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 March 2020
Commission File Number: 001-38954
_____________________
LINX S.A.
(Exact Name as Specified in its Charter)
N/A
(Translation of registrant’s name into English)
Avenida Doutora Ruth Cardoso, 7,221
05425-902 São Paulo, SP
Federative Republic of Brazil
(Address of principal executive offices)
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: ý Form 40-F: o
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)):o
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)):o
To our shareholders
The Management of Linx S.A. (“Linx”, “Company”) submits the Financial Statements for the periods ended December 31, 2019 (“4th quarter of 2019”, “4Q19”) to your appreciation compared to December 31, 2018 (“4th quarter of 2018”, “4Q18”).
Linx, present in the market for 35 years, is a leader in technologies for retail, using cloud, big data, artificial intelligence, among other innovations, to create a wide portfolio of transactional and performance solutions, which include management software (POS - point of sale and ERP - enterprise resource planning), SaaS (software as a service) with emphasis on Digital (OMS and e-commerce), financial services (TEF and sub-acquiring) and cross selling (NFCe and connectivity), among many others.
2019 was a very important year for Linx. We reinforced our position as the natural choice in technology for omni retail by strengthening our end-to-end platform with the launch of new technologies, partnerships for Linx Digital and Linx Pay Hub, in addition to strategic acquisitions throughout the year. Also noteworthy was the IPO in June, making Linx the first Brazilian software company publicly traded on the NYSE.
We reinforced our commercial presence with the expansion of franchisees and training of teams with a focus on customer success and satisfaction. In this context, the cross-sell strategy of our end-to-end platform services remained as our main growth driver. This positioning also made it possible to win new customers considering the multiple entry points to the Linx platform, ending the year with a total gross merchandise volume of approximately BRL 300 billion.
In a more challenging macroeconomic context in the markets in which we operate, these fronts proved to be important pillars in our growth strategy. We had a stabilization in the net closing of stores throughout 4Q19, a trend also reflected in the ICOM - Trade Confidence Index (96.7 points in December vs. 96.8 points in September).
In 4Q19, we signed new projects to integrate retailers' online and offline channels through OMS, totaling 16 customers at different stages of implementation. Reinforcing our leadership in the Omnichannel strategy, we signed new partnerships with important marketplaces to complement the support to our customers in the digital transformation journey and to strengthen a fluid relationship with their consumers.
In addition, the Linx Pay Hub offerings continue to grow, supported mainly by the adoption of TEF and the continuous expansion of our portfolio of differentiated solutions and natively integrated into the Linx platform. With a constant focus on business profitability, we also entered into strategic partnerships to integrate the wallets and further strengthen QR Linx and Digital Account. After one year of launching Linx Pay, we have already reached the 4th largest financial volume among the acquirers who trade through our TEF.
In 4Q19, Linx Digital represented 13% of total recurring revenue, while Linx Pay reached 12%. This is due to the acquisition of Seta Digital in October 2019, allocated as part of Linx Core, strengthening its representativeness in recurring revenue.
In 2020, the scenario should be more challenging. In face of the advance of the spread of the new Coronavirus (COVID-19) in Brazil and Latin America, we put into practice plan comprising several preventive measures necessary to minimize the effects of the pandemic, among which we highlight: creation a Crisis Committee, all employees working from home since March 16 and suspension or postponement of national and international business trips. Due to uncertainties regarding the dynamics of the outbreak’s evolution, the effects on the economic activities of our Customers and Suppliers and the measures to be adopted in Brazil and in other countries in Latin America in which we operate, it is impossible to predict the total impact that the pandemic will have on the global economy as well as on our business.
Linx continues to operate normally and reaffirms its commitment to the safety of its Employees, ensuring service to Customers and Suppliers, and consequently, to the business. We will continue to invest in innovation and in valuing our team to bring people and technology even closer together through passionate shopping experiences around the world.
As always, we thank everyone for your trust and remain at your disposal.
Linx Team
#soulinx
Statutory Management Statement
In compliance with the provisions contained in CVM instructions, the Board of Directors, the Audit Committee and the Fiscal Council of Linx declare that they discussed, reviewed and agreed with the conclusions expressed in the audit report of the independent auditors and with the annual financial statements related to the year ended December 31, 2019, authorizing its disclosure.
Relationship with Independent Auditors
The financial statements of the Company and its subsidiaries are audited by Ernst & Young Independent Auditors.
The Company's policy for contracting services not related to external auditing seeks to assess the existence of a conflict of interest, thus, the following aspects are assessed: the auditor must not (i) audit his own work; (ii) exercising managerial functions in your client and (iii) promoting your client's interests.
São Paulo, March 30, 2020.
A free translation from Portuguese into English of Independent Auditor’s Report on individual and consolidated financial statements prepared in Brazilian currency
Independent auditor's report on the individual and consolidated financial statements
To
Shareholders, Board Members and Directors of
Linx S.A.
São Paulo - SP
Opinion
We have audited the accompanying individual and consolidated financial statements of Linx S.A. (“Company” or “Group”), identified as Company and consolidated, respectively, which comprise the balance sheet as of December 31, 2019 and the statement of income, of comprehensive income, of changes in shareholders’ equity and cash flows for the year then ended, as well as corresponding other explanatory information, including a description of significant accounting policies.
In our opinion, the individual and consolidated financial statements referred to above present fairly, in all material respects, the individual and consolidated financial position of Linx S.A. as of December 31, 2019, the individual and consolidated performance of its operations and its individual and consolidated cash flows for the year then ended, in conformity with accounting practices adopted in Brazil and International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB).
Basis for opinion
We conducted our audit in accordance with Brazilian and international standards on auditing. Our responsibilities, in accordance with such standards, are described in the following section entitled “Auditor’s responsibilities for the audit of individual and consolidated financial statements.” We are independent of the Company and its subsidiaries, according to the significant ethical principles provided in the Accountant’s Code of Professional Ethics and the professional standards issued by the Brazil’ National Association of State Boards of Accountancy (CFC), and we comply with the other ethical responsibilities according to such standards. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
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A free translation from Portuguese into English of Independent Auditor’s Report on individual and consolidated financial statements prepared in Brazilian currency
Key audit matters
The key audit matters are those who, in our professional judgment, were the most significant in our audit of current year. These matters were addressed in the context of our audit of the individual and consolidated financial statements as a whole, and in forming our opinion thereon, and, therefore, we do not express a separate opinion on these matters. For each matter below, a description of how our audit has addressed the matter, including any comments on the results of our procedures, is presented in the context of the financial statements taken as a whole.
We have fulfilled the responsibilities described in the “Auditor's responsibilities for the audit of individual and consolidated financial statements” section, including those relating to these key audit matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial statements. The results of our procedures, including those performed to address the matters below, provide the basis for our audit opinion on the Company's financial statements.
Revenue recognition for implementation and customization services
The Group provides implementation and customization services, recognized in profit or loss when the services are rendered to the customers, based on the customer acceptance which confirms that the performance obligation was fulfilled over time, since the client simultaneously receives and consumes the benefits provided by the Group. This measurement may also consider the charge of hours by professionals in the respective projects.
Considering the magnitude of the amounts involved in addition to the reliance of manual and automatic controls and judgment to determine the time in which the Group fulfills the performance obligation and to ensure that all services provided have been measured and recorded correctly in the appropriate accounting period, which may impact the value of accounts receivable and related revenues in the financial statements, we consider this matter significant for our audit.
How our audit conducted this matter
Our revenue recognition procedures for implementation and customization services include, but are not limited to, evaluate the adequacy of the respective disclosures of the Company on the criteria for recognition of revenues and amounts involved; evaluate key internal controls implemented by the Company related to the revenue recognition for implementation and customization services, which included the involvement of the IT specialists to assist us in assessing the design and operational effectiveness of information technology general controls (IT), having we identified material deficiencies in the design and operation of these IT controls associated with logical access, change and updating of systems.
In addition, we performed tests of details close to the annual accounting closing ("cutoff test of revenues") by comparing invoices issued, service order and client’s acceptance to evaluate the criteria used by the Company in the recognition of revenues from services. As a result of this procedure, indicating the need to complement the balances of deferred revenue, which was not recorded by the Company's Management due to its materiality in relation to the financial statements taken as a whole.
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A free translation from Portuguese into English of Independent Auditor’s Report on individual and consolidated financial statements prepared in Brazilian currency
Deficiencies in the design and operation of internal controls related to information technology general controls, changed our evaluation of the nature, timing and extent of our substantive procedures designed to obtain sufficient evidence and adequate audit information regarding the revenue recognition. Based on audit procedures performed, which are consistent with management's assessment, we understand that the policies for recognition and measurement of revenues from implementation and customization services, as well as the respective disclosures in Notes 3.16 e 24, are acceptable in regard to the financial statements taken as a whole.
Capitalization of software development expenditures
The Company develops new or substantially improved products for its current and new customers. Expenses with labor and materials that are directly attributable to the development of these products are capitalized as an intangible asset by the Company, according to Notes3.10 e 14.
The capitalization is carried out by the Company only when all of the following elements, defined by accounting practices adopted in Brazil and International Financial Reporting Standards (IFRS) standards, issued by International Accounting Standards Board (IASB) are present: (i) technical feasibility to complete the intangible asset in order for it to be available for use or sale; (ii) intention to complete the intangible asset and use or sell it; (iii) ability to use or sell the intangible asset; (iv) the intangible assets should result in future economic benefit, useful for internal use or asset sale; (v) availability of technical, financial and other proper resources to conclude its development and to use the intangible asset; and (vi) ability to accurately measure the expenses attributable to intangible assets during their development.
This matter was considered significant for our audit, due to the degree of judgment involved in determining the expenses that will be capitalized by the Company, which should demonstrate that the criteria established for capitalization of software development costs were met.
How our audit conducted this issue
Our procedures related to capitalization of software development costs included, among others, (i) we understood the key internal controls implemented by the Company related to the process of capitalization of software development costs; (ii) we selected a sample of projects to verify its technical feasibility, the Company's intention evaluation with the asset (sale or use) and its financial viability, in addition to conducting inquiries and interviews with those responsible for the projects capitalized to understand the technical feasibility; (iii) we performed documentary tests, where we analyzed the charge of hours by the professionals and its relation to the projects that are being capitalized, in addition to obtaining evidence that corroborated whether the activities performed by the employee in such projects were consistent with the criteria for capitalization and obtaining representation from managers confirming the allocation of professionals to projects.
As a result of those procedures, we identified adjustments (recorded by management given its materiality in relation to the financial statements taken as a whole) indicating the need to write-off amounts capitalized as software. Additionally, we discussed the audit differences with management, performed a review of the adjustments recorded by management and we discussed the impact from those adjustments on the internal controls.
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A free translation from Portuguese into English of Independent Auditor’s Report on individual and consolidated financial statements prepared in Brazilian currency
Deficiencies in the design and operation of internal controls related to capitalization of software which were identified (and deemed to significant) changed our evaluation of the nature, timing and extent of our substantive procedures designed to obtain sufficient evidence and adequate audit information regarding capitalization of software.
Additionally, we evaluated the adequacy of disclosures made by the Company in Notes 3.10 and 14 to the financial statements.
Based on audit procedures performed, which are consistent with management's assessment, we understand that the policies for capitalization of software are acceptable to support the judgement and information included in the financial statements taken as a whole.
Impairment of goodwill
The Company carried out acquisitions of companies in previous years and in the current year that resulted in the recognition of goodwill for future profitability and which represent significant amounts in its financial statements, as disclosed in Notes 3.10 and 14. The recoverable value of these goodwill, as they have an indefinite useful life, are annually tested by the Company to verify that the recoverable value is higher than the carrying amount.
The evaluation of the recoverable value involves significant judgments in determining the assumptions used in the cash flow projections, including growth and discount rates. Distortions in determining the recoverable value of goodwill may result in a material impact on the financial statements. Accordingly, this matter was considered significant for our audit.
How our audit conducted this issue
Our procedures related to the evaluation of goodwill included, among others; understanding of key internal controls implemented by the Company related to the process of evaluating the recoverable value of goodwill; we involved our corporate finance specialists to assist us in evaluating the assumptions and methodology used in the cash flow projections, including growth and discount rates, projected results and profit margins compared to macroeconomic information; we compared the recoverable value based on the discounted cash flows, with the respective book values of the goodwill; and we evaluated the adequacy of the respective disclosures of the Company of the assumptions considered in the recoverability calculations of the goodwill and the amounts involved.
Based on the auditing procedures performed on the goodwill impairment test, which are consistent with management's assessment, we understand that the criteria and assumptions of goodwill used by management, as well as the respective disclosures in Notes3.10 e 14, are acceptable in the context of the financial statements taken as a whole.
Business combination
During the year 2019, the Company acquired the companies Hiper Software S.A., Millennium Network Ltda. and SetaDigital Sistemas Gerenciais Ltda. The acquisitions were recorded by the Company, considering the acquisition method and represented significant amounts in the financial statements, included in Note 5.
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A free translation from Portuguese into English of Independent Auditor’s Report on individual and consolidated financial statements prepared in Brazilian currency
This matter was considered significant to our audit, due to the judgment involved in the identification and determination of the fair value of acquired assets and assumed liabilities, and the consequent allocation of purchase price, besides the magnitude of amounts involved.
How our audit conducted this issue
Our business combination procedures included, among others: understanding of key internal controls implemented by the Company related to the acquisition process of companies; we involved our corporate finance specialists to assist us in evaluating the assumptions and methodology used to determine and recognize the fair value of assets acquired, liabilities assumed and goodwill for future profitability; we audited the opening balances of the acquired companies as at the acquisition date as part of the determination of the fair values of assets and assumed liabilities; and we evaluate the adequacy of the respective Company disclosures of the business combinations.
Based on the audit procedures performed, which are consistent with management's assessment, we understand the Company's business combination accounting policies are acceptable to support the judgments and information included in the context of the financial statements taken as a whole.
Other matters
Statement of value added
The individual and consolidated statements of added value (DVA) for the year ended December 31, 2019, prepared under the responsibility of the Company’s management, and presented herein as supplementary information for IFRS purposes, have been subject to audit procedures jointly performed with the audit of the Company's financial statements. In order to form our opinion, we evaluated whether those statements are reconciled with the financial statements and accounting records, as applicable, and whether their format and contents are in accordance with criteria determined in the Technical Pronouncement CPC 09 - Statement of Added Value. In our opinion, these statements of added value were prepared, in all material respects, in accordance with the criteria defined in this Technical Pronouncement and are consistent in relation to the individual and consolidated financial statements taken as a whole.
Other information accompanying the individual and consolidated financial statements and the auditor's report
The Company management is responsible for the other information comprising the management report.
Our opinion on the individual and consolidated financial statements does not cover the Management Report and we do not express any form of audit conclusion on this report. In connection with our audit of the individual and consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the individual and consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
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A free translation from Portuguese into English of Independent Auditor’s Report on individual and consolidated financial statements prepared in Brazilian currency
Responsibilities of management and governance for the individual and consolidated financial statements
Management is responsible for the preparation and fair presentation of the individual and consolidated financial statements in accordance with Accounting Practices Adopted in Brazil and with International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board (IASB) and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the individual and consolidated financial statements, management is responsible for assessing the Company’s ability to continue as going concern, disclosing, when applicable, the matters related to its going concern, and the use of this accounting basis in the preparation of the financial statements, unless the management intends to liquidate the Company and its subsidiaries, or cease their operations, or do not have any realistic alternative to avoid the discontinuance of operations.
Those charged with governance of the Company and its subsidiaries are the people responsible for overseeing the process of preparation of individual and consolidated financial statements.
Auditor’s responsibilities for the audit of individual and consolidated financial statements
Our objectives are to obtain reasonable assurance that the individual and consolidated financial statements, taken as a whole, are free from material misstatement, whether due to fraud or error, and issue the audit report with our opinion. Reasonable assurance is a high level of assurance, but not a guarantee that the audit conducted pursuant to Brazilian and international auditing standards will always detect any existing material misstatements. Misstatements may arise from fraud or error, and are considered material when, individually or in aggregate, may influence, from a reasonable perspective, the economic decisions of users taken based on such financial statements.
As part of an audit conducted according to the Brazilian and international auditing standards, we exercise professional judgment, and maintain professional skepticism during the audit. We also:
· Identify and assess the risks of material misstatement in the individual and consolidated financial statements, whether caused by fraud or error, we planned and performed audit procedures in response to such risks, and we obtained proper and sufficient audit evidence to support our opinion. The risk of not detecting material misstatement resulting from fraud is higher than that arising from error, once the fraud may involve the act of dodging the internal controls, collusion, falsification, omission or false intentional representations.
·We obtained an understanding of the internal controls relevant to the audit to plan the audit procedures appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of internal controls of the Company and its subsidiaries.
·We evaluate the appropriateness of the accounting policies used and the reasonableness of the accounting estimates and respective disclosures made by Management.
·We conclude the appropriateness of Management’s use of the accounting basis for going concern and, based on the audit evidence obtained, as to whether there is a material uncertainty regarding events or conditions that could raise a significant doubt regarding the Company’s and its subsidiaries’ capacity for going concern. If we conclude that a material uncertainty exists, we arerequired to draw attention in our auditors’ report to the related disclosures in the individual and consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Company and subsidiaries to cease to continue as a going concern.
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A free translation from Portuguese into English of Independent Auditor’s Report on individual and consolidated financial statements prepared in Brazilian currency
·We evaluate the overall presentation, structure and content of financial statements, including disclosures, and whether the individual and consolidated financial statements represent the underlying transactions and events in a manner consistent with the objective of fair presentation.
·We obtained appropriate and sufficient audit evidence regarding the financial information of the entities or business activities of the group to express an opinion on the individual and consolidated financial statements. We are responsible for the management, oversight and performance of audit of the group, and, consequently, the audit opinion.
We communicated with the ones responsible for governance with respect to, among other aspects, the planned scope, time of the audit and significant audit findings, including possible material weaknesses in internal controls identified by us during our audit.
We also provide those charged with governance with a statement that we complied with relevant ethical requirements, including the applicable requirements of independence, and communicate all potential relationships or matters that could materially affect our independence, including, where applicable, the related safeguards.
From the matters that were communicated with those charged with governance, we determined those that were considered as the most significant in the audit of financial statements for current year and that, accordingly, comprise the key audit matters. We describe these matters in our audit report, unless a law or regulation has prohibited the public disclosure of the issue, or when, under extremely rare circumstances, we determine that the issue shall not be communicated in our report, because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
São Paulo, March 30, 2020
ERNST & YOUNG
Auditores Independentes S.S.
CRC-2SP034519/O-6
Vanessa Martins
Accountant CRC-1SP244569/O-3
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Linx S.A. | ||||||
Statements of financial position | ||||||
December 31, 2019 and 2018 | ||||||
(In thousands of Reais) | ||||||
Parent company | Consolidated | |||||
Note | 12/31/2019 | 12/31/2018 | 12/31/2019 | 12/31/2018 | ||
Assets | ||||||
Current assets | ||||||
Cash and cash equivalents | 6 | 16,387 | 50 | 75,898 | 49,850 | |
Financial assets | 7 | 732,473 | 60,108 | 902,289 | 413,374 | |
Trade accounts receivable | 8 | - | - | 276,626 | 167,102 | |
Recoverable taxes | 9 | 5,975 | 8,848 | 22,648 | 35,094 | |
Other receivables | 11 | 93 | 49 | 22,509 | 33,084 | |
754,928 | 69,055 | 1,299,970 | 698,504 | |||
Non-current assets | ||||||
Long-term assets | ||||||
Financial assets | 7 | - | - | 2,073 | - | |
Trade accounts receivable | 8 | - | - | 11,485 | 3,280 | |
Recoverable taxes | 9 | - | - | 5,166 | - | |
Deferred taxes | 20 | 2,220 | 4,100 | 3,357 | 4,449 | |
Other receivables | 11 | - | - | 26,338 | 17,536 | |
2,220 | 4,100 | 48,419 | 25,265 | |||
Investments | 12 | 1,046,362 | 987,300 | - | - | |
Property, plant and equipment | 13 | - | - | 82,201 | 74,273 | |
Intangible | 14 | - | - | 1,009,314 | 849,634 | |
Right-of-use | 3.25 | - | - | 124,039 | - | |
1,046,362 | 987,300 | 1,215,554 | 923,907 | |||
1,048,582 | 991,400 | 1,263,973 | 949,172 | |||
Total assets | 1,803,510 | 1,060,455 | 2,563,943 | 1,647,676 | ||
See the accompanying notes to the individual and consolidated financial statements. |
Linx S.A. | ||||||
Statements of financial position | ||||||
December 31, 2019 and 2018 | ||||||
(In thousands of Reais) | ||||||
Parent company | Consolidated | |||||
Note | 12/31/2019 | 12/31/2018 | 12/31/2019 | 12/31/2018 | ||
Liabilities | ||||||
Current liabilities | ||||||
Suppliers | 1,050 | 47 | 24,007 | 13,623 | ||
Loans and financing | 15 | - | - | 41,245 | 40,720 | |
Leasing payable | 16 | - | - | 47,478 | - | |
Labor liabilities | 17 | 20 | 16 | 51,080 | 43,801 | |
Taxes and contributions payable | 1,807 | 385 | 23,127 | 13,455 | ||
Income tax and social contribution | - | - | 3,823 | 1,206 | ||
Accounts payable from acquisition of subsidiaries | 18 | - | - | 43,432 | 57,099 | |
Deferred revenue | 19 | - | - | 36,360 | 40,053 | |
Dividends payable | 22.4 | 9,719 | 2,764 | 9,719 | 2,764 | |
Other liabilities | 21 | 1,070 | 34 | 89,576 | 7,979 | |
13,666 | 3,246 | 369,847 | 220,700 | |||
Non-current liabilities | ||||||
Loans and financing | 15 | - | - | 168,937 | 209,261 | |
Leasing payable | 16 | - | - | 78,604 | - | |
Labor obligations | 17 | - | - | 1,977 | - | |
Accounts payable from acquisition of subsidiaries | 18 | - | - | 39,637 | 55,388 | |
Deferred taxes | 20 | - | - | 84,206 | 72,635 | |
Deferred revenue | 19 | - | - | 6,434 | 19,195 | |
Provision for contingencies | 23 | - | - | 19,588 | 10,960 | |
Other liabilities | 21 | - | - | 4,869 | 2,328 | |
- | - | 404,252 | 369,767 | |||
Total liabilities | 13,666 | 3,246 | 774,099 | 590,467 | ||
Shareholders' equity | ||||||
Capital | 22.1 | 645,447 | 488,467 | 645,447 | 488,467 | |
Capital reserves | 22.2 | 1,165,605 | 518,252 | 1,165,605 | 518,252 | |
Treasury shares | 22.1 | (225,954) | (148,373) | (225,954) | (148,373) | |
Profit reserves | 200,596 | 179,457 | 200,596 | 179,457 | ||
Additional dividends proposed | 22.4 | 10,281 | 22,236 | 10,281 | 22,236 | |
Other comprehensive income | (6,131) | (2,830) | (6,131) | (2,830) | ||
1,789,844 | 1,057,209 | 1,789,844 | 1,057,209 | |||
Total liabilities and shareholders' equity | 1,803,510 | 1,060,455 | 2,563,943 | 1,647,676 | ||
See the accompanying notes to the individual and consolidated financial statements. |
Linx S.A. | ||||||
Statements of income | ||||||
Years ended December 31, 2019 and 2018 | ||||||
(In thousands of Reais) | ||||||
Parent company | Consolidated | |||||
Note | 12/31/2019 | 12/31/2018 | 12/31/2019 | 12/31/2018 | ||
Net operating revenue | 24 | - | - | 788,159 | 685,559 | |
Cost of services rendered | 25 | - | - | (272,115) | (245,621) | |
Gross income | - | - | 516,044 | 439,938 | ||
Operating revenues (expenses) | ||||||
General and administrative | 25 | (5,214) | (969) | (219,916) | (168,596) | |
Research and development | 25/14 | - | - | (93,070) | (73,527) | |
Selling | 25 | - | (2) | (144,735) | (111,008) | |
Equity in net income of subsidiaries | 12 | 35,396 | 55,256 | - | - | |
Other operating revenues (expenses) | 25 | (3,841) | - | 22,787 | 3,256 | |
26,341 | 54,285 | (434,934) | (349,875) | |||
Income before financial income and taxes | 26,341 | 54,285 | 81,110 | 90,063 | ||
Financial results | ||||||
Financial revenues | 26 | 41,453 | 17,193 | 70,103 | 50,257 | |
Financial expenses | 26 | (27,048) | (327) | (87,280) | (48,176) | |
14,405 | 16,866 | (17,177) | 2,081 | |||
Income before income tax and social contribution | 40,746 | 71,151 | 63,933 | 92,144 | ||
Income tax and social contribution - current | 20 | 10 | (38) | (11,394) | (9,959) | |
Income tax and social contribution - deferred | 20 | (1,880) | (58) | (13,663) | (11,130) | |
(1,870) | (96) | (25,057) | (21,089) | |||
Net income for the year | 38,876 | 71,055 | 38,876 | 71,055 | ||
Earnings per share | 28 | |||||
Basic earnings per share - in Reais | 0.2281 | 0.4358 | 0.2281 | 0.4358 | ||
Diluted earnings per share - in Reais | 0.2228 | 0.4301 | 0.2228 | 0.4301 | ||
See the accompanying notes to the individual and consolidated financial statements. |
Linx S.A. | |||||
Statements of comprehensive income | |||||
Years ended December 31, 2019 and 2018 | |||||
(In thousands of Reais) | |||||
Parent company |
| Consolidated | |||
12/31/2019 | 12/31/2018 |
| 12/31/2019 | 12/31/2018 | |
Net income for the year | 38,876 | 71,055 | 38,876 | 71,055 | |
Other comprehensive income to be reclassified to income (loss) for the year in subsequent periods | |||||
Accumulated translation adjustments from operations in foreign currency | (3,364) | (2,437) | (3,364) | (2,437) | |
Other comprehensive income, not reclassified into profit or loss for the year in subsequent periods | |||||
Post-employment benefit | 63 | (146) | 63 | (146) | |
Total comprehensive income | 35,575 | 68,472 | 35,575 | 68,472 | |
See the accompanying notes to the individual and consolidated financial statements. |
Linx S.A. | |||||||||||||||
Statements of changes in equity | |||||||||||||||
Years ended December 31, 2019 and 2018 | |||||||||||||||
(In thousands of Reais) | |||||||||||||||
Parent company and Consolidated | |||||||||||||||
Capital reserves |
| Profit reserves | |||||||||||||
Note | Capital | Treasury shares | Goodwill in capital subscription | Stock option plan | Expenditures with issuance of shares | Total |
| Legal reserve | Profit retention | Total | Retained earnings | Other comprehensive | Additional dividends proposed | Total | |
Balances at December 31, 2017 | 486,032 | (33,887) | 539,571 | 11,548 | (37,423) | 513,696 | 7,037 | 179,100 | 186,137 | - | (247) | 18,789 | 1,170,520 | ||
Prior-year adjustments | |||||||||||||||
Effects from the first-time adoption of IFRS 9 | - | - | - | - | - | - | - | (1,015) | (1,015) | - | - | - | (1,015) | ||
Effects from the first-time adoption of IFRS 15 | - | - | - | - | - | - | - | (38,542) | (38,542) | - | - | - | (38,542) | ||
Opening balances at 01/01/2018 | 486,032 | (33,887) | 539,571 | 11,548 | (37,423) | 513,696 |
| 7,037 | 139,543 | 146,580 | - | (247) | 18,789 | 1,130,963 | |
Capital increase | 2,435 | - | - | - | - | - | - | - | - | - | - | - | 2,435 | ||
Repurchase of shares | - | (114,486) | - | - | - | - | - | - | - | - | - | - | (114,486) | ||
Approval of additional dividends | - | - | - | - | - | - | - | - | - | - | - | (18,789) | (18,789) | ||
Prepaid dividends | - | - | - | 4,556 | - | 4,556 | - | - | - | - | - | - | 4,556 | ||
Post-employment benefit | - | - | - | - | - | - | - | - | - | - | (146) | - | (146) | ||
Effect of the adoption of IAS 29 (hyperinflation) | - | - | - | - | - | - | - | 1,822 | 1,822 | - | - | - | 1,822 | ||
Accumulated translation adjustments from operations in foreign currency | - | - | - | - | - | - | - | - | - | - | (2,437) | - | (2,437) | ||
- | |||||||||||||||
Net income for the year | - | - | - | - | - | - | - | - | - | 71,055 | - | - | 71,055 | ||
Allocations | - | ||||||||||||||
Additional dividends proposed | - | - | - | - | - | - | - | - | - | (22,236) | - | 22,236 | - | ||
Dividend payment | - | - | - | - | - | - | - | - | - | (2,764) | - | - | (2,764) | ||
Interest on own capital | - | - | - | - | - | - | - | - | - | (15,000) | - | - | (15,000) | ||
Profit retention | - | - | - | - | - | - | - | 31,055 | 31,055 | (31,055) | - | - | - | ||
Balances at December 31, 2018 | 488,467 | (148,373) | 539,571 | 16,104 | (37,423) | 518,252 |
| 7,037 | 172,420 | 179,457 | - | (2,830) | 22,236 | 1,057,209 | |
Capital increase | 22.1 | 156,980 | - | - | - | - | - | - | - | - | - | - | - | 156,980 | |
Goodwill in capital subscription | 22.2 | - | - | 682,454 | - | - | 682,454 | - | - | - | - | - | - | 682,454 | |
Repurchase of shares | 22.1 | - | (77,581) | - | - | - | - | - | - | - | - | - | - | (77,581) | |
Share issue costs | 22.2 | - | - | - | - | (58,734) | (58,734) | - | - | - | - | - | - | (58,734) | |
Approval of additional dividends | 22.4 | - | - | - | - | - | - | - | - | - | - | - | (22,236) | (22,236) | |
Prepaid dividends | 29.2 | - | - | - | 23,633 | - | 23,633 | - | - | - | - | - | - | 23,633 | |
Post-employment benefit | - | - | - | - | - | - | - | - | - | - | 63 | - | 63 | ||
Effect of the adoption of IAS 29 (hyperinflation) | - | - | - | - | - | - | - | 2,263 | 2,263 | - | - | - | 2,263 | ||
Accumulated translation adjustments from operations in foreign currency | - | - | - | - | - | - | - | - | - | - | (3,364) | - | (3,364) | ||
- | |||||||||||||||
Net income for the year | - | - | - | - | - | - | - | - | 38,876 | - | - | 38,876 | |||
Allocations | - | - | - | - | - | - | - | - | - | - | - | - | - | ||
Additional dividends proposed | 22.4 | - | - | - | - | - | - | - | - | - | (10,281) | - | 10,281 | - | |
Dividend payment | 22.4 | - | - | - | - | - | - | - | - | - | (9,719) | - | - | (9,719) | |
Profit retention | 22.5 | - | - | - | - | - | - | - | 18,876 | 18,876 | (18,876) | - | - | - | |
Balances at December 31, 2019 | 645,447 | (225,954) | 1,222,025 | 39,737 | (96,157) | 1,165,605 |
| 7,037 | 193,559 | 200,596 | - | (6,131) | 10,281 | 1,789,844 | |
See the accompanying notes to the individual and consolidated financial statements. |
Linx S.A. | ||||||
Statements of cash flows | ||||||
Years ended December 31, 2019 and 2018 | ||||||
(In thousands of Reais) | ||||||
Parent company |
| Consolidated | ||||
Note | 12/31/2019 | 12/31/2018 | 12/31/2019 | 12/31/2018 | ||
Cash flows from operating activities | ||||||
Net income for the year | 38,876 | 71,055 | 38,876 | 71,055 | ||
Adjustments to reconcile income (loss) to cash flows generated by operating activities | ||||||
Depreciation and amortization | 3.25/13/14 | - | - | 119,660 | 78,729 | |
Equity in net income of subsidiaries | 12 | (35,396) | (55,256) | - | - | |
Addition to allowance for doubtful accounts | 8 | - | - | 3,360 | 2,956 | |
Losses (gains) on write-off/disposal of goods | - | - | 266 | 10,310 | ||
Addition (reversal) of adjustment to present value | - | - | 9,093 | (5,266) | ||
Stock option plan | 1,429 | (486) | 23,633 | 4,556 | ||
Financial charges | - | 36 | 31,698 | 17,842 | ||
Deferred taxes | 20 | 1,880 | 58 | 13,663 | 11,130 | |
Current taxes | 20 | (10) | 38 | 11,394 | 9,959 | |
Provisions for contingency | 23 | - | - | 2,852 | (495) | |
Other operating revenues | - | - | (39,383) | (8,997) | ||
Revenue from interest earning bank deposits | (20,016) | (1,204) | (38,633) | (26,500) | ||
Effect from adoption of hyperinflation | - | - | 639 | 1,163 | ||
Other | - | (13) | - | - | ||
(52,113) | (56,827) | 138,242 | 95,387 | |||
Change in operating assets and liabilities: | ||||||
Trade accounts receivable | - | - | (120,332) | (41,938) | ||
Recoverable taxes | 2,883 | 1,158 | 6,280 | (7,156) | ||
Other credits and judicial deposits | (44) | 2,856 | (9,824) | (17,393) | ||
Suppliers | 1,003 | 40 | 7,039 | 4,022 | ||
Labor liabilities | 4 | (277) | 6,030 | 3,426 | ||
Taxes and contributions payable | 1,422 | (389) | 7,290 | 1,891 | ||
Deferred revenue | - | - | (16,454) | (7,037) | ||
Other accounts payable | 1,036 | 36 | 82,061 | 1,445 | ||
Income tax and social contribution paid | 20 | - | (2,683) | (7,427) | (6,003) | |
Cash flow generated (invested) by operating activities | (6,933) | 14,969 | 131,781 | 97,699 | ||
Cash flows from investment activities | ||||||
Acquisition of fixed assets | - | - | (18,838) | (25,132) | ||
Acquisition of intangible assets | - | - | (79,675) | (57,681) | ||
Acquisition of entity, net of cash and cash equivalents acquired | - | - | (97,270) | (75,132) | ||
Capital increase in subsidiaries | (2,500) | - | - | - | ||
Advance of dividends received | - | 190,000 | - | - | ||
Investment in short-term investments | (889,318) | (187,970) | (1,428,848) | (774,028) | ||
Redemption of interest and interest earning bank deposits | 236,969 | 135,957 | 976,584 | 897,614 | ||
Cash flow generated (invested) by investing activities | (654,849) | 137,987 | (648,047) | (34,359) | ||
Cash flows from financing activities | ||||||
Additions of loans and financing | 15 | - | - | 410 | 191,837 | |
Payments of loans and financing | 15 | - | (2,799) | (42,174) | (40,851) | |
Lease payment | 16 | - | - | (18,845) | - | |
Advances paid for right-of-use | - | - | (6,843) | - | ||
Financial charges paid | 15 | - | (89) | (16,896) | (9,028) | |
Payment for the acquisition of subsidiaries | 18 | - | - | (48,093) | (45,878) | |
Interest on own capital paid | - | (15,000) | - | (15,000) | ||
Treasury shares | (77,581) | (114,486) | (77,581) | (114,486) | ||
Expenditures with issuance of shares | (58,734) | - | (58,734) | - | ||
Capital contributions from shareholders | 22 | 156,980 | 2,435 | 156,980 | 2,435 | |
Premium on the subscription of shares | 22 | 682,454 | - | 682,454 | - | |
Dividends paid | (25,000) | (23,000) | (25,000) | (23,000) | ||
Cash flow generated (invested) by financing activities | 678,119 | (152,939) | 545,678 | (53,971) | ||
Exchange rate change on cash and cash equivalents | - | - | (3,364) | (2,437) | ||
Increase (decrease) in cash and cash equivalents | 16,337 | 17 | 26,048 | 6,932 | ||
Statement of increase (decrease) in cash and cash equivalents | ||||||
At the beginning of the period | 50 | 33 | 49,850 | 42,918 | ||
At end of period | 16,387 | 50 | 75,898 | 49,850 | ||
See the accompanying notes to the individual and consolidated financial statements. |
Linx S.A. | |||||
Statements of value added | |||||
Years ended December 31, 2019 and 2018 | |||||
(In thousands of Reais) | |||||
Parent company | Consolidated | ||||
12/31/2019 | 12/31/2018 | 12/31/2019 | 12/31/2018 | ||
Revenues | |||||
Gross sales of services and goods | - | - | 878,959 | 763,201 | |
Other revenues | - | - | 37,372 | 8,401 | |
Allowance for doubtful accounts (reversal/formation) | - | - | 1,738 | (981) | |
- | - | 918,069 | 770,621 | ||
Inputs acquired from third parties | |||||
Cost of services and goods sold | - | - | (68,613) | (75,801) | |
Materials, energy, outsourced services and other operating items | (6,109) | (383) | (154,226) | (121,291) | |
Loss and recovery of asset values | - | - | (7,926) | (4,272) | |
(6,109) | (383) | (230,765) | (201,364) | ||
Gross added value | (6,109) | (383) | 687,304 | 569,257 | |
Depreciation and amortization | - | - | (119,660) | (78,729) | |
Net value added produced by the Company | (6,109) | (383) | 567,644 | 490,528 | |
Added value received as transfer | |||||
Equity in net income of subsidiaries | 35,396 | 55,256 | - | - | |
Financial revenues | 41,453 | 17,193 | 70,103 | 50,257 | |
76,849 | 72,449 | 70,103 | 50,257 | ||
Total added value payable | 70,740 | 72,066 | 637,747 | 540,785 | |
Payment of value added | |||||
Personnel | 2,946 | 588 | 391,913 | 305,495 | |
Direct remuneration | 2,946 | 588 | 320,990 | 244,847 | |
Benefits | - | - | 45,989 | 36,868 | |
FGTS | - | - | 24,934 | 23,780 | |
Taxes, duties and contributions | 1,870 | 96 | 115,998 | 99,969 | |
Federal | 1,870 | 96 | 88,467 | 76,537 | |
State | - | - | 5,147 | 4,276 | |
Municipal | - | - | 22,384 | 19,156 | |
Third-party capital remuneration | 27,048 | 327 | 90,960 | 64,266 | |
Interest and exchange-rate changes | 27,048 | 327 | 87,280 | 48,176 | |
Rents | - | - | 3,680 | 16,090 | |
Own capital remuneration | 38,876 | 71,055 | 38,876 | 71,055 | |
Dividends and interest on own capital | 20,000 | 40,000 | 20,000 | 40,000 | |
Retained earnings | 18,876 | 31,055 | 18,876 | 31,055 | |
See the accompanying notes to the individual and consolidated financial statements. |
Linx S.A.
Individual and consolidated financial statements
December 31, 2019
with Independent Auditor’s' Report
Linx S.A.
Individual and consolidated financial statements
December 31, 2019
Contents
Management’s report | 3 |
Report of the statutory audit committee | 5 |
Report of the Fiscal Council | 6 |
Executive Officers’ Statement on Income Statements | 7 |
Executive Officers’ Statement on the Independent Auditor’s Report | 8 |
Independent Auditor’s Report on the Individual and Consolidated Financial Statements | 9 |
Statements of financial position | 15 |
Statements of income | 17 |
Statements of comprehensive income | 18 |
Statements of changes in equity | 19 |
Statements of cash flows | 20 |
Statements of value added | 22 |
Notes to financial statements | 23 |
Linx S.A.
Notes to the individual and consolidated financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
1. Operations
Founded in 1985 and headquartered at Avenida Doutora Ruth Cardoso, 7221, 7º Andar, city and state of São Paulo, Linx S.A. (“Company” or “Linx”), corporation, which by means of its subsidiaries, provides ERP (Enterprise Resource Planning) and POS (Point of Sale or Point of Service) management software solutions, and connectivity solutions, TEF (Electronic Funds Transfer), e-commerce and CRM (Customer Relationship Management) and OMS (Order Management System) and payment methods to the retail industry in Latin America. The Company offers innovative and scalable technology, with focus upon and long-term specialization in the retail industry, its vertical model of operation, which combines its own teams in the commercial, implementation, consulting and support areas and through our differentiated business model.
Linx went public on February 8, 2013 and Company’s shares are listed on the New Market segment of São Paulo Stock Exchange B3 and are traded under the ticker symbol “LINX3”.
On June 26, 2019, by means of common shares and issue of American Depositary Shares (“ADS”), Linx went public on the New York Stock Exchange ("NYSE") under the code "LINX" and is engaged in interest in other commercial or civil companies, domestic or foreign, as a partner, shareholder, quotaholder and also, representation of any type of company in Brazil or abroad and management of own or third parties’ assets.
2. Basis of preparation and presentation of financial statements
2.1. Statement of conformity
The individual and consolidated financial statements were prepared and are being presented according to the accounting practices adopted in Brazil comprising the standards of the Securities and Exchange Commission, including the pronouncements issued by the Accounting Pronouncement Committee (CPC), as well as by the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) that evidence all relevant information of their own significant information in financial statements, and only them, are being evidenced and correspond to that used by Management.
2.2. Basis of preparation and presentation
The financial statements were prepared using historical cost as the value base, except for the valuation of certain assets and liabilities such as those from business combinations and financial instruments, which are measured at fair value. The individual and consolidated financial statements present comparative information in relation to the prior period.
23
Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
The Company’s individual and consolidated financial statements were prepared with the Real as the functional and presentation currency, and are expressed in thousands of Reais, unless otherwise stated.
The individual and consolidated financial statements were prepared in accordance with measurement bases used in accounting estimates. The accounting estimates were based on objective and subjective factors, with a basis on Management's judgment for determination of the adequate amount to be recorded in the financial statements. Significant items subject to these estimates and assumptions include the selection of fixed and intangible assets and its recoverability in operations, deferred taxes, evaluation of financial assets at fair value, credit risk analysis to determine the provision for estimated credit losses in doubtful accounts, and the analysis of the remaining risks to determine other provisions, including for contingencies.
The settlement and uncertainties of transactions involving judgment and assumptions of these estimates may result in significantly different amounts described in the financial statements due to the probabilistic treatment inherent to the estimative process. Estimates and assumptions are reviewed by the Company at least annually.
Some captions for the financial statements for the year ended December 31, 2018 were reclassified to allow comparisons with the financial statements for the year ended December 31, 2019.
The issue of individual and consolidated financial statements was approved by the Board of Directors on March 30, 2020.
3. Summary of significant accounting policies
The accounting policies have been consistently applied to all the periods presented in these individual and consolidated financial statements.
We present below a summary of the significant accounting policies adopted by the Company, highlighting only information considered relevant by Management.
3.1. Presentation of segment information
An operating segment is a component of the Company which engages in business activities from which it may earn revenues and incur expenses. Operating segments reflect the way the Company’s management reviews financial information for decision-making. The Company’s management identified the operating segments that meet the quantitative and qualitative parameters for disclosure, mainly representing types of businesses, i.e., Linx Software and Linx Pay Meios de Pagamento Ltda.
24
Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
3.2. Consolidation basis
The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as of December 31, 2019. Control is obtained when the Company is exposed or entitled to variable returns based on its involvement with the investee, and has the ability to affect those returns through the power exercised in relation to the investee. Specifically, the Company controls an investee if, and only if, it has:
· Power in relation to the investee (i.e., existing rights that guarantee the current ability to govern the relevant activities of the investee);
· Exposure or right to variable returns based on its involvement with the investee;
· The ability to use its power over the investee to affect its income (loss).
The Company re-evaluates whether or not it exercises control over an investee if facts and circumstances indicate that there are changes in one or more of the three control elements. The consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ends when the Company ceases to exercise said control. Assets, liabilities and income (loss) of a subsidiary acquired or sold during the year are included in the consolidated financial statements from the date the Company obtains control through the date the Company ceases to exercise control over the subsidiary.
Whenever necessary, adjustments are made to the financial statements of the subsidiaries to align their accounting practices with the Company’s accounting practices. All related party assets and liabilities, shareholders’ equity, revenues, expenses and cash flows related to transactions between related parties are fully eliminated in the consolidation process.
The parent company’s individual financial statements, financial statements of subsidiaries are recognized under the equity method.
The individual and consolidated financial statements include significant information of Linx S.A. and its subsidiaries, as follows:
25
Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
% Interest | ||
| 12/31/2019 | 12/31/2018 |
Subsidiaries | ||
Linx Sistemas e Consultoria Ltda. | 99.99% | 99.99% |
Linx Telecomunicações Ltda. | 99.99% | 99.99% |
| ||
Indirect subsidiaries | ||
Napse S.R.L. | 100.00% | 100.00% |
Synthesis Holding LLC. | 100.00% | 100.00% |
Retail Renda Fixa Crédito Privado Fundo de Investimento | 100.00% | 100.00% |
Santander Moving Tech RF Referenciado DI CP FI | 100.00% | - |
Sback Tecnologia da Informação Ltda. | 100.00% | 100.00% |
DCG Soluções para Venda Digital S.A. (*) | - | 100.00% |
Linx Pay Meios de Pagamento Ltda. | 100.00% | 100.00% |
Hiper Software S.A. (**) | 100.00% | - |
Millennium Network Ltda. (*) (**) | - | - |
SetaDigital Sistemas Gerenciais Ltda. (**) | 100.00% | - |
(*) Companies merged into Linx Sistemas in 2019
(**) Companies acquired by Linx Sistemas in 2019
Linx S.A is the direct parent company of the following companies:
Linx Sistemas e Consultoria Ltda.(“Linx Sistemas”): engaged in developing management software for the retail segment, providing technical support, advisory and training.
Linx Telecomunicações Ltda. (“Linx Telecomunicações”): engaged in the provision of telecommunication services in general, such as transmission of voice, data, images and sound by any means, including services of networks and circuits, telephony, by any systems, including via Internet.
Linx S.A is the indirect parent company of the following companies:
Napse S.R.L. (“Napse”): operates in the development and sales of point-of-sale (POS) automation software, electronic payment solutions (TEF) and promotion engine for large retail chains in the main Latin American markets.
Synthesis Holding LLC. (“Synthesis”): holding company belonging to Napse group, controller of Synthesis US LLC (United States of America), Synthesis I.T. e Retail Americas S.R.L. (Mexico).
26
Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
Retail Renda Fixa Crédito Privado Fundo de Investimento (“Retail Renda Fixa”) Exclusive investment fund, reserved for the investment transactions of the Company and their subsidiaries.
Santander Moving Tech RF Referenciado DI CP FI (“Santander Moving Tech”): Exclusive investment fund, reserved for the investment transactions of the Company and their subsidiaries.
Sback Tecnologia da Informação Ltda.(“Sback”):operates in the cloud platform leader in technologies of retention, reengagement and recapture through Big Data and Intelligence for engagement.
Linx Pay Meios de Pagamento Ltda.(“Linx Pay”): operates with the purpose of aggregating all of the Company’s initiatives related to fintech such as TEF (payment gateway), DUO (Smart POS) and the newly launched Linx Pay Easy (sub-acquiring), besides the new products aligned with Linx’s strategic positioning in such area.
Hiper Software S.A. (“Hiper”): operates with the purpose of solutions in the Software as a Service (SaaS) model for micro and small retailers.
SetaDigital Sistemas Gerenciais Ltda. (“Seta”): operates with a focus on ERP solutions and services for footwear retail.
3.3. Measurement of fair value
The Company and its subsidiaries measure financial instruments at fair value on each balance sheet closing date. Fair value is the price received upon the sale of an asset or paid by transfer of a liability of a non-forced transaction between market participants at the measurement date.
The measurement of fair value is based on the assumption that the transaction to sell the asset or transfer the liability will occur: (i) in the main market for the asset or liability; or (ii) in the absence of a main market, the market is more advantageous for the asset or the liability.
All assets and liabilities for which the fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy described below based on the lowest level information that is significant to the measurement of the fair value as a whole:
• Level 1 – Prices quoted (not adjusted) in active markets for identical assets and liabilities to which the entity may have access on the measurement date;
• Level 2 — Valuation techniques for which the lowest level and significant input to fair value measurement is directly or indirectly observable;
• Level 3 — Valuation techniques for which the lowest level and significant input to fair value measurement is not available.
27
Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
For assets and liabilities recognized in the financial statements at fair value on a recurring basis, the Company and its subsidiaries determine whether transfers occurred between levels of the hierarchy, reassessing the categorization (based on the lowest and most significant information for measuring the fair value as a whole) at the end of each reporting period.
3.4. Financial instruments – Initial recognition and subsequent measurement
The Company and its subsidiaries adopted IFRS 9/CPC 48 - Financial Instruments to replace IAS 39/CPC 38 on January 1, 2018. The changes related to these accounting policies are as follows:
A financial instrument is an agreement that originates a financial asset to an entity and a financial liability or equity instrument of another entity.
i) Financial assets
Initial recognition and measurement
Financial assets are classified, at the initial recognition as measured: at amortized cost; fair value through other comprehensive income or fair value through profit or loss.
The classification of financial assets upon initial recognition depends on the characteristics of the contractual cash flows of the financial asset and the business model of the Company and its subsidiaries for the management of these financial assets. With exception of trade accounts receivable that do not contain a significant financial component or for which the Company and its subsidiaries have adopted the practical expedient, the Company and its subsidiaries initially measure the financial asset at its fair value plus transaction costs, in case of financial asset not measured at fair value through profit or loss. The trade accounts receivable that do not contain a significant financial component are measured at the transaction price determined according to IFRS 15/CPC 47.
For a financial asset to be classified and measured at amortized cost or fair value through other comprehensive income, it has to generate cash flows on the outstanding principal amount. This evaluation is performed at instrument level. Financial assets with cash flows other than payments of principal and interest are classified and measured at fair value through profit or loss, regardless of the business model adopted.
The business model of the Company and its subsidiaries to manage financial assets refers how it manages its financial assets to generate cash flows. The business model determines whether the cash flows will result from collecting contractual cash flows, selling financial assets, or both.
Purchases and sales of financial assets that require the delivery of assets within an established schedule by regulation or agreement in the market (regular negotiation) arerecognized on the negotiation date, that is, the date when the Company and its subsidiaries undertake to buy or sell the asset.
28
Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
Subsequent measurement
For subsequent measurement purposes, financial assets are classified into four categories, as follows:
• Financial assets at amortized cost (debt instruments);
•.Financial assets at fair value through other comprehensive income (FVTOCI) with reclassification of accumulated gains and losses (debt instruments);
• Financial assets designated at fair value through other comprehensive income, without reclassification of accumulated gains and losses at the time of its derecognition (equity instruments);
• Financial assets at fair value through profit or loss.
Financial assets at amortized cost
This category is the most relevant for the Company and its subsidiaries. The Company and its subsidiaries measure the financial assets at amortized cost if both of the following conditions are met:
• The financial asset is maintained in the business model, whose the purpose is to maintain financial assets for the purpose of receiving contractual cash flows;
• The contractual terms of financial assets give rise, on specific dates, to cash flows that solely refer to payments of principal and interest on the principal amount outstanding.
Financial assets at amortized cost are subsequently measured using the effective interest method and are subject to impairment. Gains and losses are recognized in income (loss) when the asset is derecognized, modified or impaired.
The financial assets of the Company and its subsidiaries at amortized cost mainly include trade accounts receivable, cash and cash equivalents and other accounts receivable, in addition to suppliers and other accounts payable.
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss are presented in the statement of financial position at fair value, with net changes of fair value recognized in the statement of profit or loss.
This category contemplates derivative instruments and listed equity investments, which the Company and its subsidiaries have not irrevocably classified based on fair value through other comprehensive income. Dividends on listed equity investments are also recognized as other revenues in statement of income when the right to payment is established.
29
Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
Derecognition
A financial asset (or, when appropriate, part of a financial asset or part of a group of similar financial assets) is derecognized when:
• The rights to receive cash flows from the asset have expired; or
• The Company and its subsidiaries transferred its rights to receive cash flows from the asset or assumed an obligation to pay the cash flows received without material delay to a third party under an onlending contract; and (i) the Company and its subsidiaries transferred substantially all risks and rewards of the assets, or (ii) the Company and its subsidiaries neither transferred nor retained substantially all the risks and benefits related to the asset, but transferred the control over the asset.
When the Company and its subsidiaries transfer its rights to receive the cash flows of an asset or enter into a transfer agreement, they evaluate if and under which measured, they retained the ownership risks and rewards. When they neither transfer nor retain substantially all the risks and rewards of the asset, or transfer the control of the asset, the Company and its subsidiaries continue to recognize the transferred asset to the extent of its continuing engagement. In such case, the Company and its subsidiaries also recognize a related liability. The transferred asset and associated liability are measured on a base that reflects the rights and obligations retained by the Company and its subsidiaries.
The continued engagement in the form of guaranteeing the transferred asset is measured at the lower of (i) the amount of the asset and (ii) the maximum amount of the consideration received that the entity could be required to repay (the guarantee amount).
Impairment of financial assets
The Company and its subsidiaries recognize a provision for estimated credit losses for all debt instruments not held at fair value through profit or loss. The expected credit losses are based on the difference between the contractual cash flows payable according to the contract and all cash flows that the Company and its subsidiaries expect to receive, discounted at an effective interest rate that approximates to the original transaction rate. The expected cash flows will include the cash flows of the sale of the guarantees held or other credit improvements that are included in contractual terms.
The expected credit losses are recognized in two phases. For credit exposures for which there has been no significant increase in credit risk since initial recognition, expected credit losses are provisioned for credit losses resulting from possible default events in the next 12 months (expected credit loss for 12 months).
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Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
For trade accounts receivable and contract assets, the Company and its subsidiaries apply a simplified approach in the calculation of expected credit losses. Therefore, the Company and its subsidiaries do not follow the changes in credit risk, but recognize a loss allowance based on lifetime expected credit losses at each reporting date. The Company and its subsidiaries established a provision matrix based on its historical credit loss experience, adjusted to specific prospective factors for debtors and economic environment.
ii) Financial liabilities
Initial recognition and measurement
Financial liabilities are classified in initial recognition as financial liabilities at fair value through profit or loss, financial liabilities at amortized cost, or as derivatives designated as hedge instruments, as the case may be.
All financial liabilities are initially measured at their fair values, plus or minus, in case of financial liability other than fair value through profit or loss, the transaction costs that are directly attributable to the issue of financial liability.
The financial liabilities of the Company and its subsidiaries include suppliers, loans and financing, lease payable and other liabilities.
Subsequent measurement
The measurement of financial liabilities depends on their classification as described below:
• Financial liabilities at fair value through profit or loss include financial liabilities for trading and financial liabilities designated in the initial recognition, as measured at fair value through profit or loss.
• Financial liabilities are classified as held-for-trading if they are acquired with the purpose of buyback in the short term. Gains or losses of liabilities for trading are recognized in the statement of income.
The financial liabilities designated at initial recognition at fair value through profit or loss are designated at the initial recognition date, and only if the criteria of IFRS 9/CPC 48 are met. The Company and its subsidiaries did not assign any financial liability at fair value through profit or loss.
Financial liabilities at amortized cost (loans and financing)
This is the most relevant category for the Company and its subsidiaries. After initial recognition, loans and financing obtained and granted subject to interest are subsequently measured at amortized cost, using the effective interest rate method. Gains and losses are recognized in profit or loss when liabilities are derecognized, as well as through the amortization process of effective interest rate.
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Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
Amortized cost is calculated taking into account any negative goodwill or goodwill in the acquisition and fees or costs comprising effective interest rate method. The amortization under the effective interest rate method is included as financial expense in the statement of income.
This category usually applies to loans and financing granted and taken out, subject to interests.
Derecognition
A financial liability is derecognized when the obligation under the liability is extinguished; that is, when the obligation specified in the contract is settled, canceled or expires. When an existing financial liability is replaced by another one from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, the exchange or modification is treated as a derecognition of the original liability and recognition of a new liability. The difference in the respective book values is recognized in the statement of profit or loss.
iii) Offset of financial instruments
Financial assets and liabilities are offset and the net value reported in the consolidated balance sheet only when there is a legally enforceable right currently applicable to offset the amounts recognized and if there is intention to settle on a net basis, or to realize the assets and settle the liabilities simultaneously.
3.5. Business combinations
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured for the consideration amount transferred, valuated on fair value basis on the acquisition date, including the value of any non-controlling interest in the acquiree. For each business combination, the buyer must measure the non-controlling interest in the acquired business at the fair value of based on its interest in the net assets identified in the acquired business. Directly attributable costs
to the acquisition should be accounted for as expense when incurred.
On acquiring a business, the Company and its subsidiaries assess the financial assets and liabilities assumed in order to rate and to allocate them in accordance with contractual terms,economic circumstances and pertinent conditions on the acquisition date, which includes segregation by the acquired entity of built-in derivatives existing in the acquired entity’s host contracts.
Any contingent payments to be transferred by the acquiree will be recognized at fair value on the acquisition date. Subsequent changes in fair value of contingent consideration considered as an asset or a liability shall be recognized in the statement of income.
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Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
The Company measures goodwill as the exceeding consideration transferred in relation to net assets acquired (net identifiable assets acquired and liabilities assumed). If consideration is lower than fair value of net assets acquired, the difference must be recognized as gain in statement of operations.
After initial recognition, the goodwill is carried at cost less any accumulated loss for the impairment losses. For impairment testing purposes, goodwill acquired in a business combination is, from the acquisition date, allocated to each cash-generating units of the Company that are expected to benefit from synergies of combination, regardless of other assets or liabilities of the acquiree being allocated to those units.
3.6. Cash and cash equivalents
Cash equivalents are maintained for the purpose of meeting short-term cash commitments rather than for investment or other purposes. The Company and its subsidiaries consider as cash equivalents the financial assets readily convertible into known amounts of cash and subject to an insignificant risk of change of value. Consequently, an investment normally qualifies as cash equivalent when it has short-term maturity; for example, three months or less, as of the contracting date.
3.7. Trade accounts receivable
A receivable represents the right of the Company and its subsidiaries to an unconditional consideration (i.e., it is only necessary for a certain time to elapse in order for payment of the consideration to be due).
3.8. Income tax and social contribution
The income tax and social contribution, both current and deferred, are calculated based on the rates of 15% plus a surcharge of 10% on taxable income in excess of R$ 240 (annual base for the year) for income tax and 9% on taxable income for social contribution on net income, and consider the offsetting of tax loss carryforward and negative basis of social contribution limited to 30% of the taxable.
Expense with income tax and social contribution comprises both current and deferred taxes. Current taxes and deferred taxes are recognized in income (loss) unless they are related tothe business combination, or items directly recognized in shareholders' equity or other comprehensive income.
Current taxes are the expected taxes payable on the taxable income for the period, at tax rates enacted or substantively enacted on the date of presentation of the financial statements, and any adjustments to taxes payable in relation to prior periods.
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Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
Deferred taxes are recognized in relation to the temporary differences between the book values of assets and liabilities for accounting purposes and the related amounts used for taxation purposes.
Deferred tax assets and liabilities are offset when there is a legal enforceable right to set off current tax assets and liabilities, and the latter relate to income taxes levied by the same tax authority on the same taxable entity.
A deferred income tax and social contribution asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable income will be available against which the unused tax losses and credits can be utilized.
Deferred income tax and social contribution assets are reviewed at each reporting date and reduced when their realization is no longer probable.
Deferred income tax related to items recognized directly in shareholders’ equity and not in statement of income. Deferred tax items are recognized according to the transaction that originated the deferred tax, in comprehensive income or directly in shareholders' equity.
As permitted by Brazilian tax legislation, the subsidiary Sback Tecnologia da Informação Ltda. adopts the deemed income taxation method. For these subsidiaries, income tax and social contribution are calculated at the rate of 32% on revenues from services and 100% on financial revenues. The regular rates of the respective tax and contribution apply to these.
Tax exposures
To determine current and deferred income tax, the Company and its subsidiaries take into consideration the impact of uncertainties on positions taken on taxes and if the additional income tax and interest payment has to be made. The Company and its subsidiaries believe that the provision for income tax recorded in liabilities is adequate for all outstanding tax periods, based on its evaluation of several factors, including interpretations of tax laws and past experience. This evaluation is based on estimates and assumptions that may involve several judgments on future events. New information may be made available, leading the Company and its subsidiaries to change its judgment on the adequacy of existing provision. These changes will impact income tax expenses in the year in which they occur.
3.9. Property, plant and equipment
Recognition and measurement
Property, plant and equipment items are measured at historical acquisition, formation or construction cost, net of accumulated depreciation. The cost includes expenditures that are directly attributable to the acquisition of assets.
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Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
Purchased software that is integral to the functionality of a piece of equipment is capitalized as part of that equipment. When parts of a property, plant and equipment item have different useful lives, they are accounted for as separate items (major components) of Property, plant and equipment.
Gains and losses on disposal of a property, plant and equipment item are determined by comparing the proceeds from disposal with the book value of Property, plant and equipment and are recognized net within "other revenues" in the statement of income.
Subsequent costs
The replacement cost of a component of property, plant and equipment is recognized in the book value of the item when it is probable that the future economic benefits embodied in the component will flow to the Company and its subsidiaries and cost can be reliably measured. The book value of the component that has been replaced by another is written off. Costs of normal maintenance on property, plant and equipment are charged to the statement of operations as incurred.
Depreciation
Depreciation is calculated on the depreciable values, which is the cost of an asset, or other amount that substitutes cost, less residual values. The residual value and useful life of the assets and the depreciation methods are reviewed upon the closing of each year, and adjusted respectively, when appropriate.
Depreciation is recognized in income (loss) on a straight-line basis over the estimated useful lives of each component of a fixed asset item, as this method is that more closely reflects the pattern of consumption of future economic benefits embodied in the asset.
The estimated useful lives for the current and comparative years are shown in the Note 13.
3.10. Intangible assets and goodwill
Intangible assets acquired separately are measured at cost upon initial recognition. The cost of intangible assets acquired in a business combination corresponds to their fair value at acquisition date. After the initial recognition, the intangible assets are stated at cost, less accumulated amortization and impairment losses. Intangible assets generated internally, excluding capitalized development costs, are not capitalized, and the expenditure is reflectedin the statement of income in the year in which it is incurred. The useful life of the intangible asset is classified as defined or undefined. Goodwill arising from the acquisition of subsidiaries is included in intangible assets in the consolidated financial statements.
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Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
Intangible assets with defined life are amortized over the economic useful life and valued in relation to impairment whenever there is indication of loss of economic value of the asset. Amortization method and period of an intangible asset with defined life are reviewed at least at the end of each year. Changes in these assets’ estimated useful lives or in expected consumption of future economic benefits are accounted for through changes in amortization method or period, as applicable, and are addressed as changes in bookkeeping. The amortization of intangible assets with defined life is recognized in the statement of income in the category of expense consistent with the use of the intangible assets.
Intangible assets with undefined useful lives are not amortized but tested for impairment on an annual basis, individually or at cash generating unit level. The evaluation of indefinite useful life is reviewed annually to determine whether it is still justifiable. Otherwise, the change in useful life from indefinite to finite is made on a prospective basis.
An intangible asset is derecognized when it is sold (that is, date when the beneficiary obtains control over the related asset) or when no future economic benefit is expected from its use or sale. Possible gains or losses from the derecognition of assets (the difference between the net sales price and book value) are recognized in the statement of income in the year.
Intangible assets with undefined useful lives are tested for impairment on an annual basis as of December 31, individually or at cash generating unit level, as the case may be or when circumstances indicate impairment loss of book value.
Goodwill
The cost of goodwill is accounted for under the fair value acquisition method and the goodwill impairment test is performed annually as of December 31 or when circumstances indicate that the book value has been impaired.
Research and development
Research expenditures are recorded as expenses when incurred, and development expenditures linked to technological innovations of existing products are capitalized if they are technologically and economically feasible, and amortized over the expected period of benefits in the operating expenses group.
Development activities involve a plan or project aimed at producing new. Development expenditures are capitalized only when all the following elements are present: (i) technical feasibility to complete the intangible asset in order for it to be available for use or sale; (ii) intention to complete the intangible asset and use or sell it; (iii) the intangible assets should result in future economic benefit; (iv) availability of technical, financial and other properresources to conclude its development and to use the intangible asset; and (v) ability to accurately measure the expenses attributable to intangible assets during their development. The expenditures capitalized include the cost of labor and materials that are directly attributable to preparing the asset. Other development expenditures are recognized in the statement of income as incurred.
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Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
After the initial recognition, the asset is stated at cost, less accumulated amortization and impairment losses. Amortization is triggered when the development is complete and the asset item is available for use for the future economic benefit period. During the development period, the asset is tested for impairment on an annual basis.
Other intangible assets
Other intangible assets that are acquired and have defined useful lives are measured at cost, less accumulated amortization and any impairment losses.
Subsequent expenditures are capitalized only when they increase the future economic benefits embodied in the specific asset to which they relate. All other expenditures, including expenditures on internally-generated goodwill and trademarks, are recognized in income (loss) as incurred.
Amortization is recognized in income (loss) on a straight-line basis over the estimated useful lives of the intangible assets, except goodwill, from the date they are available for use, since this is the method that best reflects the pattern of consumption of the future economic benefits embodied in the asset.
3.11. Impairment loss of non-financial assets
The Management reviews the recoverable value of assets annually in order to assess events or changes in economic, operating, or technological circumstances likely to point out impairment or loss of their recoverable value. These evidences are detected and the net book value exceeded, the recoverable value, a provision for impairment is formed to adjust net book value to recoverable value. The recoverable value of an asset or a particular cash-generating unit is defined as the higher of value in use and net sales value.
In estimating the value in use of an asset, estimated future cash flows are discounted to their present values, using a pretax discount rate that reflects the weighted average cost of capital in the industry where the cash-generating unit operates. The net fair value of sales expenses is calculated whenever possible, based on recent market transactions between knowledgeable and interested parties with similar assets. In the absence of observable transactions in this regard, the Company uses an appropriate valuation methodology. The calculations provided in this model are supported by available fair value indicators, such as prices quoted for listed entities, among other available indicators.
The Company bases its impairment assessment on the most recent financial forecasts and budgets, which are prepared separately by Management for each cash-generating unit towhich the assets are allocated. Projections based on said forecasts and budgets generally cover a five-year period. An average long-term growth rate is calculated and applied to future cash flows after the fifth year.
The asset impairment loss is recognized in income (loss) in a manner consistent with the function of the asset subject to losses.
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Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
For assets other than goodwill, an assessment is made on each reporting date to determine whether there is an indication that the impairment losses previously recognized no longer exist or have decreased. If such indication exists, the Company estimates the recoverable amount of the asset or of the cash-generating unit. An impairment loss on a previously recognized asset is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss that was recognized. The reversal is limited so that the book value of the asset does not exceed the book value that would have been calculated (net of depreciation, amortization or depletion), if no impairment loss had been recognized for the asset in previous years. This reversal is recognized in income (loss).
Goodwill impairment test is carried out on an annual basis as of December 31 or when circumstances indicate that the book value has been impaired.
The impairment loss is recognized for a cash-generating unit to which the goodwill is related. When the recoverable amount of the unit is lower than the book value of the unit, the loss is recognized and allocated to reduce the book value the unit’s assets in the following order: (a) reducing the book value of the goodwill allocated to the cash-generating unit; and (b) then, to the other assets of the unit in proportion to the book value of each asset.
Intangible assets with undefined useful lives are tested for impairment on an annual basis as of December 31, individually or at cash generating unit level, as the case may be or when circumstances indicate impairment loss of book value.
3.12. Accounts payable to suppliers
Trade accounts payable are obligations due for assets or services acquired in the normal course of businesses, and are classified as current liabilities if payment is due within one year. Otherwise, accounts payable are presented as non-current liabilities.
They are initially recognized at fair value and, subsequently, measured at amortized cost using the effective interest rate method.
3.13. Loans and financing
Loans and financing are initially recognized at the fair value less any transaction costs assignable. After their initial recognition, these financial liabilities are measured at amortized cost using the effective interest method.
3.14. Provisions
Provisions are recognized when the Company and its subsidiaries have a present (legal or not formalized) obligation as a result of a past event. It is probable that economic benefits will be required to settle the obligation, and a reliable estimate can be made. When the Company and its subsidiaries expect some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain. The expense related to any provision is presented in the statement of income, net of any reimbursement.
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Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
If the effect of the time value of money is significant, the provisions are discounted using the current rate before the taxes it reflects, when appropriate, the risks specific to the liability. When the discount is adopted, the increase in the provision in view of the passage of time is recognized as financing cost.
Provisions for tax, civil and labor risks
The Company and its subsidiaries are parties to a number of lawsuits and administrative proceedings. Provisions are formed for all contingencies related to lawsuits in which an outflow of funds will probably be required to settle the contingency or obligation and a reasonable estimate can be made. Determination of the likelihood of loss includes determination of evidences available, hierarchy of laws, jurisprudence available, more recent court decisions and relevance thereof in legal system, as well as evaluation of external lawyers. Provisions are reviewed and adjusted so as to consider changes in circumstances, such as applicable statute of limitations, conclusions of tax audits or additional exposures identified based on new matters or court rulings.
Contingent liabilities recognized in a business combination
A contingent liability recognized in a business combination is initially measured at fair value. Subsequently, it is measured between the higher amount that would be recognized according the accounting policy of the above provisions (IAS 37/CPC 25) and/or the amount initially recognized less, as the case may be, the accumulated amortization recognized according to the revenue recognition policy.
3.15. Adjustment to present value of assets and liabilities
Long-term monetary assets and liabilities are adjusted for inflation and, therefore, adjusted to their present value. The adjustment to present value of short-term monetary assets and liabilities is calculated, and only recognized, if it is considered as relevant with respect to the financial statements taken as a whole. For recognition and materiality determination purposes, the adjustment to present value is calculated taking into consideration the contractual cash flows and the explicit interest rate, and, in certain cases, the implicit interestrate of the related assets and liabilities. Based on the analyzes performed and the best Management’s estimate.
3.16. Revenue from contract with customer
The Company and its subsidiaries recognize its revenues from software license, which include license fees, revenue from subscription, and revenue from services, which includes implementation and customization and sub-acquiring revenue. Revenue is presented net of taxes, returns, rebates and discounts, when applicable. Revenues are recognized in an amount that reflects the consideration to which the Company and its subsidiaries expect to be entitled in exchange for the transfer of services to a client.
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Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
· Subscription revenues: They are recurring revenues derived from: (1) revenues related to services to provide the client with the right of use of software in a cloud-based infrastructure provided by the Company and its subsidiaries or by a third-party, or even based on the client’s own internal infrastructure, where the client has no right to end the contract and become the owner of the software or use in its IT infrastructure or a third-party’s infrastructure; and (2) revenues related to technological support, helpdesk, equipment rental, software hosting service, payment for the use of tools and support teams located at the clients besides connectivity services. Monthly maintenance is aggregated in a contract usually valid for twelve months. Monthly subscription revenues are not reimbursable and are billed and paid on a monthly basis. These revenues are recognized in income (loss) on a monthly basis, as services are provided, starting on the date in which services are made available to the client and all other revenue recognition criteria are met.
· Revenues from service rendered are considered non-recurring and involves implementation services, including personalization, training, software licenses and other services. Revenues from services are recognized in proportion to the stage of completion of the service.
· Revenue from royalties - Revenues from software licenses are recognized when: it is determined when all risks and rewards of the license are transferred upon the availability of the software and the amount may be reliably measured and it is likely that any expected future economic benefits will be generated on behalf of the Company and its subsidiaries.
· Sub-acquiring revenues derive from the capture of the transactions with credit and debit cards and are recognized on the date of capture/processing of the transactions.
In case billed amounts exceed services rendered plus recognized revenue, the difference is stated in the balance sheet (current and non-current liabilities) as deferred revenue.
3.17. Capital
Common shares
Additional costs directly attributable to the issue of shares and share options are recognized as reducers from shareholders' equity. Tax effects related to the costs of these transactions are calculated in accordance with IAS 12/CPC 32.
3.18. Transactions involving share-based payment
Company employees receive share-based payments, in which the employees render services in exchange for membership certificates (“transactions settled with membership certificates”). In situations in which equity securities are issued and some or all goods or services received by the Company in exchange cannot be specifically identified, the unidentified goods or services received (or receivable) are measured by the difference between the fair value of share-based payment and the fair value of any good or service received on its grant date.
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Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
The Company offers restricted shares to employees (contracted under the Labor laws or Statutory) who will be entitled to receive the restricted shares at the end of the grace period on the condition that the beneficiary has maintained his or her employment relationship during that period and is eligible based on the performance assessment.
Transactions settled with membership certificates
The cost of transactions settled with equity instruments is measured with a basis on the fair value on the date in which they were granted. To determine the fair value, the Company uses an external evaluation expert, which uses an appropriate evaluation method.
This cost is recognized in employee benefit expenses together with the corresponding increase in shareholders’ equity (in other reserves), during the period when the service is provided, and, when applicable, performance conditions are met (vesting period). The accumulated expense recognized for transactions that will be settled with membership certificates on each reporting date up to the vesting date reflects the extent to which the acquisition period may have expired and the Company’s best estimate of the number of grants which in the last instance, will be acquired. The expense or credit in the statement of income for the period represents the changes in accumulated expense recognized at the start and end of that period. When the terms of an equity-settled transaction are modified (for example, due to plan modifications), the minimum recognized expense is the fair value at the grant date, provided the original vesting conditions are met. An additional expense, measured on the modification date is recognized for any modification that increases the fair value of the contracts with share-based payment or otherwise, benefits the employees. When a grant is cancelled by the entity or counterpart, any remaining element of the fair value of the grant is immediately recognized as expense through profit or loss.
The effect of dilution of outstanding options is reflected as dilution of additional share in the calculation of the diluted earnings per share.
3.19. Employee benefits
Employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided.
The liability is recognized at the amount expected to be paid under the cash bonus plans or short-term profit sharing if the Company and its subsidiaries have a legal or constructive obligation to pay this amount as a result of prior service rendered by the employee, and the obligation can be reliably estimated.
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Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
a. Private pension
The Company and its subsidiaries do not hold private pension plans or any pension plan for its employees and management.
b. Profit sharing
The Company and its subsidiaries have benefit plans for management and employees in the form of profit sharing and bonus plans.
Profit sharing and bonus plans are expected to be settled in up to 12 months and are presented at expected settlement value.
c. Post-employment benefit – health care plans
The Company and its subsidiaries offer health care plans compatible with the market to its employees; the Company and its subsidiaries are co-sponsors of the plan and their employees contribute with a monthly fixed installment that may be extended to spouses and dependents. Costs with monthly defined contributions made by the Company and its subsidiaries are recognized in income on a monthly basis, in conformity with the accrual basis.
Costs, contributions and actuarial liabilities related to such plans are determined annually, with a basis on an appraisal carried out by independent actuaries.
3.20. Financial revenues and expenses
Financial revenues comprise basically interest of financial assets and discounts obtained. Financial expenses comprise basically bank fees, commercial discounts, exchange rate change and interest on loans. Interest is recognized in the income (loss) for the period using the effective interest rate methodology.
3.21. Foreign currency translation
Consolidated financial statements are presented in Real (R$), parent company’s functional currency. Each Company’s entity determines its own functional currency, and in those in which functional currency is different from real, the financial statements are translated into real as of closing date, in accordance with IAS 21/CPC 02 (R2) – Effects of changes in foreign exchange rate and translation of financial statements, except for Napse S.R.L, which follows CPC 42 – Accounting for Hyperinflationary Economies, equivalent to IAS 29.
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Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
3.22. IAS 29/CPC 42 Adoption of the accounting and reporting standard in highly hyperinflationary economy
In July 2018, considering that the inflation accumulated in the past three years in Argentina was higher than 100%, the adoption of the accounting and reporting standard in hyperinflationary economy (IAS 29/CPC 42) became mandatory in relation to the subsidiary Napse S.R.L., located in Argentina.
Pursuant to IAS 29/CPC 42, non-cash assets and liabilities, the shareholders’ equity and the statement of income of subsidiaries that operate in hyperinflationary economies are adjusted by the change in the general purchasing power of the currency, applying a general price index.
The financial statements of an entity whose functional currency is the currency of a hyperinflationary economy, whether they are based on the historical or current cost approach, should be expressed in terms of the current measurement unit at the balance sheet date and translated into Real at the closing exchange rate for the period.
3.23. Statements of added value
The presentation of the Individual and Consolidated Statement of Added Value is required by Brazilian corporate law and the accounting practices adopted in Brazil applicable to publicly-held companies. Statement of Added Value was prepared in accordance with criteria defined in Technical Pronouncement CPC 09 - "Statement of Added Value". The IFRS do not require the presentation of this statement. Accordingly, in conformity with IFRS, this statement is presented as supplementary information, without prejudice to financial statements as a whole.
3.24. Statement of cash flow
Statements of cash flows were prepared and presented in accordance with the Technical Pronouncement IAS 7/CPC 03 (R2) - Statement of Cash Flows.
Paid interest is classified as financing cash flow in the Statement of Cash Flow, as it represents financial funds raising costs.
In the years ended December 31, 2019 and 2018 he following transactions did not affect the cash.
Consolidated | ||
| 12/31/2019 | 12/31/2018 |
| ||
Acquisition of computers, furniture and facilities included in suppliers payable | 2,419 | 341 |
Acquisition of software and software developed included in suppliers payable | 380 | - |
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Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
3.25. New or reviewed pronouncements with first-time adoption in 2019
These individual and consolidated financial statements have been prepared using accounting policies consistent with those adopted for the preparation of the financial statements for the year ended December 31, 2018 (Note 3 – “Significant Accounting Policies”) and must be reviewed together with these financial statements, as well as considering the new pronouncements, interpretations and amendments that came into effect from January 1, 2019, described below:
Standards and amended standards | |
IFRS 16/CPC 06 (R2) | Leases |
IFRIC 23 | Uncertainty related to income tax treatments |
Amendments to IFRS 9 | Characteristics of prepayment with negative remuneration |
Amendments to IAS 28 | Long-term Investment in Associated Companies and Joint Ventures |
IFRS Standards Annual Improvements | Cycle 2015–2017 |
Amendments to IAS 19 | Alteration of plan, Restriction or Settlement |
Unless as stated below, the adoption of these standards, amendments and interpretations had no material impacts on the Company and its subsidiaries upon their first-time adoption:
IFRS 16/CPC 06 (R2) - Lease operations
CPC 06 (R2) replaces the previous version (R1) of the lease standard, in addition to ICPC 03 - Complementary Aspects of Lease Operations. The standard sets out the principles for the recognition, measurement, presentation and disclosure of leases, and requires lessees to recognize most leases in the balance sheet.
Accounting for lessors under CPC 06 (R2) is substantially unchanged in comparison to the previous version of the standard. Lessors will continue to classify leases as either operating leases or financial leases, applying principles similar to those of the previous version of thestandard. Therefore, CPC 06 (R2) does not impact leases in which the Company and its subsidiaries are lessors.
The Company and its subsidiaries adopted IFRS 16/CPC 06 (R2) using the modified retrospective method with the first-time adoption date of January 1, 2019. The Company and its subsidiaries chose to use the practical expedient of transition, allowing the standard to be applied only to contracts that were previously identified as the leases on adoption date.
The Company and its subsidiaries also chose to apply the recognition exemptions for leases that, on the start date, have a lease term of 12 months or less and do not contain a purchase option and lease agreements where for which the underlying asset has a low value.
Reconciliation of new consolidated balance sheet balances for year ended December 31, 2018, the opening balance on January 1, 2019, and in comparison, the balance on December 31, 2019 affected by the new rule:
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Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
Financial Statements disclosed on 12/31/2018 | Impact concerning the adoption of | Financial statements - 01/01/2019 | Financial statements - 12/31/2019 | |
Assets |
| |||
|
|
|
|
|
Advance | 10,394 | (10,394) | - | - |
Other receivable | 688,110 | - | 688,110 | 1,299,970 |
Current assets | 698,504 | (10,394) | 688,110 | 1,299,970 |
|
|
|
|
|
Right-of-use assets | - | 102,190 | 102,190 | 124,039 |
Other non-current assets | 949,172 | - | 949,172 | 1,139,934 |
Non-current assets | 949,172 | 102,190 | 1,051,362 | 1,263,973 |
| ||||
Total assets | 1,647,676 | 91,796 | 1,739,472 | 2,563,943 |
| ||||
| ||||
Liabilities |
| |||
|
|
|
|
|
Leasing payable | - | 6,531 | 6,531 | 47,478 |
Other current liabilities | 220,700 | - | 220,700 | 322,369 |
Current liabilities | 220,700 | 6,531 | 227,231 | 369,847 |
|
|
|
|
|
Leasing payable | - | 85,265 | 85,265 | 78,604 |
Other non-current liabilities | 369,767 | - | 369,767 | 325,648 |
Non-current liabilities | 369,767 | 85,265 | 455,032 | 404,252 |
|
|
|
|
|
Shareholders' equity | 1,057,209 | - | 1,057,209 | 1,789,844 |
| ||||
Total liabilities and shareholders' equity | 1,647,676 | 91,796 | 1,739,472 | 2,563,943 |
Below we present the result for the period ended December 31, 2019, compared to the result that would be without the effects of these standards:
45
Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
| Financial Statements disclosed on 12/31/2019 | Impact concerning the adoption of | Financial Statements as of 12/31/2019 |
Profit (loss) | |||
Net revenue | 788,159 | - | 788,159 |
Costs of services rendered | (272,115) | - | (272,115) |
Gross income | 516,044 | - | 516,044 |
Operating expenses | (434,934) | 10,600 | (424,334) |
Income (loss) before financial revenues and expenses | 81,110 | 10,600 | 91,710 |
Financial results | (17,177) | 9,857 | (7,320) |
Income (loss) before taxes | 63,933 | 20,457 | 84,390 |
Current and deferred income tax and social contribution | (25,057) | 2,551 | (22,506) |
Net income | 38,876 | 23,008 | 61,884 |
For the year ended December 31, 2019, there was a reduction in cash outflows from operating activities of R$ 18,845 and an increase in cash outflows from financing activities by the same amount, representing payments of the main part of recognized lease liabilities.
(a) Nature of the effect of the adoption of IFRS 16/CPC 06 (R2)
The Company and its subsidiaries have lease contracts for various items of facilities, equipment and others. Prior to the adoption of IFRS 16/CPC 06 (R2), the Company and its subsidiaries classified each of its leases (as the lessee) on the start date as either a financial lease or an operating lease. A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership of the leased asset to the Company and its subsidiaries; otherwise, it was classified as an operating lease. Prior to the adoption of IFRS 16/ CPC 06 (R2), the Company and its subsidiaries did not have any financial lease contracts. In an operating lease, the leased property was not capitalized and the lease payments were recognized as a rental expense in the income statement on a straight-line basis over the lease term. Any prepaid and accrued rent were recognized in prepaid expenses, suppliers, and other accounts payable, respectively.
After the adoption of IFRS 16/CPC 06 (R2), the Company and its subsidiaries applied a single recognition and measurement approach to all leases in which it is the lessee, except for short-term leases and leases of low-value assets. The Company and its subsidiaries recognized lease liabilities and right-of-use assets representing the right to use the underlying assets.
According to the modified retrospective method of adoption, the Company and its subsidiaries applied IFRS 16/CPC 06 (R2) retrospectively with the cumulative effect of initially applying the standard as an adjustment on the date of first-time adoption.
Leases previously accounted for as operating leases
The Company and its subsidiaries recognized right-of-use assets and lease obligations for those leases previously classified as operating leases, except for short-term leases and leases of low-value assets. Right-of-use assets for most leases were recognized based on the book value as if the standard had been applied, and the incremental loan rate was used on the date of first-time adoption. In some leases, the right-of-use assets were recognized based on the amount equal to the lease liability, adjusted by any related advance payments and accrued lease payments recognized previously. Lease liabilities were recognized based on the present value of the remaining lease payments, minus the incremental loan rate on the date of first-time adoption.
46
Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
Incremental Loan Rate–IBR
The Company and its subsidiaries used the cash flow for accounting purposes without considering the effect of inflation on the flows to be discounted. Moreover, considering CVM SNC/SEP Official Letter 02/2019 - Guidance on the application of IFRS 16/CPC 06 (R2) – Leases, the Company and its subsidiaries assessed the incremental rate on December 31, 2019 in accordance with said guidance for future lease payments discounted to present value using the basic interest rate for a readily observable term, including the credit and guarantee risk.
The Company and its subsidiaries also applied the available practical expedients, in which:
• It used a single discount rate for a portfolio of leases with reasonably similar characteristics;
• It relied on its assessment of whether the leases are onerous immediately before the date of first-time adoption;
• Retrospective outlook used in determining the lease term, when the contract contains options to extend or terminate the lease.
Based on the exposed as of January 1, 2019:
• Right-of-use assets in the amount of R$ 102,190 were recognized and presented separately in the balance sheet.
• Other lease liabilities in the amount of R$ 91,796 were recognized and included in loans and financing, subject to interest and a discount rate of 9.15%.
• Advance disbursements of R$ 10,394 relating to previous operating leases were unrecognized and considered a reduction of the lease liabilities.
(b) Summary of the new accounting policies
Right-of-use assets
The Company and its subsidiaries recognize right-of-use assets on the start date of the lease (i.e., the date on which the underlying asset is available for use). Right-of-use assets are measured at cost, minus any accumulated depreciation and impairment losses, and adjusted by any further re-measuring of the lease liabilities. The cost of right-of-use assets includes recognized lease liabilities, initial direct costs incurred, and lease payments made before or on the start date, minus lease incentives received. Unless it is reasonably certain that the Company and its subsidiaries will take ownership of the leased asset at the end of the lease term, recognized right-of-use assets are depreciated on a straight-line basis during the shortest period of their estimated useful life and the lease term.
47
Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
Lease liabilities
On the start date of the lease, the Company and its subsidiaries recognize lease liabilities measured at the present value of the lease payments to be made during the lease term. Lease payments include fixed payments (including inflation-linked payments), minus any lease incentives receivable, variable lease payments that depend on an index or rate, and amounts expected to be payable under residual value guarantees. Lease payments also include the exercise price of a purchase option that the Company and its subsidiaries are reasonably certain to exercise, and payments of fines levied on the termination of a lease, if the lease term reflects the Company and its subsidiaries that exercises the termination option. Variable lease payments that do not depend on an index or rate are recognized as expenses in the period in which the event or condition that determines the payment occurs.
In calculating the present value of lease payments, the Company and its subsidiaries use the incremental loan rate on the start date of the lease if the implicit interest in the lease is not easily determinable. After the start date, the value of the lease liability is increased to reflect the addition of interest, and reduced for lease payments made. Moreover, the book value of the lease liabilities is re-measured if there is a modification, a change in the lease term, a change in the fixed inflation-linked payments, or a change in the assessment to purchase the underlying asset.
Short-term leases and leases of low-value assets
The Company and its subsidiaries also apply the asset recognition exemption to leases of office equipment that is considered low-value. Payments of short-term and low-value leases are recognized as expenses on a straight-line basis throughout the lease term.
Significant judgment in determining the lease term of contracts with renewal options
The Company and its subsidiaries determine the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain that it will be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain that this option will not be exercised.
The Company and its subsidiaries have the option, under some of its leases, to lease the assets for additional periods of three to five years. The Company and its subsidiaries apply judgment in determining whether it is reasonably certain to exercise the renewal option. In other words, it considers all the relevant factors that create an economic incentive to exercise the renewal option. After the start date, the Company and its subsidiaries review the lease term if there is a significant event or change in the circumstances under its control that affects its ability to exercise (or not exercise) the renewal option (for example, a change in the business strategy).
48
Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
c) Amounts recognized in the statement of financial position and in results
Presented below are the book values of the right-of-use assets and lease liabilities of the Company and its subsidiaries and the financial activity during the period:
Right-of-use assets | |||||||||
| Lease of property | Other equipment | Cloud (*) | Total | Lease liabilities | ||||
On January 1, 2019 | 90,924 | 872 | 10,394 | 102,190 | 91,796 | ||||
Addition (***) | 14,269 |
| 4,629 |
| 54,099 |
| 72,997 |
| 66,154 |
Write-off | (20,816) |
| (37) |
| (850) |
| (21,703) |
| (22,880) |
Amortization (**) | (10,895) |
| (284) |
| (18,266) |
| (29,445) |
| - |
Interest and exchange rate change expenses | - |
| - |
| - |
| - |
| 9,857 |
Payment | - |
| - |
| - |
| - |
| (18,845) |
December 31, 2019 | 73,482 |
| 5,180 |
| 45,377 |
| 124,039 |
| 126,082 |
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
| 47,478 |
Non-current liabilities |
|
|
|
|
|
|
|
| 78,604 |
(*) Lease of cloud storage space
(**) Annual average rate of depreciation - 10%–33%
(***) The Company and its subsidiaries applied exceptions to the standard for short-term and low-value contracts, recorded in rental expenses in the amount of R$ 522 on December 31, 2019
Based on the annual impairment test of the assets of the Company and its subsidiaries, prepared with the projections made on the financial statements as of December 31, 2019 and 2018, growth perspectives and operating income (loss) for the years ended December 31, 2019 and 2018, no losses or indicative losses were identified, since the value in use is higherthan the net book value at the valuation date. The assumptions used are disclosed in Note 14.1.
IFRIC 23/ICPC 22 - Uncertainty over Income Tax Treatment.
This interpretation clarifies how to apply recognition and measurement requirements of IAS 12/CPC 32 in case there is uncertainty on income tax treatments. In these circumstances, the entity must recognize and measure its current or deferred tax assets or liabilities by applying requirements of IAS 12/CPC 32 based on taxable income (tax loss), tax bases, taxable losses not used, tax credits not used, and tax rates, determined in accordance with this interpretation. This interpretation came into effect as of January 1, 2019 and even considering that the Company and its subsidiaries operate in a complex tax environment, Management concluded that the tax authorities are likely to accept the tax treatments (including those applied to subsidiaries). Therefore, the application of this Interpretation will not have any impacts in the financial statements.
49
Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
3.26. New standards, amendments and interpretations of issued standards that did not become effective
At the date these financial statements were prepared, the following standards and amendments had been published; however, application thereof was not mandatory. The Company and its subsidiaries did not early adopt any pronouncement or interpretation issued whose application was not mandatory.
Standards and interpretations issued but not yet effective through the date the Company's financial statements were issued are set out below:
Standards and amended standards | Effective date | |
IFRS 17/CPC 50 | Insurance contracts | January 1, 2021 |
Amendments to IFRS 3/CPC 15 (R1) | Business definition | January 1, 2020 |
Amendments to IAS 1/CPC 26 (R1) and IAS 8/CPC 23 | Definition of material omission | January 1, 2020 |
The Company and its subsidiaries do not expect relevant impacts as a result of standards and interpretations that were issued but are not yet effective.
4. Corporate restructuring
4.1. Merger of DCG
On April 01, 2019, merger from DCG Soluções to Venda Digital S.A. was effectively merged into the Company, and its net assets were included in the consolidation by subsidiary Linx Sistemas e Consultoria Ltda.
The table below shows the book value on February 28, 2019, of the merged net assets of DCG Soluções para Venda Digital S.A.:
Assets | Liabilities | |||
Cash and cash equivalents | 118 | Suppliers | 485 | |
Financial assets | 405 | Loans and financing | 233 | |
Trade accounts receivable | 1,848 | Labor liabilities | 1,667 | |
Recoverable taxes | 38 | Taxes and contributions payable | 321 | |
Other receivables | 20 | Other accounts payable | 432 | |
Current assets | 2,429 | Current liabilities | 3,138 | |
Property, plant and equipment | 502 | Loans and financing | 488 | |
Intangible assets | 2,169 | Other accounts payable | 54 | |
Non-current assets | 2,671 | Non-current liabilities | 542 | |
Capital | 12 | |||
Capital reserves | 2,945 | |||
Profit reserve | (1,537) | |||
Shareholders' equity | 1,420 | |||
Total assets | 5,100 | Total liabilities and shareholders’ equity | 5,100 |
50
Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
Net assets from DCG Soluções to Venda Digital S.A. was conducted by experts who issued an appraisal of the Company’s shareholders’ equity report dated March 12, 2019. The merger from DCG Soluções to Venda Digital S.A. entailed no capital increase or changes in Company’s shareholding structure.
4.2. Merger of Millennium
On November 01, 2019, merger from Millennium Network Ltda. (acquired in 2019), and its net assets were included in the consolidation by subsidiary Linx Sistemas e Consultoria Ltda.
The table below stated the book value as of September 30, 2019 of the net assets merged of Millennium Network Ltda.:
Assets |
|
| Liabilities |
|
Cash and cash equivalents | 1,150 |
| Suppliers | 434 |
Accounts receivable | 1,376 |
| Loans and financing | 11 |
Recoverable taxes | 1 |
| Labor obligations | 1,840 |
Other receivables | 63 |
| Tax liabilities | 1,047 |
Current assets | 2,590 |
| Other liabilities | 2 |
| Current liabilities | 3,334 | ||
|
|
| ||
|
|
| ||
Property, plant and equipment | 458 |
| Installment payment of taxes | 1,561 |
Intangible assets | 114 |
| Other liabilities | 118 |
Non-current assets | 572 |
| Non-current liabilities | 1,679 |
|
|
| ||
|
|
| Capital | 300 |
| Accumulated losses | (3,671) | ||
Net income for the year | 1,520 | |||
Shareholders' equity | (1,851) | |||
|
|
|
|
|
Total assets | 3,162 | Total liabilities and shareholders' equity | 3,162 |
51
Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
Appraisal of assets of Millennium Network Ltda. was conducted by experts who issued an appraisal of the Company’s shareholders’ equity report dated October 08, 2019. The merger of Millennium Network Ltda. entailed no capital increase or changes in Company’s shareholding structure.
5. Business combination
5.1. Acquisition of Hiper
On April 2, 2019, Linx Sistema e Consultoria Ltda., the wholly-owned subsidiary of Linx S.A., acquired 100% of the equity of Hiper Software S.A. (“Hiper” or acquired group), which operates and develops SaaS solutions for micro and small retailers with more than 15,000 active customers in 2,000 municipalities and more than 600 distribution channels. The main reason for the acquisition is to increase the penetration of TEF and Linx Pay, which represents an important growth opportunity for the Company.
The price was R$ 33,906, and the price adjusted for the likelihood of reaching the contingent compensation was R$ 32,314, to be paid as follows:
(i) R$ 16,700 paid when the contract is closed;
(ii) R$ 1,000 paid on October 10, 2019 after the sellers have confirmed the acquisition of the common shares issued by Linx S.A.;
(iii) Additional contingent consideration (“Payable for Acquisition of Business”) up to R$ 16,206 (fair value as of December 31, 2019 is R$ 14,614) is as follows:
· Upon the achieving of certain operating and financial goals in each year and payable in the subsequent year
o 2019 - R$ 1,000, paid on November 29, 2019;
o 2020 - R$ 1,900, (R$ 1,000, paid on February 28, 2020); and
o 2021 - R$ 11,006.
· R$ 1,000 payable through the resolution of certain contingencies, update in the IPC-A (IBGE) through its effective payment, maturing in 2021;
· R$ 1,000 payable through the resolution of certain contingencies, update in the IPC-A (IBGE) through its effective payment, maturing in 2024; and
· R$ 300 paid on October 14, 2019 after the sellers have secured the working capital for a period of six months.
52
Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
Purchase consideration | |
Amount paid in cash | 16,700 |
Amount paid on October 10, 2019 | 1,000 |
Fair value of contingent consideration (Earn-out) | 14,614 |
Total consideration | 32,314 |
Analysis of cash flow from the acquisition | |
Amount paid in cash | 16,700 |
Net cash acquired from subsidiary | (937) |
Cash flow from investment activities | 15,763 |
5.2. Acquisition of Millennium
On June 27, 2019, Linx Sistemas e Consultoria Ltda., the wholly-owned subsidiary of Linx S.A. acquired 100% of the equity of Millennium Network Ltda. (“Millennium”), which operates and develops SaaS solutions that enable the retailer, along with other technologies, to offer to consumer an omnichannel experience. The primary reason for the acquisition was to strengthen its omnichannel strategy, which is an important trend for retail and represents a great growth opportunity for the Company.
The price was R$ 94,803, and the price adjusted for the likelihood of reaching the contingent compensation was R$ 86,671, to be paid as follows:
(i) R$ 58,247 paid when the contract is closed;
(ii) R$ 4,000 paid on August 30, 2019 after the sellers have confirmed the acquisition of the common shares issued by Linx S.A.;
(iii) R$ 558 paid on June 28, 2019;
(iv) Additional contingent consideration (“Payable for Acquisition of Business”) up to R$ 31,998 (fair value as of December 31, 2019 is R$ 23,866) is as follows:
· Upon the achieving of certain operating and financial goals in each year and payable in the subsequent year
o 2019 - R$ 2,470, paid on December 5, 2019;
o 2020 - R$ 9,671, (R$ 8,223, paid on March 04, 2020);
o 2021 - R$ 4,585;
o 2022 - R$ 5,041; and
o 2023 - R$ 4,231.
53
Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
· R$ 3,000 payable through the resolution of certain contingencies, update in the IPC-A (IBGE) through its effective payment, maturing in 2021; and
· R$ 3,000 payable through the resolution of certain contingencies, update in the IPC-A (IBGE) through its effective payment, maturing in 2024;
Purchase consideration | |
Amount paid in cash | 58,247 |
Amount paid on June 28, 2019 | 558 |
Amount paid on August 30, 2019 | 4,000 |
Fair value of contingent consideration (Earn-out) | 23,866 |
Total adjusted consideration (*) | 86,671 |
Analysis of cash flow from the acquisition | |
Amount paid in cash | 58,247 |
Net cash acquired from subsidiary | (125) |
Cash flow from investment activities | 58,122 |
(*) The purchase price was deducted from the amount of R$2,200 related to the debts assumed by Millennium in the acquisition
5.3. Acquisition of SetaDigital
At October 16, 2019, Linx Sistemas e Consultoria Ltda., a wholly-owned subsidiary of Linx S.A., acquired all the share capital of SetaDigital Sistemas Gerencial Ltda. (“SetaDigital”),which operates with a focus on ERP solutions and services for footwear retail. The main reason for the acquisition is to reinforce its cross selling strategy to encourage the customer to supplement its initial purchase, representing a significant growth opportunity for the Company.
The price was R$ 34,906, and the price adjusted for the likelihood of reaching the contingent compensation was R$ 34,686, to be paid as follows:
54
Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
· Upon the achieving of certain operating and financial goals in each year and payable in the subsequent year
o 2020 - R$ 2,130, (R$ 1,334, paid on March 02, 2020);
o 2021 - R$ 949;
· R$ 1,000 payable through the resolution of certain contingencies, update in the IPC-A (IBGE) through its effective payment, maturing in 2022; and
· R$ 1,000 payable through the resolution of certain contingencies, update in the IPC-A (IBGE) through its effective payment, maturing in 2024;
Purchase consideration | |
Amount paid in cash | 24,000 |
Amount paid on November 29, 2019 | 4,000 |
Cash refund | 1,827 |
Fair value of contingent consideration (Earn-out) | 4,859 |
Total consideration | 34,686 |
Analysis of cash flow from the acquisition | |
Amount paid in cash | 24,000 |
Net cash acquired from subsidiary | (616) |
Cash flow from investment activities | 23,384 |
5.4. Identifiable assets acquired and goodwill
Pursuant to IFRS 3 (R)/CPC 15 (R1) – Business Combination, acquisitions are accounted for under the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated by total fair values of transferred assets, liabilities assumed on acquisition date from the former controlling shareholders of the acquiree issued in exchange for control of the acquiree.
The fair value of identifiable assets acquired in business combinations was measured and recognized at the date of conclusion of the transaction:
55
Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
Amount recognized on acquisition | Hiper | Millennium | SetaDigital | Total | ||||
Current assets | 1,428 | 718 | 2,490 | 4,636 | ||||
Cash and cash equivalents | 937 | 125 | 616 | 1,678 | ||||
Accounts receivable | 342 | 579 | 1,244 | 2,165 | ||||
Other receivable | 149 | 14 | 630 | 793 | ||||
Non-current assets | 8,696 | 12,605 | 16,760 | 38,061 | ||||
Software (*) | 5,025 | 5,954 | 3,379 | 14,358 | ||||
Accounts receivable (*) | 2,298 | 6,070 | 12,814 | 21,182 | ||||
Property, plant and equipment | 805 | 461 | 529 | 1,795 | ||||
Intangible assets | 568 | 120 | 38 | 726 | ||||
Current liabilities | 1,368 | 2,991 | 1,257 | 5,616 | ||||
Suppliers | 127 | 326 | 93 | 546 | ||||
Loans and financing | - | 443 | - | 443 | ||||
Labor obligations | 1,160 | 1,295 | 834 | 3,289 | ||||
Tax liabilities | 78 | 626 | 328 | 1,032 | ||||
Other liabilities payable | 3 | 301 | 2 | 306 | ||||
Non-current liabilities | - | 1,679 | - | 1,679 | ||||
Other liabilities payable | - | 1,679 | - | 1,679 | ||||
Fair value of assets acquired | 10,124 | 13,323 | 19,250 | 42,697 | ||||
Fair value of liabilities assumed | 1,368 | 4,670 | 1,257 | 7,295 | ||||
Total identifiable net assets | 8,756 | 8,653 | 17,993 | 35,402 | ||||
Consideration (**) | 32,314 | 86,671 | 34,686 | 153,671 | ||||
Goodwill (**) | 23,558 | 78,018 | 16,693 | 118,269 |
(*) Value of added value of identifiable assets
(**) Net value of the AVP, of which R$ 1,592 is related to the company Hiper
(**) Net value of the AVP, of which R$ 8,132 is related to the company Millennium
(**) Net value of the AVP, of which R$ 220 related to the company Seta
56
Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
5.5. Assets acquired and liabilities assumed
The fair value of trade accounts receivable of the acquirees is R$ 2,165. The gross value of trade accounts receivable is R$ 4,964. There was no impairment loss on any trade accounts receivable, and the contractual amount is expected to be fully received.
Preliminary goodwill totaling to R$ 118,269 comprises future economic benefits stemming from synergies resulting from the acquisitions. Goodwill is expected to generate future tax benefits.
Since the date of acquisition date, the acquired companies contributed to the Company with revenues of R$ 26,409 and pre-tax income of R$ 4,702. If the business combinations had occurred at the beginning of the year, the Company’s gross revenues would have totaled R$ 932,314, while earnings before taxes would have been R$ 62,098.
At the conclusion date of the preparation of these individual and consolidated financial statements, the Company is in the process of reviewing and adjusting the determination of fair value of identifiable assets acquired and liabilities assumed from the acquirees. This analysis is expected to be completed shortly, as soon as Management has all relevant information of the facts, not exceeding a maximum period of 12 months from the acquisition date.
6. Cash and cash equivalents
| Parent company | Consolidated | ||
| 12/31/2019 | 12/31/2018 | 12/31/2019 | 12/31/2018 |
| ||||
Cash and banks - denominated in the R$ | 16,371 | 34 | 50,526 | 17,499 |
Cash and banks - in foreign currency | - | - | 17,448 | 27,923 |
Short-term financial assets (*) | 16 | 16 | 7,924 | 4,428 |
| 16,387 | 50 | 75,898 | 49,850 |
(*) In the years ended December 31, 2019 and 2018, there were no investments in foreign currency.
Highly liquid short-term financial assets are promptly convertible into a known amount of cash and subject to a minimal risk of change of value.
Short-term financial assets refer to Fixed Income Fund accruing interest as remunerated at rate of 95.76% of the Interbank Deposit Certificate (CDI).
The exposure of the Company and its subsidiaries to risk and the sensitivity analysis are disclosed in Note 27.8.
7. Financial assets
Parent Company | Consolidated | |||||||
Type | Name | Date of investment | Maturity | Average yield in relation to CDI (%) | 12/31/2019 | 12/31/2018 | 12/31/2019 | 12/31/2018 |
| ||||||||
Domestic currency |
|
|
|
|
|
|
| |
Fund | Retail Renda Fixa Crédito Privado Fundo de Investimento | 02/22/2018 | Indefinite | 107.12% | 632,341 | 60,108 | 774,257 | 396,389 |
Fund | Moving Tech Renda Fixa | 12/27/2019 | 09/01/2022 | 96.93% | 100,132 | - | 100,136 | - |
Fund | Options | 11/29/2019 | 12/04/2020 | 103.75% | - | - | 16,901 | - |
Fund | Fixed income | 02/26/2019 | 05/24/2021 | 103.75% | - | - | 8,365 | 16,088 |
Other | Other investments | - | - | SELIC 100% | - | - | 669 | 897 |
Total domestic currency | 732,473 | 60,108 | 900,328 | 413,374 | ||||
|
|
|
|
|
|
|
|
|
Foreign currency |
|
|
|
|
|
|
| |
Other | Time Deposit | 12/12/2019 | 02/10/2020 | - | - | - | 4,034 | - |
Total foreign currency | - | - | 4,034 | - | ||||
|
|
|
|
|
|
|
|
|
Total (*) |
|
|
|
| 732,473 | 60,108 | 904,362 | 413,374 |
|
|
|
|
|
|
|
|
|
| Current assets |
|
|
| 732,473 | 60,108 | 902,289 | 413,374 |
| Non-current assets |
|
|
| - | - | 2,073 | - |
57
Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
Management’s policy is to substantially use these funds for punctual payments, such as acquisition of companies and payment of interest on own capital, not using funds invested in this account to cover operating cash flow needs.
The exposure of the Company and its subsidiaries to risk and the sensitivity analysis are disclosed in Note 27.8.
8. Trade accounts receivable
Consolidated | ||
| 12/31/2019 | 12/31/2018 |
Trade notes receivable: | ||
Falling due | 248,411 | 141,066 |
Overdue | 27,243 | 23,138 |
| 275,654 | 164,204 |
|
|
|
Trade notes receivable - abroad: |
| |
Falling due | 12,247 | 7,436 |
Overdue | 4,978 | 3,419 |
| 17,225 | 10,855 |
|
|
|
Total (*) | 292,879 | 175,059 |
|
|
|
|
|
|
(-) Estimated losses with doubtful accounts | (3,360) | (4,215) |
(-) Adjustment to present value | (1,408) | (462) |
| 288,111 | 170,382 |
|
| |
Current assets | 276,626 | 167,102 |
Non-current assets | 11,485 | 3,280 |
(*) The amounts presented include R$ 96,026 (R$ 2,101 as of December 31, 2018) related to Linx Pay Meios de Pagamento Ltda.
Following is the breakdown of the net provision securities:
Consolidated | ||
| 12/31/2019 | 12/31/2018 |
| ||
Falling due | 259,221 | 151,795 |
Overdue (days): |
|
|
1–30 | 18,749 | 9,666 |
31–60 | 2,290 | 3,226 |
61–90 | 3,663 | 2,841 |
91–180 | 4,188 | 2,854 |
| 288,111 | 170,382 |
The Company and its subsidiaries forms Estimated losses with doubtful accounts considering the history of losses per due date, which the Company and its subsidiaries consider sufficient to cover any losses. The Company and its subsidiaries also recognize a provision for the expected losses in trade accounts receivable that comprise outstanding accounts receivable base. Management believes that risk related to general trade accounts receivable is minimized by the fact that the breakdown of the clients of the Company and its subsidiaries to be diluted.
58
Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
The changes in this provision in the consolidated is shown as follows:
Consolidated | ||
Changes in doubtful accounts | 12/31/2019 | 12/31/2018 |
|
|
|
Opening balance | (4,215) | (1,183) |
First-time adoption of IFRS 9/CPC 48 as of 01/01/2018 | - | (1,539) |
Addition of provision | (5,551) | (5,734) |
Use/reversal | 6,406 | 4,241 |
Closing balance | (3,360) | (4,215) |
9. Recoverable taxes
Parent company | Consolidated | ||||
12/31/2019 | 12/31/2018 | 12/31/2019 | 12/31/2018 | ||
Withholding taxes and contributions | 5,975 | 8,848 |
| 18,494 | 29,272 |
ICMS | - | - | 5,242 | 4,286 | |
PIS and COFINS | - | - | 1,367 | 456 | |
Other (*) | - | - | 2,711 | 1,080 | |
5,975 | 8,848 | 27,814 | 35,094 | ||
|
|
|
|
|
|
|
|
|
|
|
|
Current assets | 5,975 | 8,848 |
| 22,648 | 35,094 |
Non-current assets | - | - |
| 5,166 | - |
(*) It mainly corresponds to the advance of income tax in the amount of R$ 1,253 and the balance recoverable from the software promotion law in the amount of R$ 785, both from the company Napse as of December 31, 2019
10.Related parties
10.1Remuneration of key management personnel
Total key management personnel remuneration (22 and 8 administrators in 2019 and 2018, respectively) for the periods ended December 31, 2019 and 2018 are summarized as follows:
12/31/2019 | 12/31/2018 | |
Short-term employee benefits | ||
Payment of Directors’ fees | 14,546 | 11,571 |
Share-based payments | 19,794 | 3,148 |
| 34,340 | 14,719 |
59
Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
10.2Profit (loss)
In the period ended December 31, 2019, there were shared expenses amounting to R$ 17,054 (R$ 11,231 at December 31, 2018); however, in 2019, there were no financial expenses related to loan interest in the period (R$ 36 at December 31, 2018).
10.3Interest on own capital
In the period ended December 31, 2019, interest on own capital of Linx Sistemas was paid to Linx S.A. in the amount of R$ 18,000 (R$ 17,100 as of December 31, 2018), due to the process already concluded. There are effects in income (loss) accounts in the financial expense group for Linx Sistemas and in financial revenues at Linx S.A.
11.Other receivables
Parent company | Consolidated | |||
| 12/31/2019 | 12/31/2018 | 12/31/2019 | 12/31/2018 |
| ||||
Advance to employees, vacation and 13th salary | - | - | 16,706 | 1,842 |
Retentions for contingencies – Acquired (*) | - | - | 13,193 | 13,560 |
Prepaid expenses - Services | - | - | 7,464 | 21,696 |
Advance to suppliers | 16 | - | 6,141 | 7,102 |
Other (**) | 77 | 49 | 5,343 | 6,420 |
| 93 | 49 | 48,847 | 50,620 |
|
|
|
| |
|
|
|
| |
Current assets | 93 | 49 | 22,509 | 33,084 |
Non-current assets | - | - | 26,338 | 17,536 |
(*) Refers to contingent portions of companies Direção, Spress, Rezende, Liderança, Quadrant, CSI, LZT, BR Coelho, Big Automação, Intercamp, Percycle, Itec Informática, DCG, Napse and Millennium, according to acquisition contracts.
(**) Refers to advances to suppliers, expenses and judicial deposits
60
Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
12.Investments
12.1Investments in direct subsidiaries
Linx Sistemas |
| Linx Telecomunicações |
| Total | |
Interest | 99.99% | 99.99% | |||
Balance at December 31, 2017 | 1,175,322 | 6,999 | 1,182,321 | ||
Equity in net income of subsidiaries | 54,344 | 912 | 55,256 | ||
Accumulated translation adjustment | (2,437) | - | (2,437) | ||
Post-employment benefits | (146) | - | (146) | ||
Effect of IAS 29 update (hyperinflation) | 1,822 | - | 1,822 | ||
Stock option plans | 5,043 | - | 5,043 | ||
Payment of dividends | (215,002) | - | (215,002) | ||
First-time adoption of IFRS 9 and 15 | (39,557) | - | (39,557) | ||
Balance at December 31, 2018 | 979,389 | 7,911 | 987,300 | ||
Equity in net income of subsidiaries | 33,778 | 1,618 | 35,396 | ||
Capital increase | - | 2,500 | 2,500 | ||
Accumulated translation adjustment | (3,364) | - | (3,364) | ||
Post-employment benefit | 63 | - | 63 | ||
Effect of IAS 29 update (hyperinflation) | 2,263 | - | 2,263 | ||
Stock option plans | 22,204 | - | 22,204 | ||
Balances at December 31, 2019 | 1,034,333 | 12,029 | 1,046,362 |
12.2Information on direct subsidiaries
Linx Sistemas |
| Linx Telecomunicações |
| Total | |
Balances at December 31, 2019 | |||||
Interest | 99.99% | 99.99% | |||
Current assets | 547,822 |
| 9,302 |
| 557,124 |
Non-current assets | 1,266,024 |
| 5,249 |
| 1,271,273 |
Total assets | 1,813,846 |
| 14,551 |
| 1,828,397 |
|
|
|
|
| |
Current liabilities | 365,740 |
| 2,522 |
| 368,262 |
Non-current liabilities | 413,773 |
| - |
| 413,773 |
Total liabilities | 779,513 |
| 2,522 |
| 782,035 |
|
|
|
|
| |
Shareholders' equity | 1,034,333 |
| 12,029 |
| 1,046,362 |
|
|
|
|
| |
Revenues | 966,373 |
| 19,782 |
| 986,155 |
Expenses | (932,595) |
| (18,164) |
| (950,759) |
Net income | 33,778 |
| 1,618 |
| 35,396 |
61
Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
13.Property, plant and equipment
12/31/2019 |
| 12/31/2018 | |||
Cost | Accumulated depreciation | Net value |
| Net value | |
|
|
| |||
Computers and electronics | 58,270 | (36,659) | 21,611 |
| 13,527 |
Vehicles | 9,745 | (5,437) | 4,308 |
| 4,808 |
Furniture and fixtures | 16,447 | (6,818) | 9,629 |
| 9,079 |
Facilities, machinery and equipment | 36,810 | (17,142) | 19,668 |
| 21,230 |
Leasehold improvements | 41,956 | (18,523) | 23,433 |
| 21,942 |
Real Estate | 3,350 | (804) | 2,546 |
| 2,681 |
Land and others | 1,006 | - | 1,006 |
| 1,006 |
Total (*) | 167,584 | (85,383) | 82,201 |
| 74,273 |
(*) The amounts presented include R$ 4,449 (R$ 368 as of December 31, 2018) related to Linx Pay Meios de Pagamento Ltda.
The financial activity of property, plant and equipment balances is described below:
| Cost |
| |||||
Balance at 12/31/2018 | Addition (*) | Addition - acquisition | IAS 29 (**) | Write-offs | Transfers | Balance at 12/31/2019 | |
|
| ||||||
Computers and electronics | 44,908 | 13,000 | 1,001 | 179 | (818) | - | 58,270 |
Vehicles | 9,580 | 1,729 | - | 10 | (1,574) | - | 9,745 |
Furniture and fixtures | 14,420 | 1,452 | 666 | 15 | (106) | - | 16,447 |
Facilities, machinery and equipment | 35,179 | 1,551 | 403 | - | (323) | - | 36,810 |
Leasehold improvements | 37,887 | 1,256 | 454 | 652 | (560) | 2,267 | 41,956 |
Constructions in progress | - | 2,267 | - | - | - | (2,267) | - |
Real Estate | 3,350 | - | - | - | - | - | 3,350 |
Land and others | 1,006 | 2 | - | - | (2) | - | 1,006 |
Total | 146,330 | 21,257 | 2,524 | 856 | (3,383) | - | 167,584 |
(*) In the statement of cash flow, only additions with cash disbursement are being considered as investment activities.
(**) Amounts related to update of IAS 29 (hyperinflation) in Napse Argentina
| Accumulated depreciation | |||||
Annual depreciation rate | Balance at 12/31/2018 | Addition | Addition - acquisition (*) | Write-offs | Balance at 12/31/2019 | |
|
|
| ||||
Computers and electronics | 20% | (31,381) | (5,541) | (414) | 677 | (36,659) |
Vehicles | 20% | (4,772) | (1,811) | - | 1,146 | (5,437) |
Furniture and fixtures | 10% | (5,341) | (1,316) | (178) | 17 | (6,818) |
Facilities, machinery and equipment | 10% | (13,949) | (3,220) | (96) | 123 | (17,142) |
Leasehold improvements | 10% | (15,945) | (2,701) | (41) | 164 | (18,523) |
Real Estate | 4% | (669) | (135) | - | - | (804) |
Total |
| (72,057) | (14,724) | (729) | 2,127 | (85,383) |
Based on the annual impairment test of the assets of the Company and its subsidiaries, prepared with the projections made on the financial statements as of December 31, 2019 and 2018, growth perspectives and operating income (loss) for the years ended December 31, 2019 and 2018, no losses or indicative losses were identified, since the value in use is higher than the net book value at the valuation date. The assumptions used are disclosed in Note 14.1.
62
Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
14.Intangible
12/31/2019 |
| 12/31/2018 | |||
Cost | Accumulated amortization | Net value |
| Net value | |
|
|
| |||
Software (i) | 95,280 | (48,093) | 47,187 |
| 31,513 |
Software development (ii) | 22,729 | - | 22,729 |
| 15,633 |
Software developed (iii) | 188,854 | (149,865) | 38,989 |
| 36,174 |
Software development – capitalized interest | 20,569 | (8,114) | 12,455 |
| 4,058 |
Brands acquired | 46,199 | (5,037) | 41,162 |
| 42,112 |
Technology - acquisitions | 143,735 | (104,264) | 39,471 |
| 38,973 |
Client portfolio - acquisitions | 158,268 | (78,507) | 79,761 |
| 73,722 |
Goodwill | 727,558 | - | 727,558 |
| 607,446 |
Other | 2 | - | 2 |
| 3 |
Total (*) | 1,403,194 | (393,880) | 1,009,314 |
| 849,634 |
(*) The amounts presented include R$ 9,841 (R$ 750 as of December 31, 2018) related to Linx Pay Meios de Pagamento Ltda.
(i) Software acquired for use by the company employees and for software development routines
(ii) Software under development that is not yet being marketed
(iii) Development of software under an innovation process that has already been marketed
The financial activity of intangible asset balances is described below:
| Cost | ||||||
Balance at 12/31/2018 | Addition (*) | Addition - acquisition | Business combination (**) | IAS 29 (***) | Write-offs | Balance at 12/31/2019 | |
|
| ||||||
Software (i) | 66,883 | 28,316 | 1,165 | - | 768 | (1,852) | 95,280 |
Software development (ii) | 15,633 | 7,096 | - | - | - | - | 22,729 |
Software developed (iii) | 157,837 | 31,017 | - | - | - | - | 188,854 |
Software development – capitalized interest | 8,786 | 11,783 | - | - | - | - | 20,569 |
Brands acquired | 46,188 | - | 11 | - | - | - | 46,199 |
Technology - acquisitions | 129,377 | - | - | 14,358 | - | - | 143,735 |
Client portfolio - acquisitions | 137,177 | - | - | 21,182 | - | (91) | 158,268 |
Goodwill | 607,446 | 1,843 | - | 118,269 | - | - | 727,558 |
Other | 3 | - | - | - | - | (1) | 2 |
Total | 1,169,330 | 80,055 | 1,176 | 153,809 | 768 | (1,944) | 1,403,194 |
(i) Software acquired for use by the company employees and for software development routines
(ii) Software under development that is not yet being marketed
(iii) Development of software under an innovation process that has already been marketed
(*) In the statement of cash flow, only additions with cash disbursement are being considered as investment activities.
(**) Amounts related to goodwill, client portfolio and technology figures for acquisitions of Hiper and Millennium in the second quarter of 2019
(***) Amounts related to update of IAS 29 (hyperinflation) in Napse Argentina.
63
Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
| Accumulated amortization | |||||
Annual rate of amortization | Balance at 12/31/2018 | Addition | Addition - acquisition (*) | Write-offs | Balance at 12/31/2019 | |
|
|
| ||||
Software (i) | 10–20% | (35,370) | (14,030) | (450) | 1,757 | (48,093) |
Software developed (ii) | 33% | (121,663) | (28,202) | - | - | (149,865) |
Software development – capitalized interest | 33% | (4,728) | (3,386) | - | - | (8,114) |
Brands acquired | 10–20% | (4,076) | (961) | - | - | (5,037) |
Technology - acquisitions | 10–20% | (90,404) | (13,860) | - | - | (104,264) |
Client portfolio - acquisitions | 20–50% | (63,455) | (15,052) | - | - | (78,507) |
Total |
| (319,696) | (75,491) | (450) | 1,757 | (393,880) |
(i) Software acquired for use by the company employees and for software development routines
(ii) Development of software under an innovation process that has already been marketed
14.1. Goodwill impairment testing
The Company and its subsidiaries tested goodwill for impairment using the concept of value in use, under the discounted cash flow methodology.
All consolidated goodwill is recorded at the Linx Software segment, which is also considered the cash generating unit at which goodwill is evaluated for impairment. The process for determining the value in use involved the use of assumptions, judgments and estimates on cash flows, such as revenue growth rates, costs and expenses, investment estimates andfuture working capital and discount rates. Assumptions about cash flow growth projections were based on management’s estimates, market studies and macroeconomic projections. Future cash flows were discounted based on the weighted average cost of capital (WACC).
Following the techniques of economic valuation, the assessment of value in use was carried out for a period of 5 years and, thereafter, considering the perpetuity of the assumptions based on the ability of the company to continue as a going concern for the foreseeable future. Management deemed the use of the 5-year period appropriate, based on its past experience in preparing the projections of its cash flows. Such understanding is in accordance with paragraph 35 of CPC 01 (R1) - Asset impairment.
The growth rate used to extrapolate the projections beyond the 5-year period was 5.5% in 2019, and 2018, which refers to the perpetuity growth corresponding to the expected long-term inflation of Bacen (Central Bank of Brazil), plus of 1% real growth. The estimated future cash flows were discounted at the pre-tax discount rate of 13.69% in 2019 (13.85% in 2018), also at nominal values.
The annual inflation rate for the period analyzed in the projected flows was 3.52% in 2019 (4.43% in 2018).
64
Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
Key assumptions were based on the historical performance of the Company and its subsidiaries, on reasonable macroeconomic assumptions, and on financial market projections documented and approved by Company management.
Based on the annual impairment test of the intangible assets of the Company and its subsidiaries, prepared with the projections made on the financial statements as of December 31, 2019 and 2018, growth perspectives and operating income (loss) for the years ended December 31, 2019 and 2018, no losses or indicative losses were identified, since the value in use is higher than the net book value at the valuation date.
Value in use calculation is mainly impacted by the following assumptions:
Growth of revenue: this is based on the observation of the historical behavior of each revenue line as well as trends based on market analysis. Revenue projections refer to non-recurring lines (implementation consultancy and royalties for the use of its licenses), and recurring lines (contractual - related to the collection of system maintenance fees, with an annual restatement forecast), where the Company and its subsidiaries considered an annual growth between 9% and 18% for the next 5 years.
The costs of the Company and its subsidiaries were projected considering the maintenance of the gross margin, which varies between 72% and 74%.
Capex volume: CAPEX investment needs were projected in line with historical indexes and sufficient to support the growth of operations.
Discount rates: represent the risk assessment in the current market. The calculation of the discount rate is based on specific circumstances of the Company, and derives from:
Weighted average cost of capital (WACC): which takes into account both debt and shareholders’ equity. The cost of shareholders’ equity derives from the expected return on investment by the Company’s investors. The cost of debt is based on the financing with interest income that the Company and its subsidiaries are required to honor.
Financial Asset Pricing Model: which takes into account the sensitivity of the asset to non-diversifiable risk (also known as systemic risk or market risk), represented by the variable known as beta index or beta coefficient (ß), as well as the expected return on the market and the expected return on a risk-free asset.
65
Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
14.2. Software development
The activity of the subsidiary Linx Sistemas e Consultoria Ltda. assumes the continuous development of new systems and applications aimed at increasing the range of options to the current clients and potential new clients, in view of the increasing market demand for computerized solutions for the businesses in general. In this context, several projects intended for client systems and applications are being developed. The amounts recorded in intangibles correspond to portion of the cost of the project development department, determined based on the number of hours of the respective employees. Each project is amortized as from the moment the asset is available for use for an average period of three years, which is management’s estimate of the expected period of financial return of the projects. The amortization of software developed for internal application was recorded in general and administrative expenses and amortization of software developed for customer use was recorded in cost of services.
In the year ended December 31, 2019, the amount of R$ 93,070 (R$ 73,527 on December 31, 2018) was recognized in income (loss) in the consolidated financial statements, and was related to research and maintenance of the developed software.
15.Loans and financing
Consolidated | ||||||
Type | Charges | Effective rate | Maturity | Covenants | 12/31/2019 | 12/31/2018 |
| ||||||
Loan - BNDES | TLP + IPCA + 3.10% p.a. + Spread 1.37% p.a | 8.919% p.a. | 12/15/2027 | 15.1 (a) | 147,585 | 146,602 |
Loan - BNDES | TJLP + 1.67% p.a. | 7.397% p.a. | 02/15/2021 | 15.1 (b) | 31,078 | 57,526 |
Loan - BNDES | TJLP + 1.96% p.a. | 7.692% p.a. | 03/15/2022 | 15.1 (c) | 30,945 | 44,560 |
Loan - BNDES | TJLP + 1.00% p.a. | 7.120% p.a. | 09/16/2019 | - | 528 | |
Loan - Itaú | TJLP + 7.20% p.a. | 13.157% p.a. | 04/15/2021 |
| 165 | 761 |
Other |
|
|
|
| 409 | 4 |
| 210,182 | 249,981 | ||||
|
|
|
|
|
|
|
Current liabilities | 41,245 | 40,720 | ||||
Non-current liabilities | 168,937 | 209,261 |
66
Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
Prevailing loan contracts do not have assets pledged in guarantee.
The amount classified in non-current liabilities will be paid as follows:
Consolidated | ||
Period | 12/31/2019 | 12/31/2018 |
| ||
2020 | - | 40,012 |
2021 | 39,216 | 39,387 |
2022 | 24,474 | 24,615 |
2023 | 21,043 | 21,043 |
2024 | 21,043 | 21,043 |
2025 | 21,043 | 21,043 |
2026 | 21,043 | 21,043 |
2027 | 21,075 | 21,075 |
| 168,937 | 209,261 |
Changes are shown below:
| Parent company | |
| 12/31/2019 | 12/31/2018 |
| ||
Previous balance | - | 2,852 |
Financial charges | - | 36 |
Financial charges paid | - | (89) |
Payments of loans and financing | - | (2,799) |
Total | - | - |
| Consolidated | |
| 12/31/2019 | 12/31/2018 |
| ||
Previous balance | 249,981 | 97,288 |
Funds from acquisition of subsidiaries | 443 | 1,097 |
Additions of loans and financing | 410 | 191,837 |
Financial charges | 18,418 | 9,658 |
Financial charges paid | (16,896) | (9,048) |
Payments of loans and financing | (42,174) | (40,851) |
Total | 210,182 | 249,981 |
15.1. Covenants
(a) BNDES loan raised on December 13, 2018 has covenant for early debt payment. The following indices should be determined on a half-annual basis in consolidated financial statements:
(i) General Indebtedness / total assets: equal or less than 60%;
(ii) Net debt / EBITDA: equal or less than 2.0.
67
Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
In order to determine the indices, the following definitions and criteria should be adopted:
· General indebtedness: Total current and non-current liabilities;
· Net debt: The total balance of consolidated onerous debts of the Intervening Party, including: loans and financing; loans; issuance of fixed-income securities, promissory notes and debentures, convertible or not, in the local or international capital market; and the sale or assignment of future receivables if they are recorded as liabilities; and other financial operations and debts of the Company, recorded in current and non-current liabilities, net of Cash and cash equivalents (cash and financial assets).
· EBITDA: Income (loss) before interest, income tax, depreciation and amortization;
In the hypothesis that levels established in the item VII of the Clause Nine (Obligations of the Intervening Parent Company) are not met, the Company must present, within 120 days counted as of notification date, in written, from BNDES, real guarantees accepted by BNDES at an amount corresponding to at least 130% of financing value or deriving debt, except if within that period, above mentioned levels were re-established.
The financial ratios mentioned above are verified based on the base dates determined in the contracts signed between the Company and the respective agent. From time to time, Management monitors the calculations of these rates to check for indications of non-compliance with contractual terms. As of December 31, 2019, there was no indication that the Company will not be able to fully comply with all the covenants in the reporting periods.
(b) BNDES loan raised on October 28, 2014 has covenant for early debt payment. During the contractual period, two of the following ratios, calculated semi-annually in the consolidated statements, should be maintained:
(i) General Indebtedness / total assets: equal or less than 60%;
(ii) Net debt / EBITDA: equal or less than 2.0;
(iii) EBITDA / Net operating revenue: equal or higher than 20%.
In order to determine the indices, the following definitions and criteria should be adopted:
· EBITDA: Income (loss) before interest, income tax, depreciation and amortization;
· Net debt: balances of the consolidated onerous debts, including loans and financing; loans, issuance of fixed-income securities, promissory notes and debentures, convertible or not, in the local or international capital market, and the sale orassignment of future receivables if they are recorded as liabilities; and other financial operations and debts of the Company, recorded in current and non-current liabilities, net of Cash and cash equivalents. In order to calculate this ratio, we will not consider the amounts classified as Accounts payable for the acquisition of subsidiaries in the balance sheet as Net Debt.
68
Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
In the hypothesis that levels established in the contract are not met, the Company must present, within 180 days counted as of default date, real guarantees accepted by BNDES at an amount corresponding to at least 130% of financing value or deriving debt, or present a bank guarantee to be provided by the financial institution at BNDES criteria, and it is in financial economic situation assuring the degree of notorious solvency, the total amount of the debt, except if within that period, above mentioned levels were re-established.
The financial ratios mentioned above are verified based on the base dates determined in the contracts signed between the Company and the respective agent. From time to time, Management monitors the calculations of these rates to check for indications of non-compliance with contractual terms. As of December 31, 2019, there was no indication that the Company will not be able to fully comply with all the covenants in the reporting periods.
(c) BNDES loan raised on December 11, 2015 has covenant for early debt payment. During the contractual period, two of the following ratios, calculated semi-annually in the consolidated statements, should be maintained:
(i) General Indebtedness / total assets: equal or less than 60%;
(ii) Net debt / EBITDA: equal or less than 2.0;
(iii) EBITDA / Net operating revenue: equal or higher than 20%.
In order to determine the indices, the following definitions and criteria should be adopted:
· EBITDA: Income (loss) before interest, income tax, depreciation and amortization;
· Net debt: Balances of the consolidated onerous debts, including loans and financing; loans, issuance of fixed-income securities, promissory notes and debentures, convertible or not, in the local or international capital market, and the sale or assignment of future receivables if they are recorded as liabilities; and other financial operations and debts of the Company, recorded in current and non-current liabilities, net of Cash and cash equivalents. In order to calculate this ratio, we will not consider the amounts classified as Accounts payable for the acquisition of subsidiaries in the balance sheet as Net Debt.
In the hypothesis that levels established in the contract are not met, the Company must present, within 180 days counted as of default date, real guarantees accepted by BNDES at an amount corresponding to at least 130% of financing value or deriving debt, or present a bank guarantee to be provided by the financial institution at BNDES criteria, and it is in financial economic situation assuring the degree of notorious solvency, the total amount of the debt, except if within that period, above mentioned levels were re-established.
The financial ratios mentioned above are verified based on the base dates determined in the contracts signed between the Company and the respective agent. From time to time, Management monitors the calculations of these rates to check for indications of non-compliance with contractual terms. As of December 31, 2019, there was no indication that the Company will not be able to fully comply with all the covenants in the reporting periods.
In the hypothesis that levels established in the contract are not met, the Company must present, within 180 days counted as of default date, real guarantees accepted by BNDES at an amount corresponding to at least 130% of financing value or deriving debt, or present a bank guarantee to be provided by the financial institution at BNDES criteria, and it is in financial economic situation assuring the degree of notorious solvency, the total amount of the debt, except if within that period, above mentioned levels were re-established.
The financial ratios mentioned above are verified based on the base dates determined in the contracts signed between the Company and the respective agent. From time to time, Management monitors the calculations of these rates to check for indications of non-compliance with contractual terms. As of December 31, 2019, there was no indication that the Company will not be able to fully comply with all the covenants in the reporting periods.
69
Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
16.Lease payable
| Consolidated | ||
Rate | 12/31/2019 | 01/01/2019 | |
|
| ||
Lease of property | 10.27% | 76,995 | 90,924 |
Equipment rental | 10.27% | 4,975 | 872 |
Lease of cloud | 8.73% | 44,112 | - |
|
| 126,082 | 91,796 |
|
|
|
|
Current liabilities |
| 47,478 | 6,531 |
Non-current liabilities |
| 78,604 | 85,265 |
Changes in lease liabilities payable are:
January 1, 2019 | Additions | Write-offs | Payments | Interest restatement | FX | December 31, 2019 | |
Lease of property | 90,924 | 14,913 | (22,649) | (14,445) | 8,304 | (52) | 76,995 |
Equipment rental | 872 | 4,784 | (32) | (618) | (31) | - | 4,975 |
Lease of cloud | - | 46,457 | (199) | (3,782) | 1,335 | 301 | 44,112 |
Total liabilities from financing activities | 91,796 | 66,154 | (22,880) | (18,845) | 9,608 | 249 | 126,082 |
As at December 31, 2019, leases have average payment term of 5.4 years (January 1, 2019 – 5.3 years).
The amount classified in non-current liabilities will be paid as follows:
Consolidated | ||
Period | 12/31/2019 | 01/01/2019 |
|
| |
2020 | - | 14,154 |
2021 | 26,487 | 14,155 |
2022 | 16,398 | 14,155 |
2023 | 16,398 | 14,153 |
2024 | 8,777 | 13,254 |
2025 | 8,777 | 13,254 |
2026 | 8,777 | 13,254 |
2027 | 8,777 | 13,254 |
2028 | 8,777 | 13,254 |
2029 | 687 | - |
Lease payment | 103,855 | 122,887 |
Financial charges | (25,251) | (37,622) |
Present value of lease payments | 78,604 | 85,265 |
70
Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
17.Labor liabilities
| Parent company | Consolidated | ||
| 12/31/2019 | 12/31/2018 | 12/31/2019 | 12/31/2018 |
| ||||
Provision for vacation, 13th salary and payroll charges | - | - | 32,415 | 26,542 |
INSS payable | 20 | 16 | 7,523 | 6,673 |
Provision for profit sharing | - | - | 5,426 | 3,876 |
FGTS payable | - | - | 2,584 | 2,137 |
Salaries payable | - | - | 1,901 | 1,344 |
Other | - | - | 3,208 | 3,229 |
| 20 | 16 | 53,057 | 43,801 |
|
|
|
| |
Current liabilities | 20 | 16 | 51,080 | 43,801 |
Non-current liabilities | - | - | 1,977 | - |
18.Accounts payable from acquisition of subsidiaries
Accounts payable from the acquisitions of subsidiaries refer to amounts due to the previous owners for the acquisition of shares or quotas representing the capital of these companies. Debts are restated under contractual clauses and mature as follows:
| Consolidated | |
| 12/31/2019 | 12/31/2018 |
| ||
Installments not subject to restatement | 57,246 | 46,542 |
Napse installments subject to restatement based on exchange-rate change and LIBOR. | 16,960 | 41,951 |
Installments subject to restatement based on the change in the CDI rate | 284 | 3,608 |
Installments subject to restatement based on the change of IPCA | 12,666 | 22,774 |
Installments subject to restatement based on the change of IGPM | 8,253 | 7,690 |
Adjustment to present value (**) | (12,340) | (10,078) |
| 83,069 | 112,487 |
|
|
|
Current liabilities | 43,432 | 57,099 |
Non-current liabilities | 39,637 | 55,388 |
(*) Amounts related to fixed monthly contractual installments and estimated of earn-outs (reviewed on annual basis)
(**) Amounts related to the APV on the fixed monthly contractual installments and earn-outs
71
Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
The amount classified in non-current liabilities will be amortized following the schedule below:
Consolidated | ||
Period | 12/31/2019 | 12/31/2018 |
| ||
2020 | - | 35,373 |
2021 | 23,691 | 14,225 |
2022 | 11,715 | 5,065 |
2023 | 4,231 | 725 |
| 39,637 | 55,388 |
Of total amount payable on December 31, 2019, R$ 83,032 is related to contingent consideration (R$ 111,545 as of December 31, 2018). The Company and its subsidiaries expect to fully settle amounts related to contingent considerations, and there were no significant changes in expectations in relation to prior year. The fair value of these obligations also considered a market interest rate (Selic). Fair value hierarchy of contingent consideration is classified as level 3 (Note 27).
The changes in the consolidated are shown as follow:
| Consolidated | |
| 12/31/2019 | 12/31/2018 |
| ||
Previous balance | 112,487 | 130,767 |
Addition due to acquisition (*) | 54,723 | 38,881 |
Payment of principal/financial charges paid | (48,093) | (45,878) |
Restatement of financial charges | 11,108 | 3,057 |
Contingencies (**) | (7,773) | (5,343) |
Earn-Out (***) | (39,383) | (8,997) |
| 83,069 | 112,487 |
(*) Additions for acquisitions, of which R$ 16,647 for Hiper, R$ 31,376 for Millennium and R$ 10,685 for Seta
(**) Contingencies arising from the acquired companies, offset by the amounts that the Company and its subsidiaries have to pay to former management.
(***) The amounts refer to reversal of unachieved earn-out goals of the acquirees Neemu, Napse, Percycle, Sback, Itec and Único.
72
Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
19.Deferred revenue
Consolidated | ||
12/31/2019 | 12/31/2018 | |
Revenue from services (*) | 18,457 | 8,902 |
Revenue from royalties (**) | 24,337 | 50,346 |
42,794 | 59,248 | |
|
| |
Current liabilities | 36,360 | 40,053 |
Non-current liabilities | 6,434 | 19,195 |
(*) It is related to hours contracted by the clients for rendering of services, recognition is carried out after provision of service and write-off of service card.
(**) Refers to balances of software contracts’ (royalties) deferral deriving from first-time adoption of IFRS 15/CPC 47 and subsequent changes.
20.Income tax and social contribution
20.1. Income tax and social contribution expense
Parent company | Consolidated | |||
| 12/31/2019 | 12/31/2018 | 12/31/2019 | 12/31/2018 |
|
|
| ||
Current tax |
|
| ||
Current tax on income for the year | 10 | (38) | (11,394) | (9,959) |
|
|
|
|
|
Deferred tax |
|
|
|
|
Deferred tax on income for the year | (1,880) | (58) | (13,663) | (11,130) |
|
|
|
|
|
Income tax and social contribution expense | (1,870) | (96) | (25,057) | (21,089) |
The reconciliation between the tax expense as calculated by the combined nominal rates and the income tax and social contribution expense charged to income (loss) is presented below:
Parent company | Consolidated | |||
| 12/31/2019 | 12/31/2018 | 12/31/2019 | 12/31/2018 |
|
|
|
|
|
Income (loss) before income tax and social contribution | 40,746 | 71,151 | 63,933 | 92,144 |
|
|
|
|
|
Rate income tax and social contribution | 34% | 34% | 34% | 34% |
|
|
|
|
|
Income tax and social contribution at the rate of 34% | (13,854) | (24,191) | (21,737) | (31,329) |
|
|
|
|
|
Permanent differences |
|
|
|
|
Equity in net income of subsidiaries | 12,034 | 18,787 | - | - |
Law 11196/05 (Research and Development incentive) | - | - | 718 | 1,574 |
Payment of interest on own capital | - | 5,100 | - | 5,100 |
Unrecognized tax credit | - | 203 | 385 | 329 |
Gifts, fines and nondeductible expenses | (60) | - | (486) | - |
Overseas earnings | - | - | (3,318) | - |
Income tax and social contribution determined by the deemed income | - | - | (110) | 3,139 |
Effects of tax rates of foreign subsidiaries | - | - | (279) | 1,542 |
Other net differences | 10 | 5 | (230) | (1,444) |
|
|
|
|
|
Income tax expense for effective rate | (1,870) | (96) | (25,057) | (21,089) |
|
|
|
|
|
Effective rate | 4.59% | 0.13% | 39.19% | 22.89% |
73
Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
20.2. Deferred taxes
Deferred income tax and social contribution are recorded so as to reflect future tax effects on temporary differences existing between assets and liabilities tax base and the corresponding carrying amount.
Temporary deferred income tax and social contribution are as follows:
| Parent company | Consolidated | ||
| 12/31/2019 | 12/31/2018 | 12/31/2019 | 12/31/2018 |
|
|
| ||
Deferred IR/CS on tax loss and negative basis | 1,665 | 4,044 | 1,665 | 4,279 |
Stock option plan | 555 | 56 | 555 | 56 |
Inc. tax and soc. contr. on foreign companies | - | - | 841 | 110 |
Deferred income tax/social contribution on first-time adoption of IFRS 9 and IFRS 15 | - | - | 12 | 1 |
Provision for adjustment to present value | - | - | 284 | 3 |
Total deferred income tax and social contribution, net (assets) | 2,220 | 4,100 | 3,357 | 4,449 |
| Consolidated | |
| 12/31/2019 | 12/31/2018 |
|
| |
Deferred income tax and social contribution on accounting and tax goodwill | (97,593) | (72,425) |
Deferred income tax/ social contribution assets identified in acquisitions | (25,092) | (31,161) |
Deferred income tax/social contribution on first-time adoption of IFRS 9 and IFRS 15 | 8,228 | 17,004 |
Deferred income tax and social contribution on IFRS 16/CPC 06 (R2) | 3,538 | - |
Inc. tax and soc. contr. on foreign companies | (705) | (283) |
Deferred IR/CS on tax loss and negative basis | 7,138 | 3,953 |
Estimated losses with doubtful accounts | 108 | 620 |
Provision of benefits to employees | 446 | 411 |
Provision for contingencies | 1,779 | 809 |
Provision for adjustment to present value | 4,678 | 2,019 |
Stock option plan | 9,925 | 2,235 |
Provision for profit sharing and gainsharing, bonus, collective bargaining and overtime | 2,102 | 1,993 |
Other provisions | 1,242 | 2,190 |
Total deferred income tax and social contribution, net (liabilities) | (84,206) | (72,635) |
74
Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
21.Other liabilities
Parent company | Consolidated | ||||
12/31/2019 | 12/31/2018 | 12/31/2019 | 12/31/2018 | ||
Accounts payable to commercial establishments (*) | - | - | 80,411 | 2,215 | |
Interest on prepayment for assignment of receivables (*) | - | - | 5,207 | - | |
Advance of clients | 36 | 34 | 1,590 | 1,420 | |
Post-employment benefit (**) | - | - | 1,311 | 1,210 | |
Installment payment of taxes and contribution | - | - | 619 | - | |
Other (***) | 1,034 | - | 5,307 | 5,462 | |
1,070 | 34 | 94,445 | 10,307 | ||
|
| ||||
Current liabilities | 1,070 | 34 | 89,576 | 7,979 | |
Non-current liabilities | - | - | 4,869 | 2,328 |
The amounts presented include R$ 85,702 (R$ 2,215 as of December 31, 2018) related to Linx Pay Meios de Pagamento Ltda.
(*) Amounts related to the transaction of Linx Pay (beginning of operations in September 2018)
(**) Changes arising from the change in the number of eligible participants, monetary updating of medical costs and updating of the set of actuarial assumptions.
(***) It substantially corresponds to other Napse’s liabilities in the amount of R$ 3,584 (R$ 4,603 as of December 31, 2018).
22.Shareholders' equity
22.1. Capital
The Company is authorized to increase capital by up to R$1,000,000, regardless of its Bylaws’ reform, following the Board of Directors’ decision.
Capital is solely represented by common shares and each of them corresponds to a vote in Shareholders’ Meeting decisions.
Board of Directors is the competent body to decide on issuances and will determine issuance conditions, subscription, payment form and deadline, price per share, placement form (public or private) and its distribution in Brazil and/or abroad.
At the criteria of the Board of Directors, the share issue may be made, without right of preference or with a reduction of the time frame addressed by article 171, §4 of Law 6404,dated December 15, 1976, as amended (“Corporation Law”) of shares and debentures that are convertible into shares or a subscription bonus, the flotation of which is made through a sale on the stock exchange or by public subscription, or even through an exchange for shares in a takeover bid, in the terms established in law, within the limits of the authorized capital.
75
Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
On February 28, 2019, the Company's capital increase was approved during a meeting of the Board of Directors, within limit of authorized capital, in the amount of R$ 362, from R$ 488,467 (total as of December 31, 2018) to R$ 488,829, through issue of 25,578 new common registered, book-entry shares, with no par value.
On June 25, 2019, the Company's capital increase was approved, from R$ 488,829 (four hundred and eighty-eight million, eight hundred and twenty-nine thousand Reais) to R$ 645,447 (six hundred and forty-five million, four hundred, forty-seven thousand Reais), through the issuance of 23,100,000 (twenty-three million and one hundred thousand) shares, within the limit of the authorized capital, as provided for in the Company's Bylaws, in the form of American Depositary Shares (“ADS”) in the New York Stock Exchange (“NYSE”).
Capital is represented by authorized, subscribed and fully paid-up shares with no par value and is divided as follows:
December 31, 2019 | December 31, 2018 | ||||
Shares | % | Shares | % | ||
Founding shareholders | 26,982,764 | 14.24% |
| 29,328,299 | 17.64% |
GIP Private Limited. | 18,900,432 | 9.98% |
| 7,019,841 | 4.22% |
Genesis Asset Managers | 10,124,454 | 5.35% |
| 13,988,175 | 8.41% |
BlackRock Inc. | 9,950,316 | 5.25% |
| - | - |
BNDES Participações S.A. – BNDES | - | - |
| 9,674,601 | 5.82% |
Treasury shares | 9,869,772 | 5.21% |
| 7,502,115 | 4.51% |
Other | 113,581,222 | 59.97% |
| 98,770,351 | 59.40% |
| 189,408,960 | 100% |
| 166,283,382 | 100% |
|
|
|
|
|
|
Capital | 645,447 |
|
| 488,467 |
|
The changes in the numbers of subscribed and paid-up shares are as follows:
December 31, 2018 | 166,283,382 |
Capital increase | 23,125,578 |
December 31, 2019 | 189,408,960 |
Treasury shares
On June 22, 2018, occurred the approval of the opening of Company’s share buyback program (program was discontinued on December 23, 2019) and the purpose of the Buyback Program was to meet the exercise of restricted stock programs and possibly stockoption programs. Shares may also be held in treasury, disposed or canceled, without reduction of the Company’s capital, in compliance with the provisions of item 1 of article 30 of the Brazilian Corporation Law, and the standards set forth in ICVM 567/15. In the period ended December 31, 2019, the amount of treasury shares is R$ 225,954 (R$ 148,373 on December 31, 2018).
76
Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
22.2. Capital reserves
The capital reserve is set up as follows:
| 12/31/2019 | 12/31/2018 |
|
|
|
Goodwill in capital subscription (a) | 1,222,025 | 539,571 |
Stock option plan (Note 29) | 39,737 | 16,104 |
Expenditures with issuance of shares (b) (c) | (96,157) | (37,423) |
| 1,165,605 | 518,252 |
(a) In compliance with 6,404/76, the issue price of the shares without par value may be allocated as part of the capital reserve. On June 26, 2019, based on the global offering of shares, there was a goodwill on capital subscription of R$ 682,454.
(b) In conformity with Pronouncement IFRS 9/CPC 48 – Financial instruments, transaction costs incurred on funding through issuance of new shares were recorded separately as a reduction to shareholders' equity.
(c) In the year, the increase was R$ 58,734, tis corresponds to commission paid to banks (R$ 33,143), taxes payable (R$ 16,884), legal advisory (R$ 4,813), independent audit (R$ 2,489), and other expenses (R$ 1,405)
22.3. Legal reserve
It is formed of 5% of net income for the fiscal year, in conformity with article 193 of Law No. 6,404/76, up to the limit of 20% of the capital.
For the year ended December 31, 2019, pursuant to paragraph 1 of article 193 of Law 6404/76, the Company did not set up a legal reserve, as the capital reserve amount exceeded the percentage of 30% of capital.
22.4. Dividends
The Company's Bylaws establish a minimum dividend of 25% calculated on the annual net income, adjusted as provided by Article 202 of Law 6404/1976.
| 12/31/2019 | 12/31/2018 |
|
|
|
Net income for the year | 38,876 | 71,055 |
Net income after the allocation of the legal reserve | 38,876 | 71,055 |
|
|
|
Minimum mandatory dividends | 9,719 | 17,764 |
Additional dividends proposed by the Management | 10,281 | 22,236 |
Dividends proposed by the Management | 20,000 | 40,000 |
Minimum mandatory dividends per share | 0.0570 | 0.1090 |
Dividends proposed by the Management per share | 0.0603 | 0.1364 |
|
|
|
Payment method |
|
|
Interest on own capital | - | 15,000 |
Dividends | 20,000 | 25,000 |
| 20,000 | 40,000 |
Changes in dividends |
|
|
Opening balance - Dividends payable for the prior year | 25,000 | 23,000 |
Dividends paid in the prior year | (25,000) | (23,000) |
Minimum mandatory dividends for the year | 9,719 | 17,764 |
Additional dividends proposed by the Management | 10,281 | 22,236 |
Dividend and interest on own capital paid for the year | - | (15,000) |
Closing balance - Dividends payable for the year | 20,000 | 25,000 |
|
|
|
Presentation of dividends |
|
|
Liabilities - Minimum mandatory dividends for the year | 9,719 | 2,764 |
Shareholders’ equity - Additional dividends proposed by the Management | 10,281 | 22,236 |
| 20,000 | 25,000 |
At the Annual and Extraordinary General Meeting held on April 24, 2019 approved the payment of dividends in 2018 in the gross amount of R$ 25,000, which were included in the amount of the minimum dividend established by article 36 of the Company’s bylaws and paid as of May 15, 2019 to shareholders based on shareholding interest on April 24, 2019.
77
Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
22.5. Profit retention reserve
The capital budget proposal for the year ended December 31, 2019, which was prepared by the Company’s Executive Board allocates the balance of the profit retention reserve of 2019, totaling R$ 18,876, to the investments presented below:
Investments: | 12/31/2019 | 12/31/2018 |
Infrastructure | 2,671 | 4,303 |
Innovative research and development | 4,274 | 6,884 |
Acquisitions | 11,931 | 19,868 |
Total investments | 18,876 | 31,055 |
|
|
|
Sources of resources: |
|
|
Profit reserve | 18,876 | 31,055 |
Total sources | 18,876 | 31,055 |
23.Provision for contingencies
The Company and its subsidiaries are parties (defendants) to judicial and administrative proceedings in various courts and governmental agencies, arising from the normal course of operations, involving tax, labor, civil and other issues.
At December 31, 2019, Management, based on information provided by its legal advisors, keep a provision amounting to R$ 19,588 (R$ 10,960 at December 31, 2018).
78
Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
There are other lawsuits evaluated by legal advisors as being a possible risk in the amount of R$ 62,887 as of December 31, 2019 (R$47,205 as of December 31, 2018), for which no provision has been formed and management does not believe at this time it is more likely than not that a present obligation exists at the end of the reporting period.
As a result of state government inspection procedures carried out in 2018, an infraction notice was drawn up based on the understanding that the Company would have performed rental of equipment and data center spaces in the period between January 2014 and December 2015, on the grounds that said operations would be telecommunication services and would, therefore, be subject to the levy of ICMS tax at the rate of 25%, plus a fine equivalent to 50% of the updated amount of said tax for the failure to issue tax documents in these operations. The restated amount for this lawsuit in the year ended December 31, 2019 is R$ 38,387 (R$ 36,219 on December 31, 2018) included in the position of possible risk aforementioned.
The possible contingencies of the acquired companies will be guaranteed by the former owners according to contracts of purchase and sale. The Company and its subsidiaries have sufficient amounts held to meet these commitments, classified under other receivables in the balance sheet, based on diligences carried out during the acquisition process.
| Consolidated | |||
Change | Labor | Civil | Tax | Total |
Balance at December 31, 2018 | 6,391 | 1,022 | 3,547 | 10,960 |
Additions | 4,013 | 1,256 | 198 | 5,467 |
Write-offs | (2,115) | (749) | - | (2,864) |
Restatement | 151 | 98 | - | 249 |
Addition - acquisition (*) | 1,392 | - | 4,297 | 5,689 |
Restatement - acquisition (*) | (629) | - | 716 | 87 |
Balance at December 31, 2019 | 9,203 | 1,627 | 8,758 | 19,588 |
(*) Classified into additions to Provisions for contingent liabilities deriving from acquisitions of companies Hiper and Millennium (amounts prior to acquisition date by Linx Sistemas).
24.Net operating revenue
Below, we show the reconciliation between gross and net revenue presented in the statement of income for the period:
Consolidated | ||
12/31/2019 | 12/31/2018 | |
Gross operating revenue | ||
Subscription revenues | 759,128 | 680,800 |
Consulting service revenues | 145,563 | 103,350 |
904,691 | 784,150 | |
|
| |
Sales deductions |
|
|
PIS | (5,483) | (4,642) |
COFINS | (25,300) | (21,425) |
ISS | (20,582) | (17,619) |
INSS (Social security) | (32,967) | (29,393) |
Other | (6,468) | (4,563) |
Cancellations | (25,732) | (20,949) |
(116,532) | (98,591) | |
|
| |
Total (*) | 788,159 | 685,559 |
(*) The amounts presented include R$ 18,902 (R$ 10 as of December 31, 2018) related to Linx Pay Meios de Pagamento Ltda.
79
Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
The Company and its subsidiaries do not have clients that individually represents more than 10% of revenue for years ended December 31, 2019 and 2018.
Table below presents geographical information as required by IFRS 8/CPC 22 – information per segment.
Geographical information | ||
12/31/2019 | 12/31/2018 | |
Net revenue |
| |
In Brazil | 747,344 | 646,837 |
Abroad | 40,815 | 38,722 |
788,159 | 685,559 | |
|
| |
Assets |
|
|
In Brazil | 2,527,352 | 1,619,075 |
Abroad | 36,591 | 28,601 |
2,563,943 | 1,647,676 | |
|
|
|
Liabilities |
|
|
In Brazil | 755,440 | 574,887 |
Abroad | 18,659 | 15,580 |
| 774,099 | 590,467 |
25.Costs, expenses and other expenses / revenues
Parent company | Consolidated | ||||
12/31/2019 | 12/31/2018 | 12/31/2019 | 12/31/2018 | ||
Type | |||||
Other revenues | - | - |
| 37,372 | 8,401 |
Personnel | (2,946) | (588) |
| (391,913) | (305,495) |
Depreciation and amortization (**) | - | - |
| (119,660) | (78,729) |
Outsourced services | (579) | (102) |
| (83,490) | (64,095) |
Commissions | - | - |
| (38,334) | (35,699) |
Expenses with link | - | - |
| (27,354) | (37,291) |
Travel and accommodation | (6) | - |
| (13,899) | (13,824) |
Advertising and publicity | - | (2) |
| (12,255) | (12,623) |
Maintenance and preservation | - | - |
| (15,491) | (14,713) |
Possible losses | - | - |
| (5,768) | (3,653) |
Rents | - | - | (3,680) | (16,090) | |
IT expenses | - | - | (2,820) | (3,453) | |
Other | (5,524) | (279) | (29,757) | (18,232) | |
(9,055) | (971) | (707,049) | (595,496) | ||
|
|
|
| ||
Function |
|
|
|
| |
Cost of services rendered | - | - | (272,115) | (245,621) | |
Administrative and general expenses | (5,214) | (969) | (219,916) | (168,596) | |
Sales expenses | - | (2) | (144,735) | (111,008) | |
Research and maintenance of software developed | - | - | (93,070) | (73,527) | |
Other operating revenue (expenses) | (3,841) | - | 22,787 | 3,256 | |
Total (*) | (9,055) | (971) | (707,049) | (595,496) |
(*) The amounts presented include R$ 8,284 (R$ 54 as of December 31, 2018) related to Linx Pay Meios de Pagamento Ltda.
(**) The amount corresponding to the amortization of the right-of-use totals R$ 29,445
80
Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
26.Financial income
Parent Company | Consolidated | ||||
12/31/2019 | 12/31/2018 | 12/31/2019 | 12/31/2018 | ||
Financial revenues | |||||
Interest on financial assets | 18,243 | 910 |
| 36,928 | 24,703 |
Foreign exchange gain | 4,759 | - |
| 17,906 | 20,047 |
Effect from IAS 29 adoption | - | - |
| 3,791 | 742 |
Interest receivable | 18,000 | 15,766 | 2,951 | 1,959 | |
Discounts obtained | - | 8 | 1,646 | 902 | |
Other revenues | 451 | 509 | 6,881 | 1,904 | |
41,453 | 17,193 | 70,103 | 50,257 | ||
|
|
|
| ||
Financial expenses |
|
|
|
| |
Foreign-exchange losses | (23,457) | - |
| (37,622) | (17,388) |
Liability interest | (156) | 9 | (9,297) | (593) | |
Discount granted | - | (8) |
| (10,265) | (10,743) |
Interest on loans and financing | - | (36) | (6,174) | (7,830) | |
Tax on financial operations | (2,998) | (45) |
| (3,974) | (695) |
Effect from IAS 29 adoption | - | - |
| (3,948) | (1,682) |
Other expenses (*) | (437) | (247) |
| (16,000) | (9,245) |
(27,048) | (327) | (87,280) | (48,176) | ||
|
|
|
| ||
Financial results (**) | 14,405 | 16,866 | (17,177) | 2,081 |
(*) Refers mainly to the realization of AVP on acquired companies and bank expenses
(*) The amounts presented include R$ 2,128 (R$ 35 as of December 31, 2018) related to Linx Pay Meios de Pagamento Ltda.
81
Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
27.Financial risk management
The Company and its subsidiaries are exposed to the following risks from the use of financial instruments:
· Credit risk
· Liquidity risk
· Market risk
· Operating risk
27.1. Credit risk
Credit risk is the possibility of financial loss of the Company and its subsidiaries if a client or a counterpart of a financial instrument fails to fulfill its contractual obligations arising mainly from trade accounts receivable and investments of its subsidiaries.
The exposure of the Company and its subsidiaries to credit risk is influenced, mainly, by the individual characteristics of each client. The Company and its subsidiaries established a credit policy whereby every new client has its credit capacity individually analyzed prior to the standard payment terms and conditions.
The Company and its subsidiaries have a very diversified client portfolio with low concentration level, and major client represents only 2.21% of recurring revenue.
The subsidiaries establish an estimated provision for losses that represents its estimate of losses incurred in relation to trade accounts receivable (See Note 8). The main component of this allowance is specific and related to significant individual risks.
On December 31, 2019, maximum exposure related to cash and cash equivalents, financial assets and accounts receivable.
| Parent company | Consolidated | ||
| 12/31/2019 | 12/31/2018 | 12/31/2019 | 12/31/2018 |
| ||||
Cash and cash equivalents (note 6) | 16,387 | 50 | 75,898 | 49,850 |
Financial assets (Note 7) | 732,473 | 60,108 | 904,362 | 413,374 |
Trade accounts receivable (Note 8) | - | - | 288,111 | 170,382 |
| 748,860 | 60,158 | 1,268,371 | 633,606 |
82
Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
27.2. Liquidity risk
Liquidity risk is the risk of the Company and its subsidiaries encountering difficulties in performing the obligations associated with its financial liabilities that are settled with cash payments or with another financial asset. The approach of the Company and its subsidiaries in liquidity management is to guarantee, as much as possible, that will always have sufficient liquidity to perform their obligations upon maturity, under normal and stress conditions, without causing unacceptable losses or with a risk of sullying the reputation of the Company and its subsidiaries.
The table below shows the maturity of financial liabilities contracted in details:
Parent company | ||||
Operation | Up to 1 year | Up to 2 years | 3–5 years | Total |
Suppliers | 1,050 | - | - | 1,050 |
Other liabilities (Note 21) | 1,070 | - | - | 1,070 |
2,120 | - | - | 2,120 |
Consolidated | |||||
Operation | Up to 1 year | Up to 2 years | 3–5 years | >5 years | Total |
|
|
|
|
|
|
Suppliers | 24,007 | - | - | - | 24,007 |
Loans and financing (Note 15) | 41,245 | 63,690 | 63,129 | 42,118 | 210,182 |
Lease payable (Note 16) | 47,478 | 42,885 | 33,952 | 27,018 | 151,333 |
Accounts payable for the acquisition of subsidiaries - Earn Outs (Note 18) | 23,629 | 32,578 | 4,231 | - | 60,438 |
Accounts payable for the acquisition of subsidiaries – retained installments (Note 18) | 19,767 | 12,277 | 2,891 | - | 34,935 |
Accounts payable for the acquisition of subsidiaries – Other (Note 18) | 36 | - | - | - | 36 |
Other liabilities (Note 21) | 89,576 | 4,869 | - | - | 94,445 |
| 245,738 | 156,299 | 104,203 | 69,136 | 575,376 |
As amounts included in this table are non-discounted cash flows, they will not be reconciled to the amounts disclosed in the balance sheet for lease payable and accounts payable for acquisition of subsidiaries.
Typically, the Company and its subsidiaries ensure that they have sufficient cash at sight to cover expected operating expenses, including the compliance with financial obligations; this excludes the potential impact of extreme situations that cannot be reasonably foreseen, such as natural disasters.
27.3. Market risk
Interest rate and inflation risk: Interest rate risk derives from debt portion indexed to TJLP, TLP, IPCA, IGPM, CDI and LIBOR and from financial assets in CDI that may adversely affect financial revenues or expenses in case an unfavorable movement occurs in interest and inflation rates. This risk exposure as shown in the sensitivity analysis provided below.
83
Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
27.4. Operating risk
Operating risk is the risk of direct or indirect losses arising from different causes related to the processes, personnel, technology and infrastructure of the Company and its subsidiaries, and external factors, except credit, market and liquidity risks, as those arising from legal and regulatory requirements and from generally accepted corporate behavior standards. The objective of the Company and its subsidiaries is to manage the operating risk and the service quality risk in order to avoid sustaining financial losses and harming the reputation of the Company and its subsidiaries.
27.5. Capital management
The policy of the Executive Board is to maintain a solid capital base to maintain the confidence of investors, creditors and market and the future development of the business. The Executive Board monitors returns on capital, which the Company defines as income (loss) from operating activities divided by total shareholders' equity. Executive Board also monitors the level of dividends to its shareholders.
27.6. Financial instruments’ analysis
There is a comparison below, by class of book and fair value of financial instruments of the Company and its subsidiaries.
Parent company | Consolidated | ||||||||
| Book value | Fair value | Book value | Fair value | Book value | Fair value | Book value | Fair value | |
| 12/31/2019 | 12/31/2019 | 12/31/2018 | 12/31/2018 | 12/31/2019 | 12/31/2019 | 12/31/2018 | 12/31/2018 | |
| |||||||||
Financial assets | |||||||||
Cash and cash equivalents (note 6) | 16,387 | 16,387 | 50 | 50 | 75,898 | 75,898 | 49,850 | 49,850 | |
Financial assets (Note 7) | 732,473 | 732,473 | 60,108 | 60,108 | 904,362 | 904,362 | 413,374 | 413,374 | |
Trade accounts receivable (Note 8) | - | - | - | - | 288,111 | 288,111 | 170,382 | 170,382 | |
Other receivables (Note 11) | 93 | 93 | 49 | 49 | 48,847 | 48,847 | 50,620 | 50,620 | |
Total | 748,953 | 748,953 | 60,207 | 60,207 |
| 1,317,218 | 1,317,218 | 684,226 | 684,226 |
|
|
|
|
|
|
|
|
| |
Financial liabilities |
|
|
|
|
|
|
|
| |
Suppliers | 1,050 | 1,050 | 47 | 47 | 24,007 | 24,007 | 13,623 | 13,623 | |
Loans and financing (Note 15) | - | - | - | - | 210,182 | 210,182 | 249,981 | 249,981 | |
Lease payable (Note 16) | - | - | - | - |
| 126,082 | 126,082 | - | - |
Accounts payable for the acquisition of subsidiaries (Note 18) | - | - | - | - | 83,069 | 83,069 | 112,487 | 112,487 | |
Other liabilities (Note 21) | 1,070 | 1,070 | 34 | 34 |
| 94,445 | 94,445 | 10,307 | 10,307 |
Total | 2,120 | 2,120 | 81 | 81 |
| 537,785 | 537,785 | 386,398 | 386,398 |
Amounts of these instruments recognized in the balance sheet do not significantly differ from their fair values.
· Trade accounts receivable and suppliers approximate their respective book value mostly due to the short-term maturity of these instruments.
· Loans and financing, leases and accounts payable due to acquisitions are contractually restated and represent the balance to be paid on the date of settlement of the contractual obligations.
84
Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
Financial instruments per category:
Parent company | ||||
| 12/31/2019 | 12/31/2018 | ||
| Fair value through profit or loss | Amortized cost | Fair value through profit or loss | Amortized cost |
Financial assets | ||||
Cash and cash equivalents (note 6) | 16 | 16,371 | 16 | 34 |
Financial assets (Note 7) | 732,473 | - | 60,108 | - |
Other receivables (Note 11) | - | 93 | - | 49 |
| 732,489 | 16,464 | 60,124 | 83 |
Financial liabilities |
|
| ||
Suppliers | - | 1,050 | - | 47 |
Other liabilities (Note 21) | - | 1,070 | - | 34 |
| - | 2,120 | - | 81 |
Consolidated | ||||
| 12/31/2019 | 12/31/2018 | ||
| Fair value through profit or loss | Amortized cost | Fair value through profit or loss | Amortized cost |
Financial assets | ||||
Cash and cash equivalents (note 6) | 7,924 | 67,974 | 4,428 | 45,422 |
Financial assets (Note 7) | 904,362 | - | 413,374 | - |
Trade accounts receivable (Note 8) | - | 288,111 | - | 170,382 |
Other receivables (Note 11) | - | 48,847 | - | 50,620 |
| 912,286 | 404,932 | 417,802 | 266,424 |
Financial liabilities |
|
| ||
Suppliers | - | 24,007 | - | 13,623 |
Loans and financing (Note 15) | - | 210,182 | - | 249,981 |
Lease payable (Note 16) | - | 126,082 | - | - |
Accounts payable for the acquisition of subsidiaries (Note 18) | 83,069 | - | 112,487 | - |
Other liabilities (Note 21) | - | 94,445 | - | 10,307 |
| 83,069 | 454,716 | 112,487 | 273,911 |
27.7. Fair value hierarchy
The table below shows the hierarchy of fair value measurement of assets and liabilities of the Company and its subsidiaries.
Quantitative disclosures of fair value hierarchy as of December 31, 2019:
85
Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
Total | Prices quoted in active markets (Level 1) | Significant observable data (Level 2) | Significant non-observable data (Level 3) | |
Assets measured at fair value | ||||
Financial assets at fair value | ||||
Financial assets (Note 7) | 904,362 | - | 904,362 | - |
|
|
|
| |
Liabilities measured at fair value |
|
|
|
|
Financial liabilities at fair value |
|
|
|
|
Loans and financing (Note 15) | 210,182 | - | 210,182 | - |
Lease payable (Note 16) | 126,082 | - | 126,082 | - |
Accounts payable for the acquisition of subsidiaries (Note 18) | 83,069 | - | 37 | 83,032 |
Items measured at fair value on a recurring basis – The Company’s liabilities related to business combinations are measured at fair value with Level 3 inputs. The Company determines the earn-out fair value and any subsequent changes in fair value using a discount approach based on the weighted probability. The fair value of earn-out is assessed considering payments that the Company expects to make based on historical internal observations.
The Company and its subsidiaries use proper valuation techniques with the help of sufficient data to measure the fair value, maximizing the use of relevant observable data and minimizing the use of unobservable data.
There were no transfers between measurement levels in the fair value hierarchy for the year ended December 31, 2019 for these assets.
27.8. Sensitivity analysis for financial assets and liabilities
Main risks related to the transactions of the Company and its subsidiaries are linked to TJLP, TLP, CDI, IPCA, IGPM, IPC, SELIC and LIBOR change for BNDES financing and accounts payable due to acquisition of companies, and to CDI for financial assets.
The investments with CDI are recorded at market value, according to quotations announced by the respective financial institutions and the others mainly refer to bank deposit certificates. Therefore, the recorded value of these securities does not differ from the market value.
In order to check the sensitivity of the indexer of financial investments to which the Company and its subsidiaries were exposed to at December 31, 2019, we defined three scenarios for the risk of decrease in CDI. The December 2019 index, which was 4.40% (6.40% as of December 31, 2018), was defined as probable scenario; based thereon, 25% and 50% scenarios were defined.
Parent company |
| |||||
Operation | Balance at 12/31/2019 | Risk | Scenario I (probable) | Scenario II | Scenario III | |
| ||||||
Financial assets | 732,473 | CDI decr. | 4.40% | 3.30% | 2.20% | |
Financial revenue |
| 32,229 | 24,172 | 16,114 | ||
86
Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
Consolidated |
| |||||
Operation | Balance at 12/31/2019 | Risk | Scenario I (probable) | Scenario II | Scenario III | |
| ||||||
Financial assets | 904,362 | CDI decr. | 4.40% | 3.30% | 2.20% | |
Financial revenue | 39,792 | 29,844 | 19,896 | |||
In order to analyze sensitivity of debt indexes, to which the Company and its subsidiaries were exposed at December 31, 2019, three different scenarios were defined for the risk of increase in such indexes. This was based on TJLP, TLP, IPCA, IPC, IGPM, CDI, SELIC and LIBOR amounts in effect at December 31, 2019, available at CETIP, IBGE, Central Bank of Brazil, FGV, among others. Accordingly, a probable scenario was defined for 2019, based on which, 25% and 50% differences were calculated.
For each scenario the Company calculated the gross financial expense, not taking into account the taxes levied and the flow of maturities for each contract scheduled for 2019. The base date used for financing was December 31, 2019, projecting indices for one year and verifying their sensitivity in each scenario.
Consolidated | |||||
Operation | Balance at 12/31/2019 | Risk | Scenario I (probable) | Scenario II | Scenario III |
| |||||
Financings – BNDES | 210,182 | TJLP incr. | 11,707 | 14,629 | 17,571 |
Rate subject to change |
| 5.57% | 6.96% | 8.36% | |
|
|
|
|
| |
Acquisition of companies | 8,253 | IGPM incr. | 604 | 755 | 906 |
Rate subject to change |
| 7.32% | 9.15% | 10.98% | |
|
|
|
|
| |
Acquisition of companies | 284 | CDI incr. | 12 | 16 | 19 |
Rate subject to change |
| 4.40% | 5.50% | 6.60% | |
|
|
|
|
| |
Acquisition of companies | 12,666 | IPCA incr. | 546 | 681 | 818 |
Rate subject to change |
| 4.31% | 5.38% | 6.46% | |
|
|
|
|
| |
Acquisition of companies | 16,960 | R$ decr. | 683 | 855 | 1,026 |
Rate subject to change | 4.03% | 5.04% | 6.05% |
28.Earnings per share
Basic earnings per share is calculated by dividing profit attributable to company shareholders by the weighted average number of common shares available during the fiscal year.
Diluted profit per share is calculated by adjusting the weighted average number of common shares, presuming the conversion of all the potential diluted common shares. The Company has a Stock Option Plan that provides for the granting of 4,060,627 stock options with thePlan’s total dilutive potential being represented by 902,560 stock options, including initial granting.
87
Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
The tables below show data of income and shares used in calculating basic and diluted earnings per share:
| Parent company and Consolidated | ||
| 12/31/2019 | 12/31/2018 | |
|
|
| |
Net income for the year | 38,876 | 71,055 | |
|
|
| |
Weighted average of shares | 178,266,195 | 166,219,533 | |
(-) Treasury shares | (7,849,826) | (3,192,406) | |
Adjusted weighted average of shares | 170,416,369 | 163,027,127 | |
|
|
| |
Basic earnings per share - (in Reais) | 0.2281 | 0.4358 | |
|
|
| |
|
|
| |
| Parent company and Consolidated | ||
| 12/31/2019 | 12/31/2018 | |
| |||
Net income for the year | 38,876 | 71,055 | |
|
|
| |
Weighted average number of shares (*) | 178,266,195 | 166,219,533 | |
(+) Stock Option | 4,050,513 | 2,180,798 | |
(-) Treasury shares | (7,849,826) | (3,192,406) | |
Adjusted weighted average of shares | 174,466,882 | 165,207,925 | |
|
|
| |
Diluted earnings per share (in Reais) | 0.2228 | 0.4301 | |
(*) Post-stock-split amounts at June 13, 2016.
88
Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
29.Share-based payment
The fair value of each option granted is estimated at the grant date, based on the Black-Scholes stock pricing model, which considered the following variables and results:
29.1. Stock option
In the Special Shareholders’ Meeting held on December 4, 2012, the Stock Option Plan of Linx S.A. was approved. Such plan establishes the general conditions for grant of shares issued by the Company, under the terms of article 168, paragraph 3, Law 6404/76.
Stock option |
| ||||||||
Grant | Fair value assumptions |
| |||||||
Expected |
| ||||||||
Number | Date | Quantity of options | Strike price - Reais | Option pricing | Dividends - % | Volatility - % | Risk-free interest rate, % | Maturity term | Maturity date |
|
| ||||||||
1st | 2013 | 1,842,951 | 18.72 | 12.73 | 3.30% | 25.24% | 10.27% | 4 years | 2017 |
2nd | 2014 | 406,059 | 33.83 | 11.81 | 0.80% | 25.11% | 10.12% | 4 years | 2018 |
3rd | 2015 | 432,855 | 38.72 | 11.86 | 1.28% | 24.00% | 12.96% | 4 years | 2019 |
4th | 2016 | 566,592 | 38.17 | 14.02 | 0.85% | 25.01% | 7.25% | 4 years | 2020 |
5th | 2017 | 391,618 | 16.99 | 3.83 | 1.34% | 24.25% | 9.71% | 4 years | 2021 |
6th | 2018 | 420,552 | 21.61 | 2.99 | 1.39% | 23.69% | 7.43% | 4 years | 2022 |
Changes in stock option plan are as follows:
Stock option plan | ||
Number of outstanding shares | Strike price (in Reais) | |
December 31, 2018 | 946,123 | 16.41 |
(-) Exercised | (208,076) |
|
(-) Canceled | (21,874) |
|
December 31, 2019 | 716,173 | 19.16 |
There were no new grants for the year ended December 31, 2019
29.2. Restricted shares
The fair value of each restricted share is estimated on the concession date with basis on the Black-Scholes option pricing model and considering the following variables and results:
Deferred shares |
| ||||||||
Grant | Fair value assumptions |
| |||||||
Expected |
| ||||||||
Number | Date | Number of shares | Strike price - Reais | Pricing | Dividends - % | Volatility - % | Risk-free interest rate, % | Maturity term | Maturity date of |
shares | |||||||||
|
| ||||||||
1st | 2016 | 10,446 | 19.45 | 16.00 | 0.80% | 25.01% | 13.64% | 1 years | 2017 |
2nd | 2017 | 884,602 | 29.43 | 27.84 | 1.34% | 24.25% | 9.71% | 4 years | 2021 |
3rd | 2018 | 448,489 | 19.16 | 18.12 | 1.39% | 23.69% | 7.43% | 4 years | 2022 |
4th | 2019 | 3,232,761 | 29.27 | 27.75 | 1.33% | 27.14% | 6.42% | 4 years | 2023 |
89
Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
The financial activity of the restricted shares is presented below:
Restricted shares | ||
Number of outstanding shares | Strike price (in Reais) | |
|
|
|
December 31, 2018 | 1,033,868 | 19.16 |
Granted | 3,232,761 | - |
(-) Exercised | (13,810) | - |
(-) Canceled | (553,225) | - |
December 31, 2019 | 3,699,594 | 34.33 |
The accumulated effect in the period ended December 31, 2019 is R$ 23,633 (R$ 4,556 as of December 31, 2018) recorded in the statement of income as payroll expenses. This effect did not impact the Company’s cash.
The accumulated balance in shareholders’ equity presented in the capital reserve under “stock option plan” in the period ended December 31, 2019 is R$ 39,737 (R$ 16,104 as of December 31, 2018).
30.Liabilities from financing activities
12/31/2017 | Payments | Receipts | FX | New acquisitions | Other (*) | 12/31/2018 | |
Loans and financing (Note 15) | 97,288 | (49,899) | 191,837 | - | 1,097 | 9,658 | 249,981 |
Accounts payable for the acquisition of subsidiaries (Note 18) | 130,767 | (45,878) | - | 6,033 | 38,881 | (17,316) | 112,487 |
Total liabilities from financing activities | 228,055 | (95,777) | 191,837 | 6,033 | 39,978 | (7,658) | 362,468 |
(*) Changes included in column “other” include effects from the recognition of interest not yet paid on loans and accounts payable due to acquisition and acquisitions’ adjustment to present value.
12/31/2018 | 01/01/2019 | Payments | FX | New acquisitions | Other (*) | 12/31/2019 | |
Loans and financing (Note 15) | 249,981 | - | (59,070) | - | 443 | 18,828 | 210,182 |
Lease payable (Note 16) | - | 91,796 | (18,845) | 249 | - | 52,882 | 126,082 |
Accounts payable for the acquisition of subsidiaries (Note 18) | 112,487 | - | (48,093) | 1,483 | 54,723 | (37,531) | 83,069 |
Total liabilities from financing activities | 362,468 | 91,796 | (126,008) | 1,732 | 55,166 | 34,179 | 419,333 |
(*) Changes included in column “other” include effects from the effects from additions of IFRS 16/CPC 06 (R2), effect from recognition of interest not yet paid on loans and accounts payable due to acquisition and acquisitions’ adjustment to present value.
90
Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
31.Assets and liabilities of operating segments
Operating segments are defined based on business operations by reflecting the way the Company’s management reviews financial information for decision-making. Thus, the Company has two reportable segments: Linx Software and Linx Pay Meios de Pagamentos Ltda. The accounting policies of the operating segments are the same as those applied to the consolidated financial statements.
The information below shows the summarized equity position of reportable operating segments for the years ended December 31, 2019 and 2018:
2019 | ||||
| Software | Linx Pay Meios de Pagamento Ltda. | Eliminations | Total consolidated |
Assets | ||||
Current assets | 1,193,336 | 112,679 | (6,045) | 1,299,970 |
Non-current assets | 1,292,217 | 30,930 | (59,174) | 1,263,973 |
Total assets | 2,485,553 | 143,609 | (65,219) | 2,563,943 |
Liabilities | ||||
Current liabilities | 284,775 | 91,117 | (6,045) | 369,847 |
Non-current liabilities | 410,934 | 2,837 | (9,519) | 404,252 |
Shareholders' equity | 1,789,844 | 49,655 | (49,655) | 1,789,844 |
Total liabilities and shareholders' equity | 2,485,553 | 143,609 | (65,219) | 2,563,943 |
2018 | ||||
| Software | Linx Pay Meios de Pagamento Ltda. | Eliminations | Total consolidated |
Assets | ||||
Current assets | 696,798 | 2,830 | (1,124) | 698,504 |
Non-current assets | 947,887 | 1,118 | 167 | 949,172 |
Total assets | 1,644,685 | 3,948 | (957) | 1,647,676 |
|
|
| ||
Liabilities |
|
|
| |
Current liabilities | 217,709 | 4,115 | (1,124) | 220,700 |
Non-current liabilities | 369,767 | - | - | 369,767 |
Shareholders' equity | 1,057,209 | (167) | 167 | 1,057,209 |
Total liabilities and shareholders' equity | 1,644,685 | 3,948 | (957) | 1,647,676 |
91
Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
32.Insurance coverage
The Company and its subsidiaries adopt the policy of contracting insurance coverage for properties subject to risks in amounts considered sufficient to cover any casualties, considering the nature of their activity. Coverages in 2019 and 2018 are shown below:
Parent company and Consolidated | ||
12/31/2019 | 12/31/2018 | |
Civil liability for professionals | 10,000 | 7,500 |
Civil liability for managers | 70,000 | 70,000 |
Operational risks | 165,800 | 119,000 |
Vehicles | 600 | 600 |
246,400 | 197,100 |
33.Subsequent events
33.1. Acquisition of PinPag
On January 30, 2020, Linx S.A. entered into a share purchase and sale agreement between Linx Pay Meios de Pagamento Ltda. (“Linx Pay”), a wholly-owned subsidiary of the Company, and the holders of the full share capital of PinPag, representing the companies Esmeralda Serviços Digitais Ltda., Safira Serviços Digitais Ltda., Ametista Serviços Digitais Ltda. and Diamante Serviços Digitais Ltda (“PinPag”).
Linx paid R$ 135,000 in a lump sum, plus, subject to the achievement of financial and operating targets set for the period from 2021 to 2022, an additional amount of up to R$ 65,000.
The acquisition of PinPag is another step of Linx to reinforce the cross selling strategy of financial services for its verticals, especially for the car dealership management (DMS).
Moreover, the rationale is to strengthen the financial services portfolio (“Linx Pay Hub”) for the base of 17,000 PinPag clients, representing a great growth opportunity for Linx.
Presented below is the equity position of PinPag on:
January 31, 2020 | Ametista | Diamante | Esmeralda | Safira |
Assets |
|
|
| |
Cash and cash equivalents | 2,089 | 1,903 | 3,070 | 2,960 |
Interest earning bank deposit | - | 1,353 | - | - |
Accounts receivable | 4,848 | 260 | 2,334 | 886 |
Other receivables | - | 3 | 20 | - |
Current assets | 6,937 | 3,519 | 5,424 | 3,846 |
Investment | - | 1 | - | - |
Property, plant and equipment | - | 83 | 9,101 | 983 |
Intangible assets | - | - | 27 | 6 |
Non-current assets | - | 84 | 9,128 | 989 |
Total assets | 6,937 | 3,603 | 14,552 | 4,835 |
|
|
|
| |
Liabilities |
|
|
|
|
Suppliers | - | - | 798 | - |
Labor obligations | - | 85 | 102 | - |
Tax liabilities | 312 | 180 | 990 | 365 |
Other liabilities | 5,185 | 3,507 | 10,472 | 933 |
Current liabilities | 5,497 | 3,772 | 12,362 | 1,298 |
Capital | 350 | 30 | 1,350 | 2,300 |
Retained earnings (loss) | 1,090 | (199) | 840 | 1,237 |
Shareholders' equity | 1,440 | (169) | 2,190 | 3,537 |
Total liabilities and shareholders' equity | 6,937 | 3,603 | 14,552 | 4,835 |
92
Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
33.2. Acquisition of Neemo
At February 3, 2020, Linx S.A entered into a Stock Purchase Agreement between Linx Sistemas e Consultoria Ltda. (“Linx Sistemas”), a wholly-owned subsidiary of the Company, and the holders of all the capital of RRA Ferreira ME (“Neemo”).
Linx paid R$ 17,600 in a lump sum, plus, subject to the achievement of financial and operating targets set for the period from 2021 to 2023, an additional amount of up to R$ 4,800.
The acquisition of Neemo is another step of Linx to reinforce its cross selling strategy, representing a significant growth opportunity for the Company. In this case, the rationale is to reinforce the food service vertical with its own delivery management solution and offer financial service-related products (“Linx Pay Hub”) to approximately 2,000 Neemo clients.
Presented below is the equity position of Neemo on:
January 31, 2020 |
|
Assets | |
Cash and cash equivalents | 75 |
Accounts receivable | 226 |
Recoverable taxes | 18 |
Other receivables | 1 |
Current assets | 320 |
Property, plant and equipment | 66 |
Non-current assets | 66 |
Total assets | 386 |
| |
Liabilities |
|
Suppliers | 37 |
Labor obligations | 91 |
Tax liabilities | 122 |
Current liabilities | 250 |
Capital | 5 |
Accumulated losses | 61 |
Net income for the year | 70 |
Shareholders' equity | 136 |
Total liabilities and shareholders' equity | 386 |
93
Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
33.3. COVID-19
According to the Brazilian Ministry of Health, the spread of COVID-19 was first reported in Wuhan, in mainland China, on December 31, 2019 and later spread to several countries. Since then, several cases of contagion and fatalities have been reported by world authorities and the media. On March 11, 2020, the World Health Organization (WHO) declared as a global pandemic.
Also in March, Linx developed and implemented a plan covering several preventive measures required to minimize the effects of the pandemic. The main items of said plan are listed below:
· Creation of a Crisis Committee to continuously evaluate the evolution of COVID-19, its possible impacts and necessary measures, in addition to monitoring all determinations made by the competent authorities in the regions where it operates;
· Definition of home office for all Employees who made an international trip and recently returned to the countries where they are based, respecting the quarantine period recommended by physicians;
· Suspension or postponement of national and international business trips; and
· Definition of staggered home office rotation for all Employees as of March 16, aiming to reduce the personnel in its offices as a strategy to mitigate the risks of virus transmission.
94
Linx S.A.
Notes to the financial statements
December 31, 2019
(In thousands of Reais, unless otherwise indicated)
So far, Linx has not suffered any material impact caused by the virus spread. Owing to the uncertainties regarding the dynamics of the outbreak’s evolution, its effects on the economic activities of our clients and suppliers, as well as the measures to be adopted in Brazil and other Latin American countries in which the Company operates, it is impossible to estimate the impact the pandemic will have on the global economy and on our business.
In the current scenario, Linx has a certain degree of protection in financial terms, considering that around 80% of its revenues are monthly fees generated by the use of management software and integrated services. Currently, the Company is also well capitalized. The migration of solutions to the cloud environment in recent years also offers resilience to the Company, since virtually all solutions can be accessed remotely.
However, negative impacts on the economy may result in possible losses for Linx, temporary or not, as of the second half of March. Such impacts may mainly cover, but not exclusively, delinquency levels, new sales, project implementation, store activation, revenue linked to the volume of transactions (mainly in Linx Digital and Linx Pay) and churn resulting from the closing of stores. A strong exchange rate depreciation can influence cost levels, especially those linked to the public cloud. Furthermore, it is not possible to measure impacts on the health of our Employees, even if the appropriate measures have been taken.
On the other hand, there is the possibility of Linx contributing to its clients through retail digital transformation initiatives, such as e-commerce solutions, omnichannel (OMS) and delivery service in restaurants (Delivery App). Another opportunity is its strong presence in verticals for Pharma, Gas Stations and convenience stores, segments that may eventually have increased demand.
These possible economic and financial impacts arising from the dissemination of the new COVID-19 were informed to Linx shareholders and the market in general through a Notice to the Market on March 16 and a Material Fact as of March 18, pursuant to CVM Instruction No. 358 and 480, in addition to the provisions of CVM Circular Letter No. 02/2020.
33.4. Dividends
The Board of Directors, at a meeting held on March 30, 2020,ad referendum of the Annual General Meeting, to be held on April 30, 2020, expressed a favorable opinion on the Dividend Distribution Proposal presented by the Company’s Management in the amount of R$ 20,000.
Alberto Menache Chief Executive Officer | Antonio Ramatis Fernandes Rodrigues Financial Vice-President |
Úrsula Copi Peres Accountant |
95
OPINIONS OF THE FISCAL COUNCIL
LINX S.A.
Publicly-held Company with Authorized Capital
Tax ID (CNPJ): 06.948.969/0001-75
Board of Trade Registration (NIRE): 35.300.316.584
FISCAL COUNCIL’S OPINION ABOUT THE MANAGEMENT REPORT AND FINANCIAL STATEMENTS OF LINX S.A. AS OF DECEMBER 31, 2019.
The Fiscal Council ofLinx S.A. (“Company”), in the exercise of its legal and statutory duties, after examining the Company’s Management Report, Balance Sheet, Statement of Results, Comprehensive Statement of Results, Statement of Cash Flows, Statement of Changes to the Shareholders’ Equity, Statement of Value Added and the respective Explanatory Notes, for the fiscal year ended December 31, 2019, and based on the Independent Auditor’s opinion without qualifications, understands that the referred instruments, examined in the light of the applicable corporate legislation, are adequate for appreciation by theCompany’sAnnual Shareholders’ Meeting.
São Paulo, March 30, 2020.
Marcelo Amaral Moraes Chairman of the Fiscal Council | João Adamo Junior Member of the Fiscal Council | |||
Flávio Cesar Maia Luz
Member of the Fiscal Council
Flávio Cesar Maia Luz Member of the Fiscal Council |
DECLARATIONS OF THE BOARD OF EXECUTIVE OFFICERS ABOUT THE INDEPENDENT AUDITOR’S OPINION AND FINANCIAL STATEMENTS, FOR THE PURPOSES OF ARTICLE 25 OF ICVM 480/09
DECLARATION
FOR THE PURPOSES OF ARTICLE 25 OF ICVM No. 480/09
We hereby declare, acting as Officers of Linx S.A., a Corporation headquartered in the City of São Paulo, State of São Paulo, at Avenida Doutora Ruth Cardoso, nº 7221, enrolled with the Brazilian Corporate Taxpayer’s Registry (CNPJ/ME) under no. 06.948.969/0001-75 (“Company”), pursuant to Item V of Paragraph 1 of Article 25 of ICVM no. 480, dated December 07, 2009, that we have reviewed, discussed and thereby agree with the opinions expressed in the report of the Company’s independent auditors, ERNST &YOUNG Auditores Independentes, referring to the Company’s financial statements for the fiscal year ended December 31, 2019.
São Paulo, March 30, 2020.
Alberto Menache | Antonio Ramatis Fernandes Rodrigues Chief Financial Officer and Chief Investor Relations Officer | |||
| ||||
Gilsinei Valcir Hansen Executive Officer | Jean Carlo Klaumann Executive Officer | |||
| ||||
Flávio Mambreu Menezes Executive Officer | Denis Nieto Piovezan Executive Officer | |||
OPINIONS OF THE AUDIT COMMITTEE
AUDIT COMMITTEE’S OPINION ABOUT THE PROPOSAL FOR ALLOCATION OF RESULTS OF FISCAL YEAR ENDED DECEMBER 31, 2019.
The Audit Committee ofLINX S.A. (“Company”), in the exercise of its legal and statutory duties, after examining the Management Proposal for allocating the results of the fiscal year ended December 31, 2019, understands that it is adequate for appreciation by theCompany’sAnnual Shareholders’ Meeting.
São Paulo, March 27, 2020.
João Cox Neto Coordinator of the Audit Committee | Roger de Barbosa Ingold Member of the Audit Committee | |||
Pedro Jaime Cervatti Member of the Audit Committee |
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: March 31, 2020
Linx S.A.
By: /s/ Ramatis Rodrigues
Name: Ramatis Rodrigues
Title: Investor Relations Officer