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 August 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: August 3, 2021

 

   

 

 

 

EXHIBIT INDEX

 

Exhibit No. Description
99.1 Earnings Release dated August 3, 2021 – XP Inc. Reports 2Q21 Financial Results
99.2 2Q21 Earnings Presentation
99.3 XP Inc. – Unaudited interim condensed consolidated financial statements for the six months period ended June 30, 2021

  

 

 

 

 

 

Exhibit 99.1

 

 

 

 

 

 

XP Inc. Reports 2Q21 Financial Results

 

São Paulo, Brazil, August 3, 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 second quarter of 2021.

 

To our shareholders

 

It is a great honor and responsibility to be writing my first letter to shareholders as the CEO of XP Inc. Being Guilherme's successor after he occupied the role for twenty years is an honor, and on behalf of everyone at XP I would like to thank him for inspiring us and to have believed in a dream that became the company we are all proud to be part of today. Guilherme will remain as involved in the new role as he has always been in the company, but focused on strategic agendas, People and Culture and long-term planning.

 

Looking into the future, my mission is to continue the process of disruption we have been leading in the Brazilian financial industry. One of the main pillars that will allow us to continue to grow our main performance metrics and enter new markets is the digital transformation underway at the company, which I have been following closely since its inception.

 

The focus and robustness in technology and data allow us to be an increasingly agile company with strong adaptability, launching high-quality products, services and functionalities in a short period. In the current competitive scenario, which is undoubtedly more challenging than in the past, we believe that these advantages will be decisive in our journey to delight our customers.

 

In this context, I would like to share some of the main initiatives maturing within the company, which we believe have great potential to improve the experience of existing clients, and increase our addressable market in terms of new customers and revenue in the coming years. This objective can be achieved organically and complemented by inorganic movements as well, as recent acquisitions show.

 

Banking

 

The Banking front, in which we have successfully evolved according to recent KPIs, and which currently includes Credit and Credit Card, is one of the great levers on the path to address the entire financial journey of our clients. The following short-term step is the launch of our Digital Account in 2021, and we will continue with a series of additional features in 2022.

 

We believe that with our 100% digital and low-cost value proposition, we will strengthen the bond with our customers, especially important at a time when innovations such as PIX and Open Banking bring additional dynamism to the sector and benefits to consumers.

 

Services to Companies – from SMB to Corporate

 

In the companies’ segment, in which we already have tens of thousands of customers representing custody of more than R$50 billion, we have made substantial investments to expand the existing range of products, optimize the experience for this profile and increasingly improve our commercial structure. By combining Credit, Cash Management, Insurance and Investment Solutions, we will be increasingly competitive, exploiting our distribution capacity to transform the Corporate market as we’ve done for Individuals.

 

Insurance and Private Pension

 

Finally, it is worth mentioning the importance of Insurance and Private Pension products have achieved in recent years and the enormous potential we see for the future. In Insurance, we already act as relevant Life distributors through B2B and B2C channels and we intend to expand our presence in the short term to other segments with synergy and cross-sell opportunities.

 

In Private Pension, despite the expressive growth and being at the top of the industry on net inflows, we still have a minimal fraction of the R$1 trillion total addressable market and we continue to add new features and managers to our platform, as well as developing specific commercial capabilities to the product in our network.

 

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We estimate that the Brazilian financial sector should reach a total revenue of around R$800 billion in 2021, of which XP represents just over 1% based on the last twelve months. Together with a series of other possible avenues for growth, the new initiatives mentioned will allow us to address over the next three years R$350 billion from this pool, compared to the current estimated R$110 billion.

 

We do not doubt that our culture, customer focus and unique and constantly evolving business model will enable us to achieve great milestones in the coming years. Over the next few months we will bring more visibility into the plans mentioned above.

 

Finally, I would like to thank all our stakeholders for their trust and reinforce our commitment to creating sustainable value in the long term, connecting the dots, acting ethically and with the customer at the center of decisions. The growth opportunities are plenty and you can be sure that we are focused on finding the paths to explore them in the best possible way, we are confident that we are only at the beginning of our history.

 

Thiago Maffra, CEO

 

 

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Highlights

 

2Q21 KPIs

 

 

 

(1)Does not include Credit Card related loans and receivables
(2)See appendix for a reconciliation of Adjusted Net Income and Adjusted EBITDA

 

Key Business Metrics

 

  2Q21 2Q20 YoY 1Q21 QoQ
Operating and Financial Metrics (unaudited)          
AUC (in R$ bn) 817 436 88% 715 14%
Active clients (in '000s) 3,140 2,360 33% 2,993 5%
Retail – gross total revenues (in R$ mn) 2,452 1,475 66% 2,088 17%
Institutional – gross total revenues (in R$ mn) 375 333 13% 294 27%
Issuer Services – gross total revenues (in R$ mn) 255 65 293% 234 9%
Digital Content – gross total revenues (in R$ mn) 29 46 -35% 23 30%
Other – gross total revenues (in R$ mn) 88 123 -28% 145 -39%
           
Company Financial Metrics          
Gross revenue (in R$ mn) 3,200 2,041 57% 2,784 15%
Net Revenue (in R$ mn) 3,018 1,921 57% 2,628 15%
Gross Profit (in R$ mn) 2,127 1,342 59% 1,787 19%
Gross Margin 70.5% 69.8% 63 bps 68.0% 247 bps
Adjusted EBITDA1 (in R$ mn) 1,245 704 77% 1,043 19%
Adjusted EBITDA margin 41.3% 36.6% 463 bps 39.7% 159 bps
Adjusted Net Income1 (in R$ mn) 1,034 565 83% 846 22%
Adjusted Net Margin 34.2% 29.4% 485 bps 32.2% 207 bps

 

(1) See appendix for a reconciliation of Adjusted Net Income and Adjusted EBITDA

 

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Operational Performance

 

Credit Portfolio1 (in R$ bn)

 

 

Our Credit portfolio reached R$6.8 billion as of June 30, 2021, a 43% increase quarter-over-quarter. The duration of our credit book was 3.5 years, with a 90-day Non-Performing Loan (NPL) ratio of 0.0%.

 

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

 

Credit Card TPV (in R$ bn)

 

 

 

2Q21 was the first full quarter since officially launching our credit card. For the quarter, we generated R$2.1 billion of TPV (Total Payment Value), a growth of 316% quarter-over-quarter, reinforcing the power of XP’s comprehensive platform.

 

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Assets Under Custody (in R$ bn)

 

 

Total AUC reached R$817 billion at June 30, up 88% year-over-year and 14% quarter-over-quarter. Year-over-year growth was driven by R$298 billion of net inflows and R$83 billion of market appreciation. Our growth reinforces the strength and resiliency of our business model, distribution capabilities, product offerings, innovation and culture.

 

Net Inflows (in R$ bn)

 

 

Net Inflows were up 9% quarter-over-quarter, and 159% year-over-year. Flows were strong across all channels and brands, including over R$30 billion concentrated equity inflows at XP Private, awarded by Euromoney as Latin America’s best bank for wealth management 2021.

 

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Active Clients (in 000’s)

 

 

 

Active clients grew 33% and 5% in 2Q21 vs 2Q20 and 1Q21, respectively. Average monthly client additions decreased to 49,000 in 2Q21 from 72,000 in 1Q21, primarily reflecting slower activation at Clear, following lower market trading volumes, specifically futures.

 

IFA Network Gross Adds

 

 

 

IFA Network gross additions totaled 1,198 in 2Q21, up 165% year-over-year and 31% quarter-over-quarter.

 

Retail DATs¹ (mn trades)

 

 

 

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

 

DATs totaled 2.7 million in 2Q21, a decline of 18% on a sequential basis following a decline in B3 traded volume versus a strong 1Q21, when futures volumes reached record highs. Despite the intense volatility and activity during 2Q20, attributable to the Covid-19 outbreak, total DATs were stable on a year-over-year basis.

 

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Net Promoter Score (NPS)

 

Our NPS, a widely known survey methodology used to measure customer satisfaction, was 76 in June 2021, reflecting our ongoing efforts to provide superior customer service at a lower 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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2Q21 Revenue Breakdown

 

 

 

Total Gross Revenue (in R$ mn)

 

 

 

 

Total Gross Revenue reached an all-time high, driven revenue diversification and growth in different business channels, increasing 57% from R$2.0 billion in 2Q20 to R$3.2 billion in 2Q21, reinforcing the strength of our business model. The increase was mainly driven by strong growth in (i) the Retail business, which contributed with 84% of the growth year-over-year, (ii) Institutional business, with the best quarter recorded so far – contributing with 19% of the growth quarter-over-quarter – and (iii) Issuer Services, which contributed with 16% of the growth year-over-year. Regarding products, Fixed Income activity was intense in both Retail and Institutional, benefiting from the recent interest rates increase in Brazil.

 

9 

 

 

Retail

 

Retail Revenue (in R$ mn)

 

 

 

2Q20 vs 2Q21

 

Retail revenue grew 66% from R$1.5 billion in 2Q20 to R$2.5 billion in 2Q21. Revenue generation was resilient despite stable volumes in DATs, which reinforces the importance of our diversified and comprehensive platform, with suitable products for different economic cycles and client’s demands. Increases in structured operations distribution, fixed income secondary volumes and primary market activity more than offset the steady trading volume in equities and futures.

 

In 2Q21, Retail-related revenues represented 82% 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.

 

10 

 

 

LTM Take Rate (LTM Retail Revenue / Average AUC)

 

 

The take rate for the last twelve months ended June 30, 2021 remained stable compared to the comparable period a year ago. Our ability to add new products and services in the platform - such as credit cards and credit - coupled with diversified revenue profile, could keep our take rate stable, despite strong AUC growth during the period, pricing reductions in online brokerage in 3Q20 and modest contributions from performance fees in the 2Q21. The resilience in the take rate reinforces the power of the ecosystem and ongoing product development, positioning XP as the one of the main beneficiaries of the ongoing 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$ mn)

 

 

 

2Q20 vs 2Q21

 

Institutional gross revenue totaled R$375 million in the 2Q21, up 13% from R$333 million in 2Q20. Fixed Income activity was strong - benefiting from recent increases in interest rates in Brazil - driving the channel to record its best quarter so far, despite high equity trading volumes in 2Q20.

 

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In 2Q21, Institutional revenue accounted for 12% 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$ mn)

 

 

 

2Q20 vs 2Q21

 

Issuer Services revenue expanded 293% year-over-year from R$65 million in 2Q20, negatively impacted by the Covid-19 outbreak, to R$255 million in 2Q21. This increase was driven by (1) Equity Capital Markets (ECM), with 8 executed deals vs 2 in 2Q20, and (2) our Debt Capital Markets (DCM) division, with participation in 62 deals vs 22 in 2Q20. Going forward, XP will remain committed to further developing Capital Markets in Brazil as one of the company’s main strategies.

 

In 2021, XP ranked #1 in REITs, CRA (agribusiness certificate of receivable) and CRI (real-state certificate of receivable).

 

 

Digital Content and Other

 

Digital Content Revenue

 

Gross revenue totaled R$29 million in 2Q21, down 35% from R$46 million in 2Q20. 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. 2Q21 trends remained pressured by the absence of in-person events and courses.

 

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Other Revenue

 

2Q20 vs 2Q21

 

Other revenue decreased 28% in 2Q21 vs. 2Q20, from R$123 million to R$88 million, mainly driven by lower results from our asset and liability management due to fewer arbitrage opportunities in the period – in connection with a lower sovereign bonds assets volume in our balance sheet.

 

In 2Q21, other revenue accounted for 6% 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$ mn) and Gross Margin

 

 

 

2Q20 vs 2Q21

 

COGS rose 54% from R$579 million in 2Q20 to R$891 million in 2Q21, following the expansion in overall Retail Revenues. The gross margin expanded 63 bps, from 69.8% to 70.5% mainly due to channel mix shifts, and despite the impact of long-term incentives paid to the IFA network.

 

13 

 

 

SG&A Expenses

 

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

 

 

 

2Q20 vs 2Q21

 

SG&A expenses (excluding share-based compensation) totaled R$900 million in 2Q21, up 41% from R$638 million in 2Q20. Despite growing our headcount by 53% 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 340 bps.

 

 

Share-Based Compensation (in R$ mn)


Through 2Q21, 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 1Q21. 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.

 

 

 

14 

 

 

Adjusted EBITDA

 

Adjusted EBITDA¹ (in R$ mn) and Margin

 

 

 

¹ See appendix for a reconciliation of Adjusted EBITDA.

 

2Q20 vs 2Q21

 

Adjusted EBITDA grew 77%, from R$704 million to R$1,245 million and margins expanded from 36.6% to 41.3%, a result of a scalable business model, with significant cross-sell and operating leverage opportunities. Operating leverage benefits as we increase penetration of sophisticated financial products in our client base, which still is currently low. The main drivers in the Adjusted EBITDA growth and margin expansion were: (1) top-line expansion, mainly coming from Retail; (2) lower COGS as a percentage of Net Revenues, and consequently higher gross margins and (3) operating leverage in SG&A.

 

15 

 

 

Adjusted Net Income

 

Adjusted Net Income¹ (in R$ mn) and Margin

 

 

 

 

2Q20 vs 2Q21

 

Adjusted Net Income grew 83%, from R$565 million in 2Q20 to R$1,034 million in 2Q21, in connection with the factors explained in the Adjusted EBITDA plus a lower effective tax rate. Our effective tax rate decreased from 11.4% in the 2Q20 to 7.1% in 2Q21, mainly due to our current revenue and expense mix across subsidiaries. Our Adjusted Net Margin expanded by 485 bps to 34.2% in 2Q21.

 

¹ See appendix for a reconciliation of Adjusted Net Income.

 

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Cash flow

 

(in R$ mn)

 

      2Q21 1Q21 2Q20
Cash Flow Data          
Income before income tax     1,002 784 610
Adjustments to reconcile income before income tax     178 233 127
Income tax paid     (69) (236) (100)
Contingencies paid     (1) (1) (0)
Interest paid     (4) (0) (17)
Changes in working capital assets and liabilities     979 662 593
Adjusted net cash flow (used in) from operating activities     2,086 1,442 1,212
Net cash flow (used in) from securities, repos, derivatives and banking activities (i)     (2,344) (694) (626)
Net cash flows (used in) from operating activities     (258) 748 586
Adjusted Net cash flows from investing activities (ii)     (1,248) (550) (92)
Net cash flows from financing activities     1,884 (26) (95)

 

As of June 30, 2021, we now classify (i) financial bills, foreign exchange portfolio and credit card operations as net cash (used in) from banking activities. (ii) the commissions and incentives to our IFA network as adjusted net cash flow from investing activities.

 

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 views as a more useful metric to track the intrinsic cash flow generation of the business) increased to R$2,086 million for 2Q21 from R$1,442 million in 1Q21, and from R$1,212 million in 2Q20 driven by:

 

·Higher balance 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, from Floating Balances and from private pension balances to securities and other financial assets. These balances may fluctuate substantially from quarter-to-quarter and were the key drivers to the 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 financials services verticals;

 

·Combined with non-cash expenses consisting primarily of (i) share based plan of R$126 million in 2Q21 and R$24 million in 2Q20 and (ii) depreciation and amortization of R$58 million in 2Q21 and R$40 million in 2Q20, our income before tax was R$ 1,180 million in 2Q21 and R$736 million in 2Q20. The total amount of adjustments to reconcile income before income taxes was R$178 million in 2Q21 and R$127 million in 2Q20.

 

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Net Cash Flow Used in Investing Activities

 

Our adjusted net cash flow used in investing activities (which in management’s view is a more useful metric to track the inherent cash flow used in investing activities) increased from R$550 million in 1Q21 to R$1,248 million in 2Q21 and increased from R$92 million in 2Q20 to R$1,248 million in 2Q21, primarily affected by:

 

·Investments related to our IFA network, which increased from R$387 million in 1Q21 to R$1,102 million in 2Q21 and from R$55 million in 2Q20 to R$1,102 million in 2Q21.

 

·The investment in intangible assets, mostly IT infrastructure and software development capitalization, which decreased from R$114 million in 1Q21 to R$80 million in 2Q21 and increased from R$27 million in 2Q20;

 

·Our investments in FinTech associates and joint ventures of R$37 million in 2Q21 and R$24 million in 1Q21.

 

Net Cash Provided by Financing Activities

 

Our net cash flows from financing activities increased from the use of R$26 million in 1Q21 and R$95 million in 2Q20 to generation of R$1,884 million in 2Q21 and from, primarily due to:

 

·R$1,570 million in 2Q21 related to Borrowings mostly derived by our loan agreement with Banco Nacional do México.

 

·R$500 million in 2Q21 related to issuance of non-convertible debentures with the objective of funding the Group’s working capital for the construction of our new headquarters “Vila XP” at São Roque, State of São Paulo.

 

·R$17 million in 2Q21, R$24 million in 1Q21, and R$27 million in 2Q20 related to Payments of borrowings and lease liabilities.

 

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

 

Floating Balance (=net univested clients' deposits)       2Q21 1Q21
Assets       (2,776) (3,184)
(-) Securities trading and intermediation         (2,776) (3,184)
Liabilities       20,814 20,399
(+) Securities trading and intermediation         20,814 20,399
(=) Floating Balance       18,038 17,214
           
Adjusted Gross Financial Assets       2Q21 1Q21
Assets       105,113 113,590
(+) Cash       1,237 1,557
(+) Securities - Fair value through profit or loss       45,360 62,855
(+) Securities - Fair value through other comprehensive income       23,701 21,629
(+) Securities - Evaluated at amortized cost       988 1,916
(+) Derivative financial instruments       15,485 13,587
(+) Securities purchased under agreements to resell       8,174 6,741
(+) Loan Operations       7,964 5,041
(+) Foreign exchange portfolio       2,204 263
Liabilities       (73,704) (85,205)
(-) Securities loaned       (2,790) (2,706)
(-) Derivative financial instruments       (16,373) (13,564)
(-) Securities sold under repurchase agreements       (16,062) (44,483)
(-) Private Pension Liabilities       (22,046) (16,897)
(-) Deposits       (6,628) (4,003)
(-) Structured Operations       (4,198) (2,841)
(-) Financial Bills       (2,160) (83)
(-) Foreign exchange portfolio       (2,324) (322)
(-) Credit cards operations       (1,124) (307)
(-) Floating Balance       (18,038) (17,214)
(=) Adjusted Gross Financial Assets       13,372 11,170

 

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 and Foreign exchange portfolio (assets) 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), Financial Bills, Foreign exchange portfolio (liabilities), Credit cards operations and (3) less Floating Balance.

 

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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 and investments in the IFA Network (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 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 2Q21 financial results on Tuesday, August 03, 2021, at 5:00 pm ET (6:00 pm BRT). To participate in the earnings webcast please subscribe at 2Q21 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

Marina Montemor

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 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.

 

21 

 

 

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$ mn)

 

  2Q21 2Q20 YoY 1Q21 QoQ
Managerial Income Statement          
Total Gross Revenue 3,200 2,041 57% 2,784 15%
Retail 2,452 1,475 66% 2,088 17%
Institutional 375 333 13% 294 27%
Issuer Services 255 65 293% 234 9%
Digital Content 29 46 -35% 23 30%
Other 88 123 -28% 145 -39%
Net Revenue 3,018 1,921 57% 2,628 15%
COGS (891) (579) 54% (841) 6%
As a % of Net Revenue (29.5%) (30.2%) 0.6 p.p (32.0%) 2.5 p.p
Gross Profit 2,127 1,342 59% 1,787 19%
Gross Margin 70.5% 69.8% 0.6 p.p 68.0% 2.5 p.p
SG&A (900) (638) 41% (765) 18%
Share Based Compensation1 (147) (40) 264% (158) -7%
EBITDA 1,080 663 63% 864 25%
EBITDA Margin 35.8% 34.5% 1.3 p.p 32.9% 2.9 p.p
Adjusted EBITDA 1,245 704 77% 1,043 19%
Adjusted EBITDA Margin 41.3% 36.6% 4.6 p.p 39.7% 1.6 p.p
D&A (58) (38) 54% (70) -16%
EBIT 1,022 625 63% 795 29%
Interest expense on debt (20) (16) 27% (10) 110%
Share of profit or (loss) in joint ventures and associates 1 - n.a. (1) n.a.
EBT 1,002 610 64% 784 28%
Income tax expense (71) (69) 3% (50) 42%
Effective Tax Rate (7.1%) (11.4%) 4.3 p.p (6.4%) -0.7 p.p
Net Income 931 540 72% 734 27%
Net Margin 30.9% 28.1% 2.7 p.p  27.9% 2.9 p.p
Adjustments 102 24 319% 111 -8%
Adjusted Net Income 1,034 565 83% 846 22%
Adjusted Net Margin  34.2%  29.4% 4.8 p.p  32.2% 2.07 p.p

 

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

 

23 

 

 

Accounting Income Statement

 

(in R$ mn)

 

  2Q21 2Q20 YoY 1Q21 QoQ
Accounting Income Statement          
Net revenue from services rendered 1,601 1,064 51% 1,455 10%
Brokerage commission 650 543 20% 641 1%
Securities placement 513 186 177% 469 9%
Management fees 384 280 37% 310 24%
Insurance brokerage fee 35 27 26% 32 8%
Educational services 27 44 -39% 19 43%
Other services 152 85 78% 119 28%
Taxes and contributions on services (160) (102) 57% (136) 18%
Net income from financial instruments at amortized cost and at fair value through other comprehensive income (331) (93) 254% 31 -1170%
Net income from financial instruments at fair value through profit or loss 1,748 951 84% 1,143 53%
Total revenue and income 3,018 1,921 57% 2,628 15%
Operating costs (838) (573) 46% (837) 0%
Selling expenses (62) (28) 125% (44) 39%
Administrative expenses (1,115) (690) 62% (966) 15%
Other operating revenues (expenses), net 72 1 6598% 18 290%
Expected credit losses (54) (7) 703% (3) 1450%
Interest expense on debt (20) (16) 27% (10) 110%
Share of profit or (loss) in joint ventures and associates 1 - n.a. (1) n.a.
Income before income tax 1,002 610 64% 784 28%
Income tax expense (71) (69) 3% (50) 42%
Effective tax rate (7.1%) (11.4%) 4.3 p.p (6.4%) -0.7 p.p
Net income for the period 931 540 72% 734 27%

 

24 

 

 

Balance Sheet (in R$ mn)

 

        2Q21 1Q21
Assets          
Cash       1,237 1,557
Financial assets       107,174 115,611
Fair value through profit or loss       60,845 76,442
Securities       45,360 62,855
Derivative financial instruments       15,485 13,587
Fair value through other comprehensive income       23,701 21,629
Securities       23,701 21,629
Evaluated at amortized cost       22,628 17,540
Securities       988 1,916
Securities purchased under agreements to resell       8,174 6,741
Securities trading and intermediation       2,776 3,184
Accounts receivable       396 367
Loan Operations       7,964 5,041
Other financial assets       2,330 290
Other assets       3,293 2,175
Recoverable taxes       118 129
Rights-of-use assets       194 204
Prepaid expenses       2,887 1,785
Other       94 57
Deferred tax assets       795 653
Investments in associates and joint ventures       772 734
Property and equipment       243 223
Goodwill & Intangible assets       807 798
Total Assets       114,321 121,750

 

25 

 

 

        2Q21 1Q21
Liabilities          
Financial liabilities       78,314 92,617
Fair value through profit or loss       19,163 16,269
Securities       2,790 2,706
Derivative financial instruments       16,373 13,564
Evaluated at amortized cost       59,151 76,348
Securities sold under repurchase agreements       16,062 44,483
Securities trading and intermediation         20,814 20,399
Deposits       6,628 4,003
Structured operations certificates       4,198 2,841
Accounts payables       1,186 803
Borrowings and lease liabilities       1,994 507
Debentures       168 337
Other financial liabilities       8,101 2,975
Other liabilities       23,416 17,580
Social and statutory obligations       852 400
Taxes and social security obligations         481 250
Private pension liabilities       22,046 16,897
Provisions and contingent liabilities       26 26
Other       11 8
Deferred tax liabilities       - -
Total Liabilities       101,730 110,198
Equity attributable to owners of the Parent company       12,588 11,550
Issued capital       0 0
Capital reserve       10,926 10,803
Other comprehensive income       (3) 14
Retained earnings       1,664 734
Non-controlling interest       3 3
Total equity       12,591 11,553
Total liabilities and equity       114,321 121,750

 

26 

 

 

Adjusted EBITDA (in R$ mn)

 

  2Q21 2Q20 YoY 1Q21 QoQ
EBITDA 1,080 663 63% 864 25%
(+) Share Based Compensation 165 40 309% 178 -7%
Adj. EBITDA 1,245 704 77% 1,043 19%

 

 

 

Adjusted Net Income (in R$ mn)

 

  2Q21 2Q20 YoY 1Q21 QoQ
Net Income 931 540 72% 734 27%
(+) Share Based Compensation 165 40 309% 178 -7%
(+/-) Taxes (63) (16) 292% (67) -6%
Adj. Net Income 1,034 565 83% 846 22%

 

 

 

27 

 

 

Exhibit 99.2

 

1 2Q21 Earnings Presentation

 

 

2 Important Disclosure IN REVIEWING THE INFORMATION CONTAINED IN THIS PRESENTATION, 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 presentation is prepared by XP Inc . (the “Company,” “we” or “our”), is solely for informational purposes . This presentation 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 presentation 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 presentation 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 presentation 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 presentation are provided as at the date of this presentation, 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 presentation 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 presentation 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 presentation 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 December 31 , 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 presentation 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 presentation, 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 ) the negative impacts of the COVID - 19 pandemic on global, regional and national economies and the related market volatility and protracted economic downturn ; and ( 18 ) 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 presentation and the Company does not undertake any obligation to update these forward - looking statements . Past performance 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 presentation . 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 presentation 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 presentation 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 presentation also includes certain 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 presentation . For purposes of this presentation : “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, including equities, fixed income securities, mutual funds (including those managed by XP Gestão de Recursos Ltda . , XP Advisory Gestão 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 .

 

 

3 Index 1. Opening Remarks 2. Highlights 3. 2Q21 KPIs and Financials 4. Q&A

 

 

1 Opening Remarks

 

 

5 Connecting the Dots to Build a Leading Ecosystem XP’s revenue represent slightly more than 1% of the Brazilian Financial Industry 2001 - 2019 Building a unique business while competing with large banks INROADS INTO NEW VERTICALS TAM EXPANSION LEVERS TO ACCELERATE GROWTH THE BIG DREAM GETS BIGGER INSURANCE PENSION FUNDS CREDIT + BRAZILIAN INDIVIDUALS AND COMPANIES ADRESSED CREDIT CARD + SHARE OF WALLET FX COMPANIES + CROSS SELLING (SMB TO CORPORATE) R$ 350 BILLION TAM R$ 800 BILLION TAM 2019 - 2021 Paving the way to enhance relationships and expand TAM 2022 ONWARDS Reaping the benefits of a truly complete ecosystem INVESTMENTS EDUCATION CLIENT CENTRICITY DISTRIBUTION CAPABILITIES HARD TO PENETRA T E TRUSTED BRAND PROF I TABILITY R$ 70 BILLION TAM BUILDING MOATS

 

 

2 Highlights

 

 

7 Highlights ▪ Strongest Quarter Ever (Again) 2Q21 Results Bond Is s uance ▪ Access to a sizeable and liquid market M&As ▪ Broker Dealers ▪ Independent Asset Managers Brand Awareness ▪ XP Private awarded by Euromoney as Latin America’s best bank for wealth management 2021 ▪ Main Sponsor Investor in the Brazilian Olympic Committee in Tokyo 2020

 

 

3 2Q21 KPIs and Financials

 

 

9 (1) Does not include Credit Card related loans and receivables (2) See appendix for a reconciliation of Adjusted Net Income and Adjusted EBITDA (3) NPS, is an independent widely known survey methodology that measures the willingness of customers to recommend a Company’s products and services. The NPS calculation as of a given date reflects the average of the answers in the previous six months KPIs NP S 3 Ju n - 21: 76 Total AuC R$817 Billion +88% YoY Credit Portfolio 1 R$6.8 Billion +17x YoY Gross Revenue R$3.2 Billion +57% YoY Active Clients 3.1 Million +33% YoY Credit Card TPV R$2.1 Billion Adjusted EBITDA 2 R$1.2 Billion +77% YoY Net Inflows R$75 Billion NPL Ratio 0% Adjusted Net Income 2 R$1.0 Billion +83% YoY Investments Banking Financials +159% YoY +4x QoQ

 

 

10 Revenue and Breakdown Total Gross Revenues (in R$ mn) 2Q20 2Q21 Highlights ▪ Strong growth leading to a new record, across different channels, with Retail contributing with 84 % of the growth . ▪ Institutional recorded the best quarter so far, driven by intense Fixed income activity, benefiting from recent changes in Selic rate . 2, 0 41 3, 2 00 +57% RE T AIL INSTITUTIONAL ISSUER SERVICES DIGITAL CONTENT 77 % 12 % 8 % 1 % of 2Q21 Total Gross Revenue Other Revenue represented 3% of Total Gross Revenues

 

 

11 Retail Revenue and Take Rate Resilient monetization and product diversification LTM Take Rate (LTM Retail Revenue / Average AUC) Retail Revenue (in R$ mn) 1.4% 1.5 % 1.3% 1.4% 1.3% 1.3% 1.3% 1.3% 1.3% 1.3% 1.3% 1.3% 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 1Q21 2Q21 1, 4 75 2, 4 52 +66% Highlights ▪ Ability to add new products and services in the platform – such as credit cards and credit, and diversified revenue profile. 2Q20 2Q21 Highlights ▪ Resilient revenue generation Retail despite steady volumes in e q ui t ies and f ut u res . Key gr o w th d r ivers wer e F inan c ial Products and Fixed Income. ▪ O n 2 Q 2 1, R e t a il r e lat e d revenu e s repres e nted 8 2% of consolidated Net Income from Financial Instruments. Note: 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 Zero brokerage Clear New Online Pricing XP and Rico AUC LTM Take Rate Pa n d e mic Outbreak B a nki n g License

 

 

12 Institutional Institutional benefited from fixed income volumes Institutional Revenue (in R$ mn) 333 375 +13% 2Q20 2Q21 Highlights ▪ Fixed Income activity was strong – benefiting from recent increases in interest rates in Brazil – driving the channel to record its best quarter so far, despite high equity trading volumes in 2 Q 20 . Total Revenue Growth Revenue Growth QoQ Institutional +15 % +27 % +39 % Institutional Fixed Income 2Q21 4Q20 1Q21 6.2 5 % 4.5 0 % 2.0 0 % 2.7 5 % 7.2 5 % 4.2 5 % Selic Rate EoP Expected Selic for 2021 EoP (1) (1) Source - XP Department of Economy

 

 

13 1 , 2 4 5 704 +77% 900 765 +18% Adjusted EBITDA and Margin Operational Leverage despite investments in technology, client experience and product offering Highlights ▪ Result of a scalable business model, with significant cross - sell and operating leverage opportunities ▪ Main drivers were ( 1 ) top line increase, mainly coming from Retail ; ( 2 ) higher gross margins, and ( 3 ) operating leverage in SG&A . Adjusted EBITDA 2 (in R$ mn) 2Q21 41.3% 2Q20 36.3% % Adj EBITDA Margin Operating Expenses (in R$ mn) % of Net Rev e nue Highlights ▪ Despite growing our headcount by 53 % 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 340 bps . (1) Excluding Share Based Compensation (2) See appendix for a reconciliation of Adjusted EBITDA. 2Q21 29.8% 2Q20 33.2% 4, 4 89 3 2001 2, 0 91 3Q19 ( I PO) 2Q21 19 years 1.5 years Headcount Evolution SG&A 1

 

 

14 565 1, 0 34 +8 3% Gross Revenue Adjusted EBITDA Adjusted Net Income +57% +77% +83% Adjusted Net Margin Adjusted Net Income and Margin Net margin expansion driven by strong growth in Retail, operating leverage and a lower tax rate Adjusted Net Income (in R$ mn) Note: See appendix for a reconciliation of Adjusted Net Income. YoY Growth Across 2Q21 P&L +4 6 3 bps Operati n g leverage Efficient Corporate Structure +4 8 5 bps Margin expansion YoY Highlights ▪ Adjusted Net Income grew 83 % vs . 2 Q 20 , explained by ( 1 ) strong growth in Retail Revenue, ( 2 ) operating leverage in SG&A and ( 3 ) a lower effective tax rate . 2Q21 34.2% 2Q20 29.4%

 

 

Q&A

 

 

16 Investor Relations ir@xpi.com.br https://investors.xpinc.com/

 

 

Appendix

 

 

Non - GAAP Financial Information Floating and Adjusted Gross Financial Assets 1 1 8 8 Adjusted Gross Financial Assets (in R$ mn) Adjusted Gross Financial Assets 2 Q 2 1 1 Q 2 1 A ss e t s 105,113 113,590 (+) Cash 1 , 23 7 1 , 55 7 (+) Securities - Fair value through profit or loss 45 , 36 0 62 , 85 5 (+) Securities - Fair value through other comprehensive income 23 , 70 1 21 , 62 9 (+) Securities - Evaluated at amortized cost 988 1 , 91 6 (+) Derivative financial instruments 15 , 48 5 13 , 58 7 (+) Securities purchased under agreements to resell 8 , 17 4 6 , 74 1 (+) Loan Operations 7 , 96 4 5 , 04 1 (+) Foreign exchange portfolio 2 , 20 4 263 Liabilities (73,704) (85,205) ( - ) Securities loaned (2,790) (2,706) ( - ) Derivative financial instruments ( 16 , 373 ) ( 13 , 564 ) ( - ) Securities sold under repurchase agreements ( 16 , 062 ) ( 44 , 483 ) ( - ) Private Pension Liabilities ( 22 , 046 ) ( 16 , 897 ) ( - ) Deposits (6,628) (4,003) ( - ) Structured Operations (4,198) (2,841) ( - ) Financial Bills (2,160) ( 83 ) ( - ) Foreign exchange portfolio (2,324) ( 322 ) ( - ) Credit cards operations (1,124) ( 307 ) ( - ) Floating Balance (18,038) (17,214) (=) Adjusted Gross Financial Assets 13,372 11,170 Floating Balance (in R$ mn) Floating Balance (=net univested clients' deposits) 2 Q 2 1 1 Q 2 1 A ss e t s (2,776) (3,184) ( - ) Securities trading and intermediation (2,776) (3,184) Liabilities 20,81 4 20,39 9 ( + ) S e c u r i t i e s t r a d i n g a n d i n t e r m e d i a t i o n 20 , 81 4 20 , 39 9 (=) Floating Balance 18,038 17,214

 

 

Non - GAAP Financial Information Adjusted Assets (from the factors listed below) reflects our business more realistically 1 1 9 9 [B] Pension Funds ▪ AUM from XP Vida & Previdência is accounted in both assets and liabilities f r o m c l ien t s allo c at e d in [C] Floating ▪ Uninve st e d c ash sovereign bonds [D] Client Liquidity & Sovereign Bonds Arbitrage ▪ Providing liquidity to clients with derivatives ▪ Money market funding (repos mostly) allocated into sovereign bonds targeting arbitrage opportunities A ss e t s [ A] [B] Pension Funds [A - B] [C] Floating [A - B - C] [D] Client Liquidity & Sov. Bonds Arb. A d j u s t e d Assets [A - B - C - D] T o t a l 114 , 32 1 22 , 04 6 20 , 81 4 31 , 54 6 Securities - Fair Value through P&L 45,360 22,046 2 , 22 5 Securities - Repos 8 , 17 4 - - - 8 , 17 4 Securities - Fair Value through OCI 23,701 - 5 , 66 3 Securities - Trading & Intermediation 2 , 77 6 - 18 , 03 8 2,776 - Other Financial Instruments 16,472 - 15,485 Other Assets 17,838 - 92,276 23,315 8,174 23,701 2,776 16,472 17,838 - - 71,462 23,315 8,174 5,663 - 16 , 47 2 17,838 - 39,915 21,090 - - - 988 17,838 Liabilities + Equity [ A] [B] Pension [A - B] [C] Floating [ A - B - C ] [D] Client Liquidity & Adjusted Liabilities & Funds Sov. Bonds Equity Arb. [A - B - C - D] Total 114,321 22,046 92,276 20,814 71,462 31,546 39,915 Securities - Repos 16,062 - 16,062 - 16,062 16,062 - Other Finan. Liab. 19,163 - 19,163 - 19,163 15,485 3,678 Pension Funds 22,046 22,046 - - - - - Securities - Trading & Intermediation 20,814 - 20,814 20,814 - - - Other Liabilities & Equity 36,237 - 36,237 - 36,237 - 36,237 Simplified Balance Sheet (in R$ mn) Key factors inflating our balance sheet

 

 

2 Q 21 2Q20 YoY 1Q21 QoQ EBITDA 1,080 663 63% 864 25% (+) Share Based Compensation 165 40 309% 178 - 7% Adj. EBITDA 1,245 704 77% 1,043 19% Adjusted Net Income (in R$ mn) 2 Q 2 1 2Q20 YoY 1Q21 QoQ Net Income 931 540 72% 734 27% (+) Share Based Compensation 165 40 309% 178 - 7% (+/ - ) Taxes (63) (16) 292% (67) - 6% Adj. Net Income 1,034 565 83% 846 22% Non - GAAP Financial Information Adjusted EBITDA and Adjusted Net Income 2 2 0 0 Adjusted EBITDA (in R$ mn)

 

 

EXHIBIT 99.3

 

 

 

 

 

 

 

 

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. and its subsidiaries (the "Company") as at June 30, 2021 and the related interim condensed consolidated statements of income and of comprehensive income for the three-month and six-month periods then ended, and the interim condensed consolidated statements of changes in equity and cash flows for the six- 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 does 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, August 2, 2021

 

 

/s/ PricewaterhouseCoopers /s/ Tatiana Fernandes Kagohara Gueorguiev
   
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 June 30, 2021 and December 31, 2020

In thousands of Brazilian Reais

 

 

  Note

June 30,

2021

  December 31,
2020
         
Cash   1,237,456   1,954,788
         
Financial assets   107,173,663   90,190,827
         
Fair value through profit or loss   60,844,803   57,149,446
Securities 4 45,360,226   49,590,013
Derivative financial instruments 5 15,484,577   7,559,433
         
Fair value through other comprehensive income   23,700,647   19,039,044
Securities 4 23,700,647   19,039,044
         
Evaluated at amortized cost   22,628,213   14,002,337
Securities 4 987,616   1,828,704
Securities purchased under agreements to resell 3 8,174,399   6,627,409
Securities trading and intermediation 9 2,776,213   1,051,566
Loan operations 7 7,964,212   3,918,328
Accounts receivable   395,577   506,359
Other financial assets 17 2,330,196   69,971
         
Other assets   3,292,926   1,760,999
Recoverable taxes   117,830   127,623
Rights-of-use assets 12 194,117   183,134
Prepaid expenses 8 2,887,152   1,393,537
Other   93,827   56,705
         
Deferred tax assets 19 795,385   505,046
Investments in associates and joint ventures 11 771,794   699,907
Property and equipment 12 242,915   204,032
Goodwill and Intangible assets 12 807,355   713,562
         
         
Total assets   114,321,494   96,029,161

  

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 balance sheets

As of June 30, 2021 and December 31, 2020

In thousands of Brazilian Reais

 

  Note

June 30,

2021

  December 31,
2020
         
Financial liabilities       78,313,865   70,600,989
         
Fair value through profit or loss       19,162,593   10,056,806
Securities 4        2,789,816   2,237,442
Derivative financial instruments 5     16,372,777   7,819,364
         
Evaluated at amortized cost       59,151,272   60,544,183
Securities sold under repurchase agreements 3     16,061,913   31,839,344
Securities trading and intermediation   9     20,813,975   20,303,121
Deposits 13        6,627,696   3,021,750
Structured operations certificates 14        4,198,001   2,178,459
Accounts payables          1,186,169   859,550
Borrowings and lease liabilities 15 1,994,118    492,535
Debentures 16           167,980   335,250
Other financial liabilities 17         8,101,420   1,514,174
         
Other liabilities       23,416,241   14,522,206
Social and statutory obligations             852,063   667,448
Taxes and social security obligations               480,850   435,849
Private pension liabilities 18     22,045,571   13,387,913
Provisions and contingent liabilities 22             26,413   19,711
Other               11,344   11,285
         
Deferred tax liabilities 19                       -      8,352
         
Total liabilities     101,730,106   85,131,547
         
         
Equity attributable to owners of the Parent company       12,588,048   10,894,609
Issued capital                       23   23
Capital reserve       10,926,304   10,663,942
Other comprehensive income                (2,591)   230,644
Retained earnings          1,664,312   -
         
Non-controlling interest                  3,340   3,005
         
Total equity 20     12,591,388   10,897,614
         
Total liabilities and equity     114,321,494   96,029,161

 

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 income and of comprehensive income

For the six and three months period ended June 30, 2021 and 2020

In thousands of Brazilian Reais, except earnings per share

 

 

        Six months period ended
June 30,
  Three months period ended
June 30,
    Note   2021   2020   2021   2020
                     
Net revenue from services rendered   23   3,055,671   2,215,486   1,601,015   1,063,540
Net income from financial instruments at amortized cost and at fair value through other comprehensive income   23   (299,695)   109,058   (330,579)   (93,439)
Net income from financial instruments  at fair value through profit or loss   23   2,890,150   1,331,226   1,747,649   950,828
Total revenue and income       5,646,126   3,655,770   3,018,085   1,920,929
                     
Operating costs   24   (1,675,059)   (1,129,412)   (837,624)   (572,558)
Selling expenses   25   (106,319)   (56,045)   (61,901)   (27,569)
Administrative expenses   25   (2,081,173)   (1,267,991)   (1,114,895)   (689,875)
Other operating income (expenses), net       26   89,896   (12,815)   71,534   1,068
Expected credit losses   10   (57,006)   (28,630)   (53,551)   (6,668)
Interest expense on debt       (29,489)   (34,800)   (19,972)   (15,781)
Share of profit (loss) in joint ventures and associates   11   (335)   -   749   -
                     
Income before income tax       1,786,641   1,126,077   1,002,425   609,546
                     
Income tax expense      19   (121,218)   (188,260)   (71,150)   (69,283)
                     
Net income for the period       1,665,423   937,817   931,275   540,263
                     
Other comprehensive income                    
Items that can be subsequently reclassified to income                    
Foreign exchange variation of investees located abroad       (10,352)   69,675   (36,665)   13,115
Gains (losses) on net investment hedge       10,883   (72,839)   31,626   (16,343)
Changes in the fair value of financial assets at fair value through other comprehensive income       (233,672)   11,158   (11,073) (20,332)
                     
Other comprehensive income (loss) for the period, net of tax       (233,141)   7,994   (16,112)   (23,560)
                     
Total comprehensive income for the period       1,432,282   945,811   915,163   516,703
                     
Net income attributable to:                    
Owners of the Parent company       1,664,312   935,179   930,644   538,319
Non-controlling interest       1,111   2,638   631   1,944
                     
Total comprehensive income attributable to:                  
Owners of the Parent company       1,431,171   943,173   914,532   514,759
Non-controlling interest       1,111   2,638   631   1,944
                     
Earnings per share from total income attributable to the ordinary equity holders of  the company                    
Basic earnings per share   28   2.9770   1.6996   1.6647   0.9791
Diluted earnings per share   28   2.9071   1.6870   1.6262   0.9719

 

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

5 

 

XP Inc. and its subsidiaries

Unaudited interim condensed consolidated statements of changes in equity

For the six months period ended June 30, 2021 and 2020

In thousands of Brazilian Reais

 

 

    Atributable to owners of the Parent        
    Issued Capital   Capital reserve   Other comprehensive income (loss)   Retained Earnings   Total   Non-Controlling interest   Total Equity
  Notes   Additional paid-in capital   Other Reserves          
                                 
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   -   -   -   -   935,179   935,179   2,638   937,817
Other comprehensive income, net   -   -   -   7,994   -   7,994   -   7,994
Transactions with shareholders - contributions and distributions                                
Share based Plan 27 -   -   46,775   -   -   46,775   (8)   46,767
Gain (loss) in changes in interest of subsidiaries, net   -   -   -   (372)   -   (372)   1,310   938
Allocations of the net income for the period                                
Dividends distributed   -   -   -   -   -   -   (4,622)   (4,622)
Balances at June 30, 2020   23   5,409,895   1,580,326   217,549   935,179   8,142,972   1,881   8,144,853
                                 
                                 
                                 
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   -   -   -   -   1,664,312   1,664,312   1,111   1,665,423
Other comprehensive income, net   -   -   -   (233,141)   -   (233,141)   -   (233,141)
Transactions with shareholders - contributions and distributions                                
Share based Plan 27 -   -   266,123   -   -   266,123   2   266,125
Gain (loss) in changes in interest of subsidiaries, net   -   -   (3,761)   (94)   -   (3,855)   2,220   (1,635)
Allocations of the net income for the period                                
Dividends distributed   -   -   -   -   -   -   (2,998)   (2,998)
Balances at June 30, 2021   23   6,821,176   4,105,128   (2,591)   1,664,312   12,588,048   3,340   12,591,388

 

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

6 

 

XP Inc. and its subsidiaries

Unaudited interim condensed consolidated statements of cash flows

For the six months period ended June 30, 2021 and 2020

In thousands of Brazilian Reais

 

 

   

Six months ended

June 30,

  Note 2021   2020
Operating activities        
Income before income tax   1,786,641   1,126,077
         
Adjustments to reconcile income before income taxes        
Depreciation of property and equipment and right-of-use assets 12 30,033   36,043
Amortization of intangible assets 12 97,946   33,477
Loss on write-off of property, equipment and intangible assets and lease, net 12 5,379   32,320
Share of profit or (loss) in joint ventures and associates 11 335   -
Expected credit losses on financial assets   57,006   28,630
(Reversal of) Provision for contingencies, net 22 3,850   (308)
Net foreign exchange differences   (75,225)   2,277
Share based plan 27 266,125   46,767
Interest accrued   25,640   27,975
         
Changes in assets and liabilities        
Securities (assets and liabilities)   1,324,529   (7,109,777)
Derivative financial instruments (assets and liabilities)   644,629   161,755
Securities trading and intermediation (assets and liabilities)   (1,225,936)   4,291,953
Securities purchased (sold) under resale (repurchase) agreements   (17,325,787)   (2,172,304)
Accounts receivable   113,131   90,607
Loan operations   (4,047,367)   (379,021)
Prepaid expenses   (1,493,615)   (77,140)
Other assets and other financial assets   (2,339,987)   (19,264)
Structured operations certificates   2,019,542   619,280
Accounts payable   326,083   57,045
Deposits   3,605,946   72,240
Social and statutory obligations   184,615   89,966
Tax and social security obligations   93,411   (127,333)
Private pension liabilities   8,657,658   3,434,629
Other liabilities and other financial liabilities   6,576,459   211,467
         
Cash from operations   (688,959)   477,361
         
Income tax paid   (304,856)   (66,985)
Contingencies paid 22 (2,078)   (379)
Interest paid   (4,013)   (17,909)
Net cash flows (used in) from operating activities   (999,906)   392,088
         
Investing activities        
Acquisition of intangible assets 12 (194,291)   (44,099)
Acquisition of property and equipment 12 (51,760)   (32,897)
Acquisition of subsidiaries, net of cash acquired   (857)   -
Acquisition of associates and joint ventures   (60,280)   (980)
Net cash flows used in investing activities   (307,188)   (77,976)
         
Financing activities        
Acquisitions of borrowings 32 1,570,639   -
Payments of borrowings and lease liabilities   (41,175)   (53,266)
Issuance of debentures   500,018   -
Repurchase/payment of debentures   (167,052)   (65,843)
Transactions with non-controlling interests   (1,635)   938
Dividends paid to non-controlling interests   (2,998)   (4,622)
Net cash flows from (used in) financing activities   1,857,797   (122,793)
         
Net increase in cash and cash equivalents   550,703   191,319
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   6,143   42,999
Cash and cash equivalents at the end of the period   3,217,234   1,122,116
Cash   1,237,456   345,868
Securities purchased under agreements to resell 3 1,802,297   527,000
Interbank certificate deposits 4 177,481   249,248

 

s

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

7 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements

As of June 30, 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 June 30, 2021 were approved by the Board of Directors on August 2, 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 on May 31, 2021 the US Federal Reserve Board’s (FED) and July 26, 2021 the Brazilian Central Bank (BACEN) approved the legal and accounting segregation of the Itau’s investments in XP Inc. to XPart.

 

8 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements

As of June 30, 2021

In thousands of Brazilian Reais, unless otherwise stated

 

On June 22, 2021, XP Inc. filed a registration statement on Form F-4 with the U.S. Securities and Exchange Commission, or the “SEC” as part of the Itau spin-off of its investment in XP Inc. The prospectus relates to the Class A common shares, or “XP Shares,” of XP Inc., including Class A common shares in the form of Brazilian Depositary Receipts of XP (each representing one XP Share), or the “XP BDRs.”

 

The transaction is being proposed by XPart and XP to streamline and simplify the corporate structure at shareholders’ level of XP, specifically by giving XPart’s shareholders more accessible ways to trade XP shares as they will directly own an interest in XP. The transaction is expected to be completed in the end of September, 2021.

 

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

 

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

 

a)Basis of preparation

 

The unaudited interim condensed consolidated balance sheets as of June 30, 2021 and December 31, 2020, and the unaudited interim condensed consolidated statements of income and comprehensive income for six and three months ended June 30, 2021, changes in equity, and cash flows for six months period ended June 30, 2021 and 2020 (“the financial statements”) 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

 

The accounting policies adopted in the preparation of the unaudited interim condensed consolidated financial statements 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) and (c).

 

9 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements

As of June 30, 2021

In thousands of Brazilian Reais, unless otherwise stated

 

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 accounting policies adopted by the Group

 

Financial liabilities designated at FVPL

 

Classification and subsequent measurement

 

The Group applied the fair value option as an alternative measurement for selected financial liabilities. Financial liabilities can be irrevocably designated as measured at FVPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise from measuring assets or liabilities or recognizing the gains and losses on them on different bases, or a group of financial instruments is managed and its performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy. The amount of change in the fair value of the financial liabilities designated at FVPL that is attributable to changes in the credit risk of that liabilities shall be presented in other comprehensive income. See more information in Note 4 e).

 

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

 

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.

 

d)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:

 

10 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements

As of June 30, 2021

In thousands of Brazilian Reais, unless otherwise stated

 
      % of Group’s interest (i)
Entity name Country of incorporation Principal activities

June 30,

2021

December 31,
2020
         
Directly controlled        
XPAC Sponsor LLC (ii) Cayman Special Purpose Acquisition (SPAC) Sponsor 100.00% -
         
Indirectly controlled        
XP Comercializadora de Energia Ltda. (ii) Brazil Energy trading 100.00% -
Leadr Serviços Online Ltda. (iii) Brazil Social media - 99.99%
XP Private (Europe) S.A. (iii) Switzerland Investment advisor - 100.00%
         
Consolidated investments funds        
XP Alesia Fund SP CL Shares - Brazil Internacional Fund SPC. (ii) US Investment fund 99.93% -
Newave Fundo de Investimento em Participações Multiestratégia. (ii) Brazil Investment fund 100.00%  
         
(i)The percentage of participation represents the Group’s interest in total capital and voting capital of its subsidiaries.

(ii)New subsidiaries and investment funds commenced operations in the six month period ended June 30, 2021.. In March 2021, XPAC Sponsor LLC was created as a holding Company which has the objective to be an initial investors of the special purpose acquisitions companies.

(iii)Subsidiaries closed in the period.

 

e)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.

 

11 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements

As of June 30, 2021

In thousands of Brazilian Reais, unless otherwise stated

 

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.

 

f)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:

 

  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$ 857 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

  

 

12 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements

As of June 30, 2021

In thousands of Brazilian Reais, unless otherwise stated

 

For the concluded acquisitions, the total consideration paid is R$125,774, 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.

 

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, the 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.

 

13 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements

As of June 30, 2021

In thousands of Brazilian Reais, unless otherwise stated

 

As at June 30, 2021, the acquisition of Riza has not been completed. The Company expects to conclude the transaction until January 2022, subject to certain contractual 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 entity purchased.

 

Investments in XP Energia

 

On May 4, 2021 the Group entered into an agreement, to acquire 100% of total share capital of Solis Comercializadora de Energia Ltda. later denominated XP Comercializadora de Energia Ltda. The company's objective is to operate in the wholesale electricity trade, through brokerage, representation, intermediation, purchase, sale, import and export; provision of intermediation services between energy buyers and sellers, among other related services. This acquisition are not considered material for XP Inc. interim financial statements.The purchase prices were mostly allocated to goodwill, representing the value of expected synergies arising from the acquisition.

 

Minority stake acquisitions

 

XP Inc. entered in agreements through our proprietary funds to acquire a minority stake in (i) Giant Steps, a leader in systematic funds in Brazil; (ii) Capitânia Investimentos, an independent traditional asset manager in Brazil specializing in Corporate Credit, Real Estate and Infrastructure investment strategies and (iii) Jive Investments, the largest independent alternative investment manager in Brazil, offering credit recovery, real estate, and other distressed asset strategies. The completion of these transactions (“closing”) are subject to compliance with certain precedent conditions. As of June 30, 2021, the closing of these transactions has not been occurred.

 

g)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 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.

 

h)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.

 

14 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements

As of June 30, 2021

In thousands of Brazilian Reais, unless otherwise stated

 

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

 

 

June 30,

2021

  December 31, 2020
       
Available portfolio 3,870,314   1,409,742
National Treasury Notes (NTNs) (a) 2,037,888   876,146
Financial Treasury Bills (LFTs) (a) 246,652   452,714
National Treasury Bills (LTNs) (a) 1,233,915   44,093
Debentures (b) 262,012   36,789
Real Estate Receivable Certificates (CRI) (b) 89,847   -
       
Collateral held 4,305,821   5,218,037
National Treasury Bills (LTNs) (a) 242,089   976,468
National Treasury Notes (NTNs) (a) 3,125,690   4,241,569
Debentures (b) 472,238   -
Real Estate Receivable Certificates (CRI) (b) 465,804   -
       
Expected Credit Loss (c) (1,736)   (370)
       
Total 8,174,399   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 3.98% p.a. (1.91% p.a. as of December 31, 2020).

 

(b) Refers to fixed-income securities issued by private companies.

 

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

 

As of June 30, 2021, R$1,802,297 (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

 

 

June 30,

2021

 

December 31,

2020

National Treasury Bills (LTNs)          7,773,985   18,318,498
National Treasury Notes (NTNs)          6,033,071   13,497,944
Financial Treasury Bills (LFTs)              761,339   -
Debentures              556,248   22,902
Real Estate Receivable Certificates (CRI)              937,270 -
Total        16,061,913   31,839,344

 

As of June 30, 2021, securities sold under repurchase agreements were agreed with average interest rates of 4.14% p.a. (December 31, 2020 – 1.89% p.a.), with assets pledged as collateral.

 

15 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements

As of June 30, 2021

In thousands of Brazilian Reais, unless otherwise stated

 
4.Securities

 

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

 

 

June 30,

2021

 

December 31,

2020

  Gross carrying amount  

Fair

value

  Gross carrying amount  

Fair

value

Financial assets (i)              
At fair value through profit or loss 45,320,623   45,360,226   49,157,111   49,590,013
Brazilian government bonds 15,534,816   15,491,550   30,752,903   31,129,671
Investment funds (i) 20,307,799   20,307,799   11,216,914   11,221,774
Stocks issued by public-held company 5,382,787   5,382,787   3,802,610   3,802,470
Debentures 1,693,326   1,728,460   1,111,595   1,114,967
Structured transaction certificate 220,027   256,444   485,012   515,960
Bank deposit certificates (ii) 293,041   294,525   371,455   372,329
Agribusiness receivables certificates 555,562   554,784   359,607   363,721
Certificate of real estate receivable 415,849   419,226   97,606   96,930
Financial credit bills 142,203   144,222   81,465   82,209
Others (iii) 775,213   780,429   877,944   899,982
               

(i)Financial assets include R$ 22,045,570 (December 31, 2020 – R$ 13,387,913) related to Specially Constituted Investment Fund (“FIE”) as presented in Note 18, out of which R$ 18,138,811 (December 31, 2020 – R$ 10,625,520) are Investments funds.

(ii)Bank deposit certificates includes R$177,481 presented as cash equivalents in the statements of cash flows.

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

 

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

 

 

June 30,

2021

 

December 31,

2020

  Gross carrying amount  

Fair

value

  Gross carrying amount  

Fair

value

Financial assets              
At fair value through other comprehensive income 24,055,594   23,700,647   19,011,499   19,039,044
Brazilian government bonds (i) 23,388,294   23,034,188   19,011,499   19,039,044
Bonds 667,300   666,459   -   -
               

(i)Includes expected credit losses in the amount of R$ 10,901 (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:

 

 

June 30,

2021

 

December 31,

2020

  Gross carrying amount  

Book

value

  Gross carrying amount  

Book

value

Financial assets              
At amortized cost 988,625   987,616   1,829,791   1,828,704
Bonds (i) 973,498   972,489   1,829,791   1,828,704
Rural Product Note 15,127   15,127   -   -
               
(i)Includes expected credit losses in the amount of R$ 1,009 (2020 – R$ 1,087). The reconciliation of gross carrying amount and the expected credit loss are presented in the Note 10.

 

   

 

16 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements

As of June 30, 2021

In thousands of Brazilian Reais, unless otherwise stated

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

 

 

June 30,

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 2,279,332   2,279,332   2,237,442   2,237,442

 

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

 

On May 6, 2021, XP Investimentos, issued non-convertible Debentures, in the aggregate amount of R$ 500,018, with the objective of funding the Group’s working capital for the construction of our new headquarters “Vila XP” at São Roque, State of São Paulo and designated this instrument as fair value through profit or loss in order to align it with the Group’s risk management and investment strategy. The principal amount is due on April 10, 2036. The accrued interest is payable every month from the issuance date and is calculated based on the IPCA (brazilian inflation index) plus 5%p.a.

 

 

June 30,

2021

 

December 31,

2020

  Gross carrying amount  

Fair

value

  Gross carrying amount  

Fair

value

Financial liabilities              
At fair value through profit or loss              
Debentures 506,912   510,484   -   -

 

Unrealized gains/(losses) due to own credit risk for liabilities for which the fair value option has been elected are recorded in other comprehensive income. Gain/(losses) due to own credit risk were not material for the period ended of June 30, 2021.

 

Determination of own credit risk for items for which the fair value option was elected

 

The debenture own credit risk is calculated as the difference between its yield and its benchmark rate for similar Brazilian federal securities.

 

e.1) Difference between aggregate fair value and aggregate remaining contractual principal balance outstanding

 

The following table reflects the difference between the aggregate fair value and the aggregate remaining contractual principal balance outstanding as of June 30, 2021 for instruments for which the fair value option has been elected.

 

            June 30, 2021
    Contractual principal outstanding   Fair value   Fair value/(under) contractual principal outstanding
             
Long-term debt            
Debentures    506,912    510,484   (3,572)

  

 

17 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements

As of June 30, 2021

In thousands of Brazilian Reais, unless otherwise stated

 
f)Securities classified by maturity:

 

      Assets       Liabilities
 

June 30,

2021

  December 31,
2020
 

June 30,

2021

  December 31,
2020
               
Financial assets              
At fair value through PL and at OCI              
Current 34,757,785   34,572,107     2,279,332   2,237,442
Non-stated maturity 25,997,483     15,246,105   2,279,332    2,237,442
Up to 3 months 2,265,940   794,025     -   -
From 3 to 12 months 6,494,362     18,531,977   -   -
               
Non-current 34,313,989   34,065,805     510,484   -
After one year 34,313,989     34,065,805   510,484   -
               
Evaluated at amortized cost              
Current 973,498   1,829,791     -   -
Up to 3 months 973,498    1,623,487   -   -
From 3 to 12 months -   206,304   -   -
               
Non-current 15,127   -   -   -
After one year 15,127   -   -   -
               
Total 70,060,399   70,467,703   2,789,816   2,237,442

 

The reconciliation of expected loss to financial assets at amortized cost – securities according with IFRS 9 are presented 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:

 

 

June 30,

2021

 

Notional

Fair Value

%

Up to 3

months

From 3 to

12 months

Above

12 months

Assets            
Options 268,594,156 5,885,505 95% 2,432,041 876,115 2,577,349
Swap contracts 12,430,245 2,014,572 2% 247,054 808,444 959,074
Forward contracts 11,405,669 7,583,771 2% 351,666 522,211 6,709,894
Future contracts

6,487,902

729

1%

41

-

688

Total

298,917,972

15,484,577

100%

3,030,802

2,206,770

10,247,005

             

Liabilities

           
Options 199,881,518 7,087,691 57% 2,749,570 1,012,403 3,325,718
Swap contracts 14,445,992 1,845,715 4% 209,794 802,244 833,677
Forward contracts 10,381,056 7,379,081 3% 155,566 494,733 6,728,782
Future contracts

6,049,698

60,290

36%

29,269

13,937

17,084

Total

230,758,264

16,372,777

100%

3,144,199

2,323,317

10,905,261

   

 

18 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements

As of June 30, 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 June 30, 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.

 

19 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements

As of June 30, 2021

In thousands of Brazilian Reais, unless otherwise stated

 

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 items, 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.

 

    Hedged item   Hedge instrument
    Book Value   Variation in
value
       
Strategies   Assets   Liabilities   recognized in
Other
comprehensive income
  Notional value   Variation in the
amounts used to
calculate hedge
ineffectiveness
June 30, 2021                    
Foreign exchange risk                    
Hedge of net investment in foreign operations   260,083   -   (10,883)   374,215   13,063
                     
December 31, 2020                    
Foreign exchange risk                    
Hedge of net investment in foreign operations   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   Variation in value      

Variation in the

amounts used to

calculate hedge

ineffectiveness

Strategies Assets   Liabilities recognized in income Nominal value

June 30, 2021

                   
Interest rate risk                    
Hedge of  pre-fixed operations   -   4,198,001   175,176   4,163,755   (174,543)
                     

December 31, 2020

                   
Interest rate risk                    
Hedge of  pre-fixed operations   -   2,178,459   (47,923)   2,188,732   46,795

 

 

20 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements

As of June 30, 2021

In thousands of Brazilian Reais, unless otherwise stated

 

The hedge ineffectiveness recognized in statements of income are presented below:

 

           

June 30, 2021

    Notional amount Book value (i) Variation in fair value used to calculate hedge ineffectiveness Hedge ineffectiveness recognized in income (ii)
Hedge Instruments   Assets Liabilities
Interest rate risk            
Futures   4,163,755 - 4,198,001 (174,543) 633
Foreign exchange risk            
Futures   374,215 260,083 - 13,063 2,180
         

December 31, 2020

    Notional amount Book value (i) Variation in fair value used to calculate hedge ineffectiveness Hedge ineffectiveness recognized in income
Hedge Instruments   Assets Liabilities
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.

(ii)For the three months period ended in June 30, 2021 the amount of hedge ineffectiveness was R$2,459.

 

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:

 

    June 30, 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   4,163,755 (174,543) 175,176   2,188,732        (47,923)          46,795
Hedge of net investment in foreign operations   374,215 13,063 (10,883)      349,218          (60,563)       52,299
Total   4,537,970 (161,480) 164,293   2,537,950            (108,486)       99,094

 

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

 

 

June 30, 2021

Strategies 0-1 year 1-2 years 2-3 years 3-4 years 4-5 years 5-10 years Total
Hedge of Fair Value 31,168 74,540 201,094 420,985 1,132,020 2,303,948 4,163,755
Hedge of net investment in foreign operations 324,193 - - 50,022 - - 374,215
Total 355,361 74,540 201,094 471,007 1,132,020 2,303,948 4,537,970
   
   
 

December 31, 2020

Strategies 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

  

 

21 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements

As of June 30, 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

June

30,2021

  December 31, 2020
Pledged asset loan      
Retail 4,879,466   2,698,018
Credit card operations 1,137,832   51,270
Corporate 1,700,510   946,008
Non-pledged loan      
Retail 162,273   116,978
Corportate 92,246   113,155
Total Loans operations 7,972,327   3,925,429
Expected Credit Loss (Note 10) (8,115)   (7,101)
Total loans operations, net of Expected Credit Loss 7,964,212   3,918,328

 

By maturity

June 30,

2021

  December 31, 2020
Due in 3 months or less 509,882   160,918
Due after 3 months through 12 months 1,840,621   580,183
Due after 12 months 5,621,824   3,184,328
Total Loans operations 7,972,327   3,925,429

 

The loan products offered to its customers throught Banco XP 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 have 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$542,194 at June 30, 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. The Group monitors the value of the collaterals so that they are always sufficient, legally enforceable (effective) and viable. 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 are presented in Note 10.

 

22 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements

As of June 30, 2021

In thousands of Brazilian Reais, unless otherwise stated

 
8.Prepaid expenses

 

 

June 30,

2021

  December 31,
2020
Commissions and premiums paid in advance (a) 2,804,972   1,314,771
Marketing expenses 12,986   28,056
Services paid in advance 9,581   6,245
Other expenses paid in advance 59,613   44,465
Total 2,887,152   1,393,537
       
Current 121,963   283,183
Non-current 2,765,189   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.

 

  June 30, 2021   December 31, 2020
Cash and settlement records 373,644   18,128
Debtors pending settlement 2,470,197   1,088,923
(-) Expected losses on Securities trading and intermediation (a) (67,628)   (55,485)
Total Assets 2,776,213   1,051,566
       
Cash and settlement records 376,641   59,712
Creditors pending settlement 20,437,334   20,243,409
Total Liabilities 20,813,975   20,303,121

 

(a) The reconciliation of gross carrying amount and the expected loss according with IFRS 9 are presented 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 June 30, 2021:

 

23 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements

As of June 30, 2021

In thousands of Brazilian Reais, unless otherwise stated

 
       

June 30,

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)   23,711,548 (10,901) 23,700,647
         
Financial assets amortized cost        
Low credit risk simplification        
Securities (i)   988,625 (1,009) 987,616
Securities purchased under agreements to resell (i)   8,176,135 (1,736) 8,174,399
Three stage model        
Loans and credit card operations (ii) (iii)   7,972,327 (7,647) 7,964,680
Simplified approach        
Securities trading and intermediation   2,843,841 (67,628) 2,776,213
Accounts Receivable   400,299 (4,722) 395,577
Other financial assets   2,375,902 (45,706) 2,330,196
         
Total losses for on-balance exposures   46,468,677 (139,349) 46,329,328
         
Off-balance exposures (iv)   681,403 (468) 680,935
         
Total exposures   47,150,080 (139,817) 47,010,263
(i)Financial assets considered in Stage 1.

(ii)As of June 30, 2021 are presented in Stage 1: Gross amount of R$6,955,782 and ECL of R$4,451 Stage 2: Gross amount of R$ 1,016,407 and ECL of R$3,142 and Stage 3: Gross amount of R$ 139 and ELC of R$ 54 respectively.

(iii)As of June 30, 2021 there were transfers between from Stage 1 to Stage 2 of R$3,101 and from Stage 2 to Stage 3 of R$54. The were “cure” from Stage 2 to Stage 1 of R$375.

(iv)Include credit cards limits and sureties.

 

24 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements

As of June 30, 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 ventures of the Group as of June 30, 2021. The entities have share capital consisting solely of ordinary shares, which are held directly by the Group.

 

Entity December 31, 2020 Equity Equity in earnings Other comprehensive income Goodwill (i) June 30, 2021
Associates (ii.a) 697,924 4,990 (3,122) (96) 66,987 766,683
Joint ventures (ii.b) 1,983 - 2,787 341 - 5,111
 Total 699,907 4,990 (335) 245 66,987 771,794

 

(i)Related to the acquisitions of associates and joint ventures. The goodwill recognized includes the value of expected synergies arising from the investments and includes an element of contingent consideration.

(ii)At June 30, 2021, include interest in total and voting capital of the following companies: (a) Associates - Wealth High Governance Holding de Participações S.A. (49.9% total and voting capital at June 30,2021 and December 31, 2020); O Primo Rico Mídia, Educacional e Participações Ltda. (20% total and voting capital at June 30, 2021 and December 31, 2020) and NK112 Empreendimentos e Participações S.A. (49.9% total and voting capital at June 30, 2021); (b) Joint ventures - Du Agro Holdings S.A. (49% total and voting capital at June 30,2021 and December 31, 2020).

 

  

25 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements

As of June 30, 2021

In thousands of Brazilian Reais, unless otherwise stated

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

 

a)    Changes in the period

 

  Property and   Intangible
  equipment   assets
       
As of January 1, 2020 142,464   553,452
Additions 32,897   44,099
Write-offs (28,359)   (186)
Transfers (3,334)   3,334
Depreciations / Amortization in the period (12,993)   (33,477)
As of June 30, 2020 130,675   567,222
Cost 143,502   608,816
Accumulated depreciation / amortization (12,827)   (41,594)
       
As of January 1, 2021 204,032   713,563
Additions 51,760   166,993
Business combination (Note 2.f) -   27,298
Write-offs (1,975)   (2,548)
Transfers 5   (5)
Foreign Exchange (486)   -
Depreciations / Amortization in the period (10,421)   (97,946)
As of June 30, 2021 242,915   807,355
Cost 291,723   973,734
Accumulated depreciation / amortization (48,808)   (166,379)

 

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 unit (“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.

 

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 June 30, 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.

   

 

26 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements

As of June 30, 2021

In thousands of Brazilian Reais, unless otherwise stated

 
  Right-of-use assets   Lease liabilities
       
As of January 1, 2020 227,478   255,406
Additions (i) 35,342   35,562
Depreciation expense (23,050)   -
Write-offs (8,532)   (8,532)
Interest expense -   11,224
Revaluation (9,118)   (10,052)
Impairment (3,775)   -
Effects of exchange rate 26,776   29,053
Payment of lease liabilities -   (32,266)
As of June 30, 2020 245,121   280,395
       
As of January 1, 2021 183,134   208,448
Additions (i) 10,167   10,167
Depreciation expense (19,612)   -
Write-offs (856)   -
Interest expense -   7,926
Revaluation 24,079   23,544
Effects of exchange rate (2,795)   (3,752)
Payment of lease liabilities -   (26,962)
As of June 30, 2021 194,117   219,371
Current -   55,787
Non-current 194,117   163,583
(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$ 1,007 for the six months period ended June 30, 2021 (R$1,093 – June 30, 2020) and R$105 for three months period ended June 30, 2021 (R$585 – June 30, 2020) . The total rent expense for the six month period ended June 30, 2021 is R$ 11,003 (R$2,258 – June 30, 2020) and for the three months period ended June 30, 2021 is R$ 4,933 (R$1,256 – June 30, 2020) and include other expenses related to leased offices such as condominium for the six months period ended June 30, 2021.

 

Depreciation and amortization expense has been charged in the following line items of consolidated statement of income:

 

 

Six months period ended

June 30,

 

Three months period ended

June 30,

  2021 2020   2021 2020
Property and equipment          
Depreciation in the period 10,421 12,993   5,188 6,738
           
Leases          
Depreciation in the period 19,612 23,050   9,693 13,428
           
Intangible assets          
Amortization in the period 97,946 33,477   43,584 17,829
  127,979 69,520   58,465 37,995

  

 

27 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements

As of June 30, 2021

In thousands of Brazilian Reais, unless otherwise stated

 
13.Deposits

 

 

June 30,

2021

  December 31,
2020
Demands deposits 95,813   44,536
Time deposits 6,525,825   2,977,214
Interbank deposits 6,058   -
Total 6,627,696   3,021,750
       
Current 5,021,760   2,524,651
Non-Current 1,605,936   497,099

  

 

Maturity – As of June 30, 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   95,813 - - - - - 95,813
Time deposits   262,736 388,663 361,384 2,592,269 1,317,864 1,602,909 6,525,825
Interbank deposits   - - - - 3,031 3,027 6,058
Total   358,549 388,663 361,384 2,592,269 1,320,895 1,605,936 6,627,696
               
                 
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 indexes such as exchange, inflation, shares and international assets. All the financial instruments are originated by Banco XP S.A.

 

 

June 30,

2021

  December 31, 2020
Maturity      
From 31 to 60 days 945   -
From 91 to 180 days 594   945
From 180 to 360 days 39,219   1,489
After 360 days 4,157,243   2,176,025
Total 4,198,001   2,178,459
       
Current 40,758   2,434
Non-Current 4,157,243   2,176,025

  

 

28 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements

As of June 30, 2021

In thousands of Brazilian Reais, unless otherwise stated

 
15.Borrowings and lease liabilities

 

  Interest rate %   Maturity   June 30, 2021   December 31, 2020
               
Bank borrowings – domestic (i) 113% of CDI(*)   March 2021   -   10,523
Related parties         -   10,523
               
Financial institution (iii) 0.813%   May 2022   1,500,382   -
Financial institution (ii) CDI (*)+ 0.774%   April 2023   274,365   273,564
Third parties         1,774,747   273,564
               
Total borrowings         1,774,747   284,087
               
Lease liabilities         219,371   208,448
               
Total borrowings and lease liabilities       1,994,118   492,535
               
Current         1,565,365    51,656
Non-current         428,753    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. 

(iii) Loan agreement with Banco Nacional de México.

 

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

 

16.Debentures

 

As of June 30, 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$ 502.35 167,980

 

 

 

June 30

2021 

  December 31, 2020
Principal 400,000   400,000
Interest 28,849   25,091
Payments (196,152)   (25,124)
Repurchase (64,717)   (64,717)
Total 167,980   335,250
       
Current 167,980   204,731
Non-current -   130,519

  

 

29 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements

As of June 30, 2021

In thousands of Brazilian Reais, unless otherwise stated

 

The principal amount and accrued interest payables related to the second issuance are as follow: (i) for the principal amount, 50% is due and was paid 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.

 

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

 

17.Other financial assets and financial liabilities

 

a)Other financial assets

 

  June 30,
2021
  December 31, 2020
       
Foreign exchange portfolio 2,204,292   43,129
Receivables from IFAs 168,652   27,377
Others financial assets 2,958   2,777
(-) Expected losses on other financial assets (a) (45,706)   (3,312)
Total 2,330,196   69,971
       
Current 2,204,292   43,129
Non-current 125,904   26,842

 

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

 

b)Other financial liabilities

 

  June 30,
2021
  December 31, 2020
Foreign exchange portfolio 2,324,131   70,208
Financial bills (i) 2,160,069   16,389
Structured financing (ii) 1,880,180   874,771
Credit cards operations (i) 1,123,849   50,727
Contingent consideration (iii) 521,776   462,000
Others 91,415   40,079
Total 8,101,420   1,514,174
       
Current 5,419,575   1,035,785
Non-current 2,681,845   478,389

 

(i)Related to financials bills issued by Banco XP S.A.

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

(iii)Contractual contingent considerations mostly associated to the investment acquisition of WHG (Wealth High Governance Holding de Participações S.A.). The contingent consideration arrangement requires that the Company pay the selling shareholders an amount primarly associated to the performance of WHG (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).

 

30 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements

As of June 30, 2021

In thousands of Brazilian Reais, unless otherwise stated

 
18.Private pension liabilities

 

As of June 30, 2021, active plans are principally accumulation of financial resources through brazilian private pension 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 derived from the operations by XP Vida e Previdência.

 

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)).

 

Changes in the period:

 

 

Six months period ended

June 30,

 

2021

 

2020

As of January 1 13,387,913   3,759,090
Contributions received 1,214,582   513,115
Transfer from third party plans 7,427,935   3,005,132
Withdraws (499,120)   (66,700)
Gain (loss) from FIE

514,261

 

(16,918)

As of June 30

22,045,571

 

7,193,719

 

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
 

June 30,

2021

  December 31, 2020
       
Share based compensation 256,034   115,976
Tax losses carryforwards 149,444   7,382
Provisions for IFAs’ commissions 105,347   94,544
Profit sharing plan 261,992   164,808
Net gain on hedge instruments 20,832   20,987
Expected credit losses (ii) 44,043   19,444
Revaluations of financial assets at fair value (113,371)   (16,780)
Goodwill on business combinations (i) 14,221   22,838
Other provisions

56,843

 

67,495

Total

795,385

 

496,694

Deferred tax assets 795,385   505,046
Deferred tax liabilities -   (8,352)

   

 

31 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements

As of June 30, 2021

In thousands of Brazilian Reais, unless otherwise stated

 
 

Six months period ended

June 30,

 

Three months period ended

June 30,

  2021 2020   2021 2020
           
Tax losses carryforwards 142,062 (3,299)   5,521 (25,452)
Goodwill on business combinations (i) (8,618) 11,988   (6,080) 19,578
Provisions for IFAs’ commissions 10,803 2,463   1,476 5,835
Revaluations of financial assets at fair value (96,592) (38,765)   (134,303) 12,864
Expected credit losses 24,599 10,664   22,409 2,635
Profit sharing plan 97,184 35,863   177,996 105,690
Net gain (loss) on hedge instruments (155) 63,506   (16,913) 4,415
Share based plan 140,058 27,341   70,009 16,104
Other provisions (10,650) 11,805   22,638 (2,213)
Total 298,691 121,566   142,753 139,456

 

(i)For tax purposes, goodwill is amortized over 5 years on a straight-line basis when the acquired entity 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:

 

 

Six months period ended June 30,

 

2021

 

2020

       
As of January 1 496,694   279,401
Foreign exchange variations 4,688   279,582
Charges to statement of income 140,332   (188,260)
Tax relating to components of other comprehensive income

153,671

 

30,244

As of June 30

795,385

 

400,967

 

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$ 40,024 (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 and Insurance Companies.

 

The text of the Provisional Measure proposes the increase in the CSLL rate between July and December 2021. On July 14, 2021 the Provisional Measure was converted into Federal Law No. 14,183 confirming the CSLL rate increase for the period between July 2021 and December, 2021.

 

As of the Provisional Measure approval the Deferred Tax Assets and Liabilities registered in the balance sheet of XP CCTVM, Banco XP and XP Vida e Previdencia were increased by 5% for certain temporary adjustments made for corporate income tax (CIT) purposes which would turn into permanent effect in the period between July and December, 2021.

 

32 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements

As of June 30, 2021

In thousands of Brazilian Reais, unless otherwise stated

 
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 period, calculated by applying the combined Brazilian statutory rates at 34% for the six months period ended June 30:

 

 

 

Six months period

ended June 30 ,

 

Three months period

ended June 30 ,

  2021 2020   2021 2020
           
Income before taxes 1,786,641 1,126,077   1,002,425 609,546
Combined tax rate in Brazil (a) 34% 34%   34% 34%
Tax expense at the combined rate 607,458 382,866   340,824 207,246
           
Income (loss) from entities not subject to taxation 1,550 (8,728)   (626) 518
Effects from entities taxed at different rates 53,047 19,162   38,978 4,875
Effects from entities taxed at different taxation regimes (b) (482,126) (174,468)   (266,322) (109,790)
Intercompany transactions with different taxation (33,608) (27,130)   (20,214) (17,974)
Tax incentives and related donation programs (3,271) 2,030   (2,727) 1,425
Non deductible expenses (non-taxable income), net (1,044) (9,259)   4,187 (15,845)
Effect from social contribution on net income rate (Law No. 14,183) (25,396) -   (25,396) -
Others 4,608 3,787   2,446 (1,172)
Total 121,218 188,260   71,150 69,283
Effective tax rate 6.78% 16.72%   7.10% 11.37%
           
Current 261,551 257,598   221,053 185,693
Deferred (140,333) (69,338)   (149,903) (116,410)
Total expense 121,218 188,260   71,150 69,283

 

(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.

 

(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

 

33 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements

As of June 30, 2021

In thousands of Brazilian Reais, unless otherwise stated

 

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             69,675                    -                     69,675
Gains (losses) on net investment hedge         (110,362)         37,523                    (72,839)
Changes in the fair value of financial assets at fair value

18,438

 

(7,280)

 

11,158

As of June 30, 2020

(22,249)

 

30,243

 

7,994

           
Foreign exchange variation of investees located abroad (10,352)   -   (10,352)
Gains (losses) on net investment hedge 16,360   (5,477)   10,883
Changes in the fair value of financial assets at fair value

(392,819)

 

159,147

 

(233,672)

As of June 30, 2021

(386,811)

 

153,670

 

(233,141)

 

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 June 30, 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.

 

·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.

 

34 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements

As of June 30, 2021

In thousands of Brazilian Reais, unless otherwise stated

 

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 June 30, 2021, the outstanding number of company reserved under the plans were 10,138,673 restricted share units (“RSUs”) (December 31, 2020 – 11,079,736) and 2,819,912 performance restricted units (“PSUs”) (December 31, 2020 – 2,819,912) 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 six months period ended June 30, 2021, XP Inc. has not declared and paid dividends to the shareholders.

 

Non-controlling shareholders of some XP Inc’s subsidiaries received dividends in the six months period ended of June 30, 2021 and 2020 in a total amount of R$2,998.

 

(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 these financial assets are not realized. Also includes gains (losses) on net investment hedge and foreign exchange variation of investees located abroad.

 

21.Related party transactions

 

The main transactions carried with related parties, conducted on an arm’s length basis, including interest rates, terms and guarantees, and period-end balances arising from such transactions are as follows:

 

  Assets (Liabilities)   Revenue (Expenses)
       

Six months

period ended June 30,

Three months period ended June 30,
Relation and transaction June 30, 2021 December 31, 2020   2021 2020 2021 2020
               
Shareholders with significant influence (i) (1,813,543) (5,667,588)   (35,404) (23,038) (13,808) 3,001
 Securities 177,481 112,127   1,415 7,259 787 3,479
Securities purchased under agreements to resell - -   2,556 2,908 1,726 32,995
Accounts receivable and Loans operations 8,975 11,238   369 389 72 (408)
Securities sold under repurchase agreements (1,999,999) (5,780,430)   (39,723) (32,730) (16,393) (32,730)
Borrowings - (10,523)   (21) (864) - (335)

 

 

(i)These transactions are mostly related to Itau Group’s companies until May, 2021. See Note 1.2.

 

35 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements

As of June 30, 2021

In thousands of Brazilian Reais, unless otherwise stated

 

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; (v) insurance and (vi) loan operations. 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.

 

 

June 30,

2021

  December 31,
2020
Tax contingencies 10,180   10,097
Civil contingencies 10,546   4,281
Labor contingencies 5,687   5,333
Total provision 26,413   19,711
       
Judicial deposits (i) 10,268   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.

 

Changes in the provision during the period

 

 

Six months period ended

June 30,

  Three months period ended June 30,
  2021 2020   2021 2020
At the beginning of period 19,711 15,193   26,024 14,897
Monetary correction 4,930 973   432 648
Provision accrued 5,102 579   1,794 420
Provision reversed (1,252) (887)   (1,239) (341)
Payments (2,078) (379)   (598) (145)
At the end of period 26,413 15,479   26,413 15,479

 

36 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements

As of June 30, 2021

In thousands of Brazilian Reais, unless otherwise stated

 

Nature of claims

 

a)Tax

 

As of June 30, 2021 the Group has claims classified as probable risk of loss in the amount of R$ 10,180 (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 June 30, 2021, there were 93 civil and administrative claims for which the likelihood of loss has been classified as probable, in the amount of R$ 10,546 (December 31, 2020 - R$ 4,281). An amount of R$ 99 was deposited in court as of June 30, 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 June 30, 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$ 5,687 (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$ 273,659 (December 31, 2020 - R$ 217,426).

 

Below is summarized these possible claims by nature:

 

 

June 30,

2021

  December 31, 2020
Tax (i) 71,452   71,027
Civil (ii) 183,895   136,228
Labor 18,311   10,171
Total 273,658   217,426

  

 

37 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements

As of June 30, 2021

In thousands of Brazilian Reais, unless otherwise stated

 
(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 518 (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:

 

  Six months period ended
June 30,
  Three months period ended June 30,
  2021 2020   2021 2020
Major service lines          
Brokerage commission 1,291,026 1,047,573   649,702 542,929
Securities placement 982,529 533,774   513,206 185,600
Management fees 694,222 534,671   384,325 279,622
Insurance brokerage fee 66,484 56,675   34,522 27,449
Educational services 45,871 70,153   27,005 44,453
Other services 271,124 179,407   152,204 85,322
Gross revenue from services rendered 3,351,256 2,422,253   1,760,964 1,165,375
           
(-) Sales taxes and contributions on services (i) (295,585) (206,767)   (159,949) (101,835)
  3,055,671 2,215,486   1,601,015 1,063,540
(i)Mostly related to taxes on services (ISS) and contributions on revenue (PIS and COFINS).

 

b)      Net income from financial instruments

 

  Six months period ended
June 30,
 

Three months period ended

June 30,

  2021 2020   2021 2020
Net income from financial instruments at fair value through profit or loss 2,931,144 1,360,390   1,769,780 968,702
Net income from financial instruments measured at amortized cost and at fair value through other comprehensive income (298,291) 113,861   (330,579) (93,439)
Total income from financial instruments 2,632,853 1,474,251   1,439,201 875,263
           
(-) Taxes and contributions on financial income (42,398) (33,967)   (22,131) (17,874)
  2,590,455 1,440,284   1,417,070 857,398

  

 

38 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements

As of June 30, 2021

In thousands of Brazilian Reais, unless otherwise stated

 

c)       Disaggregation by geographic location

 

Breakdown of total net revenue and income and selected assets by geographic location:

 

  Six months period ended June 30,   Three months period ended June 30,
  2021 2020   2021 2020
Brazil 5,460,686 3,434,845   2,927,529 1,800,752
United States 168,000 202,214   83,085 110,324
Europe 17,440 18,711   7,471 9,853
Revenues 5,646,126 3,655,770   3,018,085 1,920,929
           
  June 30, 2021 December 31, 2020      
Brazil 5,014,281 3,244,421      
United States 98,557 129,956      
Europe 2,152 4,123      
Selected assets (i) 5,114,990 3,378,500      

 

(i) Selected assets are total assets of the Group, less: cash, financial assets and deferred tax assets and are presented by geographic location.

 

None of the clients represented more than 10% of our revenues for the periods presented.

 

24.Operating costs

 

 

Six months period ended

June 30,

  Three months period ended June 30,
  2021 2020   2021 2020
Commission and incentive costs 1,362,097 893,421   685,592 451,469
Operating losses 16,690 19,970   9,279 3,629
Other costs 296,272 216,021   142,753 117,460
Clearing house fees 183,639 135,884   84,604 72,381
Third parties’ services 55,620 33,778   24,791 15,630
Other (i) 57,013 46,359   33,358 29,449
Total 1,675,059 1,129,412   837,624 572,558
(i)Other cost include operational errors and other costs.

 

25.Operating expenses by nature

 

       
  Six months period ended June 30,   Three months period ended June 30,
  2021 2020   2021 2020
           
Selling Expenses (a) 106,319 56,045   61,901