EX-99.1 2 dp208169_ex9901.htm EXHIBIT 99.1

 

Exhibit 99.1

 

Consolidated Financial Statements

 

StoneCo Ltd.

 

December 31, 2023 and 2022 and the three years ended December 31, 2023
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 (PCAOB ID 1448)   F-3
Consolidated Statement of Financial Position as of December 31, 2023 and 2022   F-5
Consolidated Statement of Profit or Loss for the years ended December 31, 2023, 2022 and 2021   F-7
Consolidated Statement of Other Comprehensive Income (loss) for the years ended December 31, 2023, 2022 and 2021   F-8
Consolidated Statement of Changes in Equity for the years ended December 31, 2023, 2022 and 2021   F-9
Consolidated Statement of Cash Flows for the years ended December 31, 2023, 2022 and 2021   F-10
Notes to Consolidated Financial Statements   F-11
     

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, 2023 and 2022, the related consolidated statements of profit or loss, other comprehensive income (loss), changes in equity and cash flows for each of the three years in the period ended December 31, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.

 

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 Matter

 

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter 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 matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.

 

F-3

 

 

Impairment of Goodwill - Software cash generating unit

 

Description of the Matter

 

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. As discussed in note 11.4 to the consolidated financial statements, as of December 31, 2023 the Company's goodwill related to the Software cash generating unit amounted to R$ 5,147,296 thousand.

 

Auditing the Company’s Software cash generating unit impairment test was complex and subjective due to the estimation required in determining the value in use of the Software cash generating unit utilizing a discounted cash flows model. As discussed in note 11.4 to the consolidated financial statements, the discounted cash flow model uses certain key assumptions in determining the value in use of a cash generating unit, including the pre-tax discount rate, the average free cash flow to equity, the average annual growth rate and the perpetuity growth rate. The pre-tax discount rate was particularly sensitive to the impairment test calculation.

 

How We Addressed the matter in Our Audit

 

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s goodwill impairment testing process for the Software cash generating unit, including controls over management’s review of the key assumptions used in the discounted cash flow model, including the review of the pre-tax discount rate considering its sensitivity on the model, as well as the controls over the completeness and accuracy of the data used in the value in use determination.

 

To test management’s estimated value in use of the Software cash generating unit, we performed audit procedures that included, among others, involving our valuation specialists to assess the valuation methodology used by the Company, as well as to support the evaluation and testing of the key assumptions. For example, we along with the valuation specialists compared each of the key assumptions mentioned above with economic, market and industry (peer) data, as well as performed independent sensitivity analyses over each of the key assumptions. We also tested, with the support of the valuation specialists, the completeness and accuracy of the underlying data used by the Company in its goodwill impairment testing.

 

We also assessed the adequacy of the Company`s related disclosures in note 11.4 to the consolidated financial statements with respect to the Software cash generating unit impairment test of goodwill.

 

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

 

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

 

São Paulo, Brazil 

March 15, 2024 

 

F-4

 

StoneCo Ltd.

Consolidated Statement of Financial Position 

As of December 31, 2023 and 2022

(In thousands of Brazilian Reais)

 

   Notes  2023  2022
Assets         
Current assets         
Cash and cash equivalents  5.2   2,176,416    1,512,604 
Short-term investments  6.3   3,481,496    3,453,772 
Financial assets from banking solutions  6.7   6,397,898    3,960,871 
Accounts receivable from card issuers  6.4.1   23,895,512    20,694,523 
Trade accounts receivable  6.5.1   459,947    484,722 
Loans operations portfolio  6.6   209,957     
Recoverable taxes  8   146,339    150,956 
Derivative financial instruments  6.9   4,182    36,400 
Other assets  7   380,854    365,355 
       37,152,601    30,659,203 
Non-current assets             
Long-term investments  6.3   45,702    214,765 
Accounts receivable from card issuers  6.4.1   81,597    54,334 
Trade accounts receivable  6.5.1   28,533    37,324 
Loans operations portfolio  6.6   40,790     
Receivables from related parties  13.1   2,512    10,053 
Deferred tax assets  9.4   664,492    679,971 
Other assets  7   137,508    206,526 
Investment in associates      83,010    109,754 
Property and equipment  10.3   1,661,897    1,641,178 
Intangible assets  11.3   8,794,919    8,632,332 
       11,540,960    11,586,237 
              
Total assets      48,693,561    42,245,440 
              
Liabilities and equity             
Current liabilities             
Deposits from banking customers  6.7   6,119,455    4,023,679 
Accounts payable to clients  6.1.2.2   19,163,672    16,578,738 
Trade accounts payable      513,877    596,044 
Borrowings and financing  6.8.1   1,374,766    1,847,407 
Obligations to FIDC quota holders  6.8.1   505,231    975,248 
Labor and social security liabilities  20.5   515,749    468,599 
Taxes payable  12   514,299    329,105 
Derivative financial instruments  6.9   316,171    209,714 
Other liabilities      119,526    145,605 
       29,142,746    25,174,139 
Non-current liabilities             
Accounts payable to clients  6.1.2.2   35,455    35,775 
Borrowings and financing  6.8.1   3,639,215    2,728,470 
Deferred tax liabilities  9.4   546,514    500,247 
Provision for contingencies  14.3   208,866    210,376 
Labor and social security liabilities  20.5   34,301    35,842 
Other liabilities      410,504    610,567 
       4,874,855    4,121,277 
              
Total liabilities      34,017,601    29,295,416 
              
Equity  15          
Issued capital  15.1   76    76 
Capital reserve  15.2   14,056,484    13,818,819 
Treasury shares  15.3   (282,709)   (69,085)
Other comprehensive income  15.5   (320,449)   (432,701)
Retained earnings (accumulated losses)      1,168,862    (423,203)
Equity attributable to controlling shareholders      14,622,264    12,893,906 
Non-controlling interests      53,696    56,118 
Total equity      14,675,960    12,950,024 
              
Total liabilities and equity      48,693,561    42,245,440 

 

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

 

F-5

 

StoneCo Ltd.

Consolidated Statement of Profit or Loss 

Years ended December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais, unless otherwise stated)

 

   Notes  2023  2022  2021
             
Net revenue from transaction activities and other services  17.3   3,309,765    2,617,407    1,626,853 
Net revenue from subscription services and equipment rental  17.3   1,824,956    1,760,915    1,071,932 
Financial income  17.3   6,229,303    4,638,022    1,877,683 
Other financial income  17.3   690,979    572,601    247,293 
Total revenue and income      12,055,003    9,588,945    4,823,761 
                   
Cost of services  18   (2,982,758)   (2,669,752)   (1,713,828)
Administrative expenses  18   (1,188,869)   (1,121,357)   (813,341)
Selling expenses  18   (1,698,275)   (1,511,241)   (1,012,544)
Financial expenses, net  19   (3,999,465)   (3,514,739)   (1,269,058)
Mark-to-market on equity securities designated at FVPL  18   30,574    (853,056)   (1,264,213)
Other income (expenses), net  18   (241,213)   (302,501)   (185,894)
Total expenses      (10,080,006)   (9,972,646)   (6,258,878)
                   
Loss on investment in associates      (4,179)   (3,589)   (10,437)
Profit (loss) before income taxes      1,970,818    (387,290)   (1,445,554)
                   
Current income tax and social contribution  9.3   (345,813)   (292,172)   (171,621)
Deferred income tax and social contribution  9.3   (24,585)   153,066    239,827 
Net income (loss) for the year      1,600,420    (526,396)   (1,377,348)
                   
Net income (loss) attributable to:                  
Controlling shareholders      1,592,065    (519,417)   (1,358,813)
Non-controlling interests      8,355    (6,979)   (18,535)
       1,600,420    (526,396)   (1,377,348)
                   
Earnings (loss) per share                  
Basic earnings (loss) per share for the year attributable to controlling shareholders (in Brazilian Reais)  16   5.09    (1.67)   (4.40)
Diluted earnings (loss) per share for the year attributable to controlling shareholders (in Brazilian Reais)  16   4.74    (1.67)   (4.40)

 

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

 

F-6

 

StoneCo Ltd.

Consolidated Statement of Other Comprehensive Income (loss) 

Years ended December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais)

 

   Notes  2023  2022  2021
             
Net income (loss) for the year      1,600,420    (526,396)   (1,377,348)
                   
Other comprehensive income                  
                   
Other comprehensive income (loss) that may be reclassified to profit or loss in subsequent periods:                  
                   
Changes in the fair value of accounts receivable from card issuers      98,283    (253,181)   (303,157)
Tax on changes in the fair value of accounts receivable from card issuers at fair value through other comprehensive income      (33,414)   86,081    103,073 
Exchange differences on translation of foreign operations      (24,073)   (30,544)   4,651 
Changes in the fair value of cash flow hedge  6.9.1   64,146    (207,222)   (54,144)
Unrealized loss on cash flow hedge - highly probable future imports              1,512 
                   
Other comprehensive income (loss) that will not be reclassified to profit or loss in subsequent periods:                  
                   
Net monetary position in hyperinflationary economies      4,316    5,384    2,481 
Changes in the fair value of equity instruments designated at fair value  6.3(b)   1,912    (6,971)   216,466 
                   
Other comprehensive income (loss) that were reclassified to profit or loss in subsequent periods:                  
                   
Reclassification to profit or loss of accumulated exchange differences on disposal of foreign operation      257    5,383     
Other comprehensive income (loss) for the year, net of tax      111,427    (401,070)   (29,118)
                   
Total comprehensive income (loss) for the year, net of tax      1,711,847    (927,466)   (1,406,466)
                   
Total comprehensive income (loss) attributable to:                  
Controlling shareholders      1,704,317    (916,326)   (1,389,603)
Non-controlling interests      7,530    (11,140)   (16,863)
Total comprehensive income (loss) for the year, net of tax      1,711,847    (927,466)   (1,406,466)

 

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

 

F-7

 

StoneCo Ltd.

Consolidated Statement of Changes in Equity 

Years ended December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais)

 

      Attributable to controlling shareholders      
         Capital reserve                  
   Note  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, 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      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 income (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)
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)
Share-based payments                      189,003    189,003                189,003    47    189,050 
Shares delivered under share-based payment arrangements              (34,315)       (88,264)   (122,579)   122,579                     
Treasury shares - Delivered on business combination and sold              (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 
Net income for the year                                      1,592,065    1,592,065    8,355    1,600,420 
Other comprehensive income (loss) for the year                                  112,252        112,252    (825)   111,427 
Total comprehensive income                                  112,252    1,592,065    1,704,317    7,530    1,711,847 
Repurchase of shares  15.3                           (292,745)           (292,745)       (292,745)
Equity transaction related to put options over non-controlling interest                      89,475    89,475                89,475    (3,904)   85,571 
Share-based payments              (25,851)       226,713    200,862    25,851            226,713    (114)   226,599 
Shares delivered under share-based payment arrangements              (47,591)       (4,873)   (52,464)   53,270            806        806 
Equity transaction with non-controlling interests                                              49    49 
Dividends paid                                              (5,983)   (5,983)
Others                      (208)   (208)               (208)       (208)
Balance as of December 31, 2023      76    13,825,325    (518,504)   61,127    688,536    14,056,484    (282,709)   (320,449)   1,168,862    14,622,264    53,696    14,675,960 

 

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

 

F-8

 

StoneCo Ltd.

Consolidated Statement of Cash Flows 

Years ended December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais)

 

   Notes  2023  2022  2021
Operating activities            
Net income (loss) for the year      1,600,420    (526,396)   (1,377,348)
Adjustments to reconcile net income (loss) for the year to net cash flows:                  
Depreciation and amortization  10.4   878,181    800,326    507,369 
Deferred income tax and social contribution  9.3   24,585    (153,066)   (239,827)
Loss on investment in associates      4,179    3,589    10,437 
Accrued interest, monetary and exchange variations, net      (195,419)   (382,707)   (735,125)
Provision for contingencies  14.3   5,825    18,849    4,263 
Share-based payments expense      251,239    213,076    113,169 
Allowance for expected credit losses  6.4.2/ 6.5.2/6.6   160,195    88,572    71,972 
Loss on disposal of property, equipment and intangible assets  22.5   66,200    25,347    136,104 
Effect of applying hyperinflation accounting      3,652    3,852    2,040 
Loss on sale of subsidiary      10,926    20,308    12,746 
Fair value adjustment in financial instruments at FVPL  22.1   96,563    1,179,547    2,570,418 
Fair value adjustment in derivatives      20,320    90,821    104,979 
Remeasurement of previously held interest in subsidiary acquired              (15,848)
Others      1,168         
Working capital adjustments:                  
Accounts receivable from card issuers      32,304    740,190    (2,993,411)
Receivables from related parties      20,343    12,912    1,050 
Recoverable taxes      138,987    261,867    (238,127)
Prepaid expenses      41,310    152,966    (260,090)
Trade accounts receivable, banking solutions and other assets      205,105    707,521    244,181 
Loans operations portfolio      (312,808)        
Accounts payable to clients      (3,382,075)   (3,633,937)   4,276,349 
Taxes payable      169,827    137,825    247,399 
Labor and social security liabilities      19,284    171,293    (17,388)
Payment of contingencies  14.3   (34,012)   (9,799)   (10,180)
Trade accounts payable and other liabilities      (80,024)   323,619    40,768 
Interest paid      (749,366)   (430,398)   (299,666)
Interest income received, net of costs  22.4   2,766,933    2,058,650    1,578,870 
Income tax paid      (116,134)   (191,142)   (128,202)
Net cash provided by in operating activities      1,647,708    1,683,685    3,606,902 
                   
Investing activities                  
Purchases of property and equipment  22.5   (736,244)   (417,733)   (1,082,990)
Purchases and development of intangible assets  22.5   (474,053)   (305,512)   (215,681)
Acquisition of subsidiary, net of cash acquired          (69,837)   (4,737,410)
Sale of subsidiary, net of cash disposed of          (4,325)   (36)
Proceeds from (acquisition of) short-term investments, net      181,611    (1,222,364)   5,370,958 
Acquisition of equity securities          (15,000)   (2,480,003)
Proceeds from disposal of long-term investments – equity securities      220,520    183,518    209,324 
Proceeds from the disposal of non-current assets  22.5   536    27,008    100 
Payment for interest in associates and subsidiaries acquired      (37,806)   (46,897)   (41,459)
Net cash used in investing activities      (845,436)   (1,871,142)   (2,977,197)
                   
Financing activities                  
Proceeds from borrowings  6.8.2   5,181,619    3,499,986    11,700,297 
Payment of borrowings  6.8.2   (4,489,681)   (5,009,769)   (7,252,226)
Payment to FIDC quota holders  6.8.2   (1,032,503)   (1,250,000)   (2,767,552)
Proceeds from FIDC quota holders      564,752        584,191 
Payment of principal portion of lease liabilities  6.8.2   (72,815)   (99,829)   (83,610)
Repurchase of own shares      (292,745)       (988,824)
Sale of own shares          53,406     
Acquisition of non-controlling interests      (1,440)   (325)   (1,265)
Transaction with non-controlling interests              230,500 
Dividends paid to non-controlling interests      (5,983)   (3,601)   (2,967)
Cash proceeds from non-controlling interest              893 
Net cash (used in) provided by financing activities      (148,796)   (2,810,132)   1,419,437 
                   
Effect of foreign exchange on cash and cash equivalents      10,336    14,548    (487)
Change in cash and cash equivalents      663,812    (2,983,041)   2,048,655 
                   
Cash and cash equivalents at beginning of year  5.2   1,512,604    4,495,645    2,446,990 
Cash and cash equivalents at end of year  5.2   2,176,416    1,512,604    4,495,645 
Change in cash and cash equivalents      663,812    (2,983,041)   2,048,655 

 

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

 

F-9

 

StoneCo Ltd.

Notes to Consolidated Financial Statements  

December 31, 2023, 2022 and 2021

(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, P.O. box 10240 Grand Cayman E9 KY1-1002.

 

On November 29, 2022, the Brazilian Central Bank (“BACEN”) approved the Company’s change of control through a corporate restructuring involving the conversion Mr. Eduardo Pontes interests in Company´s Class B super-voting shares from HR Holdings, LLC (which were held indirectly through holding companies) into Class A shares directly owned by his family controlled entities ("Corporate Restructuring”).

 

As a result of the Corporate Restructuring, HR Holdings LLC became the owner of, approximately, 31% of the Company’s voting shares. HR Holdings LLC’s ultimate parent is the VCK Investment Fund Limited SAC A, an investment fund, owned by the co-founder of the Company, Mr. Andre Street.

 

The Company’s shares are publicly traded on Nasdaq under the ticker symbol STNE and its Brazilian Depositary Receipts (“BDRs”) representing the underlying Company´s shares are traded on the Brazilian stock exchange (B3) under the ticker symbol STOC31.

 

The Company and its subsidiaries (collectively, the “Group”) provide financial services and software solutions to clients across in-store, mobile and online device platforms helping them to better manage their businesses by increasing the productivity of their sales initiatives.

 

The consolidated financial statements of the Group were approved for issue by the Audit Committee on March 15, 2024.

 

2.General accounting policies

 

The accounting policies are presented in the corresponding notes throughout the financial statements. The general accounting policies, unrelated to specific notes, are 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, other than 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 Real/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, which is the Company’s functional currency.

 

The Group determines the functional currency for each member entity The Company’s subsidiaries’ functional currency is the Brazilian Real, except for the Napse Group for which its members use the U.S. Dollar, Argentinian Peso, Chilean Peso, Mexican Peso, Nuevo Sol and Uruguayan Peso.

 

For those entities that use a functional currency other than the Brazilian Real, their financial statements are 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. For these entities, exchange gains and losses arising from the translation process are recorded in Other comprehensive income (loss) ("OCI") in “Exchange differences on translation of foreign operations.”

 

F-10

 

StoneCo Ltd.

Notes to Consolidated Financial Statements  

December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais, unless otherwise stated)

 

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 exchange 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, from the translation of the Group’s financial instruments denominated in foreign currencies and, to a lesser extent, from purchase of products and services denominated in foreign currencies.

 

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.The Group as a 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 “Borrowings 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 an expense in the same period the event or condition that triggered the payment occurred.

 

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 lease liability balance is increased to reflect the accretion of interest and reduced when lease payments are made. 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.

 

F-11

 

StoneCo Ltd.

Notes to Consolidated Financial Statements  

December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais, unless otherwise stated)

 

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 (being contracts with a lease term of 12 months or less from the commencement date which 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.

 

2.3.2.The Group as a 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 & Point of Sale (“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.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.

 

2.5.IAS 29 Financial Reporting in Hyperinflationary Economies

 

As the accumulated inflation rate in Argentina had exceeded 100% over the past three years the Company adopted IAS 29 Financial Reporting in Hyperinflationary Economies for the Argentine subsidiary Napse S.R.L.

 

F-12

 

StoneCo Ltd.

Notes to Consolidated Financial Statements  

December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais, unless otherwise stated)

 

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, based on a general price index.

 

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

 

2.6. Climate Related Matters

 

The Group acknowledges the presence and importance of climate risk and seeks to integrate it as part of the other managed risks. By the nature of its activities, the Company is mainly affected by physical and transition risks indirectly, as a result of the effects of those risks on its customers. Within this context, the Group has the objective of developing its capabilities for identifying, assessing, measuring, monitoring, reporting, and mitigating the potential effects resulting from social, environmental, and climate risks associated with its prioritized products, services, activities, and processes, based on the principles of relevance and proportionality.

 

The Group's current view is that its business model and its main products are not likely to have a significant impact from the transition to a low-carbon economy. Climate-related matters however may increase the uncertainty in selected estimates and assumptions underpinning some items in the financial statements. Even though climate-related risks might not currently have a significant impact on measurement, the Group is closely monitoring relevant changes and developments, such as new climate-related legislation.

 

Financial assets may be indirectly impacted by climate-related matters, principally the loan and credit card portfolio. Cash flows from customers whose businesses are affected by transition risks and extreme weather events and other physical climate risks may be impacted. However, this risk is mitigated by the diverse and broad base of customers operating in across numerous industries and in different geographical regions in Brazil, and the relative short-term duration of the loans. Extreme weather events might more significantly affect specific cities or geographical areas.

 

2.7.New standards and amendments to standards and interpretations adopted

 

The following amendments and interpretations were applied for the first time in 2023:

 

Amendment to IAS 12 – deferred tax related to assets and liabilities arising from a single transaction: The amendments require companies to recognize deferred tax on transactions that, on initial recognition give rise to equal amounts of taxable and deductible temporary differences.

 

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

 

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.

 

These amendments had no significant 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 as of December 31, 2023 are presented below. The Group intends to adopt these new and amended standards and interpretations, if applicable, when they become effective.

 

F-13

 

StoneCo Ltd.

Notes to Consolidated Financial Statements  

December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais, unless otherwise stated)

 

2.8.1.International Tax Reform—Pillar Two Model Rules – Amendments to IAS 12

 

The amendment provides an exception not to recognize and disclose information about deferred tax assets and liabilities that are related to tax law enacted or substantively enacted to implement the Pillar Two model rules published by the Organization for Economic Co-operation and Development (the “Pillar Two legislation”). The amendments require that entities disclose separately their current tax expense/ income related to Pillar Two income taxes, and the qualitative and quantitative information about exposure to Pillar Two income taxes in periods in which the Pillar Two legislation is enacted or substantially enacted but not yet in effect, in annual reporting periods beginning on or after 1 January 2023.

 

Currently, considering the legislation currently in force in the jurisdiction in which the Group has operations, it is not expected to significantly affect the Group’s financial statements.

 

2.8.2.Amendments to IAS 1: Classification of liabilities as current or non-current

 

In January 2020 and October 2022, 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 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, 2024 and must be applied retrospectively. The Group reviewed the amendment and currently does not expect it to have any impact on the Group’s consolidated financial statements.

 

2.8.3.Amendments to IAS 21: Lack of exchangeability

 

On August 15, 2023, the IASB issued Lack of Exchangeability which amended IAS 21 The Effects of Changes in Foreign Exchange Rates (the Amendments).The amendments introduce requirements to assess when a currency is exchangeable into another currency and when it is not. The amendments require the entity to estimate the spot exchange rate when it concludes that a currency is not exchangeable into another currency.

 

The amendments are effective for annual reporting periods beginning on or after January 1, 2025. The Group is assessing if the amendments will affect the Group’s consolidated financial statements.

 

2.8.4.IAS 7 Statement of Cash Flows and IFRS 7 Financial Instruments

 

In May 2023, the IASB issued amendments to IAS 7 Statement of Cash Flows and IFRS 7 Financial Instruments: Disclosures to clarify the characteristics of supplier finance arrangements and require additional disclosure of such arrangements. The amendments aim to enhance the understanding of the characteristics of supplier financing transactions and include disclosures in financial statements that help users understand the effects on the entity's liabilities, cash flows and liquidity risk exposure.

 

The amendments are effective for annual reporting periods beginning on or after January 1, 2024. The Group reviewed the amendment and currently does not expect it to have any impact on the Group’s consolidated financial statements on the initial application of the amendment since as of the date of these financial statement it has not entered into supplier finance arrangements.

 

2.8.5. The Enhancement and Standardization of Climate-Related Disclosures for Investors

 

On March 06, 2024, the Securities and Exchange Commission (SEC) issued the final rule on The Enhancement and Standardization of Climate-Related Disclosures for Investors. This rule mandates the disclosure of information regarding a registrant’s climate-related risks that have materially impacted, or are reasonably likely to have a material impact on, its business strategy, results of operations, or financial condition. The Group is currently assessing the impact of this rule for disclosure to investors.

 

F-14

 

StoneCo Ltd.

Notes to Consolidated Financial Statements  

December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais, unless otherwise stated)

 

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 presented in each of the notes along the financial statements.

 

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 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 “Transactions among shareholders.” in equity.

 

F-15

 

StoneCo Ltd.

Notes to Consolidated Financial Statements  

December 31, 2023, 2022 and 2021

(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 is not the decisive factor to characterize 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 certain investments meet the definition of a structured entity under IFRS 12 – Disclosure of Interests in Other Entities.

 

The Group considers the entities listed below 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 as of December 31, 2023
     
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 I 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
ACR I Fundo de Investimento em Direitos Creditórios ("FIDC ACR I")   100% of subordinated quotas representing approximately 97% of total (subordinated and senior and/or mezzanine) quotas
ACR III Fundo de Investimento em Direitos Creditórios ("FIDC ACR III")   100% of subordinated quotas representing total quotas
ACR V Fundo de Investimento em Direitos Creditórios ("FIDC ACR V")   100% of subordinated quotas representing total quotas
ACR VI Fundo de Investimento em Direitos Creditórios ("FIDC ACR VI")   100% of subordinated quotas representing total quotas
ACR FAST Fundo de Investimento em Direitos Creditórios ("FIDC ACR FAST")   100% of subordinated quotas representing approximately 97% of total (subordinated and senior and/or mezzanine) quotas

 

The bylaws of these structured entities were established at their inception to grant 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 2023, the structured entities FIDC AR III and Retail Renda Fixa Crédito Privado Fundo de Investimento were closed.

 

In accordance with IFRS 10, the Group concluded it controls all structured entities listed above, therefore, they are consolidated in the Group’s financial statements. 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 an interest expense (Note 6.8).

 

F-16

 

StoneCo Ltd.

Notes to Consolidated Financial Statements  

December 31, 2023, 2022 and 2021

(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   2023   2022
             
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
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
MLabs Software S.A. (“MLabs”)   Technology services   51.50   51.50
Equals S.A. (“Equals”) (a)   Technology services     100.00
Questor Sistemas S.A. (“Questor”)   Technology services   50.00   50.00
Sponte Informática S.A. (“Sponte”) (b)   Technology services     100.00
SimplesVet Tecnologia S.A. (“SimplesVet”)   Technology services   50.00   50.00
VHSYS Sistema de Gestão S.A. (“VHSYS”)   Technology services   50.00   50.00
Trampolin Pagamentos S.A. (“Trampolin”) (c)   Technology services     100.00
Linx S.A. (“Linx”)   Technology services   100.00   100.00
Linx Sistemas e Consultoria Ltda. (“Linx Sistemas”)   Technology services   100.00   100.00
Linx Telecomunicações Ltda. ("Linx Telecom")   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   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
Hiper Software S.A. ("Hiper")   Technology services   100.00   100.00
Reclame Aqui LLC (“Reclame Aqui Group”)   Technology services   50.00   50.00
Obvio Brasil Software e Serviços S.A. (“Reclame Aqui Group”)   Technology services   50.00   50.00
O Mediador Tecnologia da Informação S/S Ltda (“Reclame Aqui Group”)   Technology services   50.00   50.00
Reclame Aqui Marcas e Serviços Ltda (“Reclame Aqui Group”)   Technology services   50.00   50.00
STEF S.A ("Stef") (d)   Technology services   100.00  
Hubcount Tecnologia S.A. (“Hubcount”) (e)   Technology services   75.60   75.60
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
Vitta Corretora de Seguros Ltda. (“Vitta Group”)   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
Stone Franchising Ltda. ("Franchising")   Franchising management   100.00   100.00
Cappta S.A. (“Cappta”) (d)   Electronic fund transfer     59.60
Ametista Serviços Digitais Ltda. (“PinPag”) (f)   Electronic fund transfer   100.00   100.00
Esmeralda Serviços Digitais Ltda. (“PinPag”) (f)   Electronic fund transfer   100.00   100.00
Diamante Serviços Digitais Ltda. (“PinPag”) (f)   Electronic fund transfer   100.00   100.00
Safira Serviços Digitais Ltda. (“PinPag”) (f)   Electronic fund transfer   100.00   100.00

F-17

 

StoneCo Ltd.

Notes to Consolidated Financial Statements  

December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais, unless otherwise stated)

 

        % of Group's equity interest
Entity name   Principal activities   2023   2022
             
FIDC AR III (g)   Investment fund     100.00
FIDC TAPSO   Investment fund   100.00   100.00
FIDC TAPSO II   Investment fund   100.00   100.00
FIDC SOMA   Investment fund   100.00   100.00
FIDC SOMA III   Investment fund   100.00   100.00
FIC FIM STONECO   Investment fund   100.00   100.00
Retail Renda Fixa Crédito Privado Fundo de Investimento (“Retail Renda Fixa”) (h)   Investment fund     100.00
FIDC ACR I (i)   Investment fund   100.00  
FIDC ACR III (i)   Investment fund   100.00  
FIDC ACR V (i)   Investment fund   100.00  
FIDC ACR VI (h)   Investment fund   100.00  
FIDC ACR FAST (i)   Investment fund   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 ("Reclame Aqui")   Holding company   50.00   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
Stone Holding Instituições S.A. ("Stone Holding")   Holding company   100.00   100.00
STNE Investimentos S.A. ("STNE Invest.") (j)   Holding company   100.00  
Equals Software S.A. ("Equals Software") (k)   Holding company   100.00  
Stone Seguros S.A. (“Stone Seguros”)   Holding company   100.00   100.00

 

(a)Equals was merged into STNE Par on October 02, 2023.

(b)Sponte was merged into Linx Sistemas on August 01, 2023.

(c)Trampolin was merged into Pagar.me on April 01, 2023.

(d)In June 2023, a reorganization of the businesses was carried by a former subsidiary Cappta. As a result of the reorganization, the Company no longer has an interest in providing technology solutions for payments in installments; the equity interest was raised to increased to 100% for the technology solutions for electronic transfers. Both activities were, up to June 30, 2023, carried out by Cappta, when the Company owned 59.6%. As a result of the transaction, the Company no longer has an investment in Cappta and has a 100% interest in Stef. The transaction did not have any material impact on the Group financial statements.

(e)STNE Par has a 50% equity in Questor and, on August 31, 2022, Questor acquired a 75.60% equity interest in Hubcount.

(f)On February 7, 2024, the equity interest of Pinpag was sold, thus, the Group ceased to hold equity interest in Pinpag.

(g)FIDC AR III was closed on September, 20 2023.

(h)Retail Renda Fixa was closed on March 30, 2023.

(i)The Group owns 100% of the subordinated quotas in connection with the incorporation of the funds.

(j)On January 2, 2023, the Group constituted STNE Invest. to hold equity stakes in other companies.

(k)On January 2, 2023, the Group constituted Equals Software to hold equity stake in Vitta Group.

 

The Group is seeking to focus on its core operation to simplify and strengthen the business, which led to some divestment in 2023.

 

The Group holds call options to acquire additional interests in some of its subsidiaries (Notes 6.1.5 and 6.9) and issued put options to non-controlling investors (Note 6.13.1. (g)).

 

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.

 

F-18

 

StoneCo Ltd.

Notes to Consolidated Financial Statements  

December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais, unless otherwise stated)

 

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 the event of a 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.

 

4.2.2.Associates held by the Group

 

        % Group's equity interest
Entity name   Principal activities   2023   2022
             
Alpha-Logo Serviços de Informática S.A. (“Tablet Cloud”)   Technology services   25.00   25.00
Agilize Tecnologia S.A. ("Agilize")  (a)   Technology services   33.33  
Trinks Serviços de Internet S.A. (“Trinks”)   Technology services   19.90   19.90
Neostore Desenvolvimento De Programas De Computador S.A. (“Neomode”)   Technology services   40.02   40.02
Dental Office S.A. (“RH Software”)   Technology services   20.00   20.00
APP Sistemas S.A. (“APP”) (b)   Technology services   19.90   20.00
Delivery Much Tecnologia S.A. (“Delivery Much”)   Food delivery marketplace   29.49   29.49
EveryData Jamaica Limited (“Creditinfo Caribbean”) (c)   Credit bureau services     47.75
EveryData (Guyana) Inc. (“Creditinfo Caribbean”) (c)   Credit bureau services     47.75
EveryData (Barbados) Limited (“Creditinfo Caribbean”) (c)   Credit bureau services     47.75
EveryData ECCU Ltd (“Creditinfo Caribbean”) (c)   Credit bureau services     47.75
EveryData Group Ltd. SEZC ("StoneCo CI") (c)   Holding company     47.75

 

(a)On August 1, 2023, the Group acquired a 33.33% equity interest in Agilize, a private company based in the State of Bahia, Brazil, for R$ 8,523 through the conversion of a credit arising from a convertible loan agreement. Agilize develops technology that provides online accounting services.

(b)In April 2023, the ownership in APP was diluted by the issuance of new shares under a long-term incentive program, admitting a new shareholder.

(c)On December 29, 2023 the Company sold all its interest in Everydata Group Ltd. (formerly, StoneCo CI) and its subsidiaries (namely, the Creditinfo Caribbean companies).

 

The Group holds call options to acquire additional interests in some of its associates (Notes 6.1.5 and 6.9).

 

F-19

 

StoneCo Ltd.

Notes to Consolidated Financial Statements  

December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais, unless otherwise stated)

 

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

 

   2023  2022
       
Denominated in R$   2,128,425    1,388,616 
Denominated in US$   47,991    123,959 
Denominated in other foreign currencies       29 
    2,176,416    1,512,604 

 

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

 

The Company holds financial assets for all its businesses due to the nature of its activities. In order to facilitate the understanding of the financial statements and the underlying businesses, the financial asset line items presented in the statement of financial position are shown by business activity that generated the assets, how these are measured, and where in the statement of profit or loss the results generated by such assets are classified.

 

Line item presented in the statement of financial position 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 regulatorily required amounts to be maintained in certain specified assets as reserve requirements for deposits of 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 Corresponds to amounts receivable from card issuers for transactions that acquiring business processes. The balances do not bear interest. Receivables are regularly sold before their maturity as part of the 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 the acquiring business up to June 30, 2021 FVPL as voluntarily designated loans to be measured at FVPL

Interest income - Financial income

 

Fair value gain or losses - Financial income

F-20

 

StoneCo Ltd.

Notes to Consolidated Financial Statements  

December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais, unless otherwise stated)

 

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

Allowance for expected credit losses - Cost of services

 

Interest and penalties for late payment - Other financial income

Loans operations portfolio Corresponds to credit (working capital loans and balances due by credit card)granted to customers as from March 1, 2023 Amortized cost

Interest income - Financial income

 

Allowance for expected credit losses - Cost of services

 

Foreign exchange gains or losses on balance of credit card in foreign currency – Financial expenses, net

Derivative financial instruments assets Corresponds to derivatives entered into to manage the financial risks (mainly interest rate and foreign exchange) inherent to acquiring businesses and related to the 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 with no significant influence. FVPL or FVOCI

FVOCI - Other comprehensive income

 

FVPL - Other financial income / Mark-to-market on equity securities designated at FVPL

 

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.

 

F-21

 

StoneCo Ltd.

Notes to Consolidated Financial Statements  

December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais, unless otherwise stated)

 

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 operation portfolio originated from March 1, 2023 and receivables from related parties, since they are held to collect payments of principal and interest and meet the SPPI test.

 

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.

 

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 financial 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 the 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 and investment funds under short-term investment and some equity investments under long-term investments, which the Group had not irrevocably elected to classify at FVOCI, and (ii) derivative financial instruments.

 

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.

 

F-22

 

StoneCo Ltd.

Notes to Consolidated Financial Statements  

December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais, unless otherwise stated)

 

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.

 

For the loans operations portfolio, the Group applies general approach in calculating ECLs, considering delinquency information, internal risk classification and risk parameters (“PD” – probability of default, “LGD” – loss given default and “EAD” – exposure at default), resulting in three-stage levels.

 

For all other financial assets subject to ECL, 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.

 

See details about ECL estimation procedures in Note 6.2.1.

 

6.1.2.Financial liabilities

 

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

 

The Group’s different businesses require funding, in particular the Financial Services acquiring business, to be able to provide liquidity to customers mainly through the prepayment of the transactions processed by the Group or other acquirers and by providing them with loans. Different forms of funding are sought, some of which comprise indebtedness presented as financial liabilities in the statement of financial position. The Group also fund its activities by selling accounts receivables on a fully non-recourse basis and passing to the counterparts all the risks and benefits of such assets (Note 6.1.1.1 - Accounts receivable from card issuers). In order to facilitate an understanding of the financial statements and how they relate to the underlying business the financial liabilities line items presented in the statement of financial position are summarized by the business activity that generates such liabilities, showing how they are measured and where in their results are classified in the statement of profit or loss.

 

F-23

 

StoneCo Ltd.

Notes to Consolidated Financial Statements  

December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais, unless otherwise stated)

 

Line item presented in the statement of financial position 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 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 for acquiring business processes. The balances do not carry interest. Amounts are early redeemed of the contractual due date at a discount Amortized cost Gain for the prepayment of payables at a discount - Financial income
Borrowings and financing Financing obtained from third parties as part of the 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
Derivative financial instruments liabilities Corresponds to derivative entered into to manage the financial risks (mainly interest rate and foreign exchange) inherent to the acquiring business and related to the 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

Other liabilities - contingent consideration Corresponds to contingent payments from business combinations FVPL

Interest expenses - Financial expenses, net

 

Fair value gain or losses - Other income (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, borrowings 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 disbursed 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-24

 

StoneCo Ltd.

Notes to Consolidated Financial Statements  

December 31, 2023, 2022 and 2021

(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 significant 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 statement of financial position 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-25

 

StoneCo Ltd.

Notes to Consolidated Financial Statements  

December 31, 2023, 2022 and 2021

(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, 2023, and 2022, 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 statement of profit or loss. 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 upon the liquidation of the hedging instrument (Note 6.9.1).

 

The Group also uses derivative financial instruments as an economic hedge. These instruments are measured at FVPL and recorded as an asset or liability under Derivative financial instruments (Note 6.9.2).

 

Certain 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 (Note 6.9.).

 

F-26

 

StoneCo Ltd.

Notes to Consolidated Financial Statements  

December 31, 2023, 2022 and 2021

(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 Loans operations portfolio

 

The Group calculates an expected credit loss allowance for its loans based on statistical models that consider both internal and external historical data, negative credit information and guarantees, among which information addressing the behavior of each debtor. The Group calculates its loans operations portfolio in three stages:

 

(i)Stage 1: corresponds to loans that do not present significant increase in credit risk since origination;

 

(ii)Stage 2: corresponds to loans that presented significant increase in credit risk subsequent to origination; and

 

The Group determines Stage 2 based on following criteria:

 

(a)absolute criteria: financial asset overdue more than 30 days, or;

 

(b)relative criteria: In addition to the absolute criteria, the Group analyzes the evolution of the risk of each financial instrument on a monthly basis, comparing the current behavior score attributed to each client with that attributed at the time of recognition of the financial asset. Behavioral scoring considers credit behavior variables, such as default on other products and market data about the customer. When the credit risk increases significatively since origination, the Stage 1 operations is moved to Stage 2.

For Stage 2, a cure criterion is applied when the financial asset no longer meet the criteria for a significant increase in credit risk, as mentioned above, and the loan is moved to Stage 1.

 

(iii)Stage 3: corresponds to impaired loans.

 

The Group determine Stage 3 based on following criteria:

 

(a)absolute criteria: financial asset overdue more than 90 days, or;

 

(b)relative criteria: indicators that the financial asset will not be paid in full without activating a guarantee or financial guarantee.

 

The indication that an obligation will not be paid in full includes the tolerance of financial instruments that imply the granting of advantages to the counterparty following the deterioration of the counterparty's credit quality.

 

The Group also assumes a cure criterion for Stage 3, with respect to the counterparty's repayment capacity, such as the percentage of total debt paid or the time limit to liquidate current debt obligations.

 

Management regularly seeks forward looking perspectives for future market developments including macroeconomic scenarios as well as its portfolio risk profile. Management may adjust the ECL resulting from the models above in order to better reflect this forward looking perspective.

 

The information about the ECLs on the Group’s Loans operations portfolio to clients are disclosed in Note 6.6.

 

6.2.1.2. Accounts receivable from card issuers

 

The macroeconomic scenario is facing significant challenges due to the prolonged persistence of high-interest rates, closely monitored by the group. This challenging situation is impacting various agents of the economy, including card issuers.

 

Continuous monitoring of this challenging scenario is crucial for the decisions on the provision and how we estimate ECLs within the Group. We estimate ECLs based on available external (including ratings from major agencies) and internal information. The Group monitors credit risk of issuers.

 

F-27

 

StoneCo Ltd.

Notes to Consolidated Financial Statements  

December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais, unless otherwise stated)

 

6.2.1.3. 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.

 

The information about the ECLs on the Group’s Accounts receivable from card issuers and Trade accounts receivable are disclosed in Notes 6.4.2 and 6.5.2 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 discounted cash flow (“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.

 

6.3.Short and Long-term investments

 

   Short-term  Long-term   
   Listed securities  Unlisted securities  Listed securities  Unlisted securities  2023
                
Bonds(a)               
  Brazilian sovereign bonds   2,954,236                2,954,236 
  Structured notes linked to Brazilian sovereign bonds       473,259            473,259 
  Corporate bonds   51,933                51,933 
Equity securities(b)               45,702    45,702 
Investment funds(c)       2,068            2,068 
    3,006,169    475,327        45,702    3,527,198 
                          
Current                       3,481,496 
Non-current                       45,702 

 

   Short-term  Long-term   
   Listed securities  Unlisted securities  Listed securities  Unlisted securities  2022
                
Bonds(a)               
  Brazilian sovereign bonds   926,559                926,559 
  Structured notes linked to Brazilian sovereign bonds       2,176,019            2,176,019 
  Corporate bonds   349,540                349,540 
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 
                          
Current                       3,453,772 
Non-current                       214,765 

 

(a)As of December 31, 2023, bonds of listed securities are mainly linked to the CDI and SELIC benchmark interest rates.

 

F-28

 

StoneCo Ltd.

Notes to Consolidated Financial Statements  

December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais, unless otherwise stated)

 

(b)Comprised of common shares of listed and unlisted entities. These assets are measured at fair value. The Group selects the assets for recognition at fair value, from 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”) shares, acquired in June, 2021. During the first quarter of 2023, the Group sold its remaining interest in Banco Inter of 16.8 million shares. The shares were sold at a price of R$ 12.96, equivalent to R$ 218,105. The change in fair value of equity securities at FVPL for the year ended December 31, 2023 was a gain of R$ 30,574 (2022 was a loss of R$ 853,056), which was recognized in the statement of profit or loss.

 

Assets as FVOCI

 

On December 31, 2023 and 2022, these comprised of common 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, 2023 was R$ 1,912 (2022 – R$ (6,971), 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 for the transactions of clients with card holders, performed in the ordinary course of business.

 

   2023  2022
       
Accounts receivable from card issuers(a)   23,364,806    20,053,392 
Accounts receivable from other acquirers(b)   667,922    718,228 
Allowance for expected credit losses   (55,619)   (22,763)
    23,977,109    20,748,857 
           
Current   23,895,512    20,694,523 
Non-current   81,597    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 Group’s cash requirement are to make prepayments to acquiring customers which are satisfied by the definitive sale of receivables to third parties. When such sales of receivables is carried out to entities in which the Group has subordinated shares or quotas, the receivables sold remain in statement of financial position, as these entities are consolidated in the financial statements. As of December 31, 2023 a total of R$ 467,622 were consolidated through FIDC ACR FAST, of which the Group has subordinated shares (2022 - R$ nil). When the sale of receivables is carried out to with non-controlled entities and for transactions where continuous involvement is not present, the amounts transferred are derecognized from the accounts receivable from card issuers. As of December 31, 2023, the sale of receivables that were derecognized from accounts receivables from card issuers in the statement of financial position represent the main form of funding used for the prepayment business.

 

Accounts receivable held by FIDCs guarantee the obligations to FIDC quota holders.

 

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

 

The Group records an allowance for expected credit losses of accounts receivable from card issuers based on expected credit losses that consider the expected nature and level of risk associated with receivables and the information about the different issuers. The Group recognizes additional allowance for card issuers upon increases in the credit risk. (Notes 6.1.1.5 and 6.2.1.2).

 

   2023  2022
       
At January 1   22,763    15,103 
Charge for the year   53,090    22,818 
Reversal   (20,234)   (15,158)
At December 31   55,619    22,763 

F-29

 

StoneCo Ltd.

Notes to Consolidated Financial Statements  

December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais, unless otherwise stated)

 

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.

 

   2023  2022
       
 Accounts receivable from subscription services   293,304    294,516 
 Accounts receivable from equipment rental   114,252    135,479 
 Chargeback   72,401    58,302 
 Services rendered   51,456    36,089 
 Cash in transit   24,172    21,521 
 Receivables from registry operation   22,347    35,150 
 Loans designated at FVPL       26,866 
 Allowance for expected credit losses   (117,553)   (108,434)
 Others   28,101    22,557 
    488,480    522,046 
           
Current   459,947    484,722 
Non-current   28,533    37,324 

 

6.5.2.Allowance for expected credit losses of trade accounts receivable

 

   2023  2022
       
At January 1   108,434    80,418 
Charge for the year   82,946    94,093 
Reversal   (17,668)   (13,181)
Write-off   (56,159)   (52,896)
At December 31   117,553    108,434 

 

6.6.Loans operations portfolio

 

Portfolio balances by product and maturity:

 

   2023
    
Credit card   3,131 
Working capital   309,677 
Loans operations portfolio, gross   312,808 
      
Allowance for expected credit losses   (62,061)
Loans operations portfolio, net of allowance for expected credit losses   250,747 
      
Current   209,957 
Non-current   40,790 

F-30

 

StoneCo Ltd.

Notes to Consolidated Financial Statements  

December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais, unless otherwise stated)

 

6.6.1.Aging by maturity

 

   2023
Balances not yet due   
<= 30 days   14,376 
30 < 60 days   30,670 
61 < 180 days   110,957 
181 < 360 days   113,323 
361 < 720 days   41,573 
> 720 days   61 
    310,960 
      
Balances overdue by     
<= 30 days   947 
30 < 90 days   799 
91 < 180 days   99 
181 < 360 days   3 
    1,848 
      
Loans operations portfolio, gross   312,808 

 

6.6.2.Gross carrying amount

 

Reconciliation of gross portfolio of loans operations, segregated by Stages:

 

Stage 1  2022  Transfer to stage 2  Transfer to stage 3  Cure from stage 2  Cure from stage 3  Acquisition / (Settlement)  2023
Credit card                       3,131    3,131 
Working capital       (19,561)   (309)   5,369    313    310,470    296,282 
        (19,561)   (309)   5,369    313    313,601    299,413 

 

Stage 2  2022  Cure to stage 1  Transfer to stage 3  Transfer from stage 1  Cure from stage 3  Acquisition / (Settlement)  2023
Credit card                            
Working capital       (5,369)   (970)   19,561    62    (1,089)   12,195 
        (5,369)   (970)   19,561    62    (1,089)   12,195 

 

Stage 3  2022  Cure to stage 1  Cure to stage 2  Transfer from stage 1  Transfer from stage 2  Acquisition / (Settlement)  2023
Credit card                            
Working capital       (313)   (62)   309    970    296    1,200 
        (313)   (62)   309    970    296    1,200 

F-31

 

StoneCo Ltd.

Notes to Consolidated Financial Statements  

December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais, unless otherwise stated)

 

Consolidated 3 stages  2022  Acquisition / (Settlement)  2023
          
Credit card       3,131    3,131 
Working capital       309,677    309,677 
        312,808    312,808 

 

6.6.3.Allowance for expected credit losses of loans operations

 

Stage 1  2022  Transfer to stage 2  Transfer to stage 3  Cure from stage 2  Cure from stage 3  Acquisition / (Settlement)  2023
Credit card                       200    200 
Working capital       (5,487)   (216)   628    27    62,624    57,576 
        (5,487)   (216)   628    27    62,824    57,776 

 

Stage 2  2022  Cure to stage 1  Transfer to stage 3  Transfer from stage 1  Cure from stage 3  Acquisition / (Settlement)  2023
Credit card                            
Working capital       (628)   (654)   5,487    5    (765)   3,445 
        (628)   (654)   5,487    5    (765)   3,445 

 

Stage 3  2022  Cure to stage 1  Cure to stage 2  Transfer from stage 1  Transfer from stage 2  Acquisition / (Settlement)   2023
Credit card                             
Working capital       (27)   (5)   216    654    2     840 
        (27)   (5)   216    654    2     840 

 

Consolidated 3 stages  2022  Acquisition / (Settlement)  2023
          
Credit card       200    200 
Working capital       61,861    61,861 
        62,061    62,061 

 

6.7.Financial assets from banking solutions and deposits from banking customers

 

As required by BACEN regulation, financial assets arising from deposits from banking customers in payment accounts must be fully deposited in government securities, and/or deposits at BACEN ("CCME").

 

In December 31, 2023, the Group had R$ 53,785 of payments in transit from banking customer accounts (2022 - R$ 243,782).

F-32

 

StoneCo Ltd.

Notes to Consolidated Financial Statements  

December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais, unless otherwise stated) 

 

6.8.Borrowings and financing and obligations to FIDC quota holders

 

6.8.1.Composition of borrowings and financing and obligations to FIDC quota holders

 

   Average annual interest rate %  Original date of issuance  Original maturity  Current portion  Non-current portion  2023
                   
Obligations to FIDC TAPSO quota holders (6.8.3.3)  CDI Rate* + 1.85%  Jul/23  Jul/24   53,103        53,103 
Obligations to FIDC ACR FAST quota holders (6.8.3.4)  CDI Rate* + 1.12%  Jul/23  Not applicable   452,128        452,128 
Obligations to FIDC quota holders            505,231        505,231 
                         
Leases (6.8.3.5)  105.1% to 151.8% of CDI Rate*  Not applicable  Jan/23 to Jun/29   30,227    143,456    173,683 
Bonds (6.8.3.6)  3.95% USD  Jun/21  Jun/28   2,922    2,399,776    2,402,698 
Bank borrowings (6.8.3.7)  CDI + 1.30% to CDI + 1.94% p.a.  (Several)  Up to six months   1,321,348        1,321,348 
Receivables backed securities (6.8.3.8)  CDI + 2.28% p.a.  Sep/23  Sep/26   3,316    98,702    102,018 
Debentures (6.8.3.9)  CDI + 1.95% p.a.  Nov/23  Oct/26   16,953    997,281    1,014,234 
Borrowings and financing            1,374,766    3,639,215    5,013,981 
                         
             1,879,997    3,639,215    5,519,212 

 

   Average annual interest rate %  Original date of issuance  Original maturity  Current portion  Non-current portion  2022
                   
Obligations to FIDC AR III quota holders (6.8.3.2)  CDI Rate* + 1.50%  Aug/20  Aug/23   952,780        952,780 
Obligations to FIDC TAPSO quota holders (6.8.3.3)  CDI Rate* + 1.80%  Sep/19  Feb/23   22,468        22,468 
Obligations to FIDC quota holders            975,248        975,248 
                         
Leases (6.8.3.5)  105.1% to 151.8% of CDI Rate*  Not applicable  Jan/23 to Jun/29   55,583    144,564    200,147 
Bonds (6.8.3.6)  3.95% USD  Jun/21  Jun/28   4,007    2,583,861    2,587,868 
Bank borrowings (6.8.3.7)  CDI + 0.95% p.a. to
 
CDI + 1.44% p.a.
  (Several)  Three to eighteen months   1,787,817    45    1,787,862 
Borrowings and financing            1,847,407    2,728,470    4,575,877 
                         
             2,822,655    2,728,470    5,551,125 

 

(*)“CDI Rate” (Brazilian Certificado de Depósito Interbancário), which is an average of interbank overnight rates in Brazil, the average rate of December 31, 2023 was 13.04%
(2022 – 12.38%).

 

6.8.2.Changes in borrowings and financing and obligations to FIDC quota holders

 

   2022  Additions  Disposals  Payment of principal  Payment of interest  Business Combination  Changes in Exchange Rates  Interest  2023
                            
Obligations to FIDC AR III quota holders (Note 6.8.3.2)   952,780            (937,499)   (67,975)           52,694     
Obligations to FIDC TAPSO quota holders (Note 6.8.3.3)   22,468    50,000        (20,000)   (3,021)           3,656    53,103 
Obligations to FIDC ACR FAST quota holders (Note 6.8.3.4)       514,752        (75,004)   (2,413)           14,793    452,128 
Leases (Note 6.8.3.5)   200,147    67,417    (21,225)   (72,815)   (13,764)       156    13,767    173,683 
Bonds (Note 6.8.3.6)   2,587,303                (96,157)       (188,440)   99,992    2,402,698 
Bank borrowings (Note 6.8.3.7)   1,788,427    4,088,209        (4,489,681)   (246,739)       (4,326)   185,458    1,321,348 
Receivables backed securities (Note 6.8.3.8)       97,734                        4,284    102,018 
Debentures (Note 6.8.3.9)       995,676                        18,558    1,014,234 
    5,551,125    5,813,788    (21,225)   (5,594,999)   (430,069)       (192,610)   393,202    5,519,212 
                                              
Current   2,822,655                                       1,879,997 
Non-current   2,728,470                                       3,639,215 

 

   2021  Additions  Disposals  Payment of principal  Payment of interest  Business Combination  Changes in Exchange Rates  Interest  2022
                            
Obligations to FIDC AR III quota holders (Note 6.8.3.2)   2,206,043            (1,250,000)   (211,058)           207,795    952,780 
Obligations to FIDC TAPSO quota holders (Note  6.8.3.3)   21,131                (1,515)           2,852    22,468 
Leases (Note 6.8.3.5)   273,455    64,658    (52,913)   (85,229)   (14,600)       176    14,600    200,147 
Bonds (Note 6.8.3.6)   2,764,610                (103,134)       (185,153)   110,980    2,587,303 
Bank borrowings (Note 6.8.3.7)   2,697,641    3,499,986        (4,605,452)   (97,317)   4,464        289,105    1,788,427 
Debentures (Note 6.8.3.9)   399,509            (404,317)   (17,374)           22,182     
    8,362,389    3,564,644    (52,913)   (6,344,998)   (444,998)   4,464    (184,977)   647,514    5,551,125 
                                              
Current   3,873,561                                       2,822,655 
Non-current   4,488,828                                       2,728,470 

F-33

 

StoneCo Ltd.

Notes to Consolidated Financial Statements  

December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais, unless otherwise stated)

 

6.8.3.Description of borrowings and financing and obligations to FIDC quota holders

 

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

 

6.8.3.2. Obligations to FIDC AR III quota holders

 

The first series of FIDC AR III senior quotas maturing after 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. Upon its maturity on August 2023 the fund was liquidated.

 

6.8.3.3. 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.

 

In February 2022, the Group negotiated an amendment of the contract to postpone the payment date of the principal to March 2023. The mezzanine quotas were settled on March 2, 2023. Upon maturity of the mezzanine quotas, in July 2023 the Group negotiated new issuance of TAPSO Senior Quotas.

 

6.8.3.4. Obligations to FIDC ACR FAST quota holders

 

This FIDC ACR FAST was issued with the Group as a sponsor as well as a quota holder. This is the first open-end fund with third parties, in which the Group holds subordinated quotas, resulting in the consolidation of the whole structure. The main goal of this structure is to access the money market funds sector. Being, an open-end fund, redemptions are settled 30 days after requested by quota holders.

 

6.8.3.5. 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.

 

6.8.3.6. Bonds

 

Bonds were issued in 2021, raising USD 500 million in seven 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 tenure of the debt). The Group has entered into a hedge to protect its currency risk (Note 6.9.1).

 

F-34

 

StoneCo Ltd.

Notes to Consolidated Financial Statements  

December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais, unless otherwise stated)

 

6.8.3.7. Bank borrowings

 

The Group issued bilateral unsecured term loans, with multiple counterparties and maturities up to six months. The principal and the interest of this type of loan are mainly paid at the date of maturity. The proceeds of these loans were used mainly for prepayments to acquiring customers.

 

6.8.3.8. Receivables backed securities

 

On September 6, 2023, a Certificate of Real Estate Receivables ("CRI") was issued by Opea Securitizadora S.A., raising R$ 100,000 in a three year note bearing interest at CDI + 1.30% p.a.. The CRI security is backed by commercial notes issued by Stone Pagamentos as well as STNE Participações S.A.. This is the first funding structure of the Company to access retail and with institutional investors.

 

6.8.3.9. Debentures

 

On June 12, 2019 Stone Pagamentos 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 Pagamentos accounts receivable from card issuers and bear interest at a rate of 109.0% of the CDI rate.

 

On November 8, 2023 the subsidiary MNLT concluded its first issuance of debentures placing R$ 1,000,000 with a three year maturity at CDI + 1.75% p.a. The debentures are guaranteed by both Stone Pagamentos and by the Company being the first corporate issuance by the Group in the Brazilian capital markets.

 

6.9.Derivative financial instruments, net

 

   2023  2022
Cross-currency interest rate swap used as hedge accounting instrument (Note 6.9.1)   (311,445)   (190,902)
Non-deliverable forward used as economic hedge instrument (Note 6.9.2)   (4,097)   (6,395)
Call options to acquire additional interest in subsidiaries   3,553    23,983 
Derivative financial instruments, net   (311,989)   (173,314)

 

6.9.1.Hedge accounting – Financial liabilities

 

During 2021, the Group entered into hedge operations to protect its inaugural dollar bonds (Note 6.8.3.6), subject to foreign exchange exposure using cross-currency interest rate swap contracts. Additionally, in May 2023, the Group entered into hedge operations to protect bank borrowings (Note 6.8.3.7), 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 US Dollar denominated bonds / bank borrowings due to changes in the exchange rate. The effective portion of the derivative's gain or loss is initially reported as a component of accumulated other comprehensive income, recorded in a specific equity account, and subsequently reclassified into earnings in the same period the hedge object affects earnings, while any ineffective portion, when applicable, is immediately recognized in profit or loss. The details of the cross-currency swaps and their financial position as of December 31, 2023, are presented as follows.

 

Notional in US$   Notional in R$   Pay rate in local currency   Trade date   Due date   Fair value as of 2023 – Asset (Liability)   Loss recognized in income in 2023(a)   Loss recognized in OCI (net of tax),  in 2023(b)   Fair value as of 2022 – Asset (Liability)
                                 
50,000   248,500   CDI + 2.94%   June 23, 2021   June 16, 2028   (26,967)   (86,656)   6,784   (15,274)
50,000   247,000   CDI + 2.90%   June 24, 2021   June 16, 2028   (26,359)   (72,213)   6,958   (14,836)
50,000   248,500   CDI + 2.90%   June 24, 2021   June 16, 2028   (27,625)   (74,618)   7,215   (15,961)
75,000   375,263   CDI + 2.99%   June 30, 2021   June 16, 2028   (43,894)   (50,137)   9,994   (26,179)
50,000   250,700   CDI + 2.99%   June 30, 2021   June 16, 2028   (29,705)   (42,826)   8,998   (17,846)
50,000   250,110   CDI + 2.98%   June 30, 2021   June 16, 2028   (29,207)   (50,705)   16,871   (17,403)
25,000   127,353   CDI + 2.99%   July 15, 2021   June 16, 2028   (16,495)   (21,254)   (7,334)   (10,374)
25,000   127,353   CDI + 2.99%   July 15, 2021   June 16, 2028   (16,573)   (16,887)   3,114   (10,455)
50,000   259,890   CDI + 2.96%   July 16, 2021   June 16, 2028   (37,516)   (21,703)   14,526   (24,793)
25,000   131,025   CDI + 3.00%   August 6, 2021   June 16, 2028   (18,487)   (20,321)   (8,295)   (12,101)
25,000   130,033   CDI + 2.85%   August 10, 2021   June 16, 2028   (19,391)   (17,178)   2,751   (12,917)
25,000   130,878   CDI + 2.81%   August 11, 2021   June 16, 2028   (19,226)   (16,181)   2,564   (12,763)
50,000   248,500   CDI + 1.80%   May 22, 2023   November 22, 2023   (13,308)   (13,308)    
                Net amount   (324,753)   (503,987)   64,146   (190,902)

 

(a)Recognized in the statement of profit or loss, in “Financial expenses, net.” The amount recognized in 2022 was a loss of R$ 459,289.

(b)Recognized in equity, in “Other comprehensive income.” The balance in the cash flow hedge reserve as of December 31, 2023 is a loss of R$ 197,188 (2022 - loss of R$ 261,366).

 

F-35

 

StoneCo Ltd.

Notes to Consolidated Financial Statements  

December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais, unless otherwise stated)

 

In 2023 the Group paid R$ 305,990 (2022 - R$ 274,407) for coupon on the cross-currency swaps above.

 

6.9.2.Economic hedge

 

6.9.2.1. Currency 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 in U.S. Dollar and Euro. The Group uses those derivatives to hedge foreign currency risk associated with two exposures: (i) the cash position it holds and (ii) certain software purchase agreements.

 

   2023
   Minimum Rate  Maximum Rate  Notional  Gain (loss)
             
NDF Dollar   4.8220    4.9400    6,460    19,116 
NDF Euro   5.3208    5.3715    570    (447)

 

   2022
   Minimum Rate  Maximum Rate  Notional  Gain (loss)
                     
NDF Dollar   5.1900    5.3200    65,500    25,827 

 

6.9.2.2. Interest 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.

 

   2023
   Minimum Rate  Maximum Rate  Maturity is up to  Notional  Gain (loss)
                          
Interest rate swaps (Fixed rate to CDI)   10.2%   14.3%   May/25    6,079,500    (7,328)

 

   2022
   Minimum Rate  Maximum Rate  Maturity is up to  Notional  Gain (loss)
                          
Interest rate swaps (Fixed rate to CDI)   9.1%   14.3%   April/24    5,225,105    (9,262)

F-36

 

StoneCo Ltd.

Notes to Consolidated Financial Statements  

December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais, unless otherwise stated)

 

6.10.Financial risk management

 

The Group’s activities expose it to market, liquidity, credit, and counterparty risks. The two main market risks for the Group are interest rates and exchange rates. Interest rate risk arises as the Group’s originates assets at fixed rates (credit card prepayment and loans) and with funding through fixed and floating rates with unmatched maturities of such assets. The second risk arises from fluctuations in exchange rates among Brazilian Reais and the currencies of countries where the Group has subsidiaries in addition to its indebtedness and expenses denominated in currencies other than the Brazilian Real. The Group’s main liquidity risk in potential its inability to raise financing to continue its prepayment business, which although not a legal obligation, is a significant component of its revenues. The counterparty risk is mainly generated by the counterparties with which the Group engages for financial contracts for hedging, investments and committed funding, in addition to its inherent credit risk exposure to credit card issuers.

 

The Board of Directors has approved policies, including a counterparties policy, and limits for its financial risk management. The Group uses financial derivatives only to mitigate market risk exposures. It is the Group’s policy not to engage in derivatives for speculative purposes. Different levels of managerial approval are required for entering into financial instruments depending on its nature and the type of risk associated.

 

The Group's Financial risk management is carried out by the Risk Management Area.

 

6.10.1. 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 as well from its loans portfolio to customers.

 

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

 

6.10.1.1. Financial instruments and cash deposits

 

Credit risk from balances with banks and financial institutions is managed 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.

 

6.10.1.2. Accounts receivable from card issuers

 

Card issuers once accepted by the networks issue cards that when transact are processed by acquirers like us. Card issuer have different risk profiles.

 

The Group, with frequency associated with the availability of new information or new financial indicators of card issuers, carries out assessments of these companies, aiming to identify potential risks. Payment scheme networks have credit risk mitigation mechanisms that vary by network that are available to acquirers like the Group. To date, the Group has not incurred any significant loss from card issuer receivables.

 

6.10.1.3. 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.

 

F-37

 

StoneCo Ltd.

Notes to Consolidated Financial Statements  

December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais, unless otherwise stated)

 

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.

 

6.10.1.4 Loans operations portfolio

 

Working capital and credit cards are available solely to individuals and businesses that are existing customers of the Group through acquiring.

 

Working capital loans rely on the main repayment source and collateral future receivables of customers while credit card line limits may be unsecured; the line is generally a portion of the total credit line available to a particular customer based on credit appetite and risk rating.

 

6.10.2.Market risk

 

Market risk is the risk that arises from a possible financial loss from changes in the fair value or future cash flows of financial instruments due to changes in market conditions.

 

In the ordinary course of the business, the Group executes financial transactions which are 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.

 

6.10.2.1. Interest rate risk

 

Short-term investments, borrowings and financing, and obligations to FIDC quota holders accrue interest at the CDI linked rates, the Brazilian benchmark floating rate and therefore incur future cash flow risks, but no fair value risks.

 

The Group’s interest rate risk arises from certain assets (mostly cash and equivalents, short-term investments and accounts receivables and the loans operations portfolio) and liabilities (loans, financing, obligations to FIDC) with different benchmarks (fixed or floating) and maturity dates. The Group may mitigate its exposure by execuring derivative transactions in which it will collect floating rates (CDI) and pay fixed rates.

 

6.10.2.2. Foreign currency risk

 

The Group has assets and liabilities in foreign currencies. Operations include cash and short-term investments in multiple countries in Latin American currencies, in addition to TPV processed in foreign exchange. However, significant capital expenditures (Pin Pads & POS, and data center equipment) and regular expenses (cloud and software fees) are incurred in US Dollars and Euros. The Global Treasury strategy is to hedge the foreign currency-denominated cash, debt and certain capital expenditures on any currency other than Brazilian Reais. The total foreign currency results on the year ended December 31, 2023 was loss of R$ (13,580) a relatively small financial result, mainly from the interest rate differential on the US Dollar/Brazilian Real, despite high relative currency volatility observed in the same period, showing a well-balanced risk management.

 

The bonds issued by the Group, and other debt in foreign currencies 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.

 

F-38

 

StoneCo Ltd.

Notes to Consolidated Financial Statements  

December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais, unless otherwise stated)

 

6.10.2.3.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.

 

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 (thousands) 

 

VaR

10 days 

(thousands)

 

VaR

60 days 

(thousands)

                 
Interest Rates  

Accounts receivables from credit card issuers,

Accounts payables to clients 

and interest rate swaps

  297   941   2,304
Foreign Currency Exchange   USD denominated asset/liabilities/derivatives   6   19   46

 

The VaR figures are meaningful only under normal market conditions, thereby cushioning the effects of turmoil in financial markets.

 

6.10.2.4 Equity price risk

 

Equity price risk is the risk that the fair values of equities decrease as the result of changes in the level of equity and individual stocks. The Group is exposed to equity price risk as it holds, as of December 31, 2023, R$ 45,702 (2022 - R$ 214,765) in listed and unlisted equity securities (Note 6.3).

 

6.10.3.Liquidity risk

 

Cash flow forecasting is performed for the operating entities of the Group and aggregated by the Group’s finance team. The Group’s finance team monitors rolling forecasts of liquidity requirements to ensure it has sufficient cash to meet operational needs while maintaining sufficient headroom on its undrawn borrowing facilities 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 statement of financial position 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 statement of financial position date, the Group held short-term investments of R$ 3,481,496 (2022 - R$ 3,453,772) that are expected to readily generate cash inflows for managing liquidity.

 

The table below analyzes the Group’s non-derivative financial liabilities to maturity. 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
             
December 31, 2023            
Deposits from banking customers   6,119,455             
Accounts payable to clients   19,163,672    35,455         
Trade accounts payable   513,877             
Borrowings and financing   1,371,845    1,344,545    5,049,235     
Obligations to FIDC quota holders   505,231             
Other liabilities   119,526    160,079    250,425     
    27,793,606    1,540,079    5,299,660     
                     
December 31, 2022                    
Deposits from banking customers   4,023,679             
Accounts payable to clients   16,542,963    35,775         
Trade accounts payable   596,044             
Borrowings 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 

F-39

 

StoneCo Ltd.

Notes to Consolidated Financial Statements  

December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais, unless otherwise stated)

 

6.11.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 if fraudulent agents use false identities to access credit and banking products, which could increase credit risk exposure as well as the 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 credit liabilities and default rates of credit solutions, and subject the Group to potential fines by regulators.

 

6.12.Financial instruments by category

 

6.12.1.Financial assets by category

 

   Amortized cost  FVPL  FVOCI  Total
             
December 31, 2023            
Short and Long-term investments       3,481,496    45,702    3,527,198 
Financial assets from banking solutions   5,250,496    1,147,402        6,397,898 
Accounts receivable from card issuers   5,877        23,971,232    23,977,109 
Trade accounts receivable   488,480            488,480 
Loans operations portfolio   250,747            250,747 
Derivative financial instruments(a)       4,182        4,182 
Receivables from related parties   2,512            2,512 
Other assets   518,362            518,362 
    6,516,474    4,633,080    24,016,934    35,166,488 
                     
                     
December 31, 2022                    
 Short and Long-term investments       3,636,687    31,850    3,668,537 
 Financial assets from banking solutions       3,960,871        3,960,871 
 Accounts receivable from card issuers   6,992        20,741,865    20,748,857 
Trade accounts receivable (b)   495,180    26,866        522,046 
Derivative financial instruments(a)       36,400        36,400 
 Receivables from related parties   10,053            10,053 
 Other assets   571,881            571,881 
    1,084,106    7,660,824    20,773,715    29,518,645 

 

(a)Derivative financial instruments as of December 31, 2023 of R$ 311,445 (2022 – R$ 190,902) were designated as cash flow hedging instruments, and therefore the effective portion of the hedge is accounted for in the OCI.

(b)The amount classified as FVPL refers to loans granted to customers up to June 30, 2021 (Notes 6.5.1 and 6.10.1.3).

 

F-40

 

StoneCo Ltd.

Notes to Consolidated Financial Statements  

December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais, unless otherwise stated)

 

6.12.2.Financial liabilities by category

 

   Amortized cost  FVPL  Total
          
December 31, 2023         
Deposits from banking customers   6,119,455        6,119,455 
Accounts payable to clients   19,199,127        19,199,127 
Trade accounts payable   513,877        513,877 
Borrowings and financing   5,013,981        5,013,981 
Obligations to FIDC quota holders   505,231        505,231 
Derivative financial instruments       316,171    316,171 
Other liabilities   119,526    410,504    530,030 
    31,471,197    726,675    32,197,872 
                
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 
Borrowings 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 

 

6.13.Fair value measurement

 

6.13.1.Assets and liabilities by fair value hierarchy

 

The following table presents an analysis of financial instruments measured at fair values by fair value hierarchy level:

 

   2023  2022
   Fair value  Hierarchy level  Fair value  Hierarchy level
             
Assets measured at fair value            
Short and Long-term investments(a) (b)   3,527,198   I /II   3,668,537   I /II
Financial assets from banking solutions (b)   1,147,402   I   3,960,871   I
Accounts receivable from card issuers(c)   23,971,232   II   20,741,865   II
Trade accounts receivable(d)      N/A   26,866   III
Derivative financial instruments(e)   4,182   II   36,400   II
    28,650,014       28,434,539    
                 
Liabilities measured at fair value                
Derivative financial instruments(e)   316,171   II   209,714   II
Other liabilities(f)(g)   410,504   III   611,279   III
    726,675       820,993    
 

F-41

 

StoneCo Ltd.

Notes to Consolidated Financial Statements  

December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais, unless otherwise stated)

 

(a)Listed securities are classified as Level I and unlisted securities classified as Level II, determining fair value using valuation techniques, which employ the use of market observable inputs.

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

(c)For Accounts receivable from card issuers measured at FVOCI, fair value is estimated by discounting future cash flows using market rates for similar items.

(d)As of December, 31, 2023, this loan was designated at FVPL with a portfolio gain of R$ 21,534 (2022 - gain of R$ 7,902). The total net cashflow effect was an inflow of R$ 48,400 (2022 - R$ 496,600). The fair value of loans are valued using valuation techniques, which employ the use of market unobservable inputs, and therefore are classified as Level III in the faie value hierarchy.

(e)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 observable market inputs.

(f)These 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 formulae explicit in the contracts with selling shareholders. The significant unobservable inputs used in the fair value measurement of contingent consideration categorized as 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.

(g)The Group issued put options for Reclame Aqui’s non-controlling interests, in the 2022 business combination. For the non-controlling shareholder amounts the Group has elected as an accounting policy that the put options 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 financial liability and the non-controlling interests derecognized at each period is recognized as an equity transaction. The amount of R$ 178,721 was recorded in the consolidated statement of financial position as of December 31, 2023 as a financial liability under Other liabilities (2022 - R$ 264,291).

 

As of December 31, 2023 and 2022, 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.

 

6.13.2. Fair value of financial instruments not measured at fair value

 

The table below presents a comparison of the book value and fair value of the financial instruments of the Group, other than those with carrying amounts that reasonably approximate fair values:

 

   2023  2022
   Book value  Fair value  Book value  Fair value
             
Financial assets            
Loans operations portfolio   250,747    250,877         
    250,747    250,877         
Financial liabilities                    
Accounts payable to clients   19,199,127    18,685,622    16,614,513    16,025,373 
Borrowings and financing   5,013,982    4,692,866    4,575,877    4,564,864 
    24,213,109    23,378,488    21,190,390    20,590,237 

 

6.14.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 new 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.

 

F-42

 

StoneCo Ltd.

Notes to Consolidated Financial Statements  

December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais, unless otherwise stated)

 

The adjusted net cash as of December 31, 2023 and 2022 was as follows:

 

   2023  2022
       
Cash and cash equivalents   2,176,416    1,512,604 
Short-term investments   3,481,496    3,453,772 
Financial assets from banking solutions   6,397,898    3,960,871 
Accounts receivable from card issuers   23,977,109    20,748,857 
Derivative financial instruments(a)   629    12,418 
Adjusted cash   36,033,548    29,688,522 
           
Deposits from banking customers   (6,119,455)   (4,023,679)
Accounts payable to clients   (19,199,127)   (16,614,513)
Borrowings and financing(b)   (4,840,299)   (4,375,730)
Obligations to FIDC quota holders   (505,231)   (975,248)
Derivative financial instruments   (316,171)   (209,714)
Adjusted debt   (30,980,283)   (26,198,884)
           
Adjusted net cash   5,053,265    3,489,638 

 

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

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

 

Although capital is managed considering the consolidated position, some subsidiaries in Brazil are subject to minimum regulatory capital requirements established by BACEN.

 

The Company has a dedicated, centralized regulatory capital management team, which reports directly to the Chief Risk Officer (“CRO”), who has ultimate responsible for capital adequacy. The structure has the objective of ensuring compliance with the current regulation and capital management processes regulatorily required. Additionally, the area has procedures and routines to plan capital adequacy requirement considering current and potential risks.

 

7.Other assets

 

   2023  2022
       
Customer deferred acquisition costs   190,239    199,920 
Prepaid expenses(a)   189,371    230,681 
Salary advances   52,586    41,294 
Judicial deposits   22,507    17,682 
Security deposits   14,230    15,011 
Convertible loans   10,527    12,328 
Other   38,902    54,965 
    518,362    571,881 
           
Current   380,854    365,355 
Non-current   137,508    206,526 

 

(a)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, 2023, the balance includes prepaid media to the Globo group of R$ 96,198 (2022 - R$ 163,065). Under the terms of the agreement the amount is available to place media until 2026.

  

8.Recoverable taxes

 

   2023  2022
       
Withholding income tax on finance income(a)    101,579    87,701 
Income tax and social contribution(b)   9,584    9,872 
Others withholding income tax   19,710    36,212 
Contributions over revenue   544    3,410 
Other taxes   14,922    13,761 
    146,339    150,956 

 

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

(b)Refers to income taxes, social contributions, and withholding tax prepayments that have been offset against income tax payable.

 

F-43

 

StoneCo Ltd.

Notes to Consolidated Financial Statements  

December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais, unless otherwise stated)

 

9.Income taxes

 

9.1.Accounting policy

 

9.1.1.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 regulations applied are those in force on the statement of financial position date in the countries where the Group operates and generates taxable income.

 

The Company is domiciled in the Cayman Islands which is an income tax free jurisdiction. Income of StoneCo from some investments outside the Cayman Islands is subject to withholding taxes to the countries where the investments are based. The withholding tax rate is generally 15%, which is treated as an income tax expense as StoneCo does not currently have taxable income against to which the withheld taxes can be offset.

 

The combined statutory 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 individually (no consolidated tax returns).

 

The Group's Brazilian entities recognize IRPJ and CSLL on an accrual basis. According to Brazilian tax regulations, the historical nominal amount of tax losses determined in prior years can be offset against results of subsequent years at any time (i.e., do not prescribe), 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.

 

9.1.2.Deferred income and social contribution taxes

 

Deferred tax assets or liabilities are measured based on the differences between the tax bases of assets and liabilities and the amounts reported in the statement of financial position. Deferred tax assets may be recognized for unused tax loss carryforwards.

 

Deferred tax assets are recognized only to the extent that it is probable that the Group's Brazilian entities will generate sufficient 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 presen