UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16
OF THE SECURITIES EXCHANGE ACT OF 1934
For the month of November, 2018
Commission File Number 001-38055
NETSHOES (CAYMAN) LIMITED
(Exact name of registrant as specified in its
charter)
|
|
|
The Cayman Islands |
|
98-1007784 |
(State of incorporation or
organization) |
|
(I.R.S. Employer Identification
No.) |
Rua Vergueiro 961, Liberdade
01504-001 São Paulo, São Paulo, Brazil
+55 11 3028-3528
(Address, including zip code, and telephone
number, including area code, of registrant’s principal executive
offices)
Indicate by check mark whether the registrant files or will file
annual reports under cover of Form 20-F or Form 40-F:
Form
20-F ☒ Form
40-F ☐
Indicate by check mark if the registrant is submitting the Form
6-K in paper as permitted
by Regulation S-T Rule
101(b)(1):
Yes ☐ No ☒
Indicate by check mark if the registrant is submitting the Form
6-K in paper as permitted
by Regulation S-T Rule
101(b)(7):
Yes ☐ No ☒
NETSHOES (CAYMAN) LIMITED
Unaudited condensed consolidated interim
financial statements
as of September 30, 2018, and for the nine
and three month periods ended September 30, 2017 and
2018
1
|
|
|
|
|
|
|
|
NETSHOES
(CAYMAN) LIMITED AND SUBSIDIARIES |
Unaudited Condensed
Consolidated Statements of Financial Position |
December 31, 2017 and
September 30, 2018 |
(Reais and Dollars in
thousands) |
|
|
|
|
December
31, |
|
September
30, |
Assets
|
Note
|
|
2017
|
|
2018
|
|
2018
|
|
|
|
BRL
|
|
BRL |
|
USD |
Current
assets: |
|
|
|
|
|
|
Note
2.2 |
Cash and cash
equivalents |
9
|
R$ |
395,962
|
R$
|
50,569
|
US$
|
12,630
|
Restricted
cash |
|
|
19,397
|
|
18,125
|
|
4,527
|
Trade accounts
receivables, net |
10
|
|
113,168
|
|
114,361
|
|
28,562
|
Inventories,
net |
11
|
|
456,632
|
|
331,676
|
|
82,838
|
Recoverable
taxes |
12
|
|
80,047
|
|
84,423
|
|
21,085
|
Prepaid expenses and
other current assets |
|
|
48,352
|
|
18,929
|
|
4,728
|
|
|
|
1,113,558
|
|
618,083
|
|
154,370
|
|
Non-current assets
held for sale |
26
|
|
- |
|
32,590
|
|
8,139
|
Total current
assets |
|
|
-
|
|
650,673
|
|
162,509
|
|
Non-current
assets: |
|
|
|
|
|
|
|
Restricted
cash |
|
|
15,048
|
|
15,335
|
|
3,830
|
Judicial
deposits |
24
|
|
106,914
|
|
115,078
|
|
28,741
|
Recoverable
taxes |
12
|
|
70,765
|
|
38,597
|
|
9,640
|
Other assets
|
|
|
1,950
|
|
10,189
|
|
2,545
|
Due from related
parties |
23
|
|
12
|
|
7 |
|
2 |
Property and
equipment, net |
13
|
|
73,039
|
|
83,202
|
|
20,780
|
Intangible assets,
net |
14
|
|
115,839
|
|
139,011
|
|
34,719
|
Total non-current
assets |
|
|
383,567
|
|
401,419
|
|
100,257
|
|
Total
assets |
|
R$ |
1,497,125
|
R$
|
1,052,092
|
US$
|
262,766
|
|
|
The accompanying
notes are an integral part of these unaudited condensed
consolidated financial statements |
2
|
|
|
|
|
|
|
|
NETSHOES (CAYMAN)
LIMITED AND SUBSIDIARIES |
Unaudited Condensed
Consolidated Statements of Financial Position |
December 31, 2017
and September 30, 2018 |
(Reais and Dollars
in thousands) |
|
|
|
|
|
December
31, |
|
September
30, |
Liabilities and
Shareholders' Equity |
Note
|
|
2017
|
|
2018 |
|
2018 |
|
|
|
BRL
|
|
BRL |
|
USD |
Current
liabilities: |
|
|
|
|
|
|
Note 2.2
|
Trade accounts
payable |
15 |
R$ |
365,835
|
R$
|
272,619
|
US$
|
68,088
|
Reverse
factoring |
16
|
|
148,928
|
|
78,299
|
|
19,556
|
Current portion of
long-term debt |
18
|
|
106,577
|
|
11,955
|
|
2,986
|
Taxes
and contributions payable |
|
|
19,875
|
|
24,486
|
|
6,115
|
Deferred
revenue |
7
|
|
3,732
|
|
4,026
|
|
1,006
|
Accrued
expenses |
17
|
|
120,366
|
|
96,623
|
|
24,132
|
Other current
liabilities |
|
|
31,017
|
|
30,560
|
|
7,632
|
|
|
|
796,330
|
|
518,568
|
|
129,515
|
|
Liabilities
associated with non-current assets held for sale
|
26
|
|
-
|
|
30,700
|
|
7,667
|
Total current
liabilities |
|
|
-
|
|
549,268
|
|
137,182
|
|
|
Non-current
liabilities: |
|
|
|
|
|
|
|
Long-term debt, net
of current portion |
18
|
|
179,394
|
|
216,283
|
|
54,018
|
Provision for
labor, civil and tax risks |
24
|
|
12,523
|
|
16,822
|
|
4,201
|
Deferred
revenue |
7
|
|
25,502
|
|
23,017
|
|
5,749
|
Other
non-current liabilities |
|
|
27
|
|
629
|
|
157
|
Total non-current
liabilities |
|
|
217,446
|
|
256,751
|
|
64,125
|
Total
liabilities |
|
|
1,013,776
|
|
806,019
|
|
201,307
|
|
Shareholders'
equity: |
|
|
|
|
|
|
|
Share
capital |
|
|
244
|
|
244
|
|
61
|
Additional-paid in
capital |
|
|
1,345,507
|
|
1,347,120
|
|
336,452
|
Treasury
shares |
|
|
(1,533)
|
|
(1,533)
|
|
(383)
|
Accumulated other
comprehensive loss |
|
|
(13,664)
|
|
(11,893)
|
|
(2,970)
|
Accumulated
losses |
|
|
(847,125)
|
|
(1,087,765)
|
|
(271,676)
|
Equity
attributable to owners of the parent |
|
|
483,429
|
|
246,173
|
|
61,484
|
Equity attributable
to non-controlling interests |
|
|
(80)
|
|
(100)
|
|
(25)
|
Total
shareholders' equity |
|
|
483,349
|
|
246,073
|
|
61,459
|
|
Total liabilities
and shareholders' equity |
|
R$ |
1,497,125
|
R$
|
1,052,092
|
US$
|
262,766
|
|
|
The accompanying
notes are an integral part of these unaudited condensed
consolidated financial statements |
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NETSHOES (CAYMAN)
LIMITED AND SUBSIDIARIES |
Unaudited Condensed
Consolidated Statements of Profit or Loss |
For the nine and
three months ended in September 30, 2017 and 2018 |
(Reais and Dollars
in thousands, except loss per share) |
|
|
|
|
For the nine months
ended in September 30, |
|
For the three
months ended in September 30, |
|
Note |
|
2017
|
|
2018
|
|
Note
|
|
2017
|
|
2018
|
|
2018
|
|
|
|
|
|
|
|
USD
|
|
BRL
|
|
BRL
|
|
USD
|
Continuing
operations |
|
|
BRL
|
|
BRL
|
|
Note 2.2
|
|
|
|
|
|
Note 2.2
|
Net
sales |
6
|
R$
|
1,262,899
|
R$ |
1,241,368 |
US$ |
310,040 |
R$ |
431,422
|
R$ |
417,809
|
US$ |
104,351
|
Cost of
sales |
8a
|
|
(843,813)
|
|
(955,593)
|
|
(238,666)
|
|
(290,395)
|
|
(381,028)
|
|
(95,164)
|
Gross profit
|
|
|
419,086
|
|
285,775
|
|
71,374
|
|
141,027
|
|
36,781
|
|
9,187
|
Operating
expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and
marketing expenses |
8b
|
|
(344,372)
|
|
(327,919)
|
|
(81,900)
|
|
(128,579)
|
|
(111,989)
|
|
(27,970)
|
General
and administrative expenses |
8c
|
|
(106,447)
|
|
(138,520)
|
|
(34,596)
|
|
(36,521)
|
|
(45,084)
|
|
(11,258)
|
Other operating
expenses, net |
|
|
(3,193)
|
|
(5,915)
|
|
(1,478)
|
|
(1,076)
|
|
(3,834)
|
|
(956)
|
Total
operating expenses |
|
|
(454,012)
|
|
(472,354)
|
|
(117,974)
|
|
(166,176)
|
|
(160,907)
|
|
(40,184)
|
Operating
loss |
|
|
(34,926)
|
|
(186,579)
|
|
(46,600)
|
|
(25,149)
|
|
(124,126)
|
|
(30,997)
|
Financial
income |
8d
|
|
23,628
|
|
13,930
|
|
3,480
|
|
8,808
|
|
6,972
|
|
1,741
|
Financial
expenses |
8d
|
|
(97,515)
|
|
(63,733)
|
|
(15,918)
|
|
(27,153)
|
|
(22,122)
|
|
(5,525)
|
Monetary position
(loss) gain, net |
|
|
-
|
|
6,120
|
|
1,529
|
|
-
|
|
3,364
|
|
840
|
Loss before income
tax |
|
|
(108,813)
|
|
(230,262)
|
|
(57,509)
|
|
(43,494)
|
|
(135,912)
|
|
(33,941)
|
Income
tax expense |
|
|
-
|
|
(858)
|
|
(214)
|
|
-
|
|
(676)
|
|
(169)
|
Net
Loss from continuing operations
|
|
R$
|
(108,813)
|
R$ |
(231,120)
|
US$ |
(57,723) |
R$ |
(43,494)
|
R$ |
(136,588)
|
US$ |
(34,110)
|
|
Net Loss from
discontinued operations |
26
|
R$
|
(11,814)
|
|
(10,375)
|
US$ |
(2,591)
|
R$ |
(4,259)
|
|
(3,981)
|
US$ |
(994)
|
|
Net Loss
|
|
R$ |
(120,627)
|
|
(241,495)
|
US$ |
(60,314) |
R$ |
(47,753)
|
|
(140,569)
|
US$ |
(35,104)
|
|
|
Net
loss attributable to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Owners of the
Parent from continuing operations |
|
R$
|
(108,398) |
R$ |
(230,715)
US$ |
|
(57,623)
|
R$ |
(43,381)
|
R$ |
(136,454)
|
US$ |
(34,080)
|
Owners
of the Parent from discontinued operations |
|
|
(11,814)
|
|
(10,375)
|
|
(2,591)
|
|
(4,259)
|
|
(3,981)
|
|
(994)
|
Non-controlling
interests |
|
|
(415)
|
|
(405)
|
|
(100)
|
|
(113)
|
|
(134)
|
|
(29)
|
|
Loss per share
attributable to owners of the Parent |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted |
5
|
R$
|
(4.63)
|
R$ |
(7.76) US$
|
|
(1.94)
|
R$ |
(1.83)
|
R$ |
(4.52)
|
US$ |
(1.13)
|
|
|
The accompanying
notes are an integral part of these unaudited condensed
consolidated financial statements |
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
NETSHOES (CAYMAN)
LIMITED AND SUBSIDIARIES |
Unaudited Condensed
Consolidated Statements of Comprehensive Income (Loss) |
For the nine and
three months ended in September 30, 2017 and 2018 |
(Reais and Dollars
in thousands) |
|
|
|
For the nine months
ended in September 30, |
|
For the three
months ended in September 30, |
|
|
2017
|
|
2018
|
|
2018
|
|
2017
|
|
2018
|
|
2018
|
|
|
|
|
|
|
USD
|
|
|
|
|
|
USD
|
|
|
BRL
|
|
BRL
|
|
Note
2.2 |
|
BRL
|
|
BRL
|
|
Note
2.2 |
Net
Loss |
R$
|
(120,627)
|
R$
|
(241,495)
|
US$ |
(60,314)
|
R$
|
(47,753)
|
R$
|
(140,569)
|
US$ |
(35,104)
|
|
Items
that will subsequently be recorded to profit or loss
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency
translation |
|
3,734
|
|
2,114
|
|
528
|
|
(3,854)
|
|
3,300
|
|
824
|
Cash flow hedges –
effective portion of changes in fair value |
|
348
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Cash flow hedges –
reclassified to profit or loss |
|
197
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Other comprehensive
income (loss) |
|
4,279
|
|
2,114
|
|
528
|
|
(3,854)
|
|
3,300
|
|
824
|
Total comprehensive
income (loss) |
|
(116,348)
|
|
(239,381)
|
|
(59,786)
|
|
(51,607)
|
|
(137,269)
|
|
(34,280)
|
|
Total comprehensive
income (loss) attributable to: |
|
|
|
|
|
|
|
|
|
|
|
|
Owners of the
Parent |
R$ |
(115,948)
|
R$ |
(239,724)
|
US$ |
(59,874)
|
R$ |
(51,550)
|
R$ |
(137,508)
|
US$ |
(34,343)
|
Non-controlling
interests |
|
(400)
|
|
343
|
|
86
|
|
(57)
|
|
239
|
|
62
|
|
The accompanying
notes are an integral part of these unaudited condensed
consolidated financial statements |
5
|
|
|
|
|
|
|
NETSHOES (CAYMAN)
LIMITED AND SUBSIDIARIES |
Unaudited Condensed
Consolidated Statements of Cash Flows |
For the nine months
ended in September 30, 2017 and 2018 |
(Reais and Dollars
in thousands) |
|
|
|
For the nine months
ended in September 30, |
|
|
|
2017
|
|
2018
|
|
2018
|
|
|
BRL
|
|
BRL
|
|
USD
|
Cash flows from
continuing operating activities: |
|
|
|
|
|
Note 2.2
|
Net loss
|
R$
|
(108,813)
|
R$
|
(231,120)
|
US$ |
(57,723)
|
Adjustments to
reconcile net loss to net cash provided by (used in) operating
activities: |
|
|
|
|
|
|
Allowance for
doubtful accounts |
|
21,637
|
|
7,350
|
|
1,836
|
Depreciation and
amortization |
|
22,724
|
|
45,979
|
|
11,484
|
Loss on disposal of
property and equipment, and intangible assets |
|
168
|
|
307
|
|
77
|
Share-based
payment |
|
(13,552)
|
|
4,906
|
|
1,225
|
Deferred
taxes |
|
-
|
|
858
|
|
214
|
Provision for
labor, civil and tax risks |
|
6,971
|
|
6,856
|
|
1,712
|
Interest expense,
net |
|
83,832
|
|
44,970
|
|
11,232
|
Monetary (gain)
loss, net |
|
-
|
|
2,718
|
|
679
|
Provision for
inventory losses |
|
(454)
|
|
44,220
|
|
11,044
|
Provision for
expected losses, Other non-current assets (note 20 (c))
|
|
-
|
|
18,152
|
|
4,534
|
Other
|
|
179
|
|
3
|
|
1
|
Changes in
operating assets and liabilities:
|
|
|
|
|
|
|
(Increase) decrease
in:
|
|
|
|
|
|
|
Restricted
cash |
|
6,994
|
|
1,272
|
|
318
|
Trade accounts
receivable |
|
112,512
|
|
(13,053)
|
|
(3,260)
|
Inventories
|
|
(93,120)
|
|
48,482
|
|
12,109
|
Recoverable
taxes |
|
(49,838)
|
|
14,969
|
|
3,739
|
Judicial
deposits |
|
(30,706)
|
|
(8,165)
|
|
(2,039)
|
Other assets
|
|
2,319
|
|
(2,736)
|
|
(683)
|
Increase (decrease)
in:
|
|
|
|
|
|
|
Derivative
financial instruments |
|
(186)
|
|
-
|
|
-
|
Trade
accounts payable |
|
(34,078)
|
|
(67,927)
|
|
(16,965)
|
Reverse
factoring |
|
11,489
|
|
(70,629)
|
|
(17,640)
|
Taxes
and contributions payable |
|
(719)
|
|
6,652
|
|
1,661
|
Deferred
revenue |
|
(2,493)
|
|
(2,192)
|
|
(547)
|
Accrued
expenses |
|
(30,135)
|
|
(11,857)
|
|
(2,961)
|
Share-based
payment |
|
(2,058)
|
|
(708)
|
|
(177)
|
Other
liabilities |
|
1,033
|
|
1,889
|
|
472
|
Net cash used in
continung operating activities |
|
(96,294)
|
|
(158,804)
|
|
(39,658)
|
|
Cash
flows from continuing investing activities: |
|
|
|
|
|
|
Purchase of
property and equipment |
|
(5,804)
|
|
(24,794)
|
|
(6,192)
|
Purchase of
intangible assets |
|
(37,293)
|
|
(55,873)
|
|
(13,955)
|
Interest received
on installment sales |
|
1,075
|
|
1,161
|
|
290
|
Restricted
cash |
|
7,392
|
|
(287)
|
|
(72)
|
Net
cash used in continuing investing activities |
|
(34,630)
|
|
(79,793)
|
|
(19,929)
|
|
Cash flows from
continuing financing activities: |
|
|
|
|
|
|
Proceeds from
debt |
|
108,317
|
|
-
|
|
-
|
Payments of
debt |
|
(117,682)
|
|
(57,040)
|
|
(14,246)
|
Payments of
interest |
|
(81,780)
|
|
(43,419)
|
|
(10,844)
|
Proceeds from
issuance of common shares |
|
423,388
|
|
-
|
|
-
|
Net cash provided
by (used in) continuing financing activities |
|
332,243
|
|
(100,459)
|
|
(25,090)
|
|
Net
cash provided by discontinued operations (note 26)
|
|
3,171
|
|
1,306
|
|
326
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
(5,229)
|
|
(7,643)
|
|
(1,914)
|
|
Change in cash and
cash equivalents |
|
199,261
|
|
(345,393)
|
|
(86,265)
|
|
Cash
and cash equivalents, beginning of period from continuing
operations |
|
111,304
|
|
395,962
|
|
98,895
|
Cash and cash
equivalents, end of period from continuing operations
|
|
310,565
|
|
50,569
|
|
12,630
|
|
R$
|
199,261
|
R$
|
(345,393)
|
US$ |
(86,265)
|
Supplemental
disclosure |
|
|
|
|
|
|
Non-cash investing
and financing activities: |
|
|
|
|
|
|
Acquisition of
property and equipment and intangible assets (Note 17)
|
R$
|
4,120
|
R$
|
2,734 |
US$ |
683
|
Adjustment on
initial application of IFRS 15 and IFRS 9 |
|
-
|
|
1,854
|
|
463
|
Deferred offering
costs reclassified to equity |
|
6,808
|
|
-
|
|
-
|
Convertible notes
converted to common shares |
|
94,151
|
|
-
|
|
-
|
Reclassification of
share-based payment from Cash-settled arrangement to
Equity-settled |
|
|
|
|
|
|
arrangement
|
|
13,706
|
|
-
|
|
-
|
|
The accompanying
notes are an integral part of these unaudited condensed
consolidated financial statements |
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NETSHOES (CAYMAN)
LIMITED AND SUBSIDIARIES |
Unaudited Condensed
Consolidated Statements of Changes in Shareholders’
Equity |
For the nine months
ended in September 30, 2017 and 2018 |
(Reais and Dollars
in thousand) |
|
|
|
|
Equity Attributable
to owners of the Parent |
|
|
|
|
|
|
Share
Capital
|
|
Additional
Pai
d-in
Capital
|
|
Treasury
Shares
|
|
Accumulated
Losses
|
|
Foreign
Currency
Translation
|
|
Gain (Loss)
on Hedge
Accounting
|
|
Total
|
|
Non-controlling
Interest
|
|
Total
Equity |
|
|
BRL
|
|
BRL
|
|
BRL
|
|
BRL
|
|
BRL
|
|
BRL
|
|
BRL
|
|
BRL
|
|
BRL
|
Balance, January 1,
2018 |
R$
|
244
|
R$
|
1,345,507
|
R$
|
(1,533)
|
R$ |
(847,125) |
R$ |
(13,664)
|
R$ |
-
|
R$
|
483,429
|
R$
|
(80)
|
R$ |
483,349
|
|
Adjustment on
initial adoption of IFRS 15 (see note 2.5) |
|
-
|
|
-
|
|
-
|
|
(1,153)
|
|
-
|
|
-
|
|
(1,153)
|
|
-
|
|
(1,153)
|
Adjustment on
initial adoption of IFRS 9 (see note 2.5) |
|
-
|
|
-
|
|
-
|
|
(701)
|
|
-
|
|
-
|
|
(701)
|
|
-
|
|
(701)
|
Adjustment on
initial adoption of IAS29 (see note 25) |
|
-
|
|
-
|
|
-
|
|
2,260
|
|
-
|
|
-
|
|
2,260
|
|
42
|
|
2,302
|
|
Adjusted balance,
January 1, 2018 |
|
244
|
|
1,345,507
|
|
(1,533)
|
|
(846,719)
|
|
(13,664)
|
|
-
|
|
483,835
|
|
(38)
|
|
483,797
|
|
Comprehensive Income
(Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss |
|
-
|
|
-
|
|
-
|
|
(60,219)
|
|
-
|
|
-
|
|
(60,219)
|
|
(118)
|
|
(60,337)
|
Other comprehensive
income (loss) |
|
-
|
|
-
|
|
-
|
|
-
|
|
(435)
|
|
-
|
|
(435)
|
|
(14)
|
|
(449)
|
Total comprehensive
income (loss) |
|
-
|
|
-
|
|
-
|
|
(60,219)
|
|
(435)
|
|
-
|
|
(60,654)
|
|
(132)
|
|
(60,786)
|
|
Share-based
payments |
|
-
|
|
2,181
|
|
-
|
|
-
|
|
-
|
|
-
|
|
2,181
|
|
-
|
|
2,181
|
|
Balance, March 31,
2018 |
R$
|
244
|
R$
|
1,347,688
|
R$
|
(1,533) |
R$ |
(906,938) |
R$ |
(14,099) R$
|
|
-
|
R$
|
425,362
|
R$
|
(170)
|
R$ |
425,192
|
|
Comprehensive Income
(Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
-
|
|
-
|
|
-
|
|
(37,997)
|
|
-
|
|
-
|
|
(37,997)
|
|
(113)
|
|
(38,110)
|
Adjustment on
initial adoption of IAS29 (see note 25) |
|
-
|
|
-
|
|
-
|
|
(2,395)
|
|
|
|
|
|
(2,395)
|
|
(40)
|
|
(2,435)
|
Other comprehensive
income (loss) |
|
-
|
|
-
|
|
-
|
|
-
|
|
(855)
|
|
-
|
|
(855)
|
|
118
|
|
(737)
|
Total comprehensive
income (loss) |
|
-
|
|
-
|
|
-
|
|
(40,392)
|
|
(855)
|
|
-
|
|
(41,247)
|
|
(35)
|
|
(41,282)
|
|
Share-based
payments |
|
-
|
|
513
|
|
-
|
|
-
|
|
-
|
|
-
|
|
513
|
|
-
|
|
513
|
|
Balance, June 30,
2018 |
R$
|
244
|
R$
|
1,348,201
|
R$
|
(1,533)
|
R$ |
(947,330)
|
R$ |
(14,954)
|
R$ |
-
|
R$
|
384,628
|
R$
|
(205)
|
R$ |
384,423
|
|
Comprehensive Income
(Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
-
|
|
-
|
|
-
|
|
(140,435)
|
|
-
|
|
-
|
|
(140,435)
|
|
(134)
|
|
(140,569)
|
Other
comprehensive income (loss) |
|
-
|
|
-
|
|
-
|
|
-
|
|
3,061
|
|
-
|
|
3,061
|
|
239
|
|
3,300
|
Total
comprehensive income (loss) |
|
-
|
|
-
|
|
-
|
|
(140,435)
|
|
3,061
|
|
-
|
|
(137,374)
|
|
105
|
|
(137,269)
|
|
Share-based
payments |
|
-
|
|
(1,081)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(1,081)
|
|
-
|
|
(1,081)
|
|
Balance, September
30, 2018 |
R$
|
244
|
R$
|
1,347,120
|
R$
|
(1,533)
|
R$ |
(1,087,765)
|
R$ |
(11,893)
|
R$ |
-
|
R$
|
246,173
|
R$
|
(100)
|
R$ |
246,073
|
|
The accompanying
notes are an integral part of these unaudited condensed
consolidated financial statements |
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NETSHOES
(CAYMAN) LIMITED AND SUBSIDIARIES |
Unaudited Condensed
Consolidated Statements of Changes in Shareholders’
Equity |
For the nine months
ended in September 30, 2017 and 2018 |
(Reais and Dollars in
thousand) |
|
|
|
|
Equity
Attributable to owners of the Parent |
|
|
|
|
|
|
Share |
|
Additional
Paid-in |
|
Treasury
|
|
Accumulated
|
|
Foreign
Currency |
|
Gain
(Loss) on Hedge |
|
|
|
Non-controlling
|
|
|
|
|
Capital |
|
Capital
|
|
Shares
|
|
Losses
|
|
Translation
|
|
Accounting
|
|
Total
|
|
Interest
|
|
Total
Equity |
|
|
BRL |
|
BRL
|
|
BRL
|
|
BRL
|
|
BRL
|
|
BRL
|
|
BRL
|
|
BRL
|
|
BRL
|
Balance,
January 1, 2017 |
R$
|
141
|
R$
|
821,988
|
R$
|
(1,533)
|
R$ |
(677,379) R$
|
|
(19,032)
|
R$ |
(545) |
R$ |
123,640
|
R$
|
385
|
R$
|
124,025
|
|
Comprehensive
Income (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
- |
|
- |
|
- |
|
(37,508)
|
|
- |
|
- |
|
(37,508)
|
|
(209)
|
|
(37,717)
|
Other comprehensive
income (loss) |
|
- |
|
- |
|
- |
|
- |
|
(1,642)
|
|
98
|
|
(1,544)
|
|
(46)
|
|
(1,590)
|
Total comprehensive
income (loss) |
|
- |
|
- |
|
- |
|
(37,508)
|
|
(1,642)
|
|
98
|
|
(39,052)
|
|
(255)
|
|
(39,307)
|
|
Share-based
payments |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
Balance, March
31, 2017 |
R$
|
141
|
R$
|
821,988
|
R$
|
(1,533)
|
R$ |
(714,887)
|
R$ |
(20,674)
|
R$ |
(447)
|
R$ |
84,588
|
R$
|
130
|
R$
|
84,718
|
|
Comprehensive
Income (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
- |
|
- |
|
- |
|
(34,991)
|
|
- |
|
- |
|
(34,991)
|
|
(166)
|
|
(35,157)
|
Other comprehensive
income (loss) |
|
- |
|
- |
|
- |
|
- |
|
9,198
|
|
447
|
|
9,645
|
|
78
|
|
9,723
|
Total comprehensive
income (loss) |
|
- |
|
- |
|
- |
|
(34,991)
|
|
9,198
|
|
447
|
|
(25,346)
|
|
(88)
|
|
(25,434)
|
|
Issuance of common
shares in initial public offering, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net of offering
costs |
|
84
|
|
417,140
|
|
- |
|
- |
|
- |
|
- |
|
417,224
|
|
- |
|
417,224
|
Conversion of
convertible notes to common shares |
|
19
|
|
94,132
|
|
- |
|
- |
|
- |
|
- |
|
94,151
|
|
- |
|
94,151
|
Share-based
payments |
|
- |
|
15,089
|
|
- |
|
- |
|
- |
|
- |
|
15,089
|
|
- |
|
15,089
|
|
Balance, June
30, 2017 |
R$
|
244
|
R$
|
1,348,349
|
R$
|
(1,533)
|
R$ |
(749,878)
|
R$ |
(11,476)
|
R$ |
- |
R$
|
585,706
|
R$
|
42
|
R$
|
585,748
|
|
Comprehensive
Income (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
- |
|
- |
|
- |
|
(47,640)
|
|
- |
|
- |
|
(47,640)
|
|
(113)
|
|
(47,753)
|
Other comprehensive
income (loss) |
|
- |
|
- |
|
- |
|
- |
|
(3,910)
|
|
- |
|
(3,910)
|
|
56
|
|
(3,854)
|
Total comprehensive
income (loss) |
|
- |
|
- |
|
- |
|
(47,640)
|
|
(3,910)
|
|
- |
|
(51,550)
|
|
(57)
|
|
(51,607)
|
|
Issuance of common
shares in initial public offering, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net of offering
costs |
|
- |
|
(1,244)
|
|
- |
|
- |
|
- |
|
- |
|
(1,244)
|
|
- |
|
(1,244)
|
Share-based
payments |
|
- |
|
161
|
|
- |
|
- |
|
- |
|
- |
|
161
|
|
- |
|
161
|
|
Balance,
September 30, 2017 |
R$ |
244
|
R$ |
1,347,266
|
R$ |
(1,533) |
R$ |
(797,518)
|
R$ |
(15,386)
|
R$ |
- |
R$ |
533,073
|
R$
|
(15)
|
R$ |
533,058
|
|
The accompanying
notes are an integral part of these unaudited condensed
consolidated financial statements |
8
NETSHOES (CAYMAN) LIMITED AND
SUBSIDIARIES
Notes
to the unaudited condensed consolidated financial
statements
For
the nine months ended
September 30,
2018
(In thousands of reais and
dollars, unless otherwise stated)
1.
Organization and background
1.1
Nature of Operations
Netshoes (Cayman) Limited (“NSC” or the “Parent")
was incorporated in the Cayman Islands on April 12, 2011. NSC is a
holding company and conducts its business primarily through its
subsidiaries (together with NSC, the “Company”, “we” or “us”). The
Company’s registered office is at Willow House, Cricket Square,
George Town, KY 1-1104, Cayman Islands. Major shareholders of the
Company include Tiger Global Private Investment Partners V, L.P.
(“Tiger Global V”), Tiger Global Private Investment Partners VI,
L.P. (“Tiger Global VI”), CDK Net Fund IC and HCFT
Holdings.
The Company is a leading sports and lifestyle
ecommerce destination in Latin America with operations in Brazil,
Argentina and Mexico (the latter presented as discontinued
operations following the announcement of sale of the Mexican
operations, as disclosed in note 26). The Company’s core business
is to offer to its customers a reliable and convenient online
shopping experience with a wide selection of products including
athletic shoes, jerseys, apparel, accessories and sporting
equipment from leading international, local and private brands as
well as fashion. The Company conducts its business mainly through
its ecommerce websites ( www.netshoes.com
, www.zattini.com
and www.shoestock.com).
The Company’s shares are offered, sold and
registered under the Securities Act of 1933, as amended, pursuant
to the Company’s Registration Statement on Form F-1 (Registration
No.333-216727), which was declared effective by the Securities and
Exchange Commission on April 12, 2017. The common stock began
trading on the New York Stock Exchange on April 12, 2017 under the
symbol "NETS" and its Initial Public Offering (IPO) was completed
on April 18, 2017.
In August 2018, the Company entered into an
agreement with the Grupo Sierra Capital (“Sierra”) to sell the
entirety of its Mexico operations. In October 11, 2018 the Company
and Sierra concluded the transaction, which was preceded by final
adjustments agreed by the parties under the original terms and
conditions of the negotiation (see note 26).
1.2
Split of shares
The Board of Directors approved a 1.0 for 3.0
share split of the Company's outstanding common shares. The share
split became effective on April 18, 2017. The Company has
retrospectively adjusted loss per share data considering the split
of shares (see note 5).
2.
Summary of Significant Accounting
Policies
2.1.
Statement of Compliance
These interim financial statements have been
prepared in accordance with International Accounting Standard 34,
“Interim Financial Reporting” and should be read in conjunction
with the Company’s last annual consolidated financial statements as
at and for the year ended December 31, 2017 (“last annual financial
statements”). These interim financial statements, which are
unaudited, do not include all of the information required for a
complete set of financial statements prepared in accordance with
International Financial Reporting Standards (“IFRS”). However,
selected explanatory notes are included to explain events and
transactions that are significant to an understanding of the
changes in the Company’s financial position and performance since
the last annual financial statements.
These condensed consolidated financial statements
as of and for the nine-month period ended September 30, 2018 were
authorized for issuance by the Board of Directors on November 07,
2018.
2.2.
Basis of Presentation
The functional currency of the Company is US$ and
the reporting currency is Brazilian Real (“R$”) as this currency
better reflects the underlying operations of the consolidated
entities. The Company’s subsidiaries with operations in Brazil,
Argentina and Mexico (the latter presented as discontinued
operations, as described in note 26) use their respective
currencies as their functional currencies.
9
NETSHOES (CAYMAN) LIMITED AND
SUBSIDIARIES
Notes
to the unaudited condensed consolidated financial
statements
For
the nine months ended
September 30,
2018
(In thousands of reais and
dollars, unless otherwise stated)
Due to the significant inflation in Argentina
over the past few years including the first nine months of 2018,
the three-year cumulative inflation rate in Argentina has exceeded
100% based on data from the national wholesale price index and
various available inflation indices in May 2018. As such, Argentina
was considered as hyperinflationary economy effective July 1, 2018
and beginning in the third quarter of 2018 the Company is required
to apply inflation accounting in accordance with IAS 29 Financial
Reporting in Hyperinflationary Economies. Thus, its statement of
financial position and statement of profit or loss are restated for
the changes in the general purchasing power of the local currency,
using official indices at the reporting date, before translation
into Brazilian Real (“R$”) and, as a result, are stated in terms of
the measuring unit current at the reporting date. The details of
recognition of the effects of inflation in Argentina operations are
disclosed in note 25.
Translations of balances in the condensed
consolidated statement of financial positions, condensed
consolidated statement of profit or loss, condensed consolidated
statement of comprehensive income (loss) and condensed consolidated
statement of cash flows from R$ into US$ are solely for the
convenience of the readers and have been calculated at the rate of
US$1.00 = R$ 4.0039, representing the exchange rate set forth by
the Banco Central do Brasil (Central Bank of Brazil) on September
30, 2018. No representation is made that the R$ amounts could have
been, or could be, converted, realized or settled into US$ at that
rate on September 30, 2018, or at any other rate. All values have
been rounded to the nearest thousands of R$ and US$, except where
noted.
This interim information was prepared pursuant to
the accounting principles, practices and criteria consistent with
those adopted in financial statements for the year ended December
31, 2017 and must be analyzed jointly with the referred to
financial statements, except for the comparative information for
the nine and three month period ended September 30, 2017 which
restated for the purposes of applying IFRS 5 "Non-current assets
held for sale and discontinued operations" after approval by the
Board of Directors of the sale of its operation in Mexico on August
6, 2018, as presented in note 26 and also for the application of
IAS 29 in the Argentinean subsidiary, see note 25 for further
information.
The policy for recognizing and measuring income
taxes in the interim period is described in note 22.
2.3.
Use of Judgments, Estimates and
Assumptions
In preparing these condensed consolidated
financial statements in conformity with IFRS, management has made
judgments, estimates and assumptions that affect the application of
the Company’s accounting policies and the reported amount of
assets, liabilities, income and expenses. Actual results may differ
from those estimates.
The significant judgments made by management in
applying the Company’s accounting policies and the key sources of
estimation uncertainty were the same as those applied to the
consolidated financial statements as at and for the year ended
December 31, 2017, except for:
-
Note 20 – Credit risk of Other non-current
assets: Uncertainty of possible outcomes
-
Note 25 – Hyperinflation: Determining
inflation rate
|
2.4.
Fair Value Measurements
Several accounting policies and disclosures
require fair value measurement, for both financial and
non-financial assets and liabilities.
|
When measuring the fair value of an asset or a
liability, the Company uses observable market data as far as
possible. Fair values are categorized into different levels in a
fair value hierarchy based on the inputs used in the valuation
techniques as follows:
|
·
Level 1 — unadjusted quoted prices in active
markets for identical assets or liabilities.
·
Level 2 — inputs other than quoted prices
included in Level 1 that are observable for the assets or
liability, either directly or indirectly
·
Level 3 — inputs for the assets or liability
that are not based on observable market data.
10
NETSHOES (CAYMAN) LIMITED AND
SUBSIDIARIES
Notes
to the unaudited condensed consolidated financial
statements
For
the nine months ended
September 30,
2018
(In thousands of reais and
dollars, unless otherwise stated)
If the inputs used to measure the fair value of
an asset or a liability fall into different levels of the fair
value hierarchy, then the fair value measurement is categorized in
its entirety in the same level of the fair value hierarchy as the
lowest level input that is significant to the entire
measurement.
The Company recognizes transfers between levels
of the fair value hierarchy at the end of the reporting period
during which the change has occurred.
Note 20 includes accounting classification and
fair value measurement of financial instruments.
2.5.
New Accounting Pronouncements
The Company applied as of January 1, 2018, IFRS
15 (Revenue from Contracts with Customers) and IFRS 9 (Financial
Instruments). As required by IAS 34, the nature and effect of these
changes are described below.
IFRS 15 Revenue from Contracts with
Customers
IFRS 15 establishes a comprehensive framework for
determining whether, how much and when revenue is recognized. It
replaces existing revenue recognition guidance, including IAS 11
Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer Loyalty
Programmes, IFRIC 15 Agreements for the Construction of Real
Estate, IFRIC 18 Transfers of Assets from Customers, and SIC-31
Revenue-Barter Transactions Involving Advertising Services and it
applies to all revenue arising from contracts with customers,
unless those contracts are in the scope of other standards. The new
standard establishes a five-step model to account for revenue
arising from contracts with customers. Under IFRS 15, revenue is
recognized at an amount that reflects the consideration to which an
entity expects to be entitled in exchange for transferring goods or
services to a customer.
The standard requires entities to exercise
judgement, taking into consideration all the relevant facts and
circumstances when applying each step of the model to contracts
with their customers.
The standard also specifies the accounting for
the incremental costs of obtaining a contract and the costs
directly related to fulfilling a contract.
The Company adopted IFRS 15 using the cumulative
effect method of adoption. Accordingly, the effect of adoption has
been recorded as an adjustment to equity.
The details of new significant accounting
policies and the nature and effect of the changes to previous
accounting policies are set out below.
(a) Revenue from product sales
The Company’s contracts with customers for
products sales generally includes a performance obligation. The
Company has concluded that revenue from products sales should be
recognized at the point in time when control of the asset is
transferred to the customer, generally on delivery of the goods.
Therefore, the adoption of IFRS 15 did not have any impact on the
timing of revenue recognition, as sales were already recognized
upon delivery of the goods to customers. However, the amount of
revenue to be recognized was affected by the variable
consideration, as stated below.
(i)
Variable consideration
Some contracts for product sales provide
customers with a right of return. Prior to the adoption of IFRS 15,
the Company recognized revenue from the sale of goods measured at
the fair value of the consideration received or receivable, net of
returns. If revenue could not be reliably measured, the Company
deferred revenue recognition until the uncertainty was
resolved.
Under IFRS 15, rights of return give rise to
variable consideration. The variable consideration is estimated at
contract inception and constrained until the associated uncertainty
is subsequently resolved. The application of the constraint on
variable consideration increases the amount of revenue that will be
deferred.
Rights of return
11
NETSHOES (CAYMAN) LIMITED AND
SUBSIDIARIES
Notes
to the unaudited condensed consolidated financial
statements
For
the nine months ended
September 30,
2018
(In thousands of reais and
dollars, unless otherwise stated)
For contracts that permit the customer to return
an item, under IFRS 15 revenue is recognized to the extent that it
is probable that a significant reversal in the amount of cumulative
revenue recognized will not occur. Therefore, the amount of revenue
recognized is adjusted for expected returns, which are estimated
based on historical data.
The effect of adoption in January 1, 2018
resulted in the recognition of right of return assets (increase in
inventories) of R$1,592 and refund liabilities (increase in other
liabilities) of R$2,745. The net effect of R$1,153 was recorded in
Accumulated losses.
(b) Freight-related services
The Company’s contracts with customers for
freight-related services is recognized once the service is
rendered. The shipping fees are linked to the revenue from products
sales. Therefore, the adoption of IFRS 15 did not have any impact
on the timing of revenue recognition, as services were already
recognized upon delivery of the goods to customers. However, the
amount of revenue to be recognized was affected by the variable
consideration, as stated in topic (a).
(c) Marketplace platform
The Company’s contracts with customers for
Marketplace platform generates revenue in the form of a commission,
when the third-party vendors sell the products on the Company’s
platform. The Company recognizes revenue from the marketplace
platform on a net basis because the Company acts as an agent and
does not have primary responsibility for fulfilling the orders,
bear inventory risk or have discretion in establishing prices.
Therefore, the adoption of IFRS 15 did not have any impact in the
Company’s accounting policies, once the Company already recognized
these revenues as an agent.
(d) NCard
The Company generates commission revenue from the
customers’ activation of NCards. The revenue is recognized when the
NCards are activated by the customers. Therefore, the adoption of
IFRS 15 did not have any impact in the Company’s accounting
policies, once the Company already recognized these revenues when
the customers activate the NCards.
(e) Presentation and disclosure
requirements
As required for the condensed consolidated
financial statements, the Company disaggregated revenue recognized
from contracts with customers into categories that depict how the
nature, amount, timing and uncertainty of revenue and cash flows
are affected by economic factors. The Company also disclosed
information about the relationship between the disclosure of
disaggregated revenue and revenue information disclosed for each
reportable segment. Refer to notes 4 and 6 for the disclosure on
disaggregated revenue.
IFRS 9 Financial Instruments
IFRS 9 sets out requirements for recognizing
measuring financial assets, financial liabilities and some
contracts to buy or sell non-financial items. This standard
replaces IAS 39 Financial Instruments: Recognition and
Measurement.
The Company has applied IFRS 9 with the initial
adoption date of January 1, 2018 and has taken an exemption not to
restate comparative information for prior periods with respect to
classification and measurement (including impairment) requirements.
Differences in the carrying amounts of financial assets and
financial liabilities resulting from the adoption of IFRS 9 were
recognized in Accumulated losses as at January 1, 2018.
Accordingly, the information presented for 2017 does not generally
reflect the requirements of IFRS 9 but rather those of IAS
39.
The details of new significant accounting
policies and the nature and effect of the changes to previous
accounting policies are set out below.
(a) Classification and measurement of financial
assets and liabilities
IFRS 9 contains a new classification and
measurement approach for financial assets that reflects the
business model in which assets are managed and their cash flow
characteristics.
12
NETSHOES (CAYMAN) LIMITED AND
SUBSIDIARIES
Notes
to the unaudited condensed consolidated financial
statements
For
the nine months ended
September 30,
2018
(In thousands of reais and
dollars, unless otherwise stated)
IFRS 9 contains three principal classification
categories for financial assets: measured at amortized cost, fair
value through other comprehensive income (FVOCI) and fair value
through profit or loss (FVTPL). The standard eliminates the
existing IAS 39 categories of held to maturity, loans and
receivables and available for sale.
IFRS 9 largely retains the existing requirements
in IAS 39 for the classification of financial liabilities.
Therefore, the adoption of IFRS 9 has not had a significant effect
on the Company’s accounting policies related to classification and
measurement of financial assets.
The following table compares the measurement and
classification under IAS 39 and IFRS 9 for each class of financial
assets.
Financial instrument
|
|
Classification under IAS 39
|
|
Classification under IFRS 9
|
|
|
|
|
|
Cash and cash
equivalents
|
|
Loans and receivables
|
|
Amortized cost
|
Restricted cash, current
and non-current portion
|
|
Loans and receivables
|
|
Amortized cost
|
Trade accounts
receivables
|
|
Loans and receivables
|
|
Amortized cost
|
Due from related
parties
|
|
Loans and receivables
|
|
Amortized cost
|
Judicial
deposits
|
|
Loans and receivables
|
|
Amortized cost
|
Other assets, current
and non-current portion
|
|
Loans and receivables
|
|
Amortized cost
|
The effect of adopting IFRS 9 on the carrying
amounts of financial assets at January 1, 2018 relates solely to
the new impairment requirements.
(i)
Impairment
IFRS 9 replaces the “incurred loss” model in IAS
39 with a forward-looking “expected credit loss” (ECL) model. This
new model requires the Company to record expected credit losses on
trade accounts receivables, either on 12-month or lifetime
basis.
The Company has assessed the application of IFRS
9 impairment model requirements and its assessment did not have a
material impact on its opening balance at January 1, 2018 (except
for trade receivables, described below).
Trade accounts receivables
The estimated ECLs were calculated based on
actual credit loss experience over the past two years, with ECL
rates calculated separately for B2C (business to consumer) and B2B
(business to business) trade accounts receivable. The Company
already considered the exposure to credit risk over the impairment
recognized under IAS 39.
Factors considered were:
·
Significant financial difficulty of the
customer;
·
Payment default;
·
Exposure to expected losses;
·
High probability of customer
bankruptcy;
·
Breach of contract, such as default or
delinquency in interest or principal; and
·
Adverse change in a factor (for example,
unemployment rates, external credit ratings).
Exposures within each group are based on credit
risk characteristics and aging status.
The application of IFRS 9’s impairment
requirements at January 1, 2018 resulted in an additional allowance
for doubtful accounts as follows.
13
NETSHOES (CAYMAN) LIMITED AND
SUBSIDIARIES
Notes
to the unaudited condensed consolidated financial
statements
For
the nine months ended
September 30,
2018
(In thousands of reais and
dollars, unless otherwise stated)
|
|
As at January 1,
2018
|
|
|
Allowance for doubtful
accounts (as previously disclosed)
|
|
Restated allowance for
expected losses
|
|
|
|
|
|
Not past due
|
R$
|
(8,199)
|
R$
|
(11,222)
|
Past due 1-30
days
|
|
(2,134)
|
|
(2,134)
|
Past due 31-90
days
|
|
(3,686)
|
|
(3,686)
|
Past due 91-120
days
|
|
(1,845)
|
|
(1,845)
|
Past due 120-180
days
|
|
(3,108)
|
|
(3,108)
|
Past due over 180
days
|
|
(1,899)
|
|
(1,899)
|
Total
|
R$
|
(20,871)
|
R$
|
(23,894)
|
Note 10 includes a table to summarize the effect
of adoption of IFRS 9 on new allowance for doubtful
accounts.
(b) Hedge accounting
The Company´s assessment did not indicate any
impact on the application of IFRS 9 for hedge accounting, because
no hedge transactions existed as of December 31, 2017 and no hedge
transactions were entered into in the nine months ended September
30, 2018.
Other Clarifications, amendments and
interpretations
Several other amendments and interpretations
apply for the first time in 2018, but do not have an impact on the
condensed consolidated financial statements of the Company. Also,
the Company has not early adopted any other standard,
interpretation or amendment that has been issued but is not yet
effective, including the IFRS 16 – Leases, which the Company is
currently evaluating the effect of adopting the standard and the
impact it may have on its consolidated financial
statements.
2.6.
Discontinued operations and non-current
assets held for sale
A non-current asset is classified as held for
sale if its carrying amount will be recovered principally through a
sale transaction rather than through continuing use.
The criteria for recognition as non-current
assets held for sale are only considered satisfied when the sale is
highly probable and the asset (or disposal group of assets) is
available for immediate sale in its present condition. The Company
measures the assets held for sale (or group of assets) at the lower
of its carrying amount and fair value less costs to sell. If the
carrying amount exceeds the fair value less costs to sell an
impairment loss is recognizedin the statement of Profit or Loss.
Any subsequent reversal of impairment is recognized only to the
extent of the loss previously recognized.
The assets and liabilities of a disposal group
classified as held for sale are presented separately in the
statement of financial position.
14
NETSHOES (CAYMAN) LIMITED AND
SUBSIDIARIES
Notes
to the unaudited condensed consolidated financial
statements
For
the nine months ended
September 30,
2018
(In thousands of reais and
dollars, unless otherwise stated)
The classification as a discontinued operation
occurs through disposal, or when the operation meets the criteria
to be classified as held for sale if this occurs earlier. A
discontinued operation is a component of a Company business
comprising cash flows and operations that may be clearly distinct
from the rest of the Company and that represents an important
separate line of business or geographical area of
operations.
The result of discontinued operations is
presented in a single amount in the statement of profit or loss,
including the results after income tax of these operations less any
impairment loss. Cash flows attributable to operating, investing
and financing activities of discontinued operations are described
in a separate note (note 26).
When an operation is classified as a discontinued
operation, the statement of profit or loss and the cash flow of the
prior periods are re-presented as if the operation had been
discontinued since the beginning of the comparative
period.
3.
Seasonality
Like most retail businesses, the Company
experiences seasonal fluctuations in its net sales and operating
results. Historically, the Company has generated higher net sales
in the fourth quarter, which includes Black November period
(commercial holiday introduced in 2010 by Brazilian e-commerce
websites which is a month-long equivalent to the Black Friday in
the United States) and the Christmas season in Brazil, Argentina
and Mexico (the latter presented as discontinued operations, as
described in note 26) while the first quarter of the year is our
slowest period, as the months of January and February correspond to
vacation time in Brazil and Argentina.
The amount of cash flows and working capital we
require to support our operations fluctuate throughout the year,
primarily driven by the seasonality of our business. Typically, we
have higher generation of cash flows during the fourth quarter,
given the increase in the volume of sales we generally experience
in this period, which includes the Black November period and the
holiday season. Conversely, our cash flow requirements increase
during the first quarter of the year as a result of (1) the
maturity of the payment terms with our suppliers for inventory
acquired in advance of our peak selling season and (2) a decrease
in sales volumes that typically follows such season.
4.
Segment Information
The Company
uses the “management approach” to determine its reportable
segments. The management approach identifies operating segments
based on how the entity is organized and based on how financial
information is presented to the chief operating decision maker
(“CODM”). The Company concluded that the CODM is the Chief
Executive Officer.
The Company is organized around geographical
divisions and discloses the following reportable segments: Brazil
and International.
·
Brazil: consists of retail sales of consumer
products from all of our verticals (which includes sales of
sporting goods and related garments as well as fashion and more
recently, beauty goods) carried out through our sites
Netshoes.com.br, Zattini.com.br and Shoestock.com.br and
third-party sites that we manage as well as our business to
business offline operation.
·
International: consists of retail sales of
consumer products (mainly sporting goods and related garments) from
our site Netshoes.com.ar in Argentina.
As explained in note 26, the Mexico operation was
discontinued during the third quarter of 2018, and consequently it
is presented as discontinued operations.
The items
not allocated directly to the reportable segments are disclosed as
corporate and others. Corporate and others comprises operating
expenses, financial income and financial expenses recorded in
Netshoes (Cayman) Limited and Netshoes Holding, LLC.
The CODM
receives individual financial information based on the nature of
revenues and expenses incurred. There is no regular reporting of
individual financial information for products, services, or major
customers, and therefore the Company concluded that Brazil and
International were each independent reportable segments.
15
NETSHOES (CAYMAN) LIMITED AND
SUBSIDIARIES
Notes
to the unaudited condensed consolidated financial
statements
For
the nine months ended
September 30,
2018
(In thousands of reais and
dollars, unless otherwise stated)
No
information on segment assets or liabilities is relevant for
decision-making. There are no inter segment transactions in the
internal reporting structure.
The Company evaluates the performance of its
reportable segments using “segment net income (loss)”. A
reconciliation of reportable segments is as follows:
16
NETSHOES (CAYMAN) LIMITED AND
SUBSIDIARIES
Notes
to the unaudited condensed consolidated financial
statements
For
the nine months ended
September 30,
2018
(In thousands of reais and
dollars, unless otherwise stated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brazil |
|
International |
|
Corporate and
others |
|
Total |
|
|
Nine months
ended in September 30, |
|
Nine months
ended in September 30, |
|
Nine months
ended in September 30, |
|
Nine months
ended in September 30, |
|
|
2017
|
|
2018
|
|
2018
|
|
2017
|
|
2018
|
|
2018
|
|
2017
|
|
2018
|
|
2018
|
|
2017
|
|
2018
|
|
2018
|
|
|
BRL
|
|
BRL
|
|
USD
|
|
BRL
|
|
BRL
|
|
USD
|
|
BRL
|
|
BRL
|
|
USD
|
|
BRL
|
|
BRL
|
|
USD
|
Net Sales
|
R$
|
1,160,016
|
R$
|
1,144,073 |
US$ |
285,740
|
R$
|
102,883
|
R$
|
97,295 |
US$ |
24,300
|
R$
|
- |
R$
|
-
|
US$ |
- |
R$
|
1,262,899
|
R$
|
1,241,368
|
US$ |
310,040
|
Cost of sales
|
|
(762,096)
|
|
(874,586)
|
|
(218,434)
|
|
(81,717)
|
|
(81,007)
|
|
(20,232)
|
|
- |
|
- |
|
- |
|
(843,813)
|
|
(955,593)
|
|
(238,666)
|
Segment gross
profit |
|
397,920
|
|
269,487
|
|
67,306
|
|
21,166
|
|
16,288
|
|
4,068
|
|
-
|
|
-
|
|
-
|
|
419,086
|
|
285,775
|
|
71,374
|
|
Salaries and
employees' benefits |
|
(118,597)
|
|
(137,780)
|
|
(34,411)
|
|
(15,075)
|
|
(14,284)
|
|
(3,568)
|
|
(921)
|
|
(1,129)
|
|
(282)
|
|
(134,593)
|
|
(153,193)
|
|
(38,261)
|
Marketing
expenses |
|
(121,183)
|
|
(127,981)
|
|
(31,964)
|
|
(13,124)
|
|
(12,243)
|
|
(3,058)
|
|
(574)
|
|
(689)
|
|
(172)
|
|
(134,881)
|
|
(140,913)
|
|
(35,194)
|
Operating
lease |
|
(18,841)
|
|
(19,506)
|
|
(4,872)
|
|
(1,555)
|
|
(1,614)
|
|
(403)
|
|
- |
|
- |
|
- |
|
(20,396)
|
|
(21,120)
|
|
(5,275)
|
Credit card
fees |
|
(20,967)
|
|
(21,149)
|
|
(5,282)
|
|
(3,675)
|
|
(3,168)
|
|
(791)
|
|
- |
|
- |
|
- |
|
(24,642)
|
|
(24,317)
|
|
(6,073)
|
Information
technology services |
|
(23,248)
|
|
(18,104)
|
|
(4,522)
|
|
(550)
|
|
(501)
|
|
(125)
|
|
(4,807)
|
|
(2,511)
|
|
(627)
|
|
(28,605)
|
|
(21,116)
|
|
(5,274)
|
Amortization and
depreciation |
|
(19,946)
|
|
(29,676)
|
|
(7,411)
|
|
(497)
|
|
(763)
|
|
(191)
|
|
(2,281)
|
|
(15,194)
|
|
(3,795)
|
|
(22,724)
|
|
(45,633)
|
|
(11,397)
|
Consulting
|
|
(7,329)
|
|
(7,406)
|
|
(1,850)
|
|
(531)
|
|
(465)
|
|
(116)
|
|
(1,653)
|
|
(4,516)
|
|
(1,128)
|
|
(9,513)
|
|
(12,387)
|
|
(3,094)
|
Allowance for
doubtful accounts |
|
(21,642)
|
|
(7,350)
|
|
(1,836)
|
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
(21,642)
|
|
(7,350)
|
|
(1,836)
|
Sales commissions and
royalties |
|
(9,888)
|
|
(11,724)
|
|
(2,928)
|
|
(681)
|
|
(804)
|
|
(201)
|
|
- |
|
- |
|
- |
|
(10,569)
|
|
(12,528)
|
|
(3,129)
|
Facilities
expenses |
|
(10,558)
|
|
(9,859)
|
|
(2,462)
|
|
(941)
|
|
(846)
|
|
(211)
|
|
(544)
|
|
- |
|
- |
|
(12,043)
|
|
(10,705)
|
|
(2,673)
|
Other selling,
general and administrative expenses |
(28,457)
|
|
(13,295)
|
|
(3,321)
|
|
(2,663)
|
|
(2,739)
|
|
(684)
|
|
(90)
|
|
(1,142)
|
|
(285)
|
|
(31,210)
|
|
(17,176)
|
|
(4,290)
|
Other operating
(expense) income, net |
|
(3,113)
|
|
(5,901)
|
|
(1,474)
|
|
(25)
|
|
(8)
|
|
(2)
|
|
(56)
|
|
(7)
|
|
(2)
|
|
(3,194)
|
|
(5,916)
|
|
(1,478)
|
Total
operating expenses |
|
(403,769)
|
|
(409,731)
|
|
(102,333)
|
|
(39,317)
|
|
(37,435)
|
|
(9,350)
|
|
(10,926)
|
|
(25,188)
|
|
(6,291)
|
|
(454,012)
|
|
(472,354)
|
|
(117,974)
|
|
Financial
income |
|
22,459
|
|
13,512
|
|
3,376
|
|
366
|
|
358
|
|
89
|
|
803
|
|
60
|
|
15
|
|
23,628
|
|
13,930
|
|
3,480
|
Financial
expenses |
|
(88,454)
|
|
(54,972)
|
|
(13,730)
|
|
(6,971)
|
|
(8,625)
|
|
(2,154)
|
|
(2,090)
|
|
(136)
|
|
(34)
|
|
(97,515)
|
|
(63,733)
|
|
(15,918)
|
Monetary position
gain (loss), net |
|
- |
|
- |
|
- |
|
- |
|
6,120
|
|
1,529
|
|
- |
|
- |
|
- |
|
- |
|
6,120
|
|
1,529
|
Loss before
income tax |
|
(71,844)
|
|
(181,704)
|
|
(45,381)
|
|
(24,756)
|
|
(23,294)
|
|
(5,818)
|
|
(12,213)
|
|
(25,264)
|
|
(6,310)
|
|
(108,813)
|
|
(230,262)
|
|
(57,509)
|
|
Income tax
expense |
|
- |
|
- |
|
- |
|
- |
|
(858)
|
|
(214)
|
|
- |
|
- |
|
- |
|
- |
|
(858)
|
|
(214)
|
Net
loss |
R$
|
(71,844)
|
R$
|
(181,704)
|
US$ |
(45,381)
|
R$
|
(24,756)
|
R$
|
(24,152) |
US$ |
(6,032)
|
R$
|
(12,213)
|
R$
|
(25,264)
|
US$ |
(6,310)
|
R$
|
(108,813)
|
R$
|
(231,120) |
US$ |
(57,723)
|
17
NETSHOES (CAYMAN) LIMITED AND
SUBSIDIARIES
Notes
to the unaudited condensed consolidated financial
statements
For
the nine months ended
September 30,
2018
(In thousands of reais and
dollars, unless otherwise stated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brazil |
|
International |
|
Corporate and
others |
|
Total |
|
|
Three months
ended in September 30, |
|
Three months
ended in September 30, |
|
Three months
ended in September 30, |
|
Three months
ended in September 30, |
|
|
2017
|
|
2018
|
|
2018
|
|
2017
|
|
2018
|
|
2018
|
|
2017
|
|
2018
|
|
2018
|
|
2017
|
|
2018
|
|
2018
|
|
|
BRL
|
|
BRL
|
|
USD
|
|
BRL
|
|
BRL
|
|
USD
|
|
BRL
|
|
BRL
|
|
USD
|
|
BRL
|
|
BRL
|
|
USD
|
Net Sales
|
R$
|
396,981
|
R$
|
383,272
|
US$ |
95,725
|
R$
|
34,441
|
R$
|
34,537
|
US$ |
8,626
|
R$
|
- |
R$
|
-
|
US$ |
- |
R$
|
431,422
|
R$
|
417,809
|
US$ |
104,351
|
Cost of sales
|
|
(263,650)
|
|
(351,779)
|
|
(87,859)
|
|
(26,745)
|
|
(29,249)
|
|
(7,305)
|
|
- |
|
- |
|
- |
|
(290,395)
|
|
(381,028)
|
|
(95,164)
|
Segment gross
profit |
|
133,331
|
|
31,493
|
|
7,866
|
|
7,696
|
|
5,288
|
|
1,321
|
|
-
|
|
-
|
|
-
|
|
141,027
|
|
36,781
|
|
9,187
|
|
Salaries and
employees' benefits |
|
(43,547)
|
|
(45,833)
|
|
(11,447)
|
|
(4,864)
|
|
(5,130)
|
|
(1,281)
|
|
(236)
|
|
(440)
|
|
(110)
|
|
(48,647)
|
|
(51,403)
|
|
(12,838)
|
Marketing
expenses |
|
(44,659)
|
|
(45,542)
|
|
(11,374)
|
|
(3,839)
|
|
(3,997)
|
|
(998)
|
|
(417)
|
|
(202)
|
|
(50)
|
|
(48,915)
|
|
(49,741)
|
|
(12,422)
|
Operating
lease |
|
(6,407)
|
|
(5,972)
|
|
(1,492)
|
|
(507)
|
|
(542)
|
|
(135)
|
|
- |
|
- |
|
- |
|
(6,914)
|
|
(6,514)
|
|
(1,627)
|
Credit card
fees |
|
(7,223)
|
|
(7,486)
|
|
(1,870)
|
|
(1,197)
|
|
(1,104)
|
|
(276)
|
|
- |
|
- |
|
- |
|
(8,420)
|
|
(8,590)
|
|
(2,146)
|
Information
technology services |
|
(6,667)
|
|
(4,728)
|
|
(1,181)
|
|
(166)
|
|
(176)
|
|
(44)
|
|
(2,287)
|
|
(775)
|
|
(194)
|
|
(9,120)
|
|
(5,679)
|
|
(1,419)
|
Amortization and
depreciation |
|
(6,255)
|
|
(10,650)
|
|
(2,660)
|
|
(145)
|
|
(379)
|
|
(95)
|
|
(820)
|
|
(611)
|
|
(153)
|
|
(7,220)
|
|
(11,640)
|
|
(2,908)
|
Consulting
|
|
(2,474)
|
|
(3,076)
|
|
(768)
|
|
(150)
|
|
(158)
|
|
(39)
|
|
(359)
|
|
(3,088)
|
|
(771)
|
|
(2,983)
|
|
(6,322)
|
|
(1,578)
|
Allowance for
doubtful accounts |
|
(15,380)
|
|
(3,652)
|
|
(912)
|
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
(15,380)
|
|
(3,652)
|
|
(912)
|
Sales commissions and
royalties |
|
(4,107)
|
|
(3,662)
|
|
(915)
|
|
(264)
|
|
(149)
|
|
(37)
|
|
- |
|
- |
|
- |
|
(4,371)
|
|
(3,811)
|
|
(952)
|
Facilities
expenses |
|
(3,282)
|
|
(2,804)
|
|
(700)
|
|
(294)
|
|
(270)
|
|
(67)
|
|
(267)
|
|
- |
|
- |
|
(3,843)
|
|
(3,074)
|
|
(767)
|
Other selling,
general and administrative expenses |
(8,278)
|
|
(5,216)
|
|
(1,301)
|
|
(920)
|
|
(967)
|
|
(242)
|
|
(90)
|
|
(464)
|
|
(116)
|
|
(9,288)
|
|
(6,647)
|
|
(1,659)
|
Other operating
(expense) income, net |
|
(1,055)
|
|
(3,827)
|
|
(954)
|
|
(15)
|
|
(7)
|
|
(2)
|
|
(6)
|
|
- |
|
- |
|
(1,076)
|
|
(3,834)
|
|
(956)
|
Total
operating expenses |
|
(149,334)
|
|
(142,448)
|
|
(35,574)
|
|
(12,361)
|
|
(12,879)
|
|
(3,216)
|
|
(4,482)
|
|
(5,580)
|
|
(1,394)
|
|
(166,177)
|
|
(160,907)
|
|
(40,184)
|
|
Financial
income |
|
8,691
|
|
6,775
|
|
1,692
|
|
102
|
|
197
|
|
49
|
|
15
|
|
- |
|
- |
|
8,808
|
|
6,972
|
|
1,741
|
Financial
expenses |
|
(24,954)
|
|
(18,766)
|
|
(4,687)
|
|
(2,178)
|
|
(3,233)
|
|
(807)
|
|
(20)
|
|
(123)
|
|
(31)
|
|
(27,152)
|
|
(22,122)
|
|
(5,525)
|
Monetary position
gain (loss), net |
|
- |
|
- |
|
- |
|
- |
|
3,364
|
|
840
|
|
- |
|
- |
|
- |
|
- |
|
3,364
|
|
840
|
Loss before
income tax |
|
(32,266)
|
|
(122,946)
|
|
(30,703)
|
|
(6,741)
|
|
(7,263)
|
|
(1,813)
|
|
(4,487)
|
|
(5,703)
|
|
(1,425)
|
|
(43,494)
|
|
(135,912)
|
|
(33,941)
|
|
Income tax
expense |
|
- |
|
- |
|
- |
|
- |
|
(676)
|
|
(169)
|
|
- |
|
- |
|
- |
|
- |
|
(676)
|
|
(169)
|
Net
loss |
R$
|
(32,266)
|
R$ |
(122,946) |
US$ |
(30,703)
|
R$
|
(6,741)
|
R$
|
(7,939) |
US$ |
(1,982)
|
R$
|
(4,487)
|
R$
|
(5,703)
|
US$ |
(1,425)
|
R$
|
(43,494)
|
R$
|
(136,588)
|
US$ |
(34,110)
|
18
NETSHOES (CAYMAN) LIMITED AND
SUBSIDIARIES
Notes
to the unaudited condensed consolidated financial
statements
For
the nine months ended
September 30,
2018
(In thousands of reais and
dollars, unless otherwise stated)
The Company
has aggregated its products and services into groups of similar
products and provided the supplemental disclosure of net sales
below. The Company evaluates whether additional disclosure is
appropriate when a product or service category begins to approach a
significant level of net sales.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended
in September 30, |
|
Three months ended
in September 30, |
|
|
2017
|
|
2018
|
|
2018
|
|
2017
|
|
2018
|
|
2018
|
|
|
BRL
|
|
BRL
|
|
USD
|
|
BRL
|
|
BRL
|
|
USD
|
Sports
(1)
|
R$
|
1,068,353
|
R$
|
993,863
|
US$
|
248,224
|
R$
|
359,175
|
R$
|
329,928
|
US$
|
82,402
|
Fashion
(1)
|
|
172,516
|
|
208,562
|
|
52,090
|
|
62,487
|
|
72,467
|
|
18,099
|
Marketplace
|
|
22,030
|
|
38,943
|
|
9,726
|
|
9,760
|
|
15,414
|
|
3,850
|
Total
net sales |
R$
|
1,262,899
|
R$
|
1,241,368
|
US$
|
310,040
|
R$
|
431,422
|
R$
|
417,809
|
US$
|
104,351
|
|
|
(1)
Freight services
were allocated to the product revenues that they are related
to. |
Property and equipment and intangible assets by
geography are as follows:
|
|
|
|
|
|
|
|
|
December 31,
2017 |
|
September 30,
2018 |
|
|
BRL
|
|
BRL
|
|
USD
|
Property and
equipment, net |
|
|
|
|
|
|
Brazil
|
R$
|
69,350
|
R$
|
80,135
|
US$
|
20,014
|
Argentina
|
|
2,574
|
|
3,067
|
|
766
|
Mexico (*)
|
|
1,115
|
|
- |
|
- |
Total property and
equipment, net |
R$
|
73,039
|
R$
|
83,202
|
US$
|
20,780
|
Intangible assets,
net |
|
|
|
|
|
|
Brazil
|
R$
|
95,684
|
R$
|
127,896
|
US$
|
31,943
|
Argentina
|
|
11
|
|
34
|
|
8 |
Mexico (*)
|
|
41
|
|
- |
|
- |
Cayman
|
|
20,103
|
|
11,081
|
|
2,768
|
Total intangible
assets, net |
|
115,839
|
|
139,011
|
|
34,719
|
Total
|
R$
|
188,878
|
R$
|
222,213
|
US$
|
55,499
|
|
(*) Transfered to
Non-current assets held for sale (see note 26) |
5.
Earnings (Loss) Per Share
(“EPS”)
The Company computes basic loss per share by
dividing net loss, from continuing operations and from discontinued
operations, attributable to the owners of the Parent by the
weighted average number of common shares outstanding for the
period. Diluted loss per share reflects the potential dilution of
share options that could be exercised or converted into common
shares, and is computed by dividing net loss, from continuing
operations and from discontinued operations, attributable to the
owner of the Parent by the weighted average number of common shares
outstanding plus the potentially dilutive effect of share
options.
Earnings per share data for both periods
presented has been calculated giving effect to the stock split of
1.0 for 3.0 which occurred immediately prior to the completion of
the Initial Public Offering on April 18, 2017 (see note
1.2).
The following table sets forth the computation of
the Company’s basic and diluted loss, from continuing operations
and discontinued operations, per share attributable to the owners
of the Parent for the nine and three months ended September 30,
2017 and 2018:
19
NETSHOES (CAYMAN) LIMITED AND
SUBSIDIARIES
Notes
to the unaudited condensed consolidated financial
statements
For
the nine months ended
September 30,
2018
(In thousands of reais and
dollars, unless otherwise stated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended
in September 30, |
|
Three months ended
in September 30, |
|
|
2017
|
|
2018
|
|
2018
|
|
2017
|
|
2018
|
|
2018
|
|
|
BRL
|
|
BRL
|
|
USD
|
|
BRL
|
|
BRL
|
|
USD
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the period attributable to the owners of the Parent
|
|
|
|
|
|
|
|
|
|
|
|
|
from continuing
operations |
R$
|
(108,398)
|
R$
|
(230,715)
|
US$
|
(57,623)
|
R$
|
(43,381)
|
R$
|
(136,413)
|
US$
|
(34,070)
|
Net
loss for the period attributable to the owners of the Parent
|
|
|
|
|
|
|
|
|
|
|
|
|
from discontinued
operations |
|
(11,814)
|
|
(10,375)
|
|
(2,591)
|
|
(4,259)
|
|
(3,981)
|
|
(994)
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
number of outstanding shares of common stock |
|
25,972,020
|
|
31,055,588
|
|
31,055,588
|
|
25,972,020
|
|
31,055,588
|
|
31,055,588
|
|
Loss
per share attributable to the owners of the Parent
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and
diluted |
R$
|
(4.63)
|
R$
|
(7.76)
|
US$
|
(1.94)
|
R$
|
(1.83)
|
R$
|
(4.52)
|
US$
|
(1.13)
|
Basic
and diluted from continuing operations |
|
(4.18)
|
|
(7.43)
|
|
(1.86)
|
|
(1.67)
|
|
(4.39)
|
|
(1.10)
|
Basic and diluted
from discontinued operations |
|
(0.45)
|
|
(0.33)
|
|
(0.08)
|
|
(0.16)
|
|
(0.13)
|
|
(0.03)
|
|
(1)
When the Company reports net
loss, from continuing operations and from discontinued operations,
attributable to the owners of the Parent, the
diluted loss per common share is equal to the basic losses per
common share due to the anti-dilutive effect of the
outstanding share options and convertible
notes.
|
|
|
6.
Net Sales
Details of net sales for the nine and three
months ended September 30, 2017 and 2018 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
months ended in September 30, |
|
Three months
ended in September 30, |
|
|
2017
|
|
2018
|
|
2018
|
|
2017
|
|
2018
|
|
2018
|
|
|
BRL
|
|
BRL
|
|
USD
|
|
BRL
|
|
BRL
|
|
USD
|
|
Product sales -
B2C |
R$
|
1,176,390
|
R$
|
1,155,797
|
US$
|
288,668
|
R$
|
405,455
|
R$
|
389,853
|
US$
|
97,368
|
Product sales -
B2B |
|
26,740
|
|
7,837
|
|
1,957
|
|
1,780
|
|
471
|
|
118
|
Other revenues -
Freight related services |
37,728
|
|
37,155
|
|
9,280
|
|
14,416
|
|
11,556
|
|
2,886
|
Other revenues -
Marketplace |
|
22,030
|
|
38,943
|
|
9,726
|
|
9,760
|
|
15,414
|
|
3,850
|
Other revenues -
Ncard |
|
11
|
|
1,636
|
|
409
|
|
11
|
|
515
|
|
129
|
Total net
sales |
R$
|
1,262,899
|
R$
|
1,241,368
|
US$
|
310,040
|
R$
|
431,422
|
R$
|
417,809
|
US$
|
104,351
|
The Company has established distribution centers
in the Brazilian states of Pernambuco and Minas Gerais, where it
has been granted tax incentives by local government which reduce
the amount of sales taxes paid.
As a result of such tax incentives, sales to
purchasers outside of the State of Pernambuco originated from our
distribution center located in the city of Recife (State of
Pernambuco, Brazil), enjoyed Pernambuco State ICMS tax rates of a
range from 0.5% to 1.0% during the nine and three months ended
September 30, 2017 and 2018, depending on the type of product
offered. Also, sales to purchasers outside of the State of Minas
Gerais originated from our distribution center located in the city
of Extrema (State of Minas Gerais, Brazil) enjoyed a Minas Gerais
State ICMS tax rate of 1.0% during the nine and three months ended
September 30, 2017 and 2018.
The incentive also determines that the Company is
not allowed to take any credit for taxes paid on the purchase of
products subsequently sold outside of those states such that these
amounts become non-recoverable taxes and increase the Cost of
Sales. Note 8 (a) of these financial statements presents the impact
on cost of sales.
For the nine and three months ended September 30,
2017 and 2018, the total amounts of tax incentives recorded in net
sales are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months
ended in September 30, |
|
Three months
ended in September 30, |
|
|
2017
|
|
2018
|
|
2018
|
|
2017
|
|
2018
|
|
2018
|
|
|
BRL
|
|
BRL
|
|
USD
|
|
BRL
|
|
BRL
|
|
USD
|
|
State of
Pernambuco |
R$
|
46,804
|
R$
|
32,650
|
US$
|
8,155
|
R$
|
14,544
|
R$
|
10,643
|
US$
|
2,658
|
State of Minas
Gerais |
|
100,998
|
|
90,742
|
|
22,663
|
|
36,940
|
|
28,627
|
|
7,150
|
Total tax incentives
- Net sale |
R$
|
147,802
|
R$
|
123,392
|
US$
|
30,818
|
R$
|
51,484
|
R$
|
39,270
|
US$
|
9,808
|
7.
Deferred Revenue
Deferred revenue from exclusive use of the
Company’s customer database is recognized as Other operating
(expense) income, net in the consolidated statements of profit or
loss using the straight-line method, over the period of the
contract (10 years). In the nine months ended September 30,
2017 and 2018 the amount of R$1,125 and R$1,125
20
NETSHOES (CAYMAN) LIMITED AND
SUBSIDIARIES
Notes
to the unaudited condensed consolidated financial
statements
For
the nine months ended
September 30,
2018
(In thousands of reais and
dollars, unless otherwise stated)
(US$281), respectively, and in the three months
ended September 30, 2017 and 2018 the amount of R$375 and R$375
(US$94), respectively, were recorded in Other operating
income.
Deferred revenue from credit card activation is
recognized as Other revenues – NCard within Net sales (see note 6),
in the consolidated statements of profit or loss, when the credit
cards are activated with the bank by the Company’s
customers.
8.
Expenses
(a)
Costs of Sales
The following is the breakdown of cost of sales
for the nine and three months ended September 30, 2017 and 2018,
respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months
ended in September 30, |
|
Three
months ended in September 30, |
|
|
2017
|
|
2018
|
|
2018
|
|
2017
|
|
2018
|
|
2018
|
|
|
BRL
|
|
BRL
|
|
USD
|
|
BRL
|
|
BRL
|
|
USD
|
|
Cost of product
sales |
R$
|
736,791
|
R$
|
830,813
|
US$
|
207,501
|
R$
|
251,815
|
R$
|
326,695
|
US$
|
81,594
|
Shipping costs
|
|
101,415
|
|
104,289
|
|
26,047
|
|
34,871
|
|
36,051
|
|
9,004
|
Others
|
|
5,607
|
|
20,491
|
|
5,118
|
|
3,709
|
|
18,282
|
|
4,566
|
Total cost of
sales |
R$
|
843,813
|
R$
|
955,593
|
US$
|
238,666
|
R$
|
290,395
|
R$
|
381,028
|
US$
|
95,164
|
Cost of product sales include the non-recoverable
ICMS taxes resulting from the tax incentives disclosed in note 6
granted by the States of Minas Gerais and Pernambuco. For the nine
and three months ended September 30, 2017 and 2018, the total
amounts of non-recoverable ICMS are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months
ended in September 30, |
|
Three
months ended in September 30, |
|
|
2017
|
|
2018
|
|
2018
|
|
2017
|
|
2018
|
|
2018
|
|
|
BRL
|
|
BRL
|
|
USD
|
|
BRL
|
|
BRL
|
|
USD
|
|
State of
Pernambuco |
R$
|
17,584
|
R$
|
17,112
|
US$
|
4,274
|
R$
|
6,959
|
R$
|
8,092
|
US$
|
2,021
|
State of Minas
Gerais |
|
53,593
|
|
52,955
|
|
13,226
|
|
21,038
|
|
16,321
|
|
4,076
|
Non-recoverable
ICMS |
R$
|
71,177
|
R$
|
70,067
|
US$
|
17,500
|
R$
|
27,997
|
R$
|
24,413
|
US$
|
6,097
|
The impact of tax incentives net of
non-recoverable ICMS for the nine months ended September 30, 2017
and 2018 is R$76,625 and R$53,325 (US$13,318), respectively, and
for the three months ended September 30, 2017 and 2018 is R$23,489
and R$14,857 (US$3,711), respectively.
During the first quarter of 2017, the Company
reviewed and changed ICMS tax positions taken on past transactions
and recorded ICMS tax credits amounting to R$10,118 (US$2,527), as
a reduction of the cost of product sales.
(b)
Selling and Marketing
Expenses
The following is the breakdown of selling and
marketing expenses for the nine and three months ended September
30, 2017 and 2018, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months
ended in September 30, |
|
Three months
ended in September 30, |
|
|
2017
|
|
2018
|
|
2018
|
|
2017
|
|
2018
|
|
2018
|
|
|
BRL
|
|
BRL
|
|
USD
|
|
BRL
|
|
BRL
|
|
USD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and
employees' benefits |
R$ |
100,902
|
R$ |
102,249
|
US$
|
25,537
|
R$ |
34,212
|
R$
|
33,374
|
US$
|
8,335
|
Marketing
expenses |
|
134,881
|
|
140,913
|
|
35,194
|
|
48,916
|
|
49,741
|
|
12,422
|
Operating
lease |
|
14,202
|
|
14,666
|
|
3,663
|
|
4,852
|
|
4,425
|
|
1,105
|
Credit card
fees |
|
24,642
|
|
24,317
|
|
6,073
|
|
8,419
|
|
8,590
|
|
2,145
|
Information
technology services |
|
1,031
|
|
827
|
|
207
|
|
316
|
|
235
|
|
59
|
Amortization and
depreciation |
|
3,118
|
|
5,244
|
|
1,310
|
|
1,131
|
|
1,791
|
|
448
|
Consulting
|
|
698
|
|
355
|
|
89
|
|
147
|
|
206
|
|
51
|
Allowance for
doubtful accounts |
|
21,643
|
|
7,350
|
|
1,836
|
|
15,381
|
|
3,652
|
|
912
|
Sales commissions and
royalties |
|
10,569
|
|
12,528
|
|
3,129
|
|
4,370
|
|
3,811
|
|
952
|
Facilities
expenses |
|
9,363
|
|
8,246
|
|
2,059
|
|
2,887
|
|
2,392
|
|
597
|
Others
|
|
23,323
|
|
11,224
|
|
2,803
|
|
7,948
|
|
3,772
|
|
944
|
Total selling and
marketing expenses |
R$ |
344,372
|
R$ |
327,919
|
US$
|
81,900
|
R$
|
128,579
|
R$
|
111,989
|
US$
|
27,970
|
21
NETSHOES (CAYMAN) LIMITED AND
SUBSIDIARIES
Notes
to the unaudited condensed consolidated financial
statements
For
the nine months ended
September 30,
2018
(In thousands of reais and
dollars, unless otherwise stated)
(c)
General and Administrative
Expenses
The following is the breakdown of general and
administrative expenses for the nine and three months ended
September 30, 2017 and 2018, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months
ended in September 30, |
|
Three months
ended in September 30, |
|
|
2017
|
|
2018
|
|
2018
|
|
2017
|
|
2018
|
|
2018
|
|
|
BRL
|
|
BRL
|
|
USD
|
|
BRL
|
|
BRL
|
|
USD
|
|
Salaries and
employees' benefits |
R$
|
33,691
|
R$
|
50,944
|
US$
|
12,724
|
R$
|
14,437
|
R$
|
18,029
|
US$
|
4,503
|
Operating
lease |
|
6,194
|
|
6,454
|
|
1,612
|
|
2,063
|
|
2,089
|
|
522
|
Information
technology services |
|
27,573
|
|
20,289
|
|
5,067
|
|
8,805
|
|
5,444
|
|
1,360
|
Amortization and
depreciation |
|
19,606
|
|
40,389
|
|
10,087
|
|
6,089
|
|
9,849
|
|
2,460
|
Consulting
|
|
8,815
|
|
12,032
|
|
3,005
|
|
2,837
|
|
6,116
|
|
1,528
|
Facilities
expenses |
|
2,680
|
|
2,459
|
|
614
|
|
956
|
|
682
|
|
170
|
Others
|
|
7,888
|
|
5,953
|
|
1,487
|
|
1,311
|
|
2,875
|
|
715
|
Total general and
administrative expenses |
R$
|
106,447
|
R$
|
138,520
|
US$
|
34,596
|
R$
|
36,521
|
R$
|
45,084
|
US$
|
11,258
|
(d)
Financial Income (Expenses)
The following is the breakdown of financial
income and expenses of the Company for the nine and three months
ended September 30, 2017 and 2018, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months
ended in September 30, |
|
Three months
ended in September 30, |
|
|
2017
|
|
2018
|
|
2018
|
|
2017
|
|
2018
|
|
2018
|
|
|
BRL
|
|
BRL
|
|
USD
|
|
BRL
|
|
BRL
|
|
USD
|
|
Interest
income |
R$
|
20,381
|
R$
|
7,303
|
US$
|
1,824
|
R$ |
7,095
|
R$ |
2,222
|
US$ |
555
|
Foreign exchange
gain |
|
1,217
|
|
5,300
|
|
1,324
|
|
834
|
|
4,701
|
|
1,174
|
Imputed interest on
installment sales |
|
1,258
|
|
1,278
|
|
319
|
|
878
|
|
47
|
|
12
|
Derivative financial
instruments gain |
|
764
|
|
- |
|
- |
|
- |
|
- |
|
- |
Other
|
|
8 |
|
49
|
|
13
|
|
1 |
|
2 |
|
- |
Total financial
income |
R$
|
23,628
|
R$
|
13,930
|
US$
|
3,480
|
R$ |
8,808
|
R$ |
6,972
|
US$ |
1,741
|
|
|
|
Nine months
ended in September 30, |
|
Three months
ended in September 30, |
|
|
2017
|
|
2018
|
|
2018
|
|
2017
|
|
2018
|
|
2018
|
|
|
BRL
|
|
BRL
|
|
USD
|
|
BRL
|
|
BRL
|
|
USD
|
|
Interest
expense |
R$ |
50,829
|
R$ |
24,542
|
US$
|
6,130
|
R$ |
13,873
|
R$ |
8,333
|
US |
2,081
|
Imputed interest on
credit purchases |
|
36,231
|
|
20,519
|
|
5,125
|
|
10,592
|
|
5,140
|
|
1,284
|
Bank charges
|
|
4,828
|
|
3,346
|
|
836
|
|
794
|
|
1,042
|
|
260
|
Foreign exchange
loss |
|
749
|
|
8,926
|
|
2,229
|
|
(1,072)
|
|
4,362
|
|
1,089
|
Debt issuance
costs |
|
4,139
|
|
1,863
|
|
465
|
|
2,677
|
|
741
|
|
185
|
Other
|
|
739
|
|
4,537
|
|
1,133
|
|
289
|
|
2,504
|
|
626
|
Total financial
expense |
R$ |
97,515
|
R$ |
63,733
|
US$
|
15,918
|
R$ |
27,153
|
R$ |
22,122
|
US$ |
5,525
|
9.
Cash and Cash Equivalents
|
|
|
|
|
|
|
|
|
December 31,
2017 |
|
September 30,
2018 |
|
|
BRL
|
|
BRL
|
|
USD
|
Cash and bank
balances |
R$
|
17,801
|
R$
|
6,975
|
US$
|
1,742
|
Cash
equivalents |
|
378,161
|
|
43,594
|
|
10,888
|
Total cash and cash
equivalents |
R$
|
395,962
|
R$
|
50,569
|
US$
|
12,630
|
Cash equivalents are investments in Bank Deposit
Certificates (“CDB”) and investment funds, issued by Brazilian
financial institutions, with original maturities of 90 days or less
that accrue at an average interest rate of 86.71% of CDI (Interbank
Deposit Certificate rate).
22
NETSHOES (CAYMAN) LIMITED AND
SUBSIDIARIES
Notes
to the unaudited condensed consolidated financial
statements
For
the nine months ended
September 30,
2018
(In thousands of reais and
dollars, unless otherwise stated)
10.
Trade Accounts Receivable,
Net
|
|
|
|
|
|
|
|
|
December 31,
2017 |
|
September 30,
2018 |
|
|
BRL
|
|
BRL
|
|
USD
|
Trade accounts
receivables |
R$
|
134,039
|
R$
|
131,855
|
US$
|
32,931
|
Allowance for
doubtful accounts |
|
(20,871)
|
|
(17,494)
|
|
(4,369)
|
Total trade accounts
receivables, net |
R$
|
113,168
|
R$
|
114,361
|
US$
|
28,562
|
The
changes in the allowance for doubtful accounts receivable for the
nine months period ended September 30, 2017 and 2018 are as
follows:
|
|
|
|
|
|
|
|
|
September 30,
2018 |
|
|
2017
|
|
2018
|
|
2018
|
|
|
BRL
|
|
BRL
|
|
USD
|
Balance at January
1 |
R$
|
(1,722)
|
R$
|
(20,871)
|
US$
|
(5,213)
|
Additions
|
|
(21,643)
|
|
(7,505)
|
|
(1,874)
|
Adjustment from
adoption of IFRS 9 (a) |
|
- |
|
(2,322)
|
|
(580)
|
Adjustment from
adoption of IFRS 9 (b) |
|
- |
|
(701)
|
|
(175)
|
Transfered to
Non-current assets held for sale |
|
- |
|
155
|
|
39
|
Write-offs
|
|
7 |
|
13,750
|
|
3,434
|
Balance at September
30 |
R$
|
(23,358)
|
R$
|
(17,494)
|
US$
|
(4,369)
|
a)
Impact of adopting IFRS9 on opening balance,
related to reclassification from accounts receivables (“gross”) to
allowance for doubtful accounts at January 1, 2018 as disclosed in
Note 2.5.
b)
Impact of adopting IFRS9 on opening balance,
recognized in Accumulated losses as at January 1, 2018 as disclosed
in Note 2.5.
Information about the Company’s exposure to
credit and other market risks is included in Note 20.
11.
Inventories, Net
|
|
|
|
|
|
|
|
|
December 31,
2017 |
|
September 30,
2018 |
|
|
BRL
|
|
BRL
|
|
USD
|
Finished goods for
resale |
R$
|
466,486
|
R$
|
383,232
|
US$
|
95,715
|
Right to recover
returned goods |
|
- |
|
1,643
|
|
410
|
Allowance for slow
moving and others |
|
(9,854)
|
|
(53,199)
|
|
(13,287)
|
Total inventories,
net |
R$
|
456,632
|
R$
|
331,676
|
US$
|
82,838
|
Due to obsolescence, damaged and slow-moving
items, the Company recognized losses on the related inventories to
their net realizable value, which resulted in (reversal)/loss of
R$454 and a R$44,220 (US$11,044) for the nine months ended
September 30, 2017 and 2018, respectively, and (reversal)/loss of
R$876 and a loss of R$35,790 (US$8,939) for the three months ended
September 30, 2017 and 2018, respectively.
During the third quarter of 2018, the Company
terminated a commercial relationship with the supplier of B2B
operation. As consequence the Company adjusted margins of nutrition
supplements products, in order to accelerate sales through its B2C
channel. The Company recognized additional allowances for net
realizable value of R$44,367 (USD11,080) and a write-off of
R$14,914 (USD3,725), which reduces its inventories acquired from
that former supplier to a net realizable value of R$ 33,154
(USD8,280) at September 30, 2018.
23
NETSHOES (CAYMAN) LIMITED AND
SUBSIDIARIES
Notes
to the unaudited condensed consolidated financial
statements
For
the nine months ended
September 30,
2018
(In thousands of reais and
dollars, unless otherwise stated)
12.
Recoverable Taxes
|
|
|
|
|
|
|
|
|
December 31,
2017 |
|
September
30, 2018 |
|
|
BRL
|
|
BRL
|
|
USD
|
VAT Taxes Brazil
(ICMS) |
R$
|
107,965
|
R$
|
103,761
|
US$
|
25,915
|
|