Indicate by check mark whether the registrant files or will file annual reports under cover of Form
20-F
or Form
40-F:
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
|
|
VAT Taxes International
|
|
16,261
|
|
5,711
|
|
1,426
|
|
Taxes other than income tax (PIS and COFINS)
|
|
14,829
|
|
5,259
|
|
1,313
|
|
Withholding income taxes
|
|
4,467
|
|
5,013
|
|
1,252
|
|
Others
|
|
7,290
|
|
3,276
|
|
819
|
|
Total recoverable taxes
|
R$
|
150,812
|
R$
|
123,020
|
US$
|
30,725
|
|
Current
|
|
80,047
|
|
84,423
|
|
21,085
|
|
Non-Current
|
|
70,765
|
|
38,597
|
|
9,640
|
13.
Property and Equipment, Net
The gross amount of property and equipment was R$122,382 at December 31, 2017 and increased to R$140,722 (US$35,146) at September 30, 2018. During the nine months ended September 30, 2017 and 2018, the Company acquired property and equipment with a cost of R$9,085 and R$26,400 (US$6,594), respectively. During the nine months ended September 30, 2017 and 2018, the Company disposed of property and equipment with a carrying amount of R$192 and R$319 (US$80), respectively.
During the three months ended September 30, 2017 and 2018 a loss (income) on disposal of R$(2) and R$0 has occurred, respectively, and during the nine months ended September 30, 2017 and 2018 R$168 and R$307 (US$77), respectively, which was included in Other operating expense in the condensed consolidated statements of profit or loss.
14.
Intangible assets, Net
The gross amount of intangible assets was R$188,254 at December 31, 2017 and increased to R$231,203 (US$57,744) at September 30, 2018. During the nine months ended September 30, 2017 and 2018, the Company acquired and developed intangible assets with a cost of R$34,157 and R$57,140 (US$14,271), respectively. The increase is primarily in connection with software acquired and software in development related to website platform and license software.
15.
Trade Accounts Payable
|
|
|
|
|
|
|
|
|
|
|
December 31, 201
7
|
|
September 30, 2018
|
|
|
|
BRL
|
|
BRL
|
|
USD
|
|
Trade accounts payable - domestic
|
R$
|
339,634
|
R$
|
258,041
|
US$
|
64,447
|
|
Trade accounts payable - foreign
|
|
26,201
|
|
14,578
|
|
3,641
|
|
Total trade accounts payable
|
R$
|
365,835
|
R$
|
272,619
|
US$
|
68,088
|
Information about the Company’s exposure to currency and liquidity risks is included in Note 20.
16.
Reverse factoring
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
September 30, 2018
|
|
|
|
BRL
|
|
BRL
|
|
USD
|
|
Trade accounts payable
|
R$
|
126,755
|
R$
|
49,219
|
US$
|
12,293
|
|
Other liabilities
|
|
22,173
|
|
29,080
|
|
7,263
|
|
Total reverse factoring
|
R$
|
148,928
|
R$
|
78,299
|
US$
|
19,556
|
The Company has entered into supply chain finance transactions with financial institutions in order to allow suppliers to advance receivables related to the Company’s purchases of inventories and services.
24
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)
17.
Accrued Expenses
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
September 30, 2018
|
|
|
|
BRL
|
|
BRL
|
|
USD
|
|
Selling and marketing services
|
R$
|
76,228
|
R$
|
63,008
|
US$
|
15,737
|
|
Provision for sales with a right of return
|
|
-
|
|
2,428
|
|
606
|
|
Freight
|
|
11,087
|
|
6,176
|
|
1,542
|
|
Gift card
|
|
7,191
|
|
6,591
|
|
1,646
|
|
Information technology
|
|
3,460
|
|
2,944
|
|
735
|
|
Acquisition of fixed assets and intangible
|
|
1,710
|
|
2,734
|
|
683
|
|
Rentals
|
|
2,987
|
|
2,582
|
|
645
|
|
Services
|
|
4,047
|
|
5,677
|
|
1,418
|
|
Employees benefits
|
|
3,566
|
|
2,569
|
|
642
|
|
Other
|
|
10,090
|
|
1,914
|
|
478
|
|
Total accrued expenses
|
R$
|
120,366
|
R$
|
96,623
|
US$
|
24,132
|
18.
Debt
During the nine months ended September 30, 2017 and 2018, the Company repaid (principal, including discontinued operations) R$140,033 and R$98,776 (US$24,670) of secured borrowings, nonconvertible loans and bank loans, respectively. The weighted average interest rate for debt was 11.63 and 9.54% for the nine months ended September 30, 2017 and 2018, respectively.
The secured borrowings and debentures contain certain affirmative financial covenants for which the Company was in compliance as of September 30, 2018.
The carrying value of the Company’s outstanding debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
September 30, 2018
|
|
|
|
BRL
|
|
BRL
|
|
USD
|
|
Secured borrowings
|
R$
|
201,769
|
R$
|
164,077
|
US$
|
40,980
|
|
Nonconvertible notes - Debentures
|
|
84,202
|
|
64,161
|
|
16,024
|
|
Total long-term debt
|
|
285,971
|
|
228,238
|
|
57,004
|
|
Current portion of long-term debt
|
|
106,577
|
|
11,955
|
|
2,986
|
|
Long-term debt, net of current portion
|
R$
|
179,394
|
R$
|
216,283
|
US$
|
54,018
|
In July 2018, the subsidiary NS2.Com Internet S.A. renegotiated a secured borrowing facility agreement with Banco do Brasil S.A. for an aggregate principal amount of R$96.2 million (USD24.03 million). Principal and interest on the loan are payable on a monthly basis, and the maturity, after renegotiation, changed from August 2020 to July 2021, with a 12-month grace-period (only principal), and the Company paid a debt renegotiation fee over the renegotiated value.
In July 2018, the subsidiary NS2.Com Internet S.A. renegotiated a secured borrowing facility agreement with Banco Bradesco S.A. for an aggregate principal amount of R$46.1 million (USD11.51 million). Principal and interest on the loan are payable on a monthly basis, and the maturity, after renegotiation, changed from September 2020 to July 2021, with a 12-month grace-period (only principal), and the Company paid a debt renegotiation fee over the renegotiated value.
In August 2018, the subsidiary NS2.Com Internet S.A. renegotiated nonconvertible notes (Debentures) agreement for an aggregate principal amount of R$66.1 million (USD16.51 million). Principal and interest on the loan are payable on a quarterly basis, and the maturity, after renegotiation, changed from March 2020 to September 2021, grace-period (only principal), and the Company paid a debt renegotiation fee over the renegotiated value.
The fees paid amount to R$1,682 (USD 420) and will be deferred for the remaining term of these contracts.
For the three renegotiations explained above, the Company determined that the terms have not been substantially modified.
25
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)
19.
Derivative Financial Instruments
The Company recognized a derivative gain, on derivative instruments not designated as hedge accounting, of R$764 and R$0 (US$0) as financial income for the nine months ended September 30, 2017 and 2018, respectively. During the three months ended September 30, 2017 and 2018, the results of derivative, not designated as hedge accounting is R$0 (US$0).
The objective of these derivatives was to manage foreign exchange risks.
20.
Financial Instruments - Fair Value and Risk Management
(a)
Accounting classifications and fair values
The following table shows the carrying amounts of financial assets and financial liabilities. It does not include fair value information for financial assets and financial liabilities if the carrying amount is a reasonable approximation of fair value.
|
|
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2017
|
|
|
|
|
Carrying amount
|
|
|
|
|
|
|
Financial assets
|
Financial liabilities
|
|
|
|
|
|
|
|
measured at
|
measured at
|
|
|
Financial assets or liabilities, not measured at fair value
|
Note
|
|
Fair value
|
|
amortized cost
|
amortized cost
|
Total
|
|
|
|
|
BRL
|
|
BRL
|
BRL
|
BRL
|
|
Cash and cash equivalents
|
9
|
|
|
-
|
395,962
|
-
|
395,962
|
|
Restricted cash, current and non-current portion
|
|
|
|
|
34,445
|
-
|
34,445
|
|
Trade accounts receivables
|
10
|
|
|
-
|
113,168
|
-
|
113,168
|
|
Due from related parties
|
23
|
|
|
-
|
12
|
-
|
12
|
|
Judicial deposits
|
24
|
|
|
-
|
106,914
|
-
|
106,914
|
|
Other assets, current and non-current portion
|
|
|
|
|
22,246
|
-
|
22,246
|
|
Trade accounts payable
|
15
|
|
|
-
|
-
|
(365,835)
|
(365,835)
|
|
Reverse factoring
|
16
|
|
|
-
|
-
|
(148,928)
|
(148,928)
|
|
Long-term debt
|
18
|
|
|
|
-
|
(285,971)
|
(285,971)
|
|
Accrued expenses
|
17
|
|
|
|
-
|
(120,366)
|
(120,366)
|
|
Other current liabilities
|
|
|
|
-
|
-
|
(31,044)
|
(31,044)
|
|
Total
|
|
R$
|
|
-
|
672,747
|
(952,144)
|
(279,397)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at September 30, 2018
|
|
|
|
|
Carrying amount
|
|
|
|
|
|
|
Financial assets
|
Financial liabilities
|
|
|
|
|
|
|
|
|
measured at
|
measured at
|
|
|
|
Financial assets or liabilities, not measured at fair value
|
Note
|
|
Fair value
|
|
amortized cost
|
amortized cost
|
Total
|
Total
|
|
|
|
|
BRL
|
|
BRL
|
BRL
|
BRL
|
USD
|
|
Cash and cash equivalents
|
9
|
R$
|
|
-
|
50,569
|
-
|
50,569 US$
|
12,630
|
|
Restricted cash, current and non-current portion
|
|
|
|
-
|
33,460
|
-
|
33,460
|
8,357
|
|
Trade accounts receivables
|
10
|
|
|
-
|
114,361
|
-
|
114,361
|
28,562
|
|
Due from related parties
|
23
|
|
|
-
|
7
|
-
|
7
|
2
|
|
Judicial deposits
|
24
|
|
|
-
|
115,078
|
-
|
115,078
|
28,741
|
|
Other assets, current and non-current portion
|
|
|
|
-
|
12,690
|
-
|
12,690
|
3,169
|
|
Trade accounts payable
|
15
|
|
|
-
|
-
|
(272,619)
|
(272,619)
|
(68,088)
|
|
Reverse factoring
|
16
|
|
|
-
|
-
|
(78,299)
|
(78,299)
|
(19,556)
|
|
Long-term debt
|
18
|
|
|
-
|
-
|
(228,238)
|
(228,238)
|
(57,004)
|
|
Accrued expenses
|
17
|
|
|
-
|
-
|
(96,623)
|
(96,623)
|
(24,132)
|
|
Other current liabilities
|
|
|
|
-
|
-
|
(30,560)
|
(30,560)
|
(7,632)
|
|
Total
|
|
R$
|
|
-
|
326,165
|
(706,339)
|
(380,174)
US$
|
(94,951)
|
(b)
Measurement of fair values
The Company’s financial instruments, including cash and cash equivalents, trade accounts receivable, trade accounts payable, reverse factoring, long-term debt and other liabilities, are carried at cost, which approximates fair value due to the short-term maturity of these instruments. The fair value estimate of debentures is based on the current rates offered to the Company for debentures of the same remaining maturities, which is categorized as a Level 2 measurement in the fair value hierarchy. As a substantial portion of the debentures has been contracted at floating rates of interest, which are reset at short intervals, the carrying value of the debentures at December 31, 2017 and September 30, 2018 closely approximated the fair value at December 31, 2017 and September 30, 2018, respectively.
26
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)
During the year ended December 31, 2017 and nine month ended September 30, 2018, there were no transfers between Level 1, 2 and 3 of fair value measurements.
|
(c)
Financial risk management
In the regular course of its business, the Company is exposed to market risks mainly related to the fluctuation of interest rates, exchange rate variation, credit risk on credit sales and liquidity risk.
The Company adopts certain instruments to minimize its exposure to such risks, based on monitoring, under the supervision of the Company´s executive officers, which in turn is under the oversight of the Company´s board of directors.
|
|
|
The Company has exposure to the following risks arising from financial instruments:
|
|
|
·
credit risk (see (i));
·
liquidity risk (see (ii)); and
·
market risk (see (iii)).
|
i.
Credit risk
Credit risk is the Company´s risk of financial loss if a customer or counterparty to a financial instrument fails to meet its contractual obligations. This risk principally comes from the outstanding receivables due by customers, derivatives and cash and cash equivalents.
Trade Accounts Receivable
The Company’s exposure to credit risk is influenced mainly by the individual characteristics of each customer.
The Company regularly monitors trade accounts receivable and considers the risk of not collecting from customers as limited because of the intrinsic nature of the payments of credit card operations methods, especially for Business-to-consumer (B2C) sales.
For Business-to-business (B2B) customers, the credit risk exposure and the carrying values reflect management's assessment of the associated maximum exposure to such credit risk. The maximum exposure to credit risk is equal to the carrying value of the financial assets. The objective of managing counterparty credit risk is to prevent losses in financial assets. The Company assesses the credit quality of the counterparties, taking into account their financial position, past experience and other factors (e.g. credit rating).
No customer had balances representing more than 10% of the Company´s consolidated trade accounts receivable as of December 31, 2017 and September 30, 2018, respectively.
At December 31, 2017 and September 30, 2018, respectively, the maximum exposure to credit risk for trade accounts receivable by type of counterparty was as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
September 30, 2018
|
|
|
|
BRL
|
|
BRL
|
|
USD
|
|
Credit card operations
|
R$
|
87,983
|
R$
|
100,254
|
US$
|
25,038
|
|
B2B customers and others
|
|
46,056
|
|
31,601
|
|
7,893
|
|
Total trade accounts receivable
|
R$
|
134,039
|
R$
|
131,855
|
US$
|
32,931
|
|
Allowance for doubtful accounts
|
|
(20,871)
|
|
(17,494)
|
|
(4,369)
|
|
Trade accounts receivable, net
|
R$
|
113,168
|
R$
|
114,361
|
US$
|
28,562
|
At December 31, 2017 and September 30, 2018, respectively, the aging of trade accounts receivable was as follows:
27
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)
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
Allowance for
|
|
|
|
|
|
|
|
doubtful
|
|
Trade accounts
|
|
|
|
Gross amount
|
|
accounts
|
|
receivable, net
|
|
|
|
BRL
|
|
BRL
|
|
BRL
|
|
Not past due
|
R$
|
109,135
|
R$
|
(8,199)
|
R$
|
100,936
|
|
Past due 1-30 days
|
|
5,449
|
|
(2,134)
|
|
3,315
|
|
Past due 31-90 days
|
|
5,304
|
|
(3,686)
|
|
1,618
|
|
Past due 91-120 days
|
|
3,551
|
|
(1,845)
|
|
1,706
|
|
Past due 120-180 days
|
|
4,278
|
|
(3,108)
|
|
1,170
|
|
Past due over 180 days
|
|
6,322
|
|
(1,899)
|
|
4,423
|
|
Total
|
R$
|
134,039
|
R$
|
(20,871)
|
R$
|
113,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
|
|
|
|
Allowance for
|
|
|
|
|
|
|
|
|
|
doubtful
|
|
Trade accounts
|
|
Trade accounts
|
|
|
|
Gross amount
|
|
accounts
|
|
receivable, net
|
|
receivable, net
|
|
|
|
BRL
|
|
BRL
|
|
BRL
|
|
USD
|
|
Not past due
|
R$
|
108,275
|
R$
|
(2,355)
|
R$
|
105,920
|
US$
|
26,454
|
|
Past due 1-30 days
|
|
3,191
|
|
(285)
|
|
2,906
|
|
726
|
|
Past due 31-90 days
|
|
5,192
|
|
(775)
|
|
4,417
|
|
1,103
|
|
Past due 91-120 days
|
|
1,744
|
|
(1,236)
|
|
508
|
|
127
|
|
Past due 120-180 days
|
|
4,490
|
|
(3,976)
|
|
514
|
|
128
|
|
Past due over 180 days
|
|
8,963
|
|
(8,867)
|
|
96
|
|
24
|
|
Total
|
R$
|
131,855
|
R$
|
(17,494)
|
R$
|
114,361
|
US$
|
28,562
|
Cash and cash equivalents
The Company held cash and cash equivalents of R$395,962 and R$50,569 (US$12,630) at December 31, 2017 and September 30, 2018, respectively. Cash and cash equivalents are held with bank and financial institution counterparties, which are rated BB-, based on Standard & Poor’s credit rating for local currency credit supplier.
Other assets, non-current
During the third quarter of 2018, the Company terminated a commercial relationship with Midway Labs USA LLC supplier of supplements and vitamins, which the Company has filed lawsuit against them. a The Company has at September 30, 2018 receivables of R$ 27,390 (USD 6,841), R$24,381 as at December 31, 2017, with that former partner. The Company performed analysis over the recoverability of such amounts under IFRS 09. The Company reclassified such amount from Other assets to Other assets, non-current, and recognized an expected loss (against Cost of sales and Selling and marketing expenses) of R$ 18,152 (USD 4,534)
The Company measured expected credit losses of that financial instrument in a way that reflects:
(a) an unbiased and probability-weighted amount that is determined by evaluating a range of possible outcomes;
(b) the time value of money; and
(c) reasonable and supportable information that is available.
ii.
Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Company’s approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when they are due,
under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation.
28
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 following are the remaining contractual maturities of financial liabilities as of September 30, 2018. The amounts are gross and undiscounted and include contractual interest payments. Estimated interest payments were calculated based on the interest rate indexes of the Company’s floating interest rate indebtedness, in effect as of September 30, 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at September 30, 2018
|
|
|
|
Carrying
|
|
Carrying
|
|
|
|
|
|
|
|
|
|
|
|
amount
|
|
amount
|
|
Contractuall cash flows
|
|
|
|
|
|
|
|
Within 1
|
|
1 - 3
|
|
3 - 5
|
|
More than 5
|
|
|
|
|
|
|
|
year
|
|
years
|
|
years
|
|
years
|
|
|
|
BRL
|
|
USD
|
|
BRL
|
|
BRL
|
|
BRL
|
|
BRL
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
R$
|
228,238
|
US$
|
57,004
|
R$
|
42,320 R$
|
|
221,583 R$
|
|
7,120
|
R$
|
6,868
|
|
Trade accounts payable
|
|
272,619
|
|
68,088
|
|
290,171
|
|
-
|
|
-
|
|
-
|
|
Reverse factoring
|
|
78,299
|
|
19,556
|
|
79,397
|
|
-
|
|
-
|
|
-
|
|
Taxes and contributions payable
|
|
24,486
|
|
6,115
|
|
24,549
|
|
-
|
|
-
|
|
-
|
|
Accrued expenses
|
|
96,623
|
|
24,132
|
|
102,182
|
|
-
|
|
-
|
|
-
|
|
Other current liabilities
|
|
30,560
|
|
7,632
|
|
31,963
|
|
-
|
|
-
|
|
-
|
|
Provision for labor, civil and tax risks
|
|
16,822
|
|
4,201
|
|
-
|
|
-
|
|
-
|
|
16,822
|
|
Other non-current liabilities
|
|
629
|
|
157
|
|
-
|
|
-
|
|
-
|
|
676
|
|
|
R$
|
748,276
|
US$
|
186,885
|
R$
|
570,582
R$
|
|
221,583
R$
|
|
7,120
|
R$
|
24,366
|
The following are the Company’s unrestricted cash and cash equivalents and unused portion of the credit facility at December 31, 2017 and September 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
D
ecember 31, 20
17
|
|
September 30, 2018
|
|
|
|
BRL
|
|
BRL
|
|
USD
|
|
Unrestricted cash and cash equivalents
|
R$
|
395,962
|
R$
|
50,569
|
US$
|
12,630
|
|
Undrawn credit facility
|
|
347
|
|
237
|
|
59
|
|
Available liquidity
|
R$
|
396,309
|
R$
|
50,806
|
US$
|
12,689
|
In recent years, the Company has financed its operations in large part with cash flows from operating activities, bank financing and cash proceeds from issuances of common shares. The Company has taken a number of measures designed to improve liquidity, including: (i) reducing the number of monthly credit card installments from customers, (ii) renegotiating payment terms with suppliers, (iii) entering into sales of receivables with financial institutions, whereby the Company transfers its rights to receive cash flows from a portion of trade accounts receivable, limited to the amount given as securities for borrowing and debentures, (iv) entering into reverse factoring of trade accounts payable with financial institutions, whereby they commit to pay suppliers at an accelerated rate in exchange for a trade discount, (v) selling of Mexico operations that allows the Company focus on core operations in Brazil and Argentina, (vi) decision to discontinue the B2B operations that generated lower than expected results and (vii) the extension in the second semester of 2018 of the maturity of the Company’s working capital agreements to 2021 and establishing a 12-month grace period on principal amortization. These measures are enabling the Company to secure liquidity to maintain its operations.
iii. Market risk
(a)
Foreign currency exchange risk
The Company’s net sales are denominated in the functional currencies of the countries in which our operational subsidiaries are located. Accordingly, its receivables are generally not subject to foreign currency exchange risks.
In the ordinary course of business, the Company’s subsidiaries purchase goods from vendors in both local functional currency and foreign currencies (mainly U.S. dollars).
29
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 summary of quantitative data about the Company’s exposure to currency risk as reported to management of the Company is as follows:
|
|
|
|
|
September 30, 2018
|
|
|
USD
|
|
Trade accounts payable
|
3,641
|
|
Net statement of financial position exposure
|
3,641
|
The following table indicates the changes in the Company’s income or (loss) before tax that would arise if foreign exchange rates to which the Company has exposure at the reporting date had changed by 10% at that date, assuming all other risk variables remained constant.
|
|
|
|
|
|
|
|
|
Profit or loss
|
|
As at September 30, 2018
|
|
Strenghthening
|
|
Weakening
|
|
|
|
BRL
|
|
BRL
|
|
Net exposure in USD
|
$
|
1,458
|
|
(1,458)
|
This sensitivity analysis assumes that the change in foreign exchange rates had been applied to re-measure those financial instruments held by the Company which expose it to foreign currency exchange risk at the reporting date. This analysis excludes differences that would result from the translation of the consolidated financial statements of foreign operations into the Company’s reporting currency, which is Brazilian Real. The sensitivity analysis above is conducted for monetary assets and liabilities denominated in foreign currencies other than functional currency as of September 30, 2018.
(b)
Interest rate risk
Interest rates are highly sensitive to many factors, including fiscal and monetary policies and domestic and international economic and political considerations, as well as other factors beyond the Company’s control. Interest rate risk is the exposure to loss resulting from changes in the level of interest rates and the spread between different interest rates. The Company’s debt has floating interest rates. As a result, the Company is exposed to changes in the level of interest rates and to changes in the relationship or spread between interest rates for its floating rate debt. The Company’s floating rate debt requires payments based on variable interest rate indexes such as CDI. Therefore, increases in interest rates may increase the Company’s loss before taxes by increasing its financial expense. If interest rates were to increase or decrease by 50 basis points, the Company´s financial expense on borrowings subject to variable interest rates would increase or decrease by R$924 (US$231) for the nine months ended September 30, 2018. This analysis assumes that all other variables, in particular foreign currency exchange rate, remain constant.
To reduce the exposure of variable interest rate (CDI), the Company invests its excess cash and cash equivalents in short-term investments. If interest rates were to increase or decrease by 50 basis points, the Company’s financial income on short-term investments subject to variable interest rates would increase or decrease by R$168 (US$42) for the nine months ended September 30, 2018.
(c)
Inflation risk
Brazil and other countries in Latin America, in general, have historically experienced high rates of inflation. Inflationary pressures persist, and actions taken in an effort to curb inflation, coupled with public speculation about possible future governmental actions, have in the past contributed to economic uncertainty in Brazil and other Latin American countries and heightened volatility in the Latin American securities market.
The inflation rate in Argentina has exceeded projections over the past quarters. As a result, the consumer price index (CPI) currently being used to monitor inflation in Argentina indicate three-year cumulative inflation rates that have
increased significantly, also related to the depreciation of the Argentinian Peso. The details of recognition of the effects of inflations in Argentina operations are disclosed in note 25.
30
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 continues to monitor the impact of inflation in order to minimize its effects through pricing strategies and productivity improvements.
21.
Share-based payments
The number of share options has been disclosed giving effect to the stock split of 1.0 for 3.0 occurred immediately prior to the completion of Initial Public Offering on April 18, 2017 (see note 1.2).
Under the Share Plan (the “Plan”) established by the Company, its Board of Directors (the “Board”) may grant up to 1,296,470 share options to key employees, directors and independent contractors. On August 7, 2018, the Board approved the increase of the size of the Company’s share option pool from 956,470 to 1,296,470 of its common shares. The options under the Plan were granted at the discretion of the Board; as such, the Board has full authority to establish terms and conditions of any award consistent with the provisions of the Plan and to waive any such terms and conditions at any time. The Plan was set up for the following purposes: (i) attracting, retaining and motivating its beneficiaries; (ii) adding value to quote-holders; and (iii) encouraging the view of entrepreneurs of the business.
(a)
Arrangements previously classified as cash-settled
Each share option granted under the Plan contains a vesting period, during which the participant cannot exercise the option, and are generally subject to the following vesting schedule: over a four-year period, 25% of the total common shares subject to the award will vest at the first anniversary of the vesting commencement date and the remaining common shares subject to the award will vest in equal monthly installments over the 36 months of continuous service thereafter.
The Company held a right of first refusal to repurchase the shares exercised according to the Plan. The Company only had this right of first refusal until it has become public and, after that date, holders of the common shares can trade them in the market.
In addition, the Company had a non-contractual practice of (i) providing its employees whose employment relationship was terminated (whether voluntarily or involuntarily) with a repurchase proposal to buy back its common shares held by such persons at a discount of their fair value and (ii) to provide holders of vested awards that terminate their relationship with the Company (whether voluntarily or involuntarily) with a bonus equivalent to the exercise price of their exercisable option. For 2018 granted options the Company extinguished these non-contractual practices.
Due to the characteristics of the transaction, these awards had been regarded as a cash-settled plan and the liability was remeasured at each reporting date. The liability previously recognized in these consolidated financial statements took into account the fair value of Company´s shares, expected forfeitures and the discount the Company has obtained when repurchasing such shares.
Following the completion of Initial Public Offering, the condition of the right of first refusal by the Company of repurchasing the shares exercised is no longer applicable, as prescribed in the Plan.
Therefore, upon completion of Initial Public Offering, the Company reclassified the share-based plan from cash-settled to equity-settled, and the impact was a reduction in Non-current liabilities and an increase in Equity (Capital Reserves) of R$13,706.
For purposes of the statement of cash flows, share based payment transactions are fully reported under operating activities.
The Company did not repurchase shares during the nine months period ended September 30, 2017 and 2018.
As the Company will provide holders of vested awards with a bonus equivalent to the exercise price of the options if they decide to exercise the options, the fair value of the awards was estimated based on the fair value of the Company´s shares. As mentioned above, for 2018 granted options the Company extinguished this practice.
31
NETSHOES (CAYMAN) LIMITED AND SUBSIDIARIES
Notes to the unaudited condensed consolidated financial statements
For the
nine
months ended
September
30, 2018
(In thousands of reais and dollars, unless otherwise stated)
A summary of option activities under the Plan and changes during the period ended September 30, 2017 is set forth in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
Weighted Average
|
|
Remaining
|
|
Cash-settled arrangements
|
Number of Units
|
|
Exercise Price Per
|
|
Contractual Term
|
|
|
|
|
Unit
|
|
(in years)
|
|
|
|
|
USD
|
|
|
|
Oustanding at December 31, 2016
|
346,767
|
US$
|
16.76
|
|
1.3 year
|
|
Granted
|
-
|
|
-
|
|
|
|
Exercised
|
-
|
|
-
|
|
|
|
Forfeited/Cancelled
|
(73,710)
|
|
43.31
|
|
|
|
Transfer from cash-settled
|
|
|
|
|
|
|
arragements on April 12nd
|
(273,057)
|
|
(9.59)
|
|
|
|
Oustanding at September 30, 2017
|
-
|
US$
|
-
|
|
0 year
|
As mentioned before, the Company reclassified the share-based plan from cash-settled to equity-settled after conclusion of the IPO.
(b)
Equity-settled arrangements
During the nine months period ended September 30, 2017 and 2018, the Company granted 127,500 and 733,000 share options, respectively, under the Plan with a non-market performance condition.
The share option expense has been recognized since the grant date and was fully recognized by October 2017. The Company only had a right of first refusal under the Plan until April 18, 2017 (IPO date), after that date, holders of the common shares can trade them in the market. Therefore, this arrangement has been regarded as equity-settled.
As the Company provides holders of vested awards with a bonus equivalent to the exercise price of the options, the fair value of the awards was estimated based on the fair value of the Company´s shares.
A summary of option activities under the Plan and changes during the period ended September 30, 2017 and 2018 is set forth in the following table:
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
Weighted Average
|
|
Equity-settled arrangements
|
Number of Units
|
|
Exercise Price Per
|
|
Remaining
|
|
|
|
|
Unit
|
|
Contractual Term
|
|
|
|
|
|
|
(in years)
|
|
|
|
|
USD
|
|
|
|
Oustanding at December 31, 2016
|
23,250
|
|
8.10
|
|
0.8 year
|
|
Granted
|
127,500
|
|
8.10
|
|
|
|
Exercised
|
(22,434)
|
|
8.10
|
|
|
|
Forfeited/Cancelled
|
(24,692)
|
|
8.10
|
|
|
|
Transfer from cash-settled
|
|
|
|
|
|
|
arragements on April 12nd
|
273,057
|
|
9.59
|
|
|
|
Oustanding at September 30, 2017
|
376,681
|
US$
|
9.18
|
|
1.07 year
|
|
|
|
Oustanding at December 31, 2017
|
369,620
|
|
9.20
|
|
0.7 year
|
|
Granted
|
733,000
|
|
4.69
|
|
|
|
Exercised
|
-
|
|
-
|
|
|
|
Forfeited/Cancelled
|
(178,789)
|
|
8.10
|
|
|
|
Oustanding at September 30, 2018
|
923,831
|
US$
|
5.83
|
|
2.51 years
|
|
|
|
Vested at September 30, 2017
|
166,413
|
|
|
|
|
|
Vested at September 30, 2018
|
294,498
|
|
|
|
|
32
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 of September 30, 2018, the Company had remaining unrecognized compensation cost of R$10,515 (US$2,626), which is expected to be recognized over a weighted average period of 2.5 years.
The Company recognized compensation expenses (income) for both cash and equity-settled arrangements of R$(13,552) and R$4,906 (US$1,225) for the nine months ended September 30, 2017 and 2018, respectively.
The Company recognized compensation expense (income) for cash and equity-settled arrangements of R$83 and R$(29) (US$7) for the three months ended September 30, 2017 and 2018, respectively.
Upon completion of the initial public offering in April 2017, when the Company reclassified the share-based plan from cash-settled to equity-settled, the fair value per common share underlying the Company share options was re-measured to US$18.00 per common share, which was the price of the common shares on the date of its initial public offering. Subsequent to the initial public offering, the cost of equity-settled transactions is determined by the fair value at the grant date (and the Company uses the market price of the publicly traded common shares as an indicator of fair value).
The weighted average fair value of granted options were estimated at US$18.00 and US$6.38 per share at December 31, 2017 and September 30, 2018, respectively.
22.
Income taxes
Income tax expenses for the periods presented are based on the best estimate of the weighted average annual income tax rate expected for the full years.
The Company’s effective tax rate for the nine and three months ended September 30, 2018 was 0% (nine and three months ended September 30, 2017: 0%).
23.
Related party transactions
The consolidated subsidiaries of the Company as of December 31, 2017 and September 30, 2018 are listed below:
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage Ownership and Voting Interest
|
|
|
|
Country of
|
|
|
|
|
|
Company
|
|
Incorporation
|
|
December 31, 2017
|
|
September 30, 2018
|
|
|
|
Netshoes Holding, LLC
|
|
United States of America
|
|
100.00%
|
|
100.00%
|
|
NS2 Com Internet S.A.
|
|
Brazil
|
|
100.00%
|
|
100.00%
|
|
NS3 Internet S.A.
|
|
Argentina
|
|
98.17%
|
|
98.17%
|
|
NS4 Com Internet S.A. (*)
|
|
Mexico
|
|
100.00%
|
|
100.00%
|
|
NS4 Servicios de México S.A. C.V. (*)
|
|
Mexico
|
|
100.00%
|
|
100.00%
|
|
NS5 Participações Ltda.
|
|
Brazil
|
|
99.99%
|
|
99.99%
|
|
NS6 Serviços Esportivos Ltda.
|
|
Brazil
|
|
100.00%
|
|
100.00%
|
|
|
|
(*) Transfered to Non-current held for sale (see note 26).
|
|
|
|
|
|
|
The Company has the following related party transactions:
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
September 30, 2018
|
|
|
|
BRL
|
|
BRL
|
|
USD
|
|
Balances from non-controlling owners
|
|
|
|
|
|
|
|
Receivables
|
R$
|
12
|
R$
|
7
|
US$
|
2
|
33
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
|
|
USD Total
|
|
|
|
BRL
|
|
BRL
|
|
USD
|
|
BRL
|
|
BRL
|
|
USD
|
|
Income statement amounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key management personnel compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and short-term benefits
|
R$
|
10,129
|
R$
|
6,985
|
US$
|
1,745
|
R$
|
1,878
|
R$
|
3,189
|
US$
|
796
|
|
Share-based payments
|
|
959
|
|
4,722
|
|
1,179
|
|
566
|
|
4,496
|
|
1,123
|
|
Total
|
R$
|
11,088
|
R$
|
11,707
|
US$
|
2,924
|
R$
|
2,444
|
R$
|
7,685
|
US$
|
1,919
|
|
|
|
Financial expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible notes interest
|
|
2,069
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
24.
Commitments and contingencies
(a)
Litigation
The Company is a party to legal proceedings and claims which arise during the ordinary course of business. It reviews its legal proceedings and claims, conducts regulatory reviews and inspections, and reviews other legal matters on an ongoing basis and follows appropriate accounting guidance when making accrual and disclosure decisions. The Company establishes provisions for those contingencies when the incurrence of a loss is probable and can be reasonably estimated, and the Company discloses the amount provided for and the amount of a reasonably possible loss in excess of the amount provided for, if such disclosure is necessary for its financial statements not to be misleading. The Company does not record a provision when the likelihood of loss being incurred is probable, but the amount cannot be reasonably estimated, or when the loss is believed to be only reasonably possible or remote. The Company´s assessment of whether a loss is reasonably possible, or probable is based on its assessment and consultation with legal counsel regarding the ultimate outcome of the matter following all appeals. After taking into consideration legal counsel’s evaluation of such actions, management is of the opinion that their outcome will not have a significant effect on the Company’s consolidated financial statements, other than the amount already provided for.
Breakdown of and changes in provisions whose unfavorable outcome is probable are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Labor
|
|
Civil
|
|
Tax
|
|
Total
|
|
Total
|
|
|
|
BRL
|
|
BRL
|
|
BRL
|
|
BRL
|
|
USD
|
|
As of December 31, 2017
|
R$
|
823
|
R$
|
1,023
|
R$
|
10,677
|
R$
|
12,523
|
U$
|
3,128
|
|
Additions, net of reversal
|
|
(12)
|
|
3,751
|
|
3,637
|
|
7,376
|
|
1,842
|
|
Payments
|
|
(133)
|
|
(2,944)
|
|
-
|
|
(3,077)
|
|
(769)
|
|
As of September 30, 2018
|
R$
|
678
|
R$
|
1,830
|
R$
|
14,314
|
R$
|
16,822
|
U$
|
4,201
|
Labor claims presented above are related to different matters, such as overtime and salary equalization. Labor lawsuits are not individually significant.
Civil claims are related to the Company´s ordinary course of operations, and generally relate to consumer claims. None of these lawsuits are individually significant.
The Company has a tax claim related to challenging Brazilian tax authorities’ interpretation that retailers of imported goods are subject to paying additional sales taxes on manufactured products (“IPI”) and PIS and COFINS on financial income.
In September 2017, the Company received a tax assessment amounting to R$89,013 (US$23,085) from the Brazilian tax authorities, asserting that the Company had unduly considered PIS and COFINS tax credits related to marketing and information technology services, effectively reducing the PIS and COFINS payable calculation basis. The Company´s assessment, supported by external lawyers, is that the risk of loss of this case is possible and therefore, no provision has been recognized in relation to this claim.
34
NETSHOES (CAYMAN) LIMITED AND SUBSIDIARIES
Notes to the unaudited condensed consolidated financial statements
For the
nine
months ended
September
30, 2018
(In thousands of reais and dollars, unless otherwise stated)
(b)
Judicial deposits
In some situations, in connection with a legal requirement or presentation of guarantees, judicial deposits are made to secure the continuance of the claims under discussion. These judicial deposits may be required for claims whose likelihood of loss was analyzed by the Company, grounded on the opinion of its legal advisors as a probable, possible or remote loss.
Until the case is settled, the judicial deposits amounts accrues interest at Brazil’s official short-term interest rate (SELIC).
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
September 30, 2018
|
|
|
|
|
BRL
|
|
BRL
|
|
USD
|
|
|
VAT taxes Brazil (PIS and COFINS)
1
|
R$
|
94,909 R$
|
|
99,883 US$
|
|
24,946
|
|
|
PIS and COFINS on financial income
1
|
|
2,558
|
|
3,139
|
|
784
|
|
|
Tax on manufactured products (IPI)
2
|
|
7,489
|
|
10,705
|
|
2,674
|
|
|
Other
|
|
1,958
|
|
1,351
|
|
337
|
|
|
Total judicial deposits
|
|
106,914
|
|
115,078
|
|
28,741
|
|
|
|
(1)
|
Contribution tax on gross revenue for social integration program (PIS) and social security financing (COFINS):
|
The Company is involved in disputes related to:
i)
Exclusion of VAT tax (ICMS) from PIS and COFINS calculation basis, which started in November 2014. On March 15, 2017, the Brazilian Federal Supreme Court decided for the unconstitutionality of considering the inclusion of the VAT tax (ICMS) from PIS and COFINS calculations basis. Based on this decision, the Company’s lawyers estimated chance of losing of this legal dispute remote as of December 31, 2017 and September 30, 2018. Since August of 2017, the Brazilian tax authority has ceased the obligation to make the judicial deposit. The Company is currently waiting the court to define which procedures are necessary to refund the judicial deposit.
ii)
A constitutional challenge on the imposition of PIS and COFINS on financial income.
(2)
Tax on manufactured products (IPI)
The Company is involved in disputes related to the levy of taxes on manufactured products (IPI) over products it sells and obtained a preliminary injunction allowing it not to pay IPI on imports and sales of goods since it is a trading company.
(c)
Class action
The Company disclosed, in own investors website (via Form 6-K), on August 9, 2018 that two purported shareholder class actions under U.S. Securities Act of 1933 were filed before the Supreme Court of the State of New York, claiming that the Company, among other defendants, made alleged material misstatements or omissions in the registration statement and prospectus issued in connection with Company’s April 2017 initial public offering. The Company is reviewing the complaints and intend to vigorously defend against these and any other related lawsuits.
In this regard, there is no present obligation (legal or constructive) that the Company has in relation to the class action. The Company management believes that the claims do not create a present obligation for the Company in accordance with IAS 37 — Provisions, Contingent Liabilities, and Contingent Assets. As the dispute is still in its findings and class certification stages, and considering that the outcome of the dispute is subject to considerable uncertainty, it is not possible, at this stage, for the Company to reasonably estimate the potential loss or range of loss, if any, that may result from the final resolution of these legal proceedings. Therefore, no provision is recognized in the financial statements. The final results of these lawsuits may have an adverse effect in relation to the consolidated financial statements, on the statements of profit or loss, and on the cash flows in the future.
35
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)
25.
Hyperinflation
In accordance with IFRS, Argentina must be considered a hyperinflationary economy in 2018. As a result, the Company has applied the IAS 29 accounting requirements to its Argentinean subsidiary with effect from January 1, 2018. The main implications of this are as follows:
-
2017 figures should not be restated;
-
Adjustment of the historical costs of non-monetary assets and liabilities and the various items of equity of the Argentinean company from their date of acquisition or inclusion in the consolidated statement of financial position to the end of the period to reflect the changes in purchase power of the currency caused by inflation;
-
The cumulative impact of the accounting restatement to adjust for the effects of hyperinflationary for years prior to 2018 is reflected in the translation differences (equity) at the beginning of the 2018 year.
-
Adjustment of the income statement to reflect the financial loss caused by the impact of inflation in the year on net monetary assets (loss of purchasing power);
-
The various components of the income statement and statement of cash flows have been adjusted for the inflation index since their generation, with a balancing entry in financial results and a reconciling item in the statement of cash flows, respectively;
-
All components of the financial statements of the Argentinean subsidiary have been translated at the closing exchange rate to the Company functional currency.
The main effects on the consolidated financial statement for 2018 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Until December
|
|
Nine -month period ended in
|
|
Three -month period
|
|
|
|
2017
|
|
September 2018
|
|
ended in September 2018
|
|
|
|
BRL
|
|
BRL
|
|
USD
|
|
BRL
|
|
USD
|
|
|
|
Gross profit
|
R$
|
-
|
R$
|
(4,584)
|
US$
|
(1,145)
|
R$
|
(1,102)
|
US$
|
(275)
|
|
Net loss
|
|
-
|
|
(4,326)
|
|
(1,080)
|
|
(1,849)
|
|
(462)
|
|
Non-monetary assets
|
|
3,165
|
|
2,509
|
|
627
|
|
2,509
|
|
627
|
|
Accumulated losses
|
|
2,302
|
|
(2,024)
|
|
(506)
|
|
(2,024)
|
|
(506)
|
The index used to reflect current values is derived from a combination of the wholesale price index (IPIM) and the consumer price index (IPC) from its publication in
Instituto Nacional de Estatisticas y Censos
(INDEC – Argentinean government agency). The movement in the price index for the nine-month period ended as of September 30, 2018 is 29.10%.
26.
Non-current assets and liabilities held for sale
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. As consequence of these adjustments, the final consideration has changed, and the Company received an amount of USD 1,693.
As part of initial agreement, the Company granted to the former subsidiaries a loan in the amount of USD 2,462, that loan has its maturity date on the first anniversary of the closing date.
The Company signed a Transitional Services Agreement (“TSA”) with Sierra to outsource certain services relating to IT and marketing services. The IT services shall be provided to the former subsidiary for a term of eighteen months and Marketing services shall be provided for a term of twelve months, both as from the Closing Date. The Company has a cost estimate of USD 360 to provide these services to the former subsidiary, such amount will be deferred and will be recognized as expense reduction when the service is rendered.
The Company has an estimated gain of approximately USD 500 which will be recognized in the income statement from discontinued operations in the fourth quarter of 2018.
The Company may receive additional earn-out of the transaction up to USD 1,500 in circumstances where net sales exceed certain levels during each of the twelve months fiscal periods after the completion of the transaction, during three years.
As at September 30, 2018 the non-current assets and liabilities held for sale comprises:
36
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)
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2018
|
|
2018
|
|
|
|
BRL
|
|
USD
|
|
Current assets:
|
|
|
|
Note 2.2
|
|
Cash and cash equivalents
|
R$
|
1,515
|
US$
|
378
|
|
Trade accounts receivables, net
|
|
2,052
|
|
513
|
|
Inventories, net
|
|
20,540
|
|
5,130
|
|
Recoverable taxes
|
|
6,664
|
|
1,664
|
|
Prepaid expenses and other current assets
|
|
610
|
|
152
|
|
Total current assets
|
|
31,381
|
|
7,837
|
|
|
|
Non-current assets:
|
|
|
|
|
|
Property and equipment, net
|
|
1,170
|
|
292
|
|
Intangible assets, net
|
|
39
|
|
10
|
|
Total non-current assets
|
|
1,209
|
|
302
|
|
|
|
Total assets
|
R$
|
32,590
|
US$
|
8,139
|
|
|
|
Current liabilities:
|
|
|
|
|
|
Trade accounts payable
|
R$
|
13,887
|
US$
|
3,468
|
|
Current portion of long-term debt
|
|
9,746
|
|
2,434
|
|
Taxes and contributions payable
|
|
63
|
|
16
|
|
Accrued expenses
|
|
5,558
|
|
1,388
|
|
Other current liabilities
|
|
1,399
|
|
349
|
|
Total current liabilities
|
|
30,653
|
|
7,655
|
|
|
|
Non-current liabilities:
|
|
|
|
|
|
Other non-current liabilities
|
|
47
|
|
12
|
|
Total non-current liabilities
|
|
47
|
|
12
|
|
|
|
Total liabilities
|
R$
|
30,700
|
US$
|
7,667
|
|
|
|
Net non-current assets held for sale
|
R$
|
1,890
|
US$
|
472
|
The statements of profit or loss and cash flow from discontinued operations of the Mexico Operation for the period ended September 30, 2018 are presented below and include the restatement of the corresponding period ended September 30, 2017, as mentioned in Note 2.2.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended in September 30,
|
|
For the three months ended in September 30,
|
|
|
Note
|
|
2017
|
|
2018
|
|
2018
|
|
2017
|
|
2018
|
|
2018
|
|
|
|
|
BRL
|
|
BRL
|
|
USD
|
|
BRL
|
|
BRL
|
|
USD
|
|
|
|
|
|
|
|
|
Note 2.2
|
|
|
|
|
|
Note 2.2
|
|
Net sales
|
6
|
R$
|
39,297
|
R$
|
43,310
|
|
10,817
|
R$
|
13,214
|
R$
|
14,678
|
US$
|
3,666
|
|
Cost of sales
|
8a
|
|
(32,565)
|
|
(34,511)
|
|
(8,619)
|
|
(11,028)
|
|
(11,779)
|
|
(2,941)
|
|
Gross profit
|
|
|
6,732
|
|
8,799
|
|
2,198
|
|
2,186
|
|
2,899
|
|
725
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing expenses
|
8b
|
|
(10,373)
|
|
(9,233)
|
|
(2,307)
|
|
(3,639)
|
|
(3,272)
|
|
(817)
|
|
General and administrative expenses
|
8c
|
|
(7,384)
|
|
(8,102)
|
|
(2,024)
|
|
(2,666)
|
|
(2,975)
|
|
(743)
|
|
Other operating expenses, net
|
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
Total operating expenses
|
|
|
(17,757)
|
|
(17,335)
|
|
(4,331)
|
|
(6,305)
|
|
(6,247)
|
|
(1,560)
|
|
Operating loss
|
|
|
(11,025)
|
|
(8,536)
|
|
(2,133)
|
|
(4,119)
|
|
(3,348)
|
|
(835)
|
|
Financial income
|
8d
|
|
946
|
|
905
|
|
228
|
|
572
|
|
340
|
|
85
|
|
Financial expenses
|
8d
|
|
(1,733)
|
|
(2,744)
|
|
(686)
|
|
(712)
|
|
(973)
|
|
(244)
|
|
Loss before income tax
|
|
|
(11,812)
|
|
(10,375)
|
|
(2,591)
|
|
(4,259)
|
|
(3,981)
|
|
(994)
|
|
Income tax expense
|
|
|
(2)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
Net loss from discontinued operations
|
|
R$
|
(11,814)
|
R$
|
(10,375)
|
|
(2,591)
|
R$
|
(4,259)
|
R$
|
(3,981)
|
US$
|
(994)
|
37
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)
|
|
|
|
|
|
|
|
|
NETSHOES (CAYMAN) LIMITED AND SUBSIDIARIES
|
|
Unaudited Condensed Consolidated Statements of Cash Flows
|
|
For the six months ended in June 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 operating activities:
|
|
|
|
|
|
Note 2.2
|
|
Net loss from discontinued operations
|
R$
|
(11,814)
|
R$
|
(10,375)
|
US$
|
(2,591)
|
|
Adjustments to reconcile net loss from discontinued operations to net cash provided by (used in) operating activities:
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
-
|
|
155
|
|
39
|
|
Depreciation and amortization
|
|
248
|
|
283
|
|
71
|
|
Loss on disposal of property and equipment, and intangible assets
|
18
|
|
13
|
|
3
|
|
Interest expense, net
|
|
1,619
|
|
2,097
|
|
523
|
|
Provision for inventory losses
|
|
366
|
|
644
|
|
161
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
(Increase) decrease in:
|
|
|
|
|
|
|
|
Trade accounts receivable
|
|
(18)
|
|
(710)
|
|
(177)
|
|
Inventories
|
|
(2,679)
|
|
3,439
|
|
859
|
|
Recoverable taxes
|
|
785
|
|
1,596
|
|
399
|
|
Other assets
|
|
342
|
|
1,355
|
|
338
|
|
Increase (decrease) in:
|
|
|
|
|
|
|
|
Trade accounts payable
|
|
4,784
|
|
(4,816)
|
|
(1,203)
|
|
Taxes and contributions payable
|
|
(64)
|
|
(209)
|
|
(52)
|
|
Accrued expenses
|
|
537
|
|
531
|
|
133
|
|
Intercompany
|
|
-
|
|
-
|
|
2
|
|
Other liabilities
|
|
(135)
|
|
(4,411)
|
|
(1,103)
|
|
Net cash provided from discontinued operations by (used in) operating activities
|
(6,011)
|
|
(10,408)
|
|
(2,598)
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
(127)
|
|
(59)
|
|
(15)
|
|
Purchase of intangible assets
|
|
(18)
|
|
-
|
|
-
|
|
Net cash provided from discontinued operations by (used in) investing activities
|
(145)
|
|
(59)
|
|
(15)
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
Proceeds from debt
|
|
22,754
|
|
25,944
|
|
6,480
|
|
Payments of debt
|
|
(22,351)
|
|
(20,240)
|
|
(5,055)
|
|
Payments of interest
|
|
(1,609)
|
|
(1,980)
|
|
(495)
|
|
Proceeds from issuance of common shares
|
|
10,297
|
|
7,913
|
|
1,976
|
|
Net cash provided from discontinued operation by (used in) financing activities
|
9,091
|
|
11,637
|
|
2,906
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
236
|
|
136
|
|
33
|
|
Change in cash and cash equivalents
|
3,171
|
|
1,306
|
|
326
|
|
|
|
Cash and cash equivalents, beginning of period
|
|
191
|
|
209
|
|
52
|
|
|
|
Cash and cash equivalents, end of period
|
|
3,362
|
|
1,515
|
|
378
|
|
|
R$
|
3,171
|
|
1,306
|
US$
|
326
|
|
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
|
**********
38
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereto duly authorized.
|
|
|
|
|
Netshoes (Cayman) Limited
|
|
|
|
|
By:
|
|
/s/ Marcio Kumruian
|
|
Name:
|
|
Marcio Kumruian
|
|
Title:
|
|
Chief Executive Officer
|
Date: November 13, 2018
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