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STNE StoneCo

Filed: 1 Jun 21, 4:32pm
 

 

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 June, 2021

 

Commission File Number: 001-38714

 

STONECO LTD.

(Exact name of registrant as specified in its charter)

 

4th Floor, Harbour Place

103 South Church Street, P.O. Box 10240

Grand Cayman, KY1-1002, Cayman Islands

+55 (11) 3004-9680

(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

X

 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):

 

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):

 

 

 

 

 

STONECO LTD.

INCORPORATION BY REFERENCE

 

This report on Form 6-K shall be deemed to be incorporated by reference into the registration statement on Form S-8 (Registration Number: 333-230629) and Form F-3 (Registration Number: 333-244404) of StoneCo Ltd. and to be a part thereof from the date on which this report is filed, to the extent not superseded by documents or reports subsequently filed or furnished.

 

 

 

 

 

 

 

 

 

 

Unaudited Interim Condensed

Consolidated Financial Statements

 

StoneCo Ltd.

 

March 31, 2021

 

 

 

 

 

 

 

 

 

StoneCo Ltd.

Unaudited interim condensed consolidated statement of financial position 

As of March 31, 2021 and December 31, 2020

(In thousands of Brazilian Reais)

 

  Notes March 31, 2021 December 31, 2020
Assets      
Current assets      
Cash and cash equivalents 5  1,863,474   2,446,990 
Short-term investments 6  8,673,778   8,128,058 
Accounts receivable from card issuers 7  15,344,491   16,307,155 
Trade accounts receivable 8  1,804,912   1,415,850 
Financial assets from banking solution 21(e)  663,141   714,907 
Recoverable taxes    56,047   56,365 
Prepaid expenses    113,977   67,658 
Derivative financial instruments    15,600   43,103 
Other assets    274,114   94,738 
     28,809,534   29,274,824 
Non-current assets          
Trade accounts receivable 8  326,277   382,106 
Receivables from related parties 13(b)  9,765   7,200 
Deferred tax assets 9(b)  150,061   138,697 
Prepaid expenses    245,887   51,164 
Other assets    95,280   85,571 
Investment in associates    83,363   51,982 
Property and equipment 10(a)  892,312   717,234 
Intangible assets 11  1,059,618   1,039,886 
     2,862,563   2,473,840 
           
Total assets    31,672,097   31,748,664 
           
Liabilities and equity          
Current liabilities          
Deposits from banking customers 21(e)  536,637   576,139 
Accounts payable to clients 15  8,403,097   9,172,353 
Trade accounts payable    241,965   180,491 
Loans and financing 12  1,931,186   1,184,737 
Obligations to FIDC quota holders 12  1,460,522   1,960,121 
Labor and social security liabilities    196,160   173,103 
Taxes payable    121,414   106,835 
Derivative financial instruments    19,128   16,233 
Other liabilities    11,216   10,369 
     12,921,325   13,380,381 
Non-current liabilities          
Accounts payable to clients 15  3,521   - 
Loans and financing 12  540,990   524,363 
Obligations to FIDC quota holders 12  2,353,057   2,414,429 
Deferred tax liabilities 9(b)  69,392   61,086 
Provision for contingencies 14(a)  12,034   10,150 
Labor and social security liabilities    79,887   81,258 
Other liabilities    296,628   284,972 
     3,355,509   3,376,258 
           
Total liabilities    16,276,834   16,756,639 
           
Equity 16        
Issued capital    76   75 
Capital reserve    13,809,616   13,479,722 
Treasury shares    (308,440)  (76,360)
Other comprehensive income    218,982   (5,002)
Retained earnings    1,613,363   1,455,027 
Equity attributable to owners of the parent    15,333,597   14,853,462 
Non-controlling interests    61,666   138,563 
Total equity    15,395,263   14,992,025 
           
Total liabilities and equity    31,672,097   31,748,664 

 

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

 

 

 

StoneCo Ltd.

Unaudited interim consolidated statement of profit or loss

For the three months ended March 31, 2021 and 2020

(In thousands of Brazilian Reais, unless otherwise stated)

 

    Three months ended March 31
  Notes 2021 2020
       
Net revenue from transaction activities and other services 18  318,285   227,302 
Net revenue from subscription services and equipment rental 18  139,949   93,125 
Financial income 18  368,791   359,315 
Other financial income 18  40,642   37,014 
Total revenue and income    867,667   716,756 
           
Cost of services    (239,670)  (149,942)
Administrative expenses    (117,607)  (73,944)
Selling expenses    (162,765)  (111,828)
Financial expenses, net    (92,496)  (148,367)
Other operating expenses, net    (41,516)  (3,488)
  19  (654,054)  (487,569)
           
Loss on investment in associates    (3,607)  (1,279)
Profit before income taxes    210,006   227,908 
           
Current income tax and social contribution 9(a)  (62,749)  (77,531)
Deferred income tax and social contribution 9(a)  11,058   8,242 
Net income for the period    158,315   158,619 
           
Net income (loss) attributable to:          
Owners of the parent    158,336   158,806 
Non-controlling interests    (21)  (187)
     158,315   158,619 
Earnings per share          
Basic earnings per share for the period attributable to owners of the parent (in Brazilian Reais) 17  R$ 0.51   R$ 0.57 
Diluted earnings per share for the period attributable to owners of the parent (in Brazilian Reais) 17  R$ 0.50   R$ 0.56 

 

 

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

 

 

 

StoneCo Ltd.

Unaudited interim consolidated statement of other comprehensive income

For the three months ended March 31, 2021 and 2020

(In thousands of Brazilian Reais)

 

    Three months ended March 31
  Notes 2021 2020
       
Net income for the period    158,315   158,619 
Other comprehensive income (loss) that may be reclassified to profit or loss in subsequent periods (net of tax):         
Changes in the fair value of accounts receivable from card issuers at fair value through other comprehensive income    (9,770)  1,081 
Exchange differences on translation of foreign operations    563   - 
Unrealized loss on cash flow hedge - highly probable future imports 21(d)  1,512   - 
Other comprehensive income (loss) that will not be reclassified to profit or loss in subsequent periods (net of tax):         
Changes in the fair value of equity instruments designated at fair value through other comprehensive income 6  231,943   - 
Other comprehensive income (loss) for the period, net of tax    224,248   1,081 
           
Total comprehensive income for the period, net of tax    382,563   159,700 
           
Total comprehensive income (loss) attributable to:          
Owners of the parent    382,320   159,887 
Non-controlling interests    243   (187)
     382,563   159,700 

 

 

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

 

 

 

StoneCo Ltd.

Unaudited interim consolidated statement of changes in equity

For the three months ended March 31, 2021 and 2020

(In thousands of Brazilian Reais)

 

    Attributable to owners of the parent    
      Capital reserve          
  Notes Issued capital Additional paid-in capital Transactions among shareholders Special reserve Other reserves Total Treasury shares Other compre-
hensive income
 Retained earnings Total Non-controlling interest Total
Balance as of December 31, 2019    62   5,440,047   (223,676)  61,127   166,288   5,443,786   (90)  (72,335)  600,956   5,972,379   626   5,973,005 
Share-based payments 20  -   -   -   -   7,085   7,085   -   -   -   7,085   -   7,085 
Repurchase of shares    -   -   -   -   -   -   (47,507)  -   -   (47,507)  -   (47,507)
Cash proceeds from noncontrolling interest    -   -   135,055   -   -   135,055   -   -   -   135,055   95,445   230,500 
Dilution non-controlling interest    -   -   2,286   -   -   2,286   -   -   -   2,286   (2,286)  - 
Net income (loss) for the period    -   -   -   -   -   -   -   -   158,806   158,806   (187)  158,619 
Other comprehensive income for the period    -   -   -   -   -   -   -   1,081   -   1,081   -   1,081 
Balance as of March 31, 2020    62   5,440,047   (86,335)  61,127   173,373   5,588,212   (47,597)  (71,254)  759,762   6,229,185   93,598   6,322,783 
                                                   
Balance as of December 31, 2020    75   13,307,585   (86,483)  61,127   197,493   13,479,722   (76,360)  (5,002)  1,455,027   14,853,462   138,563   14,992,025 
Issuance of shares for purchased non-controlling interests 16 (b) / 22  1   516,891   (208,481)  -   -   308,410   -   -   -   308,411   (77,911)  230,500 
Transaction costs from subsidiaries    -   -   (650)  -   -   (650)  -   -   -   (650)  -   (650)
Cash proceeds from non-controlling interest    -   -   -   -   -   -   -   -   -   -   893   893 
Share-based payments 20  -   -   -   -   22,134   22,134   -   -   -   22,134   14   22,148 
Repurchase of shares 16(c)  -   -   -   -   -   -   (232,080)  -   -   (232,080)  -   (232,080)
Others    -   -   -   -   -   -   -   -   -   -   (136)  (136)
Net income (loss) for the period    -   -   -   -   -   -   -   -   158,336   158,336   (21)  158,315 
Other comprehensive income (loss) for the period    -   -   -   -   -   -   -   223,984   -   223,984   264   224,248 
Balance as of March 31, 2021    76   13,824,476   (295,614)  61,127   219,627   13,809,616   (308,440)  218,982   1,613,363   15,333,597   61,666   15,395,263 

 

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

 

 

 

 StoneCo Ltd.

Unaudited interim consolidated statement of cash flows 

For the three months ended March 31, 2021 and 2020

(In thousands of Brazilian Reais)

 

    Three months ended March 31
  Notes 2021 2020
Operating activities      
Net income for the period    158,315   158,619 
Adjustments to reconcile net income for the period to net cash flows:          
Depreciation and amortization 10(b)  84,442   60,194 
Deferred income tax and social contribution 9  (11,058)  (8,242)
Loss on investment in associates    3,607   1,279 
Interest, monetary and exchange variations, net    (269,657)  1,604 
Provision for contingencies    1,650   1,023 
Share-based payments expense    22,148   7,085 
Allowance for expected credit losses    8,376   9,722 
Loss on disposal of property, equipment and intangible assets    10,309   11,791 
Fair value adjustment in financial instruments at FVPL    227,243   7,365 
Fair value adjustment in derivatives    31,656   46,706 
Working capital adjustments:          
Accounts receivable from card issuers    978,069   1,534,676 
Receivables from related parties    (1,745)  (7,415)
Recoverable taxes    (4,222)  (48,435)
Prepaid expenses    (241,042)  (106,378)
Trade accounts receivable, banking solutions and other assets    (331,998)  (293,362)
Accounts payable to clients    (1,115,799)  (1,327,778)
Taxes payable    64,901   76,688 
Labor and social security liabilities    21,686   9,000 
Provision for contingencies    (158)  (1,448)
Other liabilities    46,755   (11,246)
Interest paid    (46,471)  (55,309)
Interest income received, net of costs    318,789   349,510 
Income tax paid    (44,957)  (53,193)
Net cash (used in) / provided by in operating activities    (89,161)  362,456 
           
Investing activities          
Purchases of property and equipment    (334,431)  (90,203)
Purchases and development of intangible assets    (42,108)  (21,975)
Proceeds from (acquisition of) short-term investments, net    (213,744)  601,218 
Proceeds from the disposal of non-current assets    95   - 
Acquisition of interest in associates    (35,677)  5,423 
Net cash (used in) / provided by investing activities    (625,865)  494,463 
           
Financing activities          
Proceeds from borrowings 12  1,109,000   2,889,141 
Payment of borrowings    (360,000)  (2,870,000)
Payment to FIDC quota holders 12  (810,000)  (500,000)
Proceeds from FIDC quota holders 12  247,934   - 
Payment of leases 12  (32,070)  (6,279)
Repurchase of shares 16  (232,080)  (47,507)
Acquisition of non-controlling interests    (261)  (212)
Transaction with non-controlling interests 22  230,500   - 
Cash proceeds from non-controlling interest 22  893   230,500 
Net cash (used in) / provided by financing activities    153,916   (304,357)
           
Effect of foreign exchange on cash and cash equivalents    (22,406)  (2,294)
Change in cash and cash equivalents    (583,516)  550,268 
           
Cash and cash equivalents at beginning of period 5  2,446,990   968,342 
Cash and cash equivalents at end of period 5  1,863,474   1,518,610 
Change in cash and cash equivalents    (583,516)  550,268 

 

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

 

 

 

StoneCo Ltd.

Notes to unaudited interim condensed consolidated financial statements 

March 31, 2021

(In thousands of Brazilian Reais, unless otherwise stated)

 

1.Operations

 

StoneCo Ltd. (the “Company”), formerly known as DLP Payments Holdings Ltd., is a Cayman Islands exempted company with limited liability, incorporated on March 11, 2014. The registered office of the Company is located at 4th Floor, Harbour Place, 103 South Church Street in George Town, Grand Cayman.

 

The Company is controlled by HR Holdings, LLC, which owns 57.9% of voting power, whose ultimate parent is an investment fund, VCK Investment Fund Limited SAC A and The VCK Trust, owned by the co-founding individuals. Company’s shares are publicly traded on the Nasdaq Global Market under the symbol “STNE”.

 

The Company and its subsidiaries (collectively, the “Group”) are principally engaged in providing financial technology services and software solutions to clients allowing them to conduct electronic commerce seamlessly across in-store, online, and mobile channels and helping them better manage their businesses, become more productive and sell more - both online and offline.

 

The interim condensed consolidated financial statements of the Group for the three months ended March 31, 2021 and 2020 were approved at the Board of Directors’ meeting on May 25, 2021.

 

1.1.Linx acquisition

 

On November 17, 2020, Linx S.A (“Linx”) held an Extraordinary General Meeting that approved the business combination between STNE Participações S.A. ("STNE Par") that holds the software investments business of the Group and Linx, a leading provider of retail management software in Brazil. The transaction is now pending antitrust approval (CADE) and certain other conditions. A compensatory break fee equal to R$ 453,750 will be payable by the Group to Linx if CADE does not approve the transaction.

 

Pursuant to the terms and subject to the conditions set forth in the Association Agreement and its amendments, each Linx share issued and outstanding immediately prior to the consummation of the transaction will be automatically contributed to the Group in exchange for one newly issued redeemable STNE Par Class A Preferred Share and one newly issued redeemable STNE Par Class B Preferred Share. Immediately thereafter, each STNE Par Class A Preferred Share will be redeemed for a cash payment of R$33.56 updated pro rata die according to the CDI rate variation from the sixth month counted from August 11th, 2020 until the date of the effective payment and each STNE Par Class B Preferred Share will be redeemed for (i) 0.0126774 StoneCo Class A Common Share, or (ii) 0.0126774 BDR (Brazilian Depositary Receipt) (“StoneCo BDR”), provided that each 1 (one) StoneCo BDR will correspond to 1 (one) StoneCo Class A Share (the “Base Exchange Ratio”). The Base Exchange Ratio is calculated on a fully diluted basis, assuming a number of fully diluted shares of Linx of 179,058,617 on the transaction consummation date and represents a total consideration of R$38.06 for each Linx share or the total amount of R$ 6,814,971, considering the share price of the StoneCo shares as of November 16, 2020.

 

In the three months ended March 2021, the costs related to this transaction were R$ 2,344, recognized in the statement of profit or loss under administrative expenses.

 

1.2.Seasonality of operations

 

The Group’s revenues are subject to seasonal fluctuations as a result of consumer spending patterns. Historically, revenues have been strongest during the last quarter of the year as a result of higher sales during the Brazilian holiday season. This is due to the increase in the number and amount of electronic payment transactions related to seasonal retail events. Adverse events that occur during these months could have a disproportionate effect on the results of operations for the entire fiscal year. As a result of seasonal fluctuations caused by these and other factors, results for an interim period may not be indicative of those expected for the full fiscal year.

 

In the first quarter of 2021, the second wave of the COVID-19 pandemic in Brazil resulted in different commerce restrictions among different Brazilian cities, imposing a more challenging scenario for the clients and commerce. The unaudited interim condensed consolidated financial statements were temporarily impacted by the clients’ lower volumes as a result of those commerce restrictions. The risks keep being monitored closely, and the Group is following health and safety guidelines as they evolve.

 

 

 

2.Group information

 

2.1.Subsidiaries

 

The interim condensed consolidated financial statements of the Group include the following subsidiaries and structured entities:

 

      % Groups's equity interest
Entity name Country of incorporation Principal activities March 31, 2021 December 31, 2020
DLP Capital LLC (“DLP Capital”) USA Holding company 100.00 100.00
DLP Par Participações S.A. (“DLP Par”) Brazil Holding company 100.00 100.00
MPB Capital LLC (“MPB Capital”) USA Investment company 100.00 100.00
STNE Participações S.A. (“STNE Par”) Brazil Holding company 100.00 100.00
STNE Participações em Tecnologia S.A. (“STNE Par Tec”) Brazil Holding company 100.00 100.00
Stone Pagamentos S.A. (“Stone”) Brazil Merchant acquiring 100.00 100.00
MNLT Soluções de Pagamentos S.A. (“MNLT”) Brazil Merchant acquiring 100.00 100.00
Pagar.me Pagamentos S.A. (“Pagar.me”) Brazil Merchant acquiring 100.00 100.00
Buy4 Processamento de Pagamentos S.A. (“Buy4”) Brazil Processing card transactions 100.00 100.00
Buy4 Sub LLC (“Buy4 LLC”) USA Cloud store card transactions 100.00 100.00
Cappta S.A. (“Cappta”) Brazil Electronic fund transfer 56.73 56.73
Mundipagg Tecnologia em Pagamento S.A. (“Mundipagg”) Brazil Technology services 99.70 99.70
Equals S.A. (“Equals”) Brazil Reconciliation services 100.00 100.00
Stone Franchising Ltda. (“Stone Franchising”) Brazil Franchising management 99.99 99.99
TAG Tecnologia para o Sistema Financeiro S.A. (“TAG”) Brazil Financial assets register 100.00 100.00
Stone Sociedade de Crédito Direto S.A. (“Stone SCD”) Brazil Financial services 100.00 100.00
Stone Logística Ltda ("Stone Log") Brazil Logistic services 100.00 100.00
PDCA S.A. ("PDCA") (Note 22) Brazil Merchant acquiring 100.00 67.00
Linked Gourmet Soluções para Restaurantes S.A. (“Linked”) Brazil Technology services 58.10 58.10
MAV Participações S.A. (“MVarandas”) Brazil Technology services 100.00 100.00
Vitta Tecnologia em Saúde S.A. (“Vitta Group”) Brazil Health plan management 100.00 100.00
VittaPar LLC. (“Vitta Group”) USA Holding company 100.00 100.00
Vitta Corretora de Seguros Ltda. (“Vitta Group”) Brazil Insurance services 100.00 100.00
Vitta Serviços em Saúde LTDA. (“Vitta Group”) Brazil Health services 100.00 100.00
Vitta Saúde Administradora em Benefícios LTDA. (“Vitta Group”) Brazil Health services 100.00 100.00
MLabs Software S.A.. (“MLabs”) Brazil Social media services 51.50 51.50
Questor Sistemas S.A (“Questor”) Brazil Technology services 50.00 50.00
Sponte Informática S.A ("Sponte") Brazil Technology services 90.00 90.00
StoneCo CI Ltd (“Creditinfo Caribbean”) Cayman Islands Holding company 53.05 53.05
Creditinfo Jamaica Ltd (“Creditinfo Caribbean”) Jamaica Credit bureau services 53.05 53.05
Creditinfo Guyana Inc (“Creditinfo Caribbean”) Guyana Credit bureau services 53.05 53.05
Creditadvice Barbados Ltd (“Creditinfo Caribbean”) Barbados Credit bureau services 53.05 53.05
Stone Seguros S.A (“Stone Seguros”) Brazil Insurance services 100.00 100.00
TAPSO FIDC ("FIDC TAPSO") Brazil Receivables investment fund 100.00 100.00
FIDC Bancos Emissores de Cartão de Crédito - Stone II (“FIDC AR II”) Brazil Receivables investment fund 100.00 100.00
FIDC Bancos Emissores de Cartão de Crédito - Stone III (“FIDC AR III”) Brazil Receivables investment fund 100.00 100.00
SOMA FIDC (“FIDC SOMA”) Brazil Receivables investment fund 100.00 100.00
SOMA III FIDC (“FIDC SOMA III”) Brazil Receivables investment fund 100.00 100.00
STONECO EXCLUSIVO FIC FIM (“FIC FIM STONECO”) Brazil Investment fund 100.00 100.00
StoneCo Pagamentos UK Ltd (a) UK Service Provider 100.00 -
          
(a)On February 3, 2021, StoneCo Pagamentos UK Ltd was formed to provide technical risk management services to StoneCo's group companies.

 

The Group holds options to acquire additional interests in some of its subsidiaries. Each of the options has been evaluated in accordance with pre-determined formulas and R$ 10,891 were recorded in the consolidated statement of financial position as Derivative financial instruments.

 

 

 

2.2.Associates

 

      % Groups's equity interest
Entity name Country of incorporation Principal activities March 31, 2021 December 31, 2020
Collact Serviços Digitais S.A. (“Collact”) Brazil CRM 25.00 25.00
VHSYS Sistema de Gestão S.A. (“VHSYS”) Brazil Technology services 33.33 33.33
Alpha-Logo Serviços de Informática S.A. ("Tablet Cloud") Brazil Technology services 25.00 25.00
Trinks Serviços de Internet S.A. ("Trinks") Brazil Technology services 19.90 19.90
Delivery Much Tecnologia S.A. ("Delivery Much") (a) Brazil Food delivery marketplace 29.49 22.64

 

(a)On February 23, 2021, the Group acquired additional 6.85% interest in Delivery Much Tecnologia S.A. ("Delivery Much") through capital increase of R$ 34,998. The initial acquisition occurred in 2020.

 

The Group holds options to acquire additional interests in some of its associates. Each of the options has been evaluated in accordance with pre-determined formulas and R$ 3,737 were recorded in the consolidated statement of financial position as Derivative financial instruments.

 

3.Basis of preparation and changes to the Group’s accounting policies

 

3.1.Basis of preparation

 

The interim condensed consolidated financial statements for the three months ended March 31, 2021 have been prepared in accordance with IAS 34 – Interim Financial Reporting as issued by the International Accounting Standards Board (“IASB”).

 

The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Group’s annual consolidated financial statements as of December 31, 2020.

 

The accounting policies adopted are consistent with those of the previous financial year and corresponding interim reporting period, except for the adoption of new and amended standards as set out below.

 

The interim condensed consolidated financial statements are presented in Brazilian Reais (“R$”), and all values are rounded to the nearest thousand (R$ 000), except when otherwise indicated.

 

3.2.Estimates

 

The preparation of interim condensed financial statements of the Company and its subsidiaries requires management to make judgments and estimates and to adopt assumptions that affect the amounts presented referring to revenues, expenses, assets and liabilities at the financial statement date. Actual results may differ from these estimates.

 

In preparing these interim condensed consolidated financial statements, the significant judgements and estimates made by management in applying the Group’s accounting policies and the key sources of estimation uncertainty were the same as those that are set the consolidated financial statements for the year ended December 31, 2020 and no changes were made.

 

4.Segment information

 

In reviewing the operational performance of the Group and allocating resources, the chief operating decision maker of the Group (“CODM”), who is the Group’s Chief Executive Officer (“CEO”) and the Board of Directors (“BoD”), reviews selected items of the statement of profit or loss and other comprehensive income.

 

The CODM considers the whole Group as a single operating and reportable segment, monitoring operations, making decisions on fund allocation and evaluating performance based on a single operating segment. The CODM reviews relevant financial data on a combined basis for all subsidiaries and associates.

 

 

 

The Group’s revenue, results and assets for this one reportable segment can be determined by reference to the interim condensed consolidated statement of profit or loss and other comprehensive income and interim condensed consolidated statement of financial position.

 

5.Cash and cash equivalents

 

  

March 31,

2021

 December 31, 2020
     
Short-term bank deposits - denominated in R$  1,800,962   2,370,414 
Short-term bank deposits - denominated in US$  62,512   76,576 
   1,863,474   2,446,990 

 

6.Short-term investments

 

  

March 31,

2021

 December 31, 2020
     
Listed securities        
  Bonds (a)  788,629   675,599 
  Equity securities (b)  1,349,889   970,353 
Unlisted securities        
  Bonds (a)  6,280,948   6,464,154 
  Investment funds (c)  11,108   10,136 
  Equity securities (b)  243,204   7,816 
   8,673,778   8,128,058 

 

(a)Comprised of public and private bonds with maturities greater than three months, indexed to fixed and floating rates. As of March 31, 2021, bonds of listed companies are mainly indexed to 97.5% to 100% CDI rate (2020 – 97.5% to 100% CDI rate). Liquidity risk is minimal.

 

(b)Comprised of ordinary shares of listed and unlisted entities. The Group elected to recognize the changes in fair value of the existing listed and unlisted equity instruments through OCI. The change in fair value was R$ 231,943 (2020 – no change in fair value) was recognized in other comprehensive income. Fair value of unlisted equity instruments as of March 31, 2021 was determined based on recent negotiations of the securities.

 

(c)Comprised of foreign investment fund shares.

 

Short-term investments are denominated in Brazilian reais and U.S. dollars.

 

7.Accounts receivable from card issuers

 

Accounts receivable are amounts due from card issuers regarding the transactions of clients with card holders, performed in the ordinary course of business. Accounts receivable are generally due within 12 months, therefore are all classified as current.

 

  

March 31,

2021

 December 31, 2020
     
Accounts receivable from card issuers (a)  15,108,943   16,031,948 
Accounts receivable from other acquirers (b)  249,381   287,972 
Allowance for expected credit losses  (13,833)  (12,765)
   15,344,491   16,307,155 

 

 

(a)Refers to accounts receivable from card issuers, net of interchange fees, as a result of processing transactions with clients.

 

(b)Refers to accounts receivable from other acquirers related to PSP (Payment Service Provider) transactions.

 

As of March 31, 2021, R$ 3,478,917 of the total Accounts receivable from card issuers are held by FIDC AR II and FIDC AR III (December 31, 2020 — R$ 4,437,285 held by FIDC AR II and FIDC AR III). Accounts receivable held by FIDCs guarantee the obligations to FIDC quota holders.

 

8.Trade accounts receivable

 

Trade accounts receivables are amounts due from clients mainly related to loans designated at fair value through profit or loss (“FVPL”), equipment rental and other services.

 

  

March 31,

2021

 December 31, 2020
     
Loans designated at FVPL (a)  1,993,680   1,646,685 
Accounts receivable from clients (b)  133,264   130,059 
Other trade accounts receivable  37,836   53,675 
Allowance for expected credit losses  (33,591)  (32,463)
   2,131,189   1,797,956 
Current  1,804,912   1,415,850 
Non-current  326,277   382,106 

 

(a)The Group has irrevocably elected to classify loans at fair value with net changes recognized in the statement of profit or loss. The amount is held by FIDC SOMA and FIDC SOMA III.

 

(b)Comprised mainly of accounts receivable from equipment rental.

 

9.Income taxes

 

Income taxes are comprised of taxation over operations in Brazil, related to Corporate Income Tax (“IRPJ”) and Social Contribution on Net Profit (“CSLL”). According to Brazilian tax law, income taxes and social contribution are assessed and paid by legal entity and not on a consolidated basis.

 

(a)Reconciliation of income tax expense

 

The following is a reconciliation of income tax expense to profit for the period, calculated by applying the combined Brazilian statutory rates at 34% for the three months ended March 31, 2021 and 2020:

 

  Three months ended March 31
  2021 2020
Profit before income taxes  210,006   227,908 
Brazilian statutory rate  34%  34%
Tax expense at the statutory rate  (71,402)  (77,489)
         
Additions (exclusions):        
Different tax rates for companies abroad  28,779   6,601 
Other permanent differences  1,773   (1,439)
Equity pickup on associates  (1,226)  (435)
Unrecorded deferred taxes  (15,110)  (3,037)
Use of tax losses previously unrecorded  12   78 
R&D Tax Benefits  4,722   4,819 
Other tax incentives  761   1,613 
Total income tax and social contribution expense  (51,691)  (69,289)
Effective tax rate  25%  30%
         
Current income tax and social contribution  (62,749)  (77,531)
Deferred income tax and social contribution  11,058   8,242 
Total income tax and social contribution expense  (51,691)  (69,289)

 

 

(b)Changes in deferred income taxes

 

Net changes in deferred income taxes relate to the following:

 

At December 31, 2020  77,611 
Losses available for offsetting against future taxable income  (7,159)
Tax credit carryforward  2,925 
Tax deductible goodwill  (3,056)
Share-based compensation  6,500 
Accounts receivable from card issuers at FVOCI  5,033 
Unrealized loss on cash flow hedge at FVOCI  (779)
Equity instruments designated at FVOCI  (10,779)
Assets at FVPL  18,781 
Deferred income taxes arising from business combinations  2,437 
Temporary differences under FIDC  (7,499)
Technological innovation benefit  (1,671)
Others  (1,675)
At March 31, 2021  80,669 
(c)Deferred income taxes by nature

 

  March 31, 2021 December 31, 2020
Losses available for offsetting against future taxable income  77,422   84,581 
Tax credit carryforward  88,920   85,995 
Tax deductible goodwill  45,845   48,901 
Share-based compensation  39,193   32,693 
Accounts receivable from card issuers at FVOCI  29,294   24,261 
Unrealized loss on cash flow hedge at FVOCI  -   779 
Equity instruments designated at FVOCI  (10,779)  - 
Assets at FVPL  (56,507)  (75,288)
Deferred income taxes arising from business combinations  (36,676)  (39,113)
Temporary differences under FIDC  (74,035)  (66,536)
Technological innovation benefit  (17,103)  (15,432)
Others  (4,905)  (3,230)
Deferred tax, net  80,669   77,611 

 

Under Brazilian tax law, temporary differences and tax losses can be carried forward indefinitely. However, the loss carryforward can only be used to offset up to 30% of taxable profit for the period.

 

(d)Unrecognized deferred taxes

 

The Group has accumulated tax loss carryforwards and other temporary differences in some subsidiaries in the amount of
R$ 52,004 (December 31, 2020 – R$ 36,906) for which a deferred tax asset was not recognized and are available indefinitely for offsetting against future taxable profits of the companies in which the losses arose. Deferred tax assets have not been recognized with respect of these losses as they cannot be used to offset taxable profits between subsidiaries of the Group, and there is no other evidence of recoverability in the near future.

 

 

 

10.Property and equipment

 

(a)Changes in Property and equipment

 

  Balance at 12/31/2020 Additions Disposals Balance at 03/31/2021
Cost                
Pin Pads & POS  736,775   129,066   (6,795)  859,046 
IT equipment  128,244   39,109   (835)  166,518 
Facilities  40,524   1,936   (232)  42,228 
Machinery and equipment  18,242   1,197   -   19,439 
Furniture and fixtures  14,629   633   (14)  15,248 
Vehicles and airplane  16,261   30,496   -   46,757 
Construction in progress  81   -   -   81 
Right-of-use assets - Vehicles  20,007   1,711   (859)  20,859 
Right-of-use assets - Offices  126,571   38,552   (7,710)  157,413 
   1,101,334   242,700   (16,445)  1,327,589 
Depreciation                
Pin Pads & POS  (248,704)  (39,367)  204   (287,867)
IT equipment  (57,801)  (6,480)  127   (64,154)
Facilities  (17,180)  (1,778)  42   (18,916)
Machinery and equipment  (14,140)  (1,126)  -   (15,266)
Furniture and fixtures  (3,882)  (386)  11   (4,257)
Vehicles and airplane  (1,544)  (917)  -   (2,461)
Right-of-use assets - Vehicles  (6,906)  (1,842)  70   (8,678)
Right-of-use assets - Offices  (33,943)  (7,438)  7,703   (33,678)
   (384,100)  (59,334)  8,157   (435,277)
                 
Property and equipment, net  717,234   183,366   (8,288)  892,312 

 

(b)Depreciation and amortization charges

 

Depreciation and amortization expenses have been charged in the following line items of the consolidated statement of profit or loss:

 

  Three months ended March 31
  2021 2020
     
Cost of services  52,304   40,109 
General and administrative expenses  20,593   13,351 
Selling expenses  11,545   6,734 
Depreciation and Amortization charges  84,442   60,194 
Depreciation charge  59,334   46,237 
Amortization charge (Note 11)  25,108   13,957 
Depreciation and Amortization charges  84,442   60,194 

 

 

11.Intangible assets

 

Changes in intangible assets

 

  Balance at 12/31/2020 Additions Disposals Transfers Balance at 03/31/2021
Cost                    
Goodwill - acquisition of subsidiaries  654,044   -   -   -   654,044 
Customer relationship  155,101   -   -   -   155,101 
Trademark use right  12,491   -   -   -   12,491 
Trademarks and patents  3,728   -   -   -   3,728 
Software  204,649   19,971   (60)  2,455   227,015 
Licenses for use - payment arrangements  25,250   4,711   -   (650)  29,311 
Exclusive right  38,827   -   -   -   38,827 
Software in progress  26,246   17,445   (2,854)  (1,805)  39,032 
Right-of-use assets - Software  66,837   5,626   -   -   72,463 
   1,187,173   47,753   (2,914)  -   1,232,012 
Amortization                    
Customer relationship  (50,543)  (4,985)  -   -   (55,528)
Trademark use right  (12,491)  -   -   -   (12,491)
Trademarks and patents  (793)  (92)  -   -   (885)
Software  (55,508)  (10,191)  1   -   (65,698)
Licenses for use - payment arrangements  (13,295)  (1,269)  -   -   (14,564)
Exclusive right  (647)  (958)  -   -   (1,605)
Right-of-use assets - Software  (14,010)  (7,613)  -   -   (21,623)
   (147,287)  (25,108)  1   -   (172,394)
                     
Intangible assets, net  1,039,886   22,645   (2,913)  -   1,059,618 

 

 

12.Loans and financing

 

  Balance at 12/31/2020 Additions Disposals Payment Interest Balance at 03/31/2021
             
Obligations to FIDC AR quota holders (i)  4,114,315   -   -   (837,619)  28,599   3,305,295 
Obligations to FIDC TAPSO quota holders (ii)  20,476   -   -   (707)  298   20,067 
Obligations to FIDC SOMA quota holders (iii)  239,759   247,934   -   (7,045)  7,569   488,217 
Leases (iv)  174,861   45,889   (797)  (32,070)  2,180   190,063 
Bank borrowings (v)  390,830   1,109,000   -   (361,644)  3,117   1,141,303 
Debentures  398,358   -   -   (1,967)  2,235   398,626 
Loans with private entities  745,051   -   -   (7,489)  4,622   742,184 
   6,083,650   1,402,823   (797)  (1,248,541)  48,620   6,285,755 
Current  3,144,858                   3,391,708 
Non-current  2,938,792                   2,894,047 

 

(i)Payments mainly refer to the amortization of the principal and the payment of interest of the third series of FIDC AR II.

 

(ii)In March 2021, the Group negotiated an amendment of the contract to postpone the payment date of the principal to March 2022. Until March 2, 2021, the benchmark return rate remained at 100% of the CDI + 1.15% per year, and after this date, the benchmark return rate became 100% of the CDI + 1.80% per year.

 

(iii)Additions refer to the first series of FIDC SOMA III senior and mezzanine quotas. The total issuance to third party investors was R$ 493,000, of which R$ 246,500 were received in 2020 (R$ 239,232 net of the offering transaction costs, which will be amortized over the course of the series) and R$ 246,500 (with a monetary restatement of R$ 1,434) were received in the first quarter of 2021.

 

(iv)The balance comprises leases related to the adoption of IFRS 16.

 

(v)The Group has issued a total amount of R$ 1,109,000 of new CCBs (Bank Credit Notes), maturing until June 2021, whose price range is from CDI + 0.70% to CDI + 0.85%. The proceeds of these loans were used mainly for the prepayment of receivables.

 

The Group has not breached borrowing limits or covenants (where applicable) on any of its borrowing facilities.

 

13.Transactions with related parties

 

Related parties comprise the Group’s parent companies, shareholders, key management personnel and any businesses which are controlled, directly or indirectly by the shareholders and directors over which they exercise significant management influence. Related party transactions are entered in the normal course of business at prices and terms approved by the Group’s management.

 

(a)Transactions with related parties

 

The following transactions were carried out with related parties:

 

  Three months ended March 31
  2021 2020
Sales of services    
Associates (legal and administrative services) (i)  7   3 
   7   3 
Purchases of goods and services        
Entity controlled management personnel (ii)  -   (2,872)
Associates (transaction services) (iii)  (608)  (509)
   (608)  (3,381)

 

 

(i)Related to services provided to VHSYS.

 

(ii)Related to consulting and management services with Genova Consultoria e Participações Ltda., and travel services reimbursed to Zurich Consultoria e Participações Ltda, companies owned by related parties.

 

(iii)Related mainly to commission expenses paid to Collact due to new customer acquisition.

 

Services provided to related parties include legal and administrative services provided under normal trade terms and reimbursement of other expenses incurred in their respect.

 

(b)Balances at the end of the period

 

The following balances are outstanding at the end of the reporting period in relation to transactions with related parties:

 

  

March 31,

2021

 December 31, 2020
     
Loans to management personnel  4,223   4,149 
Convertible loans  5,542   3,051 
Receivables from related parties  9,765   7,200 

 

As of March 31, 2021, there is no allowance for expected credit losses on related parties’ receivables. No guarantees were provided or received in relation to any accounts receivable or payable involving related parties.

 

The Group has outstanding loans with certain management personnel. The loans are payable in three to seven years from the date of issuance and accrue interest according to the National Consumer Price Index, the Brazilian Inter-Bank Rate or Libor plus an additional spread.

 

14.Provision for contingencies

 

The Group companies are party to labor and civil litigation in progress, which are being addressed at the administrative and judicial levels. For certain contingencies, the Group has made judicial deposits, which are legal reserves the Group is required to make by the Brazilian courts as security for any damages or settlements the Group may be required to pay as a result of litigation.

 

The amount of the judicial deposits as of March 31, 2021 is R$ 22,041 (December 31, 2020 - R$ 20,448), which are included in other assets in the non-current assets.

 

(a)Probable losses, provided for in the statement of financial position

 

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. The amount, nature and the movement of the liabilities is summarized as follows:

 

  Civil Labor Total
Balance at December 31, 2020  9,572   578   10,150 
Additions  2,191   52   2,243 
Reversals  (565)  (28)  (593)
Interests  385   7   392 
Payments  (125)  (33)  (158)
Balance at March 31, 2021  11,458   576   12,034 

 

·MNLT, Stone, Pagar.me, Cappta, PDCA, SCD, Buy4 and Equals are parties to legal suits and administrative proceedings filed with several courts and governmental agencies, in the ordinary course of their operations, involving civil and labor claims.

 

 

 

(b)Possible losses, not provided for in the statement of financial position

 

The Group has the following civil and labor litigation involving risks of loss assessed by management as possible, based on the evaluation of the legal advisors, for which no provision for estimated possible losses was recognized:

 

  

March 31,

2021

 

December 31,

2020

Civil  50,016   46,169 
Labor  19,217   15,024 
Tax  4,028   - 
Total  73,261   61,193 

 

The nature of the main litigations is summarized as follows:

 

• Stone is party to two injunctions filed by a financial institution against accredited clients in which Stone was called as a defendant, demanding Stone to refrain from prepayment of receivables related to any credits of the accredited clients resulting from credit and debit cards, in addition to requesting that the amounts arising out of the transactions be paid at the bank account maintained at the financial institution that filed such lawsuit. Due to a revaluation of the amount involved in the lawsuit during first quarter of 2020, as there are no claims directly against Stone, and the possible loss derives exclusively from attorney´s fees, the amount provided as possible loss to R$ 11,168 (December 31, 2020 - R$ 10,835).

 

• Stone, MNLT, Cappta, Mundipagg, STNE Part, SCD, PDCA and Pagar.me are parties to legal suits filed in several Brazilian courts, in the ordinary course of their operations. These claims are related to: (i) chargeback, which sums R$ 1,704 (December 31, 2020 - R$ 2,063); (ii) disputes related to amounts withheld due to credit and fraud prevention/risk management, totaling R$ 7,981 (December 31, 2020 - R$ 5,876); and (iii) disputes related to merchants’ credit card receivables, totaling R$ 1,043 (December 31, 2020 - R$ 1,256) and (iv) disputes related to fraud and risk management of banking operation, totaling R$ 4,196 (December 31, 2020 - R$ 2,726).

 

• Labor lawsuits assessed as possible losses refer to lawsuits filed by former employees of the company and there being no individually significant cases.

 

15.Accounts payable to clients

 

Accounts payable to clients represent amounts due to accredited clients related to credit and debit card transactions, net of interchange fees retained by card issuers and assessment fees paid to payment scheme networks as well as the Group’s net merchant discount rate fees which are collected by the Group as an agent.

 

16.Equity

 

(a)Authorized capital

 

The Company has an authorized share capital of USD 50 thousand, corresponding to 630,000,000 authorized shares with a par value of USD 0.000079365 each. Therefore, the Company is authorized to increase capital up to this limit, subject to approval of the Board of Directors. The liability of each member is limited to the amount from time to time unpaid on such member’s shares.

 

(b)Subscribed and paid-in capital and capital reserve

 

 

 

The Articles of Association provide that at any time when there are Class A common shares being issued, Class B common shares may only be issued pursuant to: (a) a share split, subdivision or similar transaction or as contemplated in the Articles of Association; or (b) a business combination involving the issuance of Class B common shares as full or partial consideration. A business combination, as defined in the Articles of Association, would include, amongst other things, a statutory amalgamation, merger, consolidation, arrangement or other reorganization.

 

The additional paid-in capital refers to the difference between the purchase price that the shareholders pay for the shares and their par value. Under Cayman Law, the amount in this type of account may be applied by the Company to pay distributions or dividends to members, pay up unissued shares to be issued as fully paid, for redemptions and repurchases of own shares, for writing off preliminary expenses, recognized expenses, commissions or for other reasons. All distributions are subject to the Cayman Solvency Test which addresses the Company’s ability to pay debts as they fall due in the natural course of business.

 

Below are the movements of shares during the three months ended March 31, 2021:

 

  Number of shares
  Class A Class B Total
At December 31, 2020  257,479,140   51,782,702   309,261,842 
             
Issuance (i)  1,350,304   -   1,350,304 
Conversions  5,741,517   (5,741,517)  - 
             
At March 31, 2021  264,570,961   46,041,185   310,612,146 

 

(i)On January 28, 2021, the Group has fully acquired the non-controlling interest in PDCA held by Bellver Fundo de Investimento Multimercado Crédito Privado Investimento no Exterior (“Bellver”). The transaction was made by a purchase and sale of shares, where Bellver agreed to acquire 1,313,066 STNE shares by a payment being part in cash in the amount of R$ 230,500 and part by the delivering of their PDCA shares. The number of STNE shares delivered to Bellver was based on STNE volume-weighted average trading price of the 30 days preceding the signing of a memorandum of understanding (“MOU”) between the parties on December 8th, 2020.

 

(c)Treasury shares

 

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

 

On May 13, 2019, the Company announced the adoption of its share repurchase program in an aggregate amount of up to US$ 200 million (the “Repurchase Program”). The Repurchase Program went into effect in the second quarter of 2019 and does not have a fixed expiration date. The Repurchase Program may be executed in compliance with Rule 10b-18 under the Exchange Act.

 

In the first quarter of 2021, 663,304 Class A common shares were repurchased, for the amount of R$ 232,080 (in 2020 – 528,335 Class A common shares were repurchased for R$ 76,270).

 

In March 2021, the Company holds 1,195,774 (December 2020 - 532,470) Class A common shares in treasury.

 

17.Earnings per share

 

Basic earnings per share is calculated by dividing net income for the period attributed to the owners of the parent by the weighted average number of ordinary shares outstanding during the period.

 

The numerator of the Earnings per Share (“EPS”) calculation is adjusted to allocate undistributed earnings as if all earnings for the period had been distributed. In determining the numerator of basic EPS, earnings attributable to the Group is allocated as follows:

 

 

 

  Three months ended March 31
  2021 2020
     
Net income attributable to Owners of the Parent  158,336   158,806 
Numerator of basic and diluted EPS  158,336   158,806 

 

As of March 31, 2021, the shares issued in connection with the acquisition of non-controlling interest in PDCA were adjusted to basic and diluted EPS calculation since the acquisition date.

 

The Group granted RSU and stock options (Note 20), which are included in diluted EPS calculation.

 

The following table contains the earnings per share of the Group for the three months ended March 31, 2021 and 2020 (in thousands except share and per share amounts):

 

  Three months ended March 31
  2021 2020
     
Numerator of basic EPS  158,336   158,806 
         
Weighted average number of outstanding shares  309,624,045   277,366,836 
Denominator of basic EPS  309,624,045   277,366,836 
         
Basic earnings per share - R$  0.51   0.57 
         
Numerator of diluted EPS  158,336   158,806 
         
Share-based payments  5,160,955   4,402,204 
Weighted average number of outstanding shares  309,624,045   277,366,836 
Denominator of diluted EPS  314,785,000   281,769,040 
         
Diluted earnings per share - R$  0.50   0.56 

 

18.Total revenue and income

 

  Three months ended March 31
  2021 2020
Timing of revenue recognition    
     
Net revenue from transaction activities and other services  318,285   227,302 
Recognized at a point in time  318,285   227,302 
         
Net revenue from subscription services and equipment rental  139,949   93,125 
Financial income  368,791   359,315 
Other financial income  40,642   37,014 
Recognized over time  549,382   489,454 
         
Total revenue and income  867,667   716,756 

 

 

19.Expenses by nature

 

  Three months ended March 31
  2021 2020
     
Personnel expenses  235,113   148,712 
Transaction and client services costs (a)  108,516   66,177 
Financial expenses (b)  92,496   148,367 
Depreciation and amortization (Note 10 (b))  84,442   60,194 
Marketing expenses and sales commissions (c)  61,450   24,058 
Third parties services  33,268   15,872 
Facilities expenses  9,473   10,173 
Travel expenses  2,364   5,438 
Other  26,932   8,578 
Total expenses  654,054   487,569 

 

(a)Transaction and client services costs include card transaction capturing services, card transaction and settlement processing services, logistics costs, payment scheme fees and other costs.

 

(b)Financial expenses include discounts on the sale of receivables to banks, interest expense on borrowings, foreign currency exchange variances, net and the cost of derivatives covering interest and foreign exchange exposure.

 

(c)Marketing expenses and sales commissions relate to marketing and advertising expenses, and commissions paid to sales related partnerships.

 

20.Share-based payments

 

The Group provides benefits to employees (including executive directors) of the Group through share-based incentives.

 

Incentive Shares

 

In 2017, certain key employees have been granted incentive shares, or the Co-Investment Shares, that entitle participants to receive a cash bonus which they, at their option, may use to purchase a specified number of preferred shares in StoneCo Brasil which were then exchanged for common shares in DLP Par and after were exchanged upon consummation of the IPO.

 

These incentive shares are subject to a 10 years lock-up period and a discounted buy-back feature retained by the Group if the employee leaves prior to lockup expiration.

 

Restricted share units and Stock Options

 

The Group has a Long-term incentive plan (“LTIP”) to enable the Group to grant equity-based awards to employees and other service providers with respect to its Class A common shares, and it was granted restricted share unit (“RSUs”) and stock options to certain key employees under the LTIP to incentivize and reward such individuals. These awards are scheduled to vest over a four, five, seven and ten year period, subject to and conditioned upon the achievement of certain performance conditions. Assuming achievement of these performance conditions, awards will be settled in, or exercised for, its Class A common shares. If the applicable performance conditions are not achieved, the awards will be forfeited for no consideration.

 

In January and March 2021, the Company has granted 1,137,514 and 3,648 RSUs with a price of R$ 393.72 and R$ 500.65, respectively, which were determined based on the fair value of the equity instruments granted and the exchange rate, both at the grant date.

 

As of March 31, 2021, there were RSUs outstanding with respect to 5,511,354 Class A common shares and stock options outstanding with respect to 32,502 Class A common shares (with a weighted average exercise price of US$ 24.92).

 

 

 

The fair value of RSU refers to the stock price at grant date, and the fair value of each stock option granted was estimated at the grant date based on the Black-Scholes-Merton pricing model.

 

The total expense, including taxes and social charges, recognized for the programs for the three months ended March 31, 2021 was R$ 20,778 (2020 – a gain of R$ 1,057, mainly due to the STNE stock devaluation that has reduced the taxes and social charges recognized in the liabilities). For the period ended March 31, 2021, the Group recorded in the capital reserve the amount of R$ 22,148 (2020 - R $ 7,085) related to share-based payments.

 

21.Financial instruments

 

(a)Risk management

 

The Group’s activities expose it to a variety of financial risks: credit risk, market risk (including foreign exchange risk, cash flow or fair value interest rate risk, and price risk), liquidity risk and fraud risk. The Group’s overall financial risk management program seeks to remove or at least minimize potential adverse effects from its financial results. The Group uses derivative financial instruments to mitigate certain risk exposures. It is the Group’s policy that no trading in derivatives for speculative purposes may be undertaken.

 

Financial risk management is carried out by the global treasury department (“Global treasury”) on the Group level, designed by the integrated risk management team and approved by the Board of Directors. Global treasury identifies, evaluates and hedges financial risks in close co-operation with the Group’s operating units. On the specific level of the subsidiaries, mostly operations related to merchant acquiring operations in Brazil, the local treasury department (“Local Treasury”) executes and manages the financial instruments under the specific policies, respecting the Group’s strategy. The Board provides written principles for overall risk management, as well as written policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, anti-fraud, use of derivative financial instruments and non-derivative financial instruments, and investment of surplus liquidity.

 

The interim condensed consolidated financial statements do not include all financial risk management information and disclosures required in the annual financial statements; they should be read in conjunction with the Group’s annual financial statements as of December 31, 2020. There have been no changes in the risk management department or in any risk management policies since the year end.

 

The global spread of the COVID-19 pandemic, has negatively impacted the global economy, disrupted supply chains and created significant volatility in global financial markets, it has resulted in the temporary or permanent closure of many clients’ stores or facilities. Furthermore, if the clients’ businesses continue to be adversely affected, default rates of the credit solutions will likely rise. Additionally, continued turbulence in capital markets may adversely affect the ability to access capital to meet liquidity needs, execute the existing strategy, pursue further business expansion and maintain revenue growth. The risks are being monitored closely, and the Group intends to follow health and safety guidelines as they evolve.

 

(b)Financial instruments by category

 

Assets as per statement of financial position

 

  Amortized cost FVPL FVOCI Total
         
 At March 31, 2021        
 Short-term investments  -   7,080,685   1,593,093   8,673,778 
 Accounts receivable from card issuers  -   -   15,344,491   15,344,491 
 Trade accounts receivable  137,509   1,993,680   -   2,131,189 
 Financial assets from banking solution  -   663,141   -   663,141 
 Derivative financial instruments  -   15,600   -   15,600 
 Receivables from related parties  9,765   -   -   9,765 
 Other assets  369,394   -   -   369,394 
   516,668   9,753,106   16,937,584   27,207,358 

 

 

 

  Amortized cost FVPL FVOCI Total
At December 31, 2020        
 Short-term investments  -   7,149,889   978,169   8,128,058 
 Accounts receivable from card issuers  -   -   16,307,155   16,307,155 
 Trade accounts receivable  151,271   1,646,685   -   1,797,956 
 Financial assets from banking solution  -   714,907   -   714,907 
 Derivative financial instruments  -   42,931   172   43,103 
 Receivables from related parties  7,200   -   -   7,200 
 Other assets  180,309   -   -   180,309 
   338,780   9,554,412   17,285,496   27,178,688 

 

Liabilities as per statement of financial position

 

  Amortized cost FVPL FVOCI Total
 At March 31, 2021                
 Deposits from banking customers  536,637   -   -   536,637 
 Accounts payable to clients  8,406,618   -   -   8,406,618 
 Trade accounts payable  241,965   -   -   241,965 
 Loans and financing  2,472,176   -   -   2.472.176 
 Obligations to FIDC quota holders  3,813,579   -   -   3,813,579 
 Derivative financial instruments  -   19,128   -   19,128 
 Other liabilities  34,614   273,230   -   307,844 
   15,505,589   292,358   -   15,797,947 

 

 

  Amortized cost FVPL FVOCI Total
At December 31, 2020        
 Deposits from banking customers  576,139   -   -   576,139 
 Accounts payable to clients  9,172,353   -   -   9,172,353 
 Trade accounts payable  180,491   -   -   180,491 
 Loans and financing  1,709,100   -   -   1,709,100 
 Obligations to FIDC quota holders  4,374,550   -   -   4,374,550 
 Derivative financial instruments  -   13,574   2,659   16,233 
 Other liabilities  26,179   269,162   -   295,341 
   16,038,812   282,736   2,659   16,324,207 

 

(c)Fair value measurement

 

The table below presents a comparison by class between book value and fair value of the financial instruments of the Group:

 

  March 31, 2021 December 31, 2020
  Book value Fair value Hierarchy level Book value Fair value Hierarchy level
             
Financial assets            
Short-term investments (1)  8,673,778   8,673,778  I /II  8,128,058   8,128,058  I /II
Accounts receivable from card issuers (2)  15,344,491   15,344,491  II  16,307,155   16,307,155  II
Trade accounts receivable (3) (4)  2,131,189   2,131,189  II/III  1,797,956   1,797,956  II/III
Financial assets from banking solution (5)  663,141   663,141  I  714,907   714,907  I
Derivative financial instruments (6)  15,600   15,600  II  43,103   43,103  II
Receivables from related parties (3)  9,765   9,765  II  7,200   7,200  II
Other assets (3)  369,394   369,394  II  180,309   180,309  II
   27,207,358   27,207,358     27,178,688   27,178,688   

 

 

 

  March 31, 2021 December 31, 2020
  Book value Fair value Hierarchy level Book value Fair value Hierarchy level
Financial liabilities            
Deposits from banking customers (7)  536,637   536,637  II  576,139   576,139  II
Accounts payable to clients (9)  8,406,618   8,256,740  II  9,172,353   9,004,825  II
Trade accounts payable (3)  241,965   241,965  II  180,491   180,491  II
Loans and financing (8)  2,472,176   2,457,588  II  1,709,100   1,697,588  II
Obligations to FIDC quota holders (8)  3,813,579   3,852,016  II  4,374,550   4,395,035  II
Derivative financial instruments (8)  19,128   19,128  II  16,233   16,233  II
Other liabilities (3) (10)  307,844   307,844  II/III  295,341   295,341  II/III
   15,797,947   15,671,918     16,324,207   16,165,652   

 

(1)Short-term investments are measured at fair value. Listed securities are classified as level I and unlisted securities classified as level II, for those the fair value is determined using valuation techniques, which employ the use of market observable inputs.

 

(2)Accounts receivable from card issuers are measured at FVOCI as they are held to both, collect contractual cash flows and be sold. Fair value is estimated by discounting future cash flows using market rates for similar items.

 

(3)The carrying values of trade accounts receivable, receivables from related parties, other assets, trade accounts payable and other liabilities are measured at amortized cost and are recorded at their original amount, less the provision for impairment and adjustment to present value, when applicable. The carrying values are assumed to approximate their fair values, taking into consideration that the realization of these balances, and settlement terms do not exceed 60 days. These amounts are classified as level II in the hierarchy level.

 

(4)Included in Trade accounts receivable there are Loans designated at FVPL with an amount of R$ 1,993,680, which are measured at fair value through profit or loss and are valued using valuation techniques, which employ the use of market unobservable inputs, and therefore is classified as level III in the hierarchy level.

 

At December 31, 2020  1,646,685 
Additions  1,022,362 
Settlements  (448,124)
Fair value recognized in the statement of profit or loss as Financial income  (227,243)
At March 31, 2021  1,993,680 

 

The significant unobservable inputs used in the fair value measurement of Loans designated at FVPL categorized within Level III of the fair value hierarchy, are based on expected loss rate and the discount rate used to evaluate the asset.

 

(5)Financial assets from banking solutions are measured at fair value. Due to regulatory restrictions, sovereign bonds are priced using PU550 quotation from Anbima public pricing method.

 

(6)The Group enters into derivative financial instruments with financial institutions with investment grade credit ratings. Non-deliverable forward contracts are valued using valuation techniques, which employ the use of market observable inputs. Cash flow hedge instruments are classified as FVOCI (Note 21 (d)).

 

(7)Deposits from banking customers are measured at amortized costs. Considered the immediate liquidy due to costumers payment account deposits.

 

 

 

(8)Loans and financing, and obligations to FIDC quota holders are measured at amortized cost. Fair values are estimated by discounting future contractual cash flows at the interest rates available in the market that are available to the Group for similar financial instruments.

 

(9)Accounts payable to clients, are measured at amortized cost. Fair values are estimated by discounting future contractual cash flows at the average of interest rates applicable in prepayment business.

 

(10)There are contingent considerations included in other liabilities arising on business combinations that are measured at FVPL. Fair values are estimated in accordance with pre-determined formulas explicit in the contracts with selling shareholders. The amount as of March 31, 2021 is R$ 273,230 and is classified as level III in the hierarchy level. The movement of the contingent consideration is summarized as follows:

 

At December 31, 2020  269,162 
Recognized in the statement of profit or loss as Financial expenses, net  4,068 
At March 31, 2021  273,230 

 

For disclosure purposes, the fair value of financial liabilities is estimated by discounting future contractual cash flows at the interest rates available in the market that are available to the Group for similar financial instruments. The effective interest rates at the balance sheet dates are usual market rates and their fair value does not significantly differ from the balances in the accounting records.

 

For the periods ended March 31, 2021 and December 31, 2020, there were no transfers between the fair value measurements of Level I and Level II and between the fair value measurements of Level II and Level III.

 

 

 

(d)Hedge accounting

 

During 2020, the Company entered hedge operations for highly probable transactions related to the purchases of Pin Pads & POS subject to foreign exchange exposure using Non-Deliverable Forward (“NDF”) contracts. The transactions have been elected for hedge accounting and classified as cash flow hedge in accordance with IFRS 9 Financial Instruments. The details of the operations and the position of asset, liability and equity as of March 31, 2021 and December 31, 2020 are presented as follows.

 

On January 14, 2021, the Company agreed with Pin Pads & POS providers that new purchases are not indexed to foreign currency, so there are no new hedge operations entered since then and the previously designated operations were discontinued.

 

            

March 31,

2021

 December 31, 2020
Counterparty 

Notional in US$

(i)

 Contracted exchange rate (R$ per US$ 1.00) 

Notional in R$

(i)

 Trade date Due date 

Effective portion – Gain / (Loss)

(ii)

 

Ineffective portion – Revenue / (Expense)

(iii)

 

Discontinued hedge accounting – Revenue / (Expense)

(iv)

 Fair value – Asset / (Liability)
Banco BTG Pactual S.A.  3,951   5.40   21,340  07-Jul-20 04-Jan-21  (288)  (518)  -   (806)
Banco BTG Pactual S.A.  (1,100)  5.31   (5,837) 05-Aug-20 04-Jan-21  -   121   -   121 
Banco Safra S.A.  2,900   5.33   15,450  05-Aug-20 01-Feb-21  -   -   430   (418)
Banco Safra S.A.  (600)  5.26   (3,158) 17-Sep-20 04-Jan-21  -   39   -   39 
Banco Votorantim S.A.  (150)  5.26   (790) 17-Sep-20 01-Feb-21  -   -   (32)  12 
Banco Votorantim S.A.  1,900   5.27   10,020  17-Sep-20 01-Mar-21  -   -   487   (165)
Banco Votorantim S.A.  2,900   5.63   16,333  21-Oct-20 01-Apr-21  -   -   190   (1,270)
Banco Votorantim S.A.  (2,750)  5.20   14,302  14-Jan-21 01-Feb-21  -   -   (756)  - 
Banco Votorantim S.A.  (1,900)  5.21   9,893  14-Jan-21 01-Mar-21  -   -   (614)  - 
Banco Votorantim S.A.  (2,900)  5.21   15,118  14-Jan-21 01-Apr-21  -   -   (1,404)  - 
                Net amount  (288)  (358)  (1,699)  (2,487)

 

 

(i)Negative amounts represent either hedge transactions designated to eliminate the exchange variation of the original hedges due to (i) reduction in the estimates of future purchases of Pin Pads & POS and (ii) elimination of exposure to foreign exchange.

 

(ii)During the hedge life, this value is recognized in equity, in “Other comprehensive income”, but subsequently (when settled), is reclassified to “Property and equipment”, in the statement of financial position. In accordance with IFRS 9, the amount that has been accumulated in the cash flow hedge reserve shall be directly included in the carrying amount of the related asset if the hedged forecast transaction results in the recognition of a non-financial asset. On March 31, 2021 there are not effective portion recognized in equity (2020 – R$ (2,291) (gross amount) and R$ (1,512) (amount net of tax)).

 

(iii)Recognized in the statement of profit or loss, in “Financial expenses, net”. The ineffectiveness is due to (i) a smaller volume of purchases of Pin Pads & POS than the hedged volume, (ii) a commercial discount in the purchase moment, and (iii) hedge transactions designated due to reduction in the estimates of future purchases of Pin Pads & POS.

 

(iv)Recognized in the statement of profit or loss, in “Financial expenses, net”.

 

(e)Financial assets from banking solution and deposits with banking customers

 

Financial assets from banking solution are invested by the Company in accounts under Brazilian Central Bank’s (“BACEN”) custody or in Brazilian National Treasury Bonds, in order to guarantee the deposits with banking customers, as required by BACEN regulation.

 

(f)Offsetting of financial instruments

 

Financial asset and liability balances are offset (i.e., reported in the consolidated statement of financial position at their net amount) only if the Company and its subsidiaries currently have a legally enforceable right to set off the recognized amounts and intend either to settle on a net basis, or to sell the asset and settle the liability simultaneously.

 

As of March 31, 2021, and December 31, 2020, the Group has no financial instruments that meet the conditions for recognition on a net basis.

 

22.Transactions with non-controlling interests

 

  Changes in non-controlling interest    
  Capital contributions by non-controlling interests Transfers to non-controlling interests Changes in equity attributable to owners of the parent Consideration paid by non-controlling interests
For the period ended March 31, 2021        
Transactions between subsidiaries and shareholders:        
Issuance of shares for purchased noncontrolling interests (a)  (230,500)  (77,911)  308,411   (230,500)
Capital contribution to subsidiary  893   -   -   - 
   (229,607)  (77,911)  308,411   (230,500)

 

(a)On January 28, 2021, the Group has fully acquired the non-controlling interest in PDCA held by Bellver Fundo de Investimento Multimercado Crédito Privado Investimento no Exterior (“Bellver”). The transaction was made by a purchase and sale of shares, where Bellver agreed to acquire 1,313,066 STNE shares by a payment being part in cash in the amount of R$ 230,500 and part by the delivering of their PDCA shares. The number of STNE shares delivered to Bellver was based on STNE volume-weighted average trading price of the 30 days preceding the signing of a memorandum of understanding (“MOU”) between the parties on December 8th, 2020.

 

 

 

23.Subsequent events

 

23.1 Business combination

 

On April 1, 2021, the Group acquired a 50.0% interest in SimplesVet Tecnologia S.A (“SimplesVet”), for R$ 30,974. SimplesVet is an unlisted company based in Salvador, Brazil, that develops management software for veterinary clinics, petshops and autonomous veterinarians. Through this acquisition, the Group expects to obtain synergies in servicing its clients. The Group determined they had control based on the voting power over the main decisions of the company.

 

On April 1, 2021, the Group obtained the control of VHSYS through a step acquisition, which started on June 4, 2019, with the acquisition of 33.33% interest for R$ 13,785. On April 1, 2021, through a capital increase and buying some shares from selling shareholders in the total amount of R$ 18,656 the Group acquired the VHSYS’s control with a 50% interest. VHSYS is an unlisted company based in Paraná, Brazil, that is an omni-channel, cloud-based, Application Programming Interface (“API”) driven, Point of Sale (“POS”) and Enterprise Resource Planning (“ERP”) platform built to serve an array of service and retail businesses. The self-service platform consists of over 40 applications, accessible a la carte, such as order and sales management, invoicing, dynamic inventory management, cash and payments management, CRM, along with marketplace, logistics, and e-commerce integrations, among others, with which the Company expects to obtain synergies in its services to clients.

 

As the acquisition date of the business combination occurred after the end of the reporting period but before the financial statements are authorized for issue, the initial accounting for the business combination is incomplete. Fair value of assets acquired and liabilities assumed are still being evaluated, not being possible to make the complete disclosure of a business combination. It is expected to have a more complete information in the next quarter.

 

a)Financial position of business acquired

 

The allocation of assets acquired and liabilities assumed in the business combinations mentioned above are presented below. Identification and measurement of assets acquired, liabilities assumed, consideration transferred and goodwill are preliminary.

 

Fair value SimplesVet VHSYS Total
Cash and cash equivalents  11,107   13,731   24,838 
Trade accounts receivable  96   -   96 
Property, plant and equipment  179   2,232   2,411 
Intangible asset  -   2,522   2,522 
Other assets  136   55   191 
Total assets  11,518   18,540   30,058 
             
Trade accounts payable  106   461   567 
Loans and financing  -   1,128   1,128 
Labor and social security liabilities  593   2,024   2,617 
Other liabilities  552   3,139   3,691 
Total liabilities  1,251   6,752   8,003 
             
Net assets and liabilities  10,267   11,788   22,055 
Consideration transferred (b)  30,974   48,614   79,588 
Goodwill  20,707   36,826   57,533 

 

 

b)Consideration transferred

 

The fair value of the consideration transferred on the business combination were as follows:

 

  SimplesVet VHSYS Total
Cash consideration paid  15,650   18,656   34,306 
Cash consideration to be paid  5,750   -   5,750 
Non-controlling interest in the acquiree  5,134   5,894   11,028 
Fair value of previously held equity interest in the acquiree (i)  -   24,064   24,064 
Contingent consideration (ii)  4,440   -   4,440 
Total  30,974   48,614   79,588 

 

(i)As a result of the step acquisition of VHSYS, the Group will recognize a gain of approximately R$ 12,010 for the difference between the previously held 33.33% interest in VHSYS, at fair value, in the amount of R$ 24,064, and its carrying amount, of R$ 12,054.

 

(ii)SimplesVet’s contingent consideration will be transferred to the selling shareholders after the closing of the 2022 fiscal year and is determined based on predetermined formulas mainly based in the amount of revenue and profitability that the acquired company will have at the end of 2022.

 

In order to evaluate the contingent consideration, the Group has considered different probabilities of scenarios and discounted future contractual cash flows at the interest rates available in the market that are available to the Group for similar financial instruments.

 

c)Acquisition-related costs

 

As mentioned above, the fair value amount and purchase price allocation are still being evaluated, and for that reason the total acquisition-related costs are also being determined. The estimated amount is not material as of March 31, 2021.

 

23.2 Investment Agreement with Banco Inter

 

On May 24, 2021, the Group signed a definitive investment agreement with Banco Inter, a leading and fast-growing digital bank in Brazil which will allow the group to invest up to R$2.5 billion (approximately US$471 million) in newly issued shares issued by Banco Inter, becoming a minority investor (limited to a 4.99% stake) of Banco Inter after the transaction (the “Investment”).

 

As part of the Investment, the Group will have the right of first refusal in the case of change of control of Banco Inter, for a period of 6 years and according to certain price thresholds and the right to join the Board of Directors of Banco Inter with one seat out of nine.

 

 

 

SIGNATURE

 

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.

 

  StoneCo Ltd.
   By:/s/ Thiago dos Santos Piau
    Name:Thiago dos Santos Piau
    Title:Chief Executive Officer

 

Date: June 1, 2021