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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 November 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 September 30, 2019 and for the three and nine-month periods ended

September 30, 2019 and 2018

 


Table of Contents

PagSeguro Digital Ltd.

Unaudited condensed consolidated interim financial statements

At September 30, 2019 and for the three and nine-month periods ended September 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 September 30, 2019 and December 31, 2018

(All amounts in thousands of reais)

 

 

     Note      September 30,
2019
     December 31,
2018
 

Assets

        

Current assets

        

Cash and cash equivalents

     5        314,082        2,763,050  

Financial investments

     6        1,779,566        —    

Accounts receivable

     7        9,873,987        8,104,679  

Inventories

        59,085        88,551  

Taxes recoverable

        120,677        65,653  

Other receivables

        38,974        20,148  
     

 

 

    

 

 

 

Total current assets

        12,186,371        11,042,081  
     

 

 

    

 

 

 

Non-current assets

        

Judicial deposits

        4,380        1,511  

Accounts receivable

     7        21,941        —    

Prepaid expenses

        4,948        968  

Investment

        1,500        —    

Property and equipment

     10        253,171        67,104  

Intangible assets

     11        512,575        305,614  
     

 

 

    

 

 

 

Total non-current assets

        798,515        375,197  
     

 

 

    

 

 

 

Total assets

        12,984,886        11,417,278  
     

 

 

    

 

 

 

 

1


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

Liabilities and equity

       

Current liabilities

       

Payables to third parties

     12        4,408,326       4,324,198  

Trade payables

        185,667       165,246  

Payables to related parties

     8        34,875       30,797  

Salaries and social charges

     13        116,163       73,936  

Taxes and contributions

     14        129,629       80,093  

Provision for contingencies

     15        8,327       7,004  

Other payables

        5,241       29,501  
     

 

 

   

 

 

 

Total current liabilities

        4,888,228       4,710,775  
     

 

 

   

 

 

 

Non-current liabilities

       

Deferred income tax and social contribution

     16        474,481       132,125  

Other payables

        17,263       —    
     

 

 

   

 

 

 

Total non-current liabilities

        491,744       132,125  
     

 

 

   

 

 

 

Total liabilities

        5,379,972       4,842,900  
     

 

 

   

 

 

 

Equity

       

Share capital

     17        26       26  

Capital reserve

     17        5,760,233       5,688,134  

Equity valuation adjustments

     17        (22,637 )      (7,325

Profit retention reserve

     17        1,883,223       909,267  

Treasury shares

     17        (39,532 )      (39,532
     

 

 

   

 

 

 
        7,581,313       6,550,570  
     

 

 

   

 

 

 

Non-controlling interests

        23,601       23,806  
     

 

 

   

 

 

 

Total equity

        7,604,914       6,574,376  
     

 

 

   

 

 

 

Total liabilities and equity

        12,984,886       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 nine-month periods ended September 30, 2019 and 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

          Three-month period     Nine-month period  
     Note    September
30, 2019
    September
30, 2018
    September
30, 2019
    September
30, 2018
 

Net revenue from transaction activities and other services

   19      879,355       598,932       2,391,299       1,557,028  

Net revenue from sales

   19      14,939       94,641       145,982       278,036  

Financial income

   19      537,832       387,264       1,465,503       994,697  

Other financial income

   19      30,833       56,504       101,257       237,395  
     

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue and income

        1,462,959       1,137,341       4,104,041       3,067,156  

Cost of sales and services

   20      (684,262 )      (550,641     (1,986,434 )      (1,478,156

Selling expenses

   20      (164,556 )      (90,299     (378,613 )      (268,316

Administrative expenses

   20      (134,585 )      (164,491     (336,822 )      (492,690

Financial expenses

   20      (6,510 )      (7,226     (14,553 )      (26,553

Other expenses, net

   20      (4,910 )      (4,150     (8,983 )      (5,160
     

 

 

   

 

 

   

 

 

   

 

 

 

Profit before income taxes

        468,136       320,534       1,378,636       796,281  

Current income tax and social contribution

   16      12,515       (40,067     (38,974 )      (160,260

Deferred income tax and social contribution

   16      (138,054 )      (48,908     (364,574 )      (28,400
     

 

 

   

 

 

   

 

 

   

 

 

 

Income tax and social contribution

        (125,539 )      (88,975     (403,548 )      (188,660
     

 

 

   

 

 

   

 

 

   

 

 

 

Net income for the period

        342,597       231,559       975,088       607,621  
     

 

 

   

 

 

   

 

 

   

 

 

 

Attributable to

           

Owners of the Company

        342,243       231,286       973,955       606,831  

Non-controlling interests

        354       273       1,133       790  

Basic earnings per common share - R$

   18      1,0685       0,7385       3,0409       1,9375  

Diluted earnings per common share - R$

   18      1,0352       0,7370       2,9460       1,9337  
     

 

 

   

 

 

   

 

 

   

 

 

 

 

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 nine-month periods ended September 30, 2019 and 2018

(All amounts in thousands of reais unless otherwise stated)

 

 

     Three-month period      Nine-month period  
     September 30,
2019
     September 30,
2018
     September 30,
2019
    September 30,
2018
 

Net income for the period

     342,597        231,559        975,088       607,621  

Currency translation adjustment

     135        292        (471     648  

Fair value of financial investments through OCI

     12        —          (57     —    
  

 

 

    

 

 

    

 

 

   

 

 

 

Total comprehensive income for the period

     342,744        231,851        974,561       608,269  
  

 

 

    

 

 

    

 

 

   

 

 

 

Attributable to

          

Owners of the Company

          

Net income for the period

     342,390        231,578        973,428       607,479  
  

 

 

    

 

 

    

 

 

   

 

 

 

Non-controlling interests

     354        273        1,133       790  
  

 

 

    

 

 

    

 

 

   

 

 

 
  

 

 

    

 

 

    

 

 

   

 

 

 

Net income for the period

     342,744        231,851        974,561       608,269  
  

 

 

    

 

 

    

 

 

   

 

 

 

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 nine-month periods ended September 30, 2019 and 2018

(All amounts in thousands of reais)

 

 

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

At December 31, 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        —         —         —          —         —         —         606,831        —         606,831       790       607,621  

Currency translation adjustment

     17        —         —         —          —         —         —         —          648       648       —         648  

Non-controlling acquisition

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

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        —         —         256,860        (256,860     —         —         —          —         —         —         —    

Shares based long term incentive plan (LTIP)

     17        —         —         —          268,606       —         —         —          —         268,606       —         268,606  
     

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

At September 30, 2018

        26       —         5,645,957        11,746       —         —         606,831        (6,885     6,257,675       23,854       6,281,529  
     

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Net income for the period

     17        —         —         —          —         —         —         302,436        —         302,436       351       302,787  

Currency translation adjustment

     17        —         —         —          —         —         —         —          (440     (440     —         (440

Non-controlling acquisition

     17        —         —         —          —         —         —         —          —         —         (399     (399

Shares issued—stock option plan

     17        —         —         1,306        (1,306     —         —         —          —         —         —         —    

Share based long term incentive plan (LTIP)

     17        —         —         —          30,431       —         —         —          —         30,431       —         30,431  

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        —         —         —          —         —         —         973,956        —         973,956       1,133       975,089  

Currency translation adjustment

     17        —         —         —          —         —         —         —          (471     (471     —         (471

Loss on financial assets through other comprehensive income

     17        —         —         —          —         —         —         —          (57     (57     —         (57

Non-controlling acquisition

     17        —         —         —          —         —         —         —          (14,784     (14,784     (1,338     (16,123

Shares issued—stock option plan

     17        —         —         36,231        (36,231     —         —         —          —         —         —         —    

Share based long term incentive plan (LTIP)

     17        —         —         —          72,099       —         —         —          —         72,099       —         72,099  
     

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

At September 30, 2019

        26       (39,532     5,683,494        76,739       —         —         1,883,223        (22,637     7,581,313       23,601       7,604,914  
     

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

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 nine-month periods ended September 30, 2019 and 2018

(All amounts in thousands of reais)

 

 

     September 30,
2019
    September 30,
2018
 

Cash flows from operating activities

    

Profit before income taxes

     1,378,637       796,281  

Expenses (revenues) not affecting cash

    

Depreciation and amortization

     82,208       62,474  

Chargebacks

     136,741       50,397  

Accrual of provision for contingencies

     846       2,658  

Share based long term incentive plan (LTIP)

     72,099       245,066  

Inventory provisions

     (30,031     4,111  

Other financial cost, net

     (51,552     (700

Changes in operating assets and liabilities

    

Accounts receivable

     (2,322,955     (4,281,849

Inventories

     59,497       (15,089

Taxes recoverable

     (18,763     (21,681

Other receivables

     (21,617     4,546  

Other payables

     (5,767     515  

Payables to third parties

     84,128       622,149  

Trade payables

     19,758       59,224  

Receivables from (payables to) related parties

     4,078       117,730  

Salaries and social charges

     42,226       39,228  

Taxes and contributions

     13,917       34,261  

Provision for contingencies

     —         (1,317
  

 

 

   

 

 

 
     (556,550     (2,281,996
  

 

 

   

 

 

 

Income tax and social contribution paid

     (65,735     (186,554

Interest income received

     394,966       263,952  
  

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     (227,319     (2,204,598
  

 

 

   

 

 

 

Cash flows from investing activities

    

Amount paid on acquisitions, net of cash acquired

     (18,047     —    

Purchases of property and equipment

     (206,961     (29,054

Purchases and development of intangible assets

     (256,741     (117,445

Acquisition of financial investments

     (1,724,877     —    

Redemption of financial investments

     —         211,116  
  

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     (2,206,626     64,617  
  

 

 

   

 

 

 

Cash flows from financing activities

    

Proceeds from offering of shares

     —         4,717,874  

Transactional costs

     —         (189,852

Transaction with non-controlling interest

     (15,992     (5,389

Capital increase by non-controlling shareholders

     969       20,639  
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (15,023     4,543,273  
  

 

 

   

 

 

 

Increase (decrease) in cash and cash equivalents

     (2,448,968     2,403,292  
  

 

 

   

 

 

 

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

     314,082       2,470,059  

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 September 30, 2019 and for the three and nine-month periods ended September 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”), Tilix Digital S.A. (“TILIX”) and YAMÍ Software & Inovação Ltda. (“YAMÍ”).

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, TILIX and YAMÍ.

 

  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 September 30, 2019 and for the three and nine-month periods ended September 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 September 30, 2019 and for the three and nine-month periods ended September 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 nine-month period ended September 30, 2019 were authorized for issuance by the PagSeguro Digital’s Board of Directors on October 31, 2019.

 

  2.1.

Basis of preparation of condensed consolidated interim financial information

These unaudited condensed consolidated interim financial statements for the nine-month period ended September 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 September 30, 2019 and for the three and nine-month periods ended September 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 nine-month ended September 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 September 30, 2019 and for the three and nine-month periods ended September 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.

 

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Table of Contents

PagSeguro Digital Ltd.

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

At September 30, 2019 and for the three and nine-month periods ended September 30, 2019

(All amounts in thousands of reais unless otherwise stated)

 

 

3.

Consolidation of subsidiaries

 

     At September 30, 2019

Company

   Assets      Liabilities      Equity      Net income
(loss) for

the period
     Ownership
– %
     Level

Pagseguro Brazil

     14,288,525        7,153,610        7,134,915        944,586        99.99      Direct

BS Holding

     89,037        9        89,028        29,027        99.99      Direct

Net+Phone

     231,496        65,098        166,398        37,450        99.99      Indirect

Boa Compra

     93,679        54,868        38,811        12,261        99.99      Indirect

BCPS

     1,807        395        1,412        (190      99.50      Indirect

R2TECH

     10,389        2,373        8,016        4,148        100.00      Indirect

BIVA

     17,770        5,172        12,598        66        100.00      Indirect

FIDC

     1,910,966        374,009        1,536,957        1,004,881        100.00      Indirect

TILIX

     6,621        8,832        (2,211      (3,847      100.00      Indirect

BancoSeguro

     88,643        14,823        73,820        29,270        100.00      Indirect

YAMÍ

     81        392        (311      —          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 September 30, 2019 and for the three and nine-month periods ended September 30, 2019

(All amounts in thousands of reais unless otherwise stated)

 

 

3.

Consolidation of subsidiaries (Continued)

YAMÍ

On August 9, 2019, PagSeguro Group acquired 100% of YAMÍ. Total consideration paid amount to R$3,000 which R$1,350 was settled in cash on the same date and the remaining portion will be paid in the next 6 years. YAMÍ provides a back-office platform for e-commerce and marketplace and is a gateway specialized in split payment.

 

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 1.2% and 0.85% for the nine-month periods ended September 30, 2019 and nine-month periods ended 2018, respectively.

 

5.

Cash and cash equivalents

 

     September 30,
2019
     December 31,
2018
 

Short-term bank deposits

     168,732        405,227  

Short-term investment

     145,350        2,357,823  
  

 

 

    

 

 

 
     314,082        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.

 

13


Table of Contents

PagSeguro Digital Ltd.

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

At September 30, 2019 and for the three and nine-month periods ended September 30, 2019

(All amounts in thousands of reais unless otherwise stated)

 

 

6.

Financial investments

 

     September 30,
2019
     December 31,
2018
 

Short-term investment

     1,779,566        —    
  

 

 

    

 

 

 
     1,779,566        —    
  

 

 

    

 

 

 

Consists of investments in Brazilian Treasury Bonds (“LFTs”) with an average return of 100% of the Basic Interest Rate (SELIC, currently at 5.5% 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 September 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 September 30, 2019 totaled R$57.

 

14


Table of Contents

PagSeguro Digital Ltd.

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

At September 30, 2019 and for the three and nine-month periods ended September 30, 2019

(All amounts in thousands of reais unless otherwise stated)

 

 

7.

Accounts receivable

 

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

Legal obligors

                          

Itaú

     662,093        2,292,191        571,023        —          3,525,308        570,463        1,979,994        514,627        3,065,084  

Bradesco

     885,863        167,771        —          201,735        1,255,369        735,784        170,497        —          906,281  

Banco do Brasil

     683,175        143,668        —          128,981        955,824        566,537        153,633        —          720,170  

CEF

     137,768        164,274        —          87,163        389,205        133,882        173,208        —          307,090  

Santander

     266,612        1,015,957        —          —          1,282,569        247,950        871,976        —          1,119,926  

Other

     545,911        1,444,709        —          62,892        2,053,512        386,808        1,069,323        —          1,456,131  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total card issuers (i)

     3,181,422        5,228,570        571,023        480,771        9,461,786        2,641,424        4,418,631        514,627        7,574,682  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cielo—Elo

     —          —          —          —          136,962        —          —          —          366,619  

Cielo

     —          —          —          —          22,416        —          —          —          91,402  

Vero

     —          —          —          —          5,220        —          —          —          4,396  

Other

     —          —          —          —          27,738        —          —          —          41,057  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total acquirers (ii)

     —          —          —          —          192,336        —          —          —          503,474  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other current

     —          —          —          —          219,865        —          —          —          26,523  

Other non-current

     —          —          —          —          21,941        —          —          —          —    

Total other

     —          —          —          —          241,806        —          —          —          26,523  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total accounts receivable

     3,181,422        5,228,570        571,023        480,771        9,895,928        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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PagSeguro Digital Ltd.

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

At September 30, 2019 and for the three and nine-month periods ended September 30, 2019

(All amounts in thousands of reais unless otherwise stated)

 

 

7.

Accounts receivable (Continued)

The maturity analysis of accounts receivable is as follows

 

     September 30,
2019
     December 31,
2018
 

Due within 30 days

     4,855,852        4,323,893  

Due within 31 to 120 days

     3,547,054        3,135,358  

Due within 121 to 180 days

     770,286        468,913  

Due within 181 to 360 days

     700,795        176,515  

Due after 360 days

     21,941        —    
  

 

 

    

 

 

 
     9,895,928        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

 

     September 30,
2019
     December 31,
2018
 
     Payables      Payables  

Immediate parent

     

UOL—sales of services (a)

     18,074        9,822  

UOL—shared service costs

     10,594        10,234  

Affiliated companies

     

UOL Diveo—sales of services (a)

     4,182        3,290  

UOL Diveo—shared service costs

     —          126  

Transfolha Transportadora e Distribuição Ltda.

     1,186        4,336  

Livraria da Folha Ltda.

     —          32  

Others

     839        2,957  
  

 

 

    

 

 

 
     34,875        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 September 30, 2019 and for the three and nine-month periods ended September 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      Nine-month period  
     September 30, 2019      September 30, 2018      September 30, 2019      September 30, 2018  
     Revenue      Expense      Revenue      Expense      Revenue      Expense      Revenue      Expense  

Immediate parent

                       

UOL—shared service costs (a)

     —          42,369        —          28,693        —          92,437        —          89,692  

UOL—sales of services (b)

     661        13,822        608        13,121        1,869        35,600        1,640        38,924  

Affiliated companies

                       

UOL Diveo—shared service costs

     —          473        —          127        —          480        —          374  

UOL Diveo—sales of services (c)

     —          8,749        —          8,398        —          25,585        —          20,408  

Transfolha Transportadora e Distribuição Ltda.

     —          3,323        251        4,552        —          10,207        251        12,374  

Livraria da Folha Ltda.

     —          —          39        —          —          —          149        —    

Others

     35        2        69        27        45        222        376        27  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     696        68,738        967        54,918        1,914        164,531        2,416        161,799  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

  (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. Such costs are included in administrative expenses. The increase in the balance refers mainly to payroll taxes related to LTIP in the three-month period ended September 30, 2019 which amounted to R$35,633 (R$27,520 in three-month ended September 30, 2018). Payroll taxes related to LTIP in the nine-month period ended September 30, 2019 which amounted to R$53,626 (R$61,713 in nine-month ended September 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.

  (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.

 

  ii)

Key management compensation

Key management compensation includes short and long-term benefits of PagSeguro Brazil’s executive officers. The short and long-term compensation related to the executive officers for the nine-month period ended September 30, 2019 amounted to R$107,681 (September 30, 2018—R$54,282).

 

17


Table of Contents

PagSeguro Digital Ltd.

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

At September 30, 2019 and for the three and nine-month periods ended September 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

     1,814  
  

 

 

 

Acquisitions for the nine months ended September 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$59,765 and the total net assets acquired amount to R$44,549. On August 9, 2019, PagSeguro Group acquired 100% of the share capital and obtained control of YAMÍ. Total consideration paid amount to R$3,000 and the total net liabilities acquired amount to R$310.These acquisitions are in accordance with PagSeguro Group’s business strategies, ramping up investments on new technologies, products and services for our digital ecosystem.

 

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Table of Contents

PagSeguro Digital Ltd.

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

At September 30, 2019 and for the three and nine-month periods ended September 30, 2019

(All amounts in thousands of reais unless otherwise stated)

 

 

9.

Business combinations (Continued)

Acquisitions for the nine months ended September 30, 2019 (Continued)

The goodwill recognized is primarily attributed to the expected synergies and other benefits from combining the assets and activities of BancoSeguro and YAMÍ 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.

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. and YAMÍ 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

     44,568  

Assets acquired

     107  

Liabilities assumed

     (436
  

 

 

 

Value of net assets

     44,239  
  

 

 

 

Goodwill

     18,526  
  

 

 

 

Purchase cost

     62,765  
  

 

 

 

Consideration for the purchase settled in cash

     61,115  
  

 

 

 

Cash and cash equivalents at the subsidiary acquired

     (44,568
  

 

 

 

Amount paid on acquisitions less cash and cash equivalents acquired

     16,547  
  

 

 

 

 

10.

Property and equipment

 

  a)

Property and equipment are composed as follows

 

     September 30, 2019  
     Cost      Accumulated
depreciation
     Net  

Data processing equipment

     55,138        (15,020      40,118  

Facilities

     38        (30      8  

Machinery and equipment

     217,569        (15,644      201,925  

Furniture and fittings

     2,623        (318      2,305  

Leasehold improvements

     8,829        (962      7,867  

Vehicles

     1,371        (423      948  
  

 

 

    

 

 

    

 

 

 
     285,568        (32,397      253,171  
  

 

 

    

 

 

    

 

 

 

 

19


Table of Contents

PagSeguro Digital Ltd.

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

At September 30, 2019 and for the three and nine-month periods ended September 30, 2019

(All amounts in thousands of reais unless otherwise stated)

 

 

10.

Property and equipment (Continued)

 

  a)

Property and equipment are composed as follows (Continued)

 

     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  
  

 

 

    

 

 

    

 

 

 

 

20


Table of Contents

PagSeguro Digital Ltd.

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

At September 30, 2019 and for the three and nine-month periods ended September 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
(a)
     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 September 30, 2019

                    

Cost

                    

Purchases

     31,804        —          172,812        470        1,875        —          206,961  

Depreciation

     (7,205      (3      (12,548      (170      (767      (201      (20,894
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net book value

     40,118        8        201,925        2,305        7,867        948        253,171  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

At September 30, 2019

                    

Cost

     55,138        38        217,569        2,623        8,829        1,371        285,568  

Accumulated depreciation

     (15,020      (30      (15,644      (318      (962      (423      (32,397
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net book value

     40,118        8        201,925        2,305        7,867        948        253,171  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

  (a)

Net book value of Machinery and Equipment in the amount of R$201,925 is mainly composed by POS (Point of sales), the total amount of POS booked in Machinery and Equipment is R$201,202.

 

21


Table of Contents

PagSeguro Digital Ltd.

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

At September 30, 2019 and for the three and nine-month periods ended September 30, 2019

(All amounts in thousands of reais unless otherwise stated)

 

 

 

11.

Intangible assets

 

  a)

Intangible assets are composed as follows

 

     September 30, 2019  
     Cost      Accumulated
amortization
     Net  

Expenditures related to software and technology (i)

     678,779        (273,438      405,341  

Software licenses

     57,471        (10,768      46,703  

Customer relationships

     1,981        (550      1,431  

Goodwill (iii)

     59,100        —          59,100  
  

 

 

    

 

 

    

 

 

 
     797,331        (284,756      512,575  
  

 

 

    

 

 

    

 

 

 

 

     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, TILIX and BIVA.

  (iii)

Goodwill provided on the acquisition of the companies BancoSeguro and YAMÍ, additionally to the companies mentioned in the item (ii).

 

22


Table of Contents

PagSeguro Digital Ltd.

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

At September 30, 2019 and for the three and nine-month periods ended September 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 September 30, 2019

              

Cost

              

Additions

     216,497        40,244        —          —          256,741  

Acquisition of subsidiary

     —          —          —          18,526        18,526  

Amortization

     (61,509      (6,695      (103      —          (68,307
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net book value

     405,338        46,703        1,430        59,100        512,574  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

At September 30, 2019

              

Cost

     678,779        57,471        1,981        59,100        797,331  

Accumulated amortization

     (273,438      (10,768      (550      —          (284,756
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net book value

     405,341        46,703        1,431        59,100        512,575  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

23


Table of Contents

PagSeguro Digital Ltd.

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

At September 30, 2019 and for the three and nine-month periods ended September 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

 

     September 30,
2019
     December 31,
2018
 

Profit sharing

     31,275        20,653  

Salaries payable

     6,991        4,378  

Social charges

     9,183        8,421  

Payroll accruals

     36,197        14,601  

Payroll taxes (LTIP)

     29,241        23,816  

Other

     3,276        2,067  
  

 

 

    

 

 

 
     116,163        73,936  
  

 

 

    

 

 

 

 

14.

Taxes and contributions

 

     September 30,
2019
     December 31,
2018
 

Taxes

     

Services tax (i)

     206,924        122,241  

Value-added tax on sales and services (ii)

     29,796        23,796  

Social integration program (iii)

     21,295        17,530  

Social contribution on revenues (iii)

     130,936        107,872  

Income tax and social contribution (iv)

     9,957        685  

Other

     3,241        1,919  
  

 

 

    

 

 

 
     402,149        274,043  
  

 

 

    

 

 

 

Judicial deposits (v)

     

Services tax (i)

     (94,452      (52,226

Value-added tax on sales and services (ii)

     (29,321      (19,476

Social integration program (iii)

     (20,793      (17,088

Social contribution on revenues (iii)

     (127,954      (105,160
  

 

 

    

 

 

 
     (272,520      (193,950
  

 

 

    

 

 

 
     129,629        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.

 

24


Table of Contents

PagSeguro Digital Ltd.

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

At September 30, 2019 and for the three and nine-month periods ended September 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.

 

     September 30,
2019
     December 31,
2018
 

Civil

     7,926        6,680  

Labor

     401        324  
  

 

 

    

 

 

 
     8,327        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 September 30, 2019, totaling approximately R$64,271 (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.

 

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
liability (ii)
     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

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

At September 30, 2018

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Included in the statement of income

     (424      (171      (16,802      (4,989      (75,545      (97,931
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

At December 31, 2018

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Included in the statement of income

     50,637        2,497        (59,637      39,550        (397,621      (364,574

Other

     —          —          —          22,218        —          22,218  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

At September 30, 2019

     53,548        4,670        (142,816      126,483        (516,366      (474,481
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

  (i)

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.

  (ii)

The main other liability temporary difference refers to deferred income tax and social contribution related to our FIDC quotas.

 

25


Table of Contents

PagSeguro Digital Ltd.

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

At September 30, 2019 and for the three and nine-month periods ended September 30, 2019

(All amounts in thousands of reais unless otherwise stated)

 

 

16.

Income tax and social contribution (Continued)

 

  a)

Reconciliation of the deferred income tax and social contribution (Continued)

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

 

     September 30,
2019
     December 31,
2018
 
     Liability      Liability  

2019

     31,217        (8,508

2020

     (3,957      (13,659

2021

     (46,884      (15,420

2022

            10,556  

2023 up forward

     (454,857      (105,094
  

 

 

    

 

 

 
     (474,481      (132,125
  

 

 

    

 

 

 

 

26


Table of Contents

PagSeguro Digital Ltd.

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

At September 30, 2019 and for the three and nine-month periods ended September 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 September 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 nine-month periods ended September 30, 2019 and 2018:

 

     Three-month period     Nine-month period  
     September 30,
2019
    September 30,
2018
    September 30,
2019
    September 30,
2018
 

Profit before income taxes

     468,136       320,534       1,378,636       796,281  

Statutory rate

     34     34     34     34
  

 

 

   

 

 

   

 

 

   

 

 

 

Expected income tax and social contribution

     (159,166     (108,982     (468,736     (270,736

Income tax and social contribution effect on

        

Participation in the results of partners and managers

        

Permanent additions (exclusions)

        

Gifts

     (99     (169     (307     (500

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

     35,148       14,122       64,255       36,564  

Taxation of income abroad (ii)

     147       5,030       (32     45,124  

Other additions

     (1,569     1,024       1,272       888  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income tax and social contribution expense

     (125,539     (88,975     (403,548     (188,660
  

 

 

   

 

 

   

 

 

   

 

 

 

Effective rate

     27     28     29     24

Income tax and social contribution—current

     12,515       (40,067     (38,974     (160,260

Income tax and social contribution—deferred

     (138,054     (48,908     (364,574     (28,400

 

  (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.

 

27


Table of Contents

PagSeguro Digital Ltd.

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

At September 30, 2019 and for the three and nine-month periods ended September 30, 2019

(All amounts in thousands of reais unless otherwise stated)

 

 

17.

Equity

 

  a)

Share capital

At September 30, 2019, share capital is represented by 328,828,656 common shares, per value of US$0.000025. Share capital is composed of the following shares for the nine-month periods ended September 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

     1,039,782  
  

 

 

 

September 30, 2019 shares outstanding

     328,828,656  
  

 

 

 

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 September 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.

 

28


Table of Contents

PagSeguro Digital Ltd.

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

At September 30, 2019 and for the three and nine-month periods ended September 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 nine-month period ended September 30, 2019, the Company recognized compensation expenses related to the LTIP in the total amount of R$72,099.

The maximum number of common shares that can be delivered to beneficiaries under the LTIP may not exceed 3% of our issued share capital at any time. At September 30, 2019 total shares granted were 7,219,100, and the total shares issued were 4,064,407.

 

  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$471 in the period of nine months ended in September 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.

 

29


Table of Contents

PagSeguro Digital Ltd.

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

At September 30, 2019 and for the three and nine-month periods ended September 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 September 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 nine-month periods ended September 30, 2019 and 2018:

 

     Three-month period      Nine-month period  
     September 30,
2019
     September 30,
2018
     September 30,
2019
     September 30,
2018
 

Profit attributable to stockholders of the Company

     342,243        231,286        973,955        606,831  

Weighted average number of outstanding common shares

     320,287,930        313,201,136        320,287,930        313,201,136  
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic earnings per share—R$

     1.0685        0.7385        3.0409        1.9375  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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PagSeguro Digital Ltd.

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

At September 30, 2019 and for the three and nine-month periods ended September 30, 2019

(All amounts in thousands of reais unless otherwise stated)

 

 

18.

Earnings per share (Continued)

 

  b)

Diluted

 

     Three-month period      Nine-month period  
     September 30,
2019
     September 30,
2018
     September 30,
2019
     September 30,
2018
 

Profit used to determine diluted earnings per share

     342,243        231,286        973,955        606,831  
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average number of outstanding common shares

     320,287,930        313,201,136        320,287,930        313,201,136  

Weighted average number of shares under options

     5,893,711        2,985,011        5,893,711        2,985,011  

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

     4,421,606        (2,360,509      4,421,606        (2,360,509
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average number of common shares for diluted earnings per share

     330,603,248        313,825,638        330,603,248        313,825,638  
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted earnings per share—R$

     1.0352        0.7370        2.9460        1.9337  
  

 

 

    

 

 

    

 

 

    

 

 

 

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      Nine-month period  
     September 30,
2019
     September 30,
2018
     September 30,
2019
     September 30,
2018
 

Gross revenue from transaction activities and other services (i)

     1,008,337        695,791        2,748,670        1,809,787  

Gross revenue from sales

     57,875        125,180        243,728        382,918  

Gross financial income (ii)

     546,046        401,633        1,483,480        1,037,983  

Other financial income (iii)

     30,833        56,504        101,257        237,395  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total gross revenue and income

     1,643,091        1,279,108        4,577,135        3,468,083  
  

 

 

    

 

 

    

 

 

    

 

 

 

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

     (128,981      (96,859      (357,371      (252,759

Deductions from gross revenue from sales (v)

     (42,936      (30,539      (97,746      (104,882

Deductions from gross financial income (vi)

     (8,215      (14,369      (17,977      (43,286
  

 

 

    

 

 

    

 

 

    

 

 

 

Total deductions from gross revenue and income

     (180,132      (141,767      (473,094      (400,927
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenue and income

     1,462,959        1,137,341        4,104,041        3,067,156  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

  (i)

In the three-month period ended September 30, 2019, R$18,677 correspond to membership fee.

  (ii)

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

  (iii)

The decrease in the period refers to foreign exchange gain on the currency conversion of the IPO and follow on proceeds, for the nine-month period ended September 30, 2018 in the amount of R$131,366.

  (iv)

Deductions consist of transactions taxes. Additionally, in the three-month period ended September 30, 2019, R$1,728 correspond to membership fee taxes.

  (v)

Deductions are composed of sales taxes and returns, in the three-month period ended September 30, 2019, the amount of R$26,671 is related to taxes in the intercompany POS transactions.

  (vi)

Deductions consist of taxes on financial income.

 

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PagSeguro Digital Ltd.

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

At September 30, 2019 and for the three and nine-month periods ended September 30, 2019

(All amounts in thousands of reais unless otherwise stated)

 

 

20.

Expenses by nature

 

     Three-month period      Nine-month period  
     September 30,
2019
     September 30,
2018
     September 30,
2019
     September 30,
2018
 

Transactions costs

     (468,030      (326,642      (1,281,702      (855,212

Cost of goods sold

     (88,944      (147,679      (395,006      (374,194

Marketing and advertising

     (136,020      (93,329      (332,143      (286,577

Personnel expenses (i)

     (136,282      (154,784      (307,532      (494,978

Financial expenses (ii)

     (6,510      (7,226      (14,553      (26,553

Chargebacks (iii)

     (62,257      (22,251      (136,741      (50,397

Depreciation and amortization (iv)

     (34,073      (23,926      (82,208      (62,474

Other

     (62,707      (40,970      (175,520      (120,490
  

 

 

    

 

 

    

 

 

    

 

 

 
     (994,823      (816,807      (2,725,405      (2,270,875
  

 

 

    

 

 

    

 

 

    

 

 

 

Classified as

           

Cost of services

     (560,187      (391,009      (1,502,059      (1,059,264

Cost of sales

     (124,075      (159,632      (484,375      (418,892

Selling expenses

     (164,556      (90,299      (378,613      (268,316

Administrative expenses

     (134,585      (164,491      (336,822      (492,690

Financial expenses

     (6,510      (7,226      (14,553      (26,553

Other (expenses) income, net

     (4,910      (4,150      (8,983      (5,160
  

 

 

    

 

 

    

 

 

    

 

 

 
     (994,823      (816,807      (2,725,405      (2,270,875
  

 

 

    

 

 

    

 

 

    

 

 

 

 

  (i)

The decrease refers to compensation expenses related to the LTIP for the nine-month period ended September 30, 2019 in the amount of R$72,099. For the nine-month period ended in September 30, 2018 LTIP related expenses amounted to R$268,606. For the three-month period ended in September 30, 2019 LTIP related expenses amounted to R$44,345. For the three-month period ended in September 30, 2018 LTIP related expenses amounted to R$74,337.

  (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 nine-month period ended September 30, 2018 in the amount of R$17,975.

  (iii)

Chargebacks refer mainly 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      Nine-month period  
     September 30,
2019
     September 30,
2018
     September 30,
2019
     September 30,
2018
 

Depreciation

           

Cost of sales and services

     (8,871      (1,060      (17,846      (2,206

Selling expenses

     (6      (3      (21      (6

Administrative expenses

     (1,305      (441      (3,028      (1,046
  

 

 

    

 

 

    

 

 

    

 

 

 
     (10,182      (1,504      (20,895      (3,258
  

 

 

    

 

 

    

 

 

    

 

 

 

Amortization

           

Cost of sales and services

     (25,260      (24,287      (67,057      (64,485

Administrative expenses

     (576      (384      (1,250      (685
  

 

 

    

 

 

    

 

 

    

 

 

 
     (25,836      (24,671      (68,307      (65,170
  

 

 

    

 

 

    

 

 

    

 

 

 

PIS and COFINS credits (*)

     1,945        2,249        6,994        5,954  
  

 

 

    

 

 

    

 

 

    

 

 

 

Depreciation and amortization expense, net

     (34,073      (23,926      (82,208      (62,474
  

 

 

    

 

 

    

 

 

    

 

 

 

 

  (*)

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.

 

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PagSeguro Digital Ltd.

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

At September 30, 2019 and for the three and nine-month periods ended September 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.

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

 

     September 30,
2019
     December 31,
2018
 

Financial assets

     

Amortized cost

     

Cash and cash equivalents

     314,082        2,763,050  

Accounts receivable

     9,895,928        8,104,679  

Other receivables

     38,974        20,148  

Fair value through other comprehensive income

     

Financial investments

     1,779,566        —    
  

 

 

    

 

 

 
     12,028,550        10,887,877  
  

 

 

    

 

 

 
     September 30,
2019
     December 31,
2018
 

Financial liabilities

     

Amortized cost

     

Payables to third parties

     4,408,326        4,324,198  

Trade payables

     185,667        165,246  

Trade payables to related parties

     34,875        30,797  

Other payables

     6,704        29,501  

Fair value through profit or loss

     

Contingent consideration (included in other payables)

     15,800        —    
  

 

 

    

 

 

 
     4,651,372        4,549,742  
  

 

 

    

 

 

 

 

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Table of Contents

PagSeguro Digital Ltd.

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

At September 30, 2019 and for the three and nine-month periods ended September 30, 2019

(All amounts in thousands of reais unless otherwise stated)

 

 

22.

Financial risk management

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

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

 

  i)

Foreign exchange risk

Foreign exchange risk arises when future commercial transactions or recognized assets or liabilities are denominated in a currency that is not the entity’s functional currency. As of September 30, 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.

 

34


Table of Contents

PagSeguro Digital Ltd.

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

At September 30, 2019 and for the three and nine-month periods ended September 30, 2019

(All amounts in thousands of reais unless otherwise stated)

 

 

22.

Financial risk management (Continued)

 

  iii)

Credit risk (Continued)

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

 

  (i)

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

 

  (ii)

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

 

  (iii)

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

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

 

  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 September 30, 2019, the PagSeguro Group held cash and cash equivalents of R$314,082 (R$2,763,050 at December 31, 2018).

 

35


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PagSeguro Digital Ltd.

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

At September 30, 2019 and for the three and nine-month periods ended September 30, 2019

(All amounts in thousands of reais unless otherwise stated)

 

 

22.

Financial risk management (Continued)

 

  iv)

Liquidity risk (Continued)

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

 

     Due within
30 days
     Due
within

31 to 120
days
     Due
within
121 to
180 days
     Due
within
181 to
360 days
     Due to
361 days
or more
days
 

At September 30, 2019

              

Payables to third parties

     3,557,807        577,055        143,928        129,536        —    

Trade payables

     156,263        26,579        289        2,536        —    

Trade payables to related parties

     —          34,875        —          —          —    

Other payables

     —          —          —          5,241        —    

At December 31, 2018

              

Payables to third parties

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

Trade payables

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

Trade payables to related parties

     —          28,869        —          —          —    

Other payables

     —          —          —          29,501        —    

 

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 September 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:

 

36


Table of Contents

PagSeguro Digital Ltd.

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

At September 30, 2019 and for the three and nine-month periods ended September 30, 2019

(All amounts in thousands of reais unless otherwise stated)

 

 

24.

Fair value measurement (Continued)

 

   

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 September 30, 2019:

 

     September 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

     —          314,082        —    

Financial investments

     1,779,566        —          —    

Accounts receivable

     —          9,895,928        —    

Other receivables

     —          38,974        —    

Financial liabilities

        

Payables to third parties

     —          4,408,326        —    

Trade payables

     —          185,667        —    

Trade payables to related parties

     —          34,875        —    

Contingent consideration (included in other payables)

     —          —          15,800  

Other payables

     —          6,704        —    

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.

 

37


Table of Contents

PagSeguro Digital Ltd.

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

At September 30, 2019 and for the three and nine-month periods ended September 30, 2019

(All amounts in thousands of reais unless otherwise stated)

 

 

24.

Fair value measurement (Continued)

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 September 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 nine-month period ended September 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 nine-month period ended September 30, 2019.

 

25.

Events after the reporting period

On October 21, 2019, PagSeguro Digital completed its follow-on public offering. A number of 16,750,000 shares were offered by the controlling shareholder UOL, the initial offering price was US$39,00 per common share, representing an aggregate offering of U$653,250. UOL has also granted the underwriters a 30-day option to purchase up to 2,512,500 additional shares at the public offering price less the underwriting discount.

Immediately following this offering, PagSeguro Digital have a total of 328,834,268 shares (including treasury shares and LTIP) issued and outstanding, of which 179,963,407 shares (including treasury shares and LTIP) are shares beneficially owned by investors other than UOL, representing a free float of 54.7%.

 

38


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: November 19, 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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