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 UNDER THE SECURITIES EXCHANGE ACT OF 1934

 

For the month of May 2021

 

 Commission File Number: 001-39155

 

XP Inc.

(Exact name of registrant as specified in its charter)

 

Av. Chedid Jafet, 75, Torre Sul, 30th floor,

Vila Olímpia – São Paulo

Brazil 04551-065

+55 (11) 3075-0429

(Address of principal executive office)

 

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

 

 

 

 

 

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

    XP Inc.
     
     
      By: /s/ Bruno Constantino Alexandre dos Santos
        Name: Bruno Constantino Alexandre dos Santos
        Title: Chief Financial Officer

Date: May 4, 2021

 

 

 

 

EXHIBIT INDEX

 

Exhibit No. Description
99.1 Earnings Release dated May 4, 2021 – XP Inc. Reports 1Q21 Financial Results
99.2 XP Inc. – Unaudited interim condensed consolidated financial statements for the three months period ended March 31, 2021
99.3 1Q21 Earnings Presentation

 

 

 

 

 

 

Exhibit 99.1

 

 

 

 

 

 

 

 

XP Inc. Reports 1Q21 Financial Results

 

São Paulo, Brazil, May 4, 2021 – XP Inc. (NASDAQ: XP) (“XP” or the “Company”), a leading tech-enabled platform and a trusted pioneer in providing low-fee financial products and services in Brazil, today reported its financial results for the first quarter of 2021.

 

To our shareholders and employees

 

I remember it as if it were today when I moved to Porto Alegre, at the age of 24, fleeing my hometown, ashamed of my dismissal and in search of a fresh start.

 

How quickly these past 20 years have passed!

 

I confess that at first, I didn't think it would work. The company's capital was practically non-existent, I didn’t have much experience, and everything seemingly conspired against my project. It was by making many mistakes that I ended up finding the niche of financial education and, from this moment on, everything began to happen.

 

Looking back, I believe that three main pillars have marked my journey:

 

• Partnership: sharing my dream with people who complemented my background and aligning them with me for the long term;

 

• Resilience: the ability to not give up regardless of difficulties or obstacles;

 

• Humility: recognize errors quickly and learn from them.

 

In the business world, the distance between two points is not always a straight line, but rather a zigzag. Each scenario shift demanded changes, many of them severe, to adjust and adapt XP's business model. The challenge has always been, and will continue to be, to connect the dots in a chronological sequence while maintaining a long-term vision.

 

We became known as the “XP boys”. In a traditional market, where labels meant more than purpose, that was the way to underestimate us.

 

We played an important role in strengthening the Brazilian capital market, and we were pioneers in the development of the independent investment industry. After all, until recently, almost everything was done within the five largest banks in Brazil.

 

The Brazilian population has always been, and continues to be, hostage to a concentrated system, controlled by few participants who have no genuine concern for the quality of services or products delivered to customers.

 

Some clear examples of this are always worth repeating: R$1 trillion currently sitting in Poupança (Savings Accounts), and interest charged on credit cards and loans often exceeding 10% per month.

 

For these reasons and many others, the opportunity we have in Brazil is probably one of the largest in the world in terms of disruption of the traditional financial sector.

 

Our challenge in the coming years will continue to be promoting transformation in this industry ethically and respectfully, seeking what is best for the client.

 

In 2021, we evolved our business model. Before, we were an investment company focused on “helping Brazilians to invest better”. Today, we are a company that aims to “transform the financial market to improve people's lives”. For many, the difference may be subtle, but for us it is massive.

 

Our Big Dream is moving towards fully addressing Brazilians’ financial journey, complementing the investment offering, our core and origin, with a universe of credit and banking services. In this sense, in 2021, we are expanding our platform with new products such as more affordable loans, digital accounts, credit cards and

 

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insurance. We will make sure that our current and new customers will be able to have a more holistic relationship with XP Inc.

 

Another relevant short-term deliverable is the offering of banking services, through a customized experience, for businesses, encompassing small, mid-sized and corporate segments.

 

Additionally, we will continue to focus on strengthening our insurance company, fund administrator, our offshore operations (XP Investments), new investment fund lines and our active participation in debt, REITs and equity offerings.

 

The Brazilian financial system is expected to generate approximately R$770 billion in revenue in 2021, and in 2020 we accounted for just over 1% of the total. The avenue of opportunities for us to transform this ecosystem is wide, and we will not rest until this happens.

 

Finally, I want to take this opportunity to ratify the letter recently sent about my new role as Executive Chairman of the Board of Directors of XP Inc. and the appointment of Thiago Maffra as CEO.

 

As CTO, Maffra led an unprecedented and highly successful digital transformation in our company.

 

The whole executive board was unanimous in appointing him as the most prepared professional to lead XP’s daily challenges and manage the company through its ever-changing evolution cycle. We are confident that he is one of the brightest and most passionate professionals, ready to take the company to a new level of scale and impact on the Brazilian financial industry.

 

It’s time to accelerate changes and evolve from a model in which “technology serves the business” to one where “technology empowers clients, while working for the business”. This type of transformation requires a new mindset, a highly collaborative approach that integrates every facet of XP – from product, design, operations and technology, curating our clients’ experience from end-to-end.

 

Over the past 20 years, I genuinely have not felt as confident in the long-term success of XP and in the opportunities we have in our hands as I do now. After all, this transition process says a lot about our culture and values, placing the right people in the correct positions so that they can maximize their contributions and make our company stronger.

 

Predicting the future is impossible, however, as someone who has always believed in making impossible dreams possible, I think that XP will be increasingly admired, sustainable, innovative, technological and profitable.

 

Finally, once again I would like to thank you for the trust and all the interactions we had during my time as CEO. I will continue to be here, 100% present, but with other ambitions and focused on our long-term since it never hurts to remember: we are just getting started!

 

Guilherme Benchimol

 

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Highlights

 

1Q21 KPIs

 

 

 

 

Key Business Metrics

 

  1Q21 1Q20 YoY 4Q20 QoQ
Operating and Financial Metrics (unaudited)          
AUC (in R$ bn) 715 366 96% 660 8%
Active clients (in '000s) 2,993 2,039 47% 2,777 8%
Retail – gross total revenues (in R$ mn) 2,088 1,254 67% 1,844 13%
Institutional – gross total revenues (in R$ mn) 294 331 -11% 307 -4%
Issuer Services – gross total revenues (in R$ mn) 234 132 77% 323 -28%
Digital Content – gross total revenues (in R$ mn) 23 27 -16% 25 -11%
Other – gross total revenues (in R$ mn) 145 113 29% 71 106%
           
Company Financial Metrics          
Gross revenue (in R$ mn) 2,784 1,856 50% 2,570 8%
Net Revenue (in R$ mn) 2,628 1,735 51% 2,395 10%
Gross Profit (in R$ mn) 1,787 1,156 55% 1,559 15%
Gross Margin 68.0% 66.6% 137 bps 65.1% 293 bps
Adjusted EBITDA1 (in R$ mn) 1,043 595 75% 891 17%
Adjusted EBITDA margin 39.7% 34.3% 535 bps 37.2% 247 bps
Adjusted Net Income1 (in R$ mn) 846 415 104% 721 17%
Adjusted Net Margin 32.2% 23.9% 827 bps 30.1% 209 bps
(1) See appendix for a reconciliation of Adjusted Net Income and Adjusted EBITDA        

 

 

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Operational Performance

 

Assets Under Custody (in R$ billions)

 

 

Total AUC reached R$715 billion at March 31, up 96% year-over-year and 8% quarter-over-quarter. Year-over-year growth was driven by R$252 billion of net inflows and R$97 billion of market appreciation. Through a very challenging twelve-month period since the outbreak of the COVID-19 pandemic, XP’s business model and strategy proved its resilience and reinforced the efficacy of innovation and adaptation while strengthening relationships with employees, clients and partners.

 

Consistent AUC growth throughout the past several years and in various macroeconomic environments, including recession and other unfavorable trends, was achieved by the combination of the high concentration on the Brazilian financial industry and XP’s disruptive client-centric and digital driven approach. We are confident that expressive performance and secular changes should persist for many years to come as we maintain our focus and culture and expand to new markets and verticals going forward.

 

Net Inflows (in R$ billions)

 

 

Average monthly Net Inflows, adjusted for extraordinary equity inflows/outflows, was R$14.2 billion in 1Q21, up 15% from R$12.3 billion in 4Q20. For 1Q21, flows were strong across all channels and brands, led by the IFA network, reflecting investments in the business in the second half of 2020.

 

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Active Clients (in 000’s)

 

 

Active clients grew 47% and 8% in 1Q21 vs 1Q20 and 4Q20, respectively. Average monthly net client additions increased to 72,000 in 1Q21 from 44,000 in 4Q20, reflecting seasonality, the reduction of brokerage fees for online stock trading at Rico and XP in 3Q20 and our ongoing client acquisition and brand awareness efforts.

 

IFA Network

 

 

IFA Network gross additions totaled 917 in 1Q21, consistent with strong growth trends in 2H20. Our total IFA headcount stood at nearly 9,000 as of March 31, 2021. Ongoing IFA growth was driven by both industry growth as well as XP’s network investments.

 

Retail Equity DARTs¹ (million trades)

 

¹Daily Average Revenue Trades, including Stocks, REITs, Options and Futures

 

Retail DARTs increased 23% in 1Q21 to 3.2 million from an already robust level of 2.6 million in 4Q20. The remarkable figures reinforce the benefits of the platform investments and pricing strategy across XP’s three Retail brands. On a year-over-year basis, DARTs grew 91% from 1.7 million in 1Q20, reflecting the ongoing increase in the participation and relevance of individual investors on the Brazilian Stock Exchange.

 

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Credit Portfolio1 (in R$ millions)

 

 

Our Credit portfolio reached R$4.7 billion as of March 31, 2021, representing 0.7% of our total AUC. The average duration of our credit book was 3.1 years, with a 90-day Non-Performing Loan (NPL) ratio of 0.0%. Furthermore, we highlight the capital-light nature of our loan book, which currently represents R$916 million of Risk Weighted Assets and requires minimum regulatory capital of R$73 million. The fact that a relevant portion of loans is collateralized reduces capital needs for growth. Our book is mainly funded by the issuance of Structured Notes (COEs) and Deposits, which are distributed to clients via XP’s platform.

 

¹This portfolio does not include Credit Card related loans and receivables

 

Net Promoter Score (NPS)

 

Our NPS, a widely known survey methodology used to measure customer satisfaction, increased to 74 in March 2021, reflecting our ongoing efforts to provide superior customer service at the lowest possible cost. Maintaining a high NPS score remains a priority for XP since our business model is built around client experience. The NPS calculation as of a given date reflects the average scores in the prior six months.

 

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1Q21 Revenue Breakdown

 

 

Total Gross Revenue (in R$ millions)

 

 

Total Gross Revenue reached an all-time high, increasing 50% from R$1.9 billion in 1Q20 to R$2.8 billion in 1Q21, despite a lower contribution from performance fees. The increase was mainly driven by strong growth in the Retail business, which contributed 90% of the growth year-over-year.

 

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Retail

 

Retail Revenue (in R$ millions)

 

 

1Q20 vs 1Q21

 

Retail revenue grew 67% from R$1.3 billion in 1Q20 to R$2.1 billion in 1Q21. Revenue generation was strong across all products and channels within Retail, as resilient secondary trading volumes in securities, solid primary market activity, increases in structured operations distribution and growing management fees more than offset the reduced fees for online stock trading put into place in September 2020.

 

In 1Q21, Retail-related revenues represented 79% of consolidated Net Income from Financial Instruments, as per the Accounting Income Statement, and were composed of Derivatives with Retail Clients, Fixed Income secondary transactions, and Floating, among others.

 

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LTM Take Rate (LTM Retail Revenue / Average AUC)

 

 

1Q21 take rate (for the last twelve months) remained stable compared to 1Q20. Despite the strong growth in AUC during the period and pricing changes in online brokerage, Retail monetization remained stable due to higher client activity and our diversified revenue profile. The resilience in the take rate reinforces the power of the ecosystem and ongoing product development, positioning XP as the main beneficiary of financial deepening in Brazil.

 

Note: LTM Take Rate (LTM Retail Revenue / Average AUC). Average AUC = (Sum of AUC from the beginning of period and each quarter-end in a given year, being 5 data points in one year)/5

 

Institutional

 

Institutional Revenue (in R$ millions)

 

 

1Q20 vs 1Q21

 

Institutional gross revenue was R$294 million in the 1Q21, down 11% from R$331 million in 1Q20. Despite the growth in core institutional trading desks in 1Q21, 1Q20 benefited from strong client activity in the fixed income business related to the pandemic.

 

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In 1Q21, Institutional revenue accounted for 8% of consolidated Net Income from Financial Instruments, as per the Accounting Income Statement, and was composed mostly of Fixed Income secondary transactions and Derivatives, among others.

 

 

 

Issuer Services

 

Issuer Services Revenue (in R$ millions)

 

 

1Q20 vs 1Q21

 

Issuer Services revenue expanded 77% year-over-year from R$132 million in 1Q20 to R$234 million in 1Q21. This increase was driven by (1) Equity Capital Markets (ECM), with 12 executed deals vs 5 in 1Q20, and (2) our Debt Capital Markets (DCM) division, with participation in 43 deals vs 36 in 1Q20. In 2021, XP remains committed to further developing Capital Markets in Brazil. In 1Q21, XP ranked #1 in REITs distribution, and CRA (agribusiness certificate of receivable). To reinforce our Capital Markets ecosystem and complete the suite of products and services we offer to our corporate clients, we recently hired one of the most seasoned and respected teams in M&A. We expect that the combination of M&A expertise and XP’s differentiated network will drive accelerating growth looking ahead.

 

Digital Content and Other

 

Digital Content Revenue

 

Gross revenue totaled R$23 million in 1Q21, down 16% from R$27 million in 1Q20. Our digital content plays an important role in educating Brazilians and making them more proficient in financial products and services. It also enhances client’s relationships and attracts new clients that grow our retail platform. 1Q21 trends were still impacted by the absence of in-person events and courses.

 

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Other Revenue

 

1Q20 vs 1Q21

 

Other revenue increased 29% in 1Q21 vs. 1Q20, from R$113 million to R$145 million. In 1Q21, other revenue accounted for 13% of consolidated Net Income from Financial Instruments, as per the Accounting Income Statement, composed mostly of interest on adjusted gross cash and results related to our asset and liability management.

 

COGS

 

COGS (in R$ millions) and Gross Margin

 

 

1Q20 vs 1Q21

 

COGS rose 45% from R$579 million in 1Q20 to R$841 million in 1Q21, following the expansion in overall Retail Revenues. The gross margin expanded 137 bps, from 66.6% to 68.0%, despite the impact of long-term incentives with the IFA network, as costs were abnormally high in the same period of last year due to the beginning of the pandemic.

 

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SG&A Expenses

 

SG&A Expense (ex-Share-Based Compensation) (in R$ millions)

 

 

1Q20 vs 1Q21

 

SG&A expenses (excluding share-based compensation) totaled R$765 million in 1Q21, up 36% from R$561 million in 1Q20. Despite growing our headcount by 64% year-over-year, continuously investing in technology and new verticals, and deploying new products, we increased efficiency, reducing expenses as a percentage of net revenue by 321 bps.

 

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Share-Based Compensation (in R$ millions)

 

Through 1Q21, we have granted approximately half of the current approved program authorizing dilution of up to 5%. Expenses related to the program remained steady compared to 4Q20, the first quarter fully impacted by the larger grants in 2020. We expect to use the approved dilution as originally planned: within five years from the IPO. A portion of Share-Based Compensation is related to IFAs and allocated in COGS.

 

 

 

 

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Adjusted EBITDA

 

Adjusted EBITDA¹ (in R$ millions) and Margin

 

 

¹ See appendix for a reconciliation of Adjusted EBITDA.

 

1Q20 vs 1Q21

 

Adjusted EBITDA grew 75%, from R$595 million to R$1,043 million and margins expanded from 34.3% to 39.7%. The growth was driven by (1) increases in the top line, mainly coming from Retail; (2) better COGS as a percentage of Net Revenues, and consequently higher gross margins and (3) operating leverage in SG&A. Despite investments in technology, product development, and new hires -- headcount increased by 64% during the last 12 months - the margin expansion was attributable to our highly scalable business model.

 

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Adjusted Net Income

 

Adjusted Net Income¹ (in R$ millions) and Margin

 

 

1Q21 vs 1Q20

 

Adjusted Net Income grew 104%, from R$415 million in 1Q20 to R$846 million in 1Q21. Year-over-year growth was driven by (1) strong performance for the Retail business; (2) cost efficiencies and operating leverage and (3) a lower effective tax rate. Our effective tax rate decreased from 23.0% in the 1Q20 to 6.4% in 1Q21, mainly due to our post-IPO corporate structure. Our Adjusted Net Margin expanded by 827 bps to 32.2% in 1Q21.

 

¹ See appendix for a reconciliation of Adjusted Net Income.

 

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Cash flow

 

(in R$ millions)

 

      1Q21 4Q20 1Q20
Cash Flow Data          
Income before income tax     784 663 517
Adjustments to reconcile income before income tax     233 229 80
Income tax paid     (236) (97) (197)
Contingencies paid     (1) (1) (0)
Interest paid     (0) (9) (1)
Changes in working capital assets and liabilities     629 830 (69)
Adjusted net cash flow (used in) from operating activities     1,409 1,615 330
Net cash flow (used in) from securities, repos, derivatives and banking activities     (1,048) (959) (469)
Net cash flows from operating activities     361 656 (139)
Net cash flows from investing activities     (162) (202) (41)
Net cash flows from financing activities     (26) 1,390 (28)

 

 

Net Cash Flow Used in Operating Activities

 

Our net cash flow used in Operating activities represented by Adjusted net cash flow (used in) from operating activities (which in management’s view is a more useful metric to track the intrinsic cash flow generation of the business) decreased to R$1,409 million for 1Q21 from R$1,615 million 4Q20, and increased from R$330 million in 1Q20driven by:

 

·Higher balances of securities and derivatives that we hold in the ordinary course of our business as a Retail investment distribution platform and as an Institutional broker-dealer (with respect to the sale of fixed income securities and structured notes);

 

·Our strategy to allocate excess cash and cash equivalents from treasury funds, Floating Balances and private pension balances to securities and other financial assets. These balances may fluctuate substantially from quarter to quarter and were key drivers to net cash flow from operating activities figures;

 

·Increases in our banking activities from loans operations, deposits mainly derived from time deposits, structured operations certificates (COEs) and other financial liabilities which include financial bills as a result of our expected growth in new financial services verticals.

 

·Growth of our omni-channel distribution network through our network of IFA partners;

 

·Our income before tax of R$1,017 million in 1Q21 and R$892 million in 4Q20 combined with non-cash expenses consisting primarily of (i) share-based plan expenses of R$140 million in 1Q21 and R$154 million in 4Q20 and (ii) depreciation and amortization of R$69 million in 1Q21 and R$37 million in 4Q20. The total amount of adjustments to reconcile income before income taxes of R$233 million in 1Q21 and in 4Q20 was R$229 million.

 

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Net Cash Flow Used in Investing Activities

 

Our net cash used in investing activities decreased from R$202 million in 4Q20 to R$162 million in 1Q21 and increased from R$41 million in 1Q20, primarily affected by:

 

·the investment in intangible assets, mostly IT infrastructure and capitalization software development which increased from from R$20 million in 1Q20 and R$67 million in 4Q20 to R$114 million in 1Q21.

 

·the investment in the expansion of our office spaces due to accelerated growth in employee headcount to support the growth in our business and operations, including the construction of our new headquarters at Villa XP which decreased from R$105 million in 4Q20 to R$24 million in 1Q21 and increased from R$21 million in 1Q20. The construction of Villa XP may result in additional capital expenditures, but we do not expect these to have a material impact on our liquidity position or cash flows.

 

·Our investments in FinTechs, associates and joint ventures of R$24 million in 1Q21 and R$30 million in 4Q20;

 

Net Cash Provided by Financing Activities

 

Our net cash flows from financing activities decreased from R$28 million in 1Q20 and R$1,390 million in 4Q20 to R$26 million in 1Q21, primarily due to:

 

·R$24 million in 1Q21, R$22 million in 4Q20 and R$26 million in 1Q20 related to Payments of borrowings and lease liabilities;

 

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Floating Balance and Adjusted Gross Financial Assets (in R$ millions)

 

Floating Balance (=net univested clients' deposits)     1Q21 4Q20
Assets     (3,184) (1,052)
(-) Securities trading and intermediation       (3,184) (1,052)
Liabilities     20,399 20,303
(+) Securities trading and intermediation       20,399 20,303
(=) Floating Balance     17,214 19,252
         
Adjusted Gross Financial Assets     1Q21 4Q20
Assets     113,327 90,518
(+) Cash     1,557 1,955
(+) Securities - Fair value through profit or loss     62,855 49,590
(+) Securities - Fair value through other comprehensive income     21,629 19,039
(+) Securities - Evaluated at amortized cost     1,916 1,829
(+) Derivative financial instruments     13,587 7,559
(+) Securities purchased under agreements to resell     6,741 6,627
(+) Loans     5,041 3,918
Liabilities     (84,493) (60,484)
(-) Securities loaned     (2,706) (2,237)
(-) Derivative financial instruments     (13,564) (7,819)
(-) Securities sold under repurchase agreements     (44,483) (31,839)
(-) Private Pension Liabilities     (16,897) (13,388)
(-) Deposits     (4,003) (3,022)
(-) Structured Operations     (2,841) (2,178)
(-) Floating Balance     (17,214) (19,252)
(=) Adjusted Gross Financial Assets     11,619 10,782

 

We present Adjusted Gross Financial Assets because we believe this metric captures the liquidity that is, in fact, available to us, net of the portion of liquidity that is related to our Floating Balance (and therefore attributable to clients). We calculate Adjusted Gross Financial Assets as the sum of (1) Cash and Financial Assets (comprised of Cash plus Securities – Fair value through profit or loss, plus Securities – Fair value through other comprehensive income, plus Securities – Evaluated at amortized cost, plus Derivative financial instruments, plus Securities (purchased under agreements to resell), plus Loans, less (2) Financial Liabilities (comprised of the sum of Securities loaned, Derivative financial instruments, Securities sold under repurchase agreements and Private pension liabilities), Deposits, Structured Operation Certificates (COE) and (3) less Floating Balance.

 

It is a measure that we track internally daily, and it more intuitively reflects the effect of the operational profits we generate and the variations between working capital assets and liabilities (cash flows from operating activities), investments in fixed and intangible assets (cash flows from investing activities) and inflows and outflows related to equity and debt securities in our capital structure (cash flows from financing activities).

 

Our management treats all securities and financial instrument assets, net of financial instrument liabilities, as balances that compose our total liquidity, with subline items (such as, for example, “securities at fair value

 

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through profit and loss” and “securities at fair value through other comprehensive income”) expected to fluctuate substantially from quarter to quarter as our treasury manages and allocates our total liquidity to the most suitable financial instruments.

 

Other Information

 

Web Meeting

 

The Company will host a webcast to discuss its 1Q21 financial results on Tuesday, May 04, 2021, at 5:00 pm ET (7:00 pm BRT). To participate in the earnings webcast please subscribe at 1Q21 Earnings Web Meeting. The replay will be available on XP’s investor relations website at https://investors.xpinc.com/

 

Investor Relations Team

 

André Martins

Antonio Guimarães

ir@xpi.com.br

 

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Important Disclosure

 

IN REVIEWING THE INFORMATION CONTAINED IN THIS RELEASE, YOU ARE AGREEING TO ABIDE BY THE TERMS OF THIS DISCLAIMER. THIS INFORMATION IS BEING MADE AVAILABLE TO EACH RECIPIENT SOLELY FOR ITS INFORMATION AND IS SUBJECT TO AMENDMENT.

 

This release is prepared by XP Inc. (the “Company,” “we” or “our”), is solely for informational purposes. This release does not constitute a prospectus and does not constitute an offer to sell or the solicitation of an offer to buy any securities. In addition, this document and any materials distributed in connection with this release are not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would require any registration or licensing within such jurisdiction.

 

This release was prepared by the Company. Neither the Company nor any of its affiliates, officers, employees or agents, make any representation or warranty, express or implied, in relation to the fairness, reasonableness, adequacy, accuracy or completeness of the information, statements or opinions, whichever their source, contained in this release or any oral information provided in connection herewith, or any data it generates and accept no responsibility, obligation or liability (whether direct or indirect, in contract, tort or otherwise) in relation to any of such information. The information and opinions contained in this release are provided as at the date of this release, are subject to change without notice and do not purport to contain all information that may be required to evaluate the Company. The information in this release is in draft form and has not been independently verified. The Company and its affiliates, officers, employees and agents expressly disclaim any and all liability which may be based on this release and any errors therein or omissions therefrom. Neither the Company nor any of its affiliates, officers, employees or agents makes any representation or warranty, express or implied, as to the achievement or reasonableness of future projections, management targets, estimates, prospects or returns, if any.

 

The information contained in this release does not purport to be comprehensive and has not been subject to any independent audit or review. Certain of the financial information as of and for the periods ended of March 31, 2021 and December 31, 2020, 2019, 2018 and 2017 has been derived from audited financial statements and all other financial information has been derived from unaudited interim financial statements. A significant portion of the information contained in this release is based on estimates or expectations of the Company, and there can be no assurance that these estimates or expectations are or will prove to be accurate. The Company’s internal estimates have not been verified by an external expert, and the Company cannot guarantee that a third party using different methods to assemble, analyze or compute market information and data would obtain or generate the same results.

 

Statements in the release, including those regarding the possible or assumed future or other performance of the Company or its industry or other trend projections, constitute forward-looking statements. These statements are generally identified by the use of words such as “anticipate,” “believe,” “could,” “expect,” “should,” “plan,” “intend,” “estimate” and “potential,” among others. By their nature, forward-looking statements are necessarily subject to a high degree of uncertainty and involve known and unknown risks, uncertainties, assumptions and other factors because they relate to events and depend on circumstances that will occur in the future whether or not outside the control of the Company. Such factors may cause actual results, performance or developments to differ materially from those expressed or implied by such forward-looking statements and there can be no assurance that such forward-looking statements will prove to be correct. These risks and uncertainties include factors relating to: (1) general economic, financial, political, demographic and business conditions in Brazil, as well as any other countries we may serve in the future and their impact on our business; (2) fluctuations in interest, inflation and exchange rates in Brazil and any other countries we may serve in the future; (3) competition in the financial services industry; (4) our ability to implement our business strategy; (5) our ability to adapt to the rapid pace of technological changes in the financial services industry; (6) the reliability, performance, functionality and quality of our products and services and the investment performance of investment funds managed by third parties or by our asset managers; (7) the availability of government authorizations on terms and conditions and within periods acceptable to us; (8) our ability to continue attracting and retaining new appropriately-skilled employees; (9) our capitalization and level of indebtedness; (10) the interests of our controlling shareholders; (11) changes in government regulations applicable to the financial services industry in Brazil and elsewhere; (12) our ability to compete and conduct our business in the future; (13) the success of operating initiatives, including advertising and promotional efforts and new product, service and concept development by us and our competitors; (14) changes in consumer demands regarding financial products, customer experience related to investments and technological advances, and our ability to innovate to respond to such changes; (15) changes in labor, distribution and other operating costs; (16) our compliance with, and changes to, government laws, regulations and tax matters that currently apply to us; (17) other factors that may affect our financial condition, liquidity and results of operations. Accordingly, you should not place undue reliance on forward-looking statements. The forward-looking statements included herein speak only as at the date of this release and the Company does not undertake any obligation to update these forward-looking statements. Past performance

 

21 

 

 

does not guarantee or predict future performance. Moreover, the Company and its affiliates, officers, employees and agents do not undertake any obligation to review, update or confirm expectations or estimates or to release any revisions to any forward-looking statements to reflect events that occur or circumstances that arise in relation to the content of the release. You are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented and we do not intend to update any of these forward-looking statements.

 

Market data and industry information used throughout this release are based on management’s knowledge of the industry and the good faith estimates of management. The Company also relied, to the extent available, upon management’s review of industry surveys and publications and other publicly available information prepared by a number of third-party sources. All of the market data and industry information used in this release involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. Although the Company believes that these sources are reliable, there can be no assurance as to the accuracy or completeness of this information, and the Company has not independently verified this information.

 

The contents hereof should not be construed as investment, legal, tax or other advice and you should consult your own advisers as to legal, business, tax and other related matters concerning an investment in the Company. The Company is not acting on your behalf and does not regard you as a customer or a client. It will not be responsible to you for providing protections afforded to clients or for advising you on the relevant transaction.

 

This release includes our Floating Balance, Adjusted Gross Financial Assets, Adjusted EBITDA and Adjustments to Reported Net Income, which are non-GAAP financial information. We believe that such information is meaningful and useful in understanding the activities and business metrics of the Company’s operations. We also believe that these non-GAAP financial measures reflect an additional way of viewing aspects of the Company’s business that, when viewed with our International Financial Reporting Standards (“IFRS”) results, as issued by the International Accounting Standards Board, provide a more complete understanding of factors and trends affecting the Company’s business. Further, investors regularly rely on non-GAAP financial measures to assess operating performance and such measures may highlight trends in the Company’s business that may not otherwise be apparent when relying on financial measures calculated in accordance with IFRS. We also believe that certain non-GAAP financial measures are frequently used by securities analysts, investors and other interested parties in the evaluation of public companies in the Company’s industry, many of which present these measures when reporting their results. The non-GAAP financial information is presented for informational purposes and to enhance understanding of the IFRS financial statements. The non-GAAP measures should be considered in addition to results prepared in accordance with IFRS, but not as a substitute for, or superior to, IFRS results. As other companies may determine or calculate this non-GAAP financial information differently, the usefulness of these measures for comparative purposes is limited. A reconciliation of such non-GAAP financial measures to the nearest GAAP measure is included in this release.

 

 

 

For purposes of this release:

 

“Active Clients” means the total number of retail clients served through our XP Investimentos, Rico, Clear, XP Investments and XP Private (Europe) brands, with an AUC above R$100.00 or that have transacted at least once in the last thirty days. For purposes of calculating this metric, if a client holds an account in more than one of the aforementioned entities, such client will be counted as one “active client” for each such account. For example, if a client holds an account in each of XP Investimentos and Rico, such client will count as two “active clients” for purposes of this metric.

 

“Assets Under Custody (AUC)” means the market value of all client assets invested through XP’s platform and that is related to reported Retail Revenue, including equities, fixed income securities, mutual funds (including those managed by XP Gestão de Recursos Ltda., XP Advisory Gestão de Recursos Ltda. and XP Vista Asset Management Ltda., as well as by third-party asset managers), pension funds (including those from XP Vida e Previdência S.A., as well as by third-party insurance companies), exchange traded funds, COEs (Structured Notes), REITs, and uninvested cash balances (Floating Balances), among others. Although AUC includes custody from Corporate Clients that generate Retail Revenue, it does not include custody from institutional clients (asset managers, pension funds and insurance companies).

 

Rounding

 

We have made rounding adjustments to some of the figures included in this annual report. Accordingly, numerical figures shown as totals in some tables may not be an arithmetic aggregation of the figures that preceded them.

 

22 

 

 

Unaudited Managerial Income Statement (in R$ millions)

 

  1Q21 1Q20 YoY 4Q20 QoQ
Managerial Income Statement          
Total Gross Revenue 2,784 1,856 50% 2,570 8%
Retail 2,088 1,254 67% 1,844 13%
Institutional 294 331 -11% 307 -4%
Issuer Services 234 132 77% 323 -28%
Digital Content 23 27 -16% 25 -11%
Other 145 113 29% 71 106%
Net Revenue 2,628 1,735 51% 2,395 10%
COGS (841) (579) 45% (836) 1%
As a % of Net Revenue (32.0%) (33.4%) 1.4 p.p (34.9%) 2.9 p.p
Gross Profit 1,787 1,156 55% 1,559 15%
Gross Margin 68.0% 66.6% 1.4 p.p 65.1% 2.9 p.p
SG&A (765) (561) 36% (717) 7%
Share Based Compensation1 (158) (28) 456% (136) 16%
EBITDA 864 567 52% 705 23%
EBITDA Margin 32.9% 32.7% 0.2 p.p 29.4% 3.4 p.p
Adjusted EBITDA 1,043 595 75% 891 17%
Adjusted EBITDA Margin 39.7% 34.3% 5.3 p.p 37.2% 2.5 p.p
D&A (70) (32) 120% (37) 86%
EBIT 795 536 48% 668 19%
Interest expense on debt (10) (19) -50% (6) 51%
Share of profit or (loss) in joint ventures and associates (1) - n.a. 1 n.a.
EBT 784 517 52% 663 18%
Income tax expense (50) (119) -58% (60) -17%
Effective Tax Rate (6.4%) (23.0%) 16.7 p.p (9.1%) 2.8 p.p
Net Income 734 398 85% 602 22%
Net Margin 27.9% 22.9% 5.0 p.p  25.2% 2.8 p.p
Non Recurring Items 111 17 549% 118 -6%
Adjusted Net Income 846 415 104% 721 17%
Adjusted Net Margin  32.2%  23.9% 8.3 p.p  30.1% 2.09 p.p

 

 

 

¹ A portion of total Share-Based Compensation is related to IFAs and allocated in COGS

 

23 

 

 

Accounting Income Statement

 

(in R$ millions)

 

  1Q21 1Q20 YoY 4Q20 QoQ
Accounting Income Statement          
Net revenue from services rendered 1,455 1,152 26% 1,523 -5%
Brokerage commission 641 505 27% 545 18%
Securities placement 469 348 35% 508 -8%
Management fees 310 255 22% 415 -25%
Insurance brokerage fee 32 29 9% 39 -17%
Educational services 19 26 -27% 23 -17%
Other services 119 94 26% 143 -17%
Taxes and contributions on services (136) (105) 29% (148) -9%
Net income from financial instruments at amortized cost and at fair value through other comprehensive income 31 202 -85% (115) -127%
Net income from financial instruments at fair value through profit or loss 1,143 380 200% 987 16%
Total revenue and income 2,628 1,735 51% 2,395 10%
Operating costs (837) (557) 50% (819) 2%
Selling expenses (44) (28) 56% (41) 10%
Administrative expenses (966) (578) 67% (936) 3%
Other operating revenues (expenses), net 18 (14) -232% 86 -79%
Expected credit losses (3) (22) -84% (17) -80%
Interest expense on debt (10) (19) -50% (6) 51%
Share of profit or (loss) in joint ventures and associates (1) - n.a. 1 n.a.
Income before income tax 784 517 52% 663 18%
Income tax expense (50) (119) -58% (60) -17%
Effective tax rate (6.4%) (23.0%) 16.6 p.p (9.1%) 2.7 p.p
Net income for the period 734 398 85% 602 22%

 

24 

 

 

Balance Sheet (in R$ millions)

 

        1Q21 4Q20
Assets          
Cash       1,557 1,955
Financial assets       115,611 90,191
Fair value through profit or loss       76,442 57,149
Securities       62,855 49,590
Derivative financial instruments       13,587 7,559
Fair value through other comprehensive income       21,629 19,039
Securities       21,629 19,039
Evaluated at amortized cost       17,540 14,002
Securities       1,916 1,829
Securities purchased under agreements to resell       6,741 6,627
Securities trading and intermediation       3,184 1,052
Accounts receivable       367 506
Loan Operations       5,041 3,918
Other financial assets       290 70
Other assets       2,175 1,761
Recoverable taxes       129 128
Rights-of-use assets       204 183
Prepaid expenses       1,785 1,394
Other       57 57
Deferred tax assets       653 505
Investments in associates and joint ventures       734 700
Property and equipment       223 204
Goodwill & Intangible assets       798 714
Total Assets       121,750 96,029

 

25 

 

 

 

 

        1Q21 4Q20
Liabilities          
Financial liabilities       92,617 70,601
Fair value through profit or loss       16,269 10,057
Securities       2,706 2,237
Derivative financial instruments       13,564 7,819
Evaluated at amortized cost       76,348 60,544
Securities sold under repurchase agreements       44,483 31,839
Securities trading and intermediation         20,399 20,303
Deposits       4,003 3,022
Structured operations certificates       2,841 2,178
Accounts payables       803 860
Borrowings and lease liabilities       507 493
Debentures       337 335
Other financial liabilities       2,975 1,514
Other liabilities       17,580 14,522
Social and statutory obligations       400 667
Taxes and social security obligations         250 436
Private pension liabilities       16,897 13,388
Provisions and contingent liabilities       26 20
Other       8 11
Deferred tax liabilities       - 8
Total Liabilities       110,198 85,132
Equity attributable to owners of the Parent company       11,550 10,895
Issued capital       0 0
Capital reserve       10,803 10,664
Other comprehensive income       14 231
Retained earnings       734 -
Non-controlling interest       3 3
Total equity       11,553 10,898
Total liabilities and equity       121,750 96,029

 

26 

 

 

Adjusted EBITDA (in R$ millions)

 

  1Q21 1Q20 YoY 4Q20 QoQ
EBITDA 864 567 52% 705 23%
(+) Share Based Compensation 178 28 528% 180 -1%
(+) Offering expenses - - n.a. 6 -100%
Adj. EBITDA 1,043 595 75% 891 17%

 

 

 

Adjusted Net Income (in R$ millions)

 

  1Q21 1Q20 YoY 4Q20 QoQ
Net Income 734 398 85% 602 22%
(+) Share Based Compensation 178 28 n.a. 180 -1%
(+) Offering expenses - - n.a. 6 -100%
(+/-) Taxes (67) (11) n.a. (68) -1%
Adj. Net Income 846 415 104% 721 17%

 

 

 

 

27 

Exhibit 99.2

 

       

 

1 

 

 

Report on review of interim condensed consolidated financial statements

 

To the Board of Directors and Shareholders XP Inc.

 

Introduction

 

We have reviewed the accompanying interim condensed consolidated balance sheets of XP Inc. as at March 31, 2021 and the related interim condensed consolidated statements of income and of comprehensive income, of changes in equity and cash flows for the three-month period then ended, and a summary of significant accounting policies and other explanatory notes.

 

Management is responsible for the preparation and presentation of these interim condensed consolidated financial statements in accordance with International Accounting Standard (IAS) 34 - Interim Financial Reporting issued by the International Accounting Standards Board (IASB). Our responsibility is to express a conclusion on these interim condensed consolidated financial statements based on our review.

 

Scope of review

 

We conducted our review in accordance with Brazilian and International Standards on Reviews of Interim Financial Information (NBC TR 2410 - "Review of Interim Financial Information Performed by the Independent Auditor of the Entity", and ISRE 2410 - "Review of Interim Financial Information Performed by the Independent Auditor of the Entity", respectively). A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Brazilian and International Standards on Auditing and consequently did not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

Conclusion

 

Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim condensed consolidated financial statements referred to above are not prepared, in all material respects, in accordance with IAS 34.

 

São Paulo, May 4, 2021

 

PricewaterhouseCoopers Tatiana Fernandes Kagohara Gueorguiev
Auditores Independentes Contadora CRC 1SP245281/O-6 CRC 2SP000160/O-5

 

 

 

2

 

PricewaterhouseCoopers, Av. Francisco Matarazzo 1400, Torre Torino, São Paulo, SP, Brasil, 05001-903, Caixa Postal 60054, T: +55 (11) 3674 2000, www.pwc.com.br

 

 

 

 

XP Inc. and its subsidiaries

Unaudited interim condensed consolidated balance sheets  

As of March 31, 2021 and December 31, 2020

In thousands of Brazilian Reais  

 

 

 

 

 

   Note 

March 31,

2021

  December 31, 2020
          
Cash        1,556,782    1,954,788 
                
Financial assets        115,611,055    90,190,827 
                
Fair value through profit or loss        76,441,946    57,149,446 
Securities   4    62,855,038    49,590,013 
Derivative financial instruments   5    13,586,908    7,559,433 
                
Fair value through other comprehensive income        21,629,266    19,039,044 
Securities   4    21,629,266    19,039,044 
                
Evaluated at amortized cost        17,539,843    14,002,337 
Securities   4    1,915,816    1,828,704 
Securities purchased under agreements to resell   3    6,741,459    6,627,409 
Securities trading and intermediation   9    3,184,130    1,051,566 
Accounts receivable        367,459    506,359 
Loan operations   7    5,041,413    3,918,328 
Other financial assets        289,566    69,971 
                
Other assets        2,174,885    1,760,999 
Recoverable taxes        128,769    127,623 
Rights-of-use assets   12    204,430    183,134 
Prepaid expenses   8    1,784,698    1,393,537 
Other        56,988    56,705 
                
Deferred tax assets   19    652,632    505,046 
Investments in associates and joint ventures   11    733,861    699,907 
Property and equipment   12    223,141    204,032 
Goodwill and Intangible assets   12    798,001    713,562 
                
                
Total assets        121,750,357    96,029,161 

 

The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.

 

 

1

 

 

 

XP Inc. and its subsidiaries

Unaudited interim condensed consolidated balance sheets  

As of March 31, 2021 and December 31, 2020

In thousands of Brazilian Reais  

 

 

 

 

   Note 

March 31,

2021

  December 31, 2020
          
Financial liabilities        92,617,251    70,600,989 
                
Fair value through profit or loss        16,269,472    10,056,806 
Securities loaned   4    2,705,869    2,237,442 
Derivative financial instruments   5    13,563,603    7,819,364 
                
Evaluated at amortized cost        76,347,779    60,544,183 
Securities sold under repurchase agreements   3    44,483,097    31,839,344 
Securities trading and intermediation   9    20,398,530    20,303,121 
Deposits   13    4,003,129    3,021,750 
Structured operations certificates   14    2,841,116    2,178,459 
Accounts payables        803,443    859,550 
Borrowings and lease liabilities   15    506,531    492,535 
Debentures   16    336,987    335,250 
Other financial liabilities   17    2,974,946    1,514,174 
                
Other liabilities        17,580,356    14,522,206 
Social and statutory obligations        399,957    667,448 
Taxes and social security obligations        249,950    435,849 
Private pension liabilities   18    16,896,508    13,387,913 
Provisions and contingent liabilities   22    26,024    19,711 
Other        7,917    11,285 
                
Deferred tax liabilities   19    -    8,352 
                
Total liabilities        110,197,607    85,131,547 
                
                
Equity attributable to owners of the Parent company        11,549,981    10,894,609 
Issued capital        23    23 
Capital reserve        10,802,675    10,663,942 
Other comprehensive income        13,615    230,644 
Retained earnings        733,668    - 
                
Non-controlling interest        2,769    3,005 
                
Total equity   20    11,552,750    10,897,614 
                
Total liabilities and equity        121,750,357    96,029,161 

 

The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.

 

2

 

 

XP Inc. and its subsidiaries

Unaudited interim condensed consolidated statements of income and of comprehensive income   

For the three months ended March 31, 2021 and 2020 

In thousands of Brazilian Reais, except earnings per share   

 

 

 

      Three months period ended March 31,
   Note  2021  2020
          
Net revenue from services rendered   23    1,454,656    1,151,946 
Net income from financial instruments at amortized cost and at fair value through other comprehensive income   23    30,884    202,497 
Net income from financial instruments at fair value through profit or loss   23    1,142,501    380,398 
Total revenue and income        2,628,041    1,734,841 
                
Operating costs   24    (837,435)   (556,854)
Selling expenses   25    (44,418)   (28,476)
Administrative expenses   25    (966,278)   (578,116)
Other operating income (expenses), net   26    18,361    (13,883)
Expected credit losses   10    (3,455)   (21,962)
Interest expense on debt        (9,516)   (19,019)
Share of profit or (loss) in joint ventures and associates   11    (1,084)   - 
                
Income before income tax        784,216    516,531 
                
Income tax expense   19    (50,068)   (118,977)
                
Net income for the period        734,148    397,554 
                
Other comprehensive income               
Items that can be subsequently reclassified to income               
Foreign exchange variation of investees located abroad        26,312    56,560 
Gains (losses) on net investment hedge        (20,744)   (56,496)
Changes in the fair value of financial assets at fair value through other comprehensive income        (222,597)   31,490 
                
Other comprehensive income (loss) for the period, net of tax        (217,029)   31,554 
                
Total comprehensive income for the period        517,119    429,108 
                
Net income attributable to:               
Owners of the Parent company        733,668    396,860 
Non-controlling interest        480    694 
                
Total comprehensive income attributable to:               
Owners of the Parent company        516,639    428,414 
Non-controlling interest        480    694 
                
Earnings per share from total income attributable to the ordinary equity holders of the company               
Basic earnings per share   28    1.3123    0.7192 
Diluted earnings per share   28    1.2810    0.7139 

 

The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.

 

 

3

 

 

XP Inc. and its subsidiaries 

Unaudited interim condensed consolidated statements of changes in equity  

For the three months ended March 31, 2021 and 2020 

In thousands of Brazilian Reais 

 

 

      Atributable to owners of the Parent      
         Capital reserve               
   Notes  Issued Capital  Additional paid-in capital  Other Reserves  Other comprehensive income  Retained Earnings  Total  Non-Controlling interest  Total Equity
                            
Balances at December 31, 2019        23    5,409,895    1,533,551    209,927    -    7,153,396    2,563    7,155,959 
Comprehensive income for the period                                             
Net income for the period        -    -    -    -    396,860    396,860    694    397,554 
Other comprehensive income, net        -    -    -    31,554    -    31,554    -    31,554 
Transactions with shareholders - contributions and distributions                                             
Share based plan   27    -    -    23,221    -    -    23,221    (7)   23,214 
Gain (loss) in changes in interest of subsidiaries, net        -    -    -    (83)   -    (83)   1,933    1,850 
Allocations of the net income for the period                                             
Dividends distributed        -    -    -    -    -    -    (3,432)   (3,432)
Balances at March 31, 2020        23    5,409,895    1,556,772    241,398    396,860    7,604,948    1,751    7,606,699 
                                              
                                              
                                              
Balances at December 31, 2020        23    6,821,176    3,842,766    230,644    -    10,894,609    3,005    10,897,614 
Comprehensive income for the period                                             
Net income for the period        -    -    -    -    733,668    733,668    480    734,148 
Other comprehensive income, net        -    -    -    (217,029)   -    (217,029)   -    (217,029)
Transactions with shareholders - contributions and distributions                                             
Share based Plan   27    -    -    140,549    -    -    140,549    2    140,551 
Gain (loss) in changes in interest of subsidiaries, net        -    -    (1,816)   -    -    (1,816)   61    (1,755)
Allocations of the net income for the period                                             
Dividends distributed        -    -    -    -    -    -    (779)   (779)
Balances at March 31, 2021        23    6,821,176    3,981,499    13,615    733,668    11,549,981    2,769    11,552,750 

 

 

 

The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.

 

 

4

 

 

XP Inc. and its subsidiaries 

Unaudited interim condensed consolidated statements of cash flows

For the three months ended March 31, 2021 and 2020 

In thousands of Brazilian Reais 

 

 

     

Three months ended

March 31,

   Note  2021  2020
Operating activities         
Income before income tax        784,216    516,531 
                
Adjustments to reconcile income before income taxes               
Depreciation of property and equipment and right-of-use assets   12    15,145    15,878 
Amortization of intangible assets   12    54,362    15,648 
Loss on write-off of property, equipment and intangible assets and lease, net   12    3,028    3,452 
Share of profit or (loss) in joint ventures and associates   11    1,084    - 
Expected credit losses on financial assets        3,455    21,962 
(Reversal of) Provision for contingencies, net   22    3,295    (387)
Net foreign exchange differences        (56)   (19,510)
Share based plan   27    140,551    23,221 
Interest accrued        12,019    20,087 
                
Changes in assets and liabilities               
Securities (assets and liabilities)        (15,255,321)   (6,676,164)
Derivative financial instruments (assets and liabilities)        (314,666)   988,979 
Securities trading and intermediation (assets and liabilities)        (2,037,783)   3,708,191 
Securities purchased (sold) under resale (repurchase) agreements        12,528,762    46,190 
Accounts receivable        138,006    6,197 
Loan operations        (1,121,807)   (63,520)
Prepaid expenses        (391,161)   (15,811)
Other assets and other financial assets        (220,817)   52,295 
Structured operations certificates        662,657    130,987 
Accounts payable        (56,375)   (1,616)
Deposits        981,379    4 
Social and statutory obligations        (267,491)   (217,971)
Tax and social security obligations        7,257    (33,554)
Private pension liabilities        3,508,595    1,395,998 
Other liabilities and other financial liabilities        1,419,510    141,008 
                
Cash from operations        597,844    58,095 
                
Income tax paid        (235,785)   (196,585)
Contingencies paid   22    (1,480)   (234)
Interest paid        (38)   (572)
Net cash flows (used in) from operating activities        360,541    (139,296)
                
Investing activities               
Acquisition of property and equipment   12(a)   (23,698)   (20,746)
Acquisition of intangible assets   12(a)   (114,298)   (19,914)
Acquisition of subsidiaries, net of cash acquired   2(e)   (854)   - 
Acquisition of associates and joint ventures        (23,231)   - 
Net cash flows (used in) investing activities        (162,081)   (40,660)
                
Financing activities               
Payments of borrowings and lease liabilities   32    (23,758)   (26,058)
Transactions with non-controlling interests        (1,755)   1,844 
Dividends paid to non-controlling interests        (779)   (3,432)
Net cash flows from (used in) financing activities        (26,292)   (27,646)
                
Net increase (decreased) in cash and cash equivalents        172,168    (207,602)
                
Cash and cash equivalents at the beginning of the period        2,660,388    887,796 
Effects of exchange rate changes on cash and cash equivalents        7,636    31,009 
Cash and cash equivalents at the end of the period        2,840,192    711,203 
                
Cash        1,556,782    249,950 
Securities purchased under agreements to resell   3    1,191,577    309,053 
Interbank certificate deposits   4    91,833    152,200 

 

The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.

 

6 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements  

As of March 31, 2021

In thousands of Brazilian Reais, unless otherwise stated 

 

1.Operations

 

XP Inc. (the “Company”) is a Cayman Island exempted company with limited liability, incorporated on August 29, 2019. The registered office of the Company is Ugland House, 121 South Church Street in George Town, Grand Cayman. The Company’s principal executive office is located in the city of São Paulo, Brazil.

 

XP Inc. is a holding company controlled by XP Controle Participações S.A., which holds 55.40% of voting rights and whose is ultimately controlled by a group of individuals. On December 13, 2019, the Company completed its Initial Public Offering (“IPO”) and the common shares began trading on the Nasdaq Global Select Market (“NASDAQ-GS”) under the symbol “XP”.

 

XP Inc. and its subsidiaries (collectively, the “Company”, “Group” or “XP Group”) is a leading, technology-driven financial services platform and a trusted provider of low-fee financial products and services in Brazil. XP Group are principally engaged in providing its customers, represented by individuals and legal entities in Brazil and abroad, various financial products, services, digital content and financial advisory services, mainly acting as broker-dealer, including securities brokerage, private pension plans, commercial and investment banking products such as loans operations, transactions in the foreign exchange markets and deposits, through our brands that reach clients directly and through network of Independent Financial Advisers (“IFAs”).

 

These unaudited interim condensed consolidated financial statements as of March 31, 2021 were approved by the Board of Directors on May 4, 2021.

 

1.1Follow-on public offering

 

On July 1, 2020, XP Inc. concluded an underwritten public offering of 22,465,733 Class A common shares offered by General Atlantic (XP) Bermuda, L.P. and XP Controle Participações S.A. (“selling shareholders”) at a public offering price of US$42.50 per share, including the full exercise of the underwriters’ option to purchase an additional 2,930,313 Class A common shares from the selling shareholders. The Company did not receive any proceeds from the sale of Class A common shares by the selling shareholders and there were no changes in the Company’s control structure as a result of such transaction.

 

On December 7, 2020, XP Inc closed of its underwritten secondary public offering of 31,654,894 Class A common shares, 7,130,435 of which were issued and sold by the Company and 24,524,459 of which were sold by ITB Holding Brasil Participações Ltda.. The offering was made pursuant to a registration statement on Form F-1 filed with the U.S. Securities and Exchange Commission (“SEC”).

 

The offering price per Class A common share was US$ 39.00, resulting in gross proceeds of US$283,087 thousand (or R$1,444,530) to XP Inc, deducting R$31,599 thousand as underwriting discounts and commissions. Additionally, the Company incurred in R$7,271 thousand regarding other offering expenses, of which R$5,622 thousand was recognized directly in income statements and an amount of R$1,649 in equity as transaction costs.

 

1.2Spin-off of Itaú’s investment in XP Inc.

 

In January 2021, XP Inc. reached an agreement with Itaú Unibanco in connection with Itaú’s spin-off of its investment in XP Inc., and has entered into two agreements regarding to the corporate reorganization announced by Itaú Unibanco Holding S.A. on December 31, 2020 (Itaú Agreements).

 

The Itaú Agreements establish certain steps to be taken as a result of the corporate reorganization approved and announced by its shareholders, which are subject to the US Federal Reserve Board’s (FED) approval.

 

6 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements  

As of March 31, 2021

In thousands of Brazilian Reais, unless otherwise stated 

 

The proposed transaction is being proposed by XPart and XP to streamline and simplify the corporate structure at shareholders’ level at XP, specifically by giving XPart’s shareholders more accessible ways to trade XP shares as they will directly own an interest in XP.

 

It is not expected that such transaction will have any impact on XP Inc.’s results of operations and financial condition.

 

1.3COVID-19

 

Covid-19 has significantly impacted the world economy. Many countries have imposed travel bans on millions of people and, additionally, people in many locations are subject to quarantine measures. Businesses are dealing with lost revenue and disrupted supply chains. Countries have imposed lockdowns in response to the pandemic and, as a result of the disruption to businesses, millions of workers have lost their jobs. The Covid-19 pandemic has also resulted in significant volatility in the financial and commodities markets worldwide. Numerous governments have announced measures to provide both financial and non-financial assistance to the affected entities. During the pandemic, the Group maintained trading platforms and other services available to clients without interruption. XP has played a valuable role on keeping our clients connected to the market and reinforce our mission to our clients.

 

Based on thorough assessments about the well-being and performance of our workforce, management announced on September 11, 2020, the permanent and company-wide adoption of the home-office model.

 

The Group has reviewed its exposure to economic-related and market volatility, which could negatively impact the value of a certain class of financial instruments however has not identified relevant impact to the financial performance or position of the group as March 31, 2021. The Company has sufficient headroom to enable it to comply with its covenants on its existing borrowings and sufficient working capital and undrawn financing facilities to service its operating activities and ongoing investments.

 

2.Basis of preparation and changes to the Group’s accounting policies

 

a)Basis of preparation

 

The unaudited interim condensed consolidated financial statements as of March 31, 2021 and for three months ended March, 2021 and 2020 have been prepared in accordance with IAS 34 Interim Financial Reporting as issued by the International Accounting Standards Board (“IASB”).

 

The unaudited interim condensed consolidated financial statements have been prepared on a historical cost basis, except for financial instruments that have been measured at fair value.

 

The unaudited 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 of December 31, 2020. The list of notes that were not presented in this unaudited interim condensed is described below:

 

Note to financial statements of December 31, 2020 Description
3. Summary of significant accounting policies
4. Significant estimated and judgements
5. Group structure
11. Accounts receivable
12. Recoverable taxes
24. Social and Statutory obligations
25. Tax and social security obligations
29. (a) Key-person management compensation
38. (b) to (f) Management of financial risks and financial instruments

7 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements  

As of March 31, 2021

In thousands of Brazilian Reais, unless otherwise stated 

 

The accounting policies adopted are consistent with those of the previous financial year and corresponding interim reporting period, except for the new accounting policies adopted for the current interim reporting period, see Note 2 (b).

 

The unaudited interim condensed consolidated financial statements are presented in Brazilian reais (“R$”), which is the Group’s presentation currency and all amounts disclosed in the financial statements and notes have been rounded off to the nearest thousand currency units unless otherwise stated.

 

b)New standards, interpretations and amendments adopted by the Group

 

The accounting policies adopted in the preparation of the unaudited interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group’s consolidated financial statements for the year ended December 31, 2020, except for the adoption of new standards effective as of 1 January 2021. The Group has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective.

 

Interest Rate Benchmark Reform – Phase 2: Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16

 

The amendments provide temporary reliefs which address the financial reporting effects when an interbank

 

offered rate (IBOR) is replaced with an alternative nearly risk-free interest rate (RFR).

 

The amendments include the following practical expedients:

 

·A practical expedient to require contractual changes, or changes to cash flows that are directly required by the reform, to be treated as changes to a floating interest rate, equivalent to a movement in a market rate of interest

 

·Permit changes required by IBOR reform to be made to hedge designations and hedge documentation without the hedging relationship being discontinued

 

·Provide temporary relief to entities from having to meet the separately identifiable requirement when an RFR instrument is designated as a hedge of a risk component

 

These amendments had no impact on the unaudited interim condensed consolidated financial statements of the Group. The Group intends to use the practical expedients in future periods if they become applicable.

 

c)Basis of consolidation

 

There were no changes since December 31, 2020 in the accounting practices adopted for consolidation of the Company’s direct and indirect interests in its subsidiaries for the purposes of these unaudited interim condensed consolidated financial statements, except for the following items:

 

8 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements  

As of March 31, 2021

In thousands of Brazilian Reais, unless otherwise stated 

 

      % of Group’s interest (i)
Entity name Country of incorporation Principal activities March 31,2021 December 31,2020
         
Directly controlled        
XPAC Sponsor LLC (ii) Cayman Special Purpose Acquisition  100.00% -
         
Indirectly controlled        
Leadr Serviços Online Ltda. (iii) Brazil Social media - 99.99%

 

(i)The percentage of participation represents the Group’s interest in total capital and voting capital of its subsidiaries.

(ii)New subsidiaries incorporated in the period.

(iii)Subsidiaries closed in the period.

 

d)Interests in associates and joint ventures

 

i.Associates

 

Associates are companies in which the investor has a significant influence but does not hold control. Investments in these companies are initially recognized at cost of acquisition and subsequently accounted for using the equity method. Investments in associates and joint ventures include the goodwill identified upon acquisition, net of any cumulative impairment loss.

 

ii.Joint ventures

 

The Group has joint venture whereby the parties that have joint control of the arrangement have rights to the net assets.

 

iii.Equity method

 

Under the equity method of accounting, the investments are initially recognised at cost and adjusted thereafter to recognise the Group’s share of the post-acquisition profits or losses of the investee in profit or loss, and the Group’s share of movements in other comprehensive income of the investee in other comprehensive income. Dividends received or receivable from associates and joint ventures are recognised as a reduction in the carrying amount of the investment.

 

Unrealised gains on transactions between the Group and its associates and joint ventures are eliminated to the extent of the Group’s interest in these entities. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of equity-accounted investees have been changed where necessary to ensure consistency with the policies adopted by the Group.

 

If its interest in the associates and joint ventures decreases, but the Group retains significant influence or joint control, only the proportional amount of the previously recognized amounts in Other comprehensive income is reclassified in Income, when appropriate.

 

e)Business combinations

 

During 2020 the Group acquired certain companies as part of our growth strategy and the fair value of the identifiable assets acquired and liabilities assumed as of each acquisition date were:

 

9 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements  

As of March 31, 2021

In thousands of Brazilian Reais, unless otherwise stated 

 

   Fliper  Antecipa  DM10  Total
Assets            
Cash   617    1,917    275    2,809 
Other assets   -    95    411    506 
Intangible assets   2,869    10,037    2,950    15,856 
    3,486    12,049    3,636    19,171 
Liabilities                    
Other liabilities   (6,159)   (198)   (1,522)   (7,879)
                     
Total identifiable net assets at fair value   (2,673)   11,851    2,114    11,292 
Goodwill arising on acquisition (*)   39,832    20,732    14,886    75,450 
Contingent consideration (**)   30,300    8,732    -    39,032 
Purchase consideration transferred (*)   67,459    41,315    17,000    125,774 
                     

Analysis of cash flows on acquisition

 

                    
Net cash acquired with the subsidiary   (617)   (1,917)   (275)   (2,809)
Payable in installments   -    (14,636)   (6,000)   (20,636)
Contingent consideration   (30,300)   (8,732)   -    (39,032)
Net of cash flow on acquisition (investing activities)   36,542    16,030    10,725    63,297 

 

From R$ 63,297 of net cash flow on aquisition, R$ 62,443 was settled during 2020, and R$ 854 was settled in 2021.

 

*During the measurement period, the purchase consideration transferred for the acquisitions was adjusted to R$ 125,774 (R$ 100,923 previously disclosed) as a result of purchase price adjustments. Accordingly, goodwill was updated to R$2,233.

 

** During the measurement period, the preliminary contingent consideration for the acquisitions was adjusted to R$39,032 (R$14,183 previously disclosed) as a result of a fair value adjustment of R$24,849.

 

For the purchase price allocation, the following intangible assets were identified. The valuation techniques used for measuring the fair value of separately identified intangible assets acquired were as follows:

 

Assets   Amount   Method   Expected amortization period
Customer list   2,181   Multi-period excess earning method   5.5 years
Trademark   3,799   Relief from royalty   5 years
Technology   9,876   Relief from royalty   5 years

 

For the concluded acquisitions, the total consideration paid is R$125,773, being: i) R$62,443 paid in cash, ii) R$21,487 payable in three consecutives annual installments from 2020 to 2022 adjusted by the Interbank Certificates of Deposit (“CDI”) rate and iii) R$ 39,032 as a fair value of the contingent consideration.

 

The goodwill recognized includes the value of expected synergies arising from the acquisition, which is not separately recognized. The goodwill recognized is not expected to be deductible for income taxes purposes.

 

In addition, the Company incurred direct costs for the business combinations which were expensed as incurred.

 

The results of operations of the businesses acquired for periods prior to acquisitions, individually and in the aggregate, were not material to the Company´s consolidated statements of income and, accordingly, pro forma information has not been presented.

 

10 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements  

As of March 31, 2021

In thousands of Brazilian Reais, unless otherwise stated 

 

Acquisition of Carteira Online Controle de Investimentos Ltda.-ME (“Fliper”)

 

On June 5, 2020, the Group entered into an agreement, to acquire 100% of total share capital of Carteira Online Controle de Investimentos Ltda.-ME (“Fliper”). Fliper is an automated investment consolidation platform that offers its users connectivity and tools to perform intuitive and intelligent financial self-management. The transaction allows the Group to offer its customers additional resources to manage their investments, as the open banking trend continues to accelerate in Brazil. On July 13, 2020, the acquisition was consummated, through approval of Central Bank (BACEN).

 

Acquisition of DM10 Corretora de Seguros e Assessoria Ltda. (“DM10”)

 

On June 9, 2020, the Group entered into an agreement, to acquire 100% of total share capital of DM10 Corretora de Seguros e Assessoria Ltda. (“DM10”). DM10 is an marketplace that connects hundreds of independent distributors with Life Insurance and Pension Plan products, adding value through technology and education. With the transaction, the Group enhances its distribution network in the insurance division. On September 24, 2020, the acquisition was consummated, through approval of Central Bank (BACEN).

 

Acquisition of Antecipa S.A. (“Antecipa”)

 

On June 29, 2020, the Group entered into an agreement, to 100% of total share capital of Antecipa S.A. (“Antecipa”). Antecipa is a digital platform focused on financing of receivables and offering an efficient alternative for companies to optimize its cash flow management. For the Group, the acquisition represents an opportunity to further expand its product range and reinforce the company’s presence in the Small to Medium Enterprise (SME) and corporate segments in Brazil, similar to XP’s transformational initiatives across the Retail, High-Income and Private Market channels. On September 1, 2020, acquisition was consummated, through approval of Central Bank (BACEN).

 

Acquisition of Riza Capital Consultoria de Investimentos S.A (“Riza”)

 

On December 23, 2020 the Group entered into an agreement, to acquire 100% of total share capital of Riza an independent financial advisory company. Riza has one of the most seasoned and respected teams in the segment, with experience in important financial institutions and active participation in some of the most relevant M&A transactions over the last decades. The transaction is aligned with XP Inc.’s strategy to reinforce its Capital Markets ecosystem.

 

As at March 31, 2021, the acquisition of Riza has not been completed. The Company expects to conclude the transaction during 2021, subject to certain contractual precedent conditions. After the closing of the acquisition XP will proceed with the purchase price allocation of net assets acquired as well as the consolidation of entities purchased.

 

f)Segment reporting

 

In reviewing the operational performance of the Group and allocating resources, the chief operating decision maker of the Group (“CODM”), who is the Group’s Chief Executive Officer (“CEO”) and the Board of Directors (“BoD”), represented by statutory directors holders of ordinary shares of the immediate parent of the Company, reviews selected items of the statement of income and of comprehensive income.

 

The CODM considers the whole Group as a single operating and reportable segment, monitoring operations, making decisions on fund allocation and evaluating performance based on a single operating segment. The

11 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements  

As of March 31, 2021

In thousands of Brazilian Reais, unless otherwise stated 

 

 

CODM reviews relevant financial data on a combined basis for all subsidiaries and joint ventures. Disaggregated information is only reviewed at the revenue level (Note 23), with no corresponding detail at any margin or profitability levels.

 

The Group’s revenue, results and assets for this one reportable segment can be determined by reference to the unaudited interim condensed consolidated statements of income and of comprehensive income and unaudited interim condensed consolidated balance sheet.

 

See Note 23 (c) for a breakdown of total revenue and income and selected assets by geographic location.

 

g)Estimates

 

The preparation of unaudited interim condensed consolidated financial statements of the Group requires management to make judgments and estimates and to adopt assumptions that affect the amounts presented referring to revenues, expenses, assets and liabilities at the reporting date. Actual results may differ from these estimates.

 

In preparing these unaudited interim condensed consolidated financial statements, the significant judgements and estimates made by management in applying the Group’s accounting policies and the key sources of estimation uncertainty were the same as those that are set the consolidated financial statements for the year ended December 31, 2020.

 

3.Securities purchased (sold) under resale (repurchase) agreements

 

a)Securities purchased under agreements to resell

 

  

March 31,

2021

  December 31, 2020
       
Available portfolio   2,959,713    1,409,742 
National Treasury Notes (NTNs) (a)   1,322,501    876,146 
Financial Treasury Bills (LFTs) (a)   650,613    452,714 
National Treasury Bills (LTNs) (a)   873,138    44,093 
Debentures (b)   113,461    36,789 
           
Collateral held   3,783,057    5,218,037 
National Treasury Bills (LTNs) (a)   977,999    976,468 
National Treasury Notes (NTNs) (a)   2,360,239    4,241,569 
Financial Treasury Bills (LFTs) (a)   241,195    - 
Debentures (b)   203,624    - 
           
Expected Credit Loss (c)   (1,311)   (370)
           
Total   6,741,459    6,627,409 

 

(a) Investments in purchase and sale commitments collateral-backed by sovereign debt securities refer to transactions involving the purchase of sovereign debt securities with a commitment to sale originated in the subsidiary XP CCTVM and in exclusive funds and were carried out at an average fixed rate of 2.58% p.a. (1.91% p.a. as of December 31, 2020).

 

(b) Refers to fixed-rate fixed-income and low-risk investments issued by financial institutions, collateral-backed by debentures.

 

(c) The reconciliation of gross carrying amount and the expected credit loss segregated by stages are presented in the Note 10.

 

12 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements  

As of March 31, 2021

In thousands of Brazilian Reais, unless otherwise stated 

 

As of March 31, 2021, R$1,191,577 (December 31, 2020 - R$593,673) from the total amount of available portfolio is being presented as cash equivalents in the statements of cash flows.

 

b)Securities sold under repurchase agreements

 

  

March 31,

2021

 

December 31,

2020

National Treasury Bills (LTNs)   17,018,906    18,318,498 
National Treasury Notes (NTNs)   22,008,552    13,497,944 
Financial Treasury Bills (LFTs)   5,215,499    - 
Debentures   240,140    22,902 
Total   44,483,097    31,839,344 
           

 

As of March 31, 2021, securities sold under repurchase agreements were agreed with average interest rates of 2.64% p.a. (December 31, 2020 – 1.89% p.a.), with assets pledged as collateral.

 

4.Securities

 

a)Securities classified at fair value through profit and loss:

 

  

March 31,

2021

 

December 31,

2020

   Gross carrying amount 

Fair

value

  Gross carrying amount 

Fair

value

Financial assets (ii)            
At fair value through profit or loss   63,160,733    62,855,038    49,157,111    49,590,013 
Brazilian government bonds   40,895,440    40,563,575    30,752,903    31,129,671 
Investment funds (ii)   14,989,732    14,994,872    11,216,914    11,221,774 
Stocks issued by public-held company   4,558,222    4,557,967    3,802,610    3,802,470 
Debentures   1,184,649    1,188,995    1,111,595    1,114,967 
Structured transaction certificate   382,230    401,185    485,012    515,960 
Bank deposit certificates (i)   287,617    289,022    371,455    372,329 
Agribusiness receivables certificates   152,999    151,756    359,607    363,721 
Certificate of real estate receivable   84,919    83,055    97,606    96,930 
Financial credit bills   65,449    65,758    81,465    82,209 
Uniated States government bonds   19,968    20,004    590,710    602,214 
Real estate credit bill   2,085    2,121    474    477 
Others (iii)   537,423    536,728    286,760    287,291 
                     
(i)Bank deposit certificates includes R$ 91,833 presented as cash equivalents in the statements of cash flows.

(ii)Financial assets include R$ 16,896,508 (December 31, 2020 – R$ 13,387,913) related to Specially Constituted Investment Fund (“FIE”) as presented in Note 18, out of which R$14,181,289 (December 31, 2020 – R$ 10,625,520) are Investments funds.

(iii)Mainly related to bonds issued and traded overseas.

13 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements  

As of March 31, 2021

In thousands of Brazilian Reais, unless otherwise stated 

 

 

b)Securities at fair value through other comprehensive income are presented in the following table:

 

  

March 31,

2021

 

December 31,

2020

   Gross carrying amount 

Fair

value

  Gross carrying amount 

Fair

value

Financial assets            
At fair value through other comprehensive income            
Brazilian government bonds (i)   21,977,757    21,629,266    19,011,499    19,039,044 

 

(i)Includes expected credit losses in the amount of R$ 10,238 (2020 – R$ 8,855). The reconciliation of gross carrying amount and the expected credit loss are presented in the Note 10.

 

c)Securities evaluated at amortized cost are presented in the following table:

 

  

March 31,

2021

 

December 31,

2020

   Gross carrying amount 

Book

value

  Gross carrying amount 

Book

value

Financial assets            
At fair value through other comprehensive income            
Bonds (i)   1,916,962    1,915,816    1,829,791    1,828,704 

 

(i)Includes expected credit losses in the amount of R$ 1,146 (2020 – R$ 1,087). The reconciliation of gross carrying amount and the expected credit loss are presented in the Note 10.

 

d)Securities on the financial liabilities classified at fair value through profit or loss are presented in the following table:

 

  

March 31,

2021

 

December 31,

2020

   Gross carrying amount 

Fair

value

  Gross carrying amount 

Fair

value

Financial liabilities            
At fair value through profit or loss            
Securities loaned   2,705,869    2,705,869    2,237,442    2,237,442 

 

e)Securities classified by maturity:

 

   Assets  Liabilities
  

March 31,

2021

  December 31, 2020 

March 31,

2021

  December 31, 2020
             
Financial assets            
At fair value through PL and at OCI            
Current   38,300,712    34,572,107    2,705,869    2,237,442 
Non-stated maturity   19,903,106    15,246,105    2,705,869    2,237,442 
Up to 3 months   11,831,738    794,025    -    - 
From 3 to 12 months   6,565,868    18,531,977    -    - 
                     
Non-current   46,193,830    34,065,805    -    - 
After one year   46,193,830    34,065,805    -    - 
                     
Evaluated at amortized cost                    
Current   1,916,962    1,829,791    -    - 
Up to 3 months   1,715,080    1,623,487    -    - 
From 3 to 12 months   201,882    206,304    -    - 
                     
Total   86,411,504    70,467,703    2,705,869    2,237,442 

14 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements  

As of March 31, 2021

In thousands of Brazilian Reais, unless otherwise stated 

 

The reconciliation of expected loss to financial assets at amortized cost – securities according with IFRS 9 is demonstrated in Note 10.

 

5.Derivative financial instruments

 

The Group trades derivative financial instruments with various counterparties to manage its overall exposures (interest rate, foreign currency and fair value of financial instruments) and to assist its customers in managing their own exposures.

 

Below is the composition of the derivative financial instruments portfolio (assets and liabilities) by type of instrument, stated fair value and by maturity:

 

  

March 31,

2021

   Notional  Fair Value  % 

Up to 3

months

 

From 3 to

12 months

 

Above

12 months

Assets                  
Options   509,856,294    6,967,818    95%   3,059,069    2,467,835    1,440,914 
Swap contracts   8,009,244    919,856    1%   210,430    79,270    630,156 
Forward contracts   10,565,131    5,488,700    2%   4,770,720    679,012    38,968 
Future contracts   9,565,259    210,534    2%   141,705    50,885    17,944 
Total   537,995,928    13,586,908    100%   8,181,924    3,277,002    2,127,982 
                               
Liabilities                              
Options   428,490,648    7,717,168    95%   3,535,508    2,377,603    1,804,057 
Swap contracts   7,333,816    1,247,598    2%   200,494    496,051    551,053 
Forward contracts   10,581,320    4,598,604    2%   4,564,545    21,952    12,107 
Future contracts   1,564,977    233    1%   -    11    222 
Total   447,970,761    13,563,603    100%   8,300,547    2,895,617    2,367,439 
                               

 

15 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements  

As of March 31, 2021

In thousands of Brazilian Reais, unless otherwise stated 

 

 

 

  

December 31,

2020

   Notional  Fair Value  % 

Up to 3

months

 

From 3 to

12 months

 

Above 12

months

Assets                  
Options   681,464,674    6,298,358    83%   2,327,062    2,351,285    1,620,011 
Swap contracts   5,578,227    777,816    10%   35,241    206,921    535,654 
Forward contracts   2,905,411    456,724    6%   230,862    201,324    24,538 
Future contracts   43,100,609    26,535    1%   26,535    -    - 
Total   733,048,921    7,559,433    100%   2,619,700    2,759,530    2,180,203 
                               
Liabilities                              
Options   614,741,256    6,735,478    87%   2,152,890    2,378,689    2,203,899 
Swap contracts   6,143,671    870,393    11%   99,249    213,532    557,612 
Forward contracts   3,035,011    200,272    3%   133,679    49,102    17,491 
Future contracts   44,981,642    13,221    1%   542    1,742    10,937 
Total   668,901,580    7,819,364    100%   2,386,360    2,643,065    2,789,939 
                               

 

 

6.Hedge accounting

 

The Group has two types of hedge relationships: hedge of net investment in foreign operations and fair value hedge. For hedge accounting purposes, the risk factors measured by the Group are:

 

·Interest Rate: Risk of volatility in transactions subject to interest rate variations;

 

·Currency: Risk of volatility in transactions subject to foreign exchange variation.

 

The structure of risk limits is extended to the risk factor level, where specific limits aim at improving the monitoring and understanding processes, as well as avoiding concentration of these risks.

 

The structures designed for interest rate and exchange rate categories take into account total risk when there are compatible hedging instruments. In certain cases, management may decide to hedge a risk for the risk factor term and limit of the hedging instrument.

 

a)Hedge of net investment in foreign operations

 

In the period ended March 31, 2021, the objective for the Group was to hedge the risk generated by the US$ variation from investments in our subsidiaries in the United States, XP Holdings International and XP Advisors Inc.

 

The Group has entered into forward contracts to protect against changes in future cash flows and exchange rate variation of net investments in foreign operations known as Non Deliverable Forward (“NDF”) contracts.

 

The Group undertakes risk management through the economic relationship between hedge instruments and hedged item, in which it is expected that these instruments will move in opposite directions, in the same proportions, with the aim of neutralizing the risk factors.

 

16 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements  

As of March 31, 2021

In thousands of Brazilian Reais, unless otherwise stated 

 

 

 

   Hedged item  Hedge instrument
   Book Value         
Strategies  Assets  Liabilities  Variation in value recognized in Other comprehensive income  Notional value  Variation in the
amounts used to
calculate hedge
ineffectiveness
March 31, 2021               
Foreign exchange risk               
Hedge of net investment in foreign operations   282,760    -    24,103    427,297    (20,744)
Total   282,760    -    24,103    427,297    (20,744)
                          
December 31, 2020                         
Foreign exchange risk                         
Hedge of net investment in foreign operations   245,986    -    52,299    349,218    (60,563)
Total   245,986    -    52,299    349,218    (60,563)

 

b)Fair value hedge

 

The fair value hedging strategy of the Group consists of hedging the exposure of Fixed-Income securities carried out through structured operations certificates.

 

The market risk hedge strategy involves avoiding temporary fluctuations in earnings arising from changes in the interest rate market in Reais. Once this risk is offset, the Group seeks to index the portfolio to the CDI, through the use of derivatives (DI1 Futuro).

 

The hedge is contracted in order to neutralize the total exposure to the market risk of the fixed-income funding portfolio, excluding the portion of the fixed-income compensation represented by the credit spread of Banco XP S.A, seeking to obtain the closest match deadlines and volumes as possible.

 

The effects of hedge accounting on the financial position and performance of the Group are presented below:

 

   Hedged item  Hedge instrument
   Book Value         
Strategies  Assets  Liabilities  Variation in value recognized in income  Nominal value  Variation in the amounts used to calculate hedge ineffectiveness
March 31, 2021               
Interest rate risk               
Hedge of  pre-fixed operations   -    2,841,116    228,878    2,838,377    (228,524)
Total   -    2,841,116    228,878    2,838,377    (228,524)
                          
December 31, 2020                         
Interest rate risk                         
Hedge of  pre-fixed operations   -    2,178,459    (47,923)   2,188,732    46,795 
Total   -    2,178,459    (47,923)   2,188,732    46,795 

 

 

17 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements  

As of March 31, 2021

In thousands of Brazilian Reais, unless otherwise stated 

 

 

    March 31, 2021
      Book value (i)      
Hedge Instruments  Notional amount  Assets  Liabilities  Variation in fair value used to calculate hedge ineffectiveness  Hedge ineffectiveness recognized in income
Interest rate risk               
Futures   2,838,377    -    2,841,116    (228,524)   354 
                          

 

  

December 31, 2020

      Book value (i)      
Hedge Instruments  Notional amount  Assets  Liabilities  Variation in fair value used to calculate hedge ineffectiveness  Hedge ineffectiveness recognized in income
Interest rate risk               
Futures   2,188,732    -    2,178,459    46,795    (1,128)

 

(i)Amounts recorded within financial statement line “Derivative financial instruments”. See Note 5.

 

The table below presents, for each strategy, the notional amount and the fair value adjustments of hedge instruments and the book value of the hedged item:

 

   March 31, 2021  December 31, 2020
Strategies  Hedge instruments  Hedge item  Hedge instruments  Hedge item
   Notional amount  Fair value adjustments  Book value  Notional amount  Fair value adjustments  Book value
Hedge of Fair Value   2,838,377    (228,524)   228,878    2,188,732    (47,923)   46,795 
Hedge of net investment in foreign operations   427,297    (20,744)   24,103    349,218    (60,563)   52,299 
Total   3,265,674    (249,268)   252,981    2,537,950    (108,486)   99,094 

 

The table below shows the breakdown notional value by maturity of the hedging strategies:

 

  

March 31, 2021

   0-1 year  1-2 years  2-3 years  3-4 years  4-5 years  5-10 years  Total
Hedge of Fair Value   18,367    19,307    166,022    103,503    1,049,761    1,481,417    2,838,377 
Hedge of net investment in foreign operations   42,730    -    162,373    222,194    -    -    427,297 
Total   61,097    19,307    328,395    325,697    1,049,761    1,481,417    3,265,674 

 

   December 31, 2020
   0-1 year  1-2 years  2-3 years  3-4 years  4-5 years  5-10 years  Total
Hedge of Fair Value   1,977    13,375    94,099    44,843    672,978    1,361,460    2,188,732 
Hedge of net investment in foreign operations   -    -    146,547    202,671    -    -    349,218 
Total   1,977    13,375    240,646    247,514    672,978    1,361,460    2,537,950 

 

18 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements  

As of March 31, 2021

In thousands of Brazilian Reais, unless otherwise stated 

 

 

7.Loan operations

 

Following are the breakdown of the carrying amount of loan operations by class, sector of debtor and maturity:

 

Loans by type 

March

31,2021

  December 31, 2020
Retail      
Pledged asset loan   3,472,794    2,698,018 
Non-pledged loan   121,739    116,978 
Credit card   317,266    51,270 
Corporate          
Pledged asset loan   1,104,551    946,008 
Non-pledged loan   31,046    113,155 
Total Loans operations   5,047,396    3,925,429 
Expected Credit Loss (Note 10)   (5,983)   (7,101)
Total loans operations, net of Expected Loss   5,041,413    3,918,328 

 

 

By maturity 

March 31,

2021

 

December 31,

2020

Due in 3 months or less   249,274    160,918 
Due after 3 months through 12 months   800,923    580,183 
Due after 12 months   3,997,199    3,184,328 
Total Loans operations   5,047,396    3,925,429 

 

The Group offers loan products through Banco XP to its customers. The loan products offered to its customers are fully collaterized by customers’ investments on XP platform and credit product strictly related to investments in structured notes, in which the borrower is able to operate leveraged, retaining the structured note itself as guarantee for the loan.

 

Certain loans operations originated by the collateralized credit has insignificant risk of loss, which results in no loss allowance being recognised in accordance with the Group's expected credit loss model. The carrying amount of such financial assets is R$349,890 at March 31, 2021 (December 31, 2020 – R$297,443).

 

The Group uses client’s investments as collaterals to reduce potential losses and protect against credit risk exposure by managing these collaterals so that they are always sufficient, legally enforceable (effective) and viable, the Group monitors the value of the collaterals. The Credit Risk Management provides subsidies to define strategies as risk appetite, to establish limits, including exposure analysis and trends as well as the effectiveness of the credit policy.

 

The reconciliation of loans operations according with IFRS 9 is demonstrated in Note 10.

 

19 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements  

As of March 31, 2021

In thousands of Brazilian Reais, unless otherwise stated 

 

8.Prepaid expenses

 

  

March 31,

2021

  December 31, 2020
Commissions and premiums paid in advance (a)   1,702,308    1,314,771 
Marketing expenses   21,984    28,056 
Services paid in advance   8,248    6,245 
Other expenses paid in advance   52,158    44,465 
Total   1,784,698    1,393,537 
           
Current   114,754    283,183 
Non-current   1,669,944    1,110,354 

 

(a) Mostly comprised by long term investment programs implemented by XP CCTVM through its network of IFAs. These commissions and premiums paid are recognized at the signing date of each contract and are amortized in the statement of income of the Company, linearly, according to the investment term period.

 

9.Securities trading and intermediation (receivable and payable)

 

Represented by operations at B3 on behalf of and on account of third parties, with liquidation operating cycle between D+1 and D+3.

 

   March 31, 2021  December 31, 2020
Cash and settlement records   1,279,944    18,128 
Debtors pending settlement   1,705,048    847,620 
Other   255,251    241,303 
(-) Expected losses on Securities trading and intermediation (a)   (56,113)   (55,485)
Total Assets   3,184,130    1,051,566 
           
Cash and settlement records   905,410    59,712 
Creditors pending settlement   19,493,120    20,243,409 
Total Liabilities   20,398,530    20,303,121 

 

(a)The reconciliation of gross carrying amount and the expected loss according with IFRS 9 were demonstrated in Note 10.

 

 

10.Expected Credit Losses on Financial Assets and Reconciliation of carrying amount

 

It is presented below the reconciliation of gross carrying amount of Financial assets through other comprehensive income and Financial assets measured at amortized cost – that have their ECLs (Expected Credit Losses) measured using the three stage model, the low credit risk simplification and the simplified approach and the ECLS as of March 31, 2021:

 

20 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements  

As of March 31, 2021

In thousands of Brazilian Reais, unless otherwise stated 

 

         March 31, 2021
   Gross carrying amount  Expected Credit Losses  Carrying amount, net
          
Financial assets at fair value through other comprehensive income         
Low credit risk simplification         
Securities (i)   21,639,504    (10,238)   21,629,266 
                
Financial assets amortized cost               
Low credit risk simplification               
Securities (i)   1,916,962    (1,146)   1,915,816 
Securities purchased under agreements to resell (i)   6,742,770    (1,311)   6,741,459 
Three stage model               
Loans and credit card operations (ii) (iii)   5,047,204    (5,791)   5,041,413 
Simplified approach               
Securities trading and intermediation   3,240,243    (56,113)   3,184,130 
Accounts Receivable   374,771    (7,312)   367,459 
Other financial assets   293,729    (4,163)   289,566 
                
Total losses for on-balance exposures   39,255,183    (86,074)   39,169,109 
                
Off-balance exposures (iv)   562,017    (192)   561,825 
                
Total exposures   39,817,200    (86,266)   39,730,934 

 

(i)Financial assets considered in Stage 1.

 

(ii)As of March 31, 2021 are presented in Stage 1: Gross amount of R$ 4,243,736 and ECL of R$ 3,284 and Stage 2: Gross amount of R$ 803,468 and ECL of R$ 2,507 respectively.

 

(iii)As of March 31, 2021 there were transfers between Stage 1 to Stage of R$2,156.

 

(iv)Include credit cards limits and sureties.

 

21 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements  

As of March 31, 2021

In thousands of Brazilian Reais, unless otherwise stated 

 

         December 31, 2020
   Gross carrying amount  Expected Credit Losses  Carrying amount, net
          
Financial assets at fair value through other comprehensive income               
Low credit risk simplification               
Securities (i)   19,047,899    (8,855)   19,039,044 
                
Financial assets amortized cost               
Low credit risk simplification               
Securities (i)   1,829,791    (1,087)   1,828,704 
Securities purchased under agreements to resell (i)   6,627,779    (370)   6,627,409 
Three stage model               
Loans and credit card operations (ii) (iii)   3,925,429    (7,101)   3,918,328 
Simplified approach               
Securities trading and intermediation   1,107,051    (55,485)   1,051,566 
Accounts Receivable   512,777    (6,418)   506,359 
Other financial assets   73,466    (3,495)   69,971 
                
Total losses for on-balance exposures   33,124,192    (82,811)   33,041,381 
                
Off-balance exposures (credit card limits)   35,810    -    35,810 
                
Total exposures   33,160,002    (82,811)   33,077,191 

 

(i)Financial assets considered in Stage 1.

 

(ii)As of December 31, 2020 are presented in Stage 1: Gross amount of R$ 3,599,808 and ECL of R$ 5,648 and Stage 2: Gross amount of R$ 325,621 and ECL of R$ 1,453 respectively.

 

(iii)As of December 31, 2020, there were no transfers between stages.

 

 

11.Investments in associates and joint ventures

 

Set out below are the associates and joint venture of the Group as of March 31, 2021. The entities listed below have share capital consisting solely of ordinary shares, which are held directly by the Group. The country of incorporation or registration is also their principal place of business, and the proportion of ownership interest is the same as the proportion of voting rights held.

 

Name of entity  % of ownership interest  Nature of relationship  Measurement method  Equity  Carrying amount
Du Agro Holdings S.A.   49%  Joint Venture (1)  Equity method   2,543    1,246 
Wealth High Governance Holding de Participações S.A.   49,9%  Associate (2)  Equity method   144,559    72,135 
O Primo Rico Mídia, Educacional e Participações Ltda.   20%  Associate (3)  Equity method   19,481    3,896 
Total equity-accounted investments              166,583    77,277 

 

(1) On June 23, 2020, the Company acquired a 49% interest in DuAgro Holdings S.A. (“DuAgro”), a joint venture involved in the agribusiness. DuAgro is an integrated platform that utilizes technology to finance the purchase of agricultural inputs. The focus is on small- and medium-sized producers.

(2) On September 8, 2020, the Company entered into an agreement to hold a 49.9% minority stake of the total share capital of Wealth High Governance Holding de Participações S.A. (“WHG”) formely denominated VPL Gestão Patrimonial e Participações S.A. With this transaction XP Inc. is complementing the existing offering to ultra-high-net-worth individual in the Wealth Management segment.

 

22 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements  

As of March 31, 2021

In thousands of Brazilian Reais, unless otherwise stated 

 

(3) O Primo Rico is a company focused on digital content services, including developing and selling financial education courses and online events.

 

                
Entity 

December 31,

2020

  Equity in earnings  Other comprehensive income  Goodwill (i)  March 31,
2021
Du Agro Holdings S.A.   1,983    (329)   -    -    1,654 
Wealth High Governance Holding de Participações S.A. (ii)   695,859    (2,475)   -    34,927    728,311 
O Primo Rico   2,065    1,720    111    -    3,896 
 Total   699,907    (1,084)   111    34,927    733,861 

(i) Related to the acquisitions of associates and joint ventures. As of December 31, 2020 the goodwill recognized is includes the value of expected synergies arising from the investments.

(ii) The Goodwill includes an element of contingent consideration. The fair value of the contingent consideration is presented in Note 17. During the measurement period, the preliminary fair value of contingent consideration for the acquisitions was adjusted to R$482,744 (R$447,817 previously disclosed).

 

 

12.Property, equipment, goodwill, intangible assets and lease

 

a)Changes in the period

 

  

Property and

equipment

 

Intangible

assets

       
As of January 1, 2020   142,464    553,452 
Additions   20,746    19,914 
Write-offs   (324)   - 
Transfers   (2,083)   2,083 
Depreciation / amortization in the period   (6,255)   (15,648)
As of March 31, 2020   154,548    559,801 
Cost   211,839    672,045 
Accumulated depreciation / amortization   (57,291)   (112,244)
           
As of January 1, 2021   204,032    713,563 
Additions   23,698    114,298 
Business combination   -    27,048 
Write-offs   (452)   (2,576)
Transfers   5    (5)
Foreign exchange   1,091    35 
Depreciation / amortization in the period   (5,233)   (54,362)
As of March 31, 2021   223,141    798,001 
Cost   269,430    952,536 
Accumulated depreciation / amortization   (46,289)   (154,535)
           
b)Impairment test for goodwill

 

Given the interdependency of cash flows and the merger of business practices, all Group’s entities are considered a single cash generating units (“CGU”) and, therefore, goodwill impairment test is performed at the single operating level. Therefore, the carrying amount considered for the impairment test represents the Company’s equity.

 

23 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements  

As of March 31, 2021

In thousands of Brazilian Reais, unless otherwise stated 

 

The Group performs its annual impairment test in December and when circumstances indicates that the carrying value may be impaired. The Group’s impairment tests are based on value-in-use calculations. The key assumptions used to determine the recoverable amount for the cash generating unit were disclosed in the annual consolidated financial statements for the year ended December 31, 2020. As of March 31, 2021, there were no indicators of a potential impairment of goodwill.

 

c)Leases

 

Set out below, are the carrying amounts of the Group’s right-of-use assets and lease liabilities and the movements during the period.

 

  

Right-of-use

assets

 

Lease

liabilities

       
As of January 1, 2020   227,478    255,406 
Additions (i)   19,273    19,361 
Depreciation expense   (9,623)   - 
Interest expense   -    6,145 
Revaluation   (19,968)   (19,968)
Impairment   (3,040)   - 
Effects of exchange rate   22,016    23,561 
Payment of lease liabilities   -    (15,558)
As of March 31, 2020   236,136    268,947 
           
As of January 1, 2021   183,134    208,448 
Additions (i)   1,528    1,528 
Depreciation expense   (9,912)   - 
Interest expense   -    3,965 
Revaluation   21,543    21,275 
Effects of exchange rate   8,137    9,206 
Payment of lease liabilities   -    (13,258)
As of March 31, 2021   204,430    231,164 
Current   -    53,817 
Non-current   204,430    177,347 

 

(i)Additions to right-of-use assets in the period include prepayments to lessors and accrued liabilities.

 

The Group recognized rent expense from short-term leases and low-value assets of R$902 for the period ended March 31, 2021. The total rent expense of R$ 6,070 include other expenses related to leased offices such as condominium.

 

24 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements  

As of March 31, 2021

In thousands of Brazilian Reais, unless otherwise stated 

 

13.Deposits

 

  

March 31,

2021

  December 31,
2020
Demands deposits   148,745    44,536 
Time deposits   3,854,384    2,977,214 
Total   4,003,129    3,021,750 
           
Current   3,545,327    2,524,651 
Non-Current   457,802    497,099 

 

 

Maturity – As of March 31, 2021                     
Class  Within 30 days  From 31 to 60 days  From 61 to 90 days  From 91 to 180 days  From 181 to 360 days  After 360 days  Total
Demand deposits   148,745    -    -    -    -    -    148,745 
Time deposits   21,533    46,170    145,499    1,549,421    1,633,959    457,802    3,854,384 
Total   170,278    46,170    145,499    1,549,421    1,633,959    457,802    4,003,129 
                                    
Maturity – As of December 31, 2020                                   
 Class   Within 30 days    From 31 to 60 days    From 61 to 90 days    From 91 to 180 days    From 181 to 360 days    After 360 days    Total 
Demand deposits   44,536    -    -    -    -    -    44,536 
Time deposits   67,501    1,185    57,781    191,886    2,161,762    497,099    2,977,214 
Total   112,037    1,185    57,781    191,886    2,161,762    497,099    3,021,750 

 

 

14.Structured operations certificates

 

Structured Operations Certificates (COE) are financial instruments combining fixed and variable income elements, with returns linked to assets indices such as exchange, inflation, shares and international assets. All the financial instruments its originate by Banco XP S.A.

 

  

March 31,

2021

  December 31, 2020
Maturity          
From 91 to 180 days   1,889    945 
From 180 to 360 days   25,345    1,489 
After 360 days   2,813,882    2,176,025 
Total   2,841,116    2,178,459 
           
Current   27,234    2,434 
Non-Current   2,813,882    2,176,025 

25 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements  

As of March 31, 2021

In thousands of Brazilian Reais, unless otherwise stated 

 

15.Borrowings and lease liabilities

 

   Interest rate %  Maturity  March 31, 2021  December 31, 2020
             
Bank borrowings – domestic (i)  113% of CDI(*)   March 2021    -    10,523 
Related parties           -    10,523 
                   
Financial institution (ii)  CDI (*)+ 0.774%   April 2023    275,367    273,564 
Third parties           275,367    273,564 
                   
Total borrowings           275,367    284,087 
                   
Lease liabilities           231,164    208,448 
                   
Total borrowings and lease liabilities           506,531    492,535 
                   
Current           62,164    51,656 
Non-current           444,367    440,879 

 

(*) Brazilian Interbank Offering Rate (CDI)

 

(i) Loan agreement with Itaú Unibanco that was fully paid on March 8, 2021.

(ii) Loan agreement entered into on March 28, 2018 with the International Finance Corporation (IFC). The principal amount is due on the maturity date and accrued interests payable at every six months.

 

All the obligations above contain financial covenants, which comply with certain performance conditions. The Group has complied with these covenants throughout the reporting period (Note 31 (ii)).

 

 

16.Debentures

 

On May 15, 2019, the Company issued Debentures, non-convertible into shares, in the amount of R$ 400,000, with the objective of funding the Group’s working capital and treasury investments.

 

As of March 31, 2021, the total balance is comprised of the following issuances:

 

Issuance  Quantity Issued (units) 

Annual

rate

  Issuance date  Maturity date  Unit value at issuance  Unit value at period-end 

Book

value

2nd   400,000   107.5% CDI  5/15/2019  5/15/2022  R$1,000.00   R$1,007.76    336,987 
Total   400,000                       336,987 
                              

 

 

  

March 31,

2021

  December 31, 2020
Principal   400,000    400,000 
Interest   26,828    25,091 
Payments   (25,124)   (25,124)
Repurchase   (64,717)   (64,717)
Total   336,987    335,250 
           
Current   205,664    204,731 
Non-current   131,323    130,519 

 

The principal amount and accrued interest payables related to the second issuance are as follow: (i) for the principal amount, 50% is due on May 15, 2021 and the remaining balance on the maturity date, and (ii) the accrued interest is payable every 12 months from the issuance date.

 

26 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements  

As of March 31, 2021

In thousands of Brazilian Reais, unless otherwise stated 

 

Debentures are subject to financial covenants, which comply with certain performance conditions. The Group has complied with these covenants throughout the reporting period (Note 31(ii)).

 

17.Other financial liabilities

 

  

March 31,

2021

  December 31, 2020
Structured financing (i)   1,725,220    874,771 
Contingent consideration (ii)   521,776    462,000 
Foreign exchange portfolio   322,227    70,208 
Credit cards operations (iii)   306,720    50,727 
Financial bills (iii)   83,009    16,389 
Others   15,994    40,079 
Total   2,974,946    1,514,174 
           
Current   2,370,161    1,035,785 
Non-current   604,785    478,389 

 

(i)Financing for maintenance of financial assets required to perform financial transactions.

(ii)Contractual contingent considerations mostly associated to the investment acquisition of WHG, as described in Note 11. The contingent consideration arrangement requires that the Company pay the selling shareholders an amount principally associated to the performance (net income without dividends). The maturity of the total contingent consideration payment is up to 6 years and the contractual maximum amount payable is R$653,222 (the minimum amount is zero).

(iii)Related to operations of Banco XP S.A.

 

 

18.Private pension liabilities

 

As of March 31, 2021, active plans are principally accumulation of financial resources through products PGBL and VGBL structured in the form of variable contribution, for the purpose of granting participants with returns based on the accumulated capital in the form of monthly withdraws for a certain term or temporary monthly withdraws.

 

In this respect, such financial products represent investment contracts that have the legal form of private pension plans, but which do not transfer insurance risk to the Group. Therefore, contributions received from participants are accounted for as liabilities and balance consists of the balance of the participant in the linked Specially Constituted Investment Fund (“FIE”) at the reporting date (Note 4 (a)).

 

27 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements  

As of March 31, 2021

In thousands of Brazilian Reais, unless otherwise stated 

 

Changes in the period:

 

   Three months period ended March 31,
   2021  2020
As of January 1   13,387,913    3,759,090 
Contributions received   619,361    278,357 
Transfer with third party plans   3,123,046    1,636,370 
Withdraws   (211,872)   (46,585)
Gain (loss) from FIE   (21,940)   (472,144)
As of March 31   16,896,508    5,155,088 
           
           
19.Income tax

 

a)Deferred income tax

 

Deferred tax assets (DTA) and deferred tax liabilities (DTL) are comprised of the main following components:

 

   Balance Sheet  Net change in the three months period ended
   March 31, 2021  December 31, 2020  March 31, 2021 

March 31,

2020

             
Share based compensation   186,025    115,976    70,049    11,237 
Tax losses carryforwards   143,923    7,382    136,541    22,152 
Provisions for IFAs’ commissions   103,871    94,544    9,327    (3,372)
Profit sharing plan   83,996    164,808    (80,812)   (69,828)
Net gain on hedge instruments   37,745    20,987    16,758    59,091 
Expected credit losses (ii)   21,634    19,444    2,190    8,029 
Revaluations of financial assets at fair value   20,931    (16,780)   37,711    (51,629)
Goodwill on business combinations (i)   20,300    22,838    (2,538)   (7,589)
Other provisions   34,207    67,495    (33,288)   14,019 
Total   652,632    496,694    155,938    (17,890)
Deferred tax assets   652,632    505,046           
Deferred tax liabilities   -    (8,352)          
                     
(i)For tax purposes, goodwill is amortized over 5 years on a straight-line basis when the entity acquired is sold or merged into another entity.

(ii)Include expected credit loss on accounts receivable, loan operations and other financial assets.

 

The changes in the net deferred tax were recognized as follows:

 

   Three months period ended March 31,
   2021  2020
       
As of January 1   496,694    279,401 
Foreign exchange variations   987    21,055 
Charges to statement of income   (9,571)   (47,072)
Tax relating to components of other comprehensive income   164,522    8,128 
As of March 31   652,632    261,512 
           

28 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements  

As of March 31, 2021

In thousands of Brazilian Reais, unless otherwise stated 

 

Unrecognized deferred taxes

 

Deferred tax assets are recognized for tax losses to the extent that the realization of the related tax benefit against future taxable profits is probable. The Group did not recognize deferred tax assets of R$40,169 (December 31, 2020 - R$ 37,309) mainly in respect of losses from subsidiaries overseas and that can be carried forward and used against future taxable income.

 

Changes in Social Contribution on Net Income (CSLL)

 

On March 1, 2021, Provisional Measure No. 1,034 was published increasing the Social Contribution on Net Income (CSLL) rate by 5%, to 25% for Banks and 20% for Broker dealers.

 

The text of the Provisional Measure proposes the validity of the increase in the CSLL rate between July and December 2021. The deadline for converting the Provisional Measure into Law is 60 days, extendable for an additional 60 days from the date of publication of the said rule.

 

The Group is monitoring the impacts on its business, which are still uncertain and will depend on the approval and conversion of the provisional measure into Law and does not expect significant impacts on the Company's results or financial position.

 

b)Income tax expense reconciliation

 

The tax on the Group's pre-tax profit differs from the theoretical amount that would arise using the weighted average tax rate applicable to profits of the consolidated entities. The following is a reconciliation of income tax expense to profit (loss) for the year, calculated by applying the combined Brazilian statutory rates at 34% for the period ended March 31:

 

  

Three months period

ended March 31,

   2021  2020
       
Income before taxes   784,216    516,531 
Combined tax rate in Brazil (a)   34%   34%
Tax expense at the combined rate   266,634    175,620 
           
Income (loss) from entities not subject to taxation   2,176    (9,246)
Effects from entities taxed at different rates   14,068    14,287 
Effects from entities taxed at different taxation regimes (b)   (215,804)   (64,678)
Intercompany transactions with different taxation   (13,394)   (9,156)
Tax incentives   (543)   605 
Non deductible expenses (non-taxable income), net   (5,231)   6,586 
Others   2,162    4,959 
Total   50,068    118,977 
Effective tax rate   6.38%   23.03%
           
Current   40,498    71,905 
Deferred   9,570    47,072 
Total expense   50,068    118,977 

 

(a)Considering that XP Inc. is domiciled in Cayman and there is no income tax in that jurisdiction, the combined tax rate of 34% demonstrated above is the current rate applied to XP Investimentos S.A. which is the holding company of all operating entities of XP Inc. in Brazil.

 

29 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements  

As of March 31, 2021

In thousands of Brazilian Reais, unless otherwise stated 

 

(b)Certain eligible subsidiaries adopted the PPM tax regime and the effect of the presumed profit of subsidiaries represents the difference between the taxation based on this method and the amount that would be due based on the statutory rate applied to the taxable profit of the subsidiaries. Additionally, some entities and investment funds adopt different taxation regimes according to the applicable rules in their jurisdictions

 

Other comprehensive income

 

The tax (charge)/credit relating to components of other comprehensive income is as follows:

 

   Before tax 

(Charge)

/ Credit

  After tax
          
Foreign exchange variation of investees located abroad   56,560    -    56,560 
Gains (losses) on net investment hedge   (85,600)   29,104    (56,496)
Changes in the fair value of financial assets at fair value   52,467    (20,977)   31,490 
As of March 31, 2020   23,427    8,127    31,554 
                
Foreign exchange variation of investees located abroad   26,312    -    26,312 
Gains (losses) on net investment hedge   (31,430)   10,686    (20,744)
Changes in the fair value of financial assets at fair value   (376,434)   153,837    (222,597)
As of March 31, 2021   (381,552)   164,523    (217,029)

 

 

20.Equity

 

(a)Issued capital

 

The Company has an authorized share capital of US$ 35 thousand, corresponding to 3,500,000,000 authorized shares with a par value of US$ 0,00001 each of which:

 

·2,000,000,000 shares are designated as Class A common shares and issued; and

 

·1,000,000,000 shares are designated as Class B common shares and issued.

 

The remaining 500,000,000 authorized but unissued shares are presently undesignated and may be issued by our board of directors as common shares of any class or as shares with preferred, deferred or other special rights or restrictions. Therefore, the Company is authorized to increase capital up to this limit, subject to approval of the Board of Directors.

 

As of March 31, 2021, the Company have R$23 thousand of issued capital which were represented by 377,764,985 Class A common shares and 181,293,980 Class B common shares.

 

(b)Additional paid-in capital and capital reserve

 

Class A and Class B common shares, have the following rights:

 

·Each holder of a Class B common share is entitled, in respect of such share, to 10 votes per share, whereas the holder of a Class A common share is entitled, in respect of such share, to one vote per share.

 

·Each holder of Class A common shares and Class B common shares vote together as a single class on all matters (including the election of directors) submitted to a vote of shareholders, except as provided below and as otherwise required by law.

 

30 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements  

As of March 31, 2021

In thousands of Brazilian Reais, unless otherwise stated 

 

·Class consents from the holders of Class A common shares and Class B common shares, as applicable, shall be required for any modifications to the rights attached to their respective class of shares the rights conferred on holders of Class A common shares shall not be deemed to be varied by the creation or issue of further Class B common shares and vice versa; and

 

·the rights attaching to the Class A common shares and the Class B common shares shall not be deemed to be varied by the creation or issue of shares with preferred or other rights, including, without limitation, shares with enhanced or weighted voting rights.

 

The Articles of Association provide that at any time when there are Class A common shares in issue, Class B common shares may only be issued pursuant to: (a) a share split, subdivision of shares or similar transaction or where a dividend or other distribution is paid by the issue of shares or rights to acquire shares or following capitalization of profits; (b) a merger, consolidation, or other business combination involving the issuance of Class B common shares as full or partial consideration; or (c) an issuance of Class A common shares, whereby holders of the Class B common shares are entitled to purchase a number of Class B common shares that would allow them to maintain their proportional ownership and voting interests in XP Inc.

 

In December 2020, as a result of the completion of the secondary public offering describe in Note 1.1 a number of 7,258,639 Class A common shares were offered by the controlling shareholder of XP Inc.

 

The Board of Directors approved on December 2019 a share based long-term incentive plan, which the maximum number of shares should not exceed 5% of the issued and outstanding shares. As of March 31, 2021, the outstanding number of company reserved under the plans were 10,593,118 restricted share units (“RSUs”) (December 31, 2020 – 11,079,736) and 2,819,912 performance restricted units (“PSUs”) (December 31, 2020 – 2,819,812) to be issued at the vesting date.

 

The additional paid-in capital refers to the difference between the purchase price that the shareholders pay for the shares and their par value. Under Cayman Law, the amount in this type of account may be applied by the Company to pay distributions or dividends to members, pay up unissued shares to be issued as fully paid, for redemptions and repurchases of own shares, for writing off preliminary expenses, recognized expenses, commissions or for other reasons. All distributions are subject to the Cayman Solvency Test which addresses the Company’s ability to pay debts as they fall due in the natural course of business

 

(c)Dividends distribution

 

The Group has not adopted a dividend policy with respect to future distributions of dividends. The amount of any distributions will depend on many factors such as the Company's results of operations, financial condition, cash requirements, prospects and other factors deemed relevant by XP Inc. board of directors and, where applicable, the shareholders.

 

For the three months period ended March 31, 2021, XP Inc. has not declared and paid dividends to the shareholders.

 

Non-controlling shareholders of some XP Inc’s subsidiaries has received dividends in the period ended of March 31, 2021.

 

(d)Other comprehensive income

 

Other comprehensive income is comprised of changes in the fair value of financial assets at fair value through other comprehensive income, while this financial assets are not realized. Also includes gains (losses) on net investment hedge and foreign exchange variation of investeeds located abroad.

 

31 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements  

As of March 31, 2021

In thousands of Brazilian Reais, unless otherwise stated 

 

21.Related party transactions

 

The main transactions carried with related parties, under commutative conditions, including interest rates, terms and guarantees, and period-end balances arising from such transactions are as follows:

 

   Assets/(Liabilities)  Revenue/(Expenses)
         Three months period ended March 31,
Relation and transaction  March 31, 2021  December 31, 2020  2021  2020
             
Shareholders with significant influence (i)   (3,732,842)   (5,667,588)   (21,596)   (26,039)
Securities   91,833    112,127    628    3,780 
Securities purchased under agreements to resell   174,999    -    830    (30,087)
Accounts receivable   326    11,238    297    797 
Securities sold under repurchase agreements   (4,000,000)   (5,780,430)   (23,330)   - 
Borrowings   -    (10,523)   (21)   (529)

 

(i)These transactions are related to Itaú Unibanco who became shareholder of the Company in 2018 and since then a related party.

 

Transactions with related parties also includes transactions among the Company and its subsidiaries in the course of normal operations include services rendered such as: (i) education, consulting and business advisory; (ii) financial advisory and financial consulting in general; (iii) management of resources and portfolio management; (iv) information technology and data processing; and (v) insurance. The effects of these transactions have been eliminated and do not have effects on the consolidated financial statements.

 

 

22.Provisions and contingent liabilities

 

The Company and its subsidiaries are party to judicial and administrative litigations before various courts and government bodies, arising from the ordinary course of operations, involving tax, civil and labor matters and other issues. Periodically, Management evaluates the tax, civil and labor and risks, based on legal, economic and tax supporting data, in order to classify the risks as probable, possible or remote, in accordance with the chances of them occurring and being settled, taking into consideration, case by case, the analyses prepared by external and internal legal advisors.

 

  

March 31,

2021

  December 31,
2020
Tax contingencies   10,129    10,097 
Civil contingencies   10,267    4,281 
Labor contingencies   5,628    5,333 
Total provision   26,024    19,711 
           
Judicial deposits (i)   10,219    10,199 

 

(i)There are circumstances in which the Group is questioning the legitimacy of certain litigations or claims filed against it. As a result, either because of a judicial order or based on the strategy adopted by management, the Group might be required to secure part or the whole amount in question by means of judicial deposits, without this being characterized as the settlement of the liability. These amounts are classified as “Other assets” on the consolidated balance sheets and referred above for information.

 

32 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements  

As of March 31, 2021

In thousands of Brazilian Reais, unless otherwise stated 

 

Changes in the provision during the period

 

   Three months period ended March 31,
   2021  2020
       
As of January 1   19,711    15,193 
Monetary correction   4,498    325 
Provisions accrued   3,308    159 
Provisions reversed   (13)   (546)
Payments   (1,480)   (234)
As of March 31   26,024    14,897 

 

Nature of claims

 

a)Tax

 

As of March 31, the Group has claims classified as probable risk of loss in the amount of R$ 10,129 (December 31, 2020 - R$ 10,097), regarding questioning the definition of the basis for calculating revenues to be paid correctly. This case was pending the specialized technical report after the decision of the court of second instance to grant the right to provide evidence and send the case back to the court of first instance. These processes are supported by judicial deposits in their entirety.

 

b)Civil

 

The majority of the civil and administratives claims involve matters that are normal and specific to the business, and refer to demands for indemnity primarily due to: (i) financial losses in the stock market; (ii) portfolio management; and (iii) alleged losses generated from the liquidation of costumers assets in portfolio due to margin cause and/or negative balance. As of March 31, 2021, there were 102 civil and administrative claims for which the likelihood of loss has been classified as probable, in the amount of R$ 10,267 (December 31, 2020 - R$ 4,281). An amount of R$100 was deposited in court as of March 31, 2021 (December 31, 2020 – R$ 100).

 

c)Labor

 

Labor claims to which the Group is party primarily concern: (i) the existence (or otherwise) of a working relationship between the Group and IFAs; and (ii) severance payment of former employees. As of March 31, 2021, the Company and its subsidiaries are the defendants in approximately 12 cases involving labor matters for which the likelihood of loss has been classified as probable, in the amount of R$ 5,628 (December 31, 2020 - R$ 5,333).

 

Contingent liabilities - probability of loss classified as possible

 

In addition to the provisions constituted, the Company and its subsidiaries have several labor, civil and tax contingencies in progress, in which they are the defendants, and the likelihood of loss, based on the opinions of the internal and external legal advisors, is considered possible, and the contingencies amount to approximately R$ 220,759 (December 31, 2020 - R$ 217,426).

 

33 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements  

As of March 31, 2021

In thousands of Brazilian Reais, unless otherwise stated 

 

Below is summarized these possible claims by nature:

 

  

March 31,

2021

  December 31, 2020
Tax (i)   71,172    71,027 
Civil (ii)   130,778    136,228 
Labor   18,809    10,171 
Total   220,759    217,426 

 

(i)In December 2019, the Group was notified by tax authorities for a requirement of social security contributions due to employee profit sharing payments related to the calendar year 2015, allegedly in violation of Brazilian Law 10.101/00. Currently, the first appeal was denied by the first administrative level of the Revenue Service Office. The Group will provide the ordinary appeal to Administrative Council of Tax Appeals (“CARF”). There are other favorable CARF precedents on the subject and the Group obtained legal opinions that support the Group’s defense and current practice.

 

(ii)The Group is defendant in 477 (December 31, 2020 – 586) civil and administrative claims by customers and investment agents, mainly related to portfolio management, risk rating, copyrights and contract termination. The total amount represents the collective maximum value to which the Group is exposed based on the claims’ amounts monetarily restated.

 

 

23.Total revenue and income

 

a)Net revenue from services rendered

 

Revenue from contracts with customers derives mostly from services rendered and fees charged at daily transactions from customers, therefore mostly recognized at a point in time. Disaggregation of revenue by major service lines are as follows: