In doing so, the acquirer remeasures its entire previously held interest in the joint operation.

An entity applies those amendments to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 January 2019. These amendments had no impact on the unaudited condensed consolidated interim financial statements as there is no transaction where a joint control is obtained.

IAS 12 Income Taxes

The amendments clarify that the income tax consequences of dividends are linked more directly to past transactions or events that generated distributable profits than to distributions to owners. Therefore, an entity recognizes the income tax consequences of dividends in profit or loss, other comprehensive income or equity according to where it originally recognized those past transactions or events.

An entity applies the amendments for annual reporting periods beginning on or after 1 January 2019. When the entity first applies those amendments, it applies them to the income tax consequences of dividends recognized on or after the beginning of the earliest comparative period. The amendment did not have an impact on the unaudited condensed consolidated interim financial statements.

 

11


Table of Contents

PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements (Continued)

At June 30, 2019 and for the three and six-month periods ended June 30, 2019

(All amounts in thousands of reais unless otherwise stated)

 

 

3.

Consolidation of subsidiaries

 

At June 30, 2019

 

Company

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

PagSeguro Brazil

     13,636,126        6,822,367        6,813,759        623,577        99.99        Direct  

BS Holding

     68,190        49        68,141        (8,141      99.99        Direct  

Net+Phone

     245,179        79,458        165,721        36,773        99.99        Indirect  

Boa Compra

     102,712        67,532        35,180        8,631        99.99        Indirect  

BCPS

     1,462        280        1,182        (286      99.50        Indirect  

R2TECH

     9,371        2,320        7,051        3,182        100.00        Indirect  

BIVA

     18,681        4,649        14,032        1,499        100.00        Indirect  

FIDC

     1,567,222        426,863        1,140,359        608,284        100.00        Indirect  

TILIX

     5,780        6,209        (429      (2,065      100.00        Indirect  

BancoSeguro

     64,187        11,255        52,932        8,383        100.00        Indirect  

The operational context of the subsidiaries is to be read in conjunction with the annual financial statements for the year ended December 31, 2018.

R2TECH

R2Tech, organized in Brazil, which manages our reconciliation product. PagSeguro Brazil acquired 51% of R2Tech in 2017 and the remaining 49% in February 2019, obtained 100% of R2TECH. The total paid for the remaining purchase was R$13,992, which was settled in cash on that date.

BancoSeguro

On January 4, 2019, BS Holding acquired 100% of BBN Banco Brasileiro de Negócios S.A. (renamed BancoSeguro S.A. in February 2019). BancoSeguro, organized in Brazil, through our fully owned direct subsidiary BS Holding. BancoSeguro holds a license to provide financial services. We expect that this acquisition will allow us to expand our product and services offering.

BIVA

On April 1, 2019, PagSeguro Group acquired an additional interest of 22,65% of the issued shares of BIVA. Total consideration paid amount to R$ 2,000 which was settled in cash on the same date. This purchase increases PagSeguro Brazil’s interest to 100% of BIVAs shares.

 

12


Table of Contents

PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements (Continued)

At June 30, 2019 and for the three and six-month periods ended June 30, 2019

(All amounts in thousands of reais unless otherwise stated)

 

 

 

4.

Segment reporting

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

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

The PagSeguro Group is domiciled in Brazil and has revenue arising from local customers and customers located abroad. The main revenue is related to sales from the domestic market. Net revenues from the international market represent 1.3% and 1% for the six-month periods ended June 30, 2019 and twelve-month periods ended 2018, respectively.

 

5.

Cash and cash equivalents

 

     June 30,
2019
     December 31,
2018
 

Short-term bank deposits

     98,637        405,227  

Short-term investment

     156,130        2,357,823  
  

 

 

    

 

 

 
     254,767        2,763,050  
  

 

 

    

 

 

 

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.

 

6.

Financial investments

 

     June 30,
2019
     December 31,
2018
 

Short-term investment

     1,761,745        —    
  

 

 

    

 

 

 
     1,761,745            
  

 

 

    

 

 

 

 

13


Table of Contents

PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements (Continued)

At June 30, 2019 and for the three and six-month periods ended June 30, 2019

(All amounts in thousands of reais unless otherwise stated)

 

 

6.

Financial investments (Continued)

Consists of investments in Brazilian Treasury Bonds (“LFTs”) with an average return of 100% of the Basic Interest Rate (SELIC, currently at 6.5% per year), invested to comply with certain requirements for authorized payment institutions as set forth by Central Bank of Brazil regulation. This financial asset was classified at fair value through other comprehensive income. The balance as of June 30, 2019 is related to excess cash and cash equivalents proceeds originated from the IPO and the follow-on offering mentioned in Notes 1.1 and 1.2, respectively. Unrealized losses of LFTs as of June 30, 2019 totaled R$69.

 

14


Table of Contents

PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements (Continued)

At June 30, 2019 and for the three and six-month periods ended June 30, 2019

(All amounts in thousands of reais unless otherwise stated)

 

 

7.

Accounts receivable

 

     June 30, 2019      December 31, 2018  
     Visa      Master      Hipercard      Elo      Total      Visa      Master      Hipercard      Total  

Legal obligors

                          

Itaú

     623,066        2,347,403        552,226                  3,522,695        570,463        1,979,994        514,627        3,065,084  

Bradesco

     858,154        174,140                  179,352        1,211,646        735,784        170,497        —          906,281  

Banco do Brasil

     689,500        159,841                  119,593        968,934        566,537        153,633        —          720,170  

CEF

     150,050        178,782                  105,001        433,833        133,882        173,208        —          307,090  

Santander

     272,348        1,067,832                            1,340,180        247,950        871,976        —          1,119,926  

Other (*)

     512,608        1,413,024                  37,439        1,963,071        386,808        1,069,323        —          1,456,131  

Total card issuers(i)

     3,105,726        5,341,022        552,226        441,385        9,440,359        2,641,424        4,418,631        514,627        7,574,682  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cielo—Elo

     —          —          —          —          156,428        —          —          —          366,619  

Cielo

     —          —          —          —          44,277        —          —          —          91,402  

Redecard

     —          —          —          —          791        —          —          —          5,502  

Amex

     —          —          —          —          —          —          —          —          1,188  

Vero

     —          —          —          —          8,069        —          —          —          4,396  

Other

     —          —          —          —          69,661        —          —          —          34,367  

Total acquirers (ii)

     —          —          —          —          279,226        —          —          —          503,474  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other current

     —          —          —          —          139,614        —          —          —          26,523  

Other non-current

     —          —          —          —          12,260        —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total other

     —          —          —             151,874        —          —          —          26,523  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Accounts receivable

     3,105,726        5,341,0212        552,226        441,385        9,871,459        2,641,424        4,418,631        514,627        8,104,679  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

  (*)

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, Hipercard or Elo. However, PagSeguro Brazil’s contractual accounts receivable are with the financial institutions, which are the legal obligors on the accounts receivable. Additionally, amounts due within 27 days of the original transaction, including those that fall due with the first installment of installment receivables, are guaranteed by Visa, Mastercard, Elo or Hipercard, as applicable, in the event that the legal obligors do not make payment. PagSeguro Brazil started operating directly as a financial intermediary in 2016.

  (ii)

Acquirers: refers to card processing transactions to be received from the acquirers, which are a third parties acting as financial intermediaries between the issuing bank and PagSeguro Brazil. This balance also includes the receivables from sales of debit and credit card readers.

 

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Table of Contents

PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements (Continued)

At June 30, 2019 and for the three and six-month periods ended June 30, 2019

(All amounts in thousands of reais unless otherwise stated)

 

 

7.

Accounts receivable (Continued)

The maturity analysis of accounts receivable is as follows:

 

     June 30,
2019
     December 31,
2018
 

Due within 30 days

     5,356,563        4,323,893  

Due within 31 to 120 days

     3,199,710        3,135,358  

Due within 121 to 180 days

     701,130        468,913  

Due within 181 to 360 days

     601,796        176,515  

Due after 360 days

     12,260        —    
  

 

 

    

 

 

 
     9,871,459        8,104,679  
  

 

 

    

 

 

 

 

8.

Related-party balances and transactions

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

 

  i)

Balances and transactions with related parties

 

     June 30,
2019
     December 31,
2018
 
     Payables      Payables  

Immediate parent

     

UOL—sales of services (a)

     16,555        9,822  

UOL—shared service costs

     9,837        10,234  

Affiliated companies

     

UOL Diveo—sales of services (a)

     4,331        3,290  

UOL Diveo—shared service costs

     —          126  

Transfolha Transportadora e Distribuição Ltda.

     2,432        4,336  

Livraria da Folha Ltda.

     —          32  

Empresa Folha da Manhã S/A

     913        2,073  

Others

     790        884  
  

 

 

    

 

 

 
     34,858        30,797  
  

 

 

    

 

 

 

 

  (a)

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

 

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Table of Contents

PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements (Continued)

At June 30, 2019 and for the three and six-month periods ended June 30, 2019

(All amounts in thousands of reais unless otherwise stated)

 

 

8.

Related-party balances and transactions (Continued)

 

  i)

Balances and transactions with related parties (Continued)

 

     Three-month period      Six-month period  
     June 30,2019      June 30,2018      June 30,2019      June 30,2018  
     Revenue      Expense      Revenue      Expense      Revenue      Expense      Revenue      Expense  

Immediate parent

                       

UOL—shared service costs (a)

     —          26,890        —          17,958        —          35,884        —          60,999  

UOL—sales of services (b)

     817        23,994        564        12,882        1,208        35,962        1,032        25,803  

Affiliated companies

                       

UOL Diveo—shared service costs

     —          —          —          124        —          7        —          247  

UOL Diveo—sales of services (c)

     —          10,828        —          5,468        —          16,836        —          12,010  

Transfolha Transportadora e Distribuição Ltda.

     —          1,908        —          5,198        —          6,884        —          7,822  

Livraria da Folha Ltda.

     —          —          39        —          —          —          110        —    

Others

     1        —          108        —          10        220        307        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     818        63,620        711        41,630        1,218        95,793        1,449        106,881  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

  (a)

Shared services costs mainly related to (i) payroll costs, (ii) IT structure / software and (iii) property rental costs that are incurred by the parent company UOL and are charged to PagSeguro pursuant arm’s length contractual agreements. Such costs are included in administrative expenses. The decrease in the balance refers to payroll taxes related to LTIP in the six-month period ended June 30, 2019 which amounted to R$ 3,809 (R$ 34,193 in June 30, 2018) that are paid by the parent company UOL and reimbursed by PagSeguro.

  (b)

Sale of services related to advertising incurred by the parent company UOL and are charged to PagSeguro Brazil pursuant to arm’s length contractual agreements.

  (c)

Sale of services from the affiliated company UOL Diveo related to technical support in hosting and colocation services (started in 2016) and are charged to PagSeguro Brazil pursuant to arm’s length contractual agreements.

 

  ii)

Key management compensation

Key management compensation includes short and long-term benefits of PagSeguro Brazil’s executive officers. The short and long-term compensation related to the executive officers for the six-month period ended June 30, 2019 amounted to R$17,335 (June 30, 2018—R$39,047).

 

17


Table of Contents

PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements (Continued)

At June 30, 2019 and for the three and six-month periods ended June 30, 2019

(All amounts in thousands of reais unless otherwise stated)

 

 

9.

Business combinations

Acquisition for the year ended December 31, 2018

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. The fair values of the identifiable assets and liabilities of TILIX as at the date of acquisition were:

 

     Fair value of assets
and liabilities
acquired
 

The assets and liabilities arising from the acquisition

  

Cash and cash equivalents

     1,996  

Assets acquired

     130  

Liabilities assumed

     (3,975

Property, plant and equipment and intangible assets

     2,284  
  

 

 

 

Value of net assets

     435  
  

 

 

 

Goodwill

     19,175  
  

 

 

 

Purchase cost

     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  
  

 

 

 

Acquisition for the six months ended June 30, 2019

On January 4, 2019, PagSeguro Group acquired 100% of the share capital and obtained control of BBN Banco de Negócios S.A. Total consideration paid amounted to R$58,820 and the total net assets acquired amount to R$44,549. This acquisition is in accordance with PagSeguro Group’s business strategies, ramping up investments on new technologies, products and services for our digital ecosystem.

The goodwill recognized is primarily attributed to the expected synergies and other benefits from combining the assets and activities of BancoSeguro with those of PagSeguro Group as well as generate more usage and engagement from PagSeguro clients and is tested annually for impairment in December or when circumstances indicated that the carrying value may be impaired. The Group’s impairment test for goodwill is based on value-in-use calculations.

 

18


Table of Contents

PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements (Continued)

At June 30, 2019 and for the three and six-month periods ended June 30, 2019

(All amounts in thousands of reais unless otherwise stated)

 

 

9.

Business combinations (Continued)

Acquisition for the six months ended June 30, 2019 (Continued)

The key assumptions used to determine the recoverable amount for the different cash generating units were disclosed in the annual consolidated financial statements for the year ended 31 December 2018. The purchase price allocation may be subject to changes in the measurement period as defined in IFRS. The fair values of the identifiable assets and liabilities of BBN Banco de Negócios S.A. as at the date of acquisition were:

 

     Fair value of assets
and liabilities
acquired
 

The assets and liabilities arising from the acquisition

  

Cash and cash equivalents

     44,567  

Assets acquired

     26  

Liabilities assumed

     (44
  

 

 

 

Value of net assets

     44,549  
  

 

 

 

Goodwill

     14,271  
  

 

 

 

Purchase cost

     58,820  
  

 

 

 

Consideration for the purchase settled in cash

     58,820  
  

 

 

 

Cash and cash equivalents at the subsidiary acquired

     (44,567
  

 

 

 

Amount paid on acquisitions less cash and cash equivalents acquired

     14,253  
  

 

 

 

 

10.

Property and equipment

 

  a)

Property and equipment are composed as follows

 

     June 30, 2019  
     Cost      Accumulated
depreciation
     Net  

Data processing equipment

     53,670        (11,537      42,133  

Facilities

     38        (29      9  

Machinery and equipment

     102,736        (9,364      93,372  

Furniture and fittings

     2,460        (250      2,210  

Leasehold improvements

     8,680        (522      8,158  

Vehicles

     1,371        (514      857  
  

 

 

    

 

 

    

 

 

 
     168,955        (22,216      146,739  
  

 

 

    

 

 

    

 

 

 

 

     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  

Leasehold improvements

     6,954        (195      6,759  

Vehicles

     1,371        (222      1,149  
  

 

 

    

 

 

    

 

 

 
     78,607        (11,503      67,104  
  

 

 

    

 

 

    

 

 

 

 

19


Table of Contents

PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements (Continued)

At June 30, 2019 and for the three and six-month periods ended June 30, 2019

(All amounts in thousands of reais unless otherwise stated)

 

 

10.

Property and equipment (Continued)

 

  b)

The changes in cost and accumulated depreciation were as follows

 

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

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  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

At June 30, 2019

                    

Cost

                    

Purchases

     30,336        —          57,979        307        1,726        —          90,348  

Depreciation

                    

Depreciation

     (3,722      (2      (6,268      (102      (327      (292      (10,713
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net book value

     42,133        9        93,372        2,210        8,158        857        146,739  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

At June 30, 2019

                    

Cost

     53,670        38        102,736        2,460        8,680        1,371        168,955  

Accumulated depreciation

     (11,537      (29      (9,364      (250      (522      (514      (22,216
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net book value

     42,133        9        93,372        2,210        8,158        857        146,739  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

20


Table of Contents

PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements (Continued)

At June 30, 2019 and for the three and six-month periods ended June 30, 2019

(All amounts in thousands of reais unless otherwise stated)

 

 

 

11.

Intangible assets

 

  a)

Intangible assets are composed as follows

 

     June 30, 2019  
     Cost      Accumulated
amortization
     Net  

Expenditures related to software and technology (i)

     571,435        (250,298      321,137  

Software licenses

     56,602        (8,107      48,495  

Customer relationships

     1,981        (517      1,464  

Goodwill (iii)

     54,845        —          54,845  
  

 

 

    

 

 

    

 

 

 
     684,863        (258,922      425,941  
  

 

 

    

 

 

    

 

 

 

 

     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  
  

 

 

    

 

 

    

 

 

 

 

  (i)

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

  (ii)

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

  (iii)

Goodwill provided on the acquisition of the companies TILIX and BancoSeguro.

 

21


Table of Contents

PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements (Continued)

At June 30, 2019 and for the three and six-month periods ended June 30, 2019

(All amounts in thousands of reais unless otherwise stated)

 

 

11.

Intangible assets (Continued)

 

  b)

The changes in cost and accumulated amortization were as follows

 

     Expenditures
with software
and technology
     Software
licenses
     Customer
relationships
     Goodwill      Total  

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  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

At June 30, 2019

              

Cost

              

Additions

     109,153        39,375        —          —          148,528  

Acquisition of subsidiary

     —          —          —          14,271        14,271  

Amortization

     (38,369      (4,034      (69      —          (42,472
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net book value

     321,137        48,495        1,464        54,845        425,941  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

At June 30, 2019

              

Cost

     571,435        56,602        1,981        54,845        684,863  

Accumulated amortization

     (250,298      (8,107      (517      —          (258,922
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net book value

     321,137        48,495        1,464        54,845        425,941  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

22


Table of Contents

PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements (Continued)

At June 30, 2019 and for the three and six-month periods ended June 30, 2019

(All amounts in thousands of reais unless otherwise stated)

 

 

12.

Payables to third parties

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

 

13.

Salaries and social charges

 

     June 30,
2019
     December 31,
2018
 

Profit sharing

     23,928        20,653  

Salaries payable

     5,728        4,378  

Social charges

     9,548        8,421  

Payroll accruals

     28,804        14,601  

Payroll taxes (LTIP)

     38,304        23,816  

Other

     2,672        2,067  
  

 

 

    

 

 

 
     108,984        73,936  
  

 

 

    

 

 

 

 

14.

Taxes and contributions

 

     June 30,
2019
     December 31,
2018
 

Taxes

     

Services tax (i)

     180,852        122,241  

Value-added tax on sales and services (ii)

     27,678        23,796  

Social integration program (iii)

     20,061        17,530  

Social contribution on revenues (iii)

     123,441        107,872  

Income tax and social contribution (iv)

     3,286        685  

Other

     2,500        1,919  
  

 

 

    

 

 

 
     357,818        274,043  
  

 

 

    

 

 

 

Judicial deposits (v)

     

Services tax (i)

     (81,341      (52,226

Value-added tax on sales and services (ii)

     (26,365      (19,476

Social integration program (iii)

     (19,707      (17,088

Social contribution on revenues (iii)

     (121,275      (105,160
  

 

 

    

 

 

 
     (248,688      (193,950
  

 

 

    

 

 

 
     109,130        80,093  
  

 

 

    

 

 

 

 

  (i)

Refers to taxes on revenue from transaction activities.

  (ii)

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

  (iii)

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

  (iv)

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

  (v)

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

 

 

23


Table of Contents

PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements (Continued)

At June 30, 2019 and for the three and six-month periods ended June 30, 2019

(All amounts in thousands of reais unless otherwise stated)

 

 

15.

Provision for contingencies

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

 

     June 30,
2019
     December 31,
2018
 

Civil

     7,867        6,680  

Labor

     397        324  
  

 

 

    

 

 

 
     8,264        7,004  
  

 

 

    

 

 

 

The PagSeguro Group is a party on tax lawsuits involving risks classified by legal advisors as possible losses, for which no provision was recognized at June 30, 2019, totaling approximately R$58,814 (December 31, 2018—R$50,978). The PagSeguro Group is not a party to civil and labor lawsuits involving risks classified by management as possible losses.

 

24


Table of Contents

PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements (Continued)

At June 30, 2019 and for the three and six-month periods ended June 30, 2019

(All amounts in thousands of reais unless otherwise stated)

 

 

16.

Income tax and social contribution

 

  a)

Reconciliation of the deferred income tax and social contribution

 

     Tax
losses
     Tax
credit
     Technological
innovation (i)
     Other
temporary
differences,
assets
     Other
temporary
differences,
liabilities
     Total  

Deferred tax

                 

At December 31, 2017

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Included in the statement of income

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

At June 30, 2018

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Included in the statement of income

     (1,103      (351      (26,402      (18,553      (100,430      (146,839
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

At December 31, 2018

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Included in the statement of income

     (2,077      2,005        (23,485      41,333        (244,297      (226,521
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other

     —          —          —          21        —          21  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

At June 30, 2019

     834        4,178        (106,664      106,069        (363,042      (358,625
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

  (i)

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

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

The estimated realization of deferred taxes in non-current assets and liabilities are as follows:

 

     June 30,
2019
     December 31,
2018
 
     Liability      Liability  

2019

     (5,471      (8,508

2020

     3,425        (13,659

2021

     (34,834      (15,420

2022

               10,556  

2023

     (321,745      (105,094
  

 

 

    

 

 

 
     (358,625      (132,125
  

 

 

    

 

 

 

 

25


Table of Contents

PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements (Continued)

At June 30, 2019 and for the three and six-month periods ended June 30, 2019

(All amounts in thousands of reais unless otherwise stated)

 

 

16.

Income tax and social contribution (Continued)

 

  b)

Reconciliation of the income tax and social contribution expense

At June 30, 2019 and 2018, the PagSeguro Group computed income tax and social contribution under the taxable income method. The following is a reconciliation of the difference between the actual income tax and social contribution expense and the expense computed by applying the Brazilian federal statutory rate for the three and six-month periods ended June 30, 2019 and 2018:

 

     Three-month period      Six-month
period
 
     June 30,
2019
     June 30,
2018
     June 30,
2019
     June 30,
2018
 

Profit for the period before taxes

     461,123        312,748        910,500        475,748  

Statutory rate

     34%        34%        34%        34%  
  

 

 

    

 

 

    

 

 

    

 

 

 

Expected income tax and social contribution

     (156,782      (106,334      (309,570      (161,754

Income tax and social contribution effect on:

           

Participation in the results of partners and managers

           

Permanent additions (exclusions)

           

Gifts

     (174      35        (208      (329

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

     16,515        8,889        29,107        22,442  

Taxation of income abroad (ii)

     (556      9,178        (179      40,094  

Other additions

     2,631        3,091        2,841        (137
  

 

 

    

 

 

    

 

 

    

 

 

 

Income tax and social contribution expense

     (138,366      (85,141      (278,009      (99,685
  

 

 

    

 

 

    

 

 

    

 

 

 

Effective rate

     30%        27%        31%        21%  

Income tax and social contribution—current

     (1,349      (99,258      (51,489      (120,193

Income tax and social contribution—deferred

     (137,017      14,117        (226,520      20,508  

 

  (i)

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

  (ii)

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

 

26


Table of Contents

PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements (Continued)

At June 30, 2019 and for the three and six-month periods ended June 30, 2019

(All amounts in thousands of reais unless otherwise stated)

 

 

17.

Equity

 

  a)

Share capital

At June 30, 2019, share capital is represented by 327,890,392 common shares, per value of US$0.000025. Share capital is composed of the following shares for the six-month periods ended June 30, 2019 and the year ended December 31, 2018:

 

December 31, 2017 shares outstanding

     262,288,607  
  

 

 

 

Primary shares offered in the IPO

     50,925,642  

Primary shares offered in the follow-on offering

     11,550,000  

Treasury shares

     503,642  

Long-Term Incentive Plan

     3,024,625  

Repurchase of common shares

     (503,642
  

 

 

 

December 31, 2018 shares outstanding

     327,788,874  
  

 

 

 

Long-Term Incentive Plan

     101,517  
  

 

 

 

June 30, 2019 shares outstanding

     327,890,391  
  

 

 

 

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

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

 

  b)

Capital reserve

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

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

On June 26, 2018, 11,550,000 new shares were issued at a price of US$29.25 per share representing net proceeds of US$326.8 million (or R$1,232.6 million). Refer to Note 1.2 for further details.

 

27


Table of Contents

PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements (Continued)

At June 30, 2019 and for the three and six-month periods ended June 30, 2019

(All amounts in thousands of reais unless otherwise stated)

 

 

17.

Equity (Continued)

 

  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 LTIP received a total of 1,823,727 new Class A common shares upon completion of the IPO.

The unvested portions of each beneficiary’s LTIP rights will be settled on each future annual vesting date in shares.

The shares granted under the LTIP are subject to a one-year lock-up period. Any shares that are issued on a subsequent vesting date during the first year after the IPO will be subject to the remainder of that same lock-up period, expiring one year after the IPO. After the close of that one-year period, shares to be granted under the LTIP will no longer be subject to a lock-up.

This arrangement is classified as equity settled. For the six-month period ended June 30, 2019, the Company recognized compensation expenses related to the LTIP in the total amount of R$27,754.

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 June 30, 2019 total shares granted were 7,064,478, and the total shares issued were 3,126,142. There were no forfeitures or expirations in the six-month period ended June 30, 2019.

 

  d)

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, amounted negative value in R$606 in the period of six months ended in June 30, 2019 (R$263 as of December 31, 2018). 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.

 

28


Table of Contents

PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements (Continued)

At June 30, 2019 and for the three and six-month periods ended June 30, 2019

(All amounts in thousands of reais unless otherwise stated)

 

 

17.

Equity (Continued)

 

  d)

Equity valuation adjustments (Continued)

The Company also recognized in this account the difference between the book value and the amounts paid in the acquisitions of additional interests of the non-controlling shareholders of the subsidiary represented by the accumulated amount of R$22,372 as of June 30, 2019 related to R2TECH, in the amount of R$11,663 (R$0 as of December 31,2018), and BIVA, in the amount of 10,709 (R$7,588 as of December 31, 2018).

 

  e)

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.

 

18.

Earnings per share

 

  a)

Basic

Basic earnings per share are calculated by dividing the profit attributable to shareholders of the PagSeguro Group by the weighted average number of common shares issued and outstanding during the six-month periods ended June 30, 2019 and 2018:

 

     Three-month period      Six-month period  
     June 30,
2019
     June 30,
2018
     June 30,
2019
     June 30,
2018
 

Profit attributable to stockholders of the Company

     322,400        227,168        631,712        375,546  

Weighted average number of outstanding common shares

     320,114,060        306,278,562        320,114,060        306,278,562  
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic earnings per share—R$

     1.0071        0.7417        1.9734        1.2262  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

29


Table of Contents

PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements (Continued)

At June 30, 2019 and for the three and six-month periods ended June 30, 2019

(All amounts in thousands of reais unless otherwise stated)

 

 

18.

Earnings per share (Continued)

 

  b)

Diluted

 

     Three-month period      Six-month period  
     June 30,
2019
     June 30,
2018
     June 30,
2019
     June 30,
2018
 

Profit used to determine diluted earnings per share

     322,400        227,168        631,712        375,546  
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average number of outstanding common shares

     320,114,060        306,278,562        320,114,060        306,278,562  

Weighted average number of shares under options

     4,770,826        3,844,232        4,770,826        3,844,232  

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

     3,918,165        (2,539,194      3,918,165        (2,539,194
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average number of common shares for diluted earnings per share

     328,803,051        307,583,600        328,803,051        307,583,600  
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted earnings per share—R$

     0.9805        0.7386        1.9212        1.2210  
  

 

 

    

 

 

    

 

 

    

 

 

 

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.

 

19.

Total revenue and income

 

     Three-month period      Six-month period  
     June 30,
2019
     June 30,
2018
     June 30,
2019
     June 30,
2018
 

Gross revenue from transaction activities and other services

     914,123        599,922        1,740,333        1,113,997  

Gross revenue from sales

     92,123        128,060        185,853        257,738  

Gross financial income (i)

     500,973        347,931        937,433        636,350  

Other financial income (ii)

     30,176        64,532        70,424        180,892  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total gross revenue and income

     1,537,395        1,140,445        2,934,043        2,188,977  
  

 

 

    

 

 

    

 

 

    

 

 

 

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

     (115,174      (84,673      (228,389      (155,900

Deductions from gross revenue from sales (iv)

     (28,669      (38,651      (54,810      (74,343

Deductions from gross financial income (v)

     (3,806      (15,336      (9,762      (28,917

Total deductions from gross revenue and income

     (147,649      (138,661      (292,961      (259,160
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenue and income

     1,389,746        1,001,785        2,641,082        1,929,817  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

  (i)

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

  (ii)

The decrease in the period refers to foreign exchange gain on the currency conversion of the IPO and follow on proceeds, for the six-month period ended June 30, 2018 in the amount of R$117,245.

  (iii)

Deductions consist of transactions taxes.

  (iv)

Deductions are composed of sales taxes and returns.

  (v)

Deductions consist of taxes on financial income.

 

 

30


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PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements (Continued)

At June 30, 2019 and for the three and six-month periods ended June 30, 2019

(All amounts in thousands of reais unless otherwise stated)

 

 

20.

Expenses by nature

 

     Three-month period      Six-month period  
     June 30,
2019
     June 30,
2018
     June 30,
2019
     June 30,
2018
 

Transactions costs

     (432,731      (281,408      (813,672      (528,569

Cost of goods sold

     (158,279      (127,071      (306,062      (226,515

Marketing and advertising

     (116,131      (102,308      (196,123      (193,248

Personnel expenses (i)

     (93,461      (97,841      (171,251      (340,194

Financial expenses (ii)

     (2,204      (2,804      (8,043      (19,328

Chargebacks (iii)

     (41,648      (13,708      (74,483      (28,146

Depreciation and amortization (iv)

     (21,714      (20,541      (48,135      (38,548

Other

     (62,455      (43,356      (112,813      (79,522
  

 

 

    

 

 

    

 

 

    

 

 

 
     (928,623      (689,037      (1,730,582      (1,454,069
  

 

 

    

 

 

    

 

 

    

 

 

 

Classified as:

           

Cost of services

     (491,798      (339,449      (941,872      (668,255

Cost of sales

     (192,596      (143,304      (360,301      (259,260

Selling expenses

     (131,679      (94,404      (214,057      (178,018

Administrative expenses

     (109,856      (109,174      (202,237      (328,198

Financial expenses

     (2,204      (2,804      (8,043      (19,328

Other (expenses) income, net

     (490      98        (4,072      (1,010
  

 

 

    

 

 

    

 

 

    

 

 

 
     (928,623      (689,037      (1,730,582      (1,454,069
  

 

 

    

 

 

    

 

 

    

 

 

 

 

  (i)

The decrease refers to compensation expenses related to the LTIP for the six-month period ended June 30, 2019 in the amount of 27,754, and the respective payroll taxes in the amount of R$15,801. For the six-month period ended in June 30, 2018 LTIP related expenses amounted to R$162,410, and the respective payroll taxes amounted to R$82,913.

  (ii)

The decrease refers to Financial Operations Tax (IOF) related to the remittance of cash from the Cayman Islands to Brazil occurred in 2018 for the six-month period ended June 30, 2018 in the amount of R$13,826.

  (iii)

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

  (iv)

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

 

     Three-month period      Six-month period  
     June 30,
2019
     June 30,
2018
     June 30,
2019
     June 30,
2018
 

Depreciation

           

Cost of sales and services

     (5,749      (634      (8,976      (1,145

Selling expenses

     (7      (1      (14      (3

Administrative expenses

     (1,058      (318      (1,723      (606
  

 

 

    

 

 

    

 

 

    

 

 

 
     (6,814      (953      (10,713      (1,754
  

 

 

    

 

 

    

 

 

    

 

 

 

Amortization

           

Cost of sales and services

     (16,443      (21,398      (41,799      (40,198

Selling expenses

     —          —          —          —    

Administrative expenses

     (332      (161      (673      (301
  

 

 

    

 

 

    

 

 

    

 

 

 
     (16,775      (21,559      (42,472      (40,499
  

 

 

    

 

 

    

 

 

    

 

 

 

PIS and COFINS credits (*)

     1,875        1,972        5,050        3,705  
  

 

 

    

 

 

    

 

 

    

 

 

 

Depreciation and amortization expense, net

     (21,714      (20,541      (48,135      (38,548
  

 

 

    

 

 

    

 

 

    

 

 

 

 

  (*)

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

 

 

31


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PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements (Continued)

At June 30, 2019 and for the three and six-month periods ended June 30, 2019

(All amounts in thousands of reais unless otherwise stated)

 

 

21.

Financial instruments by category

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

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

The PagSeguro Group believes that the financial instruments recognized in these condensed consolidated interim financial statements at their carrying amount are substantially similar to their fair value. However, since they do not have an active market (except for the LFT included in financial investments, which is actively traded in the market), variations could occur in the event the PagSeguro Group were to decide to settle or realize them in advance.

 

32


Table of Contents

PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements (Continued)

At June 30, 2019 and for the three and six-month periods ended June 30, 2019

(All amounts in thousands of reais unless otherwise stated)

 

 

21.

Financial instruments by category (Continued)

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

 

     June 30,
2019
     December 31,
2018
 

Financial assets

     

Amortized cost:

     

Cash and cash equivalents

     254,767        2,763,050  

Accounts receivable

     9,871,459        8,104,679  

Other receivables

     41,709        20,148  

Fair value through other comprehensive income

     

Financial investments

     1,761,745        —    
  

 

 

    

 

 

 
     11,929,680        10,887,877  
  

 

 

    

 

 

 
     
     June 30,
2019
     December 31,
2018
 

Financial liabilities

     

Amortized cost:

     

Payables to third parties

     4,581,475        4,324,198  

Trade payables

     239,508        165,246  

Trade payables to related parties

     34,858        30,797  

Other payables (current)

     16,267        29,501  

Fair value through profit or loss

     

Contingent consideration (included in non-current other payables)

     15,800        —    
  

 

 

    

 

 

 
     4,887,908        4,540,742  
  

 

 

    

 

 

 

 

22.

Financial risk management

The PagSeguro Group’s activities expose it to a variety of financial risks: market risk (including currency risk and cash flow or fair value interest rate risk), fraud risk (chargebacks), credit risk and liquidity risk. The PagSeguro Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the PagSeguro Group’s financial performance. The PagSeguro Group uses derivative financial instruments to hedge certain risk exposures, when applicable.

 

33


Table of Contents

PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements (Continued)

At June 30, 2019 and for the three and six-month periods ended June 30, 2019

(All amounts in thousands of reais unless otherwise stated)

 

 

22.

Financial risk management (Continued)

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

 

  i)

Foreign exchange risk

Foreign exchange risk arises when future commercial transactions or recognized assets or liabilities are denominated in a currency that is not the entity’s functional currency. As of June 30, 2019, and December 31, 2018, the PagSeguro Group is not materially exposed to this foreign exchange risk.

 

  ii)

Fraud Risk (chargeback)

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

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

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

 

  iii)

Credit risk

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

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

 

  (i)

Card issuers with a low level of risk, with credit ratings assigned by FITCH, S&P and Moody’s, which do not require additional monitoring;

 

  (ii)

Card issuers with a medium level of risk, which are also monitored in accordance with the Basel and property, plant and equipment ratios; and

 

  (iii)

Card issuers with a high level of risk, which are assessed by the committee at monthly meetings.

 

34


Table of Contents

PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements (Continued)

At June 30, 2019 and for the three and six-month periods ended June 30, 2019

(All amounts in thousands of reais unless otherwise stated)

 

 

22.

Financial risk management (Continued)

 

  iii)

Credit risk (Continued)

No credit limits were exceeded during the reporting period, and management does not expect any losses from non-performance by these counterparties in addition to the amounts already recognized as chargebacks, presented under fraud risk.

 

  iv)

Liquidity risk

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

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

At June 30, 2019, the PagSeguro Group held cash and cash equivalents of R$254,767 (R$2,763,050 at December 31, 2018).

The table below shows the PagSeguro Group’s non-derivative financial liabilities divided into the relevant maturity group based on the remaining period from the balance sheet date and the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.

 

     Due within
30 days
     Due within
31 to 120
days
     Due within
121 to 180
days
     Due within
181 to 360
days
 

At June 30, 2019

           

Payables to third parties

     3,893,580        484,584        98,117        105,194  

Trade payables

     206,972        29,123        3,064        349  

Trade payables to related parties

     —          34,858        —          —    

Other payables

     —          —          —          16,267  

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

     —          30,797        —          —    

Other payables

     —          —          —          29,501  

 

35


Table of Contents

PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements (Continued)

At June 30, 2019 and for the three and six-month periods ended June 30, 2019

(All amounts in thousands of reais unless otherwise stated)

 

 

23.

Capital management

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

The PagSeguro Group had no loans at June 30, 2019, and December 31,2018. Therefore, no gearing ratio is presented.

 

24.

Fair value measurement

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

 

   

Level 1—Quoted prices (unadjusted) in active markets for identical assets and liabilities.

 

   

Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices).

 

   

Level 3—Inputs for the assets and liabilities that are not based on observable market data (that is, unobservable inputs).

The following table provides the fair value measurement hierarchy of PagSeguro Group’s financial assets and financial liabilities as at June 30, 2019:

 

     June 30, 2019  
     Quoted prices in
active markets
(Level 1)
     Significant
observable
inputs (Level 2)
     Significant
unobservable
inputs (Level 3)
 

Financial assets

        

Cash and cash equivalents

     —          254,767        —    

Financial investments

     1,761,745        —          —    

Accounts receivable

     —          9,871,458        —    

Other receivables

     —          41,709        —    

Financial liabilities

        

Payables to third parties

     —          4,581,475        —    

Trade payables

     —          239,508        —    

Trade payables to related parties

     —          34,858        —    

Contingent consideration (included in non-current Other payables)

     —          —          15,800  

Other payables

     —          16,267        —    

 

36


Table of Contents

PagSeguro Digital Ltd.

Notes to the unaudited condensed consolidated interim financial statements (Continued)

At June 30, 2019 and for the three and six-month periods ended June 30, 2019

(All amounts in thousands of reais unless otherwise stated)

 

 

24.

Fair value measurement (Continued)

The PagSeguro Group believes that the financial instruments recognized in these condensed consolidated interim financial statements at their carrying amount are substantially similar to their fair value. For the financial assets that is basically due to the nature of the receivables that are due from top tier financial institutions subject to low credit risk and are mostly receivable in a short term period and are measured based on the consideration that the Group expects to receive as part of the transaction processing services.

Financial assets also include the financial investments represented by government bonds with quoted prices in an active market and recognized in the balance sheet based on its fair value.

Financial liabilities are mostly represented by short-term payables to merchants which are paid in accordance to the contract set out with the merchant and other short-term payables to service providers in the normal course of business and, as such, also approximate from their fair values.

Financial liabilities also include the contingent consideration that arose from the acquisition of TILIX in 2018, as disclosed in Note 9. The contingent is recognized at fair value at the acquisition date and with changes in fair value recognized in the statement of profit or loss in accordance with IFRS 9 Financial Instruments. As at June 30, 2019, the key performance indicators of TILIX show that it is highly probable that the target will be achieved due to the expansion of the business and the synergies realized. This assessment is aligned with December 31, 2018 and, as such, no re-measurement charge has been recognized in profit or loss for the six-month period ended June 30, 2019.

The fair value is determined considering the contractual cash outflows that will be required if the target is achieved and is substantially similar to the carrying amount. The significant unobservable input used in the measurement is the assumed probability-adjusted profit before tax of TILIX. A change in the probability that the target will be achieved would result in the derecognition of such liabilities.

There were no transfers between Levels 1, 2 and 3 during the six-month period ended June 30, 2019.

 

37


Table of Contents

SIGNATURES

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

Date: August 15, 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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