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 2020

 

 Commission File Number: 001-39415 

 

Vasta Platform Limited

(Exact name of registrant as specified in its charter)

 

Av. Paulista, 901, 5th Floor 

Bela Vista 

São Paulo – SP, 01310-100 

Brazil
+55 (11) 3047-2655
 

(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

  Form 40-F  

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

 

Yes     No

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

 

Yes     No

 

 

 

 

 

 

 

 

TABLE OF CONTENTS

 

ITEM  
99.1. Press release dated August 20, 2020 – Vasta Platform Limited announces today its financial and operating results for the second quarter of 2020 (2Q20) ended June 30, 2020.
99.2 Vasta Platform Limited 2Q20 Earnings Presentation, August 2020.
99.3 Vasta Platform Limited Unaudited Interim Condensed Combined Financial Statements as of June 30, 2020 and Combined Carve-out Financial Statements as of December 31, 2019 and Unaudited Interim Condensed Combined Carve-out Financial Statements for the Six-Month Period Ended June 30, 2019

 

 

 

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.

 

    Vasta Platform Limited
     
     
      By: /s/ Mario Ghio Junior
        Name: Mario Ghio Junior
        Title: Chief Executive Officer

 

Date: August 21, 2020

 

 

 

 

 

 

 

 

 

Exhibit 1

 

 

 

   

 

São Paulo, August 20, 2020 – Vasta Platform Limited (NASDAQ: VSTA) – “Vasta” or the “Company,” announces today its financial and operating results for the second quarter of 2020 (2Q20) ended June 30, 2020. Financial results are expressed in Brazilian Reais and are presented in accordance with International Financial Reporting Standards (IFRS).

 

HIGHLIGHTS

 

*Vasta successfully concluded its IPO on Nasdaq, the largest IPO of a Brazilian education company.

 

*Since the start of the pandemic, the Plurall digital education platform has achieved more than 3.0 million live classes, 2.4 billion interactions and more than 200 million activities, proving itself to be an essential tool for maintaining schools’ academic calendar.

 

*On-track to Deliver 2020 ACV Bookings of R$676 million (18% growth YoY). Until the end of the semester, 87% of the 2020 ACV was captured, being 15% in the 2Q20.

 

*Net revenue totaled R$120.2 million in 2Q20 and R$512.7 million in the six-month period, which is within the range presented in the offering flash numbers. The subscription revenue accumulated during the 2020 commercial year (from 4Q19 to 2Q20) totaled R$586.1 million, a 21.6% growth versus the same period of the last commercial year.

 

*Adjusted EBITDA, excluding non-recurring effects, was negative by R$1.7 million in 2Q20, but positive by R$125.6 million in the six-month period. The different seasonality in revenue recognition seen in 2020 on account of a greater concentration of invoices at the start of the commercial cycle (4Q and 1Q) ended up having a negative impact on the basis of comparison against the same period last year.

 

*Negative EBITDA of R$10.9 million in 2Q20, due to the extraordinary effects seen in the period, such as the different seasonality of revenue together with the impact of Covid-19 on the operation, as well as the inventory adjustment and higher marketing expenses. However, in the YTD analysis, EBITDA was positive by R$110.0 million, at the top of the range stated in the offering document, which showed an EBITDA figure for the six-month period between R$103 million and R$112 million.

 

*Cash conversion (free cash flow over adjusted EBITDA) was 111.7% in the six-month period.

 

MESSAGE FROM MANAGEMENT

 

It is with great satisfaction and a huge sense of accomplishment that we have achieved another important milestone in our organization’s history, with the IPO and the admission of Vasta's shares for trading on Nasdaq. Taking the company public was never an objective in itself, but rather a factor that will enable the Company to accelerate its trajectory of success from this point onwards. And the IPO takes place at a crucial moment for our company, where we have the opportunity to support the digital transformation of partner schools, in a process that will radically change the educational model of the next years.

 

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Exactly 70 years ago, we opened one of the first milestones in Vasta's history with the establishment of Anglo, which would later become the Brazilian market’s first learning system, offering through a complete technological platform a methodology that includes content planning, classes development, checking the learning process and pedagogical advisory services to improve results. The success and longevity of Anglo and our platform’s other learning systems were only possible thanks to the quality of the material offered, the constant innovation and all the academic results achieved throughout our history. This has generated a reputation for our brands that will be essential to ensure future growth, given that it is reputation that produces trust and it is trust that leads to the signing of contracts.

 

If we were pioneers in constructing a successful education model, we now have the opportunity to take this legacy to a new level, offering not just solutions that help schools to improve and be more efficient, but making it possible to produce a real technological revolution by bringing to the classrooms scientific evidence that results in more assertive pedagogical solutions. And the current circumstances have only speeded up this process and given us the chance to convey new meaning, once again, to the way in which knowledge is transmitted.

 

Nowadays basic education faces unprecedented challenges whereby, all of a sudden, it had to resort to remote education in order to avoid interrupting the school year. This digitalization, for which the pandemic was the catalyst, highlighted the importance of technology in the teaching-learning process and, together, has helped shatter old models. Through Plurall, which is one of its education platforms, Vasta has offered thousands of private partner schools the possibility of continuing with their school activities. The platform, which was previously used as a learning support for students, assumed a key role in the so-called Digital School, which was the name given to the transition from analog classes to virtual ones, and which became an essential cornerstone for the continuity of the academic calendar. Since mid-March, when face-to-face classes were interrupted, more than 3.0 million online live classes, 2.4 billion interactions within the platform and 200 million activities using the tool have been carried out. In all, one in four Brazilian private elementary school students began using this resource, with the advantage of not having to leave home, which indicates the success of the platform.

 

But our work is not limited to supporting digital transformation in schools. We want to increasingly be an integral partner in Brazilian private schools. It is our opinion that the post-pandemic world will bring about the need to create hybrid schools, and Vasta is very well positioned to assist Brazilian schools with the transition to this new reality. Firstly, we developed an entire digital sales strategy, with an inside sales team that remotely manages to carry out the entire sales conversion process by using the platform. This has been essential for the company to maintain the expected dynamism to generate a solid number of contracts for the coming year. Secondly, we are making a series of Science in learning investments in order to further improve the effectiveness and results of our solutions. In other words, what we are currently proposing to our partners in relation to the use of technology is not just a stop-gap measure to help the schools get through this difficult period, but a whole range of solutions that will help migrate from the analogical model, which is still very deeply rooted in the academic environment. And we are convinced that this trend or search for digital solutions is no longer a mere future expectation, but a reality that benefits those who manage to quickly adapt or make the investments that are required in order to compete in this new scenario.

 

If in terms of operation we are sure that this is the best way to achieve sustainable growth, we are also financially convinced of the strength of our business. Vasta ended the second quarter with 87% of 2020 ACV already achieved, which reinforces the operation’s predictability and resilience even in times of crisis. Subscription revenues increased by

 

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roughly 12% in the first half of the year, which is below the 18% growth expected in 2020 ACV due to the marked concentration of revenues in 4Q19 (not forgetting that ACV includes billing from 4Q to 3Q of the following year). In this sense, over the course of this year we observed a different revenue recognition schedule than that verified in 2019, which ended up adversely affecting the annual comparison base. Nevertheless, the figures presented for the six-month period, even taking into account some peculiarities in relation to the pandemic regarding the drop in revenues from non-subscription services and the appropriateness of the provisioning policy, evidence a solid growth in revenue and cash generation.

 

Last but not least, it is necessary to stress that the success of the IPO generated important resources for the Company that have not yet been reflected in this document, which means that Vasta is in a very comfortable cash position to further complement its service platform and help consolidation of the content market for basic education schools. In this sense, if the conditions already appeared very favorable for Vasta's growth with its current offer of services, the IPO's proceeds should serve as a catalyst for an even more prosperous horizon.

 

COVID-19 UPDATE

 

As discussed in more detail in our June 30, 2020 condensed consolidated financial statements, the Company set up a Crisis Committee and developed a work plan covering several measures aimed at safeguarding the health of our employees and the stability of our operations, including: (i) the implementation of a work from home policy; (ii) the reduction in the work hours and wages by 25% of our administrative and corporate employees for the months of May, June and July; (iii) on-line campaigns to promote our products to potential new customers; and (iv) the implementation in our distribution centers of health and safety measures recommended by government authorities. In addition, we have accelerated the expansion of our digital education solutions to help keep the private school system operating during the COVID-19 pandemic, seeking to maintain the continuity in our operations and minimize the impacts of the pandemic on students enrolled at our partner schools. Through the integration of our Plurall and Plurall Maestro platforms with Google Hangouts, we have allowed students to access live classroom instruction remotely along with the instructional content already available through Plurall, such as ongoing homework and learning exercises, access to tutors, and an online library with a variety of content in different formats. We continue to monitor the availability and use of these solutions and have engaged students for their feedback, which has been very positive during the pandemic. From March 23, 2020 (when the integration of Plurall platform with Google Meet was completed) to the date of this release, we have conducted more than 3 million digital class sessions. Additionally, as of the date of this release, we had more than 1.3 million students using our platforms, participating in more than 50,000 classes daily during week days.

 

Despite of the continuity of educational services, the process of isolation, closure of schools and restricted mobility in some cities increased the uncertainties on our business cycle and logistics process. As an example, we closed our warehouse for almost a month, which caused delays in new deliveries and the returning of goods from clients as well. Considering this, it is likely that we will have some impacts on revenue and profitability through the quarters of 2020 and, potentially, for the coming years. In addition, several reports and market projections indicate a drop in Brazilian GDP in 2020, which may impact our sales cycle for 2021.

 

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We cannot predict the extent of the impact of COVID-19 on our business or that any of the measures we have taken in response to the pandemic will be effective in mitigating the impact of COVID-19 on our business.

 

In connection with social distancing and social isolation measures implemented by state and local governments in Brazil in response to the COVID-19 pandemic, and considering the effect of such measures on the education sector, certain of our partner schools experienced a decline in enrollment during the first half of the year, particularly in respect of early childhood education. Certain of our partner schools requested to decrease their level of purchases of educational materials and solutions we characterize as subscription arrangements for the second half of our 2020 sales cycle (which comprises the period between October 1, 2019 and September 30, 2020).

 

Despite this, we expect sales and services rendered for the third quarter to remain stable over the prior year since annual contracts had been previously executed. However, there are risks related to this Global pandemic event that can impact the Business and may have impacts on its sales and gross margin for full year of 2020 as annual contracts for 2021 start being invoiced at the fourth quarter of 2020, and customers may not sign contracts with the same volumes than last year.

 

REVENUE RECOGNITION AND SEASONALITY

 

As we release our results for the second quarter of 2020, it is important to highlight the revenue recognition and seasonality of our business.

 

Our main deliveries of printed and digital materials to our customers occur in the last quarter of each year (typically in November and December), and in the first quarter of each subsequent year (typically in February and March), and revenue is recognized when the customers obtain control over the materials. In addition, the printed and digital materials we provide in the fourth quarter are used by our customers in the following school year and, therefore, our fourth quarter results reflect the growth in the number of our students from one school year to the next, leading to higher revenue in general in our fourth quarter compared with the preceding quarters in each year. Consequently, in aggregate, the seasonality of our revenues generally produces higher revenues in the first and fourth quarters of our fiscal year. In this sense, the numbers for the second quarter and third quarter are usually less relevant. In addition, we generally bill our customers during the first half of each school year (which starts in January), which generally results in a higher cash position in the first half of each year compared to the second half.

 

A significant part of our expenses is also seasonal. Due to the nature of our business cycle, we need significant working capital, typically in September or October of each year, in order to cover costs related to production and inventory accumulation, selling and marketing expenses, and delivery of our teaching materials at the end of each year in preparation for the beginning of each school year. As a result, these operating expenses are generally incurred between September and December of each year.

 

Purchases through our Livro Fácil e-commerce platform are also very intense during the back-to-school period, between November, when school enrollment takes place and families plan to anticipate the purchase of products and services, and February of the following year, when classes are about to start. Thus, e-commerce revenue is mainly concentrated in the first and fourth quarters of the year.

 

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KEY BUSINESS METRICS

 

ACV Bookings: ACV Bookings is a non-accounting managerial metric and represents our partner schools’ commitment to pay for our solutions offerings. We believe it is a meaningful indicator of demand for our solutions. In particular, we believe ACV Bookings is a helpful metric because it is designed to show amounts that we expect to be recognized as revenue from subscription services for the 12-month period between October 1 of one fiscal year through September 30 of the following fiscal year. We define ACV Bookings as the revenue we would expect to recognize from a partner school in each school year, based on the number of students who have contracted our services, or “enrolled students,” that will access our content at such partner school in such school year. We calculate ACV Bookings by multiplying the number of enrolled students at each school with the average ticket per student per year; the related number of enrolled students and average ticket per student per year are each calculated in accordance with the terms of each contract with the related school. Although our contracts with our schools are typically for 4-year terms, we record one year of revenue under such contracts as ACV Bookings. ACV Bookings are calculated based on the sum of actual contracts signed during the sales period and assumes the historical rates of returned goods from customers for the preceding 24-month period. Since the actual rates of returned goods from sales during the period may be different from the historical average rates and the actual volume of merchandise ordered by our customers may be different from the contracted amount, the actual revenue recognized during each period of a sales cycle may be different from the ACV Bookings for the respective sales cycle. Our reported ACV Bookings are subject to risks associated with, among other things, economic conditions and the markets in which we operate, including risks that our contracts may be canceled or adjusted (including as a result of the COVID-19 pandemic).

 

As already mentioned, the decrease in the expectation of revenue recognition stems from the higher drop-out rate of students enrolled in our partner schools, particularly younger students due to the pandemic, which caused a reduction of approximately R$ 40 million in expected ACV for 2020. Currently, we expect that even considering the impact on our revenues related to the effects of COVID-19, revenue from subscription services associated with the 2020 ACV contracts will grow 18% over the previous commercial year and reach R$ 676 million.

 

OPERATING PERFORMANCE

 

Student Base – Subscription Models

 

Student Base   2Q20   2Q19   Chg.%   1Q20   Chg.%
Private Schools w/ Contracts (Core Content)   4,167   3,400   22.6%   4,110   1.4%
Private Schools w/ Contracts (Complementary activities)   636   417   52.5%   655   -2.9%
Students in Private Schools w/ Contracts (Core Content)   1,311,147   1,185,799   10.6%   1,394,061   -5.9%
Students in Private Schools w/ Contracts (Complementary activities)   213,058   133,583   59.5%   218,055   -2.3%

 

Compared to 2Q19, Vasta added 767 schools to its main content customer portfolio, which is an increase of 23% YoY, supported both by traditional learning systems as well as by PAR – a textbook-based learning system. The number of students from partner schools showed the same trend and posted an 11% growth, with an increase in both lines. Regarding complementary activities, 219 new schools became our customers, which is an increase of 53%, or 59% if we consider the number of students, which only goes to confirm this segment’s high potential. At this point, it is worth

 

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stressing that, regarding commercial activity in 2020, Vasta had only two complementary activity solutions on its platform, by comparison with the total of 5 that are currently available, which is likely to give a further boost to this segment’s performance over the next years. It is also worth bearing in mind that there is a natural seasonality of the business in comparison with the previous quarter, mainly in relation to the number of students, with adjustments to the orders and returns made by the partner schools. These returns were in line with the average of the last few years even during a period of crisis (ratifying the resilience of the business).

 

Net Revenue

 

Vasta  - Values in R$ ('000)   2Q20   2Q19   Chg.%   1Q20   Chg.%   1S20   1S19   Chg.%
Net Revenue   120,233   137,970   -12.9%   392,418   -69.4%   512,651   491,024   4.4%
   Net Revenue from subscription model   104,552   102,551   2.0%   265,624   -60.6%   370,176   331,911   11.5%
   Net Revenue from core business   102,840   102,210   0.6%   234,320   -56.1%   337,160   309,434   9.0%
   Net Rev. from complementary solutions   1,712   341   402.1%   31,304   -94.5%   33,016   22,477   46.9%
   Net Revenue - Others   15,681   35,419   -55.7%   126,794   -87.6%   142,475   159,113   -10.5%

 

Net revenues from subscription products, which includes all educational solutions with recurring revenue (basically learning systems), accounted for 87% of the company’s total revenue in 2Q20, a considerable increase by comparison with the percentages recorded in the other quarters. This effect reflects the characteristics of the business since in periods of economic instability such as now, subscription revenues tend to show a more stable behavior than other businesses, whose revenues suffered in 2Q20 with the temporary closure of face-to-face activities in schools and bookstores. In comparison with the same quarter of the previous year, subscription revenues increased by 2.0%, a performance below that indicated for the 2020 ACV due to the different seasonality in revenue recognition, combined with the lower volume of orders received from our partner schools (due to higher student dropout). In the aggregate first half, however, subscription revenues grew 12%, or 21.6% if we consider the subscription revenue accumulated during the 2020 commercial year (from 4Q19 to 2Q20).

 

     ACV 2019    ACV 2020    
                     
Vasta   4Q18-2Q19   % Net Rev.   4Q19-2Q20   % Net Rev.   Chg.%
Net Revenue   737,385   100.0%   875,499   100.0%   18.7%
Subscription (ACV)   482,116   65.4%   586,075   66.9%   21.6%
Non-subscription            255,269   34.6%   289,424   33.1%   13.4%

 

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FINANCIAL PERFORMANCE

 

Vasta - Values ​​in R$ ('000)   2Q20   2Q19   % AH   1Q20   % AH   1S20   1S19   % AH
Gross revenue   138,204   160,517   -13.9%   418,344   -67.0%   556,548   560,946   -0.8%
Deductions from gross revenue   (17,971)   (22,547)   -20.3%   (25,926)   -30.7%   (43,897)   (69,922)   -37.2%
Taxes   (1,419)   (2,107)   -32.7%   (2,239)   -36.6%   (3,658)   (4,127)   -11.4%
Returns   (10,440)   (10,193)   2.4%   (27,596)   -62.2%   (38,036)   (38,303)   -0.7%
Discounts   (6,112)   (10,247)   -40.4%   3,910   n.a.   (2,202)   (27,492)   -92.0%
Net revenue   120,233   137,970   -12.9%   392,418   -69.4%   512,651   491,024   4.4%
                                 
Total Cost of goods sold and services   (48,422)   (58,763)   -17.6%   (167,333)   -71.1%   (215,755)   (238,057)   -9.4%
Cost of goods sold and services   (48,422)   (58,763)   -17.6%   (167,333)   -71.1%   (215,755)   (238,057)   -9.4%
                                 
Gross profit   71,811   79,207   -9.3%   225,085   -68.1%   296,896   252,967   17.4%
Gross profit margin   59.7%   57.4%   2.3p.p.   57.4%   2.4p.p.   57.9%   51.5%   6.4p.p.
                                 
General and administrative expenses   (72,167)   (77,995)   -7.5%   (85,928)   -16.0%   (158,094)   (130,168)   21.5%
                                 
Impairment losses on trade receivables   (1,264)   (3,218)   -60.7%   (10,319)   -87.8%   (11,583)   (7,998)   44.8%
                                 
Commercial expenses   (42,803)   (24,350)   75.8%   (37,793)   13.3%   (80,596)   (62,663)   28.6%
                                 
(Loss) Profit before financial income and taxes   (44,422)   (26,356)   68.5%   91,046   -148.8%   46,623   52,138   -10.6%
Operating margin   -36.9%   -19.1%   -17.8p.p.   23.2%   -60.1p.p   9.1%   10.6%   -1.5p.p.
Corporate Expenses   (9,917)   (16,635)   -40.4%   (12,294)   -19.3%   (22,212)   (32,148)   -30.9%
(+) Depreciation and amortization   43,468   42,000   3.5%   42,150   3.1%   85,618   83,255   2.8%
EBITDA   (10,872)   (991)   997.2%   120,901   -109.0%   110,029   103,245   6.6%
EBITDA margin   -9.0%   -0.7%   -8.3p.p.   30.8%   -39.9p.p   21.5%   21.0%   0.4p.p.
                                 
(+) Impact COVID-19   -   -   n.a.   5,642   -100.0%   5,642   -   n.a.
(+) Non-recurring expenses   8,300   -   n.a.   -   n.a.   8,300   -   n.a.
(+) Share-based compensation plan   900   200   350.0%   729   23.5%   1,629   478   240.8%
(+) Provision for risks of tax, civil and labor losses   -   1,800   -100.0%   -   n.a.   -   2,944   -100.0%
Adjusted EBITDA   (1,672)   1,009   -265.7%   127,272   -101.3%   125,600   106,667   17.8%
Adjusted EBITDA margin   -1.4%   0.7%   -2.1p.p.   32.4%   -33.8p.p   24.5%   21.7%   2.8p.p.

 

Vasta's adjusted EBITDA in 2Q20 was negative by R$1.7 million, affected mainly by lower revenues and the increase in marketing expenses. In turn, net loss in 2Q20 was R$54.9 million, a level practically stable when compared to 2Q19 even taking into account all the impacts just mentioned.

 

In the analysis of the six-month period, Vasta's revenue was up by 4.4%, with subscription revenue showing an increase of 12%. As mentioned above, this growth percentage below the 18% growth expected for 2020 ACV is due to the different revenue recognition schedule, with a greater impact on billing for 4Q19. Furthermore, the expected increase in 2020 ACV is already discounted from the R$40 million in revenue that will not be recognized (although contractually due) this year. Adjusted EBITDA for the six-month period totaled R$125.6 million, with an adjusted EBITDA margin of 24.5%, which is a 2.8 p.p. increase against that recorded in 1H19, notwithstanding that this period was positively impacted by lower operating expenses on account of the reversal in the provision for variable compensation, which strengthens the efficiency gains recorded in the period. The net loss for the semester was R$27.3 million, a better performance than the net loss of R$39.9 million recorded in the same period of 2019.

 

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PDA and Accounts Receivable¹

 

Values in R$ (000)   2Q20   2Q19   Chg.%   1Q20   Chg.%
Gross Accounts Receivable          352,748          271,240   30.1%          510,702   -28.0%
PDA Balance           (30,715)           (27,200)   12.9%           (33,332)   -32.7%
Coverage Ratio   8.7%   10.0%   -1.3 p.p.   6.5%   2.2 p.p.
Net Accounts Receivable          322,033          244,039   32.0%          477,370   -27.5%
Average Accounts Receivable Term (days)                 115                   96   19                 167   -40

 

* Excludes Credit Card balance. ¹ For comparison purposes, 2Q19 numbers considers the write-off of liabilities due over 360 days with the respective write-off of the PDA balance.

 

As a percentage of revenue, the provision for doubtful accounts (PDA) decreased in 2Q20 as a result of the additional provisioning made in the previous quarter (due to the Covid-19 impact) and remained at a very low level (1.1%), especially when considering all the circumstances of the current moment. Even so, in the analysis of the six-month period, PDA as a percentage of revenue rose only 0.6 p.p., which reinforces the resilience of our business. Net accounts receivable registered a 32% growth, leading to a 19-day increase in the Average Accounts Receivable Term. This longer term is the result of the pandemic’s impact, mainly on non-subscription products.

 

CONFERENCE CALL INFORMATION

 

Vasta will discuss its second quarter 2020 results on August 21, 2020, via a conference call at 8:00 a.m. Eastern Time. To access the call (ID: 2791186), please dial: (833) 519-1336 or +1 (914) 800-3898. An audio replay of the call will be available through August 28, 2020 by dialing (855) 859-2056 or +1 (404) 537-3406 and entering access code 2791186. A live and archived webcast of the call will be available on the Investor Relations section of the Company’s website at https://ir.vastaplatform.com.

 

ABOUT VASTA

 

Vasta is a leading, high-growth education company in Brazil powered by technology, providing end-to-end educational and digital solutions that cater to all needs of private schools operating in the K-12 educational segment, ultimately benefiting all of Vasta’s stakeholders, including students, parents, educators, administrators and private school owners. Vasta’s mission is to help private K-12 schools to be better and more profitable, supporting their digital transformation. Vasta believes it is uniquely positioned to help schools in Brazil undergo the process of digital transformation and bring their education skill-set to the 21st century. Vasta promotes the unified use of technology in K-12 education with enhanced data and actionable insight for educators, increased collaboration among support staff and improvements in production, efficiency and quality. For more information, please visit ir.vastaplatform.com.

 

CONTACT

 

Investor Relations

+55 11 3133 7311

ri@somoseducacao.com.br

 

  8 

 

 

   

 

 

FORWARD-LOOKING STATEMENTS

 

This press release contains forward-looking statements that can be identified by the use of forward-looking words such as “anticipate,” “believe,” “could,” “expect,” “should,” “plan,” “intend,” “estimate” and “potential,” among others. Forward-looking statements appear in a number of places in this press release and include, but are not limited to, statements regarding our intent, belief or current expectations. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. Such statements are subject to risks and uncertainties, and actual results may differ materially from those expressed or implied in the forward-looking statements due to of various factors, including (i) 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; (ii) fluctuations in interest, inflation and exchange rates in Brazil and any other countries we may serve in the future; (iii) our ability to implement our business strategy and expand our portfolio of products and services; (iv) our ability to adapt to technological changes in the educational sector; (v) the availability of government authorizations on terms and conditions and within periods acceptable to us; (vi) our ability to continue attracting and retaining new partner schools and students; (vii) our ability to maintain the academic quality of our programs; (viii) the availability of qualified personnel and the ability to retain such personnel; (ix) changes in the financial condition of the students enrolling in our programs in general and in the competitive conditions in the education industry; (x) our capitalization and level of indebtedness; (xi) the interests of our controlling shareholder; (xii) changes in government regulations applicable to the education industry in Brazil; (xiii) government interventions in education industry programs, that affect the economic or tax regime, the collection of tuition fees or the regulatory framework applicable to educational institutions; (xiv) cancellations of contracts within the solutions we characterize as subscription arrangements or limitations on our ability to increase the rates we charge for the services we characterize as subscription arrangements; (xv) our ability to compete and conduct our business in the future; (xvi) our ability to anticipate changes in the business, changes in regulation or the materialization of existing and potential new risks; (xvii) the success of operating initiatives, including advertising and promotional efforts and new product, service and concept development by us and our competitors; (xviii) changes in consumer demands and preferences and technological advances, and our ability to innovate to respond to such changes; (xix) changes in labor, distribution and other operating costs; our compliance with, and changes to, government laws, regulations and tax matters that currently apply to us; (xx) the effectiveness of our risk management policies and procedures, including our internal control over financial reporting; (xxi) health crises, including due to pandemics such as the COVID-19 pandemic and government measures taken in response thereto; (xxii) other factors that may affect our financial condition, liquidity and results of operations; and (xxiii) other risk factors discussed under “Risk Factors.” Forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update them in light of new information or future developments or to release publicly any revisions to these statements in order to reflect later events or circumstances or to reflect the occurrence of unanticipated events.

 

  9 

 

 

   

 

 

NON-GAAP FINANCIAL MEASURES

 

This press release presents our EBITDA, Adjusted EBITDA, Free Cash Flow and Adjusted Cash Conversion Ratio information for the convenience of investors. EBITDA, Adjusted EBITDA, Free Cash Flow and Adjusted Cash Conversion Ratio are the key performance indicators used by us to measure financial operating performance. Our management believes that these Non-GAAP financial measures provide useful information to investors and shareholders. We also use these measures internally to establish budgets and operational goals to manage and monitor our business, evaluate our underlying historical performance and business strategies and to report our results to the board of directors.

 

We calculate EBITDA as Net profit (loss) for the period / year plus income taxes and social contribution plus/minus net finance result plus depreciation and amortization. The EBITDA measure provides useful information to assess our operational performance.

 

We calculate Adjusted EBITDA as EBITDA plus/minus: (a) share-based compensation expenses, mainly due to the grant of additional shares to Somos’ employees in connection with the change of control of Somos to Cogna (for further information refer to note 20 to the audited combined carve-out financial statements of Somos—Anglo); (b) provision for risks of tax, civil and labor losses regarding penalties, related to income tax positions taken by the Predecessor Somos—Anglo and the Successor in connection with a corporate reorganization carried out by the Predecessor Somos—Anglo (for further information refer to note 20 to the audited combined carve-out financial statements of Somos—Anglo), (c) higher Impairment losses on trade receivables (to align with the current situation); and (d) inventory adjustment of R$ 8 million resulting from our e-commerce business (inventory recount). We understand that such adjustments are relevant and should be considered when calculating our Adjusted EBITDA, which is a practical measure to assess our operational performance that allows us to compare it with other companies that operates in the same segment.

 

We calculate Free Cash Flow as the net cash flows from operating activities as presented in the statement of cash flows of our financial statements less cash flows required for: (i) acquisition of property, plant and equipment; (ii) addition to intangible assets; and (iii) acquisition of subsidiaries. We consider Free Cash Flow to be a liquidity measure, therefore, we adjust our Free Cash Flow metric with amounts that directly impacted the cash flows in the period in addition to the operating activities. The Free Cash Flow measure provides useful information to management and investors about the amount of cash generated by our operations, deducting for investments in property and equipment to maintain and grow our business.

 

We calculate Adjusted Cash Conversion Ratio as the cash flows from operating activities divided by Adjusted EBITDA for the relevant period.

 

We understand that, although EBITDA, Adjusted EBITDA, Free Cash Flow and Adjusted Cash Conversion Ratio are used by investors and securities analysts in their evaluation of companies, these measures have limitations as analytical tools, and you should not consider them in isolation or as substitutes for analysis of our results of operations as reported under IFRS. Additionally, our calculations of Adjusted EBITDA, Free Cash Flow and Adjusted Cash Conversion Ratio may be different from the calculation used by other companies, including our competitors in the education services industry, and therefore, our measures may not be comparable to those of other companies.

 

  10 

 

 

   

 

 

Vasta Platform Limited

Interim Condensed Consolidated Statements of Financial Position

 

  As of June 30, 2020   As of December 31, 2019
  Successor (Vasta)
  R$ millions   R$ millions
       
Statement of Financial Position:      
Assets      
Current assets      
Cash and cash equivalents 182.4   43.3
Trade receivables 338.2   388.8
Inventories 227.7   222.2
Taxes Recoverable and Income tax and social contribution recoverable 40.8   50.3
Prepayments 48.3   22.6
Other receivables 0.4   1.9
Related parties – other receivables 5.8   38.1
Total current assets 843.6   767.2
Non-current assets      
Judicial deposits and Escrow Accounts 171.1   172.9
Deferred income tax and social contribution 62.4   57.3
Property, plant and equipment 186.4   185.0
Intangible assets and goodwill 4,975.4   4,985.4
Total non-current assets 5,395.3   5,400.6
Total assets 6,238.9   6,167.8
Liabilities and parent’s net investment      
Current liabilities      
Bonds and financing 546.7   440.9
Lease liabilities 13.0   7.1
Suppliers 167.2   223.7
Suppliers related parties 163.1   207.2
Taxes payable 0.6   0.9
Income tax and social contribution payable 10.3   18.8
Salaries and social contributions 64.3   61.7
Contract liabilities and deferred income 45.2   49.3
Accounts payable for business combination 16.2   1.8
Other liabilities 6.1   3.9
Other liabilities - related parties 145.2   49.2
Loans from related parties 67.4   29.2
Total current liabilities 1,245.3   1,093.7
Non-current liabilities      
Bonds and financing 1,117.1   1,200.0
Lease liabilities 147.4   146.6
Accounts payable for business combination 26.1   9.2
Provision for risks of tax, civil and labor losses 608.5   609.0
Contract liabilities and deferred revenues 7.8   9.2
Total non-current liabilities   1,906.9   1,974.0
Total liabilities 3,152.2   3,067.7
Total parent’s net investment 3,086.7   3,100.1
Total liabilities and parent’s net investment   6,238.9   6,167.8

 

  11 

 

 

   

 

 

Vasta Platform Limited 

Interim Condensed Consolidated Statements of Financial Position

 

  For Six Months Ended June 30,   For the period from April 01 to June 30,
  2020   2019   2020   2019
  Successor (Vasta)   Successor (Vasta)
  R$ millions   R$ millions
Statement of Profit or Loss              
Net revenue from sales and services 512.7   491.0   120.2   138.0
Net revenue from sales 500.7   477.1   111.6   127.0
Net revenue from services 12.0   13.9   8.6   11.0
               
Costs of goods sold and services (215.8)   (238.1)   (48.4)   (58.8)
Gross profit 296.9   252.9   71.8   79.2
               
               
General and administrative expenses (274.5)   (233.0)   (127.3)   (120.2)
Other operating income, net 2.0   -   1.2   (2.0)
Profit (loss) before finance result and taxes 24.4   19.9   (54.3)   (43.0)
               
Finance income 8.6   1.4   3.6   0.6
Finance costs (76.5)   (83.1)   (31.9)   (42.2)
Finance result (67.9)   (81.7)   (28.3)   (41.6)
               
Profit before income tax and social contribution (43.5)   (61.8)   (82.6)   (84.6)
Income tax and social contribution 16.2   21.9   27.7   29.8
Net profit for the period (27.3)   (39.9)   (54.9)   (54.8)

 

 

  12 

 

 

   

 

  

Vasta Platform Limited

 

Interim Condensed Consolidated Statements of Financial Position

 

  For Six Months Ended June 30,   For the period from April 01 to June 30,
  2020   2019   2020   2019
  Content & EdTech Platform   Content & EdTech Platform
  R$ millions   R$ millions
Statement of profit or loss:              
Net revenue from sales and services                     433.7                       409.1                       115.9                       123.2
Cost of goods sold and services                   (142.2)                     (158.1)                       (44.0)                       (41.5)
Gross profit                   291.5                     251.0                        71.9                        81.7
General and administrative expenses                   (251.2)                     (219.0)                     (112.3)                     (111.8)
Other operating income, net                         2.0                            -                              1.2                         (2.0)
Profit before finance result and taxes                      42.3                        32.0                      (39.2)                      (32.1)

 

 

  For Six Months Ended June 30,   For the period from April 01 to June 30,
  2020   2019   2020   2019
  Digital Services Platform   Digital Services Platform
  R$ millions   R$ millions
Statement of profit or loss:              
Net revenue from sales and services                       79.0                         81.9                           4.3                         14.8
Cost of goods sold and services                     (73.6)                       (80.0)                         (4.4)                       (17.3)
Gross profit                        5.4                          1.9                        (0.1)                        (2.5)
General and administrative expenses                     (23.3)                       (14.0)                       (15.0)                         (8.4)
Other operating income, net                          -                               -                               -                               -   
Profit before finance result and taxes                    (17.9)                      (12.1)                      (15.1)                      (10.9)

 

 

  For Six Months Ended June 30,   For the period from April 01 to June 30,
  2020   2019   2020   2019
  Successor (Vasta)   Successor (Vasta)
  R$ millions   R$ millions
Net profit (loss) for the period (27.3)   (39.9)   (54.9)   (54.8)
(+) Income tax and social contribution (16.2)   (21.9)   (27.7)   (29.8)
(+/-) Finance result 67.9   81.7   28.3   41.6
(+) Depreciation and amortization 85.6   83.3   43.4   42.0
EBITDA 110.0   103.2   (10.9)   (1.0)
(+) Share-based compensation plan 1.6   0.5   0.9   0.2
(+) Provision for risks of tax, civil and labor losses -   2.9   -   1.8
(+) Impact COVID-19 5.7   -   -   -
(+) Non-recurring expenses 8.3   -   8.3   -
Adjusted EBITDA 125.6   106.6   (1.7)   1.0

 

  13 

 

 

   

 

 

Vasta Platform Limited 

Interim Condensed Consolidated Statements of Financial Position

 

  For Six Months Ended June 30,   For the period from April 01 to June 30,
  2020   2019   2020   2019
  Successor (Vasta)   Successor (Vasta)
  R$ millions   R$ millions
Net cash flows from (used in) operating activities 191.7   (20.2)   107.0   156.1
(-) Acquisition of property, plant and equipment (2.2)   (5.8)   (1.5)   (2.7)
(-) Additions to intangible assets (25.7)   (9.6)   (19.1)   (5.7)
(-) Acquisition of subsidiary, net of cash acquired (23.5)   -   -   -
Free Cash Flow 140.3   (35.6)   86.4   147.7

 

 

Vasta Platform Limited 

Interim Condensed Consolidated Statements of Financial Position

 

  For Six Months Ended June 30,   For the period from April 01 to June 30,
  2020   2019   2020   2019
  Successor (Vasta)   Successor (Vasta)
  R$ millions   R$ millions
               
Adjusted EBITDA                     125.6                       106.6                         (1.7)                           1.0
Free Cash Flow                     140.3                       (35.6)                         86.4                       147.7
Adjusted Cash Conversion Ratio 111.7%   -33.4%   n.a.   n.a.

 

  14 

 

 

   

 

 

Vasta Platform Limited 

Interim Condensed Consolidated Statements of Financial Position

 

    As of june, 30, 2020   As of December, 31, 2019
    Successor (Vasta)
    R$ millions   R$ millions
CASH FLOWS FROM OPERATING ACTIVITIES        
 Profit before income tax and social contribution                          (43,497)                          (61,789)
 Adjustments for:        
Depreciation and amortization                            85,618                            83,255
Impairment losses on trade receivables                              6,546                              7,998
(Reversal) Provision for risks of tax, civil and labor losses                            (4,331)                            12,302
Interest on provision for risks of tax, civil and labor losses                            10,564                            13,829
Reversal of provision for obsolete inventories                              1,985                               (369)
Interest on bonds and financing                            39,414                            58,219
Refund liability and right to returned goods                            (2,256)                          (19,841)
Imputed interest on suppliers                              3,379                              4,357
Interest on accounts payable for business combination                                   39                                   52
Share-based payment expense                              1,629                                 478
Interest on lease liabilities                              7,592                              7,862
Disposals of rights of use assets and lease liabilities                               (705)                              1,838
Residual value of disposals of property, plant and equipment and intangible assets                              1,415                              5,736
         
Changes in                        107,392                        113,927
 Trade receivables                            49,044                            67,721
 Inventories                                3,670                            14,773
 Prepayments                          (24,881)                              5,796
 Taxes recoverable                            10,192                            (4,586)
 Judicial deposits and escrow accounts                              1,829                              2,552
 Other receivables                              4,325                          (15,875)
 Suppliers                          (70,348)                        (102,405)
 Salaries and social charges                              2,231                          (32,285)
 Tax payable                              7,218                              1,957
 Contract liabilities and deferred income                                 399                          (14,056)
 Other receivables and liabilities from related parties                          129,959                                     -
 Other payables                              7,840                            10,644
 Cash from (used in) operating activities                        228,870                          48,163
Income tax and social contribution paid                            (5,234)                            (3,177)
Interest lease liabilities paid                            (7,616)                            (6,505)
Payment of interest on bonds and financing                          (17,576)                          (58,681)
Payment of provision for tax, civil and labor losses                            (6,779)                                     -
Net cash from (used in) operating activities                        191,665                        (20,200)
CASH FLOWS FROM INVESTING ACTIVITIES        
Acquisition of property, plant and equipment                            (2,166)                            (5,836)
Additions to intangible assets                          (25,701)                            (9,593)
Acquisition of subsidiary, net of cash acquired                          (23,526)                                     -
 Net cash used in investing activities                        (51,393)                        (15,429)
         
 CASH FLOWS FROM FINANCING ACTIVITIES        
         
Loans from related parties paid                          (29,092)                                     -
Loans from related parties addition                            65,600                                     -
Suppliers - related Parties                          (44,112)                            (5,105)
Lease liabilities paid                            (5,797)                            (7,887)
Parent's Net Investment                            12,252                            (3,840)
 Net cash from (used in) financing activities                           (1,149)                        (16,832)
         
 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                          139,123                        (52,461)
         
 Cash and cash equivalents at beginning of period                            43,287                          102,231
 Cash and cash equivalents at end of year                          182,410                            49,770
         
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                        139,123                        (52,461)

 

  15 

 

 

   

 

 

Vasta Platform Limited

Interim Condensed Consolidated Statements of Financial Position

 

Issuance/Series Issuance Date Maturity Applicable Index Interest Spread on top of Applicable Index Outstanding balance as of June 30, 2020
          R$ in millions
5th / Series 1 March 15, 2018 May 15, 2021 CDI 1.15% p.a. 101.2
5th / Series 2 August 15, 2018 August 15, 2023 CDI 1.00% p.a. 103.3
6th / Series 1 August 15, 2017 August 15, 2020 CDI 0.90% p.a. 310.0
6th / Series 2 August 15, 2017 August 15, 2022 CDI 1.70% p.a. 209.7
7th / Single March 15, 2018 September 9, 2021 CDI 1.15% p.a. 824.4
8th / Single October 25, 2017 October 25, 2020 CDI 1.00 p.a. 115.2
        Total R$1,663.8

 

 

Issuance/Series Issuance Date Maturity Applicable Index Interest Spread on top of Applicable Index Outstanding balance as of June 30, 2020
          R$ in millions
Cogna Educação S.A. March 5, 2020 July 31, 2020 CDI 3.57% p.a.                                       51.2
Editora Ática S.A. February 13, 2020 July 31, 2020 CDI 3.57% p.a.                                       15.2
Somos Educação S.A. August 14, 2019 July 31, 2020 CDI 3.57% p.a.                                         1.0
        Total R$67.4

 

 

  16 

 

 

Exhibit 2

 

 

 

 

DISCLAIMER This presentation contains forward - looking statements that can be identified by the use of forward - looking words such as “anticipate,” “believe,” “could,” “expect,” “should,” “plan,” “intend,” “estimate” and “potential,” among others . Forward - looking statements appear in a number of places in this presentation and include, but are not limited to, statements regarding our intent, belief or current expectations . Forward - looking statements are based on our management’s beliefs and assumptions and on information currently available to our management . Forward - looking statements speak only as of the date they are made, and we do not undertake any obligation to update them in light of new information or future developments or to release publicly any revisions to these statements in order to reflect later events or circumstances or to reflect the occurrence of unanticipated events . Such statements are subject to risks and uncertainties, and actual results may differ materially from those expressed or implied in the forward - looking statements . Further information on these and other factors that could affect our financial results is included in filings we have made and will make with the U . S . Securities and Exchange Commission from time to time, including in the section titled “Risk Factors” in our most recent Form F - 1 and 424 (b) prospectus . These documents are avaialble on the SEC Filings section of the investor relations section of our website at : https : //ir . vastaplatform . com . We prepared this presentation solely for informational purposes . The information in this presentation does not constitute or form part of, and should not be construed as, an offer or invitation to subscribe for, underwrite or otherwise acquire, any of our securities or securities of our subsidiaries or affiliates, nor should it or any part of it form the basis of, or be relied on in connection with any contract to purchase or subscribe for any of our securities or any of our subsidiaries or affiliates nor shall it or any part of it form the basis of or be relied on in connection with any contract or commitment whatsoever . We have included in this presentation our EBITDA, Adjusted EBITDA, Free Cash Flow and Adjusted Cash Conversion Ratio, which are non - GAAP financial measures, together with their reconciliations, for the periods indicated . We understand that, although EBITDA, Adjusted EBITDA, Free Cash Flow and Adjusted Cash Conversion Ratio are used by investors and securities analysts in their evaluation of companies, these measures have limitations as analytical tools, and you should not consider them in isolation or as substitutes for analysis of our results of operations as reported under IFRS . Additionally, our calculations of Adjusted EBITDA, Free Cash Flow and Adjusted Cash Conversion Ratio may be different from the calculation used by other companies, including our competitors in the education services industry, and therefore, our measures may not be comparable to those of other companies .

 

 

INDEX August, 2020 2Q20 Earnings Presentation

 

 

The largest IPO of a Brazilian education company 1 .

 

 

Vasta raised $405 million with its IPO WE APPRECIATE THE TRUST AND CONFIDENCE The IPO puts Vasta in a comfortable cash position to finance its growth history Strong demand with more than 15x the offered volume

 

 

RECAP OF OUR MISSION AND BUSINESS CASE 2 .

 

 

7 Our Mission “ “ 7 Our mission is to help private K - 12 schools to be better and more profitable, supporting their digital transformation.

 

 

8 Note: Considers acquisition of Mind Makers on February 13, 2020; Matific is a partnership and not owned by Vasta. Solutions currently offered by Vasta Core Education bundle Languages Socio - emotional Continuous Teacher Training Digital Learning Core Content Student Acquisition ERP E - commerce STEAM Academic The Beauty of Being a PaaS The Value of the Platform Concept Develop & Plug Acquire & Plug Partner & Plug Born in - house with strong growth 87% clients growth 2020E Math gamification

 

 

9 2Q20 & 1H20 Financial Highlights 3 .

 

 

1H20 Results in line with the Flash Numbers Net revenue from sales and services Revenue, EBITDA and Net Loss in accordance with the range established in the prospectus EBITDA Net profit (loss) for the period Prospectus Low High R$507.2 million R$515.6 million R$103.2 million R$111.5 million R$(32.9) million R$(24.1) million 1H20 R$512.7 million R$110.0 million R$(27.3) million

 

 

COMPANY READY TO DELIVER 2020 ACV • This chart shows that Vasta is ready to deliver the 2020 ACV; • The graph also shows the seasonality of the business, highlighting the lower representation of the 2Q and 3Q; • Seasonality that was even stronger this year, with revenue concentration in the first half of the business cycle. R$ 676 million 32% 39% 15% 4Q19 1Q20 2Q20 3Q20 2020 ACV 86% of the ACV has already been achieved

 

 

Results show a similar behavior 36% 14% 14% 37% 38% 12% 1T 2T 3T 4T % of Net Revenue per quarter¹ 41.6% 0.4% 3% 55% 42.7% - 0.6% 1T 2T 3T 4T % of Adjusted EBITDA per quarter¹ 2019 2020 • This means that, as was the case in 2019, we normally have very strong fourth quarters • As of today , the 2021 ACV campaign reinforces this trend ¹ For 2020, the estimated percentage respects the seasonality of the last year and is based on the current business cycle for 20 21, that is, without considering additional impacts related to Covid - 19 2Q 1Q 4Q 3Q 2Q 1Q 4Q 3Q

 

 

2Q20 & 1H20 FINANCIAL HIGHLIGHTS Net Revenues 71.8 79.2 296.9 252.9 2Q20 2T19 1H20 1H19 Gross Profit Adjusted EBITDA (54.9) (54.8) (27.3) (39.9) 2Q20 2T19 1H20 1H19 Net Loss 120.2 138.0 512.7 491.0 2Q20 2T19 1H20 1H19 Values in R$ (million) (1.7) 1.0 125.6 106.6 2Q20 2Q19 1H20 1H19 2Q19 2Q19 2Q19

 

 

Digital education will change the educational world and help Vasta to deliver continuous ACV growth 4 .

 

 

Plurall : To Infinity and Beyond! 1 in 4 students (4) uses Plurall as its digital learning platform Trial version is converting 4 times more schools into subscription contracts than regular go - to - market strategy Domain Total Visits (1) (Millions) Traffic Share (%) Vasta (2) 35.7 53.4% Competitor A 15.1 22.6% Competitor E 3.5 5.2% Competitor O 3.2 4.8% Competitor P 2.9 4.4% Competitor B 2.3 3.5% Competitor U 1.4 2.1% Competitor C 1.4 2.1% Competitor S 0.7 1.0% Competitor P 0.6 0.9% Competitor D 0.0 0.1% Competitor F 0.0 0.0% Total Visits (1) Source: Similar Web (www.similarweb.com) 1 Considers the period between May 2020 and July 2020. 2 Includes plurall.net, pdaredepitagoras.com.br and pdaredecrista.com.br. 3 Considers students above 11 years - old in Brazilian K - 12 private schools. – Live classes – Pedagogical Content – Games – Assessments – Tutoring – Homework – Adaptive learning – (...) + 3 million live classes since the beginning of lockdown 0 2,000,000 4,000,000 6,000,000 8,000,000 10,000,000 12,000,000 14,000,000 Jan Feb Mar Apr May Jun Jul plurall.net Competitor A Competitor O Competitor E Competitor P Competitor B Competitor C Competitor U Competitor S Competitor P Competitor Y Competitor D Competitor F Over the last 3 months , Vasta has more than 50% of the educational traffic

 

 

16 WINNING PROPOSITION SUPPORTING ALL STAKEHOLDERS TO UNDERGO THE DIGITAL TRANSFORMATION IN PRIVATE K - 12 c STUDENTS PARENTS EDUCATORS OWNERS Empower students with abilities that go beyond core and complementary knowledge Improve real - time engagement and children accountability levels Insights and analytics to target growth and teaching plans delivering personalized learning Differentiated and in - depth understanding of schools’ needs aiming to maximize profitability and time allocation

 

 

Investor Relations ir.vastaplatform.com

 

Exhibit 3

 

 

VASTA Platform

(Successor)

 

 

Unaudited Interim Condensed Combined Financial Statements as of June 30, 2020 and Combined Carve-out Financial Statements as of December 31, 2019 and unaudited Interim Condensed Combined Carve-out Financial Statements for the six-month period ended as of June 30, 2019

 

 

 

1 

 

Vasta Platform (Successor)

Unaudited Interim Condensed Combined Financial Statements as of June 30, 2020 and Combined Carve-out Financial Statements as of December 31, 2019, and unaudited Interim Condensed Combined Carve-out Financial Statements for the six month period ended as of June 30, 2019

 

 

Unaudited Interim Condensed Combined Statement of Financial Position as of June 30, 2020 and Combined Carve-out Statement of Financial Position as of December 31, 2019

 

In thousands of R$

 

Assets Note   June 30, 2020   December 31, 2019
           
Current assets          
Cash and cash equivalents 8              182,410                43,287
Trade receivables 9              338,247              388,847
Inventories 10              227,702              222,236
Taxes recoverable                  18,422                13,427
Income tax and social contribution recoverable                  22,420                36,859
Prepayments                  48,282                22,644
Other receivables                      315                  1,735
Related parties – other receivables 19                  5,843   38,141
Total current assets               843,641             767,176
           
Non-current assets          
Judicial deposits and escrow accounts 20              171,103   172,932
Deferred income tax and social contribution 21                62,339   57,340
Property, plant and equipment 11              186,405   184,961
Intangible assets and goodwill 12           4,975,438   4,985,385
           
Total non-current assets            5,395,285          5,400,618
           
Total Assets            6,238,926          6,167,794

 

The footnotes to these Unaudited Interim Condensed Combined Financial Statements and Combined Carve-out Financial Statements are an integral part of the Financial Statements.

 

2 

Vasta Platform (Successor)

Unaudited Interim Condensed Combined Financial Statements as of June 30, 2020 and Combined Carve-out Financial Statements as of December 31, 2019, and unaudited Interim Condensed Combined Carve-out Financial Statements for the six month period ended as of June 30, 2019

 

 

Unaudited Interim Condensed Combined Statement of Financial Position as of June 30, 2020 and Combined Carve-out Statement of Financial Position as of December 31, 2019

 

In thousands of R$

 

Liabilities Note   June 30, 2020   December 31, 2019
           
Current liabilities          
Bonds and financing 13              546,712              440,947
Lease liabilities 15                13,035                 7,101
Suppliers 14              167,158              223,658
Suppliers -related Parties  19              163,062              207,174
Taxes payable                      568                    867
Income tax and social contribution payable                  10,263                18,784
Salaries and social contributions 18                64,289                61,748
Contract liabilities and deferred income 16                45,208   49,328
Accounts payable for business combination 17                16,245   1,772
Other liabilities                   6,182   3,911
Other liabilities - related parties 19              145,247   49,244
Loans from related parties 19                67,358                29,192
Total current liabilities           1,245,327         1,093,726
           
Non-current liabilities          
Bonds and financing 13           1,117,071           1,200,000
Lease liabilities 15              147,443              146,613
Accounts payable for business combination 17                26,121                 9,169
Provision for risks of tax, civil and labor losses 20              608,461              609,007
Contract liabilities and deferred income                   7,832                 9,196
Total non-current liabilities           1,906,928         1,973,985
           
Parent´s Net Investment          
Net investments           3,086,671         3,100,083
           
 Total liabilities and Parent´s Net Investment           6,238,926         6,167,794

 

The footnotes to these Unaudited Interim Condensed Combined Financial Statements and Combined Carve-out Financial Statements are an integral part of the Financial Statements.

 

3 

Vasta Platform (Successor)

Unaudited Interim Condensed Combined Financial Statements as of June 30, 2020 and Combined Carve-out Financial Statements as of December 31, 2019, and unaudited Interim Condensed Combined Carve-out Financial Statements for the six month period ended as of June 30, 2019

 

Unaudited Interim Condensed Combined Statement of Profit or Loss and Other Comprehensive Income for the three and six-month period ended June 30, 2020 and Unaudited Interim Condensed Combined Carve-out Statement of Profit or Loss and Other Comprehensive Income for the three and six-month period ended June 30, 2019

 

In Thousands of R$

 

  Note   April 01, to June 30, 2020   June 30, 2020   April 01, to June 30, 2019   June 30, 2019
                   
Net revenue from sales and services 23   120,233   512,651   137,970   491,024
Sales     111,625   500,713   127,012   477,070
Services     8,608   11,938   10,958   13,954
                   
Cost of goods sold and services 24   (48,422)   (215,755)   (58,763)   (238,057)
                   
Gross profit     71,811   296,896   79,207   252,967
                   
Operating income (expenses)                  
General and administrative expenses 24   (83,260)   (182,294)   (92,641)   (162,331)
Commercial expenses 24   (42,803)   (80,596)   (24,350)   (62,663)
Other operating income 24   1,176   1,988   (2,033)   (28)
Other operating expenses 24   -   -   44   43
Impairment losses on trade receivables 9 and 24   (1,264)   (11,583)   (3,218)   (7,998)
                   
(Loss) Profit before financial income and taxes     (54,340)   24,411   (42,991)   19,990
                   
Finance result                  
Finance income     3,567   8,637   595   1,356
Finance costs     (31,861)   (76,545)   (42,176)   (83,135)
      (28,294)   (67,908)   (41,581)   (81,779)
                   
Loss before income tax and social contribution     (82,634)   (43,497)   (84,572)   (61,789)
                   
Income tax and social contribution 21   27,696   16,204   29,799   21,871
                   
Net loss for the period      (54,938)   (27,293)   (54,773)   (39,918)
                   
Other comprehensive profit for the period     -   -   -   -
                   
Total comprehensive loss for the period     (54,938)   (27,293)   (54,773)   (39,918)

 

The footnotes to these Unaudited Interim Condensed Combined Financial Statements and Combined Carve-out Financial Statements are an integral part of the Financial Statements.

 

4 

Vasta Platform (Successor)

Unaudited Interim Condensed Combined Financial Statements as of June 30, 2020 and Combined Carve-out Financial Statements as of December 31, 2019, and unaudited Interim Condensed Combined Carve-out Financial Statements for the six month period ended as of June 30, 2019

 

 

Unaudited Interim Condensed Combined Statement of Changes in Parent’s Net Investment for the six-month period ended June 30, 2020 and Unaudited Interim Condensed Combined Carve-out Statement of Changes in Parent’s Net Investment for the six-month period ended June 30, 2019

 

In Thousands of R$

 

  Parent´s Net Investments
   
Balances at December 31, 2018 3,268,501
Impacts of IFRS 16 Adoption, net of tax               (283)
Ajusted balance at January 1, 2019 3,268,218
   
Net loss for the period          (39,918)
Share-based payment contibutions                478
Net investments            (3,840)
   
Balances at June 30, 2019  3,224,938
   
   
   
Balances at December 31, 2019  3,100,083
Net loss for the period          (27,293)
Share-based payment contibutions             1,629
Net investments            12,252
Balances at June 30, 2020 3,086,671

 

The footnotes to these Unaudited Interim Condensed Financial Statements and Combined Carve-out Financial Statements are an integral part of the Financial Statements.

 

5 

Vasta Platform (Successor)

Unaudited Interim Condensed Combined Financial Statements as of June 30, 2020 and Combined Carve-out Financial Statements as of December 31, 2019, and unaudited Interim Condensed Combined Carve-out Financial Statements for the six month period ended as of June 30, 2019

 

 

Unaudited Interim Condensed Combined Statement of Cash Flows for the six-month period ended June 30, 2020 and Unaudited Interim Condensed Combined Carve-out Statement of Cash Flows for the six-month period ended June 30, 2019

 

In Thousands of R$

 

      For the six months ended June 30,
  Notes   2020   2019
           
CASH FLOWS FROM OPERATING ACTIVITIES          
 Profit before income tax and social contribution         (43,497)        (61,789)
 Adjustments for:          
Depreciation and amortization 11 and 12        85,618          83,255
Impairment losses on trade receivables 9          6,546            7,998
(Reversal) Provision for risks of tax, civil and labor losses 20         (4,331)          12,302
Interest on provision for risks of tax, civil and labor losses 20        10,564          13,829
Reversal of provision for obsolete inventories 10          1,985             (369)
Interest on bonds and financing 13        39,414          58,219
Refund liability and right to returned goods           (2,256)        (19,841)
Imputed interest on suppliers            3,379            4,357
Interest on accounts payable for business combination                 39                52
Share-based payment expense            1,629              478
Interest on lease liabilities 15          7,592            7,862
Disposals of rights of use assets and lease liabilities             (705)            1,838
Residual value of disposals of property, plant and equipment and intangible assets 11 and 12          1,415            5,736
           
Changes in       107,392       113,927
 Trade receivables          49,044          67,721
 Inventories              3,670          14,773
 Prepayments         (24,881)            5,796
 Taxes recoverable          10,192          (4,586)
 Judicial deposits and escrow accounts            1,829            2,552
 Other receivables            4,325        (15,875)
 Suppliers         (70,348)       (102,405)
 Salaries and social charges            2,231        (32,285)
 Tax payable            7,218            1,957
 Contract liabilities and deferred income               399        (14,056)
 Other receivables and liabilities from related parties         129,959                  -
 Other payables            7,840          10,644
 Cash from (used in) operating activities       228,870         48,163
Income tax and social contribution paid           (5,234)          (3,177)
Interest lease liabilities paid 15         (7,616)          (6,505)
Payment of interest on bonds and financing 13       (17,576)        (58,681)
Payment of provision for tax, civil and labor losses           (6,779)                  -
Net cash from (used in) operating activities       191,665       (20,200)
CASH FLOWS FROM INVESTING ACTIVITIES          
Acquisition of property, plant and equipment 11         (2,166)          (5,836)
Additions to intangible assets 12       (25,701)          (9,593)
Acquisition of subsidiary, net of cash acquired         (23,526)                  -
 Net cash used in investing activities       (51,393)       (15,429)
           
 CASH FLOWS FROM FINANCING ACTIVITIES          
           
Loans from related parties paid 19       (29,092)                  -
Loans from related parties addition 19        65,600                  -
Suppliers - related Parties         (44,112)          (5,105)
Lease liabilities paid 15         (5,797)          (7,887)
Parent's Net Investment 13        12,252          (3,840)
 Net cash from (used in) financing activities         (1,149)       (16,832)
           
 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS         139,123       (52,461)
           
 Cash and cash equivalents at beginning of period 8        43,287        102,231
 Cash and cash equivalents at end of year 8       182,410          49,770
           
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS       139,123       (52,461)

 

The footnotes to these Unaudited Interim Condensed Combined Statement of Financial Position and combined carve-out financial statements are an integral part of the Financial Statements.

 

6 

Vasta Platform (Successor)

Unaudited Interim Condensed Combined Financial Statements as of June 30, 2020 and Combined Carve-out Financial Statements as of December 31, 2019, and unaudited Interim Condensed Combined Carve-out Financial Statements for the six month period ended as of June 30, 2019

 

 

Notes to the unaudited interim condensed combined financial statements

 

(Amounts expressed in thousands of R$, unless otherwise indicated)

 

1.General Information

 

VASTA Platform (hereinafter referred to as the "Business"), is not a separate legal entity.

 

For the six-month period ended June 30, 2019, the Business was comprised of combined carved-out historical balances of certain results of operations related to the delivery of educational content for private sector basic and secondary education (“K-12 curriculum”) previously carried out by the legal entity Cogna Educação S.A. and it’s subsidiaries (hereinafter referred to as “Cogna” or “Parent Entity”, or in combination with its subsidiaries, the “Cogna Group”). The Unaudited Interim Condensed Combined Carve-out Financial Statements for for the six-month period ended June 30, 2019 include historical financial information and operations from the following legal entities (“Parent Entities”):

 

·Somos Educação S.A. (“Somos”);

·Somos Sistemas de Ensino S.A. (“Somos Sistemas”);

·Editora Ática S.A. (“Ática”);

·Saraiva Educação S.A. (“Saraiva”);

·Editora Scipione S.A. (“Scipione”);

·Maxiprint Editora Ltda. (“Maxiprint”);

·Red Ballon – Somos Idiomas S.A. (“English Star”);

·Livraria Livro Fácil Ltda (“Livro Fácil”);

·Colégio Anglo São Paulo Ltda. (“Colégio Anglo”); and

·Saber Serviços Educacionais S.A. (“Saber”)

 

As part of an effort to streamline its operations, Cogna Group performed a comprehensive corporate restructuring concluded on December 31, 2019, to enhance the corporate structure (i.e. reduce the number of legal entities in the Cogna Group) and improve overall synergies. Through this process, from January 1st 2020, the Business’ activities was restructured in the legal entity Somos Sistemas de Ensino S.A (“Somos Sistemas”), The spun off to VASTA Platform Limited (Successor) was on July 31, 2020.

 

As all the entities that were involved in the corporate restructuring are under common control, this reorganization was accounted for using the historical basis of the related assets and liabilities as recorded by the Cogna Group and did result in an overall change in the shareholding structure. With aforementioned corporate restructuring, simplifying the legal structure, and acquisitions described in note 5, Somos Sistemas became to control and combine in the Unaudited Interim Condensed Combined Financial Statements as of June 30, 2020 the following entities:

 

·Livraria Livro Fácil Ltda (“Livro Fácil”);

·Colégio Anglo São Paulo Ltda. (“Colégio Anglo”);

·A & R Comercio e Serviços de Informática Ltda. (“Pluri”); and

 

7 

Vasta Platform (Successor)

Unaudited Interim Condensed Combined Financial Statements as of June 30, 2020 and Combined Carve-out Financial Statements as of December 31, 2019, and unaudited Interim Condensed Combined Carve-out Financial Statements for the six month period ended as of June 30, 2019

 

 

·Mind Makers Editora Educacional (“Mind Makers”)

 

The Business´ activities include integrated solutions for Basic Education that comprehends a platform of products (including process of creation and manufacturing books), learning systems, solutions and technology support services focused on early childhood education, primary education and high school. Accordingly, the Business’ is mainly engaged in: (i) preparing, selling, and distributing textbooks, teaching aids, and workbooks, especially with educational, literary, and information contents as well as teaching systems; (ii) developing educational solutions for elementary, basic and high school education activities; (iii) developing software for adaptive teaching and optimizing academic management.

 

These Unaudited Interim Condensed Combined Financial Statements as of June 30, 2020 and Combined Carve-out Financial Statements as of December 31, 2019, and Unaudited Interim Condensed Combined Carve-out Financial Statements for the six-month period ended June 30, 2019 were authorized for issuance by Management on August 20, 2020.

 

1.1 Initiatives carried out by Business and impacts of Covid-19 pandemic

 

On March 11, 2020, the World Health Organization (WHO) raised the contamination status of the Coronavirus outbreak (“COVID-19”) to a global pandemic, changing the world and Brazilian growth perspectives and adding important risks to Companies in an unprecedent scenario. As a result, managers and administration were required to analyze the situation and implement adequate actions in order to mitigate potential risks imposed by this new pandemic situation. This crisis caused governments around the world to impose a series of measures including: social distance, schools shut down, travel restrictions, lockdowns, closing non-essential businesses, among others, causing major disruptions in the financial, labor and standards market demand, in the logistics chains and, most importantly, impacting society as a whole.

 

To face this scenario, the Business established a Crisis Committee and developed a work plan covering a series of actions to, first of all, safeguard the physical and mental health of its employees and then preserve operational and financial capacity to face this period. We highlight below the main initiatives carried out by Business:

 

1) Preserve employees’ health and safety by implementing measures such as work from home policy, temporary closure of our distribution centers and re-opening with reduced operations and the adoption of health and safety measures recommended by government authorities;

 

2) Ensure educational content and services delivery through online platforms;

 

3) Improve the financial health identifying required measures to ensure adequate liquidity and cash position;

 

4) Implement short term restructuring measures required to improve financial health, seeking to preserve jobs and the organization long term plan, including but not limited to temporary reduction in wages and working hours

 

8 

Vasta Platform (Successor)

Unaudited Interim Condensed Combined Financial Statements as of June 30, 2020 and Combined Carve-out Financial Statements as of December 31, 2019, and unaudited Interim Condensed Combined Carve-out Financial Statements for the six month period ended as of June 30, 2019

 

 

5) Plan and execute organizational changes with mid-term impact for the post-COVID world, if required;

 

6) Strategic Plan for opportunities generated by the crisis;

 

7) Philanthropic actions that contribute to mitigate the impacts of COVID-19 on our business segment; and

 

8) Provide on-line campaigns to promote our products to potential new customers.

 

Related to sales and services provided to our customers, we emphasize that even after Governments decreed the closure of schools, our customers continued to provide educational services through our virtual platforms. As a result, we had no interruption in the sale and services contracted by our customers.

 

Despite of the continuity of educational services, the process of isolation, closure of schools and restricted mobility in some cities increased the uncertainties on our business cycle and logistics process. As an example, we closed our warehouse for almost a month, which caused delays in new deliveries and the returning of goods from clients as well. Considering this, it is likely that we will have some impacts on revenue and profitability through the quarters of 2020 and, potentially, for the coming years. In addition, several reports and market projections indicate a drop in Brazilian GDP in 2020, which may impact our sales cycle for 2021.

 

As of the date of the issuance of these Unaudited Interim Condensed Combined Financial Statements as of June 30, 2020 and Combined Carve-out Financial Statements as of December 31, 2019, the Business took the following measures in order to prioritize cash management and increase financial liquidity:

 

Reduction of costs and expenses

 

The Business discussed and established, together with the managers and the Crisis Management Committee, a cost and expense reduction plan that is in full execution and following as planned, and we can already highlight:

 

a) implementation, as of May or June, depending of the area, the reduction in working hours and consequently wages of our administrative and corporate employees by 25%, for the three month period beginning May 1, 2020. Around 90% of administrative employees were impacted; and

 

b) extensive renegotiation of contracts with suppliers (for example: lease arrangements, printers, IT services, law services, etc) and the cessation of operations of certain transportation companies for undetermined periods. Most of the renegotiations are based on temporary price reduction.

 

Reduction and postponement of investments

 

Business opted to maintain investments in strategic projects and those related to improving the provision of services, considered essential for long-term growth and partially reduced investments

 

9 

Vasta Platform (Successor)

Unaudited Interim Condensed Combined Financial Statements as of June 30, 2020 and Combined Carve-out Financial Statements as of December 31, 2019, and unaudited Interim Condensed Combined Carve-out Financial Statements for the six month period ended as of June 30, 2019

 

 

related to non-strategic projects or administrative area, such as IT projects or improvement in performance report indicators. However, Business, will continue to evaluate COVID impacts in its business and in the cash flow and may postpone its plans to expand through acquisitions or investments.

 

Liquidity risk

 

In order to cover possible liquidity deficiencies or mismatches between cash and cash equivalents with short-term debt and financial obligations, the Business continues to operate in the finance markets with operations such as reverse factoring as long as this credit line is offered by banks and accepted by the Business suppliers, and also, with the support committed from its Parent Entity. Thus, the Business expects to have the capacity to meet its short-term obligations and these Unaudited Interim Condensed Combined Financial Statements as of June 30, 2020 and Combined Carve-out Financial Statements as of December 31, 2019 have been prepared on the basis that the Business will continue as a going concern.

 

On July 31, 2020, was accomplished the initial public offering of the business, was set at US$ 19.00 per class A common share, pursuant to the U.S. Securities Act of 1933 (the “Offer”), reaching the total amount of US$ 333,522 (R$ 1,715,858) using day August 4,2020 exchange, with the issuance of 18,575,492 Vasta’s class A common shares and additionally has granted the underwriters a option to purchase of additional 2,786,323 Class A common shares at the initial public offering price less the underwriting discount, totalizing 21,361,815.

 

Parent Company Cogna Educação SA is committed to ensuring, if necessary, that Vasta Platform conducts its business with proper operational continuity and that it has the capacity to settle its obligations.

 

Net Revenue from sales and services and gross margin

 

We expect sales and services rendered for the third quarter to remain stable over the comparative period in the prior year since annual contracts had been previously executed. However, there are risks related to this Global pandemic event that can impact the Business and may have impacts on its sales and gross margin for full year of 2020 as annual contracts for 2021 start being invoiced at the fourth quarter of 2020, and customers may not sign contracts with the same volumes than last year.

 

Accounts Receivable and expected credit losses (ECL)

 

Despite the high level of uncertainty and lack of visibility on what will be the actual losses incurred on our receivables, we observed some increase on late payments during the firt quarter of 2020 that are expected to increase financial defaults. Thus, based on the best available information, we revised the expected financial losses considering the increase on late payments observed and increased the allowance for doubtful accounts by R$5.68 million as of March 31, 2020.

 

10 

Vasta Platform (Successor)

Unaudited Interim Condensed Combined Financial Statements as of June 30, 2020 and Combined Carve-out Financial Statements as of December 31, 2019, and unaudited Interim Condensed Combined Carve-out Financial Statements for the six month period ended as of June 30, 2019

 

 

Inventories, including rights to returned goods

 

The Business assessed its inventories and did not identify relevant impacts due to obsolescence or devaluation of inventories and did not identify relevant impacts on the realization of rights to returned goods. One reason also was due to some initiatives carried out by Business, such as temporary closure of distribution centers, resulting in a decrease in production of our learning materials.

 

Other assets

 

The Business has not identified any changes in circumstances that indicate the impairment of other assets, but informs that it will continue to actively monitor the impacts derived from the COVID-19 crisis, and if the social distance measures and macroeconomic impacts continue, the conditions of Business's financial results or results of operations in 2020 may be negatively impacted.

 

2.    Preparation basis and presentation of Unaudited Interim Condensed Combined Financial Statements and Unaudited Interim Condensed Combined Carve-out Financial Statements

 

These Unaudited Interim Condensed Combined Financial Statements as of June 30, 2020 and Combined Carve-out Financial Statements as of December 31, 2019 have been prepared in accordance with IAS 34 - Interim Financial Reporting and should be read in conjunction with the combined carve-out financial statements as of December 31, 2019. However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Business’ financial position and performance since the last annual financial statements.

 

The unaudited interim condensed combined financial statements and condensed combined carve-out financial statements are presented in thousands of Brazilian Real (“R$”), which is the Business functional currency. All financial information presented in R$ have been rounded to the nearest thousand value, except otherwise indicated.

 

3.    Significant accounting policies

 

The accounting policies applied in these unaudited interim condensed combined financial statements and unaudited interim condensed combined carve-out financial statements are the same as those applied in the last combined carve-out financial statements as of December 31, 2019.

 

4.    Significant accounting judgments, estimates and assumptions

 

The preparation of the Business’ Unaudited Interim Condensed Combined Financial Statements as of June 30, 2020 and Combined Carve-out Financial Statements as of December 31, 2019, and

 

11 

Vasta Platform (Successor)

Unaudited Interim Condensed Combined Financial Statements as of June 30, 2020 and Combined Carve-out Financial Statements as of December 31, 2019, and unaudited Interim Condensed Combined Carve-out Financial Statements for the six month period ended as of June 30, 2019

 

 

Unaudited Interim Condensed Combined Carve-out Financial Statements for the six-month period ended June 30, 2019 requires Management to make judgments, estimates and assumptions that affect the reported amounts of revenue, expenses, assets and liabilities at the end of the reporting period; however, uncertainties about these assumptions and estimates may result in outcomes that require adjustments to the carrying amount of the affected asset or liability in future periods.

 

The significant assumptions and estimates used in the preparation of the Unaudited Interim Condensed Combined Financial Statements as of June 30, 2020 were the same as those adopted in the Combined Carve-out Financial Statements as of December 31, 2019.

 

5.Business combinations

 

A & R Comercio e Serviços de Informática Ltda. (“Pluri”) and Mind Makers Editora Educacional (“Mind Makers”)

 

On January 7, 2020, the Business concluded the acquisition of the entire ownership interest of Pluri for R$ 26,000. Pluri is an entity based in the State of Recife specialized in solutions such as consulting and technologies for education systems. This acquisition is in line with the Business’ strategy of focusing on the distribution of its operations to other region. The agreement is also subject to certain additional earn-outs, associated with achievements defined in the agreement, such as revenue and profit, that could increase the purchase price by and additional R$1,706 over the life of the earn-out period.

 

On February 13, 2020, the Business concluded the acquisition of the entire ownership interest of Mind Makers, a company that offers computer programming and robotics courses and helps students develop skills relevant to their educational progress, such as coding and product development, as well as entrepreneurial and socio-emotional skills including teamwork, leadership and perseverance. The total purchase price was R$ 18,200, R$10,000 million of which was payable upon signing the agreement, with half of the remaining balance payable in 2021 and the other half of the remaining balance payable in 2022, with the 2021 and 2022 payments subject to certain adjustments. The agreement is also subject to certain additional earn-outs, associated with achievements defined in the agreement, such as revenue and profit, that could increase the purchase price by and additional R$5,443 over the life of the earn-out period.

 

The acquisitions were accounted using the acquisition method of accouting in accordance with IFRS 3 – Business Combinations, i.e. the consideration transferred, and identifiable assets and liabilities acquired were measured at fair value, while goodwill is measured as the excess of consideration paid over those items.

 

12 

Vasta Platform (Successor)

Unaudited Interim Condensed Combined Financial Statements as of June 30, 2020 and Combined Carve-out Financial Statements as of December 31, 2019, and unaudited Interim Condensed Combined Carve-out Financial Statements for the six month period ended as of June 30, 2019

 

The following table presents the assets and liabilities acquired for each business combination:

 

    Pluri   Mind Makers   Total of  Combination
Current assets            
Cash and cash equivalents           1,820               528              2,348
Trade receivables           1,687             3,303              4,990
Inventories (iv)         15,338                 -               15,338
Prepayments              695                 62                757
Taxes recoverable              746                   2                748
Other receivables           2,905                 -                 2,905
Total current assets        23,191            3,895           27,086
             
Non-current assets            
Property, plant and equipment              122                 89                211
Other intangible assets              177                 -                   177
Intangible assets - Customer Portfólio (iii)           4,625                 -                 4,625
Intangible assets - Trademarks (ii)                -              16,060            16,060
Total non-current assets          4,924          16,149           21,073
             
Total Assets        28,115          20,044           48,158
             
Current liabilities            
Suppliers         10,443                 26            10,469
Salaries and social contributions              190               120                310
Taxes payable                13                 10                  23
Income tax and social contribution payable              298                 80                378
Contract liabilities and deferred income              322               267                589
Total current liabilities        11,266               503           11,769
             
Non-current liabilities            
Bonds and Financing                -                  998                998
Other liabilities              364                 -                   364
Total non-current liabilities             364               998             1,362
             
Total liabilities            11,630                 1,501                13,131
             
Net assets (A)        16,485          18,543           35,027
Total of Consideration transferred (B)         27,706           23,621            51,327
Goodwill (B – A) (i)        11,221            5,078           16,300

 

(i) Goodwill is recognized based on expected synergies from combining the operations of the acquirees and the acquiror, as well as due to an expected increase in the Business’ market-share due to the penetration of the business products and services in regions where the Business did not operate before. Also, the current tax law allows the deductibility of the acquisition date goodwill and fair value of net assets acquired when a non-substantive action is taken after acquisition by the Business (i.e. when the Business merges or spin off the businesses acquired) and therefore the tax and accounting basis of the net assets acquired are the same as of the acquisition date.

 

(ii) Trademark-related intangible asset’s fair value was obtained based on: net revenue was estimated taking into account the contractual customer relationships existing on the acquisition date; royalty rates of 7.2% were used based in the market rates of companies with similar activities as the Business, which represents a market rate; at last, the discount rate (Weighted Averaged Cost of Capital (“WACC”)) used was 12.4% p.a.

 

(iii) The following assumptions were used to determine the costumer portfolios: an average contract termination period of eigth years and seven months; A nominal discount rate of 12.6% p.a. was used, which is equivalent to the WACC, plus an additional risk premium, of 0.07.

 

13 

Vasta Platform (Successor)

Unaudited Interim Condensed Combined Financial Statements as of June 30, 2020 and Combined Carve-out Financial Statements as of December 31, 2019, and unaudited Interim Condensed Combined Carve-out Financial Statements for the six month period ended as of June 30, 2019

 

 

(iv) Market comparison technique: The fair value is determined based on the estimated selling price in the ordinary course of business less the estimated costs of completion and sale, and a reasonable profit margin based on the effort required to complete and sell the inventories.

 

From the date of acquisition to June 30, 2020, Mind Makes and Pluri contributed to revenue in the Interim Condensed Combined Financial Statements as of June 30, 2020 in the amount of R$ 1,476 and R$ 36,964 respectively, and net (Loss) profit for the period of R$ (1,236) and R$ 3,784. If the acquisition had been concluded on January 1, 2020, the Business estimates its combined net revenue from sales and services would have been R$ 515,993 and a Net loss of R$ (24,609) for the period ended on June 30, 2019.

 

6.Financial Risk Management

 

The Business has a risk management policy for regular monitoring and management of the nature and overall position of financial risks and to assess its financial results and impacts to the Business’ cash flows. Counterparty credit limits are also periodically reviewed.

 

The economic and financial risks mainly reflect the behavior of macroeconomic variables such interest rates as well as other characteristics of the financial instruments maintained by the Business. These risks are managed through control and monitoring policies, specific strategies and limits.

 

a.Financial risk factors

 

The Business’ activities expose it to certain financial risks mainly related to market risk, credit risk and liquidity risk. Management and Cogna Group’s Board of Directors monitor such risks in line with the capital management policy objectives.

 

This note presents information on the Business' exposure to each of the risks above, the objectives of the Business, measurement policies, and the Business's risk and capital management process.

 

The Business has no derivative transactions.

 

a.Market risk - cash flow interest rate risk

 

This risk arises from the possibility of the Business incurring losses because of interest rate fluctuations that increase finance costs related to financing and bonds raised in the market and obligations for acquisitions from third parties payable in installments. The Business continuously monitors market interest rates in order to assess the need to contract financial instruments to hedge against volatility of these rates, additionally financial assets also indexed to the CDI (daily average of overnight interbank loan) and IPCA (broad consumer price index) partially mitigate any interest rate exposures.

 

14 

Vasta Platform (Successor)

Unaudited Interim Condensed Combined Financial Statements as of June 30, 2020 and Combined Carve-out Financial Statements as of December 31, 2019, and unaudited Interim Condensed Combined Carve-out Financial Statements for the six month period ended as of June 30, 2019

 

 

Interest rates contracted are as follows:

 

  June 30, 2020   December 31, 2019   Interest rate
Bonds          
  Private Bonds – 5th Issuance          101,213            101,802   CDI + 1.15% p.a.
  Private Bonds – 5th Issuance          103,335            101,765   CDI + 1.00% p.a.
  Private Bonds – 6th Issuance          309,987            305,368   CDI + 0.90% p.a.
  Private Bonds – 6th Issuance          209,723            204,047   CDI + 1.70% p.a.
  Private Bonds – 7th Issuance          823,292            814,086   CDI + 1.15% p.a.
  Private Bonds – 8th Issuance          115,234            113,879   CDI + 1.00% p.a.
Financing and Lease Liabilities          161,477            153,714   IPCA
Accounts Payable for Business Combination            42,366              10,941   100% CDI
Loans from related parties            67,358              29,192   CDI + 3.57%
        1,933,985          1,834,794    
b.Credit risk

 

Credit risk arises from the potential default of a counterparty to an agreement or financial instrument, resulting in financial loss. The Business is exposed to credit risk in its operating activities (mainly in connection with trade receivables) and financial activities, including deposits with banks and other financial institutions and other financial instruments contracted.

 

To mitigate risks associated with trade receivables, the Business adopts a sales policy and analysis of the financial and equity situation of its counterparties. The sales policy is directly associated with the level of credit risk the Business is willing to subject itself to in the normal course of its business. The diversification of its receivable’s portfolio, the selectivity of its customers, as well as the monitoring of sales financing terms and individual position limits are procedures adopted to minimize defaults or losses in the realization of trade receivables. Thus, the Business does not have significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristic.

 

Furthermore, the Business reviews the recoverable amount of its trade receivables at the end of each reporting period to ensure that adequate impairment losses are recorded (note 9.c).

 

The Business limits its exposure to credit risks associated to financial instruments, bank deposits and financial investments by making its investments in financial institutions for which credit risk is monitored, according to limits previously established in the Business´ policy. When necessary, appropriate provisions are recognized to cover this risk.

 

c.Liquidity risk

 

This is the risk of the Business not having sufficient funds and or bank credit limits to meet its short-term financial commitments, due to the mismatch of terms in expected receipts and payments.

 

The Business continuously monitors its cash balance and the indebtedness level and implements measures to allow access to the capital markets, when necessary. It also endeavors to assure they remain within existing credit limits. Management also continuously monitors projected and actual cash flows and the combination of the maturity profiles of the financial assets, liabilities and takes into consideration its debt financing plans, covenant compliance, internal liquidity targets and, if applicable, regulatory requirements.

 

15 

Vasta Platform (Successor)

Unaudited Interim Condensed Combined Financial Statements as of June 30, 2020 and Combined Carve-out Financial Statements as of December 31, 2019, and unaudited Interim Condensed Combined Carve-out Financial Statements for the six month period ended as of June 30, 2019

 

 

Surplus cash generated by the Business is managed on a Cogna Group basis. The Cogna Group’s Treasury invests surplus cash in short-term deposits, choosing instruments with appropriate maturities or sufficient liquidity to provide the Business with appropriate funds allowing it to continue as a going concern.

 

The table below presents the maturity of the Business´ financial liabilities.

 

Financial liabilities by maturity ranges

 

June 30, 2020   Less than one year   Between one and two years   Over two years   Total
Bonds   546,712   1,117,071   -   1,663,783
Lease Liabilities   13,035   29,489   117,954   160,478
Accounts Payable for business combination   16,245   7,589   18,532   42,366
Suppliers   92,440   -   -   92,440
Reverse Factoring   74,718   -   -   74,718
Suppliers - related Parties   163,062   -   -   163,062
Other liabilities - related parties   145,247   -   -   145,247
Loans from related parties   67,358   -   -   67,358
    1,118,817   1,154,149   136,486   2,409,452

 

Financial liabilities by maturity ranges

 

The table below reflects the estimated amounts payable of principal and interest based on undiscounted contractual amounts and, therefore, do not reflect the financial position presented as of June 30, 2020.

 

June 30, 2020   Less than one year   Between one and two years   Over two years   Total
Bonds   571,878   1,168,491   -   1,740,369
Lease Liabilities   13,313   30,118   120,469   163,900
Accounts Payable for business combination   16,993   7,938   19,385   44,316
Suppliers   92,440   -   -   92,440
Reverse Factoring   79,642   -   -   79,642
Suppliers - related Parties   174,802   -   -   174,802
Other liabilities - related parties   145,247   -   -   145,247
Loans from related parties   69,884   -   -   69,884
    1,164,199   1,206,547   139,854   2,510,600

 

As of June 30, 2020, the Business had negative working capital of R$ 396,740 (compared to negative working capital of R$ 326,550 as of December 31, 2019) mainly due to current suppliers and accounts payables with related parties, such as bonds outstanding, suppliers, loans and other liabilities.

 

Capital management

 

The Business’ main capital management objectives are to safeguard its ability to continue as a going concern, optimize returns, allow consistency of operations to other stakeholders and to maintain an optimal capital structure reducing financial costs and maximizing the returns.

 

No changes were made in the objectives, policies or processes for managing capital during the period as of June 30, 2020.

 

b.Sensitivity analysis

 

The following table presents the sensitivity analysis of potential losses from financial instruments, according to the assessment of relevant market risks made by Management and presented above.

 

16 

Vasta Platform (Successor)

Unaudited Interim Condensed Combined Financial Statements as of June 30, 2020 and Combined Carve-out Financial Statements as of December 31, 2019, and unaudited Interim Condensed Combined Carve-out Financial Statements for the six month period ended as of June 30, 2019

 

 

A probable scenario over a 12-month horizon was used, with a projected rate of 5.44% p.a. as per CDI references rates disclosed by B3 S.A (Brazilian stock exchange). Two further scenarios are presented, stressing, respectively, a 25% and 50% deterioration of the projected rates.

 

    Index - % per year   Balance as Of June  30, 2020   Base scenario   Scenario I   Scenario II
Financial Assets   101,7% of CDI   182,212   8,530   10,662   12,795
                     
Accounts Payable for Business Combination 100% of CDI                (42,366)   (1,950)   (2,438)   (2,925)
Loans from related parties   CDI + 3.57%   (67,358)   (3,153)   (3,942)   (4,730)
Bonds   CDI + 1.15%   (1,663,783)   (63,453)   (79,316)   (95,179)
        (1,773,507)   (68,556)   (85,696)   (102,834)
                     
Net exposure       (1,591,295)   (60,026)   (75,034)   (90,039)

 

7.Financial Instruments by Category

 

The Business holds the following financial instruments:

 

  Fair Value Hierarchy   June 30, 2020   December 31, 2019
Assets - Amortized cost          
 Cash and cash equivalents 1              182,410                 43,287
 Trade receivables 2              338,247               388,847
 Other receivables 2                    315                   1,735
 Related parties – other receivables 2                 5,843                 39,946
                 526,815               473,815
           
Liabilities - Amortized cost          
 Bonds and financing 2           1,663,783            1,640,947
 Lease liabilities 2              160,478               153,714
 Reverse Factoring 2               74,718                 94,930
 Suppliers -related Parties  2              163,062               207,174
 Accounts payable for business combination 2               42,366                 10,941
 Other liabilities - related parties   2              145,247                 47,603
 Loans from related parties 2               67,358                 29,192
              2,317,012            2,184,501

 

The Business’ financial instruments as of June 30, 2020 and December 31, 2019 are recorded in the statements of financial position at amounts that are consistent with their fair values.

 

The fair value of financial assets and liabilities was determined based on available market information and appropriate valuation methodologies for each case. However, significant judgment is required to interpret market data and produce the most appropriate estimates of realizable values. Consequently, the estimates of fair value do not necessarily indicate the amounts that could be realized in the current market. The use of different market inputs and/or valuation methodologies could have a material impact on the estimated fair value.

 

17 

Vasta Platform (Successor)

Unaudited Interim Condensed Combined Financial Statements as of June 30, 2020 and Combined Carve-out Financial Statements as of December 31, 2019, and unaudited Interim Condensed Combined Carve-out Financial Statements for the six month period ended as of June 30, 2019

 

 

8.Cash and Cash Equivalents

 

The balance of this account is comprised by the following amounts:

 

  June 30, 2020   December 31, 2019
Cash             28                32
Bank account            170              716
Financial investments (i)     182,212          42,539
      182,410          43,287

 

(i) The Business invests in a fixed income investment fund with short-term and with daily liquidity and not material risk of change in value. Financial investments presented an average gross yield of 99.57% of the annual CDI rate on June 01, 2020 (101.68% on December 31, 2019).

 

9.Trade Receivables

 

The balance of this account is comprised by the following amounts:

 

a.Composition

 

  June 30, 2020   December 31, 2019
Trade receivables              359,317                394,309
Related Parties (Note 19)                  9,645                  17,062
( - ) Impairment losses on trade receivables               (30,715)                 (22,524)
               338,247                388,847

 

b.Maturities of trade receivables

 

  June 30, 2020   December 31, 2019
Not yet due              286,676                332,071
Past due      
Up to 30 days                16,667                  10,403
From 31 to 60 days                  6,916                    7,505
From 61 to 90 days                  8,587                    6,071
From 91 to 180 days                  8,249                    9,506
From 181 to 360 days                18,725                  16,813
Over 360 days                10,096                    6,894
Total past due                69,240                  57,192
       
Clients on bankuptcy                   3,401                    5,046
 Related parties (note 19)                  9,645                  17,062
Provision for impairment of trade receivables               (30,715)                 (22,524)
       
               338,247                388,847

 

The gross carrying amount of trade receivables is written off when the Business has no reasonable expectations of recovering the financial asset in its entirety or a portion thereof. Collection efforts continue to be made, even for the receivables that have been written off, and amounts are recognized directly in results upon collection.

 

c.    Impairment losses on trade receivables

 

The Business measures impairment losses on trade receivables at an amount equal to lifetime expected credit losses (“ECL”) estimated using a provision matrix on a monthly basis. This matrix is prepared by analyzing the receivables established each month (in the 12-month period) and the related composition per default range and by calculating the recovery performance. In this methodology, for each default range an estimated loss likelihood percentage is established, which considers current and prospective information on macroeconomic factors that affect the customers' ability to settle the receivables.

 

18 

Vasta Platform (Successor)

Unaudited Interim Condensed Combined Financial Statements as of June 30, 2020 and Combined Carve-out Financial Statements as of December 31, 2019, and unaudited Interim Condensed Combined Carve-out Financial Statements for the six month period ended as of June 30, 2019

 

 

The Business also recognizes impairment losses on trade receivables of 100% against all receivables related to customers that filled bankruptcy process, because historical experience has indicated that these receivables are generally not recoverable.

 

Credit risk and expected credit losses associated with amounts due from related parties is not significant.

 

The following table details the risk profile of trade receivables based on the Business’ provision matrix as of June 30, 2020 and as of December 31, 2019. As the Business’ historical credit loss experience does not show significantly different loss patterns for different customer types, the impairment losses on trade receivables based on past due status is not further distinguished between different customer bases

 

  As of June 30, 2020   As of december 31, 2019
  Expected credit loss rate (%)   Lifetime ECL (R$)   Expected credit loss rate (%)   Lifetime ECL (R$)
Not yet due 0.70%                    1,996   0.67%   2,267
Past due              
Up to 30 days 3.62%                       603   1.81%   188
From 31 to 60 days 7.13%                       493   3.12%   234
From 61 to 90 days 9.46%                       812   5.04%   306
From 91 to 180 days 17.50%                    1,444   11.10%   1,056
From 181 to 360 days 63.50%                  11,890   45.37%   7,628
Over 360 days 99.80%                  10,076   84.13%   5,799
                     27,314       17,478
Clients on Bankuptcy (i) 100.00%                    3,401   100.00%   5,046
Impairment losses on trade receivables                    30,715       22,524

 

(i) As of June 30, 2020 and as of December 31, 2019, the Business’ Management recorded 100% for impairment losses from three of its clients that went into bankruptcy. All those corporate clients were national booksellers that were present in the main cities of the country and therefore were considered as strategic marketplaces for the commercialization of our published materials to final customers (students, teachers and schools).

 

The following table shows the changes in impairment losses on trade receivables for the period ended June 30, 2020 and 2019:

 

  June 30, 2020   June 30, 2019
Opening balance                22,524                  19,397
  Additions                  6,683                    8,813
  Reversals                   (137)                     (815)
  Clients in bankruptcy                  1,645                     (195)
Closing balance                30,715                  27,200

 

10. Inventories

 

The balance of this account is comprised by the following amounts:

 

  June 30, 2020   December 31, 2019
Finished products                      131,764                145,006
Work in process                        57,063                  34,502
Raw materials                        31,202                  31,033
Imports in progress                          1,337                    1,143
Right to returned goods (i)                          6,336                  10,552
                       227,702                222,236

 

(i) Represents the Business’ right to recover products from customers where customers exercise their right of return under the Business’ returns policies.

 

19 

Vasta Platform (Successor)

Unaudited Interim Condensed Combined Financial Statements as of June 30, 2020 and Combined Carve-out Financial Statements as of December 31, 2019, and unaudited Interim Condensed Combined Carve-out Financial Statements for the six month period ended as of June 30, 2019

 

 

Changes in provision for losses with obsolete inventories is broken down as follows:

 

  June 30, 2020   June 30, 2019
Opening balance                        69,080                  72,410
Additions                          5,693                    1,871
(Reversals)                        (3,708)                  (2,240)
Closing balance                        71,065                  72,041

 

11. Property, Plant and Equipment

 

The cost, depreciation weighted average rates and accumulated depreciation are as follows:

 

      June 30, 2020   December 31, 2019
  Depreciation weighted average rate   Cost   Accumulated depreciation   Net Book value   Cost   Accumulated depreciation   Net Book value
                           
IT equipment 10% - 33%   26,324   (24,465)   1,859   26,244   (23,758)   2,486
Furniture, equipment and fittings 10% - 33%   35,435   (24,756)   10,679   36,268   (23,902)   12,366
Property, buildings and improvements 5%-20%   46,997   (28,956)   18,041   46,420   (26,738)   19,682
In progress                       -      5,678   -   5,677   4,539   -   4,539
Right of use assets 12%   218,560   (68,864)   149,696   205,270   (59,834)   145,436
Land  10%   4,412   (3,959)   453   4,412   (3,959)   453
Total     337,406   (151,000)   186,405   337,203   (152,242)   184,961

 

Changes in property, plant and equipment are as follows:

 

  IT equipment   Furniture, equipment and fittings   Property, buildings and improvements   In progress   Right of use assets   Land   Total
At December 31, 2019 2,486   12,366   19,682   4,538   145,436   453   184,961
Additions 84   362   581   1,139   16,539   -   18,705
Additions by business combination 178   33   -   -   -   -   211
Disposals (182)   (1,228)   (5)   -   (3,249)   -   (4,664)
Depreciation (707)   (854)   (2,217)   -   (9,030)   -   (12,808)
At June 30, 2020 1,859   10,679   18,041   5,677   149,696   453   186,405
                           
                           
  IT equipment   Furniture, equipment and fittings   Property, buildings and improvements   In progress   Right of use assets   Land   Total
At December 31, 2018 3,213   15,010   20,177   -   -   19,906   58,306
Opening balance - IFRS 16 -   -   -   -   150,311   -   150,311
At January 01, 2019 3,213   15,010   20,177   -   150,311   19,906   208,617
Additions 812   2,158   2,013   853   2,879   -   8,715
Disposals -   (3,776)   -   -   (1,929)   -   (5,705)
Depreciation (843)   (957)   (2,328)   -   (9,406)   -   (13,534)
Transfers (i) -   -   -   -   19,453   (19,453)   -
At June 30, 2019 3,182   12,435   19,862   853   161,308   453   198,093

 

(i) Due to the adoption of IFRS 16, finance lease previously recognized in “land” were transferred to “right of use assets”.

 

There were no indications of impairment of Property, plant and equipment for the period ended June 30, 2020 and year ended December 31, 2019.

 

12. Intangible Assets and Goodwill

 

The cost, amortization weighted average rates and accumulated amortization of intangible assets and goodwill are comprised by the following amounts:

 

20 

Vasta Platform (Successor)

Unaudited Interim Condensed Combined Financial Statements as of June 30, 2020 and Combined Carve-out Financial Statements as of December 31, 2019, and unaudited Interim Condensed Combined Carve-out Financial Statements for the six month period ended as of June 30, 2019

 

 

      June 30, 2020   December 31, 2019
  Amortization weighted average rate   Cost   Accumulated amortization   Net Book value   Cost   Accumulated amortization   Net Book value
Softwares 20%            283,070           (211,296)            71,774   276,542   (200,217)   76,325
Trademarks 5%            631,935            (44,177)          587,758   614,958   (30,923)   584,035
Customer Portfolio 8%         1,113,792           (141,101)          972,691   1,109,388   (98,666)   1,010,722
Goodwill -         3,302,755                      -        3,302,755   3,286,263   -   3,286,263
In progress (i) -              16,861                      -            16,861   14,051   -   14,051
Other Intangible assets 33%              38,283            (14,684)            23,599   25,146   (11,157)   13,989
            5,386,696           (411,258)        4,975,438   5,326,348   (340,963)   4,985,385

 

(i) Substantially refers to development of the projects related to Plurall, project to improve the digital platform and other projects related to enterprise resource management (ERP) solutions.

 

Changes in intangible assets and goodwill were as follows:

 

  Softwares   Customer Portfólio   Trademarks   Other Intangible assets   In progress   Goodwill   Total
At December 31, 2019 76,325   1,010,722   584,035   13,989   14,051   3,286,263   4,985,385
Additions                       9,025                    -                        -                    906            15,770                      -                 25,701
Additions by business combination                            18                4,625               16,060                 159                   -                  16,300              37,162
Amortization                    (13,594)            (42,435)             (13,254)            (3,527)                   -                         -               (72,810)
At June 30, 2020                    71,774           972,912           586,841           11,527           29,821         3,302,563        4,975,438
                           
  Softwares   Customer Portfólio   Trademarks   Other Intangible assets   In progress   Goodwill   Total
At December 31, 2018 60,088   1,093,885   610,541   6,062   30,098   3,286,263   5,086,937
Additions 3,695   -   1,183   -   4,715   -   9,593
Disposals -   -   -   (1,960)   -   -   (1,960)
Amortization (9,336)   (46,508)   (13,253)   (624)   -   -   (69,721)
At June 30, 2019 54,447   1,047,377   598,471   3,478   34,813   3,286,263   5,024,849

i) Impairment tests for goodwill

 

The Business is comprised of two separate CGUs (each one of its reportable operating segments, as per note 25), for which the recoverable amount has been determined based on value-in-use calculations. Goodwill is allocated to each CGU as per below:

 

Content & EdTech Platform   3,291,835
Digital Platform   10,728
    3,302,563

 

The Business evaluated the circumstances that could indicate an impairment in its non-financial assets and carried out a sensitivity analysis in the long-term model and cash flows, including any impacts / risks that could be estimated based on our best estimate of future cash flows. The conclusion of these tests provided by Business, has not shown any adjustments to be considered necessary for these assets. We understand that this procedure meets the normative requirement to perform an impairment test at least once a year or, as in the present case, at any time when there are impairment indicators.

 

The main assumptions used in the calculations were: (i) 3.5% growth rate in perpetuity (6.1% as of December 31, 2019), and; (ii) applied discount rate (WACC) at 10.12% (10.08% as of December 31, 2019).

 

13. Bonds and Financing

 

a.Composition of bonds and financing

 

The balance of bonds and financing is comprised by the following amounts:

 

21 

Vasta Platform (Successor)

Unaudited Interim Condensed Combined Financial Statements as of June 30, 2020 and Combined Carve-out Financial Statements as of December 31, 2019, and unaudited Interim Condensed Combined Carve-out Financial Statements for the six month period ended as of June 30, 2019

 

 

  December 31, 2019   Additions by business combination (i)   Payment of interest   Interest accrued   Tranfers   June 30, 2020
Bonds with Related Parties 440,947   -   (17,576)   23,244   100,097   546,712
Current liabilities 440,947   -   (17,576)   23,244   100,097   546,712
                       
Bonds with Related Parties 1,200,000   -   -   16,170   (100,097)   1,116,073
Finance -   998   -   -   -   998
Non-current liabilities 1,200,000   998   -   16,170   (100,097)   1,117,071
                       
Total 1,640,947   998   (17,576)   39,414   -   1,663,783

 

  At December 31, 2018   Payment of interest   Interest accrued   Tranfers   June 30, 2019
Bonds with Related Parties          338,555             (58,681)                58,219                      -                 338,093
Finance leases              1,305                     -                         -                   (1,305)                       -   
Current liabilities         339,860           (58,681)               58,219              (1,305)             338,093
                   
Bonds with Related Parties        1,300,000                     -                         -                         -               1,300,000
Finance leases (ii)            18,608                     -                         -                 (18,608)                       -   
Non-current liabilities      1,318,608                     -                         -               (18,608)          1,300,000
                   
Total      1,658,468           (58,681)               58,219            (19,913)          1,638,093

 

(i) On November 21, 2018, MindMakers, which became a subsidiary of the Business in February 2020, entered into a bank credit note (cédula de crédito bancário) in favor of Banco de Desenvolvimento de Minas Gerais S.A. – BDMG, for an aggregate amount of R$1,676 with a maturity date of November 15, 2026. The payment of principal will be made in 72 installments, beginning on December 15, 2020, and ending on November 15, 2026.  Interest will accrue at the long-term interest rate (taxa de juros de longo prazo – TJLP), plus 5% per annum, and will be paid on a monthly basis along with payments of principal.

 

(ii) Due to the adoption of IFRS 16, Finance Leases’ balances were transferred to “Lease Liabilities”. (Note 15)

 

As of June 30, 2020 the Business has six bonds series with related parties, all of them unsecured and non-convertible into shares. The proceeds from these issuances were used to lengthen the Business’ debt profile, as well as to meet the Business’ working capital needs. The bonds have the following characteristics:

 

    As of June 30, 2020
Subscriber   Related Parties (a)   Related Parties (a)   Related Parties (a)
Issuance   5th   6th   6th
Serie   Serie 1   Serie 1   Serie 2
Date of issuance   03/15/2018   08/15/2017   08/15/2017
Maturity Date   05/15/2021   08/15/2020   08/15/2022
First payment after   60 months   36 months   60 months
Remuneration payment   Semi-annual interest   Semi-annual interest   Semi-annual interest
Financial charges   CDI + 1,15% p.a.   CDI + 0,90% p.a.   CDI + 1,70% p.a.
             
Principal amount (in million R$)    100   300   200

 

    As of June 30, 2020
Subscriber   Related Parties (a)   Related Parties (a)   Related Parties (a)
Issuance   7th   8th   5th
Serie   Single   Single   Serie 2
Date of issuance   03/15/2018   10/25/2017   08/15/2018
Maturity Date   09/09/2021   10/25/2020   08/15/2023
First payment after   36 months   36 months   60 months
Remuneration payment   Semi-annual interest   End of contract   Semi-annual interest
Financial charges   CDI + 1,15% p.a.   CDI + 1,00% p.a.   CDI + 1,00% p.a.
             
Principal amount (in million R$)   800   100   100

 

The Business’s bonds are subject to the following clauses: (i) the acceleration of the other debentures originally issued by Saber; (ii) the grant by us of any liens on our assets or capital stock; (iii) a change in control by Cogna of Saber’s subsidiaries, subject to certain exceptions. Additionally, we have agreed until the maturity of the private debentures that: (i) we will allocate at least 50% of the use of proceeds from any liquidity event to repay such debentures; (ii) we will not obtain any new loans unless the proceeds of such loan are directed to repay our debentures with Cogna; and (iii) we will not pledge shares and/or dividends.

 

22 

Vasta Platform (Successor)

Unaudited Interim Condensed Combined Financial Statements as of June 30, 2020 and Combined Carve-out Financial Statements as of December 31, 2019, and unaudited Interim Condensed Combined Carve-out Financial Statements for the six month period ended as of June 30, 2019

 

 

b.    Maturities of bonds and financing

 

The maturities ranges of these accounts are comprised as follow:

 

      June 30, 2020
Maturity of installments     Total   %
2020     546,712   32.9%
2021     811,301   48.8%
2022     254,885   15.3%
2023 onwards     50,885   3.1%
Total non-current liabilities     1,117,071   67.1%
           
      1,663,783   100.0%

 

14. Suppliers

 

The balance of this account is comprised by the following amounts:

 

a. Composition

 

  June 30, 2020   December 31, 2019
Local suppliers                46,611                  98,824
Related parties (note 19)                38,827                    1,219
Copyright                  7,002                  28,685
Reverse Factoring (i)                74,718                  94,930
                167,158                 223,658

 

(i) Some of the Business’ domestic suppliers sell their products with extended payment terms and may subsequently transfer their receivables due by the Business to financial institutions without right of recourse, in a transaction characterized as “Reverse Factoring”. The Business imputed interest over the payment term at a rate that commensurates with its own credit risk.

 

15. Lease liabilities

 

  June 30, 2020   June 30, 2019
Opening balance             153,714                      -   
Initial application - IFRS 16                       -              153,872
Transfers (note 13)                       -                19,911
Additions for new lease agreements              16,539                    697
Cancelled contracts               (3,359)                    (91)
Renegotiation -COVID impact 19 (i)                 (595)                        -
Interest                7,592                 7,862
Payment of interest               (7,616)                (6,505)
Payment of principal               (5,797)                (7,887)
Closing balance             160,478              167,859
       
Current liabilities 13,035   11,859
Non-current liabilities 147,443   156,000
  160,478   167,859

 

(i) The business renegotiated with its suppliers for a specified period of 3 months the readjustment in the property rental due to the Covid-19 pandemic. On July 7, 2020, the CVM (COMISSÃO DE VALORES MOBILIÁRIOS) approved CVM Resolution No. 859, where companies open as a practical expedient, or tenants may choose not to assess whether a benefit

 

23 

Vasta Platform (Successor)

Unaudited Interim Condensed Combined Financial Statements as of June 30, 2020 and Combined Carve-out Financial Statements as of December 31, 2019, and unaudited Interim Condensed Combined Carve-out Financial Statements for the six month period ended as of June 30, 2019

 

 

related to Covid-19 is granted. That meets the requirements of the pronouncement, is an amendment to the lease. The lessee who makes use of this option must account for any change in the payment of the rent and the benefit granted in the rental agreement in the same way that the accounting is changed by applying this Standard if change would not be a change in the lease.

 

Short-term leases (lease period of 12 months or less) and leases of low-value assets (such as personal computers and office furniture), are recognized on straight line basis in rent expenses of the period and are not included in the lease liabilities. Fixed and variable lease payments, including those related to short-term contracts and to low-value assets, were the following for the six months period ended June 30, 2020 and 2019:

 

  For the six months ended June 30,
   2020   2019
Fixed Payments 5,797   7,887
Payments related to short-term contracts and low value assets (note 24)                5,334                 2,061
  11,131   9,948

 

Business’ lease operations are not subject to any financial covenants.

  

16. Contract Liabilities and Deferred Income

 

The balance of this account is comprised by the following amounts:

 

   June 30, 2020   December 31, 2019
Refund liability (i)            38,776           45,248
Sales of employees' payroll (iii)              3,260             4,173
Deferred income in leaseback agreement (ii)              7,047             7,500
Other liabilities              3,957             1,603
             53,040           58,524
       
Current            45,208           49,328
Non-current              7,832             9,196
              53,040           58,524

 

(i) Refers to the customers’ right to return products

 

(ii) In March, 2018, the predecessor Somos-Anglo entered into a sales and leaseback agreement of a property located at João Dias Avenue in the city of São Paulo in the amount of R$ 25,500. This transaction included a deferred income of R$ 9,104 which will be appropriated according to the lease term of the property (120 months).

 

(iii) Refers to deferred income related to the sale of a 5-year exclusivity to process our Business employees’ pay roll to Banco Itaú for R$ 7,000 thousand, on August 2017. This income will be recognized on a straight line basis throughout the contract term as “Other Operating income” as the Business’ believes that the rights of exclusivity are transferred to Itaú over this period.

 

17. Accounts Payable for Business Combination

 

  June 30, 2020   December 31, 2019
Pluri (i)           12,692                  -
Mind Makers (ii)           13,925                  -
Livro Fácil           15,749          10,941
            42,366          10,941
       
Current           16,245            1,772
Non-current           26,121            9,169
            42,366          10,941

 

24 

Vasta Platform (Successor)

Unaudited Interim Condensed Combined Financial Statements as of June 30, 2020 and Combined Carve-out Financial Statements as of December 31, 2019, and unaudited Interim Condensed Combined Carve-out Financial Statements for the six month period ended as of June 30, 2019

 

 

(i) A & R Comercio e Serviços de Informática Ltda. (“Pluri”)

 

On January 7, 2020, the Business concluded the acquisition of Pluri for R$ 26 million, which R$ 15.6 million was paid in cash, R$ 10.4 million on installments and are still outstanding and accrue contractual CDI charges. The agreement is also subject to certain additional earn-outs, that could increase the purchase price by and additional R$1.7 million over the life of the earn-out period.

 

(ii) Mind Makers Editora Educacional (“Mind Makers”)

 

On February 13, 2020, the Business concluded the acquisition of Mind Makers for R$ 18.2 million, which R$ 10 million was paid in cash and R$ 8.2 million on installments and are still outstanding and accrue contractual CDI charges. The agreement is also subject to certain additional earn-outs, that could increase the purchase price by and additional R$5.4 million over the life of the earn-out period.

 

The maturities of such balances are shown in the table below:

 

    As of June 30, 2020
Maturity of installments   Total   %
2020          16,245   38.3
         
2021            7,589   17.9
2022          10,577   25.0
2023            7,955   18.8
Total non-current liabilities        26,121                61.7
         
           42,366              100.0

 

18. Salaries and Social Contribution

 

  June 30, 2020   December 31, 2019
Salaries payable                19,478                  20,658
Social contribution payable                15,793                    9,532
Provision for vacation pay and 13th salary                28,095                  13,213
Provision for profit sharing                       -                     18,333
Others                     923                        12
                 64,289                  61,748

 

19. Related Parties

 

As presented in note 1, the Business is part of Cogna Group and therefore some of the Business' transactions and arrangements are performed with related parties and the effect of these transactions is reflected in this Unaudited Interim Condensed Combined Financial Statements as of June 30, 2020 and Combined Carve-out Financial Statements as of December 31, 2019. Transactions with these related parties are priced on an arm´s length basis, except for certain intangibles described in item d. and are settled in cash. None of the related party balances are secured.

 

25 

Vasta Platform (Successor)

Unaudited Interim Condensed Combined Financial Statements as of June 30, 2020 and Combined Carve-out Financial Statements as of December 31, 2019, and unaudited Interim Condensed Combined Carve-out Financial Statements for the six month period ended as of June 30, 2019

 

 

No expense has been recognized in these Unaudited Interim Condensed Combined Financial Statements as of June 30, 2020 and Combined Carve-out Financial Statements as of December 31, 2019 for losses in respect of amounts owed by related parties.

 

Balances and transactions between Parent Entities’ operations included in the Business, have been eliminated in the Unaudited Interim Condensed Combined Financial Statements as of June 30, 2020 and Combined Carve-out Financial Statements as of December 31, 2019. However, during the periods presented below, the Business entered into the following transactions with other related parties or with operations with the Parent Entity and its subsidiaries that are not part of the business.

 

The balances with Related Parties are presented below:

 

    June 30, 2020
    Other receivables (i)   Trade receivables (Note 9)   Indemnification asset (note 20b)   Other payments (ii)   Loans (iii)   Suppliers (note 14)   Bonds (note 13)  
Cogna Educação S.A.                  -                     -             152,212                  -               51,176                  -                     -   
Anhanguera Educacional Participacoes SA.                  -                 1,150                  -                     -                     -                     -                     -   
Editora Atica S.A.                  -                   806                  -               91,081            15,198            15,537                  -   
Editora Scipione S.A.                  -                   325                  -               10,577                  -                 3,300                  -   
Centro Educacional Leonardo Da Vinci SS                  -                     24                  -                     -                     -                     -                     -   
Maxiprint Editora Ltda.                  -                   474                  -                   931                  -                 3,544                  -   
Pax  Editora E Distribuidora Ltda.                  -                     49                  -                     -                     -                     -                     -   
Saraiva Educacao S.A.                  -                   432                  -               12,286                  -               11,672                  -   
Colegio Visao Eireli                  -                     23                  -                     -                     -                     -                     -   
Anhanguera Educacional Ltda.                  -                   121                  -                     -                     -                     -                     -   
Pitagoras Sistema De Educacao Superior Sociedade Ltda.                -                   293                  -                     -                     -                     -                     -   
Somos Idiomas SA.                  -                      2                  -                     -                     -                     -                     -   
Sge Comercio De Material Didatico Ltda.                  -                      5                  -                     -                     -                   633                  -   
Sistema P H De Ensino Ltda.                  -                 1,800                  -                     18                  -                     -                     -   
Somos Idiomas S.A.                  89                  -                     -                     -                     -                     11                  -   
Escola Mater Christi Ltda.                  -                     43                  -                   130                  -                     -                     -   
Somos Educação S.A.                  -                     -                     -               13,042                984                815                  -   
Saber Serviços Educacionais S.A.                  -                 2,684                  -               16,489                  -                 1,803        1,662,785
Educação Inovação e Tecnologia S.A.                  -                     -                     -                   670                  -                     -                     -   
Somos Operações Escolares S.A.                  -                     -                     -                     23                  -                   775                  -   
Sociedade Educacional Doze De Outubro Ltda.                -                   150                  -                     -                     -                     -                     -   
Editora E Distribuidora Educacional S.A.              5,754              1,264                  -                     -                     -                   737                  -   
               5,843              9,645          152,212          145,247            67,358            38,827        1,662,785

 

    December 31, 2019
    Other receivables (i)   Trade receivables (Note 9)   Indemnification asset (note 20b)   Other payments (ii)   Loans (iii)   Suppliers (note 14)   Bonds (note 13)  
Cogna Educação SA.   -   -   149,600   -   -   -   -
Anhanguera Educacional Participacoes SA.   -   1,150   -   -   -   -   -
Editora Atica SA.   16   281   -   31,944   -   -   -
Editora Scipione SA.   4,743   304   -   -   -   -   -
Escola Mater Christi Ltda.   -   204   -   130   -   -   -
Maxiprint Editora Ltda.   4,021   1,154   -   -   -   -   -
Pax  Editora E Distribuidora Ltda.   -   49   -   -   -   -   -
Saraiva Educacao SA.   28,226   424   -   -   -   -   -
Somos Idiomas SA.   75   2   -   -   -   -   -
Acel Administracao De Cursos Educacionais Ltda.   -   1,415   -   -   -   -   -
Ecsa  Escola A Chave Do Saber Ltda.   -   212   -   -   -   -   -
Colégio Jao Ltda.   -   415   -       -   -   -
Colégio Motivo Ltda.   -   1,442   -       -   -   -
Editora E Distribuidora Educacional SA.   -   2,705   -   -