0001554855-22-000267 | 20-F | XBRL Viewer

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Document and Entity Information	12 Months Ended
Document and Entity Information	Dec. 31, 2021 shares
Document Information [Line Items]
Document Type	20-F
Amendment Flag	false
Document Period End Date	Dec. 31, 2021
Document Fiscal Year Focus	2021
Document Fiscal Period Focus	FY
Document Registration Statement	false
Document Annual Report	true
Document Transition Report	false
Document Shell Company Report	false
Entity Registrant Name	Vasta Platform Ltd
Entity Central Index Key	0001792829
Current Fiscal Year End Date	--12-31
Entity File Number	001-39415
Entity Incorporation, State or Country Code	E9
Entity Address, Address Line One	Av. Paulista, 901, 5th Floor
Entity Address, Address Line Two	Bela Vista
Entity Address, City or Town	São Paulo
Entity Address, Postal Zip Code	01310-100
Entity Address, Country	BR
Title of 12(b) Security	Class A common shares, par value US$0.00005 per share
Trading Symbol	VSTA
Security Exchange Name	NASDAQ
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Accelerated Filer
Entity Emerging Growth Company	true
Entity Ex Transition Period	false
ICFR Auditor Attestation Flag	false
Document Accounting Standard	International Financial Reporting Standards
Entity Shell Company	false
Auditor Name	KPMG Auditores Independentes Ltda
Auditor Firm ID	1124
Auditor Location	São Paulo - Brazil
Business Contact [Member]
Document Information [Line Items]
Contact Personnel Name	Bruno Giardino Roschel de Araujo
Entity Address, Address Line One	Av. Paulista, 901, 5th Floor
Entity Address, Address Line Two	Bela Vista
Entity Address, City or Town	São Paulo
Entity Address, Postal Zip Code	01310-100
Entity Address, Country	BR
City Area Code	+55 11
Local Phone Number	3133-7311
Class A common shares [member]
Document Information [Line Items]
Entity Common Stock, Shares Outstanding	18,957,758
Class B common shares [Member]
Document Information [Line Items]
Entity Common Stock, Shares Outstanding	64,436,093

Consolidated Statement of Financial Position - BRL (R$) R$ in Thousands	Dec. 31, 2021	Dec. 31, 2020
Current assets
Cash and cash equivalents	R$ 309,893	R$ 311,156
Marketable securities	166,349	491,102
Trade receivables	505,514	492,234
Inventories	242,363	249,632
Taxes recoverable	24,564	18,871
Income tax and social contribution recoverable	8,771	7,594
Prepayments	40,069	27,461
Other receivables	2,105	124
Related parties – other receivables	501	2,070
Total current assets	1,300,129	1,600,244
Non-current assets
Judicial deposits and escrow accounts	178,824	172,748
Deferred income tax and social contribution	130,405	88,546
Property, Plant and equipment	185,682	192,006
Intangible assets and goodwill	5,538,367	4,924,726
Total non-current assets	6,033,278	5,378,026
Total Assets	7,333,407	6,978,270
Current liabilities
Bonds and financing	281,491	502,882
Lease liabilities	26,636	18,263
Suppliers	264,787	279,454
Income tax and social contribution payable	16,666	1,761
Salaries and social contributions	62,829	69,123
Contractual obligations and deferred income	46,037	47,169
Accounts payable for business combination	20,502	17,132
Other liabilities	20,033	4,285
Other liabilities - related parties	39,271	135,307
Loans from related parties		20,884
Total current liabilities	778,252	1,096,260
Non-current liabilities
Bonds and financing	549,735	290,459
Lease liabilities	133,906	154,840
Accounts payable for business combination	511,811	30,923
Provision for tax, civil and labor losses	646,850	613,933
Contractual obligations and deferred income	128	6,538
Other liabilities	47,516
Total non-current liabilities	1,889,946	1,096,693
Shareholder's Equity
Share Capital	4,820,815	4,820,815
Capital reserve	61,488	38,962
Treasury shares	(23,880)
Accumulated losses	(193,214)	(74,460)
Total Shareholder's Equity	4,665,209	4,785,317
Total Liabilities and Shareholder's Equity	R$ 7,333,407	R$ 6,978,270

Consolidated Statement of Profit or Loss and Other Comprehensive Loss - BRL (R$) R$ in Thousands	12 Months Ended
	Dec. 31, 2021	Dec. 31, 2020	Dec. 31, 2019
Consolidated Statement of Profit or Loss and Other Comprehensive Income
Net revenue from sales and services	R$ 947,419	R$ 997,628	R$ 989,683
Sales	914,266	967,374	971,250
Services	33,153	30,254	18,433
Cost of goods sold and services	(396,829)	(378,003)	(447,049)
Gross profit	550,590	619,625	542,634
Operating income (expenses)
General and administrative expenses	(430,279)	(406,352)	(276,427)
Commercial expenses	(164,439)	(165,169)	(184,592)
Other operating income	5,554	4,283	5,136
Impairment losses on trade receivables	(32,726)	(25,015)	(4,297)
(Loss) Profit before finance result and taxes	(71,300)	27,372	82,454
Finance result
Finance income	35,640	20,984	5,416
Finance costs	(120,183)	(119,409)	(178,185)
Total finance result	(84,543)	(98,425)	(172,769)
Loss before income tax and social contribution	(155,843)	(71,053)	(90,315)
Total IRPJ and CSLL	37,089	25,404	29,607
Current	(11,297)	7,874	(22,113)
Deferred	48,386	17,530	51,720
Loss for the year	(118,754)	(45,649)	(60,708)
Other comprehensive income for the year
Total comprehensive loss for the year	R$ (118,754)	R$ (45,649)	R$ (60,708)
Loss per share
Basic	R$ (1.44)	R$ (0.55)	R$ (0.73)
Diluted	R$ (1.44)	R$ (0.55)	R$ (0.73)

Consolidated statement of changes in equity - BRL (R$) R$ in Thousands	Total	IFRS 16 [member]	Adjusted opening balance [member]	Parent Company's Net Investment [member]	Parent Company's Net Investment [member] IFRS 16 [member]	Parent Company's Net Investment [member] Adjusted opening balance [member]	Share capital [member]	Share issuance costs [member]	Share-based compensation reserve for granted [member]	Share-based compensation reserve for vested [member]	Treasury shares	Accumulated losses [member]
Equity at beginning of the period at Dec. 31, 2018	R$ 3,268,501	R$ (283)	R$ 3,268,218	R$ 3,268,501	R$ (283)	R$ 3,268,218
Capitalization of bonds	1,508,297			1,508,297
Contribution of bonds from parent company	(1,535,801)			(1,535,801)
Share-based payment contributions	1,372			1,372
Derecognition of deferred tax assets	(83,859)			(83,859)
Parent Company's Net investment (deficit)	2,564			2,564
Comprehensive loss for the year
Loss for the year	(60,708)			(60,708)
Total comprehensive loss for the year	(60,708)
Equity at end of the period at Dec. 31, 2019	3,100,083			3,100,083
Share-based payment contributions	686									686
Parent Company's Net investment (deficit)	(6,335)			(6,335)
Changes in parent company's investment, net				(3,093,748)			3,123,245			(686)		(28,811)
Capital contribution	2,426						2,426
Comprehensive loss for the year
Loss for the year	(45,649)											(45,649)
Total comprehensive loss for the year	(45,649)											(45,649)
Shareholders' contribution and distributions to shareholders
Issuance of common shares at initial public offering	1,836,317						1,836,317
Share based compensation granted and issued	38,962								38,962
Share issuance costs, net of taxes	(141,173)							(141,173)
Total shareholders' contribution and distributions to shareholders	1,734,106						1,836,317	(141,173)
Equity at end of the period at Dec. 31, 2020	4,785,317						4,961,988	(141,173)	38,962			(74,460)
Comprehensive loss for the year
Loss for the year	(118,754)											(118,754)
Total comprehensive loss for the year	(118,754)											(118,754)
Shareholders' contribution and distributions to shareholders
Share based compensation granted and issued	22,526								22,526
Share based compensation vested (Note 23a itens i,ii and iii)									(31,043)	31,043
Acquisition of shares (Note 23d)	(23,880)										(23,880)
Equity at end of the period at Dec. 31, 2021	R$ 4,665,209						R$ 4,961,988	R$ (141,173)	R$ 30,445	R$ 31,043	R$ (23,880)	R$ (193,214)

Consolidated statement of cash flows - BRL (R$)
R$ in Thousands

12 Months Ended

Dec. 31, 2021

Dec. 31, 2020

Dec. 31, 2019

CASH FLOWS FROM OPERATING ACTIVITIES

Loss before income tax and social contribution for the year

R$ (155,843)

R$ (71,053)

R$ (90,315)

Adjustments for:

Depreciation and amortization

211,156

174,088

164,932

Impairment losses on trade receivables

32,726

25,015

4,297

Reversal of provision for tax, civil and labor losses

(1,986)

(2,092)

(3,325)

Interest on provision for tax, civil and labor losses

34,300

13,297

41,428

Provision for obsolete inventories

22,117

4,057

6,831

Interest on bonds and financing

43,549

52,935

92,583

Interest on loans from related parties

2,922

Contractual obligations and right to returned goods

(1,159)

1,454

(24,939)

Imputed interest on suppliers

157

2,945

3,364

Interest on accounts payable for business combination

8,158

1,568

233

Share-based payment expense

22,526

39,648

1,372

Interest on lease liabilities

14,984

15,091

16,312

Interest on marketable securities incurred

(26,719)

(16,907)

Disposals of right of use assets and lease liabilities

(195)

(869)

Residual value of disposals of property and equipment and intangible assets

124

415

5,777

Cash flows from operating activities before changes in working capital

203,894

242,514

218,550

Changes in

Trade receivables

(25,408)

(123,412)

(73,386)

Inventories

(14,038)

(20,812)

29,754

Prepayments

(12,511)

(4,060)

(13,877)

Taxes recoverable

(4,914)

24,573

(14,524)

Judicial deposits and escrow accounts

(6,076)

184

(4,480)

Other receivables

(1,789)

4,516

7,590

Suppliers

(16,124)

42,620

(9,235)

Salaries and social charges

(9,890)

(6,693)

(23,810)

Tax payable

5,711

13,629

17,573

Contractual obligations and deferred income

(2,659)

(2,163)

(2,464)

Other receivables and liabilities from related parties

(94,155)

117,299

11,103

Other liabilities

(670)

4,295

4,879

Cash from operating activities

21,371

292,490

147,673

Income tax and social contribution paid

(1,167)

(5,234)

(14,060)

Interest on liabilities paid

(14,692)

(14,675)

(8,685)

Payment of interest on bonds and financing

(24,922)

^[1]

(49,404)

(117,696)

Payment of interest on business combinations

(1,571)

Payment of provision for tax, civil and labor losses

(627)

(7,716)

Net cash (used in) generated by operating activities

(21,608)

215,461

7,232

CASH FLOWS FROM INVESTING ACTIVITIES

Acquisition of property and equipment

(20,910)

(1,642)

(12,808)

Additions of intangible assets

(55,878)

(42,793)

(37,461)

Acquisition of subsidiaries net of cash acquired

(186,218)

(23,147)

Proceeds from (Purchase of) investment in marketable securities

351,472

(474,195)

Net cash generated by (used in) investing activities

88,466

(541,777)

(50,269)

CASH FLOWS FROM FINANCING ACTIVITIES

Capital contribution

2,426

Suppliers - related parties

(1,450)

(207,174)

(23,642)

Loans from related parties

65,600

29,192

Payments of loans from related parties

(20,884)

(76,830)

Lease liabilities paid

(21,998)

(12,835)

(24,021)

Parent Company's Net Investment

(6,335)

2,564

Issuance of common shares in initial public offering

1,836,317

Transaction costs in initial public offering

(154,849)

Acquisition of treasury shares

(23,880)

Payments of bonds and financing

(477,741)

^[1]

(852,135)

Issuance of public bonds net off issuance costs

497,000

Payments of accounts payable for business combination

(19,168)

Net cash generated by (used in) financing activities

(68,121)

594,185

(15,907)

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

(1,263)

267,869

(58,944)

Cash and cash equivalents at beginning of year

311,156

43,287

102,231

Cash and cash equivalents at end of year

309,893

311,156

43,287

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

R$ (1,263)

R$ 267,869

R$ (58,944)

[1]

On March 15, 2021, the Company, substantially settled bonds with related parties amounting to R$ 100,000 and R$ 1,488, in principal and interest, respectively as follows: 5th Issuance, 1st series – R$ 101,488. In addition, the Company settled only interest on the following bonds: 5th Issuance, 2nd series – R$ 1,451, 6th Issuance, 2nd series – R$ 3,613 and 7th Issuance, single series – R$ 5,663. This measure is part of a commitment with shareholders as a result of the IPO.

The Company and Basis of Presentation

12 Months Ended

Dec. 31, 2021

The Company and Basis of Presentation

The Company and Basis of Presentation

1. The Company and Basis of Presentation

1.1 The Company

Vasta Platform Ltd. (herein referred to as the “Company”, or previously named “Vasta Platform”, “Vasta’s Parent Company” or “Business”) is a publicly held company incorporated in the Cayman Islands on October 16, 2019, with headquarters in the city of São Paulo, Brazil. The Company is a technology-powered education content providing end-to-end educational and digital solutions that cater to all needs of private schools operating in the K-12 educational segment. Vasta’s fiscal year begins on January 1 of each year and ends on December 31 of the same year.

The Company has built a “Platform as a Service”, solution or PaaS, with two main modules: Content & EdTech Platform and Digital Services. The Company’s Content & EdTech Platform combines a multi-brand and tech-enabled array with digital and printed content through long-term contracts with partner schools.

Since July 31, 2020, VASTA Platform Ltd. has been a publicly-held company registered with SEC (“The US Securities and Exchange Commission) and its shares are traded on Nasdaq Global Select Market under ticker symbol “VSTA”.

1.2 Corporate restructuring and business combinations

VASTA Platform, from October 11, 2018 until July 23, 2020, was not a separate legal entity. The Business (referred herein when the company presented its financial statements combined with other entities) comprised combined carved-out historical balances of certain assets, liabilities and 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 its subsidiaries (hereinafter referred to as “Cogna” or “Parent Entity”, or in combination with its subsidiaries, “Cogna Group”).

On October 11, 2018, Cogna (the ultimate Parent Entity) acquired control over Somos Educação S.A (hereinafter referred to as “Somos” or in combination with its subsidiaries, which included Somos Educação S.A. and Somos Sistemas de Ensino S.A (“Somos Sistemas” or “Anglo”), “Somos Group”) for a consideration of R$6.3 billion (the “Acquisition”) comprising R$5.7 billion paid in cash and R$0.6 billion deposited in a restricted escrow account. In addition, R$ 3.3 billion of the R$ 6.3 billion, was allocated to the K-12 Business of Somos Group for purpose of the combined carve-out financial statements. As a result of the Acquisition, VASTA Platform Limited represents the combination of the K-12 curriculum acquired and held by Somos (“Somos – Anglo”) and the K-12 Business held by Cogna (“Pitagoras” operations included in the legal entity Saber Serviços Educacionais S.A.) or in combination with Somos – Anglo.

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., reducing the number of legal entities in the Cogna Group and improving overall synergies). As all entities that were involved in the corporate restructuring are under common control, this restructuring was accounted for using the historical basis of the related assets and liabilities as recorded by Cogna Group and resulted in an overall change in the shareholding structure.

On January 1, 2020, the business activities were restructured in the legal entity Somos Sistemas de Ensino S.A (“Somos Sistemas”). On January 7, 2020, the Company concluded the acquisition of the entire ownership interest in Pluri. On February 13, 2020, the Company concluded the acquisition of the entire ownership interest in Mind Makers. See Note 5.

On July 23, 2020, prior to the completion of the Initial Public Offering – IPO, the ‘Board of Directors’ Meeting approved the Contribution Agreement which Cogna (Vasta’s Parent Company) contributed with 100% of the shares issued by Somos Sistemas held by Cogna to Vasta Platform’s share capital. After the contribution, Somos Sistemas became wholly owned by Vasta’s Parent Company, which, in turn, continued to be controlled by Cogna. In addition, Cogna contributed with shareholders capital in the amount of R$ 2,426 in cash on July 23, 2020.

On July 31, 2020 the Company held its public offering of US$ 19.00 per Class A common share, pursuant to the U.S. Securities Act of 1933 (the “Offering”), reaching the total amount of US$ 333,522 (R$ 1,836,317) with the issuance of 18,575,492 Vasta’s class A common shares. The Company incurred incremental costs directly attributable to the public offering in the amount of R$ 141,173, net of taxes.

On November 20, 2020, the Company acquired an ownership interest in Meritt Informação Educacional Ltda. See Note 5.

On March 2, 2021, the Company acquired an ownership interest in Sociedade Educational da Lagoa Ltda.(“SEL”) through its wholly owned subsidiary Somos Sistemas de Ensino S.A. See Note 5.

On May 27, 2021, the Company acquired an ownership interest in Nota 1000 Serviços Educacionais S.A (“Redação Nota 1000”) through its wholly owned subsidiary Somos Sistemas de Ensino S.A. See Note 5.

On August 1, 2021, the Company acquired an ownership interest in EMME – Produções de Materiais em Multimídia (“EMME”) through its wholly owned subsidiary Somos Sistemas de Ensino S.A. See Note 5.

On October 29, 2021, the Company acquired an equity interest in Editora De Gouges SA – Learning System Eleva - (“De Gouges”) through its wholly-owned subsidiary Somos Sistemas de Ensino S.A. See Note 5.

The Consolidated Financial Statements comprise the following entities, which are all fully owned by the Company:

Company	December 31, 2021	December 31, 2020
	Interest %	Interest %
Somos Sistemas de Ensino S.A ("Somos Sistemas")	100%	100%
Livraria Livro Fácil Ltda. ("Livro Fácil")	100%	100%
A & R Comercio e Serviços de Informática Ltda. (“Pluri”)	100%	100%
Mind Makers Editora Educacional (“Mind Makers”)	100%	100%
Colégio Anglo São Paulo	100%	100%
Meritt Informação Educacional Ltda (“Meritt”)	100%	100%
Sociedade Educacional da Lagoa Ltda (“SEL”)	100%	-
Nota 1000 Serviços Educacionais Ltda ("Redação Nota 1000")	100%	-
EMME – Produções de Materiais em Multimídia Ltda (“EMME”).	100%	-
Editora De Gouges S.A ("De Gouges")	100%	-

1.3 Initiatives carried out by the Company and impacts of Covid-19 pandemic

It is widely accepted now that the global Coronavirus (“COVID-19”) pandemic changed the world’s growth prospects and added risks to Companies in an unprecedent scenario. In Brazil, as elsewhere, governments at municipal and state-wide levels-imposed restrictions to contain the contamination, including social distancing, school shutdowns, travel restrictions, lockdowns, closure of non-essential businesses, among others. This caused major disruptions in the economy, affecting supply, demand, and logistics chains, as well as employment and, most importantly, impacting society as a whole.

In response to this scenario, the Company established a Crisis Committee and developed plans to protect the business, the health of its employees and its customer base. We highlight below the main initiatives carried out by the Company since the beginning of the COVID-19 pandemic in 2020 up to December 31, 2021:

1)	Preserved employees’ health and safety organizing and coordinating remote work, reducing operations or closing distribution centers and adopting protective equipment and social distancing rules.
2)	Ensured educational content and services delivery through online platforms.
3)	Implemented measures to ensure adequate liquidity and cash position.

4)	Implemented short-term restructuring measures, including but not limited to temporary reduction in salaries and working hours, seeking to preserve jobs and payroll continuity.
5)	Planned and executed organizational changes, specifically management positions, and operational activities through process review to face post-COVID mid-term impact.
6)	Strategic Plan for opportunities generated by the crisis.
7)	Philanthropic actions that contributed to mitigate the impacts of COVID-19 on our Company segment;
8)	On-line campaigns to promote the Company´s products to potential new customers; and
9)	Negotiated access to credit lines granted to certain customers which have been highly affected by COVID-19, in order to keep the Company´s business network sustainable.
10)	Financial leverage reorganization by obtaining R$ 500,000 (corresponding to 500,000 bonds) to maintain the strategic acquisition goals to comply with medium and long-term obligations and consequently, to mitigate risks over operating cash flows caused by COVID-19. See Note 14.
11)	Issued new technological solutions embedded with current learning systems and added of complementary solutions for the next school-year through digital transformation caused by social distancing restriction brought by COVID 19.

As a result of our actions, despite school closures and social distancing restrictions, the majority of our customers were able to continue providing their educational services through our virtual platforms.

Basis of preparation and presentation of the Consolidated Financial Statements

12 Months Ended

Dec. 31, 2021

Basis of preparation and presentation of Consolidated Financial Statements

Basis of preparation and presentation of Consolidated Financial Statements

2. Basis of preparation and presentation of Consolidated Financial Statements

The Consolidated Financial Statements of Vasta Platform, the reporting entity, have been prepared in accordance with the International Financial Reporting Standards (IFRS) and interpretations as issued by the International Accounting Standards Board (“IASB”).

The Consolidated Financial Statements as of December 31, 2021 were approved by the Executive Board on April 29, 2022.

b. Vasta’s Consolidated Financial Statements

Since July 23, 2020, the Company has prepared the Consolidated Financial Statements which include the accounts of the Company and its consolidated subsidiaries. Since all entities were under common control as of the date of the initial public offering.

c. Consolidation

The Company consolidates all entities over which it has control, that is, when it is exposed or is entitled to variable returns from its involvement with the investee and has the ability to direct the relevant activities of the investee. The subsidiaries included in the consolidation are described in the following note.

Subsidiaries are fully consolidated from the date on which control is transferred to the Company Consolidation is interrupted from the date on which the Company ceases to have control.

Transactions, balances and unrealized gains on transactions between Company companies are eliminated

The accounting policies of the new subsidiaries are changed, when necessary, to ensure consistency with the policies adopted by the Company.

Below is a list of the companies controlled by the Company for the years ended December 31, 2021 and 2020:

Company	December 31, 2021	December 31, 2020
	Interest %	Interest %
Vasta Platform Ltd. ("Vasta's Parent Company")	100%	100%
Somos Sistemas de Ensino S.A ("Somos Sistemas")	100%	100%
Livraria Livro Fácil Ltda. ("Livro Fácil")	100%	100%
A & R Comercio e Serviços de Informática Ltda. (“Pluri”)	100%	100%
Mind Makers Editora Educacional (“Mind Makers”)	100%	100%
Colégio Anglo São Paulo	100%	100%
Meritt Informação Educacional Ltda (“Meritt”)	100%	100%
Sociedade Educacional da Lagoa Ltda (“SEL”)	100%	-
Nota 1000 Serviços Educacionais Ltda ("Redação Nota 1000")	100%	-
EMME – Produções de Materiais em Multimídia Ltda (“EMME”).	100%	-
Editora De Gouges S.A ("De Gouges")	100%	-

d. Operating segment

The information by operating segment is presented in a manner consistent with the internal report provided to the Executive Board, which is the Chief Operating Decision Maker (CODM) in addition to being responsible for allocating resources, evaluating performance and making strategic decisions in the Company.

Since 2020, the Executive Board considers the business to be segregated into Content EdTech and Digital Service.

e. Cash Generating Units – (“CGU”)

For purposes of assessing impairment, these assets are grouped into the lowest levels for which there are separately identifiable cash flows (Cash Generating Units - CGU). For the purposes of this test, the goodwill is allocated to the Cash Generating Units, segregated into Content EdTech and Digital Service.

f. Functional and Presentation Currency

The Consolidated Financial Statements are presented in thousands of Brazilian Reais (“R$”), which is the Company functional currency. All financial information presented in R$ has been rounded to the nearest thousand, except as otherwise indicated.

g. Measurement basis

The Consolidated Financial Statements were prepared based on historical cost, except for certain assets and liabilities that are measured at fair value, as explained in the accounting policies below.

Use of estimates and judgements

12 Months Ended

Dec. 31, 2021

Use of estimates and judgements

Use of estimates and judgements

3. Use of estimates and judgements

In preparing the Consolidated Financial Statements, Management has made judgements and estimates that affect the application of Company´ accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Those estimates and assumptions are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable and relevant under the circumstances. Revisions to estimates are recognized prospectively.

3.1 Judgements

Determination of the lease period

The Company has lease contracts where it acts as lessee and it is related to warehousing, equipment and computers used to learning systems and education solutions. In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be exercised (or not terminated). For leases of warehouses, equipment or even computer used in education solutions, the following factors are normally the most relevant:

If there are significant penalties for termination (or not to extend), the Company is reasonably certain to extend (or not terminate) the lease.

If there are any leasehold improvements with significant residual balances, the Company is reasonably certain to extend (or not terminate) the lease.

Also, the Company considers other factors including past practices related to the use of specific categories of assets (leased or owned assets) as well as the historical length of the leases and the costs and business disruptions required to replace the leased asset. See Note 16.

3.2 Assumptions and estimation uncertainties

Deferred Income tax and social contribution

The liability method is used to account for deferred income tax and social contribution in respect of temporary differences between the carrying amount of assets and liabilities and the related tax bases. The amount of deferred tax assets is reviewed at the end of each reporting period and reduced for the amount that is no longer probable to be realized through future taxable income. The estimates of the availability of future taxable income against which deductible temporary differences and tax losses may be used to reduce income taxes expenses, therefore, deferred tax assets are subject to significant judgement. Additionally, future taxable income may be higher or lower than the estimates considered in determining the deferred tax assets. See Note 22b.

Provision for risks of tax, civil and labor losses

The Company is a party to judicial and administrative proceedings. It accounts for provisions for all judicial proceedings whose likelihood of loss is probable. The assessment of the likelihood of a loss and the estimate of probable disbursements by the Company, in connection of such losses, include the evaluation of available evidence as well the opinion of internal and external legal advisors. See Note 21.

Impairment losses on trade receivables

The expected credit losses (“ECL”) for financial assets are based on assumptions about risk of default and expected loss rates. The Company uses judgement in making these assumptions and selecting the inputs to the impairment calculation, based on the Company’s historical collection information, existing market conditions, as well as forward looking estimates at the end of each reporting period. Due to the risk caused by market conditions resulting from the COVID-19 crisis the Company has monitored in consistent manner the adjustments for macroeconomic conditions in order to mitigate the risk of credit losses during the current year and forthcoming. Note 10c.

Provision for inventory obsolescence

The Company adopts as a criteria for the provision of inventory losses estimating the percentage of loss based on the historical production index, which considers the production aging data by type of product. The Company considers the editorial renewal calendar of its products to determine the number of periods in which the products may become obsolescent. In addition, the Company assesses whether inventories are overvalued, that is, whether the selling price is lower than the average cost of production. See note 11.

Impairment of Goodwill

The Company annually tests goodwill for impairment based on the recoverable amounts of Cash Generating Units (CGUs), determined based on estimated value-in-use calculations. The value in use calculation is based on a discounted cash flow model. The cash flows are derived from the budget for a foreseeable future, and it do not include restructuring activities to which the Company has not yet committed or significant future investments that will enhance the performance of the assets of the CGU being tested. The recoverable amount is sensitive to the discount rate used for the Discounted Cash Flow (DCF) model as well as to expected future cash-inflows and the growth rate used for extrapolation purposes. These estimates are most relevant to goodwill recognized by the Company. The scenario analysis became more challengeable in period of uncertainties regarding the economic environment caused by COVID-19 and its impacts on the demand curve, since the schools either closed or worked with time restriction in some locations. The key assumptions used to determine the recoverable amount of the different CGUs are disclosed and further explained in Note 13.

Rights to Returned Goods and Refund Liabilities

Pursuant to the terms of the contracts with some customers, they are required to provide the Company with an estimate of the number of students that will access the content in the next school year (which typically starts in February of the following year), allowing the Company to start the delivery of its products. Since the contracts allows product returns (generally for period of four months from delivery date) up to a certain limit, the Company recognizes revenue for the amount that is expected to be received based on past experience, assuming that the other conditions for revenue recognition are met. Therefore, the amount of revenue recognized is adjusted for expected returns, which are estimated based on historical data on a portfolio basis. In these circumstances a refund liability and a right to recover returned goods asset are recognized. See Note 17.

The right to recover returned goods asset is measured at the former carrying amount of the inventory less any expected costs to recover goods. The refund liability is included in Contractual Obligations and Deferred Income and the right to recover returned goods is included in Inventories. The Company reviews its estimate of expected returns at each reporting date and updates the amounts of the asset and liability accordingly. See Note 11.

The judgments over this estimate are critical once the historical demand is harmed by macroeconomic effects such as the demand curve caused by COVID-19. The Company reviewed the impacts and adjusted the provision for right to returned goods on December 31, 2021, as described on Note 11.

Restricted share units and its basis of measurement

The Company has restricted share units and in July 2020, increased the participation of eligible persons by providing such persons with an opportunity to obtain restricted share units and thus provide an increased incentive for eligible persons to make significant and extraordinary contributions to the long-term performance and growth of the Company. This plan is named as Long-Term Compensation plan- “ILP”. This plan is incurred during a vesting period, when the Company will pay a fixed number of shares based on a fixed price (determined on the grant date) during the vesting period of five years. See Note 23.

Fair value measurements and valuation processes

In estimating the fair value of an asset or a liability, the Company uses market-observable data to the extent it is available. All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

•	Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities.
•	Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable.
•	Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.

Where Level 1 inputs are not available, if needed, the Company engages third party qualified appraisers to perform the valuation using Level 2 and / or Level 3 inputs. The Company’s management establishes the appropriate valuation techniques and inputs to the model, working closely with the qualified external advisors when they are engaged in such activities.

The valuations of identifiable assets and contingent liabilities in business combinations could be particularly sensitive to changes in one or more unobservable inputs considered in the valuation process. Further information on the assumptions used in the valuation process of such items is provided in Note 7.

Fair value measurement assumptions are also used for determination of expenses with Share-based Compensation, which are disclosed in Note 23.

Purchase Price Allocation - Business combination

During the process of allocating the acquisition price in a business combination, management records the fair value of the consideration transferred (including contingent consideration) and the fair value of the assets acquired and liabilities assumed.

The valuation techniques used for measuring the fair value of material assets acquired were as follows:

-	Property, plant and equipment uses Market comparison technique and cost technique: The valuation model considers market prices for similar items when they are available, and depreciated replacement cost when appropriate. Depreciated replacement cost reflects adjustments for physical deterioration as well as functional and economic obsolescence;
-	Intangible assets use Relief-from-royalty method and multi-period excess earnings method: The relief-from-royalty method considers the discounted estimated royalty payments that are expected to be avoided as a result of the patents being owned. The multi-period excess earnings method considers the present value of net cash flows expected to be generated by the customer relationships, by excluding any cash flows related to contributory assets;
-	Inventories uses 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.

Significant accounting policies and new and not yet effective accounting standards

12 Months Ended

Dec. 31, 2021

New accounting policies and significant accounting policies adopted

New accounting policies and significant accounting policies adopted

4. Significant accounting policies and new and not yet effective accounting standards

4.1 New and not yet effective accounting standards

A number of new standards, amendments and interpretations were effective for the the period covered by these consolidated financial statements, none of which had a material impact. Below are presented the new and not yet effective standards:

Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS₁₆)
Annual Improvements to IFRS Standards 2018–2020
Reference to the Conceptual Framework (Amendments to IFRS₃)
Classification of Liabilities as Current or Non-current (Amendments to IAS₁)
Amendments to IAS₁ - Disclosure of accounting policies
Amendments to IAS₈ - Definition of accounting estimates
Amendments to IAS₁₂ - Deferred Tax Related to Assets and Liabilities arising from a single transaction
Onerous Contracts – Cost of Fulfilling a Contract (Amendments to IAS₃₇)

The new and not yet effective accounting standards, when adopted, are not expected to have a material impact on these consolidated financial statements.

4.2 Significant accounting policies

The significant accounting policies applied in the preparation of the Consolidated Financial Statements are presented below. These policies have been consistently applied in the periods presented herein.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, bank deposits and highly liquid short-term investments and have maturities of three months or less from the date of purchase and that are readily convertible into a known amount of cash and are subject to immaterial risk of change in value.

Financial Assets and Liabilities

i Classification

Financial Assets’ classification depends on the entity’s business model for managing them and if their contractual cash flows represent solely payments of principal and interest. Based on this assessment Financial Assets are classified as measured: at amortized cost, at FVTOCI (fair value through other comprehensive income); or at FVTPL (fair value through profit or loss).

A business model to manage financial assets refers to the way the Company manages its financial assets to generate cash flows, determining if the cash flows will occur through the collection of contractual cash flows at maturity date, through the sale of the financial asset, or both. The information considered in the business model evaluation includes the following:

- The policies and goals established for the portfolio of financial assets and feasibility of these policies. They include whether management’s strategy focuses on obtaining contractual interest income, maintaining a certain interest rate profile, matching the duration of financial assets with the duration of related liabilities or expected cash outflows, or the realization of cash flows through the sale of assets;

- how the performance of the portfolio is evaluated and reported to the Company’s Management.

- risks that affect the performance of the business model (and the financial assets held in that business model) and the manner in which those risks are managed.

- how business managers are compensated - for example, if the compensation is based on the fair value of managed assets or on the contractual cash flows obtained; and

- the volume and timing of sales of financial assets in prior periods, the reasons for such sales and future sales expectations.

For assessing whether contractual cash flows represent solely payments of principal and interest, “principal” is defined as the fair value of the financial asset upon initial recognition. “Interest” is defined as a consideration for the amount of cash at the time and for the credit risk associated with outstanding principal amount during a certain period and for other risks and base costs of loans (for example, liquidity risk and administrative costs), as well as for the profit margin.

The Company considers the contractual terms of the instruments to evaluate whether the contractual cash flows are only payments of principal and interest. This includes evaluating whether the financial asset contains a contractual term that could change the timing or amount of the contractual cash flows so that it would not meet this condition. In making this evaluation, the Company considers the following:

- contingent events that change the amount or timing of cash flows;

- terms that may adjust the contractual rate, including variable rates;

- the prepayment and the extension of the term; and

- the terms that limit the access of the Company to cash flows from specific assets (for example, based on the performance of an asset).

Due to their nature, as of December 31, 2021 and 2020 the Company’s financial assets are classified as “measured at amortized cost”.

Financial assets are not reclassified after initial recognition, unless the Company changes the business model for the management of financial assets, in which case all financial assets affected are reclassified on the first day of the reporting period subsequent to the change in the business model.

Financial liabilities are classified as measured as amortized cost or at FVTPL. A financial liability is classified as measured at fair value through profit or loss if it is classified as held for trading, if it is a derivative or assigned as such upon initial recognition.

Due to their nature, as of December 31, 2021 and 2020 the Company’s financial liabilities are classified as “measured at amortized cost”.

ii. Initial Recognition and Subsequent Measurement

Trade receivables are initially recognized on the date they were originated. All other financial assets and liabilities are initially recognized when the Company becomes a party to the instrument’s contractual provisions.

A financial asset (unless it is trade receivable without a significant financing component) or a financial liability is initially measured at fair value, plus, for an item not measured at FVTPL (fair value through profit or loss), transaction costs which are directly attributable to its acquisition or issuance. A trade receivable without a significant financing component is initially measured at its transaction price. Financial assets carried at fair value through profit or loss are initially recognized at fair value, and transaction costs are expensed in statements of profit or loss.

Financial assets are derecognized when the rights to receive the cash flows expired or have been transferred and the Company has transferred substantially all the risks and rewards of ownership.

Gains or losses arising from changes in the fair value of the "Financial assets at fair value through profit or loss", as well as interest income accrued over “Assets measured at amortized cost”, are presented in statements of profit or loss under "Finance income" in the period in which they arise.

The Company derecognizes a financial liability when its contractual obligations are discharged or canceled or expired. The Company also derecognizes a financial liability when the terms are modified, and the cash flows of the modified liability are substantially different.

On derecognition of a financial liability, the difference between the carrying amount extinguished and the consideration paid (including any non-cash assets transferred or liabilities assumed) is recognized in statements of profit or loss.

iii. Offsetting of financial assets and liabilities

Financial assets and liabilities are offset, and the net amount presented in the Consolidated Statement of Financial Position when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle them a net basis or realize the asset and settle the liability simultaneously. The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the Company or the counterparty.

iv. Impairment of financial assets

The Company assesses on a prospective basis the expected credit loss (“ECL”) associated with its financial asset instruments carried at amortized cost, with accruals and reversals recorded in the Statement of Profit or Loss . ECLs are based on the difference between the contractual cash flows due in accordance with the contractual terms and all the cash flows that the Company expects to receive, discounted at an approximation of the original effective interest rate.

The methodology applied depends on whether there has been a significant increase in credit risk.

For trade receivables, the Company applied the simplified approach permitted by IFRS 9 and calculated impairment losses based on lifetime expected credit losses as from their initial recognition, as described in Note 10.c.

1. 1. 1. 1. Inventories

Inventories are stated at cost or net realizable value, whichever is lower. The method of valuation of inventories is the average cost. The cost of finished goods and work in progress comprises project costs, raw materials, publishing costs (e.g., direct labor, other direct costs and the related direct production costs).

Editorial costs incurred during the development phase of a new product are presented within inventories as “work in progress”, as materials are substantially revised annually. After the conclusion of its production and allocation in the line of "finished products", the sales of the product begins and any subsequent costs incurred are recognized in profit or loss as "cost of goods sold and services ", according to the accrual period on which the services are provided.

The Company recognizes a provision for losses on finished products and low-handling raw materials, which are periodically analyzed and evaluated in terms of the expected realization of these inventories.

If losses are not expected, the provision is reversed. Management periodically assesses whether obsolete inventories need to be destroyed.

The Company also recognizes the right of return on its inventories. See Note 3.2 f

1. 1. 1. 1. Property, Plant and Equipment

Property, plant and equipment is stated at historical cost less accumulated depreciation. Historical cost includes the cost of acquisition.

Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with these costs will flow to the Company, and they can be measured reliably. The carrying amount of the replaced items or parts is derecognized. All other repairs and maintenance are charged to statement of Profit or Loss during the financial period in which they are incurred.

Depreciation of assets is calculated using the straight-line method to reduce their cost to their residual values over their estimated useful lives, as follows:

	Years
Property, buildings and leasehold improvements	5-20
IT equipment	3-10
Furniture, equipment and fittings	3-10
Right of use assets	3-15

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. The Company did not identify changes in the useful life at December 31, 2021 and 2020.

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognized in statement of Profit or Loss when control of the asset is transferred. See Note 12.

1. 1. 1. 1. Business Combination

Acquisitions of businesses are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, which is measured at acquisition date fair value, and the amount of any non-controlling interests in the acquiree. Acquisition-related costs are expensed as incurred and included in general and administrative expenses.

At the acquisition date, the identifiable assets acquired, and the liabilities assumed are recognized at their fair value at the acquisition date.

Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed.

Any contingent consideration is measured at fair value at the date of acquisition. If an obligation to pay contingent consideration that meets the definition of a financial instrument is classified as equity, then it is not remeasured and settlement is accounted for within equity. Otherwise, other contingent consideration is remeasured at fair value at each reporting date and subsequent changes in the fair value of the contingent consideration are recognized in statement of profit or loss.

If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Company reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period or additional assets or liabilities are recognized, to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognized as of that date. See Note 5.

1. 1. 1. 1. Intangible Assets and Goodwill

The Company’s intangible assets are mostly comprised of software, trademarks, customer portfolio, platform content production, trade agreement, copyrights and goodwill. Those items are further described below:

1. 1. 1. 1. Goodwill

Goodwill arising on the acquisition of subsidiaries is measured as set out in Note 13.

1. 1. 1. 1. Software

Computer software licenses purchased are capitalized based on the costs incurred to acquire and bring to use the specific software or to develop new functionalities to existing ones. Directly attributable costs that are capitalized as part of the software product / project include the software / project development employee costs and an appropriate portion of significant direct expenses.

Other development costs and subsequent expenditures that do not meet these capitalization criteria (e.g. maintenance and on-going operations) are recognized as an expense as incurred. Development costs previously recorded as an expense are not recognized as an asset in a subsequent period.

Software recognized as assets is amortized using straight-line method over its estimated useful lives, not greater than 5 years. The Company did not identify changes in the useful life at December 31, 2021 and 2020.

1. 1. 1. 1. Trademarks

Separately acquired trademarks are initially stated at historical cost. Trademarks acquired in a business combination are recognized at fair value at the acquisition date. Subsequently, trademarks are amortized to the end of their useful lives.

Amortization is calculated using the straight-line method to allocate the cost of trademarks over their estimated useful lives of 20 to 30 years. The Company did not identify changes in the useful life at December 31, 2021 and 2020.

1. 1. 1. 1. Customer portfolio

Customer portfolios acquired in a business combination are recognized at fair value at the acquisition date. The contractual customer relationship has an estimated finite useful life and are carried at cost less accumulated amortization. Amortization is calculated using the straight-line method over the expected life of the customer relationship (from 12 to 13 years). The Company did not identify changes in the useful life at December 31, 2021 and 2020.

1. 1. 1. 1. Platform content production

Development expenditure with platform content is capitalized only if the expenditure can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable and the Company intends to and has sufficient resources to complete development and to use or sell the asset. Otherwise, it is recognized in profit or loss as incurred. Subsequent to initial recognition, development expenditure is measured at cost less accumulated amortization and any accumulated impairment losses. Amortization is calculated on the straight-line method over their estimated useful lives of 3 years. The Company did not identify changes in the useful life at December 31, 2021 and 2020.

1. 1. 1. 1. Copyrights

The Company accounts for different copyright agreements as follows:

1. 1. 1. 1. Copyrights are paid to the authors of the content included in the textbooks produced by the Company and are calculated based on agreed upon percentages of revenue or cash inflows related to the books sold, as defined in each contract. Payments are made on a monthly, quarterly, semi-annually, annually or hybrid basis. For these contracts the authors maintain the legal title of the copyrights. These copyrights are charged to the statement of profit or loss and other comprehensive income on an accrual basis when the products are sold.

1. 1. 1. 1. In some instances where the authors maintain the legal title of the copyrights, contracts require the prepayment of part or even the full down payment of forecasted sales before the authors start the production of the content. In such cases, copyrights are recognized as a “Prepayments” in the Consolidated Statement of Financial Position and charged to statements of Profit or Loss when the books are sold based on the related sales forecast. The Company reviews regularly the forecast sales to determine if an impairment is required.

1. 1. 1. 1. When the Company purchases permanently the legal title of the copyright from the authors, the amounts are capitalized in “Intangible Assets and Goodwill” as “Other intangible assets”and are amortized on the straight-line method over their estimated useful lives, which are not greater than 3 years, which is the the content renewal estimated timeline.

The Company did not identify changes in the useful life as of December 31, 2021 and 2020.

1. 1. 1. 1. Impairment of non-financial assets

Assets that are subject to depreciation or amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized when the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and its value in use.

Assets that have an indefinite useful life, for example goodwill, are not subject to amortization and are tested annually for impairment. Goodwill impairment tests are undertaken annually or more frequently if events or changes in circumstances indicate potential impairment, at the end of each fiscal year.

For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable and independent cash inflows (Cash-generating units – CGU’s). For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of the CGUs (or groups of CGUs) that is expected to benefit from the synergies of the combination.

Non-financial assets, other than goodwill, that have been adjusted following impairment are subsequently reviewed for possible reversal of the impairment at each reporting date. The impairment of goodwill recognized in statement of profit or loss is not reversed. See Note 5.

1. 1. 1. 1. Bonds and Financing

The Bonds and financing are recognized initially at fair value, net of transaction costs incurred, and are subsequently carried at amortized cost. Any difference between the proceeds (net of transaction costs) and the total amount payable is recognized in consolidated profit and loss over the period of the bonds and financing using the effective interest rate method.

Following initial recognition, the liability component of a compound financial instrument is measured at amortized cost using the effective interest rate method. The Bonds and financing are classified as current liabilities unless the Company has an unconditional right to defer settlement of the liability for at least twelve months after the reporting period. Both general and specific borrowing costs directly related to the acquisition, construction or production of a qualifying asset that requires a substantial period of time to be prepared for its intended use or sale, are capitalized as part of the cost of that asset when it is probable that future economic benefits associated with the item will flow to the Company and the costs can be measured reliably. The other borrowing costs are recognized as finance costs in the period in which they are incurred. See Note 14.

1. 1. 1. 1. Suppliers (including Reverse Factoring)

Suppliers are obligations to pay for goods or services that have been acquired in the ordinary course of business. They are recognized initially at fair value and subsequently measured at amortized cost using the effective interest rate method.

Some of the Company’s domestic suppliers sell their products with extended payment terms and may subsequently transfer their receivables due by the Company to financial institutions without right of recourse, in a transaction characterized as “Reverse Factoring”. The Company charged interest over the payment term at a rate that is commensurate with its own credit risk being subsequently recorded as finance cost using the effective interest rate method. The suppliers specifically related to Reverse Factoring are segregated in the Note 15. In addition, the effects of Reverse Factoring on Cash Flows are recognized in “Cash flow from operating activities”.

1. 1. 1. 1. Leases

1. 1. 1. 1. Right-of-use assets

The Company recognizes right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognized, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. The recognized right-of-use assets are depreciated on a straight-line basis over the shorter of its estimated useful life or the lease term, as most of the Company’ leases are related to property leases.

1. 1. 1. 1. Lease liabilities

At the commencement date of the lease, the Company recognizes lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Company and payments of penalties for terminating a lease, if the lease term reflects the Company exercising the option to terminate. The variable lease payments that do not depend on an index or a rate are recognized as expense in the period on which the event or condition that triggers the payment occurs.

In calculating the present value of lease payments, the Company uses the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable. The accounting amount of the lease liabilities is remeasured if there is a change in the term of the lease, a change in fixed lease payments or a change in valuation to purchase the right-of-use asset.

1. 1. 1. 1. Short-term leases and leases of low-value assets

The Company applies the short-term lease recognition exemption to its short-term leases of properties (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases of office equipment that are considered of low value. Lease payments on short-term leases and leases of low-value assets are recognized as expense on a straight-line basis over the lease.

1. 1. 1. 1. Determining the lease term of contracts with renewal options

The Company determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if reasonably certain to be exercised.

The Company has the option, under some of its leases to lease the assets for additional terms. The Company applies judgment in evaluating whether it is reasonably certain to exercise the option to renew. That is, it considers all relevant factors that create an economic incentive for it to exercise the renewal. After the commencement date, the Company reassesses the lease term if there is a significant event or change in circumstances that is within its control and affects its ability to exercise (or not to exercise) the option to renew (e.g., a change in business strategy).

1. 1. 1. 1. Provision for tax, civil and labor losses

The provisions for risks related to lawsuits and administrative proceedings involving tax, civil and labor matters are recognized when (i) the Company has a present legal or constructive obligation as a result of past events; (ii) it is probable that an outflow of resources will be required to settle the obligation; and (iii) the amount can be reliably estimated.

The likelihood of loss of judicial/administrative proceedings in which the Company appears as a defendant is assessed by Management on the financial statement’s dates.

Provisions are recorded in an amount the Company believes it is adequate to cover probable losses, being determined by the expected future cash flows to settle the obligation that reflects current risks specific to the liability. The increase in the provision due to the time elapsed is recognized as interest expense. Penalties assessed on these proceedings are recognized in general and administrative expenses when incurred. See Note 21.

1. 1. 1. 1. Current and Deferred income tax and social contribution

Taxes comprise current and deferred Corporate Income Tax (IRPJ) and Social Contribution on Net Income (CSLL), calculated on pre-tax profit basis.

IRPJ and CSLL are calculated based on the nominal statutory rates of 25% and 9%, respectively, adjusted by non-taxable/nondeductible items provided for by law. Deferred income tax and social contribution are calculated on income tax and social contribution losses and other temporary differences in relation to the balances of assets and liabilities in the Statement of Financial Position. The deferred income tax and social contribution assets are fully accounted for, except when it is not probable that assets will be recovered by future taxable income.

Current and deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when current and deferred tax assets and liabilities are related to the tax levied by the same tax authority on the taxable entity where there is an intention to settle the balances on a net basis. See Note 22.

1. 1. 1. 1. Employee Benefits

The Company has the following employee benefits:

1. 1. 1. 1. Short-term employee benefits

Obligations for short-term employee benefits are recognized as personnel expenses as the related service is rendered. The liability is recognized at the amount expected to be paid, if the Company has a legal or constructive obligation to pay this amount as a result of prior service rendered by the employee, and the obligation can be reliably estimated.

The Company also provides its commercial team with commissions calculated considering existing sales and revenue targets that are periodically reviewed. These amounts are accrued in “Salaries and Social contributions” on a monthly basis based on the achievements of such goals, with payments generally being made twice a year. Since commissions are paid based on the annual sales of each contract, the Company elected to use the practical expedient to expense the costs as incurred.

1. 1. 1. 1. Pension Contributions

The Company offered a defined contribution plan to its employees and once the contributions have been made, the Company has no additional payment obligation, and the costs are therefore recognized in the month in which the contribution is incurred (i.e employees have rendered services entitling them to the right to receive those benefits), which is consistent with recognition of payroll expenses in statement of Profit or Loss.

1. 1. 1. 1. Share-based Payments

The Company compensates part of its Management and some employees through share-based compensation by plans involving Restricted Share Units or “RSU”. The RSU plans are based on Company shares, through a fixed share price (market price) determined on the grant date which the Company has the obligation of delivering shares without cash settled payment. The Share based payment is divided in the following:

(i) Bonus from the Initial Public Offering – “IPO” – Refers to the RSU plan whereby some employees, own management and Cogna management received a fixed number of Company shares based on a fixed price due to the IPO held on July 31, 2020. All plans became vested as a result of IPO. As consequence, the full impact of the plan has been recorded in the statement of profit or loss and the share-based compensation reserve in equity. See Note 23.

(ii) Long Term Investment – “ILP” – Refers to RSU plans for which some Company management and employees are eligible. In those plans the Company will deliver a fixed number of shares at a fixed share price measured at the Plan’s inception. The Company recognizes the expense and inherent labor taxes related to the RSU plan in profit and loss. In addition, the effects of the constructive obligation are recognized in statement of financial position under the share-based compensation reserve in equity and the corresponding taxes under “Salaries and Contributions”. See Note 23.

1. 1. 1. 1. Termination benefits

Termination benefits are payable when employment is terminated by the Company before the normal retirement date, or whenever an employee accepts voluntary resignation in exchange for these benefits. The Company recognizes termination benefits at the earlier of the following dates: (i) when the Company can no longer withdraw the offer of those benefits; and (ii) when the entity recognizes costs for a restructuring and involves the payment of termination benefits. In the case of an offer made to encourage voluntary redundancy, the termination benefits are measured based on the number of employees expected to accept the offer. Benefits falling due more than 12 months after the end of the reporting period are discounted to their present value.

Shareholders’ Equity

Until July 23, 2020 the Company presented its financial statement based on the combined carve-out, where the capital reserves were not presented, and all effects were recorded in Parent Company’s Net Investment. As a consequence of the restructuring completed on July 23, 2020, the Company presented its consolidated financial statements considering a new basis of preparation where the share capital, capital reserve and accumulated losses were disclosed.

Since July 1, 2020, amounts previously recorded in Parent Company’s net investment in Equity have been recorded as net income and portions were reclassified to share capital and capital reserve.

Share Capital

On December 31, 2021, the Company’s share capital was R$ 4,820,815, divided into 83,348,717 shares of which 64,436,093 are Class B shares held by Cogna Group and 18,912,624 are Class A common shares held by others.

2. Capital reserve

The breakdown of capital reserves is arising from share-based payment in the amount of R$61,488, see Note 23.

1. 2. Treasury shares

On December 31, 2021, the Company holds shares in treasury in the amount of R$23,880, corresponding to 1,000,000 shares, see Note 23.

1. 1. 1. Revenue Recognition

The Company generates most of its revenue from the sale of textbooks (“publishing” when sold as standalone products or “PAR” when bundled as an educational platform) and learning systems in printed and digital formats to private schools through short-term transactions or term contracts with an average period from three to five years.

Contents in printed and digital formats related to these textbooks and learnings systems are mostly the same, with minor supplements presented in digital format only. Therefore, revenue from educational contents is recognized when the Company delivers the content in printed and digital format.

The Company also sells its products directly to students and parents through its e-commerce platform. Since the Company obtains control of the goods sold before they are transferred to its customers, the Company assessed the principal versus agent relationship and determined that it is a principal in the transaction. Therefore, revenue is recognized in a gross amount of consideration to which the Company is entitled in exchange for the specified goods transferred.

Pursuant to the terms of the contracts with some customers, they are required to provide the Company with an estimate of the number of students that will access the content in the next school year (which typically starts in February of the following year), allowing the Company to start the delivery of its products. Since the contracts allow product returns (generally for period of four months from the delivery date) up to a certain limit, the Company recognizes revenue for the amount that is expected to be received based on past experience, assuming that the other conditions for revenue recognition are met. Therefore, the amount of revenue recognized is adjusted for expected returns, which are estimated based on historical data on a portfolio basis. In these circumstances a contractual obligation and a right to recover returned goods asset are recognized.

The right to recover returned goods asset is measured at the former carrying amount of the inventory less any expected costs to recover the goods. The refund liability on the return received is included in Contractual Obligations and Deferred Income and the right to recover returned goods is included in Inventories. The Company reviews its estimate of expected returns at each reporting date and updates the amounts of the asset and liability accordingly.

The Company also provides other types of complementary educational solutions, preparatory courses for university admission exams, digital services and other services to private schools, such as: teacher training, educators and parenting support, extracurricular educational content and other services related to the management of private schools. Each complementary educational service, digital service and others are deemed to be separate performance obligations. Thus, revenue is recognized over time when the services are rendered (i.e. output method) to the customer. The Company believes this is an appropriate measure of progress toward satisfaction of performance obligations as it is the most accurate measure of the consideration to which the Company expects to be entitled in exchange for the services. These services may be sold on a standalone basis or bundled within publishing and learning system contracts and when bundled, each performance obligation is recognized separately. Service revenue is presented net of the corresponding discounts, returns and taxes. See Note 24.

1. 1. 1. Taxes on Revenues

The Company and its affiliates benefit from tax Law No. 10,865/04, as amended by Law No. 11,033/04, which provides that our tax rate on the sale of books is zero in respect of contributions to the social integration program tax (Programa de Integração Social, or PIS) and the social contributions on revenue tax (Contribuição para o Financiamento da Seguridade Social, or COFINS). The sale of books is also exempt by the Brazilian constitution from Brazilian municipal taxes, Brazilian services tax (Imposto Sobre Serviços, or ISS) and from the Brazilian tax on the circulation of goods, interstate and intercity transportation and communication services (Imposto sobre Operações relativas à Circulação de Mercadorias e sobre Prestações de Services de Transporte Interestadual e Intermunicipal e de Comunicação, or ICMS). Tax exemption available to physical books have been extended to digital books based on a decision by the Brazilian Supreme Court rendered on March 8, 2017.

The services revenues are subject to PIS and COFINS under the non-cumulative tax regime (with a nominal statutory rate of 9.25%), as well as municipality service taxes (Impostos sobre Serviços, or ISS) for which a statutory rate of 5% is applicable.

1. 1. 1. Fair Value Measurement

Fair value is the price that would be received upon the sale of an asset or paid for the transfer of a liability in an orderly transaction between market participants at the measurement date, on the primary market or, in the absence thereof, on the most advantageous market to which the Business has access on such date. The fair value of a liability reflects its risk of non-performance, which includes, among others, the Company’s own credit risk.

If there is no price quoted on an active market, the Company uses valuation techniques that maximize the use of relevant observable data and minimize the use of unobservable data. The chosen valuation technique incorporates all the factors market participants would consider when pricing a transaction. If an asset or a liability measured at fair value has a purchase and a selling price, the Company measures the assets based on purchase prices and liabilities based on selling prices. A market is considered as active if the transactions for the asset or liability take place with enough frequency and volume to provide pricing information on an ongoing basis.

The best evidence of the fair value of a financial instrument upon initial recognition is usually the transaction price - i.e., the fair value of the consideration given or received. If the Company determines that the fair value upon initial recognition differs from the transaction price and the fair value is not evidenced by either a price quoted on an active market for an identical asset or liability or based on a valuation technique for which any non-observable data are judged to be insignificant in relation to measurement, then the financial instrument is initially measured at fair value, adjusted to defer the difference between the fair value upon initial recognition and the transaction price. This difference is subsequently recognized in Profit or Loss on an appropriate basis over the life of the instrument, or until such time when its valuation is fully supported by observable market data or the transaction is closed, whichever comes first.

To provide an indication of the reliability of the inputs used in determining fair value, the Company has classified its financial instruments according to the judgements and estimates of the observable data as much as possible. The fair value hierarchy is based on the degree to which the fair value used in the valuation techniques is observable, as follows:

1. - Level 1: The fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities.
  - Level 2: The fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and
  - Level 3: The fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

Business Combinations

12 Months Ended

Dec. 31, 2021

Business Combinations

Business Combinations

5 Business Combinations

As mentioned in Note 1.2 the Company concluded some acquisitions to improve its portfolio of educational solutions as presented below:

January 7, 2020 – Pluri
February 13, 2020 – Mind Makers
November 20, 2020 - Meritt
March 2, 2021 – SEL
May 27, 2021 –Redacao Nota 1000
August 1, 2021 - EMME
October 29, 2021 – De Gouges

The Company’ business combinations are described below:

Business Combinations during 2021

Sociedade Educacional da Lagoa Ltda. (“SEL”)

On March 2, 2021, the Company acquired though its subsidiary, Somos Sistemas de Ensino S.A. (“Somos Sistemas”), the entity Sociedade Educacional da Lagoa Ltda. (“SEL”). SEL provides technical and pedagogical services to education platforms, including the maintenance of such platforms, development and improvement of contents and training of professionals. The consideration paid was R$ 65,000, of which R$ 38,124 was paid in cash and the remaining amount of R$ 26,876 is subject to certain post-closing price adjustments (conditioned to the minimum amount of R$ 39,400 total contract revenue for the next two years, 2023 and 2024, with the client "SESI", and if the minimum amount is not reached, the installment due will be discounted in the percentage of reduction of the minimum value of each contract). The consideration will be divided in installments over a 4-year period (each installment adjusted by the positive variation of 100% of CDI).

Nota 1000 Serviços Educacionais S.A. (“Redação Nota 1000”)

On May 27, 2021, the Company acquired through its subsidiary, Somos Sistemas de Ensino S.A. (“Somos Sistemas”) the entity Redação Nota 1000, which provides essay review services as a service platform, through its proprietary software. The Redação Nota 1000’s users may choose their essays reviewed under different approaches as follows: (i) solely by essay-review specialists (manual); (ii) on an automated basis by the company’s software, with a final review by a specialist (semi-automated); or (iii) exclusively on an automated basis by the company’s software. The consideration transferred was R$ 11,387, of which R$ 4,093 was paid in cash and the remaining amount of R$ 7,294 will be paid in installments with final due date on December 24, 2026 (each installment adjusted by the positive variation of 100% of CDI index). In addition, the Company recognized a contingent consideration of R$ 2,650 subjects to certain post-closing price adjustments (achievement of financial targets such as maintenance of contracts, net revenue and average global cost, in addition to non-financial targets such as platform engagement, satisfaction of the customer in the service provided and adequate level of information security, for the years 2022 and 2023).

EMME – Produções de Materiais em Multimídia (“EMME”)

On August 1, 2021 the Company acquired through its subsidiary, Somos Sistemas de Ensino S.A. (“Somos Sistemas”) the entity EMME, which provides educational marketing solutions for schools, through license of its “software as a service”. The consideration transferred was R$ 15,317 of which R$ 3,063 was paid in cash and the remaining amount of R$ 12,253 will be paid in installments with final due date on August 16, 2026 (each installment adjusted by the positive variation of inflation- “IPCA” – Extended National Consumer Price Index).

Editora De Gouges S.A. (“De Gouges”)

On October 29, 2021 the Company acquired through its subsidiary, Somos Sistemas de Ensino S.A. (“Somos Sistemas”) the entity De Gouges, which provides learning system (K-12) and solutions on the educational platform. The consideration transferred was R$ 611,554 of which R$ 160,000 was paid in cash and the remaining amount of R$ 451,554 will be paid in installments with final due date on October 29, 2026 (each installment adjusted by the positive variation of 100% of CDI index).

The acquisition agreement for De Gouges provided an obligation on the subsidiary, Somos Sistemas de Ensino S.A. under the Commercial Agreement. (“Somos Sistemas”), to grant an amount of R$62,234 in discounts on the sale price of teaching materials to Eleva Holding’s partner schools (the selling shareholder), within a period of up to 5 years limited to the amount of R$16,600 years. For this operation, the Company recorded a liability generated in the business combination (Provision for trade discount) and which should be realized according to its use in the coming years.

Net identifiable assets acquired, and liabilities assumed involved in the Business Combinations and Consideration transferred

The acquisitions were accounted for using the acquisition method of accounting, i.e., the consideration transferred, and the net identifiable assets acquired, and liabilities assumed were measured at fair value, while goodwill is measured as the excess of consideration paid over those items.

The following table presents the net identifiable assets acquired and liabilities assumed for each business combination in 2021:

	SEL	Redação Nota 1000	EMME	De Gouges	Total
Current assets
Cash and cash equivalents	1,461	525	637	16,439	19,062
Trade receivables (vi)	-	1,327	1,082	18,190	20,598
Inventories (iv)	-	-	-	4,534	4,534
Prepayments	-	-	14	83	97
Taxes recoverable	-	-	9	1,947	1,956
Other receivables	180	-	-	12	192
Total current assets	1,641	1,852	1,742	41,204	46,439
Non-current assets
Property, plant and equipment	611	-	128	1,272	2,011
Other intangible assets	-	1,099	1	38	1,138
Intangible assets - Customer Portfolio (ii)	18,783	-	-	64,806	83,589
Intangible assets - Trade agreement (iii)	-	-	-	247,622	247,622
Intangible assets - Software (v)	1,296	5,692	4,048	-	11,036
Total non-current assets	20,690	6,791	4,177	313,738	345,396
Total Assets	22,331	8,643	5,919	354,942	391,835

Current liabilities
Suppliers	-	180	13	1,107	1,300
Salaries and social contributions	1	124	600	2,871	3,596
Taxes payable	17	207	102	-	326
Income tax and social contribution payable	33	-	-	5,232	5,265
Provision for trade discount	-	-	-	15,000	15,000
Other liabilities	-	1,673	2	25	1,700
Total current liabilities	51	2,184	717	24,235	27,187
Non-current liabilities
Provision for tax, civil and labor risk	-	-	-	1,231	1,231
Provision for trade discount	-	-	-	47,234	47,234
Total non-current liabilities	-	-	-	48,465	48,465
Total liabilities	51	2,184	717	72,699	75,651
Net identifiable assets at fair value (A)	22,280	6,459	5,202	282,242	316,183
Total Consideration transferred (B)	65,000	11,387	15,317	611,554	703,257
Goodwill (B – A) (i)	42,720	4,928	10,115	329,312	387,074

(i) Goodwill is recognized based on expected synergies from combining the operations of the acquirees and of the acquiror, as well as an expected increase in the Company’s market-share due to the penetration of the Company’s products and services in regions where the Company 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 Company (i.e. when the Company merges or spins off the companies acquired) and therefore the tax and accounting bases of the net assets acquired are the same as of the acquisition date.

(ii) As a result of purchase price allocation, the Company identified R$ 18,783, customer portfolio (“SESI”), and R$ 64,806, customer portfolio (“De Gouges”) based on customer portfolio receivables expectation around 8% per year. See Note 13.

(iii) As a result of the purchase price allocation, the Company identified R$ 247,622, a commercial agreement (“Eleva Holding”), which corresponds to the sale of teaching material from "De Gouges" to partner schools of "Eleva Holding" within 10 years, with an estimated sales rate of 10% per year.

(iv) As a result of the purchase price allocation, the Company identified R$ 4,534 in inventories (“De Gouges”), based on the expectation of sales of this inventory at around 33% per year.

(v) As a result of purchase price allocation, the Company identified R$ 11,036, Educational Software applied in the “SESI” learning system, Writing Correction Software for Education System “Redação Nota 1000” and software that produces digital marketing material solutions for schools “EMME”, all of them based on relief from royalties’ criteria (RIR) and each acquisition with its corresponding rate of net revenue by investment. see Note 13.

(vi) Accounts receivable from customers comprise gross contractual amounts due of R$24,344, of which R$3,746 were uncollectible on the acquisition date. See Note 10e.

From the date of acquisition to December 31, 2021, SEL , Redação Nota 1000, EMME and De Gouges contributed to a net revenue from sales and services in the amount of R$6,441, R$1,615, R$1,690 and R$24,891, respectively, and net profit (loss) for the year in the amount of R$4,497, R$ (1,641), R$(364) and R$2,678, respectively. If the acquisitions had occurred on January 1, 2021, Management estimates that net revenue from sales and services would have been R$ 990,758 and Net loss for the year would have been R$ (116,442).

Business Combinations during 2020

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

On January 7, 2020, the Company concluded the acquisition of the entire ownership interest of Pluri for R$ 27,706 Pluri is an entity based in the State of Pernambuco specialized in solutions such as consulting and technologies for education systems. This acquisition is in line with the Company’s strategy of focusing on the distribution of its operations to another region. In 2020, the Company paid R$15,359 in cash and the remaining amount of R$12,347, which is subject to some price adjustments, to be paid in 4 years (R$9,348 paid in 2021), with the installments corrected for the positive variation of 100% of the CDI. The contract is also subject to certain additional gains, associated with financial targets defined in the contract, such as net revenue and profit, which may increase the purchase price by an additional R$ 1,706 over the period of gain.

Mind Makers Editora Educacional (“Mind Makers”)

On February 13, 2020, the Company 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 social and emotional soft skills including teamwork, leadership and perseverance. The total purchase price was R$ 23,621, of which R$ 10,000 was paid in cash upon signing the agreement, with half of the remaining amount paid in 2021 (readjusted amount paid in 2021 of R$3,144) and the other half of the remaining balance payable in 2022, with the 2021 and 2022 payments subject to certain adjustments (achievement of financial goals for net income for the years 2021 and 2022 to be higher than the net income for 2020, where the goal for 2021 was not reached, which generated a 54% reduction in the installment paid in the current year). The agreement is also subject to certain additional earn-outs, associated with achievements defined in the agreement, such as revenue and profit, that could increase the purchase price by an additional R$ 5,421 over the life of the earn-out period, which is recorded as fair value.

Meritt Informação Educacional Ltda (“Meritt”).

On November 20, 2020, the Company acquired the ownership interest of Meritt Informação Educacional Ltda. in order to improve its current integrated educational platform of educational assessments, which will allow the Company to monitor students’ performance and educational tests in real time, as well as improvements in randomization in test questions and alternatives. The purchase price was R$ 7,530, of which R$ 3,200 was paid in cash and R$ 4,330 which is subject to some price adjustments (achievement of non-financial targets such as delivery of the technical project by June 2022, and financial target to use, without additions, the budget of the technical plan), will be paid in 5 years (each installment corrected by the positive variation of 100% of the CDI). The agreement is also subject to certain earn-outs, that could increase the purchase price by an additional R$4,030 over the lifetime of the earn-out period, which is recorded as fair value.

The acquisitions were accounted for using the acquisition method of accounting, i.e. the consideration transferred and the net identifiable assets and liabilities assumed were measured at fair value, while goodwill is measured as the excess of consideration paid over those items.

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

	Pluri	Mind Makers	Meritt	Total
Current assets
Cash and cash equivalents	1,820	528	894	3,242
Trade receivables	1,687	3,303	-	4,990
Inventories	9,858	-	-	9,858
Inventories - added value (iv)	5,480	-	-	5,480
Prepayments	695	62	-	757
Taxes recoverable	746	2	4	752
Other receivables	2,905	-	-	2,905
Total current assets	23,191	3,895	898	27,984
Non-current assets
Property, plant and equipment	122	89	-	211
Other intangible assets	1,340	-	-	1,340
Intangible assets - Customer Portfolio (iii)	4,625	-	-	4,625
Intangible assets - Trademarks (ii)	-	16,060	-	16,060
Total non-current assets	6,087	16,149	-	22,236
Total Assets	29,278	20,044	898	50,220

Current liabilities
Suppliers	10,205	26	-	10,231
Salaries and social contributions	190	120	2	312
Taxes payable	13	10	10	33
Income tax and social contribution payable	298	80	-	378
Contractual obligations and deferred income	322	267	-	589
Total current liabilities	11,028	503	12	11,543
Non-current liabilities
Bonds and Financing	-	998	-	998
Other liabilities	364	-	-	364
Total non-current liabilities	364	998	-	1,362
Total liabilities	11,392	1,501	12	12,905
Net identifieable assets at fair value (A)	17,886	18,543	886	37,315
Total of Consideration transferred (B)	27,706	23,621	7,530	58,857
Goodwill (B – A) (i)	9,820	5,078	6,644	21,542

(ii) Trademark-related intangible asset’s fair value was obtained based on: net revenue was estimated considering the contractual customer relationships existing on the acquisition date; royalty fees of 7.2% were used based on the market rates of companies with similar activities as the Company, which represents a market rate; finally, the discount rate (Weighted Average Cost of Capital (“WACC”)) used was 0.22% p.a.

(iii) The following assumptions were used to determine the customer portfolios: an average contract termination period of eight 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.

(iv) Market comparison technique: The fair value is determined based on the estimated selling price in the ordinary course of the Company’s 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 December 31, 2020, Pluri, Mind Makers and Meritt contributed to revenue in the Consolidated Financial Statements as of December 31, 2020 in the amount of R$ 40,041; R$ 7,891 and R$ 43 respectively, and net profit (loss) for the year of R$ 111; R$ 1,052 and R$ (207).

If the acquisitions had been concluded on January 1, 2020, the Company estimates its combined (Vasta, +Pluri+Mind Makers and +Meritt) net revenue from sales and services would have been R$ 1,043,205 and Net loss of R$ (41,360) for the year ended December 31, 2020.

Financial Risk Management

12 Months Ended

Dec. 31, 2021

Financial Risk Management

Financial Risk Management

6 Financial Risk Management

The Company has a risk management policy for regular monitoring and managing the nature and overall position of financial risks and to assess its financial results and impacts on its cash flows. Counterparty credit limits are also reviewed periodically or whenever the Company identifies significant changes in financial risk.

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

The Company maintained its approach and cash and marketable securities position, as well as its treasury policy, during the crisis caused by the COVID-19 pandemic.

Financial risk factors

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

This Note presents information on the Company’s exposure to each of the risks above, the objectives of the Company, measurement policies, and the Company’s risk and capital management process.

The Company has no derivative transactions.

Market risk - cash flow interest rate risk

This risk arises from the possibility that the Company incurs 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 Company 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 CDI and IPCA (broad consumer price index) partially mitigate any interest rate exposures.

Interest rates contracted are as follows:

	December 31, 2021	December 31, 2020	Interest rate
Bonds
Private Bonds – 5th Issuance - series 1	-	100,892	CDI + 1.15% p.a.
Private Bonds – 5th Issuance - series 2	104,844	102,868	CDI + 1.00% p.a.
Private Bonds – 6th Issuance - series 2	210,920	206,733	CDI + 1.70% p.a.
Private Bonds – 7th Issuance - single	-	381,850	CDI + 1.15% p.a.
Bonds – 1st Issuance - single	514,574	-	CDI + 2.30% p.a.
Financing and Lease Liabilities - Mind Makers	888	998	TJPLP + 5% p.a.
Financing and Lease Liabilities	160,542	173,103	IPCA
Accounts Payable for Business Combination	532,313	48,055	100% CDI
Loans from related parties	-	20,884	CDI + 3.57%
	1,524,081	1,035,383

Credit risk

Credit risk arises from the potential default of a counterparty on an agreement or financial instrument, resulting in financial loss. The Company is exposed to credit risk in its operating activities (mainly in connection with trade receivables, see Note 10 and financial activities that include reverse factoring deposits with banks and other financial institutions and other financial instruments contracted.

The Company mitigates its exposure to credit risks associated with financial instruments, deposits in banks and short-term investments by investing in prime financial institutions and in accordance with limits previously set in the Company’s policy. See (Notes 8 and 9).

To mitigate risks associated with trade receivables, the Company adopts a sales policy and an analysis of the financial and equity condition of its counterparties. The sales policy is directly associated with the level of credit risk the Company is willing to accept 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 Company does not have significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics.

Furthermore, the Company reviews the recoverable amount of its trade receivables at the end of each reporting period to ensure that adequate credit losses are recorded (Note 10).

Liquidity risk

In order to cover possible liquidity deficiencies or mismatches between cash and cash equivalents and short-term debt and financial obligations, the Company continues to operate with reverse factoring as long as this credit line is offered by banks and accepted by Company suppliers.

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

The Company continuously monitors its cash balance and indebtedness level and implemented 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.

Cash surplus generated by the Company is handled in short-term deposits being those investments composed by enough liquidity thus providing to the Company the appropriate commitment with the going concern presumption.

On August 6, 2021 the Company’s subsidiary Somos Sistemas de Ensino S.A issued R$ 500,000 in simple debentures, not convertible. The debentures are aimed to reinforce the Company’s capital structure and its impacts caused by COVID 19 as well as extending the debt maturity profile, see Note 14.

The table below presents the maturity of the Company’s financial liabilities.

Financial liabilities by maturity ranges

December 31, 2021	Less than one year	Between one and two years	Over two years	Total
Bonds and financing (Note 14)	281,491	51,063	498,672	831,226
Lease Liabilities (Note 16)	26,636	26,781	107,125	160,542
Accounts Payable for business combination (Note 18)	20,502	35,685	476,126	532,313
Suppliers (Note 15)	167,168	-	-	167,168
Reverse Factoring (Note 15)	97,619	-	-	97,619
Other liabilities - related parties (Note 20)	39,271	-	-	39,271
	632,688	113,529	1,081,923	1,828,140

Financial liabilities by maturity ranges

The table below reflects the estimated interest rate based on CDI for 12 months (8.99% p.a) extracted from BACEN (Brazilian Central Bank) on December 31,2021. Amounts payable refer to principal and interest based on undiscounted contractual amounts and, therefore, do not reflect the financial position presented as of December 31, 2021:

December 31, 2021	Less than one year	Between one and two years	Over two years	Total
Bonds and financing	314,679	57,083	557,466	929,228
Lease Liabilities	29,776	29,938	119,755	179,469
Accounts Payable for business combination	22,919	39,893	532,261	595,073
Suppliers	167,168	-	-	167,168
Reverse Factoring	104,052	-	-	104,052
Other liabilities - related parties	39,271	-	-	39,271
	677,866	126,914	1,209,482	2,014,262

Capital management

The Company’s objectives when managing capital are to safeguard its ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure of the Company, management can make, or may propose to the shareholders when their approval is required, adjustments to the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce, for example, debt.

The Company monitors capital based on the gearing ratio. This ratio corresponds to the net debt expressed as a percentage of total capitalization. Net debt comprises financial liabilities less cash and cash equivalents. Total capitalization is calculated as shareholders’ equity as shown in the consolidated balance sheet plus net debt.

The Company’s 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 maintain an optimal capital structure reducing financial costs and maximizing the returns. In addition, the Company monitors financial leverage adequacy, and mitigates risks that may affect the availability of capital for Company development. As a result of the IPO, see Note 1.2, the Company reduced its net debt improving its gearing ratio (net debt/total capitalization) and adjusting its capital structure.

	December 31, 2021		December 31, 2020
Net debt (i)	1,518,247		1,138,988
Total shareholders' equity	4,665,209		4,785,317
Total capitalization (ii)	3,146,963		3,646,329
Gearing ratio - % - (iii)	48	%	31	%

	(i)	Net debt comprises financial liabilities (note 7) net of cash and cash equivalents.
	(ii)	Refers to the difference between Shareholders’ Equity and Net debt.
	(iii)	The Gearing Ratio is calculated based on Net Debt/Total Capitalization.

Sensitivity analysis

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

A probable scenario (Base scenario) over a 12-month horizon was used, with a projected rate of 11.79% p.a. as per CDI reference rates disclosed by B3 S.A. (Brazilian stock exchange). Two further scenarios are presented, stressing, respectively, a 25% deterioration in scenario I and 50% deterioration in scenario II, of the projected rates.

Index - % per year