| Significant accounting policies - Somos - Anglo (Predecessor) (Policies) | 9 Months Ended | 12 Months Ended |
| Oct. 10, 2018 | Dec. 31, 2020 |
| Significant accounting policies | | |
| Cash and Cash Equivalents | | a.
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 |
| Financial Assets and Liabilities | | b.
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, thro ugh 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, for the year ended on December 31, 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, for the year ended December 31, 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 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 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 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 as of December 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, where:
•
expected credit losses were calculated in a range of 12 12 12 12
•
In the event of a significant increase in credit risk, expected lifetime credit losses are recorded as per the expected credit losses that result from all possible default events over the expected life of the financial instrument. For trade receivables, the Company applied the simplified approach permitted by IFRS 9 10 |
| Inventories | | c.
Inventories Inventories are stated at the lower of cost and net realizable value. Cost is determined using the weighted moving average method. The cost of finished goods and work in process comprises third party printing costs, raw materials, and editorial costs (e.g. design costs, direct labor, other direct costs and related production overheads). Editorial costs incurred during the development phase of a new product are presented within inventories as “Work in Process”, once materials are substantially reviewed on a yearly basis. After the commercialization begins, any subsequent costs incurred is recognized within the profit or loss as “costs of goods sold and services”, according to the accrual period on which the services are rendered. The Company records provisions for losses on products and slow-moving items using an aging analysis consistent with its business model, assessment of the marketplace, industry trends, content relevance, feasibility of visual update and projected product demand as compared to the number of units currently in inventory. If losses are no longer expected, the provision is reversed. Management periodically evaluates whether the obsolete inventories need to be destroyed. The Business also records its right to returned goods assets within its inventories. |
| Property, Plant and Equipment | | d.
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 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 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, 2020, 2019 2018 Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognized in Profit or Loss when control of the asset is transferred. See Note 12 |
| Business Combination | | e.
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. 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 |
| Intangible Assets and Goodwill | | f.
Intangible Assets and Goodwill The Company’s intangible assets are mostly comprised of software; trademarks; contractual portfolio and goodwill. Those items are further described below:
a.
Goodwill Goodwill arising on the acquisition of subsidiaries is measured as set out in Note 13
b.
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 five 2019 2018
c.
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 30 2019 2018
d.
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 twelve thirteen 2019 2018
e.
Platform content Development expenditure with platform content is capitalised 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 recognised in profit or loss as incurred. Subsequent to initial recognition, development expenditure is measured at cost less accumulated amortisation and any accumulated impairment losses. Amortization is calculated on the straight-line method over their estimated useful lives, over their estimated useful lives of 3 2019 2018 |
| Copyrights | | g.
Copyrights The Company accounts for different copyright agreements as follows:
i.
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.
ii.
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 Profit or Losswhen the books are sold based on the related sales forecast. The Company reviews regularly the forecast sales to determine if an impairment is required.
iii.
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 |
| Impairment of non-financial assets | | h.
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 profit or loss is not reversed. See Note 5 |
| Suppliers (including Reverse Factoring) | | j.
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 |
| Leases | | k.
Leases
i.
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 the majority of the Company’ leases are related to property leases.
ii.
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.
iii.
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
iv.
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). |
| Provision for tax, civil and labor losses | | l.
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 enough 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 |
| Current and Deferred income tax and social contribution | | m.
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 9 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 |
| Employee Benefits | | n.
Employee Benefits The Company has the following employee benefits:
a.
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.
b.
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 Profit or Loss.
c.
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 plan became vested as result of IPO. As consequence, the full impact of the plan has been recorded in the profit and 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 Financial Position under Equity Reserves and the corresponding taxes under “Salaries and Contributions”. See Note 23
d.
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 |
| Revenue Recognition | | p.
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 five 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. Due to the nature of the Company’s operations, sale of printed and digital textbooks and learning systems is not subject to the payment of the social integration program tax (Programa de Integração Social, or PIS) and the social contribution on revenues tax (Contribuição para o Financiamento da Seguridade Social, or COFINS). These sales are also exempt from the Brazilian municipal taxes and from the Brazilian value added tax (Imposto sobre Operações relativas à Circulação de Mercadorias e sobre Prestações de Serviços de Transporte Interestadual e Intermunicipal e de Comunicação, or ICMS). 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 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 is included in Contract Liabilities 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 |
| Fair Value Measurement | | r.
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 take into account 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:
Level 1
Level 2 1
Level 3 |
| Somos - Anglo (Predecessor) | | |
| Significant accounting policies | | |
| Cash and Cash Equivalents | a.
Cash and Cash Equivalents Cash and cash equivalents include cash on hand, bank deposits and highly-liquid short-term investments that are readily convertible into a known amount of cash and are subject to immaterial risk of change in value. | |
| Financial Assets and Liabilities | b.
Financial Assets and Liabilities
a.
Policies applicable as from January 1, 2018 As from the adoption of IFRS 9 2018
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 how the Business 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 Business’ 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 in 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 at initial recognition. “Interest” is defined as a consideration for the amount of cash at the time and for the credit risk associated to the outstanding principal value 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 Business considers the contractual terms of the instruments to evaluate whether the contractual cash flows are only payments of principal and interest. It includes evaluating whether the financial asset contains a contractual term that could change the time or amount of the contractual cash flows so that it would not meet this condition. In making this evaluation, the Business 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 Business to cash flows of specific assets (for example, based on the performance of an asset). Due to their natures, for the period from January 1, 2018 to October 10, 2018, Business’ financial assets are classified as “measured at amortized cost”. Financial assets are not reclassified after initial recognition, unless the Business changes the business model for the management of financial assets, in which case all affected financial assets are reclassified on the first day of the reporting period subsequent to the change in the business model. Financial liabilities are classified as measured at 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 in initial recognition. Due to their natures, for the period from January 1, 2018 to October 10, 2018, Business’ financial liabilities are classified as “measured at amortized cost”.
ii.
Initial Recognition and Subsequent Measurement Trade receivable are initially recognized on the date that they were originated. All other financial assets and liabilities are initially recognized when the Business 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 the combined carve-out statement of profit or loss and other comprehensive income. Financial assets are derecognized when the rights to receive cash flows have expired or have been transferred and the Business 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 the combined carve-out statement of profit or loss and other comprehensive income within “Finance income” in the period in which they arise. The Business derecognizes a financial liability when its contractual obligations are discharged or canceled or expired. The Business also derecognizes a financial liability when 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 the combined carve-out statement of profit or loss and other comprehensive income.
iii.
Offsetting of financial assets and liabilities Financial assets and liabilities are offset, and the net amount presented in the combined carve-out statement of financial position when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on 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 Business or the counterparty.
iv.
Impairment of financial assets The Business assesses on a prospective basis the expected credit losses (“ECL”) associated with its financial assets instruments carried at amortized cost, with accruals and reversals recorded in the combined carve-out statement of profit or loss and other comprehensive income. ECLs are based on the difference between the contractual cash flows due in accordance with the contract terms and all the cash flows that the Business 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, where:
•
expected credit losses are calculated for the next 12 12 12 12
•
In the event of a significant increase in credit risk, expected lifetime credit losses are recorded as per the expected credit losses that result from all possible default events over the expected life of the financial instrument. For trade receivables, the Business applied the simplified approach of the standard and calculated impairment losses based on lifetime expected credit losses as from their initial recognition, as described in Note 3
b.
Policies applicable up to December 2017 As permitted by the transition rules for IFRS 9
i.
Classification The Business classified its financial assets as “loans and receivables”. The classification depended on the purpose for which the financial assets had been acquired. Financial assets were included in current assets, except for those with maturities greater than 12 Financial liabilities were classified as “Other financial liabilities measured at amortized cost”. 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 in initial recognition.
ii.
Initial Recognition and Subsequent Measurement The initial measurement was not affected by the adoption of IFRS 9 Loans and receivables were carried at amortized cost using the effective interest rate method. Financial assets were derecognized when the rights to receive cash flows have expired or have been transferred and the Business had transferred substantially all the risks and rewards of ownership. The Business derecognized a financial liability when its contractual obligations were discharged or canceled or expired. The Business also derecognized financial liabilities when terms were modified, and the cash flows of the modified liability were 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) was recognized in the combined carve-out statement of profit or loss and other comprehensive income.
iii.
Impairment of financial assets The Business assessed at each reporting date whether there had been objective evidence that a financial asset or group of financial assets were impaired. The Business used its accumulated historical experience to estimate the future cash flows of its financial assets on a portfolio level in order to reliably estimate its impairment losses. The amount of any impairment loss was recognized in the combined carve-out statement of profit or loss and other comprehensive income. | |
| Inventories | c.
Inventories Inventories are stated at the lower of cost and net realizable value. Cost is determined using the weighted moving average method. The cost of finished goods and work in process comprises third parties printing costs, raw materials and editorial costs (e.g. design costs, direct labor, other direct costs and related production overheads). Editorial costs incurred during the development phase of a new product are presented within inventories as “Work in Process”, once materials are substantially reviewed on a yearly basis. After the commercialization begins, any subsequent costs incurred is recognized within the combined carve-out statement of profit or loss and other comprehensive income as “costs of goods sold and services”, according to the accrual period on which the services are rendered. The Business records provisions for losses on products and slow-moving items using an aging analysis consistent with its business model, assessment of the marketplace, industry trends, content relevance, feasibility of visual update and projected product demand as compared to the number of units currently in stock. If losses are no longer expected, the provision is reversed. Management periodically evaluates whether the obsolete inventories need to be destroyed. The Business also records its right to returned goods assets within its inventories. See note 3 | |
| Property, Plant and Equipment | d.
Property, Plant and Equipment Property, plant and equipment are 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 Business, 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 the combined carve-out statement of profit or loss and other comprehensive income 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
Land (for finance leasings)
10 The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognized in the combined carve-out statement of profit or loss and other comprehensive income when control of the asset is transferred. | |
| Business Combination | e.
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 recognised 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. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Business 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 recognised, to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognised as of that date. | |
| Intangible Assets and Goodwill | f.
Intangible Assets and Goodwill The Business’ intangible assets are mostly comprised of software, trademarks, customer portfolio and goodwill. Those items are further described below:
a.
Goodwill Goodwill is initially recognised and measured as set out in note 6 Goodwill is not amortised but is reviewed for impairment at least annually. For the purpose of impairment testing, goodwill is allocated to the cash-generating unit expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, at the end of each fiscal year, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period.
b.
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 are amortized on the straight-line method over their estimated useful lives, not greater than 5
c.
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 30
d.
Customer portfolio Customer portfolios acquired in a business combination are recognized at fair value at the acquisition date. The contractual customer relations have 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 ( 10 | |
| Copyrights | g.
Copyrights The business accounts for different copyrights agreements as follows:
1
Copyrights are paid to the authors of the content included within the textbooks produced by the Business 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 combined carve-out statement of profit or loss and other comprehensive income on an accrual basis when the products are sold.
2
In some instances where the authors maintain the legal title of the copyrights, contracts require the anticipation of part of the payment or even the full downpayment of forecasted sales before the authors start the production of the content. In such cases, copyrights are recognized as a “Prepayments” in the combined carve-out statement of financial position and charged to the combined carve-out statement of profit or loss and other comprehensive income when the books are sold based on the related sales forecast. The business reviews regularly the forecast sales to determine if an impairment is required.
3
When the Business purchases permanently the legal title of the copyright from the authors, the amounts are capitalized within “Intangible Assets and Goodwill” as “Other intangible assets” and are amortized on the straight-line method over their estimated useful lives, not greater than 3 | |
| Impairment of non-financial assets | h.
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 reviews 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 an impairment are subsequently reviewed for possible reversal of the impairment at each reporting date. The impairment of goodwill recognized in the combined carve-out statement of profit or loss and other comprehensive income is not reversed. | |
| Suppliers (including Reverse Factoring) | i.
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 Business’ domestic suppliers sell their products with extended payment terms and may subsequently transfer their receivables due by the Business to financial institutions without right of recourse, in a transactions characterized as “Reverse Factoring”. The Business imputed interest over the payment term at a rate that is commensurate with its own credit risk which are subsequently recorded as finance cost using the effective interest rate method. The effects of Reverse Factoring on the combined carve-out statement of cash flows are recognized within “Cash flow from operating activities”. | |
| Leases | j.
Leases Assets held under finance leases are recognized as property, plant and equipment at their fair value or, if lower, at the present value of the minimum lease payments, each determined at the inception of the lease. The depreciation policy for depreciable leased assets is consistent with that for depreciable assets that are owned, unless there is no reasonable certainty that the lessee will obtain ownership by the end of the lease term, and thus the asset is depreciated over the shorter of the lease term and its useful life. The corresponding liability to the lessor is included in the combined carve-out statement of financial position within “Bonds and Financing”. Lease payments are apportioned between finance expenses and reduction of the lease obligation to achieve a constant rate of interest on the remaining balance of the liability. Finance expenses incurred are recognized in the combined carve-out statement of profit or loss and other comprehensive income. Rentals payable under operating leases are charged to the combined carve-out statement of profit or loss and other comprehensive income on a straight-line basis over the term of the relevant lease. | |
| Provision for tax, civil and labor losses | k.
Provision for risks of 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 Business 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 it is a party as a defendant is assessed by Management on the probable outcome of lawsuits on the reporting dates. Provisions are recorded in an amount the Business believes it is sufficient 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 within general and administrative expenses when incurred. | |
| Current and Deferred income tax and social contribution | l.
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 based on pre-tax profit. The IRPJ and CSLL are calculated based on the nominal statutory rates of 25 9 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. | |
| Employee Benefits | m.
Employee Benefits The Business has the following employee benefits:
a.
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 Business 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 Business also provides its commercial team with commissions calculated considering existing sales and revenue targets that are reviewed periodically. These values are accrued within “Salaries and Social contributions” on a monthly basis based on the achievements of such goals, with payments generally being done twice a year (January and June). Since commissions are paid based on the annual sales of each contract, the Business elected to use the practical expedient to expense the costs as incurred.
b.
Pension Contributions The Business’ pension contributions are associated with defined contribution schemes. Once the contributions have been made, the Business has no additional payment obligation, and the costs are therefore recognized in the month in which the contribution is incurred (i.e. have rendered service entitling them to the right to receive those benefits), which is consistent with recognition of payroll expenses.
c.
Share-based Payments As a form of incentive to boost performance and assure continuing relationships with the officers and/or employees of the Business, they have been included in the share-based compensation program of Somos. This Parent Entity is solely responsible for the settlement of vested shares and thus, Business’ employment expenses related to these shared-based plans are recognized with a corresponding entry as a contribution within “Parent’s Net Investment”. The fair value of shares granted is recognized as an expense during the period in which the right accrues - i.e. the period during which specific vesting conditions must be met. The total amount to be recognized is determined by reference to the fair value of the granted shares (at the market price at grant date), excluding the impact of any non-market service and performance-based vesting conditions (e.g., profitability, capital increase targets, sales and retention for a specific period of time). Non-market vesting conditions are included in the assumptions about the number of shares to be vested. At each date of reporting, the Business revises the estimated number of options which will vest based on the established conditions. The impact of the revision of the initial estimates, if any, is recognized in the combined carve-out statement of profit or loss and other comprehensive income on a prospective basis. Social contributions payable in connection with the grant of shares are considered an integral part of the grant itself. | |
| Revenue Recognition | n.
Revenue Recognition The Business generates most of its revenue through 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 transaction or term contracts with an average period from three five 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 it delivers the content in printed and digital format. Since the acquisition of Livro Fácil in December 2017, the Business also sells its products directly to students and parents through its e-commerce platform. Since the Business obtains control of the goods sold before they are transferred to its customers, the Business 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 Business is entitled in exchange for the specified goods transferred. Due to the nature of the Business’ operations, sale of printed and digital textbooks and learning systems is not subjected to the payment of the social integration program tax (Programa de Integração Social, or PIS) and the social contribution on revenues tax (Contribuição para o Financiamento da Seguridade Social, or COFINS). These sales are also exempt from the Brazilian municipal taxes and from the Brazilian value added tax (Imposto sobre Operações relativas à Circulação de Mercadorias e sobre Prestações de Serviços de Transporte Interestadual e Intermunicipal e de Comunicação, or ICMS). Pursuant to the terms of the contracts with some customers, they are required to provide the Business 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 Business to start the delivery of its products. Since the contracts allow product returns (generally for period of four The right to recover returned goods asset is measured at the former carrying amount of the inventory less any expected costs to recovered goods. The refund liability is included in Contract Liabilities and Deferred Income and the right to recover returned goods is included in Inventories. The Business reviews its estimate of expected returns at each reporting date and updates the amounts of the asset and liability accordingly. The Business also provides other types of complementary educational solutions, preparatory course 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 other 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 Business believes this is an appropriate measure of progress toward satisfaction of performance obligations as this measures most accurately the consideration to which the Business 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 are recognized separately. Service revenue is presented net of the corresponding discounts, returns and taxes. These services revenues are subject to PIS and COFINS under the non-cumulative tax regime (with a nominal statutory rate of 9.25 5
a.
Measurement and Recognition - Policy applicable as from January 1, 2018 Based on the adoption of IFRS 15 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. The Business considers these sales to private schools as a single performance obligation which is complied with when printed materials are delivered and accepted by each client and available for use by each client over the school year (at a point-in-time). Thus, this revenue is recognized only when materials are effectively delivered and available for use by each client over the school year. Consistent with the Business accounting policies prior to the adoption of IFRS 15 four The right to recover returned goods asset is measured at the former carrying amount of the inventory less any expected costs to recovered goods. The refund liability is included in Contract Liabilities and Deferred Income and the right to recover returned goods is included in Inventories. The Business reviews its estimate of expected returns at each reporting date and updates the amounts of the asset and liability accordingly. Each complementary educational service, digital service and other are deemed to be separate performance obligation. Thus, revenue is recognized over time when the services are rendered (i.e. output method) to the customer. The Business believes this is an appropriate measure of progress toward satisfaction of performance obligations as this measures most accurately the consideration to which the Business 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.
b.
Measurement and Recognition - Policy applicable up to December 31, 2017 Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of the Business’ activities. Revenue is presented net of value-added tax, returns, rebates and discounts. The Business recognized revenues when: (i) the most significant risks and rewards inherent to the ownership of the assets had been transferred to the purchaser, (ii) it was probable that the financial economic benefits would flow to the Business, (iii) the costs related and potential return of goods could be reliably estimated, (iv) there was no continued involvement with the goods sold, and (v) the amount of revenue could be reliably measured. The Business bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement. | |
| Fair Value Measurement | o.
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 Business’ own credit risk. If there is no price quoted on an active market, the Business 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 take into account when pricing a transaction. If an asset or a liability measured at fair value has a purchase and a selling price, the Business 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 sufficient 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 Business 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 the combined carve-out statement of profit or loss and other comprehensive income 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 about the reliability of the inputs used in determining fair value, the Business has classified its financial instruments according the judgements and estimates of the observable data as much as possible. The fair value hierarchy are based on the degree to which the fair value is observable used in the valuation techniques as follows:
•
Level 1
•
Level 2 1
•
Level 3 | |
