PagSeguro Digital Ltd. — FY2021 Form 20-F
Reporting period: Fiscal year ended December 31, 2021, compared with FY2020 unless noted. This is an annual report; the supplied filing does not provide standalone 2021 Q4 results. Financial statements are prepared under IFRS as issued by the IASB and presented primarily in Brazilian reais (R$).
Business context
PagSeguro is a Brazil-focused payments and financial-services platform serving consumers, individual entrepreneurs, micro-merchants and SMEs. Its offering combines merchant acquiring and POS devices, e-commerce payments, PagBank digital accounts, credit, investments and related services.
Financial and operating performance
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Total revenue and income | R$10,448.7 million | R$6,814.7 million | +53.3% |
| Transaction and other-services revenue | R$6,784.8 million | R$4,508.7 million | +50.5% |
| Financial income, mainly early payment of merchant receivables | R$3,514.4 million | R$2,177.4 million | +61.4% |
| Profit before income taxes | R$1,488.0 million | R$1,774.7 million | -16.2% |
| Net income | R$1,166.3 million | R$1,292.3 million | -9.8% |
| Net income margin | 11.2% | 19.0% | Down 7.8 percentage points |
| TPV | About R$456.1 billion | R$161.5 billion | +97.0% |
| Active merchants at year-end | 7.7 million | 7.0 million | +9.4% |
| PagBank active users at year-end | 13.1 million | 7.9 million | +66.2% |
Total expenses rose 77.8% to R$8,960.7 million, or 85.8% of total revenue and income versus 74.0% in FY2020. Selling expenses rose 146.8% to R$1,523.9 million. Financial expenses increased to R$790.6 million from R$109.2 million, reflecting higher funding costs and working-capital needs. The filing reports an effective tax rate of 21.6%, down from 27.2%.
Cash flow and liquidity: Operating cash flow was R$898.0 million, down from R$2,152.7 million. Investing cash outflow was R$1,470.9 million; financing cash inflow was R$727.2 million. Year-end cash and cash equivalents were R$1,794.4 million, with R$782.6 million of financial investments. Receivables were R$23,657.4 million, while payables to third parties were R$13,217.2 million. The company reported a net cash position of R$788.6 million after borrowings.
Debt and funding: In November 2021, the group borrowed US$180 million, repayable in one year, and entered into swaps to hedge currency exposure; the filing says the all-in remuneration was equivalent to 109.4% of CDI. Deposits totaled R$3,134.0 million, mainly certificates of deposit and other funding obligations. These deposits are distinct from the reported borrowing.
Material changes versus FY2020
- TPV and revenue grew sharply, while net income and pre-tax profit declined as expenses grew faster than revenue.
- Higher Brazilian interest rates increased financing costs for early receivables payments. The company began raising merchant prices in October 2021 and continued adjustments through early April 2022.
- Credit activity expanded: the filing reports a 212% year-over-year increase in the credit portfolio. Demand for instant prepayment products also increased working-capital requirements.
- Capital expenditures were R$1,751.8 million, versus R$2,046.6 million in FY2020; the company said these were funded from internal resources.
Outlook, risks, contingencies and unusual items
- Management sees continued opportunity from Brazil’s underpenetrated digital payments and banking markets, growth in digital adoption and cross-selling. It expects continued investment in technology, products and customer growth. No specific financial guidance is provided in the supplied filing.
- Management said current liquidity and working capital were sufficient for present requirements and reported no COVID-related asset impairment. It cautioned that the pandemic’s future effects, inflation, rising interest rates, Brazilian economic and political conditions, and the 2022 election remained uncertain.
- Merchant receivables prepayment is a major source of financial income and working-capital exposure. Higher funding costs may pressure margins, and price increases could affect merchant churn.
- Key business risks include competition and pricing pressure; fraud and credit losses; cybersecurity, privacy and regulatory compliance; reliance on payment schemes, service providers and POS suppliers; and potential changes to Brazilian payment, banking and tax rules.
- A cyberattack affected acquired subsidiary MOIP from September 25–29, 2021. The company said the affected environment was separate, it found no evidence of access to passwords or card details, and the incident had no material financial impact. Regulatory communications and review continued into 2022.
- Legal provisions were R$41.6 million net of labor judicial deposits; the filing also reports approximately R$504.7 million of tax and civil matters classified as possible losses for which no provision was recorded. Significant disclosed tax assessments include R$239.8 million relating to alleged IOF on intercompany transactions and a separate R$34 million PIS/COFINS assessment relating to advertising expenses; management classified the relevant cases as possible losses.
- Unusual costs included R$117.5 million for PagPhone inventory net-realizable-value and obsolescence adjustments, and R$73.4 million of first-quarter 2021 losses tied to misuse of a digital-account functionality and credit risk in a new product. Management said the root causes were addressed.
Most important facts for investors to verify
- Confirm FY2021 figures and any later quarterly disclosures, since this 20-F does not present standalone Q4 results.
- Track whether revenue growth converts into profit and cash flow, particularly as operating expenses and financial expenses rise.
- Assess the quality and funding of receivables, credit growth, expected credit losses, deposits and the one-year foreign-currency borrowing and hedge.
- Review the outcome and potential exposure of the disclosed tax and civil proceedings, including the IOF and PIS/COFINS matters.
- Monitor merchant response to pricing changes, transaction mix, chargebacks, and the lasting impact of the MOIP cybersecurity incident.