PagSeguro Digital Ltd. — FY2020 Form 20-F
Reporting period: Fiscal year ended December 31, 2020. This is an annual report, not a standalone Q4 filing; quarterly results are not clearly provided in the filing text. Financial statements are prepared under IFRS as issued by the IASB and are presented primarily in Brazilian reais (R$).
Business context
PagSeguro is a Brazilian financial technology and payments provider serving consumers, entrepreneurs, micro-merchants and small and medium-sized businesses. Its ecosystem combines payment processing and POS devices with PagBank digital accounts, cards, credit, investments and merchant tools.
Key financial and operating metrics
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Total revenue and income | R$6,814.7 million | R$5,707.2 million | +19.4% |
| Transaction and other-services revenue | R$4,508.7 million | R$3,376.1 million | +33.5% |
| Financial income | R$2,177.4 million | R$2,030.5 million | +7.2% |
| Profit before income taxes | R$1,774.7 million | R$1,912.5 million | -7.2% |
| Net income | R$1,292.3 million | R$1,367.0 million | -5.5% |
| Basic EPS | R$3.9225 | R$4.1613 | -5.7% |
| TPV | R$161.5 billion | R$114.8 billion | +40.7% |
| Active merchants at year-end | 7.0 million | 5.3 million | +34.6% |
| PagBank active users at year-end | 7.9 million | 2.7 million | +187% |
Net margin, calculated as net income divided by total revenue and income, was approximately 19.0%, versus 24.0% in 2019. Total expenses rose 32.8% to R$5,040.0 million, equal to 74.0% of revenue and income versus 66.5% a year earlier. Financial expenses increased 186.6% to R$109.2 million, mainly reflecting interest accrued on certificates of deposit issued during 2020.
Operating cash flow was R$2,152.7 million, compared with R$479.6 million in 2019. Investing cash outflow was R$1,861.5 million, including R$1,522.8 million of property and equipment purchases and R$523.8 million of intangible-asset development and purchases. Financing cash outflow was R$55.1 million. Cash and cash equivalents ended the year at R$1,640.1 million.
At year-end, current assets were R$19,247.1 million and current liabilities R$11,574.5 million, implying a current ratio of approximately 1.66. Accounts receivable totaled R$16,076.5 million, up from R$10,507.1 million. Total assets were R$22,324.3 million; total liabilities R$12,996.9 million; and equity R$9,327.5 million. The company reported no third-party borrowings at year-end 2020 or 2019. However, it had R$766.1 million of deposits, principally certificates of deposit and corporate securities, recorded as liabilities.
Material changes versus FY2019
- TPV grew substantially faster than transaction revenue. Management attributed the difference partly to a higher share of debit transactions and fewer credit-card installment transactions, which generally affect revenue and early-payment income.
- Net income declined despite higher revenue, as expenses grew faster. Cost of sales and services increased 36.6%; administrative expenses rose 31.9%; and financial expenses rose 186.6%.
- PagSeguro’s POS-device model changed in September 2019 from sales to a non-refundable membership fee. In 2020, membership fees contributed R$140.8 million. The change also shifted POS devices to property and equipment, increasing depreciation and service-related costs.
- Property and equipment increased to R$1,802.6 million from R$400.0 million, largely reflecting POS devices. Intangible assets rose to R$1,123.6 million from R$589.6 million.
- PagSeguro acquired Wirecard Brazil (MOIP) in 2020 for stated consideration of R$358.6 million; the preliminary allocation included R$128.2 million of goodwill. It also acquired Zygo and CDS. These acquisitions expanded its online-payments and merchant-services offerings.
- The real depreciated significantly during 2020. U.S.-dollar translations in the filing are for convenience and should not be treated as amounts convertible at the stated exchange rate.
Outlook, management commentary and risks
Management described the addressable Brazilian market and continued digitalization as growth opportunities, and expects to keep investing in products, technology and customer engagement. The filing provides no quantified earnings or revenue guidance. Management reported that COVID-19 restrictions affected TPV most in late March through June 2020, followed by reopening and recovery. The pandemic accelerated online payments, while consumer assistance programs and weaker installment spending shifted transaction mix toward debit and away from installments. Management said liquidity and working capital were solid, no COVID-related asset impairment had been identified, and the company expected to continue as a going concern for at least 12 months based on then-current conditions.
- Working capital and funding: The business has substantial receivables and merchant-payment obligations. Receivables rose sharply, and management noted a need to diversify funding sources as interest rates rose. POS-device purchase commitments were R$1,386.3 million, all due within one year.
- Brazil and COVID-19: Economic contraction, inflation, currency volatility, political uncertainty and renewed pandemic restrictions could affect transaction volumes, costs, customer behavior and the share price.
- Regulation and tax: Payments, banking, early payment of receivables, data protection and tax rules are evolving. Tax proceedings classified as possible losses totaled approximately R$165.9 million, with no provision recorded for those matters. The filing also describes significant tax deposits and disputes.
- Litigation: Provisions for civil and labor matters totaled R$28.8 million at year-end. The company reported approximately 6,605 consumer-related proceedings and 97 labor proceedings.
- Operations and competition: Key risks include cybersecurity and service interruptions, fraud and chargebacks, intense competition, dependence on payment networks and suppliers, and reliance on third parties for technology and infrastructure.
- Governance and ownership: UOL controlled approximately 86.4% of voting power through the dual-class share structure, limiting Class A shareholders’ influence.
Most important facts for investors to verify
- Review the full audited statements and notes for the composition, collectability and funding of the R$16.1 billion receivables balance, including merchant settlement obligations.
- Assess whether the FY2020 expense increase and lower net margin are temporary or reflect persistent unit-economics pressure, including the effects of the POS membership model and transaction mix.
- Check subsequent results for the durability of TPV and user growth, recovery in installment transactions, and performance and integration of Wirecard Brazil.
- Review the status and potential cash exposure of the R$165.9 million possible-loss tax contingencies, other proceedings, and deposits securing disputes.
- Monitor liquidity and funding costs, including certificates of deposit, purchase commitments, and sensitivity to interest rates and Brazilian-real movements.
- Confirm progress on regulatory approvals and compliance, including the proposed subsidiary reorganization and evolving payments and data-protection requirements.