UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934

 

For the month of March 2023

 

 

 

Commission File Number: 001-38714

 

STONECO LTD.

(Exact name of registrant as specified in its charter)

 

4th Floor, Harbour Place

103 South Church Street, P.O. Box 10240

Grand Cayman, KY1-1002, Cayman Islands

+55 (11) 3004-9680

(Address of principal executive office)

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

 

Form 20-F

X

  Form 40-F  

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

 

 

 

 

STONECO LTD.

 

INCORPORATION BY REFERENCE

 

This report on Form 6-K shall be deemed to be incorporated by reference into the registration statement on Form S-8 (Registration Number: 333-265382) and Form F-3 (Registration Number: 333-244404) of StoneCo Ltd. and to be a part thereof from the date on which this report is filed, to the extent not superseded by documents or reports subsequently filed or furnished.

 

 

 

SIGNATURE

 

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

 

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

 

Date: March 14, 2023

 

 

 

EXHIBIT INDEX

 

Exhibit No. Description
99.1 StoneCo Ltd. – Audited Consolidated Financial Statements For The Three Years Ended December 31, 2022, 2021 and 2020.

 

 

Exhibit 99.1

 

 

 

 

 

Consolidated Financial Statements

 

StoneCo Ltd.

 

December 31, 2022 and 2021 and the three years ended December 31, 2022

 

with report of Independent Registered Public Accounting Firm

 

 

 

 

 

F-1

 

Index to Consolidated Financial Statements

 

Audited Annual Consolidated Financial Statements   Page
Report of Independent Registered Public Accounting Firm   F-3
Consolidated Statement of Financial Position as of December 31, 2022 and 2021   F-6
Consolidated Statement of Profit or Loss for the years ended December 31, 2022, 2021 and 2020   F-8
Consolidated Statement of Other Comprehensive Income for the years ended December 31, 2022, 2021 and 2020   F-9
Consolidated Statement of Changes in Equity for the years ended December 31, 2022, 2021 and 2020   F-10
Consolidated Statement of Cash Flows for the years ended December 31, 2022, 2021 and 2020   F-11
Notes to Consolidated Financial Statements   F-12

 

 

 

Auditor Data Elements

Year ended

December 31, 2022, December 31, 2021; and December 31, 2020

Auditor Name Ernst & Young Auditores Independentes S/S Ltda.
Auditor Location São Paulo, Brazil
Auditor Firm ID 1448

 

F-2

 

Report of Independent Registered Public Accounting Firm

 

To the Shareholders and the Board of Directors of 

StoneCo Ltd.

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated statement of financial position of StoneCo Ltd. (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of profit or loss, other comprehensive income, changes in equity and cash flow for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board - IASB.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

Critical Audit Matters

 

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

 

Revenue from transaction activities and other services, subscription services and equipment rental and financial income

 

Description of the Matter

 

F-3

 

As discussed in note 16 to the consolidated financial statements, the Company recognizes revenues as each performance obligation is satisfied in accordance with IFRS 15. Total revenue from transaction activities and other services totaled R$ 2,617,407, while revenue from subscription services and equipment rental totaled R$ 1,760,915 and financial income totaled R$ 4,638,022.

 

Auditing the Company’s revenue from transaction activities and other services, subscription services and equipment rental and financial income is complex, since such activities are processed through a complex information technology environment and multiple different contractual arrangements and determining the performance obligations, the timing of revenue recognition and the rate applied on discount fees for the prepayments to clients under those contractual arrangements was complex and required significant auditor judgment.

 

How We Addressed the matter in Our Audit

 

We obtained an understanding, evaluated the design and tested the operating effectiveness of the controls over revenue recognition arising from transaction activities, subscription services, equipment rental and financial income, which included discount fees for the prepayments to clients. For example, we involved our Information Technology personnel to assist us in testing the relevant controls over the information systems that are important to the initiation, recording and classification of revenue transactions.

 

To test revenue from transaction activities, subscription services and equipment rental and discount fees for the prepayments to clients, our audit procedures included, among others: obtaining copies of customer contracts and comparing terms and conditions with the Company’s evaluation of the related performance obligations; testing the mathematical accuracy of the Company’s calculation of the amount of revenue to be recognized as a percentage of total transaction value and testing the collection of cash for the transactions.

 

We also assessed the Company’s related disclosures in respect to its revenue from transaction activities and other services, subscription services and equipment rental and financial income in note 16 to the consolidated financial statements.

 

Impairment of Goodwill - Software cash generating unit

 

Description of the Matter

 

As discussed in note 10.4 to the consolidated financial statements, as of December 31, 2022 the Company's goodwill related to the software cash generating unit amounted R$ 5,264,337. The Company performs goodwill impairment testing at the cash generating unit level annually or more frequently if it observes an indication that a potential impairment exists.

 

Auditing the Company’s software cash generating unit impairment test was complex and highly judgmental due to the significant estimation required to determine the fair value of the cash generating unit utilizing a discounted cash flows model. In particular, the fair value estimate was sensitive to significant assumptions, such as changes in the weighted-average cost of capital, growth of the free cash flow, terminal value and business synergies, which are affected by expectations about future market or economic conditions, particularly those in emerging markets.

 

How We Addressed the matter in Our Audit

 

F-4

 

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s goodwill impairment process, including controls over management’s review of the significant assumptions described above along with the completeness and accuracy of the data used in the fair value estimates.

 

To test management’s estimated fair value of the cash generating unit, we performed audit procedures that included, among others, assessing valuation methodologies used by the Company, involving our valuation specialists to assist in testing the significant assumptions discussed above, and testing the completeness and accuracy of the underlying data used by the Company in its analyses. For example, we compared the significant assumptions used by management to current industry, market and economic trends and evaluated whether changes to the Company’s business model, customer base and product mix would affect the significant assumptions. We assessed the historical accuracy of management’s estimates and performed sensitivity analyses of significant assumptions to evaluate the changes in the fair value of the cash generating units that would result from changes in the assumptions.

 

 

/s/ Ernst & Young Auditores Independentes S/S Ltda.

We have served as the Company‘s auditor since 2016.

 

São Paulo, Brazil

March 10, 2023

F-5

 

StoneCo Ltd.

Consolidated Statement of Financial Position

As of December 31, 2022 and, 2021

(In thousands of Brazilian Reais, unless otherwise stated)

 

   Notes  2022  2021 (Recasted)
Assets         
Current assets         
Cash and cash equivalents   5.2    1,512,604    4,495,645 
Short-term investments   6.3    3,453,772    1,993,037 
Financial assets from banking solution   6.6    3,960,871    2,346,474 
Accounts receivable from card issuers   6.4.1    20,694,523    19,286,590 
Trade accounts receivable   6.5.1    484,722    886,126 
Recoverable taxes   7    150,956    214,837 
Prepaid expenses        129,256    169,555 
Derivative financial instruments   6.8    36,400    219,324 
Other assets        236,099    332,864 
         30,659,203    29,944,452 
Non-current assets               
Long-term investments   6.3    214,765    1,238,476 
Accounts receivable from card issuers   6.4.1    54,334     
Trade accounts receivable   6.5.1    37,324    59,595 
Receivables from related parties   12.1    10,053    4,720 
Deferred tax assets   8.4    679,971    580,492 
Prepaid expenses        101,425    214,092 
Other assets        105,101    141,693 
Investment in associates        109,754    66,454 
Property and equipment   9.3    1,641,178    1,569,520 
Intangible assets   10.3    8,632,332    8,277,518 
         11,586,237    12,152,560 
                
Total assets        42,245,440    42,097,012 

 

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

 

F-6

 

StoneCo Ltd.

Consolidated Statement of Financial Position

As of December 31, 2022 and, 2021

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

          
   Notes  2022  2021 (Recasted)
Liabilities and equity         
Current liabilities         
Deposits from banking customers   6.6    4,023,679    2,201,861 
Accounts payable to clients   6.1.2.2    16,578,738    15,723,331 
Trade accounts payable        596,044    372,547 
Loans and financing   6.7.1    1,847,407    2,578,755 
Obligations to FIDC quota holders   6.7.1    975,248    1,294,806 
Labor and social security liabilities   18.5    468,599    273,347 
Taxes payable   11    329,105    176,453 
Derivative financial instruments   6.8    209,714    23,244 
Other liabilities        145,605    145,501 
         25,174,139    22,789,845 

Non-current liabilities               
Accounts payable to clients   6.1.2.2    35,775    3,171 
Loans and financing   6.7.1    2,728,470    3,556,460 
Obligations to FIDC quota holders   6.7.1        932,368 
Deferred tax liabilities   8.4    500,247    629,911 
Provision for contingencies   13.3    210,376    181,849 
Labor and social security liabilities   18.5    35,842    32,749 
Other liabilities        610,567    343,439 
         4,121,277    5,679,947 
                
Total liabilities        29,295,416    28,469,792 
                
Equity   14           
Issued capital   14.1    76    76 
Capital reserve   14.2    13,818,819    14,541,132 
Treasury shares   14.3    (69,085)   (1,065,184)
Other comprehensive income        (432,701)   (35,792)
Retained earnings (accumulated losses)        (423,203)   96,214 
Equity attributable to owners of the parent        12,893,906    13,536,446 
Non-controlling interests        56,118    90,774 
Total equity        12,950,024    13,627,220 
                
Total liabilities and equity        42,245,440    42,097,012 

 

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

 

F-7

 

StoneCo Ltd.

Consolidated Statement of Profit or Loss

Years ended December 31, 2022, 2021 and 2020

(In thousands of Brazilian Reais, unless otherwise stated)

 

   Notes  2022  2021  2020
Net revenue from transaction activities and other services   16.3    2,617,407    1,626,853    1,144,086 
Net revenue from subscription services and equipment rental   16.3    1,760,915    1,071,932    388,033 
Financial income   16.3    4,638,022    1,877,683    1,647,017 
Other financial income   16.3    572,601    247,293    140,687 
Total revenue and income        9,588,945    4,823,761    3,319,823 
                     
Cost of services        (2,669,752)   (1,713,828)   (769,946)
Administrative expenses        (1,121,357)   (813,341)   (392,476)
Selling expenses        (1,511,241)   (1,012,544)   (505,902)
Financial expenses, net        (3,514,739)   (1,269,058)   (339,844)
Mark-to-market on equity securities designated at FVPL        (853,056)   (1,264,213)    
Other income (expenses), net        (302,501)   (185,894)   (177,056)
    17    (9,972,646)   (6,258,878)   (2,185,224)
                     
Loss on investment in associates        (3,589)   (10,437)   (6,937)
Profit (loss) before income taxes        (387,290)   (1,445,554)   1,127,662 
                     
Current income tax and social contribution   8.3    (292,172)   (171,621)   (216,886)
Deferred income tax and social contribution   8.3    153,066    239,827    (73,330)
Net income (loss) for the year        (526,396)   (1,377,348)   837,446 
                     
Net income (loss) attributable to:                    
Owners of the parent        (519,417)   (1,358,813)   854,071 
Non-controlling interests        (6,979)   (18,535)   (16,625)
         (526,396)   (1,377,348)   837,446 
                     
Earnings (loss) per share                    
Basic earnings (loss) per share for the year attributable to owners of the parent (in Brazilian Reais)   15    (1.67)   (4.40)   2.95 
Diluted earnings (loss) per share for the year attributable to owners of the parent (in Brazilian Reais)   15    (1.67)   (4.40)   2.91 

 

 

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

 

F-8

 

StoneCo Ltd.

Consolidated Statement of Other Comprehensive Income

Years ended December 31, 2022, 2021 and 2020

(In thousands of Brazilian Reais, unless otherwise stated)

 

   Notes  2022  2021  2020
             
Net income (loss) for the year        (526,396)   (1,377,348)   837,446 
                     
Other comprehensive income                    
                     
Other comprehensive income (loss) that may be reclassified to profit or loss in subsequent periods (net of tax):                    
                     
Changes in the fair value of accounts receivable from card issuers at fair value through other comprehensive income        (167,100)   (200,084)   28,726 
Exchange differences on translation of foreign operations        (30,544)   4,651    (410)
Changes in the fair value of cash flow hedge - bonds hedge   6.8.1    (207,222)   (54,144)    
Unrealized loss on cash flow hedge - highly probable future imports            1,512    (1,512)
                     
Other comprehensive income (loss) that will not be reclassified to profit or loss in subsequent periods (net of tax):                    
                     
Net monetary position in hyperinflationary economies        5,384    2,481     
Changes in the fair value of equity instruments designated at fair value through other comprehensive income   6.3    (6,971)   216,466    40,336 
                     
Other comprehensive income (loss) that were reclassified to profit or loss in subsequent periods (net of tax):                    
Reclassification to profit or loss of accumulated exchange differences on disposal of foreign operation - Creditinfo        5,383         
Other comprehensive income (loss) for the year, net of tax        (401,071)   (29,118)   67,140 
                     
Total comprehensive income (loss) for the year, net of tax        (927,467)   (1,406,466)   904,586 
                     
Total comprehensive income (loss) attributable to:                    
Owners of the parent        (916,327)   (1,389,603)   921,404 
Non-controlling interests        (11,140)   (16,863)   (16,818)
Total comprehensive income (loss) for the year, net of tax        (927,467)   (1,406,466)   904,586 

 

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

 

F-9

 

StoneCo Ltd.

Consolidated Statement of Changes in Equity

Years ended December 31, 2022, 2021 and 2020

(In thousands of Brazilian Reais, unless otherwise stated)

 

     Attributable to owners of the parent   
       Capital reserve           
   Notes  Issued capital  Additional paid-in capital  Transactions among shareholders  Special reserve  Other reserves  Total  Treasury shares  Other comprehensive income  Retained earnings  Total  Non-controlling interest  Total
Balance as of December 31, 2019      62   5,440,047   (223,676)  61,127   166,288   5,443,786   (90)  (72,335)  600,956   5,972,379   626   5,973,005 
Net income (loss) for the year      —     —     —     —     —     —     —     —     854,071   854,071   (16,625)  837,446 
Other comprehensive income (loss) for the year      —     —     —     —     —     —     —     67,333   —     67,333   (193)  67,140 
Total comprehensive income      —     —     —     —     —     —     —     67,333   854,071   921,404   (16,818)  904,586 
Capital increase      13   7,872,541   —     —     —     7,872,541   —     —     —     7,872,554   —     7,872,554 
Transaction costs      —     (39,964)  —     —     —     (39,964)  —     —     —     (39,964)  —     (39,964)
Share-based payments      —     —     —     —     31,296   31,296   —     —     —     31,296   212   31,508 
Issuance of shares for business acquisition      —     34,961   —     —     —     34,961   —     —     —     34,961   —     34,961 
Repurchase and cancelation of shares      —     —     —     —     (91)  (91)  —     —     —     (91)  —     (91)
Repurchase of shares      —     —     —     —     —     —     (76,270)  —     —     (76,270)  —     (76,270)
Cash proceeds from noncontrolling interest      —     —     135,055   —     —     135,055   —     —     —     135,055   95,843   230,898 
Dilution of non-controlling interest      —     —     2,138   —     —     2,138   —     —     —     2,138   (2,138)  —   
Non-controlling interests arising on a business combination      —     —     —     —     —     —     —     —     —     —     61,720   61,720 
Others      —     —     —     —     —     —     —     —     —     —     22   22 
Dividends paid      —     —     —     —     —     —     —     —     —     —     (904)  (904)
Balance as of December 31, 2020      75   13,307,585   (86,483)  61,127   197,493   13,479,722   (76,360)  (5,002)  1,455,027   14,853,462   138,563   14,992,025 
Loss for the year      —     —     —     —     —     —     —     —     (1,358,813)  (1,358,813)  (18,535)  (1,377,348)
Other comprehensive income (loss) for the year      —     —     —     —     —     —     —     (30,790)  —     (30,790)  1,672   (29,118)
Total comprehensive income      —     —     —     —     —     —     —     (30,790)  (1,358,813)  (1,389,603)  (16,863)  (1,406,466)
Repurchase of shares      —     —     —     —     —     —     (988,824)  —     —     (988,824)  —     (988,824)
Issuance of shares for purchased non-controlling interests      1   517,740   (209,330)  —     —     308,410   —     —     —     308,411   (77,911)  230,500 
Issuance of shares for business combination      —     —     619,362   —     24,365   643,727   —     —     —     643,727   —     643,727 
Non-controlling interests arising on a business combination      —     —     —     —     —     —     —     —     —     —     50,252   50,252 
Share-based payments      —     —     —     —     133,121   133,121   —     —     —     133,121   33   133,154 
Transaction costs from subsidiaries      —     —     (23,848)  —     —     (23,848)  —     —     —     (23,848)  —     (23,848)
Sale of subsidiary      —     —     —     —     —     —     —     —     —     —     (1,219)  (1,219)
Dividends paid      —     —     —     —     —     —     —     —     —     —     (2,967)  (2,967)
Cash proceeds from non-controlling interest      —     —     —     —     —     —     —     —     —     —     893   893 
Others      —     —     —     —     —     —     —     —     —     —     (7)  (7)
Balance as of December 31, 2021 (Recasted)      76   13,825,325   299,701   61,127   354,979   14,541,132   (1,065,184)  (35,792)  96,214   13,536,446   90,774   13,627,220 
Loss for the year      —     —     —     —     —     —     —     —     (519,417)  (519,417)  (6,979)  (526,396)
Other comprehensive loss for the year      —     —     —     —     —     —     —     (396,909)  —     (396,909)  (4,161)  (401,070)
Total comprehensive income      —     —     —     —     —     —     —     (396,909)  (519,417)  (916,326)  (11,140)  (927,466)
Share-based payments  18.4   —     —     —     —     189,003   189,003   —     —     —     189,003   47   189,050 
Shares delivered under share-based payment arrangements      —     —     (34,315)  —     (88,264)  (122,579)  122,579   —     —     —     —     —   
Transaction costs from subsidiaries      —     —     —     —     —     —     —     —     —     —     (60)  (60)
Equity transaction related to put options over non-controlling interest      —     —     —     —     (78,289)  (78,289)  —     —     —     (78,289)  3,849   (74,440)
Treasury shares - Delivered on business combination and sold  21.3.4(a)  —     —     (703,656)  —     —     (703,656)  873,520   —     —     169,864   —     169,864 
Equity transaction with non-controlling interests      —     —     (6,792)  —     —     (6,792)  —     —     —     (6,792)  (23,757)  (30,549)
Dividends paid      —     —     —     —     —     —     —     —     —     —     (3,601)  (3,601)
Others      —     —     —     —     —     —     —     —     —     —     6   6 
Balance as of December 31, 2022      76   13,825,325   (445,062)  61,127   377,429   13,818,819   (69,085)  (432,701)  (423,203)  12,893,906   56,118   12,950,024 

 

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

 

F-10

 

StoneCo Ltd.

Consolidated Statement of Cash Flow

Years ended December 31, 2022, 2021 and 2020

(In thousands of Brazilian Reais, unless otherwise stated)

 

   Notes  2022  2021  2020
Operating activities                    
Net income (loss) for the year        (526,396)   (1,377,348)   837,446 
Adjustments to reconcile net income (loss) for the year to net cash flows:                    
Depreciation and amortization   9.4    800,326    507,369    256,294 
Deferred income tax and social contribution   8.3    (153,066)   (239,827)   73,330 
Loss on investment in associates        3,589    10,437    6,937 
Interest, monetary and exchange variations, net        (382,707)   (735,125)   (283,899)
Provision for contingencies   13.3    18,849    4,263    2,259 
Share-based payments expense        189,050    133,154    31,508 
Allowance for expected credit losses        88,572    71,972    35,632 
Loss on disposal of property, equipment and intangible assets   20.4    25,347    136,104    52,658 
Effect of applying hyperinflation        3,852    2,040     
Loss on sale of subsidiary        20,308    12,746     
Fair value adjustment in financial instruments at FVPL   20.1    1,179,547    2,570,418    (12,461)
Fair value adjustment in derivatives        90,821    104,979    (5,758)
Remeasurement of previously held interest in subsidiary acquired            (15,848)   (2,992)
Working capital adjustments:                    
Accounts receivable from card issuers        740,190    (2,993,411)   (2,081,945)
Receivables from related parties        12,912    1,050    8,688 
Recoverable taxes        261,867    (238,127)   (18,624)
Prepaid expenses        152,966    (260,090)   (106,359)
Trade accounts receivable, banking solutions and other assets        707,521    244,181    (1,362,356)
Accounts payable to clients        (3,633,937)   4,276,349    1,379,099 
Taxes payable        137,825    247,399    270,014 
Labor and social security liabilities        195,319    (37,373)   109,953 
Provision for contingencies   13.3    (9,799)   (10,180)   (2,193)
Trade accounts payable and other liabilities        323,619    40,768    31,790 
                     
Interest paid        (430,398)   (299,666)   (177,589)
Interest income received, net of costs        2,058,650    1,578,870    1,172,781 
Income tax paid        (191,142)   (128,202)   (157,729)
Net cash (used in) / provided by in operating activities        1,683,685    3,606,902    56,484 
                     
Investing activities                    
Purchases of property and equipment   20.4    (417,733)   (1,082,990)   (372,138)
Purchases and development of intangible assets   20.4    (305,512)   (215,681)   (82,965)
Acquisition of subsidiary, net of cash acquired        (69,837)   (4,737,410)   (247,429)
Sale of subsidiary, net of cash disposed of        (4,325)   (36)    
Proceeds from (acquisition of) short-term investments, net        (1,222,364)   5,370,958    (5,069,142)
Acquisition of equity securities        (15,000)   (2,480,003)    
Disposal of short- and long-term investments – equity securities        183,518    209,324     
Proceeds from the disposal of non-current assets   20.4    27,008    100    7,127 
Acquisition of interest in associates        (46,897)   (41,459)   (44,424)
Net cash used in investing activities        (1,871,142)   (2,977,197)   (5,808,971)
                     
Financing activities                    
Proceeds from borrowings   6.7.2    3,499,986    11,700,297    3,996,820 
Payment of borrowings        (5,009,769)   (7,252,226)   (5,381,130)
Payment to FIDC quota holders        (1,250,000)   (2,767,552)   (2,059,500)
Proceeds from FIDC quota holders            584,191    2,716,138 
Payment of leases   6.7.2    (99,829)   (83,610)   (41,373)
Capital increase, net of transaction costs                7,832,590 
Repurchase of own shares            (988,824)   (76,361)
Sale of own shares   21.3.4(a)   53,406         
Acquisition of non-controlling interests        (325)   (1,265)   (1,012)
Transaction with non-controlling interests            230,500     
Dividends paid to non-controlling interests        (3,601)   (2,967)   (904)
Cash proceeds from non-controlling interest            893    230,898 
Net cash (used in) provided by financing activities        (2,810,132)   1,419,437    7,216,166 
                     
Effect of foreign exchange on cash and cash equivalents        14,548    (487)   14,969 
Change in cash and cash equivalents        (2,983,041)   2,048,655    1,478,648 
                     
Cash and cash equivalents at beginning of year   5.2    4,495,645    2,446,990    968,342 
Cash and cash equivalents at end of year   5.2    1,512,604    4,495,645    2,446,990 
Change in cash and cash equivalents        (2,983,041)   2,048,655    1,478,648 

 

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

 

F-11

 

StoneCo Ltd.

Notes to Consolidated Financial Statements

December 31, 2022, 2021 and 2020

(In thousands of Brazilian Reais, unless otherwise stated)

 

1.Operations

 

StoneCo Ltd. (the “Company”), is a Cayman Islands exempted company with limited liability, incorporated on March 11, 2014. The registered office of the Company is located at 4th Floor, Harbour Place 103 South Church Street.

 

On November 29, 2022, the Company announced that the Brazilian Central Bank (“BACEN”) has approved the technical requirement of change of control submitted by the Company amid a corporate restructuring involving the conversion of Eduardo Pontes interests in Company´s Class B super-voting shares (which were held indirectly through holding companies) into Class A shares directly owned by his family vehicles ("Corporate Restructuring”).

 

As a result of the Corporate Restructuring, there were a decrease in the concentration of votes held by the Company’s founding shareholders and HR Holdings, LLC became the owner of 31.1% of the Company’s voting power, whose ultimate parent is an investment fund, the VCK Investment Fund Limited SAC A, owned by the co-founder of the Company, Andre Street.

 

The individual Company’s shares are publicly traded on Nasdaq (STNE) and depositary receipts (BDRs) representing the Company´s shares are traded on the São Paulo exchange (B3 under the ticker STOC31).

 

The Company and its subsidiaries (collectively, the “Group”) provide financial services and software solutions to clients across in-store. mobile and online devices helping them to better manage their businesses, become more productive and sell more - both online and offline.

 

The consolidated financial statements were approved by the Audit Committee on meeting held on March 10, 2023.

 

1.1.2020 Follow-on

 

On August 12, 2020, the Company filed a follow-on prospectus offering 31,481,250 of its Class A common shares, of a par value of US$0.000079365 per share, including the full exercise of the underwriters’ option to purchase 4,106,250 additional shares (“Offering”).

 

The Offering price was US$47.50 per Class A common share, resulting in gross proceeds of US$ 1,495,359. The Company received net proceeds of US$1,464,702 (or R$7,872,554), after deducting US$30,657 in underwriting discounts and commissions. Additionally, the Company incurred in US$7,278 and (or R$39,964) regarding other offering expenses.

 

The shares offered and sold in the Offering were registered under the Securities Act of 1933, as amended, pursuant to the Company’s Registration Statement on Form F-3 (Registration No. 333-244404), which was declared effective by the Securities and Exchange Commission on August 17, 2020.

 

The Company used the net proceeds from the Offering to finance the acquisition of Linx S.A. (Note 1.2), and to pay related fees and expenses, as well as for general corporate purposes.

 

1.2.Linx acquisition

 

On November 17, 2020, Linx S.A. (“Linx”) held an Extraordinary General Meeting that approved the business combination between STNE Participações S.A. (“STNE Par”), that holds the software investments business of the Group, and Linx, a leading provider of retail management software in Brazil. The transaction was unanimously approved by the Brazilian Antitrust Authority (“CADE”) on June 16, 2021, with no restrictions, and was completed on July 1, 2021.

 

Pursuant to the terms and subject to the conditions set forth in the Association Agreement and its amendments, each Linx share issued and outstanding immediately prior to the consummation of the transaction was automatically contributed to the Group in exchange for one newly issued redeemable STNE Par Class A Preferred Share and one newly issued redeemable STNE Par Class B Preferred Share. Immediately thereafter, each STNE Par Class A Preferred Share was redeemed for a cash payment of R$33.5229 updated proportionally according to the CDI rate variation from February 11, 2021 until the date of the effective payment, and each STNE Par Class B Preferred Share was redeemed for 0.0126730 BDR (Brazilian Depositary Receipt) Level1 (“StoneCo BDR”), admitted to trading on B3, and credited to the shareholders’ account on July 1, 2021, provided that each 1 (one) StoneCo BDR corresponded to 1 (one) StoneCo Class A Share (the “Base Exchange Ratio”). The Base Exchange Ratio was calculated on a fully diluted basis, assuming a number of fully diluted shares of Linx of 178,361,138 on the transaction consummation date and represented a total consideration of R$ 37.78 for each Linx share.

 

The redemption mentioned above was adjusted by Linx’s intermediary dividend payment, approved on June 16, 2021, based on the accumulated profits of fiscal years prior to 2020, as evidenced in its balance sheet as of December 31, 2020, for R$ 100,000 (one hundred million reais), corresponding to R$ 0.5636918 per share. On the date of the dividend approval, the Group already had Linx’s shares classified as Short-term investments, so it received an amount of R$ 20,129 as dividends, recognized in Other income (expenses), net.

 

For further information, see Note 21.4.

 

F-12

 

StoneCo Ltd.

Notes to Consolidated Financial Statements

December 31, 2022, 2021 and 2020

(In thousands of Brazilian Reais, unless otherwise stated)

  

1.3.Recasted financial statements

 

The purchase price allocation was concluded for SimplesVet and VHSYS acquisitions on March 31, 2022, for the Linx acquisition on June 30, 2022 and for Collact and Trampolin acquisitons on September 30, 2022 (see details in Note 21.4). Therefore, retrospective adjustments were made in the Statement of financial position as of December 31, 2021 in accordance with IFRS 3.

 

There were no impacts in the Statement of profit or loss for the comparative year ended December 31, 2021. The revised lines in the Statement of financial position are as follows:

 

  

December 31, 2021

(As previously presented)

  Adjustments 

December 31, 2021

(Recasted)

Assets         
Current assets         
Recoverable taxes(a)   230,558    (15,721)   214,837 
Total current assets   29,960,173    (15,721)   29,944,452 
Non-current assets               
Deferred tax assets(b)   431,755    148,737    580,492 
Intangible assets(c)   8,370,313    (92,795)   8,277,518 
Total non-current assets   12,096,618    55,942    12,152,560 
Total assets   42,056,791    40,221    42,097,012 
                
Liabilities and equity               
Non-current liabilities               
Deferred tax liabilities(b)   617,445    12,466    629,911 
Other liabilities(d)   348,458    (5,019)   343,439 
Total non-current liabilities   5,672,500    7,447    5,679,947 
Total liabilities   28,462,345    7,447    28,469,792 
                
Equity               
Capital reserve(e)   14,516,767    24,365    14,541,132 
Equity attributable to owners of the parent   13,512,081    24,365    13,536,446 
Non-controlling interests(f)   82,365    8,409    90,774 
Total equity   13,594,446    32,774    13,627,220 
                
Total liabilities and equity   42,056,791    40,221    42,097,012 

 

(a)The recoverability of tax credits previously recognized by Linx was reviewed.

 

(b)The Group identified deferred tax liabilities in relation to the tax amortization of goodwill previously recognized by Linx on past business combinations. These amounts were derecognized on the consolidated financial statements due to the acquisition of Linx. A deferred tax asset related to the tax benefit over the remaining fiscal amortization of goodwill was recognized. Additionally, the deferred tax liabilities over identified intangible assets were reviewed.

 

(c)The adjustments refer mainly to goodwill impacted by items (a) and (b) described above and a fair value of non-compete agreement signed with the Linx founders. Minor impacts refer to reviewed assessment of customer relationships, software, and trademarks and patents identified in the business combinations of SimplesVet, VHSYS, Trampolin, Collact and Linx.

 

(d)The adjustments refer mainly to reviewed contingent consideration of SimplesVet and Trampolin.

 

(e)The adjustments refer to the contingent consideration in the form of equity instruments originated from the non-compete agreement signed with the Linx founders.

 

(f)The adjustments refer to the fair value of non-controlling interests in SimplesVet and VHSYS over the adjustments described in the item (c) above.

 

F-13

 

StoneCo Ltd.

Notes to Consolidated Financial Statements

December 31, 2022, 2021 and 2020

(In thousands of Brazilian Reais, unless otherwise stated)

 

2.General accounting policies

 

The accounting policies are presented in each of the notes along the financial statements. General accounting policies, not related to subjects treated in specific notes, are presented as follows.

 

2.1.Basis of preparation

 

The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

 

The consolidated financial statements have been prepared on a historical cost basis, except for some Short and Long-term investments, Accounts receivable from card issuers, certain loans presented under Trade accounts receivable, Derivative financial instruments, Other liabilities related to contingent consideration and, upon initial recognition, Provision for contingencies of entities acquired on business combinations. The consolidated financial statements are presented in Brazilian reais (“R$”), and all values are rounded to the nearest thousand (R$ 000), except when otherwise indicated.

 

2.2.Foreign currency translation

 

2.2.1.Financial statements in foreign currencies

 

The Group’s consolidated financial statements are presented in Brazilian reais (“R$”), which is the Company’s functional currency.

 

For each entity, the Group determines its functional currency. Items included in the financial statements of each entity are measured using that functional currency. The functional currency for the Company’s subsidiaries is also the Brazilian real, except for the Napse Group.

 

The functional currencies of the different entities of the Napse Group are the U.S. dollar, Argentinian peso, Chilean peso, Mexican peso, Nuevo Sol and Uruguayan peso.

 

The financial statements of entities with a functional currency different than the Brazilian real, have their financial statements translated into Brazilian reais using (i) the exchange rates at the reporting date for assets and liabilities, (ii) average monthly exchange rates for profit or loss, and (iii) the exchange rate at the transaction date for equity transactions. Exchange gains and losses arising from translating are recorded in OCI.

 

2.2.2.Transactions in foreign currencies

 

Transactions in foreign currencies are initially recorded by the Group’s entities in their functional currency at the spot rate at the date the transaction first qualifies for recognition.

 

Monetary assets and liabilities denominated in foreign currencies are translated into each functional currency using the exchange rates prevailing at the reporting date. Exchange gains and losses arising from the settlement of transactions and from the translation of monetary assets and liabilities denominated in foreign currency are recognized in the statement of profit or loss. These mostly arise from transactions carried out by clients with credit and debit cards issued by foreign card issuers and from the translation of the Group’s financial instruments denominated in foreign currencies.

 

F-14

 

StoneCo Ltd.

Notes to Consolidated Financial Statements

December 31, 2022, 2021 and 2020

(In thousands of Brazilian Reais, unless otherwise stated)

 

2.3.Leases

 

The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at the inception date. In the event that fulfillment of the arrangement is dependent on the use of specific assets or the arrangement transfers a right to use the asset, such arrangements are defined as leases.

 

2.3.1.Group as lessee

 

The Group applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets for which the Group opts for recognition exemption. The Group recognizes lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets.

 

2.3.1.1.Right-of-use assets

 

The Group recognizes right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognized, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term and the estimated useful lives of the assets. The estimated useful lives for the right-of-use assets are as follows:

 

  Estimated useful lives (years)
Offices 1-10
Vehicles 1-3
Equipment 1-10
Software 1-3

 

If ownership of the leased asset is transferred to the Group at the end of the lease term or the cost reflects the exercise of a purchase option, depreciation is calculated using the estimated useful life of the asset. The right-of-use assets are also subject to impairment.

 

2.3.1.2.Lease liabilities

 

At the commencement date of the lease, the Group recognizes under “Loans and financing” lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating a lease, if the lease term reflects the Group exercising the option to terminate. The variable lease payments are recognized as expense in the period on which the event or condition that triggers the payment occurs.

 

In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the in-substance fixed lease payments or a change in the assessment to purchase the underlying asset.

 

2.3.1.3.Short-term leases and leases of low-value assets

 

The Group applies the short-term lease recognition exemption to its short-term leases of offices, software, vehicles and other equipment (contracts that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the low-value assets recognition exemption to leases of office equipment that are considered of low value (below US$ 5,000). Lease payments of short-term leases and leases of low-value assets are recognized as an expense on a straight-line basis over the lease term.

 

F-15

 

StoneCo Ltd.

Notes to Consolidated Financial Statements

December 31, 2022, 2021 and 2020

(In thousands of Brazilian Reais, unless otherwise stated)

 

2.3.2.Group as lessor

 

Leases in which the Group does not transfer substantially all the risks and rewards incidental to ownership of an asset are classified as operating leases. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized over the lease term on the same basis as rental income. Contingent rents are recognized as revenue in the period in which they are earned.

 

The Group has cancellable month-to-month lease contracts of Pin Pads & POS to third parties (clients). The leased assets are included in “Property and equipment” in the consolidated statement of financial position and are depreciated over their expected useful lives on a straight-line basis. Income from operating leases (net of any incentives given to the lessee) is recognized on a straight-line basis over the lease term in “Net revenue from subscription services and equipment rental” in the consolidated statement of profit or loss.

 

2.4.Prepaid expenses

 

Prepaid expenses are recognized as an asset in the statement of financial position. These expenditures include, but are not limited to, prepaid software licenses, certain consulting services, insurance premiums and prepaid marketing expenses.

 

The amount recognized as asset in the statement of financial position is charged to the statement of profit or loss once the prepaid services are consumed by the Group.

 

As of December 31, 2022, the balance is mainly represented by prepaid media to the Globo group of R$ 163,065 (R$ 294,953 as of December 31, 2021). Under the terms of the agreement the amount is available to place media until 2025.

 

2.5.Current and non-current classification

 

The Group presents assets and liabilities in the statement of financial position based on a current / non-current classification.

 

An asset is current when it is:

 

expected to be realized or intended to be sold or consumed in the normal operating cycle;

 

held primarily for the purpose of trading;

 

expected to be realized within twelve months after the reporting period; or

 

cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period.

 

All other assets are classified as non-current.

 

A liability is current when it is:

 

expected to be settled in the normal operating cycle;

 

held primarily for the purpose of trading;

 

due to be settled within twelve months after the reporting period; or

 

there is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period.

 

All other liabilities are classified as non-current.

 

Deferred tax assets and liabilities are classified as non-current assets and liabilities.

 

2.6.IAS 29 Financial Reporting in Hyperinflationary Economies

 

Considering that the inflation accumulated in the past three years in Argentina was higher than 100%, the adoption of the IAS 29 Financial Reporting in Hyperinflationary Economies is mandatory for the subsidiary Napse S.R.L., located in Argentina.

 

Pursuant to IAS 29, non-monetary assets and liabilities, shareholders’ equity and amounts in the statement of profit or loss of entities that operate in hyperinflationary economies are adjusted by the change in the general purchasing power of the currency, applying a general price index.

 

The financial statements of an entity whose functional currency is the currency of a hyperinflationary economy, whether they are based on the historical or current cost approach, should be expressed in terms of the current measurement unit at the balance sheet date.

 

F-16

 

StoneCo Ltd.

Notes to Consolidated Financial Statements

December 31, 2022, 2021 and 2020

(In thousands of Brazilian Reais, unless otherwise stated)

  

2.7.New standards and amendments to standards and interpretations adopted

 

The following amendments and interpretations were applied for the first time in 2022:

 

Onerous contracts – costs of fulfilling a contract – amendments to IAS 37: The amendments apply a “directly related cost approach”. The costs that relate directly to a contract to provide goods or services include both incremental costs and an allocation of costs directly related to contract activities.

 

IFRS 9 – Financial instruments – fees in the ‘10 per cent’ test for derecognition of financial liabilities: The amendment clarifies the fees that an entity includes when assessing ‘10 per cent’ test and whether the terms of a new or modified financial liability are substantially different from the terms of the original financial liability.

 

Reference to the conceptual framework – amendments to IFRS 3: The amendments are intended to replace a reference to the Framework for the Preparation and Presentation of Financial Statements, issued in 1989, with a reference to the Conceptual Framework for Financial Reporting issued in March 2018.

 

Proceeds before intended use – amendments to IAS 16: The amendment prohibits entities from deducting from the cost of an item of property, plant and equipment, any proceeds of the sale of items produced while bringing that asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Instead, an entity recognizes the proceeds from selling such items, and the costs of producing those items, in profit or loss.

 

IAS 41 - Taxation in fair value measurements: The amendment removes the requirement in paragraph 22 of IAS 41 that entities exclude cash flows for taxation when measuring the fair value of assets within the scope of IAS 41.

 

First-time adoption of international financial reporting standards: The amendment to IFRS 1 simplifies the application of IFRS 1 by a subsidiary that becomes a first-time adopter after its parent in relation to the measurement of cumulative translation differences.

 

These amendments mentioned above had no relevant impact on the consolidated financial statements of the Group.

 

2.8.New standards and amendments to standards and interpretations not yet adopted

 

The new and amended standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Group’s financial statements are presented below. The Group intends to adopt these new and amended standards and interpretations, if applicable, when they become effective.

 

2.8.1.Amendments to IAS 1: classification of liabilities as current or non-current

 

In January 2020, the IASB issued amendments to paragraphs 69 to 76 of IAS 1 to specify the requirements for classifying liabilities as current or non-current. The amendments clarify:

 

What is meant by a right to defer settlement;

 

That a right to defer must exist at the end of the reporting period;

 

That classification is unaffected by the likelihood that an entity will exercise its deferral right;

 

That only if an embedded derivative in a convertible liability is itself an equity instrument would the terms of a liability not impact its classification.

 

The amendments are effective for annual reporting periods beginning on or after January 1, 2023 and must be applied retrospectively. The Group reviewed the amendment and does not expect to have any impact on the Group’s consolidated financial statements on this apply.

 

F-17

 

StoneCo Ltd.

Notes to Consolidated Financial Statements

December 31, 2022, 2021 and 2020

(In thousands of Brazilian Reais, unless otherwise stated)

 

2.8.2.Amendment to IAS 12 – deferred tax related to assets and liabilities arising from a single transaction

 

These amendments require companies to recognize deferred tax on transactions that, on initial recognition give rise to equal amounts of taxable and deductible temporary differences.

 

In May 2021, the Board issued amendments to IAS 12, which narrow the scope of the initial recognition exception under IAS 12, so that it no longer applies to transactions that give rise to equal taxable and deductible temporary differences.

 

The amendments are effective for annual reporting periods beginning on or after January 1, 2023. The Group will apply the amendments for applicable transactions, on or after the beginning of the annual reporting period in which the entity first applies the amendment. The Group does not expect to have any impact on its consolidated financial statements by applying these amendments.

 

2.8.3.IFRS 17 – insurance contracts

 

This standard replaces IFRS 4, which currently permits a wide variety of practices in accounting for insurance contracts. IFRS 17 will fundamentally change the accounting by all entities that issue insurance contracts and investment contracts with discretionary participation features.

 

The amendments are effective for annual reporting periods beginning on or after January 1, 2023. The Group is assessing the impact that the amendments will have on current practice and does not expect to have any impact on the Group’s consolidated financial statements on this apply.

 

2.8.4.Narrow scope amendments to IAS 1, practice statement 2 and IAS 8

 

In February 2021, the Board issued amendments to IAS 1, IFRS Practice Statement 2 Making Materiality Judgements (the PS) and to IAS 8. The amendments aim to improve accounting policy disclosures and to help users of the financial statements to distinguish between changes in accounting estimates and changes in accounting policies.

 

The amendments are effective for annual reporting periods beginning on or after January 1, 2023. The Group had assessed the amendment and does not expect to have any impact on the Group’s consolidated financial statements on this apply.

 

2.8.5.Lease Liability in a Sale and Leaseback Amendments to IFRS 16

 

In September 2022, the Board issued the amendment to IFRS 16. The amendment clarifies the subsequent measurement of lease liability related to a sale and leaseback transaction, principally for those lease contracts that payments are variable and do not depend on an index or rate.

 

The amendments are effective for annual reporting periods beginning on or after January 1, 2024. The Group does not expect to have any impact on the Group’s consolidated financial statements on this apply.

 

3.Significant judgments, estimates and assumptions

 

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

 

The judgements, estimates and assumptions are frequently revised, and any effects are recognized in the revision period and in any future affected periods. The objective of these revisions is to mitigate the risk of material differences between estimated and actual results in the future. Significant assumptions about sources of uncertainty in future estimates and other significant sources at the reporting date are described as follows.

 

Significant assumptions about sources of uncertainty in future estimates and other significant sources at the reporting date are presented in each of the notes along the financial statements. General assumptions about sources of uncertainty in future estimates and other significant sources at the reporting date, not related to subjects treated in specific notes, are presented as follows.

 

F-18

 

StoneCo Ltd.

Notes to Consolidated Financial Statements

December 31, 2022, 2021 and 2020

(In thousands of Brazilian Reais, unless otherwise stated)

 

3.1.Incremental borrowing rate estimate on leases

 

The Group cannot readily determine the interest rate implicit in the lease, therefore, it uses its incremental borrowing rate (“IBR”) to measure lease liabilities. The IBR is the rate of interest that the Group would have to pay to obtain a borrowing over a similar term, and with a similar security, for acquire an asset of a similar value to the right-of-use asset in a similar economic environment. The IBR therefore reflects what the Group ‘would have to pay’, which requires estimation when no observable rates are available (such as for subsidiaries that do not enter into financing transactions) or when they need to be adjusted to reflect the terms and conditions of the lease (for example, when leases are not in the subsidiary’s functional currency). The Group estimates the IBR using observable inputs (such as market interest rates) when available and is required to make certain entity-specific estimates (such as the subsidiary’s stand-alone credit rating).

 

4.Group information

 

4.1.Subsidiaries

 

4.1.1.Accounting policy

 

4.1.1.1.Basis of consolidation

 

The consolidated financial statements comprise the financial statements of the Company and its subsidiaries. Control is achieved when the Group:

 

has power over the investee (i.e., existing rights that give it the current ability to direct the relevant activities of the investee);

 

is exposed, or has rights, to variable returns from its involvement with the investee; and

 

has the ability to use its power to affect its returns.

 

Generally, there is a presumption that a majority of voting rights results in control. To support this presumption and when the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:

 

the contractual arrangement(s) with the other vote holders of the investee;

 

rights arising from other contractual arrangements; and

 

the Group’s voting rights and potential voting rights.

 

The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Group obtains control until the date the Group ceases to control the subsidiary.

 

Profit or loss and each component of other comprehensive income (“OCI”) are attributed to the equity holders of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

 

A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction, in the reserve for “Transactions among shareholders”.

 

F-19

 

StoneCo Ltd.

Notes to Consolidated Financial Statements

December 31, 2022, 2021 and 2020

(In thousands of Brazilian Reais, unless otherwise stated)

 

4.1.1.2.Consolidation of structured entities

 

Usually, the control of an investee is determined by voting or similar rights of the investor. In some cases, voting or similar rights of the investor on the investee is not the decisive factor to characterize the control. An entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity is denominated as a structured entity. Frequently, the relevant activities of structured entities are directed by means of contractual arrangements. In such cases, an investor’s consideration of the purpose and design of the investee shall also include consideration of the risks to which the investee was designed to be exposed, the risks it was designed to pass on to the parties involved with the investee and whether the investor is exposed to some or all of those risks.

 

Based on the contractual terms, the Group identified that some investments meet the definition of a structured entity under IFRS 12 – Disclosure of Interests in Other Entities.

 

The Group considers the FIDC AR III, FIDC TAPSO, FIDC TAPSO II, FIDC SOMA, FIDC SOMA III, FIC FIM STONECO and Fundo Retail to be structured entities that are controlled by the Group. The participation of the Group in each of them is stated as follows:

 

    Outstanding quotas held by the Group
     
Fundo de Investimento em Direitos Creditórios - Bancos Emissores de Cartão de Crédito - Stone III ("FIDC AR III")   100% of subordinated quotas representing approximately 21% of total (subordinated and senior and/or mezzanine) quotas
Tapso Fundo de Investimento em Direitos Creditórios ("FIDC TAPSO")   100% of subordinated quotas representing approximately 99% of total (subordinated and senior and/or mezzanine) quotas
Tapso II Fundo de Investimento em Direitos Creditórios ("FIDC TAPSO II")   100% of subordinated quotas representing total quotas
SOMA Fundo de Investimentos em Direitos Creditórios Não Padronizados ("FIDC SOMA")   100% of subordinated quotas representing total quotas
SOMA III Fundo de Investimentos em Direitos Creditórios Não Padronizados ("FIDC SOMA III")   100% of subordinated quotas representing total quotas
Stoneco exclusivo Fundo de Investimento em Cotas de Fundo de Investimento Multimercado Crédito Privado ("FIC FIM STONECO")   100% of all outstanding quotas of a single class
Retail Renda Fixa Crédito Privado Fundo de Investimento ("Fundo Retail")   100% of all outstanding quotas of a single class

 

The bylaws of these structured entities were established by us at their inception, and grant us significant decision-making authority over these entities. As sole holders of the subordinated quotas, the Group is entitled to the full residual value of the entities, if any, and thus the Group has the rights to their variable returns. During 2021, the structured entities FIDC SOMA IV and Santander Moving Tech RF Referenciado DI CP FI were closed.

 

In accordance with IFRS 10, the Group concluded it controls FIDC AR III, FIDC TAPSO, FIDC TAPSO II, FIDC SOMA, FIDC SOMA III, FIC FIM STONECO and Retail Renda Fixa, therefore, they are consolidated in the Group’s financial statements. For the FIDCs senior and mezzanine quotas held by third parties, when applicable, are accounted for as a financial liability under “Obligations to FIDC quota holders” and the remuneration paid to senior and mezzanine quota holders is recorded as interest expense. See Note 6.7 for further details.

F-20

 

StoneCo Ltd.

Notes to Consolidated Financial Statements

December 31, 2022, 2021 and 2020

(In thousands of Brazilian Reais, unless otherwise stated)

 

4.1.2.Subsidiaries of the Group

 

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

 

        % of Group's equity interest
Entity name   Principal activities   December 31, 2022   December 31, 2021
Stone Instituição de Pagamento S.A. (“Stone Pagamentos”)   Merchant acquiring   100.00   100.00
MNLT S.A. (“MNLT”)   Merchant acquiring   100.00   100.00
Pagar.me Instituição de Pagamento S.A. (“Pagar.me”)   Merchant acquiring   100.00   100.00
PDCA S.A. (“PDCA”) (a)   Merchant acquiring     100.00
Stone Cartões Instituição de Pagamento S.A. (“Stone Cartões”)   Merchant acquiring   100.00   100.00
Linx Pay Meios de Pagamento Ltda. (“Linx Pay”)   Merchant acquiring   100.00   100.00
Stone Sociedade de Crédito Direto S.A. (“Stone SCD”)   Financial services   100.00   100.00
TAG Tecnologia para o Sistema Financeiro S.A. ("TAG")   Financial assets register   100.00   100.00
MAV Participações S.A. (“MVarandas”)(b)   Technology services     100.00
MLabs Software S.A. (“MLabs”)   Technology services   51.50   51.50
Equals S.A. (“Equals”)   Technology services   100.00   100.00
Questor Sistemas S.A. (“Questor”)   Technology services   50.00   50.00
Sponte Informática S.A. (“Sponte”) (c)   Technology services   100.00   90.00
SimplesVet Tecnologia S.A. (“SimplesVet”) (Note 21.4)   Technology services   50.00   50.00
VHSYS Sistema de Gestão S.A. (“VHSYS”) (Note 21.4)   Technology services   50.00   50.00
Trampolin Pagamentos S.A. (“Trampolin”) (Note 21.4)   Technology services   100.00   100.00
Linx S.A. (“Linx”) (Note 21.4)   Technology services   100.00   100.00
Linx Sistemas e Consultoria Ltda. (“Linx Sistemas”) (d)   Technology services   100.00   100.00
Linx Telecomunicações Ltda.   Technology services   100.00   100.00
Napse S.R.L. (“Napse Group”)   Technology services   100.00   100.00
Napse Uruguay SAS (“Napse Group”)   Technology services   100.00  
Sociedad Ingenería de Sistemas Napse I.T. de Chile Limitada (“Napse Group”)   Technology services   100.00   100.00
Napse IT Peru S.R.L. (“Napse Group”)   Technology services   100.00   100.00
Synthesis Holding LLC (“Napse Group”)   Technology services   100.00   100.00
Synthesis US LLC (“Napse Group”)   Technology services   100.00   100.00
Retail Americas Sociedad de Responsabilidad Limitada de Capital Variable (“Napse Group”)   Technology services   100.00   100.00
Synthesis IT de México Sociedad de Responsabilidad Limitada de Capital Variable (“Napse Group”)   Technology services   100.00   100.00
Mercadapp Soluções em Software Ltda ("Mercadapp") (e)   Technology services     100.00
Hiper Software S.A. ("Hiper")   Technology services   100.00   100.00
Reclame Aqui LLC (“Reclame Aqui Group”) (Note 21.3)   Technology services   50.00  
Obvio Brasil Software e Serviços S.A. (“Reclame Aqui Group”) (Note 21.3)   Technology services   50.00  
O Mediador Tecnologia da Informação S/S Ltda (“Reclame Aqui Group”) (Note 21.3)   Technology services   50.00  
Reclame Aqui Marcas e Serviços Ltda (“Reclame Aqui Group”) (Note 21.3)   Technology services   50.00  
Hubcount Tecnologia S.A. (“Hubcount”) (f) (Note 21.3)   Technology services   75.60  
Creditinfo Jamaica Ltd ("Creditinfo Caribbean") (g)   Credit bureau services     53.05
Creditinfo Guyana Ltd ("Creditinfo Caribbean") (g)   Credit bureau services     53.05
Creditinfo Barbados Ltd ("Creditinfo Caribbean") (g)   Credit bureau services     53.05
Buy4 Processamento de Pagamentos S.A. (“Buy4”)   Processing card transactions   100.00   100.00
Buy4 Sub LLC ("Buy4 LLC")   Cloud store card transactions   100.00   100.00

F-21

 

StoneCo Ltd.

Notes to Consolidated Financial Statements

December 31, 2022, 2021 and 2020

(In thousands of Brazilian Reais, unless otherwise stated)

 

        % of Group's equity interest
Entity name   Principal activities   December 31, 2022   December 31, 2021
Vitta Corretora de Seguros Ltda. (“Vitta Group”)   Insurance services   100.00   100.00
Stone Seguros S.A. (“Stone Seguros”)   Insurance services   100.00   100.00
Vitta Tecnologia em Saúde S.A. (“Vitta Group”)   Health services   100.00   100.00
Vitta Serviços em Saúde Ltda. (“Vitta Group”)   Health services   100.00   100.00
Vitta Saúde Administradora de Benefícios Ltda. (“Vitta Group”)   Health services   100.00   100.00
StoneCo Pagamentos UK Ltd. ("StoneCo UK")   Service provider   100.00   100.00
Stone Logística Ltda. ("Stone Log")   Logistic services   100.00   100.00
Collact Serviços Digitais S.A. (“Collact”) (h)   Customer relationship management     100.00
Stone Franchising Ltda. ("Franchising")   Franchising management   100.00   100.00
Cappta S.A. (“Cappta”)   Electronic fund transfer   59.60   58.48
Ametista Serviços Digitais Ltda.   Electronic fund transfer   100.00   100.00
Esmeralda Serviços Digitais Ltda.   Electronic fund transfer   100.00   100.00
Diamante Serviços Digitais Ltda.   Electronic fund transfer   100.00   100.00
Safira Serviços Digitais Ltda.   Electronic fund transfer   100.00   100.00
Fundo de Investimento em Direitos Creditórios - Bancos Emissores de Cartão de Crédito - Stone III (“FIDC AR III”)   Investment fund   100.00   100.00
Tapso Fundo de Investimento em Direitos Creditórios (“FIDC TAPSO”)   Investment fund   100.00   100.00
Tapso II Fundo de Investimentos em Direitos Creditórios (“FIDC TAPSO II”)   Investment fund   100.00   100.00
SOMA Fundo de Investimento em Direitos Creditórios Não Padronizados (“FIDC SOMA”)   Investment fund   100.00   100.00
SOMA III Fundo de Investimento em Direitos Creditórios Não Padronizados (“FIDC SOMA III”)   Investment fund   100.00   100.00
Stoneco Exclusivo Fundo de Investimento em Cotas de Fundo de Investimento Multimercado Crédito Privado (“FIC FIM STONECO”)   Investment fund   100.00   100.00
Retail Renda Fixa Crédito Privado Fundo de Investimento (“Retail Renda Fixa”)   Investment fund   100.00   100.00
MPB Capital LLC ("MPB")   Investment company   100.00   100.00
DLP Capital LLC ("DLP Cap")   Holding company   100.00   100.00
DLPPar Participações S.A. (“DLPPar”)   Holding company   100.00   100.00
Reclame Aqui Holding Ltd. (Note 21.3)   Holding company   50.00  
STNE Participações S.A. ("STNE Par")   Holding company   100.00   100.00
STNE Participações em Tecnologia S.A. ("STNE ParTec")   Holding company   100.00   100.00
VittaPar LLC (“Vitta Group”)   Holding company   100.00   100.00
StoneCo CI Ltd (g)   Holding company     53.05
Stone Holding Instituições S.A.(i)   Holding company   100.00  

 

(a)PDCA was merged into Pagar.me on October 18, 2022.

 

(b)MVarandas was merged into Linx Sistemas on April 1, 2022.

 

(c)STNE Par acquired the remaining shares of Sponte on September 20, 2022.

 

(d)Plugg.to was merged into Linx Sistemas on November 2, 2022.

 

(e)Mercadapp was merged into Linx Sistemas on January 1, 2022.

 

(f)STNE Par has a 50% equity in Questor and, on August 31, 2022, Questor acquired a 75.60% equity interest in Hubcount Tecnologia S.A. ("Hubcount").

 

(g)On October 18, 2022, the Group lost control of its subsidiary StoneCo CI and Creditinfo after a capital contribution by a new investor. The remaining interest of 47.75% held by the Group on Creditinfo is classified as an investment in an associate according to IAS 28. As result of the loss of control, in accordance with IFRS 10, the Group derecognized the assets and liabilities of Creditinfo. Additionally, the Group measured the remaining interest in Creditinfo at fair value, which resulted in a loss of R$ 8,584 recorded in the statement of profit or loss attributable to the Group as Other income (expenses), net.

 

(h)Collact was merged into Stone Pagamentos on January 1, 2022.

 

(i)On October 26, 2022, the Group created a new company, with the objective of holding equity interests in institutions authorized to operate by the Central Bank of Brazil (“BACEN”).

 

The Group holds call options to acquire additional interests in some of its subsidiaries (see details in Notes 6.1.5 and 6.8) and issued put options to non-controlling investors (see details in Note 6.12 (k)).

 

F-22

 

StoneCo Ltd.

Notes to Consolidated Financial Statements

December 31, 2022, 2021 and 2020

(In thousands of Brazilian Reais, unless otherwise stated)

 

4.2.Associates

 

4.2.1.Accounting policy

 

An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but does not have control, or joint control over those policies.

 

The considerations made in determining significant influence are similar to those necessary to determine control over subsidiaries. The Group’s investments in associates are accounted for using the equity method.

 

Under the equity method, the investment in an associate is initially recognized at cost. The carrying amount of the investment is adjusted to recognize changes in the Group’s share of net assets of the associate since the acquisition date. Goodwill relating to the associate is included in the carrying amount of the investment and is not tested for impairment separately.

 

The statement of profit or loss reflects the Group’s share of the results of operations of the associate. Any change in OCI of those investees is presented as part of the Group’s OCI. In addition, when there has been a change recognized directly in the equity of the associate, the Group recognizes its share of any changes, when applicable, in the statement of changes in equity. Unrealized gains and losses resulting from transactions between the Group and associates are eliminated to the extent of the interest in the associate.

 

The aggregate of the Group’s share of profit or loss of an associate is shown on the face of the statement of profit or loss outside operating profit and represents profit or loss after tax and non-controlling interests in the subsidiaries of the associate.

 

The financial statements of the associate are prepared for the same reporting period as the Group. When necessary, adjustments are made to bring the accounting policies in line with those of the Group.

 

After application of the equity method, the Group determines whether it is necessary to recognize an impairment loss on its investment in its associate. At each reporting date, the Group determines whether there is objective evidence that the investment in the associate is impaired. If there is such evidence, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and it carrying value, and then recognizes the loss within share of profit of an associate in the statement of profit or loss.

 

In case of loss of significant influence over the associate, the Group measures and recognizes any retained investment at its fair value. Any difference between the carrying amount of the associate upon loss of significant influence and the fair value of the retained investment and proceeds from disposal is recognized in profit or loss.

 

None of the investments in associates presented significant restrictions on transferring resources in the form of cash dividends or repayment of obligations, during the periods reported.

 

F-23

 

StoneCo Ltd.

Notes to Consolidated Financial Statements

December 31, 2022, 2021 and 2020

(In thousands of Brazilian Reais, unless otherwise stated)

 

4.2.2.Associates held by the Group

 

        % Groups's equity interest
Entity name   Principal activities   December 31, 2022   December 31, 2021
Alpha-Logo Serviços de Informática S.A. (“Tablet Cloud”)   Technology services   25.00   25.00
Trinks Serviços de Internet S.A. (“Trinks”)   Technology services   19.90   19.90
Neostore Desenvolvimento De Programas De Computador S.A. (“Neomode”)(a)   Technology services   40.02  
RH Software S.A. (“RH Software”)(b)   Technology services   20.00  
APP Sistemas S.A. (“APP”)   Technology services   20.00   20.00
Delivery Much Tecnologia S.A. (“Delivery Much”)   Food delivery marketplace   29.50   29.50
Creditinfo Jamaica Ltd (“Creditinfo Caribbean”)   Credit bureau services   47.75  
Creditinfo Guyana Inc (“Creditinfo Caribbean”)   Credit bureau services   47.75  
Creditadvice Barbados Ltd (“Creditinfo Caribbean”)   Credit bureau services   47.75  
Creditinfo ECCU Ltd (“Creditinfo Caribbean”)   Credit bureau services   47.75  
StoneCo CI Ltd   Holding company   47.75  

 

(a)On July 2, 2021, our subsidiary Linx Sistemas signed an agreement to acquire an equity interest of 40% of the shares of Neostore Desenvolvimento de Programas de Computador SA (“Neomode”), through the execution of an Investment Agreement with the shareholders of Neomode. The acquisition was conditioned to Brazilian Antitrust Authority (“CADE”) approval, which occurred on November 19, 2021. The Group concluded the acquisition on January 7, 2022, through a capital increase of R$ 6,083 and loans conversion of R$ 875, totalizing a transferred consideration of R$ 6,958.

 

(b)On May 2, 2022, the Group acquired a 20% equity interest in RH Software, a private company based in the State of São Paulo, Brazil, for R$ 2,320 through a loan agreement conversion. RH Software develops software directed to dental clinics, with which the Company expects to obtain synergies in its services to clients. The Group also holds a call option to acquire an additional equity interest in the period from 2 to 3 years counted from the date of closing of the agreement, which will allow the Group to acquire an additional 30% equity interest in RH Software.

 

The Group holds call options to acquire additional interests in some of its associates (see details in Notes 6.1.5 and 6.8).

 

5.Cash and cash equivalents

 

5.1.Accounting policy

 

Cash and cash equivalents in the statement of financial position comprise cash at banks and short-term deposits with a maturity of three months or less from the date of acquisition, which are subject to an insignificant risk of changes in value, and readily convertible into cash.

 

5.2.Currency denomination

 

   2022  2021
Denominated in R$   1,388,616    4,431,019 
Denominated in US$   123,959    64,593 
Denominated in other foreign currencies   29    33 
    1,512,604    4,495,645 

 

F-24

 

StoneCo Ltd.

Notes to Consolidated Financial Statements

December 31, 2022, 2021 and 2020

(In thousands of Brazilian Reais, unless otherwise stated) 

 

6.Financial instruments

 

6.1.Accounting policy

 

A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

 

6.1.1.Financial assets

 

6.1.1.1.Description of the different financial assets

 

We hold financial assets in all of our businesses but because of the nature of its activities our segments generates and manages more broadly financial assets. In order to facilitate the understanding of the financial statements and how they relate to our business we summarize for the financial asset line items presented in our balance sheet which is the business activity that generates such assets, how they are measured and where in the statement of profit or loss we classify the results generated by such assets.

 

Line item presented in the balance sheet Description of the related business activity Basis of measurement Line item of the profit or loss statement where results generated are presented
Cash and cash equivalents and Short-term investments Managing of liquidity of the business FVPL

Interest income - Other financial income

 

Fair value gain or losses - Other financial income

 

Foreign exchange gain or losses - Financial expenses, net

 

Financial assets from banking solutions Corresponds to amounts that we are regulatorily required to maintain in certain specified assets as reserve requirements for deposits of our banking customers

Deposits at BACEN – Amortized cost

 

Government securities – FVPL

 

Interest income - Financial income

 

Fair value gain or losses - Financial income

 

Accounts receivable from card issuers Amounts receivable from card issuers for transactions that our acquiring business processes. The balances do not carry interest. We regularly sell those receivables before their maturity as part of our funding strategy FVOCI

Cost of funding on sale of receivables - Financial expenses, net

 

Foreign exchange gain or losses on balances of transactions in foreign currency - Financial expenses, net

 

Trade accounts receivable - Loans designated at FVPL Corresponds to loans granted to customers of our acquiring business up to June 30, 2021 FVPL as we voluntarily designated such loans to be measured at FVPL

Interest income - Financial income

 

Fair value gain or losses - Financial income

 

Trade accounts receivable - All other items Corresponds to amounts due by our customers of the acquiring business for transaction services and equipment rental and of our software business for services provided. Amortized cost

Expected credit losses - Cost of services

 

Interest and penalties for late payment - Other financial income

 

Derivative financial instruments Corresponds to derivative entered into to manage the financial risks (mainly interest rate and foreign exchange) inherent to our acquiring business and related to our funding structure FVPL

Fair value gain or losses - Financial expenses, net

 

For those designated in a cash flow hedge relationship:

 

Ineffective portion of change in fair value - Financial expenses, net

 

Effective portion of change in fair value once reclassified from OCI - Financial expenses, net

 

Long-term investments Corresponds to investments in equity interests without significant influency FVPL Other financial income / Mark-to-market on equity securities designated at FVPL

F-25

 

StoneCo Ltd.

Notes to Consolidated Financial Statements

December 31, 2022, 2021 and 2020

(In thousands of Brazilian Reais, unless otherwise stated)

 

6.1.1.2.Initial recognition and measurement

 

Financial assets are classified at initial recognition as subsequently measured at amortized cost, fair value through other comprehensive income (“FVOCI”), or fair value through profit or loss (“FVPL”).

 

The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the Group’s business model for managing them. Except for trade receivables that do not contain a significant financing component or for which the Group has applied the practical expedient, the Group initially measures a financial asset at its fair value plus transactions costs, in the case of a financial asset not at FVPL. Trade receivables that do not contain a significant financing component or for which the Group has applied the practical expedient are measured at the transaction price determined under IFRS 15 – Revenue from Contracts with Customers.

 

For a financial asset to be classified and measured at amortized cost or FVOCI, it needs to give rise to cash flows that are solely payments of principal and interest (“SPPI”) on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at an instrument level. Financial assets with cash flows that are not SPPI are classified and measured at FVPL, irrespective of the business model.

 

The Group’s business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both. Financial assets classified and measured at amortized cost are held within a business model with the objective to hold financial assets in order to collect contractual cash flows while financial assets classified and measured at FVOCI are held within a business model with the objective of both, holding to collect contractual cash flows and selling.

 

Financial assets at FVPL include financial assets held for trading, financial assets designated upon initial recognition at FVPL, or financial assets mandatorily required to be measured at fair value. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. Derivatives, including separated embedded derivatives, are also classified as held for trading unless they are designated as effective hedging instruments. Notwithstanding the criteria for debt instruments to be classified at amortized cost or at FVOCI, as described above, debt instruments may be designated at FVPL on initial recognition if doing so eliminates, or significantly reduces, an accounting mismatch.

 

Purchases or sales of financial assets that require delivery of assets within a time frame set by regulation or market practice (regular way trades) are recognized on the trade date, i.e., the date that the Group commits to purchase or sell the asset.

 

6.1.1.3.Subsequent measurement

 

For purposes of subsequent measurement, financial assets are classified in four categories, as described as follows:

 

6.1.1.3.1. Financial assets at amortized cost (debt instruments)

 

Financial assets at amortized cost are subsequently measured using the effective interest rate (“EIR”) method and are subject to impairment. Gains and losses are recognized in profit or loss when the asset is derecognized, modified or impaired.

 

The Group’s financial assets at amortized cost include trade accounts receivable, other assets, loans to customers included in Trade accounts receivable originated from July 1, 2021 and receivables from related parties.

 

6.1.1.3.2. Financial assets at FVOCI with recycling of cumulative gains and losses (debt instruments)

 

For debt instruments at FVOCI, interest income, foreign exchange revaluation and impairment losses or reversals are recognized in the statement of profit or loss similarly to financial assets measured at amortized cost. The remaining fair value changes are recognized in OCI. Upon derecognition, the cumulative fair value change recognized in OCI is recycled to profit or loss. This category is the most relevant to the Group and it corresponds solely to accounts receivable from card issuers.

 

 

F-26

 

StoneCo Ltd.

Notes to Consolidated Financial Statements

December 31, 2022, 2021 and 2020

(In thousands of Brazilian Reais, unless otherwise stated)

 

6.1.1.3.3. Financial assets at FVOCI with no recycling of cumulative gains and losses upon derecognition (equity instruments)

 

Upon initial recognition, the Group can irrevocably elect to classify its equity investments as equity instruments designated at FVOCI when they meet the definition of equity under IAS 32 – Financial Instruments: Presentation and are not held for trading. The classification is determined on an instrument-by-instrument basis.

 

Gains and losses on these financial assets are never recycled to profit or loss. Dividends are recognized as other income in the statement of profit or loss when the right of payment has been established, except when the Group benefits from such proceeds as a recovery of part of the cost of the financial asset, in which case, such gains are recorded in OCI. Equity instruments designated at FVOCI are not subject to impairment assessment.

 

The Group elected to irrevocably classify some of their equity investments under this category, included in long-term investments.

 

6.1.1.3.4.Financial assets at FVPL

 

Financial assets at FVPL are carried in the statement of financial position at fair value with net changes in fair value recognized in the statement of profit or loss.

 

This category includes (i) bonds, investment funds and some equity investments under short-term investments and long-term investments, which the Group had not irrevocably elected to classify at FVOCI, (ii) derivative financial instruments, and (iii) loans to customers included in Trade accounts receivable originated until June 30, 2021 which the Group has irrevocably elected to classify as FVPL.

 

6.1.1.4.Derecognition

 

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognized of the consolidated statement of financial position when:

 

The contractual rights to receive cash flows from the asset have expired; or

 

The Group has transferred its contractual rights to receive cash flows from the asset or has assumed a contractual obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either (i) the Group has transferred substantially all the risks and rewards of the asset, or (ii) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

 

When the Group has transferred its contractual rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if, and to what extent, it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all the risks and rewards of the asset, nor transferred control of the asset, the Group continues to recognize the transferred asset to the extent of its continuing involvement. In that case, the Group also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained.

 

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.

 

The derecognition of a financial asset by the Group occurs manly in the definitive assignment of Accounts receivable from card issuers to third parties without substantial retention of risks and benefits of the assigned financial asset and without continuing involvement. The difference between the consideration received by the Group for the financial asset and its carrying amount is recognized under ¨Financial expenses, net¨.

 

6.1.1.5.Impairment of financial assets

 

The Group recognizes an allowance for expected credit losses (“ECLs”) for all debt instruments measured at amortized cost or FVOCI. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive, discounted at an approximation of the original effective interest rate. The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.

 

The Group applies a simplified approach in calculating ECLs, therefore, the Group does not track changes in credit risk, but instead recognizes a loss allowance based on lifetime ECLs, provision matrix and days past due at each reporting date.

 

The Group applies a simplified approach on both Accounts receivable from card issuers and Trade accounts receivable. Accounts receivable from card issuers are considered contract assets that have a maturity of one year or less.

 

F-27

 

StoneCo Ltd.

Notes to Consolidated Financial Statements

December 31, 2022, 2021 and 2020

(In thousands of Brazilian Reais, unless otherwise stated)

 

6.1.2.Financial liabilities

 

6.1.2.1.Description of our funding strategy including different financial liabilities of our Financial Services segment

 

Our different businesses require funding. In particular our acquiring business in our Financial Services segment requires significant levels of funding for us to be able to provide liquidity to our customers mainly through the anticipated payment of the transactions processed through us or other acquirers and by providing them loans. We use different forms of funding, some of which are indebtedness presented as financial liabilities in our statement of financial position . We also fund our activities by selling accounts receivables on a fully non-recourse basis and passing to the counterparts all the risks and benefits of such assets (see 6.1.1.1 - Accounts receivable from card issuers). In order to facilitate the understanding of the financial statements and how they relate to our business we summarize for our financial liabilities line items presented in our balance sheet which is the business activity that generates such liabilities how they are measured and where in the statement of profit or loss we classify the results generated by such liabilities.

 

Line item presented in the balance sheet Description of the related business activity Basis of measurement Line item of the profit or loss statement where results generated are presented
Deposits from banking customers Amounts held by our banking customers on their payment accounts. Amortized cost The financial liability generally does not result in the recognition of gain or losses
Accounts payable to clients Amounts payable to merchants for transactions that our acquiring business processes. The balances do not carry interest. We pay the amounts due in advance of the contractual due date at a discount Amortized cost Gain for the prepayment of payables at a discount - Financial income
Loans and financing Financing obtained from third parties as part of our funding strategy Amortized cost

Interest expense - Financial expenses, net

 

Foreign exchange gain or losses - Financial expenses, net

 

Obligations to FIDC quota holders Financing obtained through consolidated structured entities - FIDCs Amortized cost Financial expenses, net

 

6.1.2.2.Initial recognition and measurement

 

Financial liabilities are classified, at initial recognition, as financial liabilities at FVPL, amortized cost or as derivatives designated as hedging instruments in an effective hedge, as appropriate.

 

All financial liabilities are recognized initially at fair value and, in the case of amortized cost, net of directly attributable transaction costs.

 

The Group’s financial liabilities include accounts payable to clients, trade and other liabilities, loans and financing, and derivative financial instruments.

 

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

 

F-28

 

StoneCo Ltd.

Notes to Consolidated Financial Statements

December 31, 2022, 2021 and 2020

(In thousands of Brazilian Reais, unless otherwise stated)

 

6.1.2.3.Subsequent measurement

 

The measurement of financial liabilities depends on their classification, as described as follows.

 

6.1.2.3.1.Financial liabilities at FVPL

 

Financial liabilities at FVPL include financial liabilities held for trading and financial liabilities designated upon initial recognition as at FVPL.

 

Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative financial instruments entered by the Group that are not designated as hedging instruments in hedge relationships as defined by IFRS 9 – Financial Instruments. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments.

 

Gains or losses on liabilities held for trading are recognized in the statement of profit or loss.

 

Financial liabilities designated upon initial recognition at FVPL are designated at the initial date of recognition, and only if the criteria in IFRS 9 are satisfied. This category includes derivative financial instruments and contingent consideration included in other liabilities.

 

6.1.2.3.2.Financial liabilities at amortized cost

 

After initial recognition, financial liabilities classified in this category are subsequently measured at amortized cost using the EIR method. Gains and losses are recognized in profit or loss when the liabilities are derecognized as well as through the EIR amortization process.

 

Amortized cost is calculated by considering any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is classified as Financial expenses, net in the statement of profit or loss.

 

This category includes all financial liabilities, except derivative financial instruments and contingent consideration included in other liabilities. This category is the most relevant to the Group.

 

6.1.2.4.Derecognition

 

A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognized in the statement of profit or loss.

 

6.1.3.Fair value of financial instruments

 

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

 

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:

 

In the principal market for the asset or liability; or

 

In the absence of a principal market, in the most advantageous market for the asset or liability.

 

The principal or the most advantageous market must be accessible by the Group.

 

The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

 

The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.

 

F-29

 

StoneCo Ltd.

Notes to Consolidated Financial Statements

December 31, 2022, 2021 and 2020

(In thousands of Brazilian Reais, unless otherwise stated)

 

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

 

The Group uses the following hierarchy to determine and disclose the fair value of financial instruments through measurement technique:

 

Level I: quoted prices in active markets for identical assets or liabilities;

 

Level II: other techniques for which all inputs that have a significant effect on the recorded fair value are observable, either directly or indirectly; and

 

Level III: techniques using inputs that have a significant effect on the recorded fair value that are not based on observable market data.

 

For assets and liabilities that are recognized in the financial statements at fair value on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

 

6.1.4.Offsetting of financial instruments

 

Financial assets and financial liabilities are offset, and the net amount is reported in the consolidated statement of financial position, only if there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, to realize the assets and settle the liabilities simultaneously.

 

As of December 31, 2022, and 2021, the Group has no financial instruments that meet the conditions for recognition on a net basis.

 

6.1.5.Derivative financial instruments

 

From time to time, the Group uses derivative financial instruments to manage currency and interest rate risks. Derivative financial instruments are initially recognized at fair value on the date on which a derivative contract is entered and are subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.

 

Some of the Group’s derivative financial instruments are used as cash flow hedge accounting instruments. The effective portion of gains or losses arising from changes in the fair value of these derivatives are usually recognized in equity, in “Other comprehensive income”. The ineffective portion is recognized in the statement of profit or loss, in “Financial expenses, net”. For the hedged item classified as a financial instrument measured at amortized cost using the EIR method, the amount accumulated in the cash flow hedge reserve is reclassified to profit or loss when the hedged cash flows impact the income statement. The method applied by the Group to reclassify the amounts is as follows: (i) the accrual interest portion of the derivative is also measured by the EIR method and recognized in the statement of profit or loss, in “Financial expenses, net”, following the hedged item accrual; and (ii) the remaining amounts related to fair value of hedging instrument is a temporal effect recognized in OCI at each reporting date, ultimately being recognized in profit or loss on the liquidation of the hedging instrument. See Note 6.8.1 for further details.

 

The Group also uses derivative financial instruments as economic hedge. These instruments are measured at FVPL and recorded as an asset or liability under Derivative financial instruments. See Note 6.8.2 for further details.

 

Certain share purchase and sale agreements entered into by the Company for the acquisition of subsidiaries and associates include call options to acquire additional interests in the investees, which are classified as embedded derivatives. Each of the options is measured at FVPL in accordance with pre-determined formulas and recorded in the consolidated statement of financial position as an asset under Derivative financial instruments. See Note 6.8. for further details.

 

F-30

 

StoneCo Ltd.

Notes to Consolidated Financial Statements

December 31, 2022, 2021 and 2020

(In thousands of Brazilian Reais, unless otherwise stated)

 

6.2.Significant judgments, estimates and assumptions

 

6.2.1.Measurement of loss allowance for expected credit losses

 

6.2.1.1.Accounts receivable from card issuers

 

The Group uses a provision matrix to calculate ECLs. The provision rates are based on the internal credit rating that consider external information, such as ratings given by major rating agencies and forward-looking factors specific to the debtors and the economic environment.

 

6.2.1.2.Trade accounts receivable

 

The provision rates are based on days past due for groupings of various client segments that have similar loss patterns (e.g., by product type, customer type and rating).

 

The provision is initially based on the Group’s historical observed default rates. The Group calibrates to adjust the historical credit loss experience with forward-looking information every year. For instance, if forecast economic conditions (i.e., gross domestic product) are expected to deteriorate over the next year which can lead to an increased number of defaults, the historical default rates are adjusted. At every reporting date, the historical observed default rates are updated and changes in the forward-looking estimates are analyzed.

 

The assessment of the correlation between historical observed default rates, forecast economic conditions and ECLs is a significant estimate. The amount of ECLs is sensitive to changes in circumstances and of forecast economic conditions. The Group’s historical credit loss experience and forecast of economic conditions may also not be representative of client’s actual default in the future. The information about the ECLs on the Group’s Accounts receivable from card issuers and Trade accounts receivable are disclosed in Notes 6.4.1 and 6.5.1 respectively.

 

6.2.2.Fair value measurement of financial instruments

 

When the fair values of financial assets and financial liabilities recorded in the statement of financial position cannot be measured based on quoted prices in active markets, their fair value is measured using valuation techniques including the DCF model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgement is required in establishing fair values. Judgements include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions relating to these factors could affect the reported fair value of financial instruments.

 

6.2.3.Trade accounts receivable carried at amortized cost

 

Financial assets are classified at initial recognition, and subsequently measured at amortized cost, fair value through other comprehensive income (“FVOCI”), or fair value through profit or loss (“FVPL”). The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the Company’s business model for managing them.

 

After Linx acquisition, the Group carries Linx Pay’s accounts receivable from card issuers at amortized cost.

 

6.2.4.Loans to customers originated from July 1st, 2021 carried at amortized cost

 

The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the Group’s business model for managing them.

 

For a financial asset to be classified and measured at amortized cost or FVOCI, it needs to give rise to cash flows that are solely payments of principal and interest (“SPPI”) on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at an instrument level. Financial assets with cash flows that are not SPPI are classified and measured at FVPL, irrespective of the business model.

 

Starting on July 1st, 2021, we decided to account for a new credit portfolio at amortized cost, included in Trade accounts receivable, since it is held to collect payments of principal and interest and meet the SPPI test.

 

Financial assets at amortized cost are subsequently measured using the effective interest rate (“EIR”) method and are subject to impairment. Gains and losses are recognized in profit or loss when the asset is derecognized, modified or impaired.

 

As of December 31, 2022 the loans to customers were not material.

 

F-31

 

StoneCo Ltd.

Notes to Consolidated Financial Statements

December 31, 2022, 2021 and 2020

(In thousands of Brazilian Reais, unless otherwise stated)

 

6.3.Short and Long-term investments

 

   Short-term  Long-term   
    Listed securities    Unlisted securities    Listed securities    Unlisted securities    Balance at 12/31/2022 
Bonds(a)   1,276,099    2,176,019            3,452,118 
Equity securities(b)           182,139    32,626    214,765 
Investment funds(c)       1,654            1,654 
    1,276,099    2,177,673    182,139    32,626    3,668,537 
                          
    Short-term    Long-term      
    Listed securities    Unlisted securities    Listed securities    Unlisted securities    Balance at 12/31/2021 
Bonds(a)   645,826    1,336,344            1,982,170 
Equity securities(b)           1,215,791    22,685    1,238,476 
Investment funds(c)       10,867            10,867 
    645,826    1,347,211    1,215,791    22,685    3,231,513 

 

(a)Comprised of Brazilian Treasury Notes (“LFTs”), structured notes linked to LFTs and corporate bonds in the amount of R$ 923,098, R$ 2,159,938 and R$ 369,082 (2021 – R$ 344,032, R$ 1,336,344 and R$ 301,794) respectively, with maturities greater than three months, indexed to fixed and floating rates. As of December 31, 2022, bonds of listed companies are mainly indexed to fixed rates in USD and hedged to Brazilian reais using Non Deliverable Forwards (NDFs).

 

(b)Comprised of ordinary shares of listed and unlisted entities. These assets are measured at fair value, and the Group elected asset by asset the recognition of the changes in fair value of the existing listed and unlisted equity instruments through profit or loss (“FVPL”) or other comprehensive income (“FVOCI”). Fair value of unlisted equity instruments as of December 31, 2022, was determined based on negotiations of the securities.

 

Assets at FVPL

 

Comprised of Banco Inter S.A. (“Banco Inter”)´s shares, acquired on June, 2021. The change in fair value of equity securities at FVPL for December 31, 2022 was a loss of R$ 853,056 (December 31, 2021 was a loss of R$ 1,264,213). which was recognized in the statement of profit or loss.

 

Assets as FVOCI

 

On December 31, 2022 and 2021, comprised mainly of ordinary shares in entities that are not traded in an active market.

 

The change in fair value of equity securities at FVOCI for the year ended December 31, 2022 was R$ (6,971) (December 31, 2021 – R$ 216,466), which was recognized in other comprehensive income.

 

(c)Comprised of foreign investment fund shares.

 

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

 

6.4.Accounts receivable from card issuers

 

6.4.1.Composition of accounts receivable from card issuers

 

Accounts receivable are amounts due from card issuers and acquirers regarding the transactions of clients with card holders, performed in the ordinary course of business.

 

   2022  2021
Accounts receivable from card issuers(a)   20,053,392    18,865,658 
Accounts receivable from other acquirers(b)   718,228    436,035 
Allowance for expected credit losses   (22,763)   (15,103)
    20,748,857    19,286,590 
           
Current   20,694,523    19,286,590 
Non-current   54,334     

 

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

 

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

 

Part of the cash needs by the Group to advance payments to acquiring customers are met by the definitive sell of receivables to third parties. When such sale of receivables is carried out to entities in which we have subordinated shares or quotas, the receivables sold remain in our balance sheet, as these entities are consolidated in our financial statements. As of December 31, 2022 a total of R$1,116,264 are consolidated through FIDC AR III, of which the Group have subordinated shares (R$2,363,476 as of December 31, 2021). When the sale of receivables is carried out to entities in which we do not maintain participation or continuous involvement, the amounts transferred are derecognized from the accounts receivable from card issuers. As of December 31, 2022 and 2021 the sale of receivables that were derecognized from accounts receivables from card issuers in our balance sheet represent the main form of funding used by the Group to fund our prepayment business.

 

Accounts receivable held by FIDCs guarantee the obligations to FIDC quota holders. During 2022, the Group settled the debentures that had a guarantee with Accounts receivable from card issuers (December 31, 2021 - R$451,618).

F-32

 

StoneCo Ltd.

Notes to Consolidated Financial Statements

December 31, 2022, 2021 and 2020

(In thousands of Brazilian Reais, unless otherwise stated)

  

6.4.2.Allowance for expected credit losses of accounts receivable from card issuers

 

   2022  2021
At January 1   15,103    12,765 
Charge for the year   22,818    8,820 
Reversal   (15,158)   (6,482)
At December 31   22,763    15,103 

 

6.4.3.Impairment and risk exposure

 

In addition to complying with the criteria and policies of card associations for accreditation, the Group has a specific policy setting guidelines and procedures for the accreditation and maintenance process of the clients. The Group records an allowance for expected credit losses of accounts receivable from card issuers based on an expected credit loss model covering history of defaults and the expected nature and level of risk associated with receivables. See Notes 6.1.1.5 and 6.2.1.1 for further details.

 

6.5.Trade accounts receivable

 

6.5.1.Composition of trade accounts receivable

 

Trade accounts receivables are amounts due from clients mainly related to subscription services and equipment rental.

 

   2022  2021
Accounts receivable from subscription services   294,516    232,109 
Accounts receivable from equipment rental   135,479    159,771 
Loans designated at FVPL   26,866    511,240 
Chargeback   58,302    26,783 
Receivables from registry operation   35,150    41,449 
Services rendered   36,089    13,388 
Others   44,078    41,399 
Allowance for expected credit losses   (108,434)   (80,418)
    522,046    945,721 
           
Current   484,722    886,126 
Non-current   37,324    59,595 

 

The Group records an allowance for expected credit losses of trade accounts receivable based on an expected credit loss model covering history of defaults and the expected nature and level of risk associated with receivables. See Notes 6.1.1.5 and 6.2.1.2 for further details.

 

F-33

 

StoneCo Ltd.

Notes to Consolidated Financial Statements

December 31, 2022, 2021 and 2020

(In thousands of Brazilian Reais, unless otherwise stated)

  

6.5.2.Allowance for expected credit losses of trade accounts receivable

 

   2022  2021
At January 1   80,418    32,463 
Business combination(a)       10,401 
Charge for the year   94,093    73,510 
Reversal   (13,181)   (3,876)
Write-off   (52,896)   (32,080)
At December 31   108,434    80,418 

 

(a)Refers to Linx acquisition (Note 21.4).

 

6.6.Financial assets from banking solution and deposits from banking customers

 

As required by the Brazilian Central Bank (“BACEN”) regulation, the financial assets arising from banking solutions must be deposited in accounts custody by the BACEN or invested in Brazilian National Treasury Bonds, in order to guarantee the deposits from banking customers.

 

In December 31, 2022, the balances in transit were R$ 243,782 (December 31, 2021 - R$ 169,558).

 

6.7.Loans and financing and Obligations to FIDC quota holders

 

6.7.1.Composition of loans and financing and obligations to FIDC quota holders

 

   Average annual interest rate %  Original maturity  Current portion  Non-current portion  December 31, 2022
Obligations to FIDC AR III quota holders (6.7.3.1)  CDI Rate* + 1.50%  Aug/23   952,780        952,780 
Obligations to FIDC TAPSO quota holders (6.7.3.2)  CDI Rate* + 1.80%  Feb/23   22,468        22,468 
Obligations to FIDC quota holders         975,248        975,248 
                      
Leases (6.7.3.3)  105.1% to 151.8% of CDI Rate*  Jan/23 to Jun/29   55,583    144,564    200,147 
Bonds (6.7.3.4)  3.95% USD  Jun/28   4,007    2,583,861    2,587,868 
Bank borrowings (6.7.3.5)  CDI + 0.95%. to
 
CDI + 1.44%
  Three to eighteen months   1,787,817    45    1,787,862 
Loans and financing         1,847,407    2,728,470    4,575,877 
                      
          2,822,655    2,728,470    5,551,125 

F-34

 

StoneCo Ltd.

Notes to Consolidated Financial Statements

December 31, 2022, 2021 and 2020

(In thousands of Brazilian Reais, unless otherwise stated)

 

   Average annual interest rate %  Maturity  Current portion  Non-current portion  December 31, 2021
Obligations to FIDC AR III quota holders (6.7.3.1)  CDI Rate* + 1.50%   Aug/23    1,273,675    932,368    2,206,043 
Obligations to FIDC TAPSO quota holders (6.7.3.2)  CDI Rate* + 1.50%   Mar/22    21,131        21,131 
Obligations to FIDC TAPSO quota holders           1,294,806    932,368    2,227,174 
Leases (6.7.3.3)  105.7% to 151.8% of CDI Rate*   Jan/22 to Jun/29    66,531    206,924    273,455 
Bonds (6.7.3.4)  3.95% USD   Jun/28    4,592    2,760,018    2,764,610 
Bank borrowings (6.7.3.5)  CDI + 0.75% to
 
CDI + 1.50%
   Three to eighteen months    2,108,123    589,518    2,697,641 
Debentures (6.7.3.6)  109.0% of CDI Rate*   Jul/22    399,509        399,509 
Loans and financing           2,578,755    3,556,460    6,135,215 
            3,873,561    4,488,828    8,362,389 

 

(*)“CDI Rate” means the Brazilian interbank deposit (Certificado de Depósito Interbancário) rate, which is an average of interbank overnight rates in Brazil, the average rate of 2022 was 12.38% (2021 – 4.42%).

 

6.7.2.Changes in loans and financing and obligations to FIDC quota holders

 

  Balance at 12/31/2021   Additions   Disposals   Payment   Business Combination   Changes in Exchange Rates   Interest   Balance at 12/31/2022
Obligations to FIDC AR III quota holders (Note 6.7.3.1) 2,206,043       (1,461,058)       207,795   952,780
Obligations to FIDC TAPSO quota holders (Note 6.7.3.2) 21,131       (1,515)       2,852   22,468
Leases (Note 6.7.3.3) 273,455   64,658   (52,913)   (99,829)     176   14,600   200,147
Bonds (Note 6.7.3.4) 2,764,610       (103,134)     (185,153)   110,980   2,587,303
Bank borrowings (Note 6.7.3.5) 2,697,641   3,499,986     (4,702,769)   4,464     289,105   1,788,427
Debentures (Note 6.7.3.6) 399,509       (421,691)       22,182  
  8,362,389   3,564,644   (52,913)   (6,789,996)   4,464   (184,977)   647,514   5,551,125

 

  Balance at 12/31/2020   Additions   Disposals   Payment   Business Combination   Changes in Exchange Rates   Interest   Balance at 12/31/2021
Obligations to FIDC AR III quota holders (Note 6.7.3.1) 4,114,315       (2,064,720)       156,448   2,206,043
Obligations to FIDC TAPSO quota holders (Note 6.7.3.2) 20,476       (708)       1,363   21,131
Obligations to FIDC SOMA III quota holders 239,759   584,191     (864,747)       40,797  
Leases (Note 6.7.3.3) 174,861   92,802   (14,474)   (83,610)   88,879   62   14,935   273,455
Bonds (Note 6.7.3.4)   2,477,408     (55,497)     282,580   60,119   2,764,610
Bank borrowings (Note 6.7.3.5) 390,830   9,222,889     (7,294,101)   258,797     119,226   2,697,641
Loans with private entities 745,051       (770,372)       25,321  
Debentures (Note 6.7.3.6) 398,358       (17,596)       18,747   399,509
  6,083,650   12,377,290   (14,474)   (11,151,351)   347,676   282,642   436,956   8,362,389

  

F-35

 

StoneCo Ltd.

Notes to Consolidated Financial Statements

December 31, 2022, 2021 and 2020

(In thousands of Brazilian Reais, unless otherwise stated)

 

6.7.3.Description of loans and financing and obligations to FIDC quota holders

 

In the ordinary course of the business, the company funds its prepayment business through a mix of own cash, debt and receivables sales.

 

6.7.3.1.Obligations to FIDC AR III quota holders

 

In August 2020, the first series of FIDC AR III senior quotas was issued, with an amount of up to R$ 2,500,000, and maturity in 2023. They were issued for 36 months, with a grace period of 15 months to repay the principal amount. During the grace period, the payment of interest is made every three months. After this period, the amortization of the principal and the payment of interest is every three months. The benchmark return rate is CDI + 1.5% per year.

 

Payments mainly refer to the amortization of the principal and the payment of interest of the first series of FIDC AR III.

 

6.7.3.2.Obligations to FIDC TAPSO quota holders

 

In March 2021, the Group negotiated an amendment of the contract to postpone the payment date of the principal to March 2022 and the benchmark return rate became 100% of the CDI + 1.50% per year.

 

In February 2022, the Group negotiated an amendment of the contract to postpone the payment date of the principal to March 2023 and the benchmark return rate became 100% of the CDI + 1.80% per year.

 

6.7.3.3.Leases

 

The Group has lease contracts for various items of offices, vehicles and software in its operations. The Group’s obligations under its leases are secured by the lessor’s title to the leased assets. Generally, the Group is restricted from assigning and subleasing the leased assets.

 

6.7.3.4.Bonds

 

In June 2021, the Group issued its inaugural dollar bonds, raising USD 500 million in 7-year notes with a final yield of 3.95%. The total issuance was R$ 2,510,350 (R$ 2,477,408 net of the offering transaction costs, which will be amortized over the course of the debt).

 

6.7.3.5.Bank borrowings

 

During the year of 2022 the Group issued CCBs (bilateral unsecured term loans), with multiple counterparties and maturities ranging from short (less than 12 months) to long term (above 12 months). The principal and the interests of this type of loan are mainly paid at maturity. The proceeds of these loans were used mainly for the prepayment of receivables.

 

6.7.3.6.Debentures

 

On June 12, 2019 Stone Instituição de Pagamentos S.A. approved the issuance of simple, secured and non-convertible debentures, sole series, for public distribution, with restricted distribution efforts, as amended, in the total amount of up to R$ 400,000, settled on July 1 , 2022. The Debentures were secured by Stone Instituição de Pagamentos S.A.’ accounts receivable from card issuers and bear interest at a rate of 109.0% of the CDI rate.

 

The Group is compliant with all borrowing limits or covenants (where applicable) on any of its borrowing facilities.

 

6.8.Derivative financial instruments, net

 

   2022  2021
Cross-currency interest rate swap used as hedge accounting instrument (Note 6.8.1)   (190,902)   201,202 
Non-deliverable forward used as economic hedge instrument (Note 6.8.2)   (6,395)   (14,166)
Call options to acquire additional interest in subsidiaries   23,983    9,044 
Derivative financial instruments, net   (173,314)   196,080 

F-36

 

StoneCo Ltd.

Notes to Consolidated Financial Statements

December 31, 2022, 2021 and 2020

(In thousands of Brazilian Reais, unless otherwise stated)

 

6.8.1Hedge accounting – bonds

 

During 2021, the Company entered into hedge operations to protect its inaugural dollar bonds (Note 6.7.3.4), subject to foreign exchange exposure using cross-currency interest rate swap contracts. The transactions have been designated for hedge accounting and classified as cash flow hedge of the variability of the designated cash flows of the dollar denominated bonds due to changes in the exchange rate. The details of the cross-currency swaps and the position of asset, liability and equity as of December 31, 2022, are presented as follows.

 

Notional in US$   Notional in R$   Pay rate in local currency   Trade date   Due date   Fair value as of December 31, 2022 – Asset (Liability)   Loss recognized in income in 2022(a)   Loss recognized in OCI in 2022(b)   Fair value as of December 31, 2021 – Asset (Liability)
50,000   248,500   CDI + 2.94%   June 23, 2021   June 16, 2028   (15,274)   (46,230)   (22,526)   25,736
50,000   247,000   CDI + 2.90%   June 24, 2021   June 16, 2028   (14,836)   (52,821)   (22,168)   25,814
50,000   248,500   CDI + 2.90%   June 24, 2021   June 16, 2028   (15,961)   (45,443)   (21,785)   24,307
75,000   375,263   CDI + 2.99%   June 30, 2021   June 16, 2028   (26,179)   (53,814)   (31,664)   33,213
50,000   250,700   CDI + 2.99%   June 30, 2021   June 16, 2028   (17,846)   (38,391)   (20,976)   21,615
50,000   250,110   CDI + 2.98%   June 30, 2021   June 16, 2028   (17,403)   (45,649)   (21,126)   22,209
25,000   127,353   CDI + 2.99%   July 15, 2021   June 16, 2028   (10,374)   (30,233)   (10,042)   8,912
25,000   127,353   CDI + 2.99%   July 15, 2021   June 16, 2028   (10,455)   (23,493)   (9,954)   8,744
50,000   259,890   CDI + 2.96%   July 16, 2021   June 16, 2028   (24,793)   (39,158)   (18,587)   12,290
25,000   131,025   CDI + 3.00%   August 6, 2021   June 16, 2028   (12,101)   (30,378)   (9,661)   5,654
25,000   130,033   CDI + 2.85%   August 10, 2021   June 16, 2028   (12,917)   (30,379)   (9,321)   6,808
25,000   130,878   CDI + 2.81%   August 11, 2021   June 16, 2028   (12,763)   (23,300)   (9,412)   5,900
                Net amount   (190,902)   (459,289)   (207,222)   201,202

 

(a)Recognized in the statement of profit or loss, in “Financial expenses, net”. The amount recognized in 2021 was a gain of R$ 255,346

 

(b)Recognized in equity, in “Other comprehensive income”. The balance in the cash flow hedge reserve as of December 31, 2022 is a loss of R$ 261,366 (2021 - loss of R$ 54,144).

 

Additionally, in 2022 the Group paid R$ 274,407 on coupon payments of the cross-currency swaps described above.

 

6.8.2Economic hedge

 

6.8.2.1Currency hedge

 

The Group is party to non-deliverable forward (“NDF”) contracts with different counterparties approved by the Board of Directors following the Counterparty Policy to hedge its foreign currency risk. As of December 31, 2022, the contracted exchange rate is between 5.19 and 5.32 Brazilian Reais per each 1.00 U.S. Dollar, covering an amount of US$ 65.5 million. The maturity of the operations is up to February 2023. In 2022, the amount related to these derivatives recognized in Statement of profit or loss was a revenue of R$ 25,827 (2021 - expense of R$ 9,744).

 

6.8.2.2Interest rates hedge

 

The Group mitigates the interest rate risk generated by the gap between its prepayment business (fixed rate) and its funding activities (either fixed or floating) with mixed maturities. This hedge is executed over-the-counter ("OTC") with multiple financial institutions following its Counterparty Policy. The contracted annual rate is between 9.1% and 14.3%. The notional of the operations is R$ 5,225,105 and its maturity is up to April 2024. In 2022, the amount related to these derivatives recognized in Statement of profit or loss was an expense of R$ 9,262 (2021 - expense of R$ 20,321).

 

F-37

 

StoneCo Ltd.

Notes to Consolidated Financial Statements

December 31, 2022, 2021 and 2020

(In thousands of Brazilian Reais, unless otherwise stated)

 

6.9.Financial risk management

 

The Group’s activities expose it to a variety of financial risks: credit risk, market risk (including foreign exchange risk, cash flow or fair value interest rate risk, and price risk), liquidity risk and fraud risk. The Group’s overall financial risk management program seeks to minimize potential adverse effects from its financial results. The Group uses derivative financial instruments to mitigate certain risk exposures. It is the Group’s policy not to engage in derivatives for speculative purposes.

 

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

 

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

 

6.9.1.Credit risk

 

Credit risk is defined as the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. Credit risk arises from the group’s exposures to third parties, including in positions classified in cash and cash equivalents, derivative financial instruments and deposits with banks and other financial institutions, as well as from its operating activities, primarily related to accounts receivable from financial institutions licensed by card companies, including outstanding receivables and commitments.

 

The carrying amount of financial assets reflects the expected credit exposure.

 

6.9.1.1.Financial instruments and cash deposits

 

Credit risk from balances with banks and financial institutions is managed by the Global treasury department and supervised by the integrated risk management team, in accordance with the Group’s internal policies. Investments of surplus funds and the use of derivative instruments are only conducted with carefully selected financial institutions.

 

6.9.1.2.Accounts receivable from card issuers

 

The Group, in accordance with the rules established by payment scheme networks, has instruments to mitigate the risks of accounts receivable from financial institutions licensed by card companies. The Group’s receivables from card issuers are backed by requirements on card issuers to maintain certain guarantees considering the credit risk of the issuer, sales volume, and the residual risk of default of cardholders. This requirement is mandatory for all issuers determined to have credit risk and the amounts are reviewed periodically by the card companies. To date, the Group has not incurred losses from card issuer receivables.

 

6.9.1.3.Loans designated at FVPL

 

The Group's credit risk policy is based on the following internal criteria: classification of customers, usage of the acquiring solution, historical payments performance and trends, default rates, risk-adjusted return on allocated economic capital, and external factors such as: interest rates, benchmark default levels, consumption seasonality, among others.

 

The Group strictly controls the credit exposure of customers and counterparties, acting to manage expected default levels on a timely basis. Losses are based on the customer's payment history and expected payment patterns per risk and transactions profile.

 

F-38

 

StoneCo Ltd.

Notes to Consolidated Financial Statements

December 31, 2022, 2021 and 2020

(In thousands of Brazilian Reais, unless otherwise stated)

 

6.9.2.Market risk

 

Market risk is the risk that arises on the possibility of financial loss on the fair value or future cash flows of any financial instrument due to changes in market conditions.

 

On the ordinary course of the business, the Group incurs in financial transactions subject to market variables, therefore exposed to market risk. Global treasury manages those exposures to minimize the impacts of fluctuations of market prices on the Group’s activities.

 

Market risk comprises mainly: foreign exchange risk, interest rate risk and equity price risk. The effects of market factors on the financial statements are discussed below.

 

Financial instruments affected by market risk include loans and borrowings, deposits, derivative financial instruments, cash, and cash equivalents denominated in foreign currencies, and short-term investments denominated in foreign currencies.

 

6.9.2.1.Interest rate risk

 

Short-term investments, loans and financing, and obligations to FIDC quota holders accrues interest at the CDI rate, the Brazilian benchmark floating rate, therefore they incur in future cash flow risk, but do not incur in fair value risk.

 

The Group’s interest rate risk arises from the fact that certain assets (mostly cash and equivalents, short term investments and accounts receivables) and liabilities (loans, financing, obligations to FIDC quotaholders, etc) have different benchmarks (fixed or floating) and maturity dates. The Group may mitigate its exposure by enter into derivatives in which it will collect floating rates (CDI) and paying fixed rates.

 

6.9.2.2.Foreign currency risk

 

The Group has both assets and liabilities in foreign currencies. We have operations, cash and short-term investments in multiple countries in Latin America, in addition to TPV processed in foreign exchange. On the other hand, we have relevant capital expenditures (Pin Pads& POS, and datacenter equipment) and regular expenses (cloud and software fees) which are indexed to U.S. dollars. The Global treasury strategy is to hedge the foreign currency-denominated instruments with foreign exchange derivatives to mitigate the effect of the volatility on any currency other than Brazilian Reais. The total foreign currency results on the year ended December 31,2022 was income of R$ 18,955 a relatively low financial result, mainly from the interest rate differential on the USD/BRL pair, despite high volatility observed on this pair on the same period, showing a well-balanced risk management.

 

The bonds issued by the Group are hedged on a cash flow hedge arrangement, in which all critical terms of the bonds (US Dollars denomination, coupon payment schedule, and interest rate) are matched with the hedging instrument.

 

The Group’s exposure to foreign currency changes for all other currencies is not material.

 

6.9.2.3.Equity price risk

 

Equity price risk is the risk that the fair value of equities decreases as the result of changes in the level of equity indices and individual stocks. The Group incurs in equity price risk, as it holds, as of December 31, 2022, R$ 214,765 in listed and unlisted equity securities.

 

F-39

 

StoneCo Ltd.

Notes to Consolidated Financial Statements

December 31, 2022, 2021 and 2020

(In thousands of Brazilian Reais, unless otherwise stated)

  

6.9.2.4.Risk Assessment: Value-at-Risk and Scenario Analysis

 

Market risk is managed and monitored, by risk factor, using the value-at-risk (“VaR”) methodology. To integrate all the risk factors, the Group adopts a more conservative approach which consists in summing up all the individual figures.

 

The Group conducts a study on how market variables would impact the group’s financial statements based on Historical Value at Risk models.

 

Risk Factor   Asset/ Liability  

VaR

1 day

 

VaR

10 days

 

VaR

60 days

Interest Rates  

Accounts receivables from credit card issuers,

Accounts payables to clients

and interest rate swaps

  123   491   575
Foreign Currency Exchange   USD denominated asset/liabilities/derivatives   764   2,443   6,881
Equity Prices (a)   Traded Securities   19,355   43,730   99,469

 

(a)The Group holds equity stakes of Banco Inter S.A. (B3: BIDI3; BIDI4; BIDI11). The VaR figures are calculated based on historical data and are suited to estimate the potential financial loss incurred by the company using a level of confidence of 95% on normal market conditions.

 

The VaR figures are reliable only on normal market conditions, thereby underestimates the large market movements caused by turmoil events on financial markets.

 

6.9.3.Liquidity risk

 

Cash flow forecasting is performed in the operating entities of the Group and aggregated by the Group’s finance team. Group’s finance team monitors rolling forecasts of the Group’s liquidity requirements to ensure it has sufficient cash to meet operational needs while maintaining sufficient headroom on its undrawn borrowing facilities at all times so that the Group does not breach borrowing limits on any of its borrowing facilities. Such forecasting takes into consideration the Group’s debt financing plans, compliance with internal balance sheet ratio targets and, if applicable, external regulatory or legal requirements.

 

Surplus cash held by the operating entities is invested in interest-earning bank accounts, time deposits, money market deposits and marketable securities, choosing instruments with appropriate maturities or sufficient liquidity to provide adequate margin as determined by the above-mentioned forecasts. At the balance sheet date, the Group held short-term investments of R$3,453,772 (2021 - R$1,993,037) that are expected to readily generate cash inflows for managing liquidity.

 

The table below analyzes the Group’s non-derivative financial liabilities based on the remaining period at the balance sheet date to the contractual maturity date. Derivative financial liabilities are not included in the analysis as their contractual maturities are not essential for an understanding of the timing of the cash flows. The amounts disclosed in the table are the contractual undiscounted cash flows.

 

   Less than one year  Between 1 and 2 years  Between 2 and 5 years  Over 5 years
At December 31, 2022            
Deposits from banking customers   4,023,679             
Accounts payable to clients   16,542,963    35,775           
Trade accounts payable   596,044             
Loans and financing   2,255,110    431,180    1,231,989    2,729,500 
Obligations to FIDC quota holders   1,028,562             
Other liabilities   145,605    268,544          
    24,591,963    735,499    1,231,989    2,729,500 
                     
At December 31, 2021                    
Deposits from banking customers   2,201,861             
Accounts payable to clients   15,720,159    3,172         
Trade accounts payable   372,547             
Loans and financing   2,924,513    983,537    860,578    2,963,804 
Obligations to FIDC quota holders   1,443,868    985,229         
Other liabilities   145,500    32,501    340,144     
    22,808,448    2,004,439    1,200,722    2,963,804 

F-40

 

StoneCo Ltd.

Notes to Consolidated Financial Statements

December 31, 2022, 2021 and 2020

(In thousands of Brazilian Reais, unless otherwise stated)

 

6.10.Fraud risk

 

The Group’s exposure to operational risk from fraud is the risk that a misuse, or a wrongful or criminal deception will lead to a financial loss for one of the parties involved on a bankcard transaction. Fraud involving bankcards includes unauthorized use of lost or stolen cards, fraudulent applications, counterfeit or altered cards, and the fraudulent use of a cardholder’s bankcard number for card-not-present transactions.

 

While the costs of most fraud involving bankcards remain with either the issuing financial institution or the client, the Group is occasionally required to cover fraudulent transactions in the following situations:

 

Where clients also contract anti-fraud services rendered by the Group entities; or

 

Through the chargeback process if the Group does not follow the minimum procedures, including the timely communication to all involved parties about the occurrence of a fraudulent transaction.

 

The Group is also exposed to potential liability when fraudulent agents use false identities to access our credit and banking products, which could increase our credit risk exposure as well as our liability towards clients and third parties in case of any damages. Criminals are using increasingly sophisticated methods to engage in illegal activities such as counterfeiting and fraud. Failure to effectively manage risk and prevent fraud would increase our credit liabilities and default rates on our credit solutions, and subject us to potential fines by regulators.

 

6.11.Financial instruments by category

 

   Amortized cost  FVPL  FVOCI  Total
At December 31, 2022            
Short and Long-term investments       3,636,687    31,850    3,668,537 
Financial assets from banking solution       3,960,871        3,960,871 
Accounts receivable from card issuers   6,992        20,741,865    20,748,857 
Trade accounts receivable   495,180    26,866        522,046 
Derivative financial instruments(a)       36,400        36,400 
Receivables from related parties   10,053            10,053 
Other assets   341,200            341,200 
    853,425    7,660,824    20,773,715    29,287,964 
                     
At December 31, 2021                    
Short and Long-term investments       3,209,604    21,909    3,231,513 
Financial assets from banking solution       2,346,474        2,346,474 
Accounts receivable from card issuers   132,605        19,153,985    19,286,590 
Trade accounts receivable   434,481    511,240        945,721 
Derivative financial instruments(a)       219,324        219,324 
Receivables from related parties   4,720            4,720 
Other assets   474,557            474,557 
    1,046,363    6,286,642    19,175,894    26,508,899 

 

(a)Derivative financial instruments as of December 31, 2022 of R$ (190,902) (December 31, 2021 – R$ 201,202) were designated as cash flow hedging instruments, and therefore the effective portion of the hedge is accounted for in the OCI.

 

F-41

 

StoneCo Ltd.

Notes to Consolidated Financial Statements

December 31, 2022, 2021 and 2020

(In thousands of Brazilian Reais, unless otherwise stated)

 

   Amortized cost  FVPL  Total
At December 31, 2022               
Deposits from banking customers   4,023,679        4,023,679 
Accounts payable to clients   16,614,513        16,614,513 
Trade accounts payable   596,044        596,044 
Loans and financing   4,575,877        4,575,877 
Obligations to FIDC quota holders   975,248        975,248 
Derivative financial instruments       209,714    209,714 
Other liabilities   144,893    611,279    756,172 
    26,930,254    820,993    27,751,247 
                
At December 31, 2021               
Deposits from banking customers   2,201,861        2,201,861 
Accounts payable to clients   15,726,503        15,726,503 
Trade accounts payable   372,547        372,547 
Loans and financing   6,135,215        6,135,215 
Obligations to FIDC quota holders   2,227,174        2,227,174 
Derivative financial instruments       23,244    23,244 
Other liabilities   165,502    328,456    493,958 
    26,828,802    351,700    27,180,502 

 

6.12.Fair value measurement

 

The table below presents a comparison by class between book value and fair value of the financial instruments of the Group, other than those with carrying amounts that are reasonable approximations of fair values:

 

   2022  2021
   Book value  Fair value  Hierarchy level  Book value  Fair value  Hierarchy level
Financial assets                  
Short and Long-term investments(a)   3,668,537    3,668,537   I /II   3,231,513    3,231,513   I /II
Financial assets from banking solution(e)   3,960,871    3,960,871   I   2,346,474    2,346,474   I
Accounts receivable from card issuers(b)   20,748,857    20,748,668   II   19,286,590    19,283,921   II
Trade accounts receivable (c)(d)   522,046    522,046   II / III   945,721    945,721   II / III
Derivative financial instruments(f)   36,400    36,400   II   219,324    219,324   II
Receivables from related parties(c)   10,053    10,053   II   4,720    4,720   II
Other assets(c)   341,200    341,200   II   474,557    474,557   II
    29,287,964    29,287,775       26,508,899    26,506,230    
                           
Financial liabilities                          
Deposits from banking customers(g)   4,023,679    4,023,679   II   2,201,861    2,201,861   II
Accounts payable to clients(i)   16,614,513    16,025,373   II   15,726,502    14,628,794   II
Trade accounts payable   596,044    596,044   II   372,547    372,547   II
Loans and financing(h)   4,575,877    4,564,864   II   6,135,215    6,121,966   II
Obligations to FIDC quota holders(h)   975,248    973,614   II   2,227,174    2,324,553   II
Derivative financial instruments(f)   209,714    209,714   II   23,244    23,244   II
Other liabilities(c)(j)(k)   756,172    756,172   II/III   488,940    490,634   II/III
    27,751,247    27,149,460       27,175,483    26,163,599    

 

(a)Listed securities are classified as level I and unlisted securities classified as level II, for those the fair value is determined using valuation techniques, which employ the use of market observable inputs.

 

(b)For Accounts receivable from card issuers measured at FVOCI, fair value is estimated by discounting future cash flows using market rates for similar items. For those measured at amortized cost, carrying values are assumed to approximate their fair values, taking into consideration that the realization of these balances and short settlement terms.

 

(c)The carrying values of Trade accounts receivable, Receivables from related parties, Other assets, Trade accounts payable and Other liabilities are assumed to approximate their fair values, taking into consideration that the realization of these balances, and settlement terms do not exceed 60 days.

 

(d)Included in Trade accounts receivable there are Loans designated at FVPL with an amount of R$ 26,866 . As of December 31, 2022, this portfolio registered a gain of R$ 7,902 (loss of R$ 381,430 - December 31, 2021), and total net cashflow effect was an inflow of R$ 496,600 (R$ 754,015 - December 31, 2021). Loans fair value are valued using valuation techniques, which employ the use of market unobservable inputs, and therefore is classified as level III in the hierarchy level.

F-42

 

StoneCo Ltd.

Notes to Consolidated Financial Statements

December 31, 2022, 2021 and 2020

(In thousands of Brazilian Reais, unless otherwise stated)

 

   2022  2021
At January 1   511,240    1,646,685 
Disbursements       1,155,921 
Collections   (496,600)   (1,909,936)
Interest income recognized in the statement of profit or loss as Financial Income   338,717    924,775 
Fair value recognized in the statement of profit or loss as Financial income   (326,491)   (1,306,205)
At December 31   26,866    511,240 

 

The significant unobservable inputs used in the fair value measurement of Loans designated at FVPL categorized within Level III of the fair value hierarchy, are the expected loss rate and the discount rate used to evaluate the asset. To calculate expected loss rate, the Company considers a list of assumptions, the main being: an individual projection of client’s transactions, the probability of each contract to default and scenarios of recovery. These main inputs are periodically reviewed, or when there is an event that may affect the probabilities and curves applied to the portfolio.

 

In determining the discount rate, we consider that the rate should be a current rate commensurate with the nature of the loan portfolio and the valuation method used. When rates for actual recent transactions are available and appropriate to reflect the interest rate as of the measurement date, we consider those rates. When such rates are not available, we also obtain non-binding quotes. Based on all available information we make a judgment as to the rate to be used. In prior periods we used the interest rate that we paid to senior holders of FIDCs on recent transactions. Considering we did not raise funding through FIDCs since February 2021 and the changes observed in the benchmark interest rate in Brazil and in the credit markets we currently build an interest rate curve for unsecured loans granted to us based on recent loans obtained and in quotes from financial institutions.

 

The Group has performed sensitivity analysis considering an increase of 100 basis points in discount rate combined with a decrease of 15% in recovery curve. The result of the combined effect of both changes was a decrease of Loans designated at FVPL in the total amount of R$ 2,301.

 

(e)Sovereign bonds are priced using quotations from Anbima public pricing method.

 

(f)The Group enters into derivative financial instruments with financial institutions with investment grade credit ratings. Derivative financial instruments are valued using valuation techniques, which employ the use of market observable inputs.

 

(g)The fair value of deposits from banking customers is assumed to approximate their amortized cost considering the immediate liquidity due to costumers’ payment account deposits.

 

(h)The fair values of Loans and financing, and Obligations to FIDC quota holders are estimated by discounting future contractual cash flows at the interest rates available in the market that are available to the Group for similar financial instruments.

 

(i)The fair value of Accounts payable to clients is estimated by discounting future contractual cash flows at the average of interest rates applicable in prepayment business.

 

(j)There are contingent considerations included in Other liabilities arising on business combinations that are measured at FVPL. Fair values are estimated in accordance with pre-determined formulas explicit in the contracts with selling shareholders. The significant unobservable inputs used in the fair value measurement of contingent consideration categorized within Level III of the fair value hierarchy are based on projections of revenue, net debt, number of clients, net margin and the discount rates used to evaluate the liability. The movement and balance of the contingent consideration are as follows:

 

   2022  2021
At January 1   328,456    269,162 
Additions (Note 21.3.4)   39,974    41,666 
Balance arising from business combination       14,605 
Remeasurement at fair value recognized in the statement of financial position as Intangible assets – Goodwill       1,759 
Remeasurement at fair value recognized in the statement of profit or loss as Other income (expenses), net   (42,830)   (9,881)
Payments   (32,157)   (4,000)
Interest recognized in the statement of profit or loss as Financial expenses, net   16,413    15,145 
At December 31   309,856    328,456 

 

The Group has performed sensitivity analysis of contingent consideration considering an increase of 10% and a decrease of 10% in projections of revenue and EBITDA. The result would be an increase of this liability in the amount of R$ 50,425 considering increase in unobservable inputs and a decrease of this liability in the amount of R$ 49,940 considering decrease in unobservable inputs.

 

(k)The Group issued put options over Reclame Aqui’s non-controlling interests, together with business combination (Note 21.3). The Company does not have a present ownership interest in the shares held by non-controlling shareholders, so the Group has elected as accounting policy for such put options to derecognize the non-controlling interests at each reporting date as if it was acquired at that date and recognize a financial liability at the present value of the amount payable on exercise of the non-controlling interests put option. The difference between the amount recognized as financial liability and the non-controlling interests derecognized at each period is recognized as an equity transaction. The amount of R$ 264,291 was recorded in the consolidated statement of financial position as of December 31, 2022 as a financial liability under Other liabilities (2021 - nil).

 

As of December 31, 2022 and December 31, 2021, there were no transfers between the fair value measurements of Level I and Level II and between the fair value measurements of Level II and Level III.

 

F-43

 

StoneCo Ltd.

Notes to Consolidated Financial Statements

December 31, 2022, 2021 and 2020

(In thousands of Brazilian Reais, unless otherwise stated)

 

6.13.Capital management

 

The Group’s objectives when managing capital are to safeguard its ability to continue as a going concern to provide returns for shareholders and benefits for other stakeholders, to maintain an optimal capital structure to reduce the cost of capital, and to have resources available for optimistic opportunities.

 

In order to maintain or adjust the capital structure of the Group, management can make, or may propose to the shareholders when their approval is required, adjustments to the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce, for example, debt.

 

The Group monitors its capital structure based on standard leverage and capitalization metrics, and its strategy is to keep a positive balance of Adjusted net cash.

 

As from 2022, Adjusted net cash calculation includes Financial assets from banking solution and Deposits from banking customers. Amounts related to 2021 were recasted for comparison purposes.

 

The adjusted net cash as of December 31, 2022 and 2021 was as follows:

 

   2022  2021 (Recasted)
Cash and cash equivalents   1,512,604    4,495,645 
Financial assets from banking solution   3,960,871    2,346,474 
Short-term investments   3,453,772    1,993,037 
Accounts receivable from card issuers   20,748,857    19,286,590 
Derivative financial instruments(a)   12,418    210,280 
Adjusted cash   29,688,522    28,332,026 
           
Accounts payable to clients   (16,614,513)   (15,726,502)
Loans and financing(b)   (4,375,730)   (5,861,760)
Deposits from banking customers   (4,023,679)   (2,201,861)
Obligations to FIDC quota holders   (975,248)   (2,227,174)
Derivative financial instruments   (209,714)   (23,244)
Adjusted debt   (26,198,884)   (26,040,541)
           
Adjusted net cash   3,489,638    2,291,485 

 

(a)Refers to economic hedge of cash and cash equivalents and short-term investments denominated in U.S. dollars;

 

(b)Loans and financing exclude the effects of leases liabilities recognized under IFRS 16.

 

Although capital is managed considering the consolidated position, the subsidiaries Stone Pagamentos and Stone SCD maintain a minimum equity.

 

Stone Pagamentos

 

Stone Pagamentos must permanently maintain minimum equity in an amount corresponding to specific volume of transactions executed by it or the balance of electronic currencies issued by the institution, following the requirements of Circular BCB nº 3,681/13, which is valid until June 30, 2023.

 

As from July 1, 2023, Circular BCB nº 3,681/13 will be replaced by several rules, which are aligned with the regulatory requirements pursuant to the Basel Accords. Under new regulation, minimum required capital is calculated based on risk weighted assets.

 

On December 31, 2022 Stone Pagamentos equity is R$ 1,273,363, which is higher than the required equity of R$ 615,181.

 

Stone SCD

 

Stone SCD is classified as S5 Segment under BACEN rules, for which simpler rules of capital requirements apply. Stone SCD must permanently maintain minimum equity in an amount corresponding to 17% of its risk weighted assets, following the requirements of Resolução CMN nº 4,606/17.

 

On December 31, 2022 Stone SCD equity is R$ 693,091, which is higher than the required equity of R$ 112,119.

 

F-44

 

StoneCo Ltd.

Notes to Consolidated Financial Statements

December 31, 2022, 2021 and 2020

(In thousands of Brazilian Reais, unless otherwise stated)

  

7.Recoverable taxes

 

   December 31, 2022  December 31, 2021
Withholding income tax on finance income(a)    87,701    85,942 
Income tax and social contribution   9,872    65,773 
Others withholding income tax   36,212    30,454 
Contributions over revenue(b)   3,410    24,076 
Other taxes   13,761    8,592 
    150,976    214,837 

 

(a)Refers to income taxes withheld on financial income which will be offset against future income tax payable.

 

(b)Refers to credits taken on contributions on gross revenue for social integration program (PIS) and social security (COFINS) to be offset in the following period against tax payables.

 

8.Income taxes

 

8.1.Accounting policy

 

8.1.1.Current income and social contribution taxes

 

Current tax assets and liabilities are measured at the amount expected to be recovered or paid to the tax authorities. The tax rules used to determine tax assets and liabilities are those that are in force on the balance sheet date in the countries where the Group operates and generates taxable income.

 

StoneCo Ltd. is domiciled in Cayman and there is no income tax in that jurisdiction. The income earned by StoneCo Ltd. from its operations abroad can be subject to income tax at the main rate of 15%.

 

The combined rate applied to all entities in Brazil is 34%, comprising the Corporate Income Tax (“IRPJ”) and the Social Contribution on Net Income (“CSLL”) on the taxable income of each Brazilian legal entity (not on a consolidated basis).

 

The Group's Brazilian entities recognize IRPJ and CSLL on an accrual basis. According to Brazilian tax rules, our companies may offset the historical nominal amount of tax losses determined in prior years against results of subsequent years at any time (i.e., with no limitations with respect to time periods), provided that such offsetting does not exceed 30% of the annual taxable income of the fiscal period in which tax losses are utilized.

 

Payments are made monthly, in anticipation of the amount which will be due by the year-end.

 

8.1.2.Deferred income and social contribution taxes

 

Deferred tax assets or liabilities are obtained based on the differences between the tax bases of assets and liabilities and the amounts reported in the Consolidated statement of financial position at each period. Deferred tax assets may also be recognized over unused tax losses.

 

Deferred tax assets are recognized only to the extent that it is probable that the Group's Brazilian entities will generate future taxable profits that will allow for their recovery. The expected realization of deferred tax assets is based on technical studies prepared by the Company that demonstrate expectation of future taxable profits according to management projections.

 

The income tax and social contribution expense is recognized in the Consolidated statement of profit or loss under Income tax and social contribution, except when it refers to items recognized in other comprehensive income, in which case the related deferred tax assets or liabilities are also recognized against other comprehensive income. In this case, the Group presents these items in the Consolidated Statement of Other Comprehensive Income net of related tax effect.

 

Management periodically evaluates positions taken in tax returns with respect to situations where applicable tax regulations are subject to interpretation and recognizes provisions, when appropriate.

 

Deferred tax assets and liabilities are presented net in the Consolidated statement of financial position when there is a legally enforceable right and the intention to offset them upon the calculation of current taxes, generally when related to the same legal entity and the same jurisdiction. Accordingly, deferred tax assets and liabilities in different entities or in different countries are generally presented separately, and not on a net basis.

 

F-45

 

StoneCo Ltd.

Notes to Consolidated Financial Statements

December 31, 2022, 2021 and 2020

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

8.2.Significant judgments, estimates and assumptions

 

Deferred tax assets are recognized for all unused tax losses to the extent that sufficient taxable profit will likely be available to allow the use of such losses. A significant judgment from management is required to determine the amount of deferred tax assets that can be recognized, based on the likely timing and level of future taxable profits, together with future tax planning strategies.

 

8.3.Reconciliation of income tax expense

 

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 years ended December 31, 2022, 2021 and 2020:

 

   2022  2021  2020
Profit (loss) before income taxes   (387,290)   (1,445,554)   1,127,662 
Brazilian statutory rate   34%   34%   34%
Tax benefit/(expense) at the statutory rate   131,679    491,488    (383,405)
                
Additions (exclusions):               
Profit (loss) from entities subject to different tax rates   48,594    3,931    98,376 
Profit (loss) from entities subject to different tax rates - Mark-to-market on equity securities designated at FVPL   (290,039)   (429,832)    
Other permanent differences   (10,609)   4,325    (4,777)
Equity pickup on associates   (1,220)   (3,548)   (2,359)
Unrecorded deferred taxes   (33,465)   (40,165)   (31,531)
Previously unrecognized on deferred income tax (temporary and tax losses)   1,292    22,492     
Unrealized gain on previously held interest on acquisition       6,161    1,017 
Interest payments on net equity   560    5,933    12,276 
R&D Tax Benefits   10,275    4,688    13,107 
Other tax incentives   3,827    2,733    7,080 
Total income tax and social contribution benefit/(expense)   (139,106)   68,206    (290,216)
Effective tax rate   (36%)   5%   26%
                
Current income tax and social contribution   (292,172)   (171,621)   (216,886)
Deferred income tax and social contribution   153,066    239,827    (73,330)
Total income tax and social contribution benefit/(expense)   (139,106)   68,206    (290,216)

F-46

 

StoneCo Ltd.

Notes to Consolidated Financial Statements

December 31, 2022, 2021 and 2020

(In thousands of Brazilian Reais, unless otherwise stated)

 

8.4.Deferred income taxes by nature

 

   December 31, 2021 (Recasted)  Recognized against other comprehensive income  Recognized against profit or loss  Recognized against goodwill  December 31,
2022
Assets at FVOCI   127,335    88,395            215,730 
Losses available for offsetting against future taxable income   317,725        67,909        385,634 
Other temporary differences   107,364        166,261        273,625 
Tax deductible goodwill   111,298        (42,281)       69,017 
Share-based compensation   41,150        17,665        58,815 
Contingencies arising from business combinations   48,284        3,029        51,313 
Assets at FVPL   (4,583)       3,590        (993)
Technological innovation benefit   (18,493)       (13,064)       (31,557)
Temporary differences under FIDC   (69,556)       (78,368)       (147,924)
Intangible assets and property and equipment arising from business combinations   (709,943)       28,325    (12,318)   (693,936)
Deferred tax, net   (49,419)   88,395    153,066    (12,318)   179,724 

 

8.5.Unrecognized deferred taxes

 

The Group has accumulated tax loss carryforwards and other temporary differences in some subsidiaries in the amount of R$ 144,529 (December 31, 2021 – R$ 104,920) for which a deferred tax asset was not recognized and are available indefinitely for offsetting against future taxable profits of the companies in which the losses arose. Deferred tax assets have not been recognized with respect of these losses as they cannot be used to offset taxable profits between subsidiaries of the Group, and there is no other evidence of recoverability in the near future.

 

9.Property and equipment

 

9.1.Accounting policy

 

All property and equipment are stated at historical cost less accumulated depreciation and impairment losses, if any (see note 9.3 for more details). Historical cost includes expenditures that are directly attributable to the acquisition of the items and, if applicable, net of tax credits. Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item is material and can be measured reliably. All other repairs and maintenance expenditures are charged to profit or loss during the period in which they are incurred. Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets.

 

Assets’ residual values, useful lives and methods of depreciation are reviewed at each reporting date and adjusted prospectively, if appropriate. Gains and losses on disposals or derecognition are determined by comparing the disposal proceeds (if any) with the carrying amount and are recognized in profit or loss. The Group also derecognizes under ¨Disposal of property and equipment¨ Pin Pads & POS held by customers that are not being used in the last 180 or 360 days, depending on the category of customer.

 

 

F-47

 

StoneCo Ltd.

Notes to Consolidated Financial Statements

December 31, 2022, 2021 and 2020

(In thousands of Brazilian Reais, unless otherwise stated)

  

9.2.Significant judgments, estimates and assumptions

 

Property and equipment and intangible assets include the preparation of estimates to determine the useful life for depreciation and amortization purposes. Useful life determination requires estimates in relation to the expected technological advances and alternative uses of assets. There is a significant element of judgment involved in making technological development assumptions, since the timing and nature of future technological advances are difficult to predict.

 

The Group evaluate the useful life of Property and equipment and Intangible assets and concluded that no change on the estimates of useful life and residual value of this assets was necessary for the year ended December 31, 2022.

 

The estimated useful lives for the Property and equipment are as follows:

 

   Estimated useful lives (years)
Pin Pads & POS   5 
IT equipment   3 – 10 
Facilities   3 – 14 
Property   34 
Furniture and fixtures   3 – 10 
Machinery and equipment   5 – 14 
Vehicles and airplanes   2 – 10 

 

9.3.Changes in Property and equipment

 

   Balance at 12/31/2021  Additions  Disposals (a)  Effects of hyperinflation (IAS 29)  Effects of changes in foreign exchange rates (IAS 21)  Business combination  Balance at 12/31/2022
Cost                     
Pin Pads & POS   1,498,271    569,895    (119,784)               1,948,382 
IT equipment   246,543    19,807    (5,322)       25    1,352    262,405 
Facilities   90,186    5,005    (2,949)   (285)   (137)       91,820 
Machinery and equipment   25,776    5,445    (11,520)   186    3,610    24    23,521 
Furniture and fixtures   24,754    1,123    (1,849)   1    3    118    24,150 
Vehicles and airplane   43,586    97    (16,433)   87    (41)       27,296 
Construction in progress   14,078    43,652    (7,410)               50,320 
Right-of-use assets - equipment   4,629    194                    4,823 
Right-of-use assets - vehicles   31,547    18,171    (5,924)               43,794 
Right-of-use assets - offices   238,329    28,817    (61,314)   (211)   (171)       205,450 
    2,217,699    692,206    (232,505)   (222)   3,289    1,494    2,681,961 
                                    
Depreciation                                   
Pin Pads & POS   (438,346)   (379,442)   77,320                (740,468)
IT equipment   (95,553)   (55,803)   5,968        (18)       (145,406)
Facilities   (25,066)   (13,497)   726        98        (37,739)
Machinery and equipment   (17,861)   (4,613)   3,792        111        (18,571)
Furniture and fixtures   (5,516)   (2,424)   890        (4)       (7,054)
Vehicles and airplane   (2,498)   (3,534)   3,593        2        (2,437)
Right-of-use assets - equipment   (505)   (526)                   (1,031)
Right-of-use assets - Vehicles   (14,187)   (13,125)   5,649                (21,663)
Right-of-use assets - Offices   (48,647)   (40,449)   22,682                (66,414)
    (648,179)   (513,413)   120,620        189        (1,040,783)
                                    
Property and equipment, net