Docoh
Loading...

XP XP

Filed: 4 May 21, 8:00pm

Exhibit 99.2

 

       

 

 

 

Report on review of interim condensed consolidated financial statements

 

To the Board of Directors and Shareholders XP Inc.

 

Introduction

 

We have reviewed the accompanying interim condensed consolidated balance sheets of XP Inc. as at March 31, 2021 and the related interim condensed consolidated statements of income and of comprehensive income, of changes in equity and cash flows for the three-month period then ended, and a summary of significant accounting policies and other explanatory notes.

 

Management is responsible for the preparation and presentation of these interim condensed consolidated financial statements in accordance with International Accounting Standard (IAS) 34 - Interim Financial Reporting issued by the International Accounting Standards Board (IASB). Our responsibility is to express a conclusion on these interim condensed consolidated financial statements based on our review.

 

Scope of review

 

We conducted our review in accordance with Brazilian and International Standards on Reviews of Interim Financial Information (NBC TR 2410 - "Review of Interim Financial Information Performed by the Independent Auditor of the Entity", and ISRE 2410 - "Review of Interim Financial Information Performed by the Independent Auditor of the Entity", respectively). A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Brazilian and International Standards on Auditing and consequently did not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

Conclusion

 

Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim condensed consolidated financial statements referred to above are not prepared, in all material respects, in accordance with IAS 34.

 

São Paulo, May 4, 2021

 

PricewaterhouseCoopersTatiana Fernandes Kagohara Gueorguiev
Auditores IndependentesContadora CRC 1SP245281/O-6 CRC 2SP000160/O-5

 

 

 

2

 

PricewaterhouseCoopers, Av. Francisco Matarazzo 1400, Torre Torino, São Paulo, SP, Brasil, 05001-903, Caixa Postal 60054, T: +55 (11) 3674 2000, www.pwc.com.br

 

 

 

 

XP Inc. and its subsidiaries

Unaudited interim condensed consolidated balance sheets  

As of March 31, 2021 and December 31, 2020

In thousands of Brazilian Reais  

 

 

 

 

 

  Note 

March 31,

2021

 December 31, 2020
       
Cash      1,556,782   1,954,788 
             
Financial assets      115,611,055   90,190,827 
             
Fair value through profit or loss      76,441,946   57,149,446 
Securities  4   62,855,038   49,590,013 
Derivative financial instruments  5   13,586,908   7,559,433 
             
Fair value through other comprehensive income      21,629,266   19,039,044 
Securities  4   21,629,266   19,039,044 
             
Evaluated at amortized cost      17,539,843   14,002,337 
Securities  4   1,915,816   1,828,704 
Securities purchased under agreements to resell  3   6,741,459   6,627,409 
Securities trading and intermediation  9   3,184,130   1,051,566 
Accounts receivable      367,459   506,359 
Loan operations  7   5,041,413   3,918,328 
Other financial assets      289,566   69,971 
             
Other assets      2,174,885   1,760,999 
Recoverable taxes      128,769   127,623 
Rights-of-use assets  12   204,430   183,134 
Prepaid expenses  8   1,784,698   1,393,537 
Other      56,988   56,705 
             
Deferred tax assets  19   652,632   505,046 
Investments in associates and joint ventures  11   733,861   699,907 
Property and equipment  12   223,141   204,032 
Goodwill and Intangible assets  12   798,001   713,562 
             
             
Total assets      121,750,357   96,029,161 

 

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

 

 

1

 

 

 

XP Inc. and its subsidiaries

Unaudited interim condensed consolidated balance sheets  

As of March 31, 2021 and December 31, 2020

In thousands of Brazilian Reais  

 

 

 

 

  Note 

March 31,

2021

 December 31, 2020
       
Financial liabilities      92,617,251   70,600,989 
             
Fair value through profit or loss      16,269,472   10,056,806 
Securities loaned  4   2,705,869   2,237,442 
Derivative financial instruments  5   13,563,603   7,819,364 
             
Evaluated at amortized cost      76,347,779   60,544,183 
Securities sold under repurchase agreements  3   44,483,097   31,839,344 
Securities trading and intermediation  9   20,398,530   20,303,121 
Deposits  13   4,003,129   3,021,750 
Structured operations certificates  14   2,841,116   2,178,459 
Accounts payables      803,443   859,550 
Borrowings and lease liabilities  15   506,531   492,535 
Debentures  16   336,987   335,250 
Other financial liabilities  17   2,974,946   1,514,174 
             
Other liabilities      17,580,356   14,522,206 
Social and statutory obligations      399,957   667,448 
Taxes and social security obligations      249,950   435,849 
Private pension liabilities  18   16,896,508   13,387,913 
Provisions and contingent liabilities  22   26,024   19,711 
Other      7,917   11,285 
             
Deferred tax liabilities  19   -   8,352 
             
Total liabilities      110,197,607   85,131,547 
             
             
Equity attributable to owners of the Parent company      11,549,981   10,894,609 
Issued capital      23   23 
Capital reserve      10,802,675   10,663,942 
Other comprehensive income      13,615   230,644 
Retained earnings      733,668   - 
             
Non-controlling interest      2,769   3,005 
             
Total equity  20   11,552,750   10,897,614 
             
Total liabilities and equity      121,750,357   96,029,161 

 

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

 

2

 

 

XP Inc. and its subsidiaries

Unaudited interim condensed consolidated statements of income and of comprehensive income   

For the three months ended March 31, 2021 and 2020 

In thousands of Brazilian Reais, except earnings per share   

 

 

 

    Three months period ended March 31,
  Note 2021 2020
       
Net revenue from services rendered  23   1,454,656   1,151,946 
Net income from financial instruments at amortized cost and at fair value through other comprehensive income  23   30,884   202,497 
Net income from financial instruments at fair value through profit or loss  23   1,142,501   380,398 
Total revenue and income      2,628,041   1,734,841 
             
Operating costs  24   (837,435)  (556,854)
Selling expenses  25   (44,418)  (28,476)
Administrative expenses  25   (966,278)  (578,116)
Other operating income (expenses), net  26   18,361   (13,883)
Expected credit losses  10   (3,455)  (21,962)
Interest expense on debt      (9,516)  (19,019)
Share of profit or (loss) in joint ventures and associates  11   (1,084)  - 
             
Income before income tax      784,216   516,531 
             
Income tax expense  19   (50,068)  (118,977)
             
Net income for the period      734,148   397,554 
             
Other comprehensive income            
Items that can be subsequently reclassified to income            
Foreign exchange variation of investees located abroad      26,312   56,560 
Gains (losses) on net investment hedge      (20,744)  (56,496)
Changes in the fair value of financial assets at fair value through other comprehensive income      (222,597)  31,490 
             
Other comprehensive income (loss) for the period, net of tax      (217,029)  31,554 
             
Total comprehensive income for the period      517,119   429,108 
             
Net income attributable to:            
Owners of the Parent company      733,668   396,860 
Non-controlling interest      480   694 
             
Total comprehensive income attributable to:            
Owners of the Parent company      516,639   428,414 
Non-controlling interest      480   694 
             
Earnings per share from total income attributable to the ordinary equity holders of the company            
Basic earnings per share  28   1.3123   0.7192 
Diluted earnings per share  28   1.2810   0.7139 

 

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

 

 

3

 

 

XP Inc. and its subsidiaries 

Unaudited interim condensed consolidated statements of changes in equity  

For the three months ended March 31, 2021 and 2020 

In thousands of Brazilian Reais 

 

 

    Atributable to owners of the Parent    
      Capital reserve          
  Notes Issued Capital Additional paid-in capital Other Reserves Other comprehensive income Retained Earnings Total Non-Controlling interest Total Equity
                   
Balances at December 31, 2019      23   5,409,895   1,533,551   209,927   -   7,153,396   2,563   7,155,959 
Comprehensive income for the period                                    
Net income for the period      -   -   -   -   396,860   396,860   694   397,554 
Other comprehensive income, net      -   -   -   31,554   -   31,554   -   31,554 
Transactions with shareholders - contributions and distributions                                    
Share based plan  27   -   -   23,221   -   -   23,221   (7)  23,214 
Gain (loss) in changes in interest of subsidiaries, net      -   -   -   (83)  -   (83)  1,933   1,850 
Allocations of the net income for the period                                    
Dividends distributed      -   -   -   -   -   -   (3,432)  (3,432)
Balances at March 31, 2020      23   5,409,895   1,556,772   241,398   396,860   7,604,948   1,751   7,606,699 
                                     
                                     
                                     
Balances at December 31, 2020      23   6,821,176   3,842,766   230,644   -   10,894,609   3,005   10,897,614 
Comprehensive income for the period                                    
Net income for the period      -   -   -   -   733,668   733,668   480   734,148 
Other comprehensive income, net      -   -   -   (217,029)  -   (217,029)  -   (217,029)
Transactions with shareholders - contributions and distributions                                    
Share based Plan  27   -   -   140,549   -   -   140,549   2   140,551 
Gain (loss) in changes in interest of subsidiaries, net      -   -   (1,816)  -   -   (1,816)  61   (1,755)
Allocations of the net income for the period                                    
Dividends distributed      -   -   -   -   -   -   (779)  (779)
Balances at March 31, 2021      23   6,821,176   3,981,499   13,615   733,668   11,549,981   2,769   11,552,750 

 

 

 

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

 

 

4

 

 

XP Inc. and its subsidiaries 

Unaudited interim condensed consolidated statements of cash flows

For the three months ended March 31, 2021 and 2020 

In thousands of Brazilian Reais 

 

 

    

Three months ended

March 31,

  Note 2021 2020
Operating activities      
Income before income tax      784,216   516,531 
             
Adjustments to reconcile income before income taxes            
Depreciation of property and equipment and right-of-use assets  12   15,145   15,878 
Amortization of intangible assets  12   54,362   15,648 
Loss on write-off of property, equipment and intangible assets and lease, net  12   3,028   3,452 
Share of profit or (loss) in joint ventures and associates  11   1,084   - 
Expected credit losses on financial assets      3,455   21,962 
(Reversal of) Provision for contingencies, net  22   3,295   (387)
Net foreign exchange differences      (56)  (19,510)
Share based plan  27   140,551   23,221 
Interest accrued      12,019   20,087 
             
Changes in assets and liabilities            
Securities (assets and liabilities)      (15,255,321)  (6,676,164)
Derivative financial instruments (assets and liabilities)      (314,666)  988,979 
Securities trading and intermediation (assets and liabilities)      (2,037,783)  3,708,191 
Securities purchased (sold) under resale (repurchase) agreements      12,528,762   46,190 
Accounts receivable      138,006   6,197 
Loan operations      (1,121,807)  (63,520)
Prepaid expenses      (391,161)  (15,811)
Other assets and other financial assets      (220,817)  52,295 
Structured operations certificates      662,657   130,987 
Accounts payable      (56,375)  (1,616)
Deposits      981,379   4 
Social and statutory obligations      (267,491)  (217,971)
Tax and social security obligations      7,257   (33,554)
Private pension liabilities      3,508,595   1,395,998 
Other liabilities and other financial liabilities      1,419,510   141,008 
             
Cash from operations      597,844   58,095 
             
Income tax paid      (235,785)  (196,585)
Contingencies paid  22   (1,480)  (234)
Interest paid      (38)  (572)
Net cash flows (used in) from operating activities      360,541   (139,296)
             
Investing activities            
Acquisition of property and equipment  12(a)  (23,698)  (20,746)
Acquisition of intangible assets  12(a)  (114,298)  (19,914)
Acquisition of subsidiaries, net of cash acquired  2(e)  (854)  - 
Acquisition of associates and joint ventures      (23,231)  - 
Net cash flows (used in) investing activities      (162,081)  (40,660)
             
Financing activities            
Payments of borrowings and lease liabilities  32   (23,758)  (26,058)
Transactions with non-controlling interests      (1,755)  1,844 
Dividends paid to non-controlling interests      (779)  (3,432)
Net cash flows from (used in) financing activities      (26,292)  (27,646)
             
Net increase (decreased) in cash and cash equivalents      172,168   (207,602)
             
Cash and cash equivalents at the beginning of the period      2,660,388   887,796 
Effects of exchange rate changes on cash and cash equivalents      7,636   31,009 
Cash and cash equivalents at the end of the period      2,840,192   711,203 
             
Cash      1,556,782   249,950 
Securities purchased under agreements to resell  3   1,191,577   309,053 
Interbank certificate deposits  4   91,833   152,200 

 

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

 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements  

As of March 31, 2021

In thousands of Brazilian Reais, unless otherwise stated 

 

1.Operations

 

XP Inc. (the “Company”) is a Cayman Island exempted company with limited liability, incorporated on August 29, 2019. The registered office of the Company is Ugland House, 121 South Church Street in George Town, Grand Cayman. The Company’s principal executive office is located in the city of São Paulo, Brazil.

 

XP Inc. is a holding company controlled by XP Controle Participações S.A., which holds 55.40% of voting rights and whose is ultimately controlled by a group of individuals. On December 13, 2019, the Company completed its Initial Public Offering (“IPO”) and the common shares began trading on the Nasdaq Global Select Market (“NASDAQ-GS”) under the symbol “XP”.

 

XP Inc. and its subsidiaries (collectively, the “Company”, “Group” or “XP Group”) is a leading, technology-driven financial services platform and a trusted provider of low-fee financial products and services in Brazil. XP Group are principally engaged in providing its customers, represented by individuals and legal entities in Brazil and abroad, various financial products, services, digital content and financial advisory services, mainly acting as broker-dealer, including securities brokerage, private pension plans, commercial and investment banking products such as loans operations, transactions in the foreign exchange markets and deposits, through our brands that reach clients directly and through network of Independent Financial Advisers (“IFAs”).

 

These unaudited interim condensed consolidated financial statements as of March 31, 2021 were approved by the Board of Directors on May 4, 2021.

 

1.1Follow-on public offering

 

On July 1, 2020, XP Inc. concluded an underwritten public offering of 22,465,733 Class A common shares offered by General Atlantic (XP) Bermuda, L.P. and XP Controle Participações S.A. (“selling shareholders”) at a public offering price of US$42.50 per share, including the full exercise of the underwriters’ option to purchase an additional 2,930,313 Class A common shares from the selling shareholders. The Company did not receive any proceeds from the sale of Class A common shares by the selling shareholders and there were no changes in the Company’s control structure as a result of such transaction.

 

On December 7, 2020, XP Inc closed of its underwritten secondary public offering of 31,654,894 Class A common shares, 7,130,435 of which were issued and sold by the Company and 24,524,459 of which were sold by ITB Holding Brasil Participações Ltda.. The offering was made pursuant to a registration statement on Form F-1 filed with the U.S. Securities and Exchange Commission (“SEC”).

 

The offering price per Class A common share was US$ 39.00, resulting in gross proceeds of US$283,087 thousand (or R$1,444,530) to XP Inc, deducting R$31,599 thousand as underwriting discounts and commissions. Additionally, the Company incurred in R$7,271 thousand regarding other offering expenses, of which R$5,622 thousand was recognized directly in income statements and an amount of R$1,649 in equity as transaction costs.

 

1.2Spin-off of Itaú’s investment in XP Inc.

 

In January 2021, XP Inc. reached an agreement with Itaú Unibanco in connection with Itaú’s spin-off of its investment in XP Inc., and has entered into two agreements regarding to the corporate reorganization announced by Itaú Unibanco Holding S.A. on December 31, 2020 (Itaú Agreements).

 

The Itaú Agreements establish certain steps to be taken as a result of the corporate reorganization approved and announced by its shareholders, which are subject to the US Federal Reserve Board’s (FED) approval.

 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements  

As of March 31, 2021

In thousands of Brazilian Reais, unless otherwise stated 

 

The proposed transaction is being proposed by XPart and XP to streamline and simplify the corporate structure at shareholders’ level at XP, specifically by giving XPart’s shareholders more accessible ways to trade XP shares as they will directly own an interest in XP.

 

It is not expected that such transaction will have any impact on XP Inc.’s results of operations and financial condition.

 

1.3COVID-19

 

Covid-19 has significantly impacted the world economy. Many countries have imposed travel bans on millions of people and, additionally, people in many locations are subject to quarantine measures. Businesses are dealing with lost revenue and disrupted supply chains. Countries have imposed lockdowns in response to the pandemic and, as a result of the disruption to businesses, millions of workers have lost their jobs. The Covid-19 pandemic has also resulted in significant volatility in the financial and commodities markets worldwide. Numerous governments have announced measures to provide both financial and non-financial assistance to the affected entities. During the pandemic, the Group maintained trading platforms and other services available to clients without interruption. XP has played a valuable role on keeping our clients connected to the market and reinforce our mission to our clients.

 

Based on thorough assessments about the well-being and performance of our workforce, management announced on September 11, 2020, the permanent and company-wide adoption of the home-office model.

 

The Group has reviewed its exposure to economic-related and market volatility, which could negatively impact the value of a certain class of financial instruments however has not identified relevant impact to the financial performance or position of the group as March 31, 2021. The Company has sufficient headroom to enable it to comply with its covenants on its existing borrowings and sufficient working capital and undrawn financing facilities to service its operating activities and ongoing investments.

 

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

 

a)Basis of preparation

 

The unaudited interim condensed consolidated financial statements as of March 31, 2021 and for three months ended March, 2021 and 2020 have been prepared in accordance with IAS 34 Interim Financial Reporting as issued by the International Accounting Standards Board (“IASB”).

 

The unaudited interim condensed consolidated financial statements have been prepared on a historical cost basis, except for financial instruments that have been measured at fair value.

 

The unaudited interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Group’s annual consolidated financial statements as of December 31, 2020. The list of notes that were not presented in this unaudited interim condensed is described below:

 

Note to financial statements of December 31, 2020Description
3.Summary of significant accounting policies
4.Significant estimated and judgements
5.Group structure
11.Accounts receivable
12.Recoverable taxes
24.Social and Statutory obligations
25.Tax and social security obligations
29. (a)Key-person management compensation
38. (b) to (f)Management of financial risks and financial instruments

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements  

As of March 31, 2021

In thousands of Brazilian Reais, unless otherwise stated 

 

The accounting policies adopted are consistent with those of the previous financial year and corresponding interim reporting period, except for the new accounting policies adopted for the current interim reporting period, see Note 2 (b).

 

The unaudited interim condensed consolidated financial statements are presented in Brazilian reais (“R$”), which is the Group’s presentation currency and all amounts disclosed in the financial statements and notes have been rounded off to the nearest thousand currency units unless otherwise stated.

 

b)New standards, interpretations and amendments adopted by the Group

 

The accounting policies adopted in the preparation of the unaudited interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group’s consolidated financial statements for the year ended December 31, 2020, except for the adoption of new standards effective as of 1 January 2021. The Group has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective.

 

Interest Rate Benchmark Reform – Phase 2: Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16

 

The amendments provide temporary reliefs which address the financial reporting effects when an interbank

 

offered rate (IBOR) is replaced with an alternative nearly risk-free interest rate (RFR).

 

The amendments include the following practical expedients:

 

·A practical expedient to require contractual changes, or changes to cash flows that are directly required by the reform, to be treated as changes to a floating interest rate, equivalent to a movement in a market rate of interest

 

·Permit changes required by IBOR reform to be made to hedge designations and hedge documentation without the hedging relationship being discontinued

 

·Provide temporary relief to entities from having to meet the separately identifiable requirement when an RFR instrument is designated as a hedge of a risk component

 

These amendments had no impact on the unaudited interim condensed consolidated financial statements of the Group. The Group intends to use the practical expedients in future periods if they become applicable.

 

c)Basis of consolidation

 

There were no changes since December 31, 2020 in the accounting practices adopted for consolidation of the Company’s direct and indirect interests in its subsidiaries for the purposes of these unaudited interim condensed consolidated financial statements, except for the following items:

 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements  

As of March 31, 2021

In thousands of Brazilian Reais, unless otherwise stated 

 

   % of Group’s interest (i)
Entity nameCountry of incorporationPrincipal activitiesMarch 31,2021December 31,2020
     
Directly controlled    
XPAC Sponsor LLC (ii)CaymanSpecial Purpose Acquisition 100.00%-
     
Indirectly controlled    
Leadr Serviços Online Ltda. (iii)BrazilSocial media-99.99%

 

(i)The percentage of participation represents the Group’s interest in total capital and voting capital of its subsidiaries.

(ii)New subsidiaries incorporated in the period.

(iii)Subsidiaries closed in the period.

 

d)Interests in associates and joint ventures

 

i.Associates

 

Associates are companies in which the investor has a significant influence but does not hold control. Investments in these companies are initially recognized at cost of acquisition and subsequently accounted for using the equity method. Investments in associates and joint ventures include the goodwill identified upon acquisition, net of any cumulative impairment loss.

 

ii.Joint ventures

 

The Group has joint venture whereby the parties that have joint control of the arrangement have rights to the net assets.

 

iii.Equity method

 

Under the equity method of accounting, the investments are initially recognised at cost and adjusted thereafter to recognise the Group’s share of the post-acquisition profits or losses of the investee in profit or loss, and the Group’s share of movements in other comprehensive income of the investee in other comprehensive income. Dividends received or receivable from associates and joint ventures are recognised as a reduction in the carrying amount of the investment.

 

Unrealised gains on transactions between the Group and its associates and joint ventures are eliminated to the extent of the Group’s interest in these entities. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of equity-accounted investees have been changed where necessary to ensure consistency with the policies adopted by the Group.

 

If its interest in the associates and joint ventures decreases, but the Group retains significant influence or joint control, only the proportional amount of the previously recognized amounts in Other comprehensive income is reclassified in Income, when appropriate.

 

e)Business combinations

 

During 2020 the Group acquired certain companies as part of our growth strategy and the fair value of the identifiable assets acquired and liabilities assumed as of each acquisition date were:

 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements  

As of March 31, 2021

In thousands of Brazilian Reais, unless otherwise stated 

 

  Fliper Antecipa DM10 Total
Assets        
Cash  617   1,917   275   2,809 
Other assets  -   95   411   506 
Intangible assets  2,869   10,037   2,950   15,856 
   3,486   12,049   3,636   19,171 
Liabilities                
Other liabilities  (6,159)  (198)  (1,522)  (7,879)
                 
Total identifiable net assets at fair value  (2,673)  11,851   2,114   11,292 
Goodwill arising on acquisition (*)  39,832   20,732   14,886   75,450 
Contingent consideration (**)  30,300   8,732   -   39,032 
Purchase consideration transferred (*)  67,459   41,315   17,000   125,774 
                 

Analysis of cash flows on acquisition

 

                
Net cash acquired with the subsidiary  (617)  (1,917)  (275)  (2,809)
Payable in installments  -   (14,636)  (6,000)  (20,636)
Contingent consideration  (30,300)  (8,732)  -   (39,032)
Net of cash flow on acquisition (investing activities)  36,542   16,030   10,725   63,297 

 

From R$ 63,297 of net cash flow on aquisition, R$ 62,443 was settled during 2020, and R$ 854 was settled in 2021.

 

*During the measurement period, the purchase consideration transferred for the acquisitions was adjusted to R$ 125,774 (R$ 100,923 previously disclosed) as a result of purchase price adjustments. Accordingly, goodwill was updated to R$2,233.

 

** During the measurement period, the preliminary contingent consideration for the acquisitions was adjusted to R$39,032 (R$14,183 previously disclosed) as a result of a fair value adjustment of R$24,849.

 

For the purchase price allocation, the following intangible assets were identified. The valuation techniques used for measuring the fair value of separately identified intangible assets acquired were as follows:

 

Assets Amount Method Expected amortization period
Customer list 2,181 Multi-period excess earning method 5.5 years
Trademark 3,799 Relief from royalty 5 years
Technology 9,876 Relief from royalty 5 years

 

For the concluded acquisitions, the total consideration paid is R$125,773, being: i) R$62,443 paid in cash, ii) R$21,487 payable in three consecutives annual installments from 2020 to 2022 adjusted by the Interbank Certificates of Deposit (“CDI”) rate and iii) R$ 39,032 as a fair value of the contingent consideration.

 

The goodwill recognized includes the value of expected synergies arising from the acquisition, which is not separately recognized. The goodwill recognized is not expected to be deductible for income taxes purposes.

 

In addition, the Company incurred direct costs for the business combinations which were expensed as incurred.

 

The results of operations of the businesses acquired for periods prior to acquisitions, individually and in the aggregate, were not material to the Company´s consolidated statements of income and, accordingly, pro forma information has not been presented.

 

10 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements  

As of March 31, 2021

In thousands of Brazilian Reais, unless otherwise stated 

 

Acquisition of Carteira Online Controle de Investimentos Ltda.-ME (“Fliper”)

 

On June 5, 2020, the Group entered into an agreement, to acquire 100% of total share capital of Carteira Online Controle de Investimentos Ltda.-ME (“Fliper”). Fliper is an automated investment consolidation platform that offers its users connectivity and tools to perform intuitive and intelligent financial self-management. The transaction allows the Group to offer its customers additional resources to manage their investments, as the open banking trend continues to accelerate in Brazil. On July 13, 2020, the acquisition was consummated, through approval of Central Bank (BACEN).

 

Acquisition of DM10 Corretora de Seguros e Assessoria Ltda. (“DM10”)

 

On June 9, 2020, the Group entered into an agreement, to acquire 100% of total share capital of DM10 Corretora de Seguros e Assessoria Ltda. (“DM10”). DM10 is an marketplace that connects hundreds of independent distributors with Life Insurance and Pension Plan products, adding value through technology and education. With the transaction, the Group enhances its distribution network in the insurance division. On September 24, 2020, the acquisition was consummated, through approval of Central Bank (BACEN).

 

Acquisition of Antecipa S.A. (“Antecipa”)

 

On June 29, 2020, the Group entered into an agreement, to 100% of total share capital of Antecipa S.A. (“Antecipa”). Antecipa is a digital platform focused on financing of receivables and offering an efficient alternative for companies to optimize its cash flow management. For the Group, the acquisition represents an opportunity to further expand its product range and reinforce the company’s presence in the Small to Medium Enterprise (SME) and corporate segments in Brazil, similar to XP’s transformational initiatives across the Retail, High-Income and Private Market channels. On September 1, 2020, acquisition was consummated, through approval of Central Bank (BACEN).

 

Acquisition of Riza Capital Consultoria de Investimentos S.A (“Riza”)

 

On December 23, 2020 the Group entered into an agreement, to acquire 100% of total share capital of Riza an independent financial advisory company. Riza has one of the most seasoned and respected teams in the segment, with experience in important financial institutions and active participation in some of the most relevant M&A transactions over the last decades. The transaction is aligned with XP Inc.’s strategy to reinforce its Capital Markets ecosystem.

 

As at March 31, 2021, the acquisition of Riza has not been completed. The Company expects to conclude the transaction during 2021, subject to certain contractual precedent conditions. After the closing of the acquisition XP will proceed with the purchase price allocation of net assets acquired as well as the consolidation of entities purchased.

 

f)Segment reporting

 

In reviewing the operational performance of the Group and allocating resources, the chief operating decision maker of the Group (“CODM”), who is the Group’s Chief Executive Officer (“CEO”) and the Board of Directors (“BoD”), represented by statutory directors holders of ordinary shares of the immediate parent of the Company, reviews selected items of the statement of income and of comprehensive income.

 

The CODM considers the whole Group as a single operating and reportable segment, monitoring operations, making decisions on fund allocation and evaluating performance based on a single operating segment. The

11 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements  

As of March 31, 2021

In thousands of Brazilian Reais, unless otherwise stated 

 

 

CODM reviews relevant financial data on a combined basis for all subsidiaries and joint ventures. Disaggregated information is only reviewed at the revenue level (Note 23), with no corresponding detail at any margin or profitability levels.

 

The Group’s revenue, results and assets for this one reportable segment can be determined by reference to the unaudited interim condensed consolidated statements of income and of comprehensive income and unaudited interim condensed consolidated balance sheet.

 

See Note 23 (c) for a breakdown of total revenue and income and selected assets by geographic location.

 

g)Estimates

 

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

 

In preparing these unaudited interim condensed consolidated financial statements, the significant judgements and estimates made by management in applying the Group’s accounting policies and the key sources of estimation uncertainty were the same as those that are set the consolidated financial statements for the year ended December 31, 2020.

 

3.Securities purchased (sold) under resale (repurchase) agreements

 

a)Securities purchased under agreements to resell

 

  

March 31,

2021

 December 31, 2020
     
Available portfolio  2,959,713   1,409,742 
National Treasury Notes (NTNs) (a)  1,322,501   876,146 
Financial Treasury Bills (LFTs) (a)  650,613   452,714 
National Treasury Bills (LTNs) (a)  873,138   44,093 
Debentures (b)  113,461   36,789 
         
Collateral held  3,783,057   5,218,037 
National Treasury Bills (LTNs) (a)  977,999   976,468 
National Treasury Notes (NTNs) (a)  2,360,239   4,241,569 
Financial Treasury Bills (LFTs) (a)  241,195   - 
Debentures (b)  203,624   - 
         
Expected Credit Loss (c)  (1,311)  (370)
         
Total  6,741,459   6,627,409 

 

(a) Investments in purchase and sale commitments collateral-backed by sovereign debt securities refer to transactions involving the purchase of sovereign debt securities with a commitment to sale originated in the subsidiary XP CCTVM and in exclusive funds and were carried out at an average fixed rate of 2.58% p.a. (1.91% p.a. as of December 31, 2020).

 

(b) Refers to fixed-rate fixed-income and low-risk investments issued by financial institutions, collateral-backed by debentures.

 

(c) The reconciliation of gross carrying amount and the expected credit loss segregated by stages are presented in the Note 10.

 

12 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements  

As of March 31, 2021

In thousands of Brazilian Reais, unless otherwise stated 

 

As of March 31, 2021, R$1,191,577 (December 31, 2020 - R$593,673) from the total amount of available portfolio is being presented as cash equivalents in the statements of cash flows.

 

b)Securities sold under repurchase agreements

 

  

March 31,

2021

 

December 31,

2020

National Treasury Bills (LTNs)  17,018,906   18,318,498 
National Treasury Notes (NTNs)  22,008,552   13,497,944 
Financial Treasury Bills (LFTs)  5,215,499   - 
Debentures  240,140   22,902 
Total  44,483,097   31,839,344 
         

 

As of March 31, 2021, securities sold under repurchase agreements were agreed with average interest rates of 2.64% p.a. (December 31, 2020 – 1.89% p.a.), with assets pledged as collateral.

 

4.Securities

 

a)Securities classified at fair value through profit and loss:

 

  

March 31,

2021

 

December 31,

2020

  Gross carrying amount 

Fair

value

 Gross carrying amount 

Fair

value

Financial assets (ii)        
At fair value through profit or loss  63,160,733   62,855,038   49,157,111   49,590,013 
Brazilian government bonds  40,895,440   40,563,575   30,752,903   31,129,671 
Investment funds (ii)  14,989,732   14,994,872   11,216,914   11,221,774 
Stocks issued by public-held company  4,558,222   4,557,967   3,802,610   3,802,470 
Debentures  1,184,649   1,188,995   1,111,595   1,114,967 
Structured transaction certificate  382,230   401,185   485,012   515,960 
Bank deposit certificates (i)  287,617   289,022   371,455   372,329 
Agribusiness receivables certificates  152,999   151,756   359,607   363,721 
Certificate of real estate receivable  84,919   83,055   97,606   96,930 
Financial credit bills  65,449   65,758   81,465   82,209 
Uniated States government bonds  19,968   20,004   590,710   602,214 
Real estate credit bill  2,085   2,121   474   477 
Others (iii)  537,423   536,728   286,760   287,291 
                 
(i)Bank deposit certificates includes R$ 91,833 presented as cash equivalents in the statements of cash flows.

(ii)Financial assets include R$ 16,896,508 (December 31, 2020 – R$ 13,387,913) related to Specially Constituted Investment Fund (“FIE”) as presented in Note 18, out of which R$14,181,289 (December 31, 2020 – R$ 10,625,520) are Investments funds.

(iii)Mainly related to bonds issued and traded overseas.

13 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements  

As of March 31, 2021

In thousands of Brazilian Reais, unless otherwise stated 

 

 

b)Securities at fair value through other comprehensive income are presented in the following table:

 

  

March 31,

2021

 

December 31,

2020

  Gross carrying amount 

Fair

value

 Gross carrying amount 

Fair

value

Financial assets        
At fair value through other comprehensive income        
Brazilian government bonds (i)  21,977,757   21,629,266   19,011,499   19,039,044 

 

(i)Includes expected credit losses in the amount of R$ 10,238 (2020 – R$ 8,855). The reconciliation of gross carrying amount and the expected credit loss are presented in the Note 10.

 

c)Securities evaluated at amortized cost are presented in the following table:

 

  

March 31,

2021

 

December 31,

2020

  Gross carrying amount 

Book

value

 Gross carrying amount 

Book

value

Financial assets        
At fair value through other comprehensive income        
Bonds (i)  1,916,962   1,915,816   1,829,791   1,828,704 

 

(i)Includes expected credit losses in the amount of R$ 1,146 (2020 – R$ 1,087). The reconciliation of gross carrying amount and the expected credit loss are presented in the Note 10.

 

d)Securities on the financial liabilities classified at fair value through profit or loss are presented in the following table:

 

  

March 31,

2021

 

December 31,

2020

  Gross carrying amount 

Fair

value

 Gross carrying amount 

Fair

value

Financial liabilities        
At fair value through profit or loss        
Securities loaned  2,705,869   2,705,869   2,237,442   2,237,442 

 

e)Securities classified by maturity:

 

  Assets Liabilities
  

March 31,

2021

 December 31, 2020 

March 31,

2021

 December 31, 2020
         
Financial assets        
At fair value through PL and at OCI        
Current  38,300,712   34,572,107   2,705,869   2,237,442 
Non-stated maturity  19,903,106   15,246,105   2,705,869   2,237,442 
Up to 3 months  11,831,738   794,025   -   - 
From 3 to 12 months  6,565,868   18,531,977   -   - 
                 
Non-current  46,193,830   34,065,805   -   - 
After one year  46,193,830   34,065,805   -   - 
                 
Evaluated at amortized cost                
Current  1,916,962   1,829,791   -   - 
Up to 3 months  1,715,080   1,623,487   -   - 
From 3 to 12 months  201,882   206,304   -   - 
                 
Total  86,411,504   70,467,703   2,705,869   2,237,442 

14 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements  

As of March 31, 2021

In thousands of Brazilian Reais, unless otherwise stated 

 

The reconciliation of expected loss to financial assets at amortized cost – securities according with IFRS 9 is demonstrated in Note 10.

 

5.Derivative financial instruments

 

The Group trades derivative financial instruments with various counterparties to manage its overall exposures (interest rate, foreign currency and fair value of financial instruments) and to assist its customers in managing their own exposures.

 

Below is the composition of the derivative financial instruments portfolio (assets and liabilities) by type of instrument, stated fair value and by maturity:

 

  

March 31,

2021

  Notional Fair Value % 

Up to 3

months

 

From 3 to

12 months

 

Above

12 months

Assets            
Options  509,856,294   6,967,818   95%  3,059,069   2,467,835   1,440,914 
Swap contracts  8,009,244   919,856   1%  210,430   79,270   630,156 
Forward contracts  10,565,131   5,488,700   2%  4,770,720   679,012   38,968 
Future contracts  9,565,259   210,534   2%  141,705   50,885   17,944 
Total  537,995,928   13,586,908   100%  8,181,924   3,277,002   2,127,982 
                         
Liabilities                        
Options  428,490,648   7,717,168   95%  3,535,508   2,377,603   1,804,057 
Swap contracts  7,333,816   1,247,598   2%  200,494   496,051   551,053 
Forward contracts  10,581,320   4,598,604   2%  4,564,545   21,952   12,107 
Future contracts  1,564,977   233   1%  -   11   222 
Total  447,970,761   13,563,603   100%  8,300,547   2,895,617   2,367,439 
                         

 

15 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements  

As of March 31, 2021

In thousands of Brazilian Reais, unless otherwise stated 

 

 

 

  

December 31,

2020

  Notional Fair Value % 

Up to 3

months

 

From 3 to

12 months

 

Above 12

months

Assets            
Options  681,464,674   6,298,358   83%  2,327,062   2,351,285   1,620,011 
Swap contracts  5,578,227   777,816   10%  35,241   206,921   535,654 
Forward contracts  2,905,411   456,724   6%  230,862   201,324   24,538 
Future contracts  43,100,609   26,535   1%  26,535   -   - 
Total  733,048,921   7,559,433   100%  2,619,700   2,759,530   2,180,203 
                         
Liabilities                        
Options  614,741,256   6,735,478   87%  2,152,890   2,378,689   2,203,899 
Swap contracts  6,143,671   870,393   11%  99,249   213,532   557,612 
Forward contracts  3,035,011   200,272   3%  133,679   49,102   17,491 
Future contracts  44,981,642   13,221   1%  542   1,742   10,937 
Total  668,901,580   7,819,364   100%  2,386,360   2,643,065   2,789,939 
                         

 

 

6.Hedge accounting

 

The Group has two types of hedge relationships: hedge of net investment in foreign operations and fair value hedge. For hedge accounting purposes, the risk factors measured by the Group are:

 

·Interest Rate: Risk of volatility in transactions subject to interest rate variations;

 

·Currency: Risk of volatility in transactions subject to foreign exchange variation.

 

The structure of risk limits is extended to the risk factor level, where specific limits aim at improving the monitoring and understanding processes, as well as avoiding concentration of these risks.

 

The structures designed for interest rate and exchange rate categories take into account total risk when there are compatible hedging instruments. In certain cases, management may decide to hedge a risk for the risk factor term and limit of the hedging instrument.

 

a)Hedge of net investment in foreign operations

 

In the period ended March 31, 2021, the objective for the Group was to hedge the risk generated by the US$ variation from investments in our subsidiaries in the United States, XP Holdings International and XP Advisors Inc.

 

The Group has entered into forward contracts to protect against changes in future cash flows and exchange rate variation of net investments in foreign operations known as Non Deliverable Forward (“NDF”) contracts.

 

The Group undertakes risk management through the economic relationship between hedge instruments and hedged item, in which it is expected that these instruments will move in opposite directions, in the same proportions, with the aim of neutralizing the risk factors.

 

16 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements  

As of March 31, 2021

In thousands of Brazilian Reais, unless otherwise stated 

 

 

 

  Hedged item Hedge instrument
  Book Value      
Strategies Assets Liabilities Variation in value recognized in Other comprehensive income Notional value Variation in the
amounts used to
calculate hedge
ineffectiveness
March 31, 2021          
Foreign exchange risk          
Hedge of net investment in foreign operations  282,760   -   24,103   427,297   (20,744)
Total  282,760   -   24,103   427,297   (20,744)
                     
December 31, 2020                    
Foreign exchange risk                    
Hedge of net investment in foreign operations  245,986   -   52,299   349,218   (60,563)
Total  245,986   -   52,299   349,218   (60,563)

 

b)Fair value hedge

 

The fair value hedging strategy of the Group consists of hedging the exposure of Fixed-Income securities carried out through structured operations certificates.

 

The market risk hedge strategy involves avoiding temporary fluctuations in earnings arising from changes in the interest rate market in Reais. Once this risk is offset, the Group seeks to index the portfolio to the CDI, through the use of derivatives (DI1 Futuro).

 

The hedge is contracted in order to neutralize the total exposure to the market risk of the fixed-income funding portfolio, excluding the portion of the fixed-income compensation represented by the credit spread of Banco XP S.A, seeking to obtain the closest match deadlines and volumes as possible.

 

The effects of hedge accounting on the financial position and performance of the Group are presented below:

 

  Hedged item Hedge instrument
  Book Value      
Strategies Assets Liabilities Variation in value recognized in income Nominal value Variation in the amounts used to calculate hedge ineffectiveness
March 31, 2021          
Interest rate risk          
Hedge of  pre-fixed operations  -   2,841,116   228,878   2,838,377   (228,524)
Total  -   2,841,116   228,878   2,838,377   (228,524)
                     
December 31, 2020                    
Interest rate risk                    
Hedge of  pre-fixed operations  -   2,178,459   (47,923)  2,188,732   46,795 
Total  -   2,178,459   (47,923)  2,188,732   46,795 

 

 

17 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements  

As of March 31, 2021

In thousands of Brazilian Reais, unless otherwise stated 

 

 

   March 31, 2021
    Book value (i)    
Hedge Instruments Notional amount Assets Liabilities Variation in fair value used to calculate hedge ineffectiveness Hedge ineffectiveness recognized in income
Interest rate risk          
Futures  2,838,377   -   2,841,116   (228,524)  354 
                     

 

  

December 31, 2020

    Book value (i)    
Hedge Instruments Notional amount Assets Liabilities Variation in fair value used to calculate hedge ineffectiveness Hedge ineffectiveness recognized in income
Interest rate risk          
Futures  2,188,732   -   2,178,459   46,795   (1,128)

 

(i)Amounts recorded within financial statement line “Derivative financial instruments”. See Note 5.

 

The table below presents, for each strategy, the notional amount and the fair value adjustments of hedge instruments and the book value of the hedged item:

 

  March 31, 2021 December 31, 2020
Strategies Hedge instruments Hedge item Hedge instruments Hedge item
  Notional amount Fair value adjustments Book value Notional amount Fair value adjustments Book value
Hedge of Fair Value  2,838,377   (228,524)  228,878   2,188,732   (47,923)  46,795 
Hedge of net investment in foreign operations  427,297   (20,744)  24,103   349,218   (60,563)  52,299 
Total  3,265,674   (249,268)  252,981   2,537,950   (108,486)  99,094 

 

The table below shows the breakdown notional value by maturity of the hedging strategies:

 

  

March 31, 2021

  0-1 year 1-2 years 2-3 years 3-4 years 4-5 years 5-10 years Total
Hedge of Fair Value  18,367   19,307   166,022   103,503   1,049,761   1,481,417   2,838,377 
Hedge of net investment in foreign operations  42,730   -   162,373   222,194   -   -   427,297 
Total  61,097   19,307   328,395   325,697   1,049,761   1,481,417   3,265,674 

 

  December 31, 2020
  0-1 year 1-2 years 2-3 years 3-4 years 4-5 years 5-10 years Total
Hedge of Fair Value  1,977   13,375   94,099   44,843   672,978   1,361,460   2,188,732 
Hedge of net investment in foreign operations  -   -   146,547   202,671   -   -   349,218 
Total  1,977   13,375   240,646   247,514   672,978   1,361,460   2,537,950 

 

18 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements  

As of March 31, 2021

In thousands of Brazilian Reais, unless otherwise stated 

 

 

7.Loan operations

 

Following are the breakdown of the carrying amount of loan operations by class, sector of debtor and maturity:

 

Loans by type 

March

31,2021

 December 31, 2020
Retail    
Pledged asset loan  3,472,794   2,698,018 
Non-pledged loan  121,739   116,978 
Credit card  317,266   51,270 
Corporate        
Pledged asset loan  1,104,551   946,008 
Non-pledged loan  31,046   113,155 
Total Loans operations  5,047,396   3,925,429 
Expected Credit Loss (Note 10)  (5,983)  (7,101)
Total loans operations, net of Expected Loss  5,041,413   3,918,328 

 

 

By maturity 

March 31,

2021

 

December 31,

2020

Due in 3 months or less  249,274   160,918 
Due after 3 months through 12 months  800,923   580,183 
Due after 12 months  3,997,199   3,184,328 
Total Loans operations  5,047,396   3,925,429 

 

The Group offers loan products through Banco XP to its customers. The loan products offered to its customers are fully collaterized by customers’ investments on XP platform and credit product strictly related to investments in structured notes, in which the borrower is able to operate leveraged, retaining the structured note itself as guarantee for the loan.

 

Certain loans operations originated by the collateralized credit has insignificant risk of loss, which results in no loss allowance being recognised in accordance with the Group's expected credit loss model. The carrying amount of such financial assets is R$349,890 at March 31, 2021 (December 31, 2020 – R$297,443).

 

The Group uses client’s investments as collaterals to reduce potential losses and protect against credit risk exposure by managing these collaterals so that they are always sufficient, legally enforceable (effective) and viable, the Group monitors the value of the collaterals. The Credit Risk Management provides subsidies to define strategies as risk appetite, to establish limits, including exposure analysis and trends as well as the effectiveness of the credit policy.

 

The reconciliation of loans operations according with IFRS 9 is demonstrated in Note 10.

 

19 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements  

As of March 31, 2021

In thousands of Brazilian Reais, unless otherwise stated 

 

8.Prepaid expenses

 

  

March 31,

2021

 December 31, 2020
Commissions and premiums paid in advance (a)  1,702,308   1,314,771 
Marketing expenses  21,984   28,056 
Services paid in advance  8,248   6,245 
Other expenses paid in advance  52,158   44,465 
Total  1,784,698   1,393,537 
         
Current  114,754   283,183 
Non-current  1,669,944   1,110,354 

 

(a) Mostly comprised by long term investment programs implemented by XP CCTVM through its network of IFAs. These commissions and premiums paid are recognized at the signing date of each contract and are amortized in the statement of income of the Company, linearly, according to the investment term period.

 

9.Securities trading and intermediation (receivable and payable)

 

Represented by operations at B3 on behalf of and on account of third parties, with liquidation operating cycle between D+1 and D+3.

 

  March 31, 2021 December 31, 2020
Cash and settlement records  1,279,944   18,128 
Debtors pending settlement  1,705,048   847,620 
Other  255,251   241,303 
(-) Expected losses on Securities trading and intermediation (a)  (56,113)  (55,485)
Total Assets  3,184,130   1,051,566 
         
Cash and settlement records  905,410   59,712 
Creditors pending settlement  19,493,120   20,243,409 
Total Liabilities  20,398,530   20,303,121 

 

(a)The reconciliation of gross carrying amount and the expected loss according with IFRS 9 were demonstrated in Note 10.

 

 

10.Expected Credit Losses on Financial Assets and Reconciliation of carrying amount

 

It is presented below the reconciliation of gross carrying amount of Financial assets through other comprehensive income and Financial assets measured at amortized cost – that have their ECLs (Expected Credit Losses) measured using the three stage model, the low credit risk simplification and the simplified approach and the ECLS as of March 31, 2021:

 

20 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements  

As of March 31, 2021

In thousands of Brazilian Reais, unless otherwise stated 

 

      March 31, 2021
  Gross carrying amount Expected Credit Losses Carrying amount, net
       
Financial assets at fair value through other comprehensive income      
Low credit risk simplification      
Securities (i)  21,639,504   (10,238)  21,629,266 
             
Financial assets amortized cost            
Low credit risk simplification            
Securities (i)  1,916,962   (1,146)  1,915,816 
Securities purchased under agreements to resell (i)  6,742,770   (1,311)  6,741,459 
Three stage model            
Loans and credit card operations (ii) (iii)  5,047,204   (5,791)  5,041,413 
Simplified approach            
Securities trading and intermediation  3,240,243   (56,113)  3,184,130 
Accounts Receivable  374,771   (7,312)  367,459 
Other financial assets  293,729   (4,163)  289,566 
             
Total losses for on-balance exposures  39,255,183   (86,074)  39,169,109 
             
Off-balance exposures (iv)  562,017   (192)  561,825 
             
Total exposures  39,817,200   (86,266)  39,730,934 

 

(i)Financial assets considered in Stage 1.

 

(ii)As of March 31, 2021 are presented in Stage 1: Gross amount of R$ 4,243,736 and ECL of R$ 3,284 and Stage 2: Gross amount of R$ 803,468 and ECL of R$ 2,507 respectively.

 

(iii)As of March 31, 2021 there were transfers between Stage 1 to Stage of R$2,156.

 

(iv)Include credit cards limits and sureties.

 

21 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements  

As of March 31, 2021

In thousands of Brazilian Reais, unless otherwise stated 

 

      December 31, 2020
  Gross carrying amount Expected Credit Losses Carrying amount, net
       
Financial assets at fair value through other comprehensive income            
Low credit risk simplification            
Securities (i)  19,047,899   (8,855)  19,039,044 
             
Financial assets amortized cost            
Low credit risk simplification            
Securities (i)  1,829,791   (1,087)  1,828,704 
Securities purchased under agreements to resell (i)  6,627,779   (370)  6,627,409 
Three stage model            
Loans and credit card operations (ii) (iii)  3,925,429   (7,101)  3,918,328 
Simplified approach            
Securities trading and intermediation  1,107,051   (55,485)  1,051,566 
Accounts Receivable  512,777   (6,418)  506,359 
Other financial assets  73,466   (3,495)  69,971 
             
Total losses for on-balance exposures  33,124,192   (82,811)  33,041,381 
             
Off-balance exposures (credit card limits)  35,810   -   35,810 
             
Total exposures  33,160,002   (82,811)  33,077,191 

 

(i)Financial assets considered in Stage 1.

 

(ii)As of December 31, 2020 are presented in Stage 1: Gross amount of R$ 3,599,808 and ECL of R$ 5,648 and Stage 2: Gross amount of R$ 325,621 and ECL of R$ 1,453 respectively.

 

(iii)As of December 31, 2020, there were no transfers between stages.

 

 

11.Investments in associates and joint ventures

 

Set out below are the associates and joint venture of the Group as of March 31, 2021. The entities listed below have share capital consisting solely of ordinary shares, which are held directly by the Group. The country of incorporation or registration is also their principal place of business, and the proportion of ownership interest is the same as the proportion of voting rights held.

 

Name of entity % of ownership interest Nature of relationship Measurement method Equity Carrying amount
Du Agro Holdings S.A.  49% Joint Venture (1) Equity method  2,543   1,246 
Wealth High Governance Holding de Participações S.A.  49,9% Associate (2) Equity method  144,559   72,135 
O Primo Rico Mídia, Educacional e Participações Ltda.  20% Associate (3) Equity method  19,481   3,896 
Total equity-accounted investments          166,583   77,277 

 

(1) On June 23, 2020, the Company acquired a 49% interest in DuAgro Holdings S.A. (“DuAgro”), a joint venture involved in the agribusiness. DuAgro is an integrated platform that utilizes technology to finance the purchase of agricultural inputs. The focus is on small- and medium-sized producers.

(2) On September 8, 2020, the Company entered into an agreement to hold a 49.9% minority stake of the total share capital of Wealth High Governance Holding de Participações S.A. (“WHG”) formely denominated VPL Gestão Patrimonial e Participações S.A. With this transaction XP Inc. is complementing the existing offering to ultra-high-net-worth individual in the Wealth Management segment.

 

22 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements  

As of March 31, 2021

In thousands of Brazilian Reais, unless otherwise stated 

 

(3) O Primo Rico is a company focused on digital content services, including developing and selling financial education courses and online events.

 

           
Entity 

December 31,

2020

 Equity in earnings Other comprehensive income Goodwill (i) March 31,
2021
Du Agro Holdings S.A.  1,983   (329)  -   -   1,654 
Wealth High Governance Holding de Participações S.A. (ii)  695,859   (2,475)  -   34,927   728,311 
O Primo Rico  2,065   1,720   111   -   3,896 
 Total  699,907   (1,084)  111   34,927   733,861 

(i) Related to the acquisitions of associates and joint ventures. As of December 31, 2020 the goodwill recognized is includes the value of expected synergies arising from the investments.

(ii) The Goodwill includes an element of contingent consideration. The fair value of the contingent consideration is presented in Note 17. During the measurement period, the preliminary fair value of contingent consideration for the acquisitions was adjusted to R$482,744 (R$447,817 previously disclosed).

 

 

12.Property, equipment, goodwill, intangible assets and lease

 

a)Changes in the period

 

  

Property and

equipment

 

Intangible

assets

     
As of January 1, 2020  142,464   553,452 
Additions  20,746   19,914 
Write-offs  (324)  - 
Transfers  (2,083)  2,083 
Depreciation / amortization in the period  (6,255)  (15,648)
As of March 31, 2020  154,548   559,801 
Cost  211,839   672,045 
Accumulated depreciation / amortization  (57,291)  (112,244)
         
As of January 1, 2021  204,032   713,563 
Additions  23,698   114,298 
Business combination  -   27,048 
Write-offs  (452)  (2,576)
Transfers  5   (5)
Foreign exchange  1,091   35 
Depreciation / amortization in the period  (5,233)  (54,362)
As of March 31, 2021  223,141   798,001 
Cost  269,430   952,536 
Accumulated depreciation / amortization  (46,289)  (154,535)
         
b)Impairment test for goodwill

 

Given the interdependency of cash flows and the merger of business practices, all Group’s entities are considered a single cash generating units (“CGU”) and, therefore, goodwill impairment test is performed at the single operating level. Therefore, the carrying amount considered for the impairment test represents the Company’s equity.

 

23 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements  

As of March 31, 2021

In thousands of Brazilian Reais, unless otherwise stated 

 

The Group performs its annual impairment test in December and when circumstances indicates that the carrying value may be impaired. The Group’s impairment tests are based on value-in-use calculations. The key assumptions used to determine the recoverable amount for the cash generating unit were disclosed in the annual consolidated financial statements for the year ended December 31, 2020. As of March 31, 2021, there were no indicators of a potential impairment of goodwill.

 

c)Leases

 

Set out below, are the carrying amounts of the Group’s right-of-use assets and lease liabilities and the movements during the period.

 

  

Right-of-use

assets

 

Lease

liabilities

     
As of January 1, 2020  227,478   255,406 
Additions (i)  19,273   19,361 
Depreciation expense  (9,623)  - 
Interest expense  -   6,145 
Revaluation  (19,968)  (19,968)
Impairment  (3,040)  - 
Effects of exchange rate  22,016   23,561 
Payment of lease liabilities  -   (15,558)
As of March 31, 2020  236,136   268,947 
         
As of January 1, 2021  183,134   208,448 
Additions (i)  1,528   1,528 
Depreciation expense  (9,912)  - 
Interest expense  -   3,965 
Revaluation  21,543   21,275 
Effects of exchange rate  8,137   9,206 
Payment of lease liabilities  -   (13,258)
As of March 31, 2021  204,430   231,164 
Current  -   53,817 
Non-current  204,430   177,347 

 

(i)Additions to right-of-use assets in the period include prepayments to lessors and accrued liabilities.

 

The Group recognized rent expense from short-term leases and low-value assets of R$902 for the period ended March 31, 2021. The total rent expense of R$ 6,070 include other expenses related to leased offices such as condominium.

 

24 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements  

As of March 31, 2021

In thousands of Brazilian Reais, unless otherwise stated 

 

13.Deposits

 

  

March 31,

2021

 December 31,
2020
Demands deposits  148,745   44,536 
Time deposits  3,854,384   2,977,214 
Total  4,003,129   3,021,750 
         
Current  3,545,327   2,524,651 
Non-Current  457,802   497,099 

 

 

Maturity – As of March 31, 2021              
Class Within 30 days From 31 to 60 days From 61 to 90 days From 91 to 180 days From 181 to 360 days After 360 days Total
Demand deposits  148,745   -   -   -   -   -   148,745 
Time deposits  21,533   46,170   145,499   1,549,421   1,633,959   457,802   3,854,384 
Total  170,278   46,170   145,499   1,549,421   1,633,959   457,802   4,003,129 
                             
Maturity – As of December 31, 2020                            
 Class  Within 30 days   From 31 to 60 days   From 61 to 90 days   From 91 to 180 days   From 181 to 360 days   After 360 days   Total 
Demand deposits  44,536   -   -   -   -   -   44,536 
Time deposits  67,501   1,185   57,781   191,886   2,161,762   497,099   2,977,214 
Total  112,037   1,185   57,781   191,886   2,161,762   497,099   3,021,750 

 

 

14.Structured operations certificates

 

Structured Operations Certificates (COE) are financial instruments combining fixed and variable income elements, with returns linked to assets indices such as exchange, inflation, shares and international assets. All the financial instruments its originate by Banco XP S.A.

 

  

March 31,

2021

 December 31, 2020
Maturity        
From 91 to 180 days  1,889   945 
From 180 to 360 days  25,345   1,489 
After 360 days  2,813,882   2,176,025 
Total  2,841,116   2,178,459 
         
Current  27,234   2,434 
Non-Current  2,813,882   2,176,025 

25 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements  

As of March 31, 2021

In thousands of Brazilian Reais, unless otherwise stated 

 

15.Borrowings and lease liabilities

 

  Interest rate % Maturity March 31, 2021 December 31, 2020
         
Bank borrowings – domestic (i) 113% of CDI(*)  March 2021   -   10,523 
Related parties        -   10,523 
               
Financial institution (ii) CDI (*)+ 0.774%  April 2023   275,367   273,564 
Third parties        275,367   273,564 
               
Total borrowings        275,367   284,087 
               
Lease liabilities        231,164   208,448 
               
Total borrowings and lease liabilities        506,531   492,535 
               
Current        62,164   51,656 
Non-current        444,367   440,879 

 

(*) Brazilian Interbank Offering Rate (CDI)

 

(i) Loan agreement with Itaú Unibanco that was fully paid on March 8, 2021.

(ii) Loan agreement entered into on March 28, 2018 with the International Finance Corporation (IFC). The principal amount is due on the maturity date and accrued interests payable at every six months.

 

All the obligations above contain financial covenants, which comply with certain performance conditions. The Group has complied with these covenants throughout the reporting period (Note 31 (ii)).

 

 

16.Debentures

 

On May 15, 2019, the Company issued Debentures, non-convertible into shares, in the amount of R$ 400,000, with the objective of funding the Group’s working capital and treasury investments.

 

As of March 31, 2021, the total balance is comprised of the following issuances:

 

Issuance Quantity Issued (units) 

Annual

rate

 Issuance date Maturity date Unit value at issuance Unit value at period-end 

Book

value

2nd  400,000  107.5% CDI 5/15/2019 5/15/2022 R$1,000.00  R$1,007.76   336,987 
Total  400,000                 336,987 
                       

 

 

  

March 31,

2021

 December 31, 2020
Principal  400,000   400,000 
Interest  26,828   25,091 
Payments  (25,124)  (25,124)
Repurchase  (64,717)  (64,717)
Total  336,987   335,250 
         
Current  205,664   204,731 
Non-current  131,323   130,519 

 

The principal amount and accrued interest payables related to the second issuance are as follow: (i) for the principal amount, 50% is due on May 15, 2021 and the remaining balance on the maturity date, and (ii) the accrued interest is payable every 12 months from the issuance date.

 

26 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements  

As of March 31, 2021

In thousands of Brazilian Reais, unless otherwise stated 

 

Debentures are subject to financial covenants, which comply with certain performance conditions. The Group has complied with these covenants throughout the reporting period (Note 31(ii)).

 

17.Other financial liabilities

 

  

March 31,

2021

 December 31, 2020
Structured financing (i)  1,725,220   874,771 
Contingent consideration (ii)  521,776   462,000 
Foreign exchange portfolio  322,227   70,208 
Credit cards operations (iii)  306,720   50,727 
Financial bills (iii)  83,009   16,389 
Others  15,994   40,079 
Total  2,974,946   1,514,174 
         
Current  2,370,161   1,035,785 
Non-current  604,785   478,389 

 

(i)Financing for maintenance of financial assets required to perform financial transactions.

(ii)Contractual contingent considerations mostly associated to the investment acquisition of WHG, as described in Note 11. The contingent consideration arrangement requires that the Company pay the selling shareholders an amount principally associated to the performance (net income without dividends). The maturity of the total contingent consideration payment is up to 6 years and the contractual maximum amount payable is R$653,222 (the minimum amount is zero).

(iii)Related to operations of Banco XP S.A.

 

 

18.Private pension liabilities

 

As of March 31, 2021, active plans are principally accumulation of financial resources through products PGBL and VGBL structured in the form of variable contribution, for the purpose of granting participants with returns based on the accumulated capital in the form of monthly withdraws for a certain term or temporary monthly withdraws.

 

In this respect, such financial products represent investment contracts that have the legal form of private pension plans, but which do not transfer insurance risk to the Group. Therefore, contributions received from participants are accounted for as liabilities and balance consists of the balance of the participant in the linked Specially Constituted Investment Fund (“FIE”) at the reporting date (Note 4 (a)).

 

27 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements  

As of March 31, 2021

In thousands of Brazilian Reais, unless otherwise stated 

 

Changes in the period:

 

  Three months period ended March 31,
  2021 2020
As of January 1  13,387,913   3,759,090 
Contributions received  619,361   278,357 
Transfer with third party plans  3,123,046   1,636,370 
Withdraws  (211,872)  (46,585)
Gain (loss) from FIE  (21,940)  (472,144)
As of March 31  16,896,508   5,155,088 
         
         
19.Income tax

 

a)Deferred income tax

 

Deferred tax assets (DTA) and deferred tax liabilities (DTL) are comprised of the main following components:

 

  Balance Sheet Net change in the three months period ended
  March 31, 2021 December 31, 2020 March 31, 2021 

March 31,

2020

         
Share based compensation  186,025   115,976   70,049   11,237 
Tax losses carryforwards  143,923   7,382   136,541   22,152 
Provisions for IFAs’ commissions  103,871   94,544   9,327   (3,372)
Profit sharing plan  83,996   164,808   (80,812)  (69,828)
Net gain on hedge instruments  37,745   20,987   16,758   59,091 
Expected credit losses (ii)  21,634   19,444   2,190   8,029 
Revaluations of financial assets at fair value  20,931   (16,780)  37,711   (51,629)
Goodwill on business combinations (i)  20,300   22,838   (2,538)  (7,589)
Other provisions  34,207   67,495   (33,288)  14,019 
Total  652,632   496,694   155,938   (17,890)
Deferred tax assets  652,632   505,046         
Deferred tax liabilities  -   (8,352)        
                 
(i)For tax purposes, goodwill is amortized over 5 years on a straight-line basis when the entity acquired is sold or merged into another entity.

(ii)Include expected credit loss on accounts receivable, loan operations and other financial assets.

 

The changes in the net deferred tax were recognized as follows:

 

  Three months period ended March 31,
  2021 2020
     
As of January 1  496,694   279,401 
Foreign exchange variations  987   21,055 
Charges to statement of income  (9,571)  (47,072)
Tax relating to components of other comprehensive income  164,522   8,128 
As of March 31  652,632   261,512 
         

28 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements  

As of March 31, 2021

In thousands of Brazilian Reais, unless otherwise stated 

 

Unrecognized deferred taxes

 

Deferred tax assets are recognized for tax losses to the extent that the realization of the related tax benefit against future taxable profits is probable. The Group did not recognize deferred tax assets of R$40,169 (December 31, 2020 - R$ 37,309) mainly in respect of losses from subsidiaries overseas and that can be carried forward and used against future taxable income.

 

Changes in Social Contribution on Net Income (CSLL)

 

On March 1, 2021, Provisional Measure No. 1,034 was published increasing the Social Contribution on Net Income (CSLL) rate by 5%, to 25% for Banks and 20% for Broker dealers.

 

The text of the Provisional Measure proposes the validity of the increase in the CSLL rate between July and December 2021. The deadline for converting the Provisional Measure into Law is 60 days, extendable for an additional 60 days from the date of publication of the said rule.

 

The Group is monitoring the impacts on its business, which are still uncertain and will depend on the approval and conversion of the provisional measure into Law and does not expect significant impacts on the Company's results or financial position.

 

b)Income tax expense reconciliation

 

The tax on the Group's pre-tax profit differs from the theoretical amount that would arise using the weighted average tax rate applicable to profits of the consolidated entities. The following is a reconciliation of income tax expense to profit (loss) for the year, calculated by applying the combined Brazilian statutory rates at 34% for the period ended March 31:

 

  

Three months period

ended March 31,

  2021 2020
     
Income before taxes  784,216   516,531 
Combined tax rate in Brazil (a)  34%  34%
Tax expense at the combined rate  266,634   175,620 
         
Income (loss) from entities not subject to taxation  2,176   (9,246)
Effects from entities taxed at different rates  14,068   14,287 
Effects from entities taxed at different taxation regimes (b)  (215,804)  (64,678)
Intercompany transactions with different taxation  (13,394)  (9,156)
Tax incentives  (543)  605 
Non deductible expenses (non-taxable income), net  (5,231)  6,586 
Others  2,162   4,959 
Total  50,068   118,977 
Effective tax rate  6.38%  23.03%
         
Current  40,498   71,905 
Deferred  9,570   47,072 
Total expense  50,068   118,977 

 

(a)Considering that XP Inc. is domiciled in Cayman and there is no income tax in that jurisdiction, the combined tax rate of 34% demonstrated above is the current rate applied to XP Investimentos S.A. which is the holding company of all operating entities of XP Inc. in Brazil.

 

29 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements  

As of March 31, 2021

In thousands of Brazilian Reais, unless otherwise stated 

 

(b)Certain eligible subsidiaries adopted the PPM tax regime and the effect of the presumed profit of subsidiaries represents the difference between the taxation based on this method and the amount that would be due based on the statutory rate applied to the taxable profit of the subsidiaries. Additionally, some entities and investment funds adopt different taxation regimes according to the applicable rules in their jurisdictions

 

Other comprehensive income

 

The tax (charge)/credit relating to components of other comprehensive income is as follows:

 

  Before tax 

(Charge)

/ Credit

 After tax
       
Foreign exchange variation of investees located abroad  56,560   -   56,560 
Gains (losses) on net investment hedge  (85,600)  29,104   (56,496)
Changes in the fair value of financial assets at fair value  52,467   (20,977)  31,490 
As of March 31, 2020  23,427   8,127   31,554 
             
Foreign exchange variation of investees located abroad  26,312   -   26,312 
Gains (losses) on net investment hedge  (31,430)  10,686   (20,744)
Changes in the fair value of financial assets at fair value  (376,434)  153,837   (222,597)
As of March 31, 2021  (381,552)  164,523   (217,029)

 

 

20.Equity

 

(a)Issued capital

 

The Company has an authorized share capital of US$ 35 thousand, corresponding to 3,500,000,000 authorized shares with a par value of US$ 0,00001 each of which:

 

·2,000,000,000 shares are designated as Class A common shares and issued; and

 

·1,000,000,000 shares are designated as Class B common shares and issued.

 

The remaining 500,000,000 authorized but unissued shares are presently undesignated and may be issued by our board of directors as common shares of any class or as shares with preferred, deferred or other special rights or restrictions. Therefore, the Company is authorized to increase capital up to this limit, subject to approval of the Board of Directors.

 

As of March 31, 2021, the Company have R$23 thousand of issued capital which were represented by 377,764,985 Class A common shares and 181,293,980 Class B common shares.

 

(b)Additional paid-in capital and capital reserve

 

Class A and Class B common shares, have the following rights:

 

·Each holder of a Class B common share is entitled, in respect of such share, to 10 votes per share, whereas the holder of a Class A common share is entitled, in respect of such share, to one vote per share.

 

·Each holder of Class A common shares and Class B common shares vote together as a single class on all matters (including the election of directors) submitted to a vote of shareholders, except as provided below and as otherwise required by law.

 

30 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements  

As of March 31, 2021

In thousands of Brazilian Reais, unless otherwise stated 

 

·Class consents from the holders of Class A common shares and Class B common shares, as applicable, shall be required for any modifications to the rights attached to their respective class of shares the rights conferred on holders of Class A common shares shall not be deemed to be varied by the creation or issue of further Class B common shares and vice versa; and

 

·the rights attaching to the Class A common shares and the Class B common shares shall not be deemed to be varied by the creation or issue of shares with preferred or other rights, including, without limitation, shares with enhanced or weighted voting rights.

 

The Articles of Association provide that at any time when there are Class A common shares in issue, Class B common shares may only be issued pursuant to: (a) a share split, subdivision of shares or similar transaction or where a dividend or other distribution is paid by the issue of shares or rights to acquire shares or following capitalization of profits; (b) a merger, consolidation, or other business combination involving the issuance of Class B common shares as full or partial consideration; or (c) an issuance of Class A common shares, whereby holders of the Class B common shares are entitled to purchase a number of Class B common shares that would allow them to maintain their proportional ownership and voting interests in XP Inc.

 

In December 2020, as a result of the completion of the secondary public offering describe in Note 1.1 a number of 7,258,639 Class A common shares were offered by the controlling shareholder of XP Inc.

 

The Board of Directors approved on December 2019 a share based long-term incentive plan, which the maximum number of shares should not exceed 5% of the issued and outstanding shares. As of March 31, 2021, the outstanding number of company reserved under the plans were 10,593,118 restricted share units (“RSUs”) (December 31, 2020 – 11,079,736) and 2,819,912 performance restricted units (“PSUs”) (December 31, 2020 – 2,819,812) to be issued at the vesting date.

 

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

 

(c)Dividends distribution

 

The Group has not adopted a dividend policy with respect to future distributions of dividends. The amount of any distributions will depend on many factors such as the Company's results of operations, financial condition, cash requirements, prospects and other factors deemed relevant by XP Inc. board of directors and, where applicable, the shareholders.

 

For the three months period ended March 31, 2021, XP Inc. has not declared and paid dividends to the shareholders.

 

Non-controlling shareholders of some XP Inc’s subsidiaries has received dividends in the period ended of March 31, 2021.

 

(d)Other comprehensive income

 

Other comprehensive income is comprised of changes in the fair value of financial assets at fair value through other comprehensive income, while this financial assets are not realized. Also includes gains (losses) on net investment hedge and foreign exchange variation of investeeds located abroad.

 

31 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements  

As of March 31, 2021

In thousands of Brazilian Reais, unless otherwise stated 

 

21.Related party transactions

 

The main transactions carried with related parties, under commutative conditions, including interest rates, terms and guarantees, and period-end balances arising from such transactions are as follows:

 

  Assets/(Liabilities) Revenue/(Expenses)
      Three months period ended March 31,
Relation and transaction March 31, 2021 December 31, 2020 2021 2020
         
Shareholders with significant influence (i)  (3,732,842)  (5,667,588)  (21,596)  (26,039)
Securities  91,833   112,127   628   3,780 
Securities purchased under agreements to resell  174,999   -   830   (30,087)
Accounts receivable  326   11,238   297   797 
Securities sold under repurchase agreements  (4,000,000)  (5,780,430)  (23,330)  - 
Borrowings  -   (10,523)  (21)  (529)

 

(i)These transactions are related to Itaú Unibanco who became shareholder of the Company in 2018 and since then a related party.

 

Transactions with related parties also includes transactions among the Company and its subsidiaries in the course of normal operations include services rendered such as: (i) education, consulting and business advisory; (ii) financial advisory and financial consulting in general; (iii) management of resources and portfolio management; (iv) information technology and data processing; and (v) insurance. The effects of these transactions have been eliminated and do not have effects on the consolidated financial statements.

 

 

22.Provisions and contingent liabilities

 

The Company and its subsidiaries are party to judicial and administrative litigations before various courts and government bodies, arising from the ordinary course of operations, involving tax, civil and labor matters and other issues. Periodically, Management evaluates the tax, civil and labor and risks, based on legal, economic and tax supporting data, in order to classify the risks as probable, possible or remote, in accordance with the chances of them occurring and being settled, taking into consideration, case by case, the analyses prepared by external and internal legal advisors.

 

  

March 31,

2021

 December 31,
2020
Tax contingencies  10,129   10,097 
Civil contingencies  10,267   4,281 
Labor contingencies  5,628   5,333 
Total provision  26,024   19,711 
         
Judicial deposits (i)  10,219   10,199 

 

(i)There are circumstances in which the Group is questioning the legitimacy of certain litigations or claims filed against it. As a result, either because of a judicial order or based on the strategy adopted by management, the Group might be required to secure part or the whole amount in question by means of judicial deposits, without this being characterized as the settlement of the liability. These amounts are classified as “Other assets” on the consolidated balance sheets and referred above for information.

 

32 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements  

As of March 31, 2021

In thousands of Brazilian Reais, unless otherwise stated 

 

Changes in the provision during the period

 

  Three months period ended March 31,
  2021 2020
     
As of January 1  19,711   15,193 
Monetary correction  4,498   325 
Provisions accrued  3,308   159 
Provisions reversed  (13)  (546)
Payments  (1,480)  (234)
As of March 31  26,024   14,897 

 

Nature of claims

 

a)Tax

 

As of March 31, the Group has claims classified as probable risk of loss in the amount of R$ 10,129 (December 31, 2020 - R$ 10,097), regarding questioning the definition of the basis for calculating revenues to be paid correctly. This case was pending the specialized technical report after the decision of the court of second instance to grant the right to provide evidence and send the case back to the court of first instance. These processes are supported by judicial deposits in their entirety.

 

b)Civil

 

The majority of the civil and administratives claims involve matters that are normal and specific to the business, and refer to demands for indemnity primarily due to: (i) financial losses in the stock market; (ii) portfolio management; and (iii) alleged losses generated from the liquidation of costumers assets in portfolio due to margin cause and/or negative balance. As of March 31, 2021, there were 102 civil and administrative claims for which the likelihood of loss has been classified as probable, in the amount of R$ 10,267 (December 31, 2020 - R$ 4,281). An amount of R$100 was deposited in court as of March 31, 2021 (December 31, 2020 – R$ 100).

 

c)Labor

 

Labor claims to which the Group is party primarily concern: (i) the existence (or otherwise) of a working relationship between the Group and IFAs; and (ii) severance payment of former employees. As of March 31, 2021, the Company and its subsidiaries are the defendants in approximately 12 cases involving labor matters for which the likelihood of loss has been classified as probable, in the amount of R$ 5,628 (December 31, 2020 - R$ 5,333).

 

Contingent liabilities - probability of loss classified as possible

 

In addition to the provisions constituted, the Company and its subsidiaries have several labor, civil and tax contingencies in progress, in which they are the defendants, and the likelihood of loss, based on the opinions of the internal and external legal advisors, is considered possible, and the contingencies amount to approximately R$ 220,759 (December 31, 2020 - R$ 217,426).

 

33 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements  

As of March 31, 2021

In thousands of Brazilian Reais, unless otherwise stated 

 

Below is summarized these possible claims by nature:

 

  

March 31,

2021

 December 31, 2020
Tax (i)  71,172   71,027 
Civil (ii)  130,778   136,228 
Labor  18,809   10,171 
Total  220,759   217,426 

 

(i)In December 2019, the Group was notified by tax authorities for a requirement of social security contributions due to employee profit sharing payments related to the calendar year 2015, allegedly in violation of Brazilian Law 10.101/00. Currently, the first appeal was denied by the first administrative level of the Revenue Service Office. The Group will provide the ordinary appeal to Administrative Council of Tax Appeals (“CARF”). There are other favorable CARF precedents on the subject and the Group obtained legal opinions that support the Group’s defense and current practice.

 

(ii)The Group is defendant in 477 (December 31, 2020 – 586) civil and administrative claims by customers and investment agents, mainly related to portfolio management, risk rating, copyrights and contract termination. The total amount represents the collective maximum value to which the Group is exposed based on the claims’ amounts monetarily restated.

 

 

23.Total revenue and income

 

a)Net revenue from services rendered

 

Revenue from contracts with customers derives mostly from services rendered and fees charged at daily transactions from customers, therefore mostly recognized at a point in time. Disaggregation of revenue by major service lines are as follows:

 

  

Three months period ended

March 31,

  2021 2020
Major service lines        
Brokerage commission  641,324   504,644 
Securities placement  469,323   348,174 
Management fees  309,897   255,049 
Insurance brokerage fee  31,962   29,226 
Educational services  18,866   25,700 
Other services  118,920   94,085 
   1,590,292   1,256,878 
(-) Sales taxes and contributions on revenue (i)  (135,636)  (104,932)
   1,454,656   1,151,946 
         
(i)Mostly related to taxes on services (ISS) and contributions on revenue (PIS and COFINS).

 

34 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements  

As of March 31, 2021

In thousands of Brazilian Reais, unless otherwise stated 

 

b)Net income from financial instruments

 

  

Three months period

ended March 31,

  2021 2020
     
Net Income of financial instruments at fair value through profit or loss  1,161,364   391,689 
Net Income of financial instruments measured at amortized cost and at fair value through other comprehensive income  32,288   207,299 
(-) Taxes and contributions on financial income  (20,267)  (16,093)
   1,173,385   582,895 
         
c)Disaggregation by geographic location

 

Breakdown of total net revenue and income and selected assets by geographic location:

 

  

Three months period

ended March 31,

  2021 2020
     
Brazil  2,533,157   1,634,093 
United Stated of America  84,915   91,890 
Europe  9,969   8,858 
Total revenue and income  2,628,041   1,734,841 
   

March 31,

2021

   

December 31, 2020

 
         
Brazil  3,802,978   3,244,421 
United Stated of America  122,829   129,956 
Europe  4,081   4,123 
Selected assets (i)  3,929,888   3,378,500 
         

(i) Selected assets are total assets of the Group, less: cash, financial assets and deferred tax assets and are presented by geographic location.

 

None of the clients represented more than 10% of our revenues for the periods presented.

 

24.Operating costs

 

  

Three months period ended

March 31,

  2021 2020
     
Commission costs  676,505   441,951 
Operating losses and provisions  7,411   16,341 
Other costs  153,519   98,562 
Clearing house fees  99,035   63,504 
Third parties’ services  30,829   18,148 
Other (a)  23,655   16,910 
Total  837,435   556,854 
         
(a)Other cost include operational errors and other costs.

 

35 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements  

As of March 31, 2021

In thousands of Brazilian Reais, unless otherwise stated 

 

25.Operating expenses by nature

 

  Three months period ended March 31,
  2021 2020
     
Selling Expenses (a)  44,418   28,476 
         
Administrative expenses  966,278   578,116 
Personnel expenses  693,738   400,980 
Compensation  294,620   177,119 
Employee profit-sharing and bonus  287,478   103,020 
Executives profit-sharing  6,654   72,677 
Other personnel expenses (b)  104,986   48,164 
Other taxes expenses  11,558   6,843 
Depreciation of property and equipment and right-of-use assets  15,146   15,878 
Amortization of intangible assets  54,362   15,648 
Data processing  98,730   55,947 
Technical services  25,271   20,768 
Third parties' services  36,343   40,193 
Other administrative expenses (c)  31,130   21,859 
Total  1,010,696   606,592 

 

(a)Selling expenses refers to advertising and publicity.

(b)Other personnel expenses include benefits, social charges and others.

(c)Other administrative expenses include rent, communication and travel expenses, legal and judicial and other expenses.

 

 

26.Other operating income (expenses), net

 

  Three months period ended March 31,
  2021 2020
     
Other operating income  28,399   27,666 
Revenue from incentives from Tesouro Direto, B3 and Others  18,476   21,672 
Other operating income (a)  9,923   5,994 
         
Other operating expenses  (10,038)  (41,549)
Legal, administrative proceedings and agreement with customers  (826)  (10,246)
Losses on write-off and disposal of assets  (1,673)  (59)
Charity  (3,028)  (16,596)
Other operating expenses (b)  (4,511)  (14,648)
         
Total  18,361   (13,883)

 

(a)Other operating income include recovery of charges and expenses, reversal of operating provisions, interest received on tax and others.

(b)Other operating expenses include fines and penalties, association and regulatory fees and other expenses.

 

36 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements  

As of March 31, 2021

In thousands of Brazilian Reais, unless otherwise stated 

 

 

27.Share-based plan

 

Outstanding shares granted and valuation inputs

 

The maximum number of shares available for issuance under the share-based plan shall not exceed 5% of the issued and outstanding shares.

 

As of March 31, 2021, the outstanding number of Company reserved under the plans were 13,413,030 (December 31, 2020 – 13,899,648) including 10,593,118 RSUs (December 31, 2020 – 11,079,736) and 2,819,912 PSUs (December 31, 2020 – 2,819,912).

 

Set out below are summaries of XP Inc's RSU and PSU activity for March 31, 2021.

 

  RSUs PSUs Total
(In thousands, except weighted-average data, and where otherwise stated) Number of units Number of units Number of units
       
Outstanding, January 1  11,079,736   2,819,912   13,899,648 
Forfeited  (486,618)  -   (486,618)
Outstanding, March 31  10,593,118   2,819,912   13,413,030 

 

No options were granted, expired or vested during the periods covered by the above table.

 

For the three months periods ended March 31, 2021 and 2020, total compensation expense of both plans were R$178,246 (2020 – R$ 28,408), including R$37,697 (2020 – R$ 5,187) of tax provisions and does not include any tax benefits on total share-based compensation expense once, as this expense is not deductible for tax purposes. The tax benefits will be perceived when the shares are converted into common shares.

 

The original weighted-average grant-date fair value of RSU and PSU shares was US$27 and US$ 34.56 respectively. In May 2020, the Company decided to update the measurement condition of its PSU shares, replacing the TSR measurement from US Dollars (US$) to Brazilian Reais (R$), being therefore subject to exchange variation. The weighted-average grant-date fair value of PSU shares for the updated plan was US$52.41. The incremental fair value will be recognised as an expense over the period from the modification date to the end of the vesting period. All other conditions of the PSU shares plan has not been modified.

 

28.Earnings per share (basic and diluted)

 

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

 

Diluted earnings per share is calculated by dividing net income attributable to owners of XP Inc by the weighted average number of shares outstanding during the year plus the weighted average number of shares that would be issued on conversion of all dilutive potential shares into shares. The shares in the share based plan are the only shares with potential dilutive effect.

 

37 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements  

As of March 31, 2021

In thousands of Brazilian Reais, unless otherwise stated 

 

The following table presents the calculation of net income applicable to the owners of the parent and basic and diluted EPS for period ended of March 31:

 

  Three months period ended March 31,
  2021 2020
Net Income attributable to owners of the Parent  733,668   396,860 
Basic weighted average number of outstanding shares (i) (iii)  559,059   551,800 
Basic earnings per share - R$  1.3123   0.7192 
Effect of dilution        
Shared-based plan (ii) (iii)  13,676   4,096 
Diluted weighted average numer of outstanding shares (iii)  572,735   555,896 
Diluted earnings per share - R$  1.2810   0.7139 

 

(i)See on Note 20, the number of XP Inc.’s outstanding common shares during the period.

(ii)See on Note 27, the number of shares granted and forfeited during the period regarding XP Inc.’s Share-based plan.

(iii)Thousands of shares.

 

 

29.Determination of fair value

 

The Group measures financial instruments such as certain financial investments and derivatives at fair value at each balance sheet date.

 

Level 1: The fair value of financial instruments traded in active markets is based on quoted market prices at the end of the reporting period. The financial instruments included in the level 1 consist mainly in public financial instruments and financial instruments negotiated on active markets (i.e. Stock Exchanges).

 

Level 2: The fair value of financial instruments that are not traded in active markets is determined using valuation techniques, which maximize the use of observable market data and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value as instrument are directly or indirectly observable, the instrument is included in level 2. The financial instruments classified as level 2 are composed mainly from private financial instruments and financial instruments negotiated in a secondary market.

 

Level 3: If one or more of the significant inputs is unobservable, the instrument is included in level 3. This is the case for unlisted equity securities.

 

Specific valuation techniques used to value financial instruments include:

 

·Financial assets (other than derivatives) - The fair value of securities is determined by reference to their closing prices on the date of presentation of the consolidated financial statements. If there is no market price, fair value is estimated based on the present value of future cash flows discounted using the observable rates and market rates on the date of presentation.

 

Swap – These operations swap cash flow based on the comparison of profitability between two indexers. Thus, the agent assumes both positions – put in one indexer and call on another.

 

Forward - at the market quotation value, and the installments receivable or payable are prefixed to a future date, adjusted to present value, based on market rates published at B3.

 

38 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements  

As of March 31, 2021

In thousands of Brazilian Reais, unless otherwise stated 

 

Futures – Foreign exchange rates, prices of shares and commodities are commitments to buy or sell a financial instrument at a future date, at a contracted price or yield and may be settled in cash or through delivery. Daily cash settlements of price movements are made for all instruments.

 

Options - option contracts give the purchaser the right to buy the instrument at a fixed price negotiated at a future date. Those who acquire the right must pay a premium to the seller. This premium is not the price of the instrument, but only an amount paid to have the option (possibility) to buy or sell the instrument at a future date for a previously agreed price.

 

Other financial assets and liabilities - Fair value, which is determined for disclosure purposes, is calculated based on the present value of the principal and future cash flows, discounted using the observable rates and market rates on the date the financial statements are presented.

 

• Loans operations – Fair value is determined through the present value of expected future cash flows discounted using the observable rates and market rates on the date the financial statements are presented.

 

Contingent consideration: Fair value of the contingent consideration liability related to acquisitions is estimated by applying the income approach and discounting the expected future payments to selling shareholders under the terms of the purchase and sale agreements.

 

Below are the Group financial assets and liabilities by level within the fair value hierarchy. The Group assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels:

 

  March , 31 2021
  Level 1 Level 2 Level 3 Fair Value Book Value
Financial Assets                    
Financial assets at Fair value through profit or loss                    
Securities  60,208,275   2,646,763   -   62,855,038   62,855,038 
Derivative financial instruments  210,534   13,376,374   -   13,586,908   13,586,908 
Fair value through other comprehensive income                    
Securities  21,629,266   -   -   21,629,266   21,629,266 
Evaluated at amortized cost                    
Securities  1,916,817   -   -   1,916,817   1,915,816 
Securities purchased under agreements to resell  -   6,736,411   -   6,736,411   6,741,459 
Securities trading and intermediation  -   3,184,130   -   3,184,130   3,184,130 
Accounts receivable  -   367,459   -   367,459   367,459 
Loan operations  -   5,041,413   -   5,041,413   5,041,413 
Other financial assets  -   289,566   -   289,566   289,566 
Financial liabilities                    
Fair value through profit or loss                    
Securities loaned  2,705,869   -   -   2,705,869   2,705,869 
Derivative financial instruments  233   13,563,370   -   13,563,603   13,563,603 
Evaluated at amortized cost                    
Securities sold under repurchase agreements  -   44,317,354   -   44,317,354   44,483,097 
Securities trading and intermediation  -   20,398,530   -   20,398,530   20,398,530 
Deposits  -   3,707,630   -   3,707,630   4,003,129 
Structured operations certificates  -   2,841,116   -   2,841,116   2,841,116 
Borrowings and lease liabilities  -   506,453   -   506,453   506,531 
Debentures  -   334,795   -   334,795   336,987 
Accounts payables  -   803,443   -   803,443   803,443 
Other financial liabilities  -   2,453,170   521,776   2,974,946   2,974,946 
                     
                     

39 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements  

As of March 31, 2021

In thousands of Brazilian Reais, unless otherwise stated 

 

  December 31, 2020
  Level 1 Level 2 Level 3 Fair Value Book Value
Financial Assets                    
Financial assets at Fair value through profit or loss                    
Securities  35,549,047   14,040,966   -   49,590,013   49,590,013 
Derivative financial instruments  26,535   7,532,898   -   7,559,433   7,559,433 
Fair value through other comprehensive income                    
Securities  19,039,044   -   -   19,039,044   19,039,044 
Evaluated at amortized cost                    
Securities  1,830,031   -   -   1,830,031   1,828,704 
Securities purchased under agreements to resell  -   6,627,044   -   6,627,044   6,627,409 
Securities trading and intermediation  -   1,051,566   -   1,051,566   1,051,566 
Accounts receivable  -   506,359   -   506,359   506,359 
Loan operations  -   4,037,954   -   4,037,954   3,918,328 
Other financial assets  -   69,971   -   69,971   69,971 
Financial liabilities                    
Fair value through profit or loss                    
Securities loaned  2,237,442   -   -   2,237,442   2,237,442 
Derivative financial instruments  13,221   7,806,143   -   7,819,364   7,819,364 
Evaluated at amortized cost                    
Securities sold under repurchase agreements  -   31,810,893   -   31,810,893   31,839,344 
Securities trading and intermediation  -   20,303,121   -   20,303,121   20,303,121 
Deposits  -   2,636,085   -   2,636,085   3,021,750 
Structured operations certificates  -   2,178,459   -   2,178,459   2,178,459 
Borrowings and lease liabilities  -   492,441   -   492,441   492,535 
Debentures  -   331,520   -   331,520   335,250 
Accounts payables  -   859,550   -   859,550   859,550 
Other financial liabilities  -   1,052,174   462,000   1,514,174   1,514,174 
                     

 

As of March 31, 2021 the total contingent consideration liability is reported at fair value and is dependent on the profitability of the acquired associate (WHG) and businesses (Fliper and Antecipa).The total contingent consideration is classified within Level 3 of the fair value hierarchy. The contigent consideration liability represents the maximum amount payable under the purchase and sale agreements discounted using a weighted average rate of 5.19% p.a. Change in the discount rate by 100 bps would increase/decrease the fair value by R$13,933. The change in the fair value in the contingent consideration between the acquisition date and December 31, 2020 was not material.

 

Transfers into and out of fair value hierarchy levels are analysed at the end of each consolidated financial statements. As of March 31, 2021 the Group had no transfers between Level 2 and Level 3.

 

 

30.Management of financial risks and financial instruments

 

The Group’s activities are exposed to a variety of financial risks: credit risk, liquidity risk, market risk (including currency risk, interest rate risk and price risk), and operational risk. The Group’s overall risk management structure focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Group’s financial performance. The Group uses derivative financial instruments to mitigate certain risk exposures. It is the Group’s policy that no trading in derivatives for speculative purposes may be undertaken.

 

40 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements  

As of March 31, 2021

In thousands of Brazilian Reais, unless otherwise stated 

 

Management has overall responsibility for establishing and supervising the risk management structure of the Group. Risk Management is under a separated structure from business areas, reporting directly to senior management, to ensure exemption of conflict of interest, and segregation of functions appropriate to good corporate governance and market practices.

 

The risk management policies of the Group are established to identify and analyze the risks faced, to set appropriate risk limits and controls, and to monitor risks and adherence to the limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and in the activities of the Group. The Group, through its training and management standards and procedures, developed a disciplined and constructive control environment within which all its employees are aware of their duties and obligations.

 

Regarding one specific subsidiary XP CCTVM, the organizational structure is based on the recommendations proposed by the Basel Accord, in which procedures, policies and methodology are formalized consistent with risk tolerance and with the business strategy and the various risks inherent to the operations and/or processes, including market, liquidity, credit and operating risks. The Group seek to follow the same risk management practices as those applying to all companies.

 

Such risk management processes are also related to going concern management procedures, mainly in terms of formulating impact analyses, business continuity plans, contingency plans, backup plans and crisis management.

 

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

 

Sensitivity analysis

 

According to the market information, the Group performed the sensitivity analysis by market risk factors considered relevant. The largest losses, by risk factor, in each of the scenarios were presented with an impact on the profit or loss, providing a view of the exposure by risk factor of the Group in exceptional scenarios. The following sensitivity analyzes do not consider the functioning dynamics of risk and treasury areas, since once these losses are detected, risk mitigation measures are quickly triggered, minimizing the possibility of significant losses.

 

        

March 31,

2021

Trading portfolio Exposures Scenarios
Risk factors Risk of variation in: I II III
Pre-fixed Pre-fixed interest rate in Reais  (4,985)  (54,441)  (92,397)
Exchange coupons Foreign currencies coupon rate  (174)  (6,874)  (13,572)
Foreign currencies Exchange rates  (1,407)  93,369   281,357 
Price indexes Inflation coupon rates  (163)  (7,496)  (12,359)
Shares Shares prices  (489)  125,400   428,900 
Seed Money (i) Seed Money  (3,796)  (94,890)  (189,779)
     (11,014)  55,068   402,150 

 

41 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements  

As of March 31, 2021

In thousands of Brazilian Reais, unless otherwise stated 

 

 

        

December 31,

2020

Trading portfolio Exposures Scenarios
Risk factors Risk of variation in: I II III
Pre-fixed Pre-fixed interest rate in Reais  (191)  (9,056)  (33,402)
Exchange coupons Foreign currencies coupon rate  (379)  (5,508)  (11,184)
Foreign currencies Exchange rates  (1,997)  (169,318)  (373,807)
Price indexes Inflation coupon rates  (311)  (14,384)  (28,434)
Shares Shares prices  (4,957)  (107,704)  (167,737)
     (7,835)  (305,970)  (614,564)

 

(i)Related to seed money strategy, which includes several risk factors that are dicloused in aggregate.

 

Scenario I: Increase of 1 basis point in the rates in the fixed interest rate yield, exchange coupons, inflation and 1 percentage point in the prices of shares, commodities and currencies;

 

Scenario II: Project a variation of 25 percent in the rates of the fixed interest yield, exchange coupons, inflation, price of shares, commodities and currencies, both rise and fall, being considered the largest losses resulting by risk factor; and

 

Scenario III: Project a variation of 50 percent in the rates of the fixed interest yield, exchange coupons, inflation, prices of shares, commodities and currencies, both rise and fall, being considered the largest losses resulting by risk factor.

 

 

31.Capital Management

 

The Group’s objectives when managing capital are to safeguard their ability to continue as a going concern, so that they can continue to provide returns for shareholders and benefits for other stakeholders, and maintain an optimal capital structure to reduce the cost of capital, In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

 

The Group also monitors capital on the basis of the net debt and the gearing ratio. Net debt is calculated as total debt (including borrowings, lease liabilities, Structured financing and debentures as shown in the consolidated balance sheet) less cash and cash equivalent (including cash, Securities purchased under agreements to resell and certificate deposits as shown in the consolidated statement of cash flows). The gearing ratio corresponds to the net debt expressed as a percentage of total capital.

 

42 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements  

As of March 31, 2021

In thousands of Brazilian Reais, unless otherwise stated 

 

The net debt and corresponding gearing ratios as of March 31, 2021 and December 31, 2020 were as follows:

 

  

March 31,

2021

 

December 31,

2020

Borrowings and lease liabilities  506,531   492,535 
Debentures  336,987   335,250 
Structured financing (Note 17 (i))  1,725,220   874,771 
Total debt  2,568,738   1,702,556 
Cash  (1,556,782)  (1,954,788)
Securities purchased under agreements to resell  (1,191,577)  (593,673)
Certificate deposits (Securities)  (91,833)  (111,933)
Net debt  (271,454)  (957,838)
         
Total equity  11,549,981   10,894,609 
Total capital  11,278,527   9,936,771 
Gearing ratio %  (2.41)%  (9.64)%
         
(i)Minimum capital requirements

 

Although capital is managed considering the consolidated position, certain subsidiaries are subject to minimum capital requirement from local regulators.

 

The subsidiary XP CCTVM, leader of the Prudential Conglomerate (which includes Banco XP), under BACEN regulation regime, is required to maintain a minimum capital and follow aspects from the Basel Accord.

 

The subsidiary XP Vida e Previdência operates in Private Pension Business and is oversight by the SUSEP, being required to present Adjusted Shareholders' Equity (PLA) equal to or greater than the Minimum Required Capital (“CMR”), CMR is equivalent to the highest value between base capital and Venture Capital Liquidity (“CR”).

 

At March 31, 2021 the subsidiaries XP CCTVM and XP Vida e Previdência were in compliance with all capital requirements.

 

There is no requirement for compliance with a minimum capital for the other Group companies.

 

(ii)Financial covenants

 

In relation to the long-term debt contracts, including multilateral instruments, recorded within “Borrowing and lease liabilities” and “Debentures” (Notes 15 and 16), the Group is required to comply with certain performance conditions, such as profitability and efficiency indexes.

 

At March 31, 2021, the amount of contracts under financial covenants is R$ 612,354 (December 31, 2020 – R$619,337). The Group has complied with these covenants throughout the reporting period.

 

Eventual failure of the Group to comply with such covenants may be considered as breach of contract and, as a result, considered for early settlement of related obligations.

 

43 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements  

As of March 31, 2021

In thousands of Brazilian Reais, unless otherwise stated 

 

32.Cash flow information

 

(i)Debt reconciliation

 

  Borrowings Lease liabilities Debentures Total
Total debt as of January 1, 2020  382,078   255,406   835,230   1,472,714 
Acquisitions / Issuance  -   19,361   -   19,361 
Payments  (10,500)  (15,558)  -   (26,058)
Revaluation  -   (19,968)  -   (19,968)
Net foreign exchange diferences  -   23,561   -   23,561 
Interest accrued  4,486   6,145   9,131   19,762 
Interest paid  (572)  -   -   (572)
Total debt as of March 31, 2020  375,492   268,947   844,361   1,488,800 
                 
Total debt as of January 1, 2021  284,087   208,448   335,250   827,785 
Acquisitions / Issuance  -   1,528   -   1,528 
Payments  (10,500)  (13,258)  -   (23,758)
Revaluation  -   21,275   -   21,275 
Net foreign exchange diferences  -   9,206   -   9,206 
Interest accrued  1,818   3,965   1,737   7,520 
Interest paid  (38)  -   -   (38)
Total debt as of March 31, 2021  275,367   231,164   336,987   843,518 

 

 

(ii)Non-cash investing and financing activities

 

Non-cash investing and financing activities disclosed in other notes are: (i) related to business acquisitions through accounts payables and contingent consideration – see Note 2(e) – R$39,032, and (ii) related to Acquisition of investment in associates through accounts payables and contingent consideration – see note 11 – R$482,744.

 

 

 

 

44