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, 2023

 

Commission File Number: 333-

 

Zenvia Inc.

(Exact name of registrant as specified in its charter)

 

Avenida Paulista, 2300, 18th Floor, Suites 182 and 184

São Paulo, São Paulo, 01310-300

Brazil

(Address of 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 ____X____                                                         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 ____X____

 

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 ____X____

Zenvia Inc.

for the three and nine-months periods ended september 30, 2023

(In thousands of Reais)

		Three months ended September 30,			Nine months ended September 30,
	Note	2023	2022		2023	2022
Revenue	17	218,597	180,351		590,563	581,829
Cost of services	18	(147,499)	(106,374)		(369,380)	(382,380)
Gross profit		71,098	73,977		221,183	199,449
Operating expenses
Sales and marketing expenses	18	(29,252)	(34,389)		(81,501)	(90,579)
General and administrative expenses	18	(29,696)	(33,158)		(98,491)	(107,498)
Research and development expenses	18	(14,898)	(17,395)		(40,011)	(46,588)
Allowance for expected credit losses	18	(2,461)	(1,044)		(8,001)	(5,041)
Other income and expenses, net	18	(1,239)	(8,976)		(1,773)	(28,960)
Operating loss		(6,448)	(20,985)		(8,594)	(79,217)
Financial Income (Expenses)
Finance expenses	19	(19,885)	(24,169)		(55,734)	(55,647)
Finance income	19	8,520	6,956		15,132	28,506
Financial expenses, Net		(11,365)	(17,213)		(40,602)	(27,141)
Loss before taxes		(17,813)	(38,198)		(49,196)	(106,358)
Income Tax and Social Contribution
Deferred income tax and social contribution	20	7,323	10,793		23,943	26,678
Current income tax and social contribution	20	(1,013)	(399)		(4,019)	(1,122)
Total Income Tax and Social Contribution		6,310	10,394		19,924	25,556
Loss of the period		(11,503)	(27,804)		(29,272)	(80,802)
Loss attributable to:
Owners of the Company		(11,585)	(27,777)		(29,484)	(80,759)
Non-controlling interests		82	(27)		212	(43)
Loss per share (expressed in Reais per share)
Basic	21	(0.290)	(0.667)		(0.740)	(1.942)
Diluted	21	(0.290)	(0.667)		(0.740)	(1.942)
Other comprehensive income
Items that are or may be reclassified subsequently to profit or loss
Cumulative translation adjustments from operations in foreign currency		(175)	3,177		(2,549)	(17,687)
Derivative financial instruments		(986)	-		(986)	-
Gain from variation of equity interest in subsidiary		-	-		(306)	-
Total comprehensive loss for the period		(12,664)	(24,627)		(33,113)	(98,489)
Total comprehensive loss attributable to:
Owners of the Company		(12,746)	(24,600)		(33,325)	(98,446)
Non-controlling interests		82	(27)		212	(43)

See the accompanying notes to the interim condensed consolidated financial statements.

Zenvia Inc.

For the nine-months periods ended september 30, 2023 and 2022

(In thousands of Reais)

	Capital	Capital reserve	Foreign currency translation reserve	Retained earnings (loss)	Other comprehensive income	Attributable to owners of the Company	Non-controlling interests	Total equity
Balance at January 1, 2022	957,523	226,599	34,638	(15,558)	-	1,203,202	-	1,203,202
Loss for the period	-	-	-	(80,759)	-	(80,759)	(43)	(80,802)
Cumulative translation adjustments from operations in foreign currency	-	-	(17,687)	-	-	(17,687)	-	(17,687)
Issuance of shares	1	411	-	-	-	412	-	412
Share-based compensation	-	1,486	-	-	-	1,486	-	1,486
Issuance of shares related to business combinations	1	15,739	-	-	-	15,740	-	15,740
Acquisition of subsidiary with NCI	-	-	-	-	-	-	(91)	(91)
Balance at September 30, 2022	957,525	244,235	16,951	(96,317)	-	1,122,394	(134)	1,122,260
Balance at January 1, 2023	957,525	244,913	9,485	(258,587)	-	953,336	(96)	953,240
Loss for the period	-	-	-	(29,484)	-	(29,484)	212	(29,272)
Gain from Variation of equity interest in subsidiary	-	-	-	-	(306)	(306)	(23)	(329)
Cumulative translation adjustments from operations in foreign currency	-	-	(2,549)	-	-	(2,549)	-	(2,549)
Share-based compensation	-	1,633	-	-	-	1,633	-	1,633
Issuance of shares	-	1,215	-	-	-	1,215	-	1,215
Balance at September 30, 2023	957,525	247,761	6,936	(288,071)	(306)	923,845	93	923,938

See the accompanying notes to the interim condensed consolidated financial statements.

Zenvia Inc.

For the nine-months periods ended september 30, 2023 and 2022

(In thousands of Reais)

For the nine months ended September 30,
	2023	2022
Cash flow from operating activities
Loss for the period	(29,272)	(80,802)
Adjustments for:
Income tax and social contribution	(19,924)	(25,556)
Depreciation and amortization	63,623	54,296
Allowance for expected credit losses	8,001	5,450
Provisions for tax, labor and civil risks	3,260	1,884
Provision for bonus and profit sharing	12,145	10,775
Share-based compensation	2,497	2,866
Provision for earn-out and compensation	631	25,358
Interest from loans and borrowings	17,652	22,888
Interest on leases	300	421
Exchange variation loss (gain)	1,607	5,022
Loss for non-use of the advance payment	-	5,529
Loss on write-off of intangible assets	353	-
Loss on write-off of property, plant and equipment	323	167
Effect of hyperinflation	1,531	6,709
Changes in assets and liabilities
Trade and other receivables	(78,561)	10,869
Prepayments	1,540	9,610
Interest earning bank deposits	-	(826)
Other assets	(1,934)	(7,920)
Suppliers	163,706	68,926
Derivative financial instruments	986	-
Employee benefits	907	5,318
Other liabilities	19,796	(16,712)
Cash generated from operating activities	169,167	104,272
Interest paid on loans and leases	(16,490)	(22,734)
Income taxes paid	(4,044)	-
Net cash flow from operating activities	148,633	81,538
Cash flow from investing activities
Acquisition of property, plant and equipment	(2,488)	(10,291)
Redemption of interest earning bank deposits	8,160	-
Acquisition of Intangible assets	(38,742)	(30,995)
Acquisition of subsidiary, net of cash acquired	-	(300,075)
Net cash used in investing activities	(33,070)	(341,361)
Cash flow from financing activities
Proceeds from loans and borrowings	-	20,000
Payment of borrowings	(61,663)	(49,114)
Payment of lease liabilities	(1,406)	(2,458)
Payments in installments for acquisition of subsidiaries	(35,128)	(152,057)
Capital increase	-	1
Net cash used in financing activities	(98,197)	(183,628)
Exchange rate change on cash and cash equivalents	(1,102)	(17,687)
Net increase (decrease) in cash and cash equivalents	16,264	(461,138)
Cash and cash equivalents at January 1	100,243	582,231
Cash and cash equivalents at September 30	116,507	121,093

See the accompanying notes to the interim condensed consolidated financial statements.

Notes to the Consolidated Financial Statements
(In thousands of Reais)

1.	Operations

Zenvia Inc. (“Company” or “Zenvia”) was incorporated in November 2020, as a Cayman Islands exempted company with limited liability duly registered with the Registrar of Companies of the Cayman Islands. These consolidated financial statements comprise the Company and its subsidiaries (together referred to as “the Group”). The Group is involved in implementation of a multi-channel communication of a cloud-based platform that enables organizations to integrate several communication capabilities (including short message service, or SMS, WhatsApp, Voice, WebChat and Facebook Messenger) into their software applications and with a combination of the Group Service as a Software (SaaS) portfolio providing clients with unified end-to-end customer experience SaaS platform to digitally interact with their end-consumers in a personalized way.

 

As of September 30, 2023, the Company has negative consolidated working capital in the amount of R$353,536 (current assets of R$391,683 and current liabilities of R$745,219), mainly arising from a reduction in the Company’s cash position as a result of payments made during the years related to business acquisitions, as described in item (b) to (d) below.

 

Zenvia’s Management focused in 2022 to increase gross profit and to take into place cost-cutting initiatives, such as the review of its corporate structure, which reduced the Company’s current workforce by 9% and is in line with the acceleration of the integration of acquisitions. While these actions were instrumental for the company to deliver improved cash generation in the first nine months of 2023, management is committed to continue pursuing new operational efficiencies for the next 12 months. On top of the improvement in operations, management continues to seek alternatives to settle the Company’s short-term obligations, including, but not limited,  renegotiating current outstanding loans (as detailed in note 12) while optimizing working capital needs by renegotiating payment terms and anticipating future revenues. Therefore, as a result of the above referred initiatives, the Company believes that it will increase its cash from operations in the next twelve months, while at the same time, meeting its debt obligations as they come due. Considering the Company’s short-term financial contractual obligations and commitments as of September 30, 2023, the Company will continue to fund its operations with its operating cash flow and incrementally to its operations, the Company expects a cash outlay of R$208,729 for the next 12 months mainly for its existing short-term indebtedness as it becomes due, including interest, and payments due from acquisitions. In order to satisfy such obligations, Management expects that the continued expansion in profitability, as presented in the Company´s 2023 fiscal year guidance, will result in an increase in cash from operations. Therefore, the Company believes its working capital and projected cash flows from operations, alongside with potential loan renegotiations, will be sufficient for the Company’s requirements for the next twelve months. In addition to generating cash flow from operations, management has been evaluating and negotiating funding alternatives that include debt and equity, amongst others, to ensure, if necessary, new sources of financing that will enable the Company to meet its obligations. As a result of these factors, management continues to have a reasonable expectation that the Group will be able to continue operations in the foreseeable future.

a. Business combination – Movidesk Ltda. (“Movidesk”)

On May 2, 2022, Zenvia Brazil acquired 98.04% of shares of Movidesk Ltda., referred to as “Movidesk”, and with regards to the remaining 1.96% share capital, Zenvia Brazil had options to purchase such share capital through the payments of the applicable exercise price by Zenvia Brazil. Movidesk is a SaaS company that focuses on customer service solutions to define workflows, provide integration with communication channels, and monitor tickets through dashboards and reports, offering a fully-fledged end-to-end support platform.

 

Under the terms of the Movidesk original acquisition agreement, the total consideration transferred and then expected to be transferred by Zenvia Brazil were as follows: (1) R$301,258 paid in cash in May 2022 and; (2) Movidesk former controlling shareholders, and key executives have received 315,820 Zenvia’s Class A common shares equivalent to an amount of R$15,740 at the time of closing; and (3) an earn-out structure based payment on the fulfillment of gross margin targets until the third quarter of 2023, which fair value is R$159,706 to be paid in December 2023; and (4) R$8,411 to be paid on the exercise price of purchase options. Earn-outs outcomes consider the achievement of certain milestones that variate from -50% to + 50%, reaching between R$94,441 and R$360,376 respectively.

The goodwill arising from the acquisition has been recognized as follows:

	Movidesk
	May 2, 2022
Consideration transferred	485,115
Other net liabilities, including PPE and cash	(3,367)
Intangible assets –– Digital platform	229,705
Intangible assets –– Customer portfolio	12,594
Total net assets acquired at fair value	238,932
Net assets attributable to NCI	(67)
Goodwill	246,250

Notes to the Consolidated Financial Statements
(In thousands of Reais)

 

The goodwill of R$246,250 comprises the skills and technical talent of the workforce and the value of future economic benefits arising from the synergies from the acquisition and in line with the strategy of the Company. At the time of the acquisition, future tax deductibility is probable as certain actions, necessary to integrate the businesses from a tax perspective, are intended by management and considered feasible from a legal perspective.

 

The fair value of Movidesk’s intangible assets (digital platform, customer portfolio and non-compete) has been measured by valuation techniques that are summarized below.

Assets acquired

Valuation technique

Intangible assets – Allocation of the customer portfolio and digital platform

The MPEEM methodology (Multi Period Excess Earnings Method) is mostly used to measure the value of primary assets or most important assets of a company. According to that method, in determining fair values, the cash flows attributable to all other assets are subtracted through a contributory asset charge (CAC). The MPEEM method assumes that the fair value of an intangible asset is the same as the present value of the cash flows attributable to that asset, less the contribution of other assets, both tangible and intangible ones.

On October 26, 2022, Zenvia Brazil reached an agreement with Movidesk former controlling shareholders to extend the remaining payments. The earn-out payment due to certain former shareholders, previously expected to total R$205,647, which could reach R$327,635, will now be paid in fixed and variable installments subject to accrued interest in line with Zenvia’s current bank financing costs in the range of 130% and 140% of CDI. Per the terms of the amended Movidesk acquisition agreement, (i) 12 fixed monthly installments of R$100 will be paid from January 2023 until December 2023, (ii) R$204,447 in total will be paid in 36 fixed monthly installments subject to accrued interest from January 2024 until December 2026, and (iii) an additional variable amount calculated in terms of certain gross margin targets achieved by the end of September 2023, currently expected to total R$24,047, will be paid in 6 monthly installments subject to accrued interest from January 2024 until June 2024.

b. Business combination – Sensedata Tecnologia Ltda (“SenseData”)

 

On November 1, 2021, Zenvia Brazil acquired all the shares of Sensedata Tecnologia Ltda., referred as “SenseData” which is a SaaS company that enables businesses to create communication actions and specific 360º customer journeys, supported by a customized proprietary scorecard called SenseScore.

 

Under the terms of the SenseData original acquisition agreement the total consideration transferred and then expected to be transferred were as follows: (i) R$30,112 in cash up front and; (ii) an earn-out cash structure based payment on the achievement of gross profit milestones until November 2023, which was estimated at R$35,018; (iii) an estimate of the range of outcomes considering the achievement of certain milestones varying from -50% to + 50% was between R$35,018 and R$100,349 respectively; and (iv) SenseData former controlling shareholders received 94,200 Zenvia’s Class A common shares, subject to lock-up provisions, equivalent to an amount corresponding to R$6,793 in May 17, 2022.

 

The goodwill arising from the acquisition has been recognized as follows:

 

	SenseData
	November 1, 2021
Consideration transferred	71,923
Other net assets, including PPE and cash	2,120
Intangible assets –– Customer portfolio (a)	720
Intangible assets –– Digital platform (b)	48,271
Total net assets acquired at fair value	51,111
Goodwill	20,812

(a)	The fair value of R$720 represents the customer portfolio and was calculated based on discounted future cash flows associated with the portfolio estimated at the acquisition date.
(b)	The fair value of R$48,271 represents the digital platform acquired, measured based on discounted future cash flows associated with the asset at the acquisition date.

Notes to the Consolidated Financial Statements
(In thousands of Reais)

Valuation techniques are summarized below:

 

Assets acquired

Valuation technique

Intangible assets – Allocation of the customer portfolio and digital platform

The MPEEM methodology (Multi Period Excess Earnings Method) is mostly used to measure the value of primary assets or most important assets of a company. According to that method, in determining fair values, the cash flows attributable to all other assets are subtracted through a contributory asset charge (CAC). The MPEEM method assumes that the fair value of an intangible asset is the same as the present value of the cash flows attributable to that asset, less the contribution of other assets, both tangible and intangible ones.

 

The goodwill of R$20,812 comprises the skills and technical talent of the workforce and the value of future economic benefits arising from the synergies from the acquisition and in line with the strategy of the Company. At the time of the acquisition, future tax deductibility is probable as certain actions, necessary to integrate the businesses from a tax perspective, are intended by management and considered feasible from a legal perspective.

 

On December 21, 2022, Zenvia Brazil signed an agreement with SenseData former controlling shareholders to extend remaining payments. A payment which originally matured of R$23,751, due at the end of December 2022, was renegotiated as follows: (i) R$18,000 were paid in December 2022 and (ii) 12 monthly installments of R$479 will be paid throughout 2023, subject to accrued interests in line with Zenvia’s current bank financing costs in the range of 130% and 140% of CDI, (iv) an estimate of the range of outcomes considering the achievement of certain milestones varying from -50% to + 50% is R$21,577 and R$72,488 respectively. Also, the total of R$41,038 related to the achievements of gross profit targets, as defined in the original agreement, Zenvia agreed to pay a fixed amount of R$20,000 in December 2023, with the remaining amount to be paid in 24 installments, subject to accrued interests in line with Zenvia’s current bank financing costs in the range of 130% and 140% of CDI. SenseData´s founding partners will continue to manage the company as per the original agreement, until the end of October 2023.

c. Business combination – Direct One (“D1”)

 

On July 31, 2021, Zenvia Brazil completed the purchase agreement for the acquisition of 100% of the share capital of One To One Engine Desenvolvimento e Licenciamento de Sistemas de Informática S.A. – Direct One, or “D1”, including its wholly owned subsidiary Smarkio Tecnologia Ltda. (“Smarkio”). D1 is a platform that connects different data sources to enable a single customer view layer, allowing the creation of multichannel communications, generation of variable documents, authenticated message delivery and contextualized conversational experiences.

 

At the acquisition date, and under the terms of the original D1 acquisition agreement, the fair value of consideration was R$716,428 and was comprised of: (1) (i) Zenvia Brazil contributed R$21,000 in cash into D1 on May 31, 2021, and (ii) on the closing date, July 31, 2021, Zenvia Brazil contributed further R$19,000 in cash into D1; (2) the Company paid to D1 shareholders R$318,646 in cash; (3) the Company issued 1,942,750 of Class A common shares of Zenvia to certain D1 shareholders, equivalent to R$132,812; and (4) the Company agreed to make earn-outs payments to certain D1 shareholders which, at the acquisition date, were estimated to be (i) R$56,892 to be paid in the second quarter of 2022; and (ii) R$168,078 to be paid in the second quarter of 2023.

On February 15, 2022, the Company decided to accelerate D1 integration which resulted in a new agreement, replacing the previously estimated amounts and timing of the earn-outs payments. The new agreement provided that the Company would pay to D1 former shareholders a total earn-out amounting to R$164,000. The amount of R$124,000 was paid in the first quarter of 2022 and R$40,000 would be paid on March 31, 2023.

 

On October 26, 2022, the Company reached a new agreement with D1 to extend the then remaining payments under the D1 acquisition. The last fixed installment due to certain former shareholders on March 31, 2023, of R$40,000, will now be paid, as follows: (i) R$7,794 paid in January 2023, (ii) R$3,864 paid in February 2023, (iii) R$4,720 paid in March 2023 and (iv) 24 monthly installments of R$1,288 between April 2023 and February 2025, subject to interests in line with Zenvia’s current bank financing costs in the range of 130% and 140% of CDI.

Notes to the Consolidated Financial Statements
(In thousands of Reais)

Goodwill arising from the acquisition has been recognized as follows:

	D1
	July 31, 2021
Consideration transferred	716,428
Cash and cash equivalents	59,447
Trade and other receivables (d)	16,516
Intangible assets and goodwill (c)	53,271
Loans and borrowings	(63,430)
Other net liabilities	(17,327)
Intangible assets –– Customer portfolio (a)	1,482
Intangible assets –– Digital platform (b)	58,489
Total net assets acquired at fair value	108,448
Goodwill	607,980

(a)	The fair value of R$1,482 represents the customer portfolio and was calculated based on discounted future cash flows associated with the portfolio estimated at the acquisition date.
(b)	The fair value of R$58,489 represents the digital platform acquired, measured based on discounted future cash flows associated to the asset at the acquisition date;
(c)	This amount refers to the intangible and goodwill from Smarkio which was acquired by D1 in November 2020 and merged into that entity in November 2021. The intangible assets related to Smarkio´s acquisition refer to goodwill (R$21,726), platform (R$22,037), customer portfolio (R$3,491), non-compete (R$2,628) where management evaluated the expectation of a possible loss with the recoverability of the amount of the fine imposed in the case of competition and others;
(d)	Gross contractual amount of trade and other receivables amounted to R$16,998 of which R$482 are not expected to be collected.

Valuation techniques are summarized below:

Assets acquired

Valuation technique

Intangible assets – Allocation of the customer portfolio and digital platform

The MPEEM methodology (Multi Period Excess Earnings Method) is mostly used to measure the value of primary assets or most important assets of a company. According to that method, in determining fair values, the cash flows attributable to all other assets are subtracted through a contributory asset charge (CAC). The MPEEM method assumes that the fair value of an intangible asset is the same as the present value of the cash flows attributable to that asset, less the contribution of other assets, both tangible and intangible ones.

The goodwill of R$607,980 comprises the skills and technical talent of the workforce and the value of future economic benefits arising from the synergies from the acquisition and in line with the strategy of the Company. At the time of the acquisition, future tax deductibility is probable as certain actions necessary to integrate the businesses from a tax perspective, are intended by management and considered feasible from a legal perspective.

Notes to the Consolidated Financial Statements
(In thousands of Reais)

2.	Company’s subsidiaries

		September 30, 2023		December 31,2022
	Country	Direct	Indirect	Direct	Indirect
Subsidiaries		%	%	%	%
Zenvia Mobile Serviços Digitais S.A.	Brazil	100	-	100	-
MKMB Soluções Tecnológicas Ltda.	Brazil	-	100	-	100
Total Voice Comunicação S.A.	Brazil	-	100	-	100
Rodati Motors Corporation	USA	-	100	-	100
Zenvia México	Mexico	-	100	-	100
Zenvia Voice Ltda	Brazil	-	100	-	100
One to One Engine Desenvolvimento e	Brazil	-	100	-	100
Licenciamento de Sistemas de Informática S.A.
Sensedata Tecnologia Ltda.	Brazil	-	100	-	100
Rodati Services S.A.	Argentina	-	100	-	100
Movidesk S.A.	Brazil	-	98.04	-	98.04
Rodati Servicios, S.A. de CV	Mexico	-	100	-	100
Rodati Motors Central de Informações de Veículos Automotores Ltda.	Brazil	-	100	-	100

3.	Preparation basis

The interim condensed consolidated financial statements for the nine months ended September 30, 2023, have been prepared in accordance with IAS 34, Interim Financial Reporting, The Group has prepared the financial statements on the basis that it will continue to operate as a going concern.

The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group’s annual consolidated financial statements as at December 31, 2022.

The issuance of these consolidated financial statements was approved by the Executive Board of Directors on November 16, 2023.

a.Measurement basis

The interim condensed consolidated financial statements were prepared based on historical cost, except for certain financial instruments measured at fair value and contingent consideration for business combinations, as described in the following accounting practices. See item (d) below for information on the measurement of financial information of subsidiaries located in hyperinflationary economies.

 

 

These interim condensed consolidated financial statements are presented in Brazilian Real (R$), which is the Company’s functional currency. All amounts have been rounded to the nearest thousand, unless otherwise indicated.

 

The functional currency of the subsidiary Rodati Motors Corporation is the US Dollar. The indirect subsidiaries of the Company have the following functional currencies: Rodati Motors Central de Informações de Veículos Automotores Ltda. has the local currency, Brazilian Real (BRL), as its functional currency; Rodati Services S.A. has the local currency, Argentine Peso (ARG), as its functional currency; and Rodati Servicios, S.A. de CV. has the local currency, Mexican Pesos (MEX), as its functional currency.

 

For the consolidated Group companies in which the functional currency is different from the Brazilian Real, the interim financial statements are translated to Real as of the closing date. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rate at the reporting date. Non-monetary assets and liabilities that are measured at fair value in a foreign currency are translated into the functional currency at the exchange rate when the fair value was determined. Non-monetary items that are measured based on historical cost in a foreign currency are translated at the exchange rate at the date of the transaction. Foreign currency differences are generally recognized in profit or loss and presented within finance costs.

Notes to the Consolidated Financial Statements
(In thousands of Reais)

 

In July 2018, considering that the inflation accumulated in the past three years in Argentina was higher than 100%, the adoption of the accounting and reporting standard in the hyperinflationary economy became mandatory in relation to the subsidiary Rodati Services S.A., located in Argentina.

 

Non-monetary assets and liabilities, the equity and the statement of profit or loss of subsidiaries that operate in hyperinflationary economies are adjusted by the change in the general purchasing power of the currency, applying a general price index.

 

The financial statements of an entity whose functional currency is the currency of a hyperinflationary economy based on current cost approach are in terms of the current measurement unit at the balance sheet date and translated into Real at the closing exchange rate for the period. The impacts of changes in general purchasing power were reported as finance costs in the statements of profit or loss of the Company.

 

In preparing these interim condensed consolidated financial statements, management has made judgements and estimates that affect the application of the Group’s accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognized prospectively.

 

Judgments:

Information about judgments referring to the adoption of accounting policies which impact significantly the amounts recognized in the interim condensed financial statements are included in the following notes:

Note 1 – Identification of assets acquired, and liabilities assumed.

Note 10 - Intangible assets: determination of useful lives of intangible assets.

Uncertainties on assumptions and estimates:

 

Information on uncertainties as to assumptions and estimates that pose a high risk of resulting in a material adjustment within the next fiscal year are included in the following notes:

 

Note 1 – business combination: assumptions on the determination of fair value of consideration transferred, assets acquired, and liabilities assumed. The identification of the intangible assets acquired in the business combinations is subject to significant judgements by management as to whether assets are separable from other assets. The measurement of those assets and liabilities assumed also involve judgements and estimates developed by management, based on facts and circumstances known at the time of the business combination that may be not confirmed in the future. Such judgements and estimates are reviewed on an ongoing basis and adjusted prospectively as necessary.

 

Note 7 – Allowance for expected losses: main assumptions in the determination of loss rate.

 

Note 10 - Impairment test of intangible assets and goodwill: assumptions regarding projections of generation of future cash flows.

 

Note 15 - Provision for labor, tax and civil risks: main assumptions regarding the likelihood and magnitude of the cash outflows.

 

Note 20 – recognition of deferred tax assets: availability of future taxable profit against which deductible temporary differences and tax losses carried forward can be utilized.

(i)	Measurement of fair value

A series of Company’s accounting policies and disclosures requires the measurement of fair value, for financial and non-financial assets and liabilities.

Evaluation process includes the regular review of significant non-observable data and valuation adjustments. If third-party information, such as brokerage firms’ quotes or pricing services, is used to measure fair value, then the evaluation process analyzes the evidence obtained from the third parties to support the conclusion that such valuations meet the IFRS requirements, including the level in the fair value hierarchy in which such valuations should be classified.

Notes to the Consolidated Financial Statements
(In thousands of Reais)

When measuring the fair value of an asset or liability, the Company uses observable data as much as possible. Fair values are classified at different levels according to hierarchy based on information (inputs) used in valuation techniques, as follows:

—   Level 1: Prices quoted (not adjusted) in active markets for identical assets and liabilities.

—   Level 2: Inputs, except for quoted prices, included in Level 1 which are observable for assets or liabilities, directly (prices) or indirectly (derived from prices).

—   Level 3: Inputs, for assets or liabilities, which are not based on observable market data (non-observable inputs).

The Company recognizes transfers between fair value hierarchy levels at the end of the financial statements’ period in which changes occurred.