Annual Report 2009
VISANET IS Now CIELo!
Annual Report 2009 1
Cielo’s exclusivity with the Visa brand ended on July 1st, 2010, and the Company now
captures and processes transactions with all the main brands in the card payment
market. We have been preparing to operate in this new market scenario for some time,
with the intention of making the most of the potential and maintaining our market
leadership. We made changes to the Company’s structural organization, revised
our strategic planning, trained and qualified new professionals in our work force,
consolidated our organizational culture and work environment, modified our mission
and reinforced practices of corporate governance.
As a result of these developments, we plan to maximize our business knowledge to
ensure our continued growth, offering clients the tried and tested reliability of our
network, innovative products that add value to their businesses, and be ever-present in
their day-to-day operations. We believe that all these factors will help us to consolidate
our relationship with our clients and ensure their loyalty.
With the change in our company name, we launched an institutional marketing
campaign, using all the available means of communication, highlighting our presence
and ability to deliver the services we offer with efficiency and quality.
We are now prepared to face the challenges of continuing to grow in a sustainable
manner in the new scenario and, at the same time, maintaining our market leadership,
generating increasing returns for shareholders, as well as powering business and
boosting the economy, thus producing more wealth for society as a whole.
2
Operational Indicators 2006 2007 2008 2009 � 09/08
Total Financial Volume (R$ million) 110,749 136,500 175,552 213,958 +21.9%
Total Volume of Transactions (million) 1,978 2,389 2,952 3,427 +16.1%
Nº of Affiliated Merchants (‘000) 997 1,180 1,408 1,706 +21.1%
Economic-financial indicators
(values in R$ million)
BR GAAP (4) IFRS (5)
2006 2007 2008 2008 2009 Δ 09/08
Net Operating Revenue (NOR) * 1,945 2,402 2,875 2,893 3,628 +25%
Gross Income (GI) 1,255 1,631 2,024 2,041 2,692 +32%
Gross Margin (GI/NOR) 64.5% 67.9% 70.4% 70.6% 74.2% +3.6 pp
Operating Income before Financial Result (OIBFR) 903 1,277 2,019 1,958 2,286 +17%
Operating margin before Financial Result (OIBFR/NOR) 46.4% 53.2% 70.2% 67.7% 63.0% -4.7 pp
Net Income (NI) 658 884 1,394 1,342 1,534 +14%
Net Margin (NI/NOR) 33.8% 36.8% 48.5% 46.4% 42.3% -4.4 pp
Dividends (D) 593 670 1,369 1,369 1,205 -12%
Pay-out (D/NI) 90% 76% 98% 102% 79% -23 pp
Adjusted EBITDA (E) (1) 1,039 1,410 1,764 1,764 2,451 +39%
Adjusted EBITDA margin (E/NOR) 53% 59% 61% 61% 68% +7 pp
Free Cash Flow (FCF) (2) (6)602 695 786 718 716 -9%
Net Shareholders’ Equity (SE) 103 611 159 702 860 +23%
Net Debt (ND) (3) 58 -471 -581 -581 -305 -48%
Return on Total Capital [FCF/(SE+ND)] 438% 496% (7) – 593% 129% –
Social Indicators 2006 2007 2008 2009 Δ 09/08
Number of direct employees 785 935 1,117 1,089 -2.5%
Value invested in training (R$ ‘000) 4,339 5,467 5,302 3,591 -32%
Turnover of workforce 7.1% 15.6% 23.1% 16.7% -6.4pp
Lowest salary paid/minimum national wage 3.27 3.13 2.85 2.39 -16%
Environmental indicators 2006 2007 2008 2009 Δ 09/08
Generation of non-hazardous waste (t) 142,55 123,67 124,95 120,13 -4%
% of non-hazardous waste destined for recycling, % non-hazardous waste destined for sanitary landfills
16:84 11:89 11:89 10:89 0%
Consumption of electricity (MWh) 2,126 2,635 2,351 2,195 -7%
Consumption of fuel oil (liters) 15,540 32,496 63,524 35,851 -44%
Consumption of water (m3) 8,408 9,519 8,246 6,957 -16%
Main financial indicators
(1) EBITDA = Earnings before Interest, Taxes + Depreciation and Amortization. Adjusted EBITDA = EBITDA + Revenue from the prepayment of revenue (considered as operational and not as
financial). (2) Free cash flow = net cash flow generated by operating activities – Cash applied in investment activities (3) Net debt = Gross debt – Cash and cash equivalents (when negative,
the Cash is higher than Gross debt) (4) BR GAAP = Brazilian Accounting Standards (5) IFRS = International (6) Reclassified in 2007 (previous = 705) (7) Non-current; total capital is negative as
cash was higher than the sum of net Shareholders’ Equity and Gross debt. * includes net revenue from pre-payment of receivables.
Annual Report 2009 3
133% EBITDA
86%Operating Revenue
113%Stockholders’ Equity
111%Total Assets
105%Domestic Market
2005–2007 = BR GAAP and 2008–2009 = IFRS.1 EEBITDA = Earnings before Interest, Taxes + Depreciation and Amortization.
Adjusted EBITDA = EBITDA + Revenue from the prepayment of revenue
(considered as operational and not as financial revenue). 2 Adjusted EBITDA margin = adjusted EBITDA/Net operating margin.
2005–2007 = BR GAAP and 2008–2009 = IFRS.
* Net Margin = Net Income/Net operating revenue.
Adjusted EBITDA1 and Adjusted EBITDA margin2
R$ million and %
2006
2007
2008
2009
Net revenue, Net income and Net margin* R$ million and %
2006
2007
2008
2009
Net Revenue
Net I.ncome
Net Margin
Adjusted EBITDA
Adjusted EBITDA Margin
Volume of transactionsMillion
2006
2007
2008
2009
Debit cards
Credit cards
Total
Financial transaction volume R$ billion
2006
2007
2008
2009
40
49
65
79
1,232
1,424
986
836
71
88
111
135
1,720
2,003
1,402
1,142
111
137
176
214
2,952
3,427
2,389
1,978
Debit cards
Credit cards
Total
53%
59%
61%
68%
1,945
658
2,402
884
2,893
1,342
3,628
1,534
1,039
1,410
1,764
2,451
33.8%
36.8%
46.4%
42.3%
4
Highlights in the Period
• The financial transaction volume rose 22% to R$214 billion in 2009. This significant increase was
even ahead of the market, as the financial transaction volume in the sector as a whole increased by
18% in the same period.
• Net revenue including pre-payment of receivables increased 25% to R$3.6 billion, while adjusted
EBITDA was 39% higher at R$2.4 billion. The annual net income of R$1.5 billion was 14% up on
2008 (IFRS standard).
• Shares in Cielo, initially as Visanet, were first traded on the BM&Fbovespa’s Novo Mercado after the
largest IPO in the stock exchange’s history.
• We have prepared ourselves to maintain our successful track record in a more competitive
environment, by modifying our organizational structure, changing the Company’s name and
creating a new brand. We invested in both people and state-of-the-art technology.
• We received the Data Security Standard (DDS) certificate from the Payment Card Industry Council
(PCI Council), the most important in the global card payment industry.
• For the nineth consecutive year, we maintained our ranking among the “150 Best Companies to
Work For” awarded by Exame magazine.
Subsequent Events• In the first quarter of 2010, the volume of financial transactions rose 23% compared with the same
period in the previous year, reaching R$58 billion. Net operating revenue was 25% higher, totaling
R$1.0 billion, while adjusted EBITDA came in at R$713 million, up 33%. Net income was R$440
million, 32% higher than in the same period in 2009.
• We launched our program of Level I American Depositary Receipts (ADR) to trade shares on the
United States over-the-counter (OTC) market under the symbol CIOXY and, up to March 31, a total
of 3.6 million ADRs had been issued (1 ADR = 1 ordinary share).
• Our shareholders linked to the financial institutions Bradesco and Banco do Brasil presented a
proposal to acquire the stake in the Company held by the Santander Group, and each now hold
26.65% of total capital in Cielo after the transaction was finalized.
• Cielo had been ready since the end of March to process MasterCard transactions, as of July 1st,
2010, the date that marked the beginning of multi-brand operations.
• Launched at the end of March, the Company’s new institutional marketing campaign is running
with the slogan “Cielo, Nothing Beats Our Machine”.
Cielo’s IPO The largest initial public offering in
the history of the BM&FBovespa.
Annual Report 2009 5
Message from Management 06Vision, Values and Corporative Governance 09Profile 10
ExpertiseAwards 14Corporate Governance 15Strategy 20
Confidence Risk Management 24Operating Performance 28Economic-Financial Performance 34
Coverage Capital Markets 40Intangibles 43Social-Environmental Performance 44
InvolvementGlossary 114Corporate Information 117
6
The main event for Cielo in 2009 was its listing and
start of trading of shares on the BM&FBovespa’s Novo
Mercado segment, after the largest initial public offering
in the stock exchange’s history. The transfer of R$ 8.4
billion in shares to the market guaranteed a free float
(the number of shares in market circulation) of 42.4%,
in a giant step in the democratization of the Company’s
voting share capital.
A Message from Management
Annual Report 2009 7
Even before our shares were traded, we began work in earnest to
strengthen our relationship with analysts and investors, in order
to make our business as transparent as possible for the market.
And, with the start of trading, we built on our relationships
with these agents, as part of our strategy to underscore the
characteristics of leadership, innovation, high performance
standards and strong corporate governance that are an integral
part of Cielo, at meetings sponsored by the Association of
Analysts and Investment Professionals in the Capital Markets
(Apimec), road shows with investors, meetings at the Company,
as well as other events designed to underscore the Company’s
characteristics of leadership, innovation, high performance and
adherence to the best practices of corporate governance.
Another milestone in 2009 was the adoption of International
Financial Reporting Standards (IFRS), an international standard
that seeks to create a set of uniform criteria; and ensure that
corporate accounting follows market rules.
Our performance in 2009 surpassed expectations, in a year that
began under the dissipating storm clouds of one of the worst
global financial crisis ever, with resultant declines in economic
activity throughout the world, but after which we saw a gradual
recovery stimulated by government measures to bolster domestic
consumption. At the end of the year, while Brazil’s GDP was a
negative 0.2%, the financial volume of transactions captured by Cielo
rose by 22%, totaling R$214 billion, equivalent to 7% of national GDP.
Our growth outstripped the sector as a whole, which expanded by
18%, which reflects the gains we posted in terms of market share.
Our net operating revenue, including net revenue from the
prepayment of receivables, totaled R$3,628 million, 25% higher than
in 2008. Adjusted EBITDA reached R$2,451 million (+39%) and net
income R$1,534 million (+14%), based on which R$1,201 million
(-12%) of dividends to shareholders were distributed or provisioned.
This robust result was only possible thanks to Cielo’s market
penetration and distribution capacity, the reliability of its network,
the excellent relationship its commercial sector has with affiliated
merchants, through to the continued offer of new and innovative
products and the expansion of its network of active merchants.
It is worthy of note that, during the crucial Christmas peak retail
sales period, our network was available 100% of the time, and
we set a new record, with more than 35 million transactions
processed on December 23 and 24, 18% higher than in the same
period in 2008. Although the impact of the two days in terms
of annual revenue was not that significant, the 100% network
availability reinforces Cielo’s image of providing the biggest and
best system of electronic payment means in Brazil, working with
redundancy and mobilizing its teams to guarantee the most
reliable services for its affiliated merchants.
The year was also noteworthy due to the change in the
Company’s name form Companhia Brasileira de Meios de
Pagamentos to Cielo S.A., as part of the strategic plan to prepare
the Company to operate in a multi-brand market from July 1st,
2010. With its new name and brand, Cielo also acquired a new
visual identity and no longer incurred the cost of the royalties it
paid for the use of its former corporate name: VisaNet.
The regulations in the sector of electronic payment means in
Brazil were discussed by the pertinent authorities in 2009, which,
in October, released a note through the Central Bank with five
recommendations: 1) opening up the activity of affiliation;
2) interoperability of networks and POS machines (the terminals
that capture transactions); 3) neutrality in activities related
to settlement and liquidation; 4) strengthening the national
system for debit cards; and 5) transparency in the definition of
interchange fees.
We prepared ourselves during the year for the new and more
competitive scenario set to begin in July 2010, reinforcing our
commitment to our network reliability, consolidating our position as
the leading distributer, investing in innovation and the development
of a differentiated relationship to ensure the loyalty of our clients.
Network reliability — We work with redundancy in our
network systems and extremely high business monitoring
criteria, resulting in a 99.995% systems’ availability rate, which
is equivalent to just 26 minutes of system downtime during
the year. We received the international PCI DSS certification,
which, together with Lynx, our neural system for detecting
and monitoring intrusion and/or fraud, provided an extremely
high level of security for our affiliated merchants, banks and
credit card holders. Furthermore, we offered the most modern
POS system of electronic terminals in Brazil, with an average
equipment age of just 2.3 years.
8
Leadership in distribution — We worked closely with our bank
network to affiliate 380,000 new merchants in 2009, which
guaranteed us the largest base of affiliated merchants in Brazil.
Innovation — We continue to innovate by launching
differentiated products, which, as well as bolstering client
revenue, are tailored to their commercial needs and guarantee
card payment traffic at their merchants, as well as the loyalty
of purchasers. Some projects of particular note are the
correspondent banks, contactless smart card payment means
(also known as “touch and go” or “wave and pay”), payment via
mobile phone, as well as our promotional platform of offers.
Differentiated relationship — Our sales team present was more
than ever in the day-to-day operations of affiliated merchants,
offering a broad portfolio of innovational products, including the
pre-payment of receivables, the segment that has been making a
growing contribution to the Company’s result.
Certain important events took place after the close of the 2009
financial year, including the following two of particular note.
The launch of our “level I” American Depositary Receipts (ADR)
Program — This initiative, which did not represent an increase in
share capital (rights offering) or involve the issue of new shares,
placed Cielo in a select group of Brazilian companies with
ADRs traded in the United States, as only 67 of the 420 national
companies listed on the BM&FBovespa used such instruments at
the end of 2009. This initiative created yet another alternative for
investors in the U.S. market and increased Cielo’s visibility outside
Brazil. As of March 31, 2010, 3.6 million ADRs had been issued.
Changes in the breakdown of share capital ownership —
Our shareholders; Bradesco and Banco do Brasil, presented
a proposal to acquire the share capital stake owned by the
Santander Group, with each having a 28.65% shareholding after
the operation is finalized.
Aware of our social responsibility, we continued to invest in social
projects and develop environmental preservation projects in 2009.
We made investments with our own resources and through fiscal
incentives in cultural, social and sports projects, looking for programs
focused on education, child health and training youngsters for the
labor market, prioritizing social and economic inclusion. During
the year, we invested in family health assistance (Hospital Pequeno
Príncipe), culture (Instituto Brasil Leitor), social networking through
sport (Fundação Gol de Letra and Instituto Esporte e Educação), the
training of youngsters for the labor market (Instituto Criar de TV e
Cinema) and education (Instituto Ayrton Senna).
Our actions on this front in 2009 were recognized by several
institutions in different areas, as we were awarded the “Valor
Carreira” prize for excellence in people management (a survey
by Hewitt indicated Cielo as having the fifth best organizational
working environment among the companies with between
1001 and 2000 employees), the “150 Best Companies to Work
For” award, received from Exame magazine for the ninth
consecutive year, the “Biggest and Best” Award, also from Exame,
the “Best Specialized Services Company in Brazil” awarded by
the daily newspaper Valor Econômico, and the “200 Largest
IT Companies” awarded by InfoExame magazine. We would
like to thank all our employees, clients, partners, suppliers and
shareholders, and our new ones in particular, who showed their
support at the Company’s successful IPO.
Rômulo de Mello DiasCEO
Arnaldo VieiraChairman of the Board of Directors
Annual Report 2009 9
Mission
Be an international benchmark for solutions for electronic payment
means and network services.
Values
• Employees with the right attitude, team
spirit and dedication to their jobs
• Satisfied Clients
• The attitude and approach of an owner
• Ethics in all our relationships and dealings
• Excellence in execution
• Innovation with results
• Corporate sustainability and responsibility
Mission and Values
10
Profile
Cielo S.A. (formerly Companhia Brasileira de Meios de Pagamento,
known as Visanet), is a leading acquirer of credit cards and
related payment services in the Brazilian market. With operations
throughout national territory, Cielo has more than 1.7 million
affiliated merchants and covers 97.6% of Brazilian municipalities.
Until June 30, 2010, the Company was the sole acquirer of
the Visa brand in Brazil, the leader among credit card payment
companies in the country, according to the Nilson Report (2008).
With the end of this exclusivity with Visa, the Company will
operate as an acquirer of other card brands.
Its activities include the affiliation of merchants and the
management of a network to accept card payments, as well as
the capture, transmission, processing and financial settlement of
the transactions made with credit and debit cards. The Company
also rents, installs and maintains Point of Sales (POS) equipment
for its affiliated merchants.
As well as the products and services traditionally offered in the
market of electronic payment means, Cielo constantly seeks to
develop innovative solutions in segments with synergies related
to its activities, and has been a pioneer in terms of the offer of
network infrastructure for use by correspondent banks, recharging
mobile phones, electronic vouchers and cash withdrawals, as well
as in capturing and processing electronic transactions that do not
involve financial payments, such as connectivity and authorization
of transactions in the healthcare segment.
The diversity of the Company’s portfolio of products and services
is the result of continued efforts to identify other business areas in
which it could maximize the use of its network and assets. In the
last two years, the Company has signed partnership agreements
with card issuers and companies to capture and process
transactions with Private Label hybrid cards with the Visa brand,
and currently has approximately 89 partners. As from September
of 2008, the Company has offered the pre-payment of receivables
for its network of affiliated merchants.
Cielo is a publicly-traded company listed in the Novo Mercado
segment of the BMF&Bovespa, which demands the highest
levels of corporate governance. Cielo stock is traded under
the ticker symbol CIEL3 and is also included in the Special
Corporate Governance Stock Index (IGC) and the Special Tag-
Along Stock Index (ITAG), the Ibovespa Financial Index (IFN),
the IBrX-50 and IBrX-100 (portfolio valid for the four months
between May/2010 – August/10). Of Cielo’s total voting stock,
42.4% is accounted for by the free float. As well as the shares
traded on the Brazilian stock market, the Company also has
Level I American Depositary Receipts (ADRs) traded on the
over-the-counter (OTC) market under the symbol CIOXY, with
Deutsche Bank Trust Company Americas as its Depository Bank.
Each ADR is equivalent to one ordinary share.
Among the main shareholders in the Company are institutions
with ties to two of the three largest banks in Brazil: Banco do Brasil
and Bradesco, which are also among the biggest card issuers
in the country. The presence of these institutions as majority
shareholders gives the Company a privileged status in terms of the
acceptance of its services, and has contributed to making it the
market leader in the card payment sector.
With a net revenue of approximately R$3.7 billion and a net
income of R$1.5 billion in 2009, Cielo has shown a consistently
positive development in terms of its results, registering a
compound average annual growth rate (CAGR) of 27.6% in net
revenue and 44.0% in net income between 2006 and 2009.
Annual Report 2009 11
Stockholdings in other companies
Servinet (99.99%) — Servinet Serviços Ltda. provides
maintenance and contact services with affiliated merchants and
service providers to accept credit and debit cards and other
payment means, as well as the installation and maintenance of
POS electronic terminals.
Servrede (99.99%) — When Servrede Serviços S.A. starts up its
operations, it will provide network technology management
services, including the transmission of data and information,
corporate solutions, private communications’ systems and
the electronic processing of payments, as well as applications
services and those associated with its data center.
CBGS (40.95%) — Companhia Brasileira de Gestão de Serviços
provides consultancy and processing services of information for
companies in the area of medicine in general, the management
of support services for healthcare operators, interconnection
of electronic networks between healthcare operators and
medical-hospital service providers, the digitalizing and
automation of processes, the issue of cards, call center services,
card-reading information and the routing of non-financial
transactions, the leasing and sale of card readers, equipment
and IT systems used in providing its services and technical
assistance for the same.
Note: for more information about the subsidiaries and affiliates, see the Explanatory Notes number 1 and 11 in the Financial Statements.
CIELO
SERVNET99,99%
SERVREDE99,99%
CBGS40,95%
12
Peris doloria voloreque
Develop technology to provide solutions that speed
up and stimulate transactions and relationships,
dominate complex questions and offer reliable but
simple answers.
Using our expertise
Annual Report 2009 13
14
Awards
The quality, efficiency and reliability of Cielo’s services have been
widely recognized by the market, with more than 50 awards to
its name, Cielo is one of the recognized companies in this sector
in Brazil. Over the past nine years, it has consistently included
among the “150 Best Companies to Work For”, in the ranking
published by Exame magazine, and in 2009 Cielo was also
awarded the following prizes:
• Award: “The Best in People Management”
Awarded by: Hewitt and the newspaper Valor Econômico.
• Award: “150 Best Companies to Work For”
Awarded by: Exame magazine.
• Award: “Biggest and Best”
Awarded by: Exame magazine.
• Award: “Valor 1000”
Awarded by: The newspaper Valor Econômico.
• Award: “The 200 Best IT Companies”
Awarded by: InfoExame.
• Award: “Valor Carreira”
Awarded by: the newspaper Valor Econômico.
Annual Report 2009 15
Corporate Governance
Note: both the Novo Mercado/BM&FBovespa and IBGC rules concerning corporate governance can be accessed through the sites of these institutions, at the following addresses: www.bmfbovespa.com.br and www.ibgc.org.br.
Note: for more information, please refer to the chapter on the Capital Markets.
General principles Cielo adopts the best practices of corporate governance
recommended by the Brazilian Institute for Corporate
Governance (IBGC) and that include accountability, transparency,
fairness, and corporate responsibility, as the essential values for
the sustainability of its business. On going public, Cielo opted
to trade its shares on the BM&FBovespa Novo Mercado, which
demands the highest level of corporate governance, as this is
the way to consolidate its principles and guarantee the new
shareholders more security in terms of their investment.
The model of governance adopted is based on the requirements
of the Novo Mercado and Brazil’s Securities and Exchange
Commission (CVM), and is aligned with the IBGC’s rules, in an
already well accepted framework that seeks to guarantee the
effective adoption and monitoring of the principles of governance
in a company’s relationships between Shareholders, the Board
of Directors, the Executive Board, Independent Auditors, Fiscal
Council, Investors in the market and all other stakeholders.
Position as of Position after
Main shareholders 31/12/2009 27/04/2010 �Controlling shareholders 57.30% 57.30% 0%
Columbus Holdings S.A. (Bradesco) 26.56% 28.65% +2.09%
BB Banco de Investimentos S.A. (Banco do Brasil) 23.54% 28.65% +5.11%
Santusa Holdings S L (Banco Santander Spain) 7.20% 0% -7.20%
Market – free float 42.40% 42.40% 0%
Treasury 0.3% 0.3% 0%
Total 100.00% 100.00% 0%
Breakdown of share capital Paid-in Capital: 1,364,783,800 ordinary shares Nominal Capital: 6,000,000,000 ordinary shares
ShareholdersThe Company’s main shareholders are shown in the following
table, which depicts two distinct situations: at the end of 2009
and the end of April 2010, when Banco do Brasil and Banco
Bradesco finalized a deal to acquire, through subsidiaries, the
remaining stake of shares held by Banco Santander in the
Company. At the same time, these two institutions signed a
memorandum of understanding to set up a holding company
for the joint management of their business in the card payment
market, including a study of the possibility of transferring Cielo S.A.
stockholdings to the new holding.
Minority stockholders in Cielo have the same rights as the majority
shareholders, including the same value for their shares in the case
of sale of control (100% tag-along rights).
16
Shareholders’ Agreement
The shareholders that are part of the controlling group have
signed a shareholders’ agreement, which establishes the rules
related to their relationship in terms of joint interests in and
with the Company. This agreement was signed by Columbus
Holdings S.A. (Bradesco), BB Banco de Investimentos S.A. (Banco
do Brasil), Banco Santander (Brasil) S.A., Santander Investimentos
e Participações S.A. (Banco Santander) and Cielo S.A.
The shareholders’ agreement stipulates the regulations about the
calling and holding of meetings of the Board and shareholders. The
previously called meetings that decide on the following subjects will
only be included on the agenda in the presence of all the signatory
shareholders: (1) acquisition of shares issued by the Company
to hold in treasury or cancelled; (2) determining the agendas
of shareholders’ meetings; (3) proposal to alter the Company’s
Bylaws; (4) granting stock options for managers and employees;
and (5) drawing up the list of three candidate companies to carry
out the valuation for cancellation of the Company’s registration
as a publicly-held corporate entity. The points discussed at any
called meeting will be decided upon by a majority vote of the
shareholders present, with provisions made concerning the need
to formally register the meeting. The decisions will be binding for all
the signatory shareholders, including those absent.
Regarding the composition of the Company’s Board of Directors,
the shareholders’ agreement defines:
• Santander will have the right to nominate one member of
the Board while it holds a direct or indirect shareholding that
represents at least 7.20% of total share capital;
• Based on a Board with nine members, a minimum of six will be
nominated by Bradesco, and two by BB; and one by Santander;
• Based on a Board with ten members (as is the case at the
moment), a minimum of two will be nominated by Bradesco,
two by BB, one by Santander; and by common agreement
between Bradesco and BB;
• If there is a reduction in the stock holding of any shareholder in
the controlling block that implies a reduction in the number of
board members that it can nominate or loss of rights, the same
party should provide notification of the dismissal of the board
member(s) representing them within a period of five days;
• The election of independent members should be appreciated
and voted on in a previously called meeting; and
• The election of the statutory members of the Board should be
appreciated and voted on in a previously called meeting.
The shareholders’ agreement also determines that: (1) there is
a lock-out period of two-years, from the day the initial public
offering was announced (June 9, 2009), during which no
shareholder can sell any surplus shares on the stock exchange,
over-the-counter (OTC) market or in private operations (the
agreement states that the shareholders in the controlling block
should hold 50.1% of shares for a period of two years after the
IPO); (2) any transfer or sale of stock held by the signatories of
the agreement, except for the transfer to controllers or under
joint control, should be preceded by notification to the other
shareholders in the controlling block, who have the preemptive
right to purchase the shares on offer, disclosing the potential
purchase, price per share and payment conditions. The
preemptive purchase right should be exercised within a period
of 30 days, and (3) after the two-year lock-up period, and the
shareholders can request the Company makes a follow-on offer,
with Santander having the right to subscribing to this offer or sale
of its shares in an auction on the BM&FBovespa.
If one of the signatory shareholders of the aforementioned
agreement, during the validity of the said document, acquire (directly
or indirectly) a significant position in terms of the share capital in the
Company that provides registration services for corporate entities
acquiring payment transactions of the same brand(s) as processed by
the Company, and that have a direct influence on the management
of the competitor, should take all the necessary measures to abstain
from exercising the rights of the agreement or selling any shares
issued by the competitor for a period of 90 days.
The shareholders’ agreement will initially be valid for 10 years,
from the day the initial public offering was announced and can be
extended for additional and successive periods of five years, with
the possibility of prior withdrawal only with six months of advance
warning before the end of any of these terms.
To resolve any controversies arising from the interpretation of the terms
in the document, violation of its possessory terms or execution of
obligations established in it, the agreement stipulates that the center for
any arbitration will be the American Chamber of Commerce.
Annual Report 2009 17
The Board of DirectorsThe Board of Directors is comprised of at least seven and a
maximum of 10 members, all shareholders, elected at a General
Shareholders’ Meeting, with a unified mandate of two years, with
reelection permitted. The members of the Board of Directors can
be dismissed and substituted at any time if such a decision is taken
at a General Shareholders’ Meeting. Two members are chosen by
the collegiate to serve as the President and Vice-President of the
Board. A minimum of 20% of the members of the Board should be
independent members.
Executive OfficersThe duties and powers of the executive directors are defined by
the Board of Directors, and among which of particular note are
the following:
• The CEO is responsible, among other duties, for establishing the
management model and ensuring it is complied with, directing the
businesses and determining the general guidelines of the agreement
with advice from the Board of Directors, ensure the Board’s decisions
are complied with, as well as the Company’s Bylaws, and approve
the Internal Regulations for the Executive Board.
• The Director of Investor Relations, among other duties, is
responsible for providing information to the investor public, the CVM
and stock exchanges and organized OTC markets on which the
Company is registered.
• The other Directors will carry out the duties determined by the
Board of Directors as and when elected.
The Executive Board is comprised of at least two and a
maximum of eight members, one being the CEO, on the
Director of Investor Relations and with up to six directors without
any specific designation, as elected by the Board. The directors
can hold several different positions.
The Board of Directors
Director Title Elected on Mandate to
Rômulo de Mello Dias CEO 05/20/2009 May/2012
Marcos Grodetzky CFO and Director of IR 03/20/2010 May/2012
Eduardo Campozana Gouveia* Director 05/20/2009 May/2012
Eduardo Chedid Simões Director 05/20/2009 May/2012
Paulo Guzzo Neto Director 05/20/2009 May/2012
Roberto Menezes Dumani Director 12/02/2009 May/2012
Executive Officers
Name Title Elected on Mandate to
Arnaldo Alves Vieira Chairman 04/30/2010 04/30/2012
Jair Delgado Scalco Member 04/30/2010 04/30/2012
Raul Francisco Moreira Member 04/30/2010 04/30/2012
José Maurício Pereira Coelho Member 04/30/2010 04/30/2012
Denilson Gonçalves Molina Member 04/30/2010 04/30/2012
Paulo Rogério Caffarelli Member 04/30/2010 04/30/2012
Milton Almicar Silva Vargas Member 04/30/2010 04/30/2012
Norberto Pinto Barbedo Member 04/30/2010 04/30/2012
Francisco Augusto da Costa e Silva Independent Member 04/30/2010 04/30/2012
Gilberto Mifano Independent Member 04/30/2010 04/30/2012
Note: the curriculums of the Board Members are available on the Company’s site, at: www.cielo.com.br/ri.
Note: the curriculums of the Executive Officers are available on the Company’s site, at: www.cielo.com.br/ri.* He was substituted by Dilson Ribeiro as from May/2010.
18
Fiscal CouncilThe Company’s Fiscal Council sits on a non-permanent basis
as and when elected at a general shareholders’ meeting at
the request of shareholders for the fiscal year in question as
determined by law, and its duties and powers are established in
Brazilian corporate law.
Management Advisory CommitteesThe internal committees are set up with technical and consulting
responsibilities to advise management on specific subjects, thus
making the Company more efficient, and maximizing the return
to shareholders while respecting the best practices of corporate
governance.
The creation of the committees, the establishment of their
responsibilities and the appointment of their members is all
carried out by decision of our Board of Directors. Our bylaws
establish a full-time audit committee. Our Board of Directors set
up the following committees:
• Finance committee;
• Issuer risk committee;
• Compensation and Benefits committees;
• Corporate governance committee; and
• Compensation and benefits.
As and when installed, the Fiscal Council is comprised of at least
three and a maximum of five members, with an equal number of
alternates, elected at a general shareholders’ meeting.
The Fiscal Council works in accordance with the Internal
Regulations approved at the general shareholders’ meeting at
which it was set up.
Management Compensation The statutory directors and members of the Board of Directors
receive a global remuneration determined for each financial period,
of an amount approved at the Annual General Shareholders’
Meeting (AGM).
At the AGM held on April 13, 2009, this value was R$14.5 million. The
total approved was divided into fixed and variable remuneration, profit
sharing and the granting of stock options, as described in detail in
Explanatory Notes numbers 28 and 29 of the Financial Statements.
At the AGM held on April 30, 2010, the value of compensation
approved was up to R$19.0 million.
.
Fiscal Council
Nome Title Elected on Mandate to
Kléber do Espírito Santo Effective Member 04/30/2010 Aug/2011
Marcio Hamilton Ferreira Effective Member 04/30/2010 Aug/2011
Haroldo Reginaldo Levy Neto Effective Member 04/30/2010 Aug/2011
Marcelo Santos Dall’occo Alternate Member 04/30/2010 Aug/2011
André Luis Dantas Furtado Alternate Member 04/30/2010 Aug/2011
Note: The position of the third alternate is currently temporarily vacant.
Annual Report 2009 19
Code of Ethics Cielo’s Code of Conduct was revised in 2009 and is now known
as its Code of Ethics. All employees were called to take part in
the meetings to work on the new text, the aim of which is to
reflect the Company’s main values.
It is a benchmark document, not just for Cielo and its employees,
but also other public groups with which the Company
interacts with. It is these different public groups involved in the
business that, by making their day-to-day decisions and acting
accordingly, ratify the code of conduct expected by Cielo,
capable of maintaining relationships that are stable, sustainable
and compatible with the interests and most pertinent aspirations
of those involved and society as a whole.
The Code of Ethics defines the basic principles that should guide
the conduct of all the parties it involves, as well as the actual
management of the code, in three main areas of interest:
Mission and Corporate Values — are responsible for defining
the Company’s identity, and the way it acts. By expressing these
actions in day-to-day initiatives and relationships, the employees
are contributing to adding value to these relationships.
Primordial aspects of conduct — these aspects are fundamental
to the business and should be observed by all Cielo’s employees.
Aspects relevant to the behavior with public groups — we
consider the Company’s basic characteristics in its relationships
with each public group with which it interacts, and the following
groups in particular:
• Unions;
• Banks;
• Clients;
• Employees;
• The community and society;
• Competitors;
• Suppliers;
• The government;
• The press;
• Investors;
• Users of the Company’s electronic means of payment system.
The Ethics CommitteeThe Ethics Committee is made up of members of the Executive
Board of Directors and three senior professionals. Its role is to
receive and analyze allegations of infractions of the Code of
Ethics and apply the appropriate penalties.
For these allegations to reach the Committee, an Ethics Channel was
created run by an external company, and which can be accessed by
Internet 24 hours a day, seven days a week, or by telephone from
Monday to Friday between 09 a.m. and 08:00 p.m. The person
making the allegation can choose to remain anonymous.
Arbitration chamber and other legal channelsCielo is committed to arbitration through the Market Arbitration
Chamber, as defined in its company Bylaws.
While the Company is a member of the Novo Mercado, it cannot
issue preference shares or other participation certificatesand, to cancel
its registration with the Novo Mercado, it should make a public offer.
Note: the Code of Ethics is available on the Company’s Investor Relations Site, at: www.cielo.com.br/ri.
20
Strategy
The long-term strategic planning is based on important market
variables, given the current and projected circumstances and, is
thus designed to maintain the Company’s leading position in the
Brazilian merchant acquiring and payment processing industry.
To attain this objective, we adopted a primary approach based
on the diversification of services rendered, together with the
increased use of our transaction capturing network and the
constant implementation of new technologies for means
of payment. These actions have effects in several different
strategic ways, which are discussed below.
Universalization of the Use and
Acceptance of Multi-brand Cards at Merchants
We plan to continuously increase the number of merchants
that accept products multi-brand cards starting from July 1st,
2010, when our exclusivity with the VISA brand expires. To this
end, we rely on our own sales structure and provide constant
support for affiliating new merchants. We also rely on support
from the branch networks of those financial institutions that have
partnership agreements with us.
As a general rule, we seek to maintain a close relationship
with, and provide constant support to, merchants by offering
solutions, differentiated products and quality services, as well as
by stimulating merchant sales through a significant number of
point-of-sale promotions.
In addition, we plan on continuing to invest in solutions to
expand acceptance in new service segments, such as taxis,
soccer stadiums, street markets and fairs, and delivery services,
among others.
Expansion of Issuer Base
We plan to improve our results by increasing the issuance of
credit and debit cards and, consequently, transaction volumes.
To achieve this, we plan on strengthening our relationships
with financial institutions that issue credit and debit cards and
with merchant co-branded private label card issuers. We have
also developed a solution for the capture and processing of
transactions using co-branded private label cards that has shown
a high growth potential among the lower-income population.
We already have approximately 89 partnership agreements for
the capture and processing of transactions with co-branded
hybrid private label cards with retailers; home appliances
stores; supermarkets; bookstores; gas stations and insurance
companies; among others.
Broaden and Maximize the
Use of Electronic Capture Equipment
Cielo intends to increase the number of transactions conducted
through its acceptance network and develop new capture
solutions and services in segments that create value for our
affiliated merchants. We therefore plan on using electronic
capture equipment as a platform to increase the supply of new
services, such as correspondent banking services, prepaid mobile
phone top-ups, and cash-back in debit card transactions.
The diversification of the portfolio of services offered using this
equipment should increase the usage level of our acceptance
network, strengthen the business base and our relationship with
affiliated merchants, thus increasing the turnover and consolidate
our Company’s position as the leader in this market.
Annual Report 2009 21
Enter Lines of Business that have
Synergies with the Core Business
We constantly develop projects and conduct market surveys
to identify lines of business that have synergies with our main
activity. One of the opportunities we have identified is the
development of a network to authorize transactions made by
healthcare service providers.
Our objective is to develop various methods of facilitating
interaction between agents in the healthcare industry, such as
connecting and authorizing services and providing call centers
for the healthcare industry.
The Company’s entry in the electronic capture of transactions
in healthcare and other business lines, through network and
technological platform optimization, will enable the Company
to develop new lines of services and other revenue-generating
opportunities.
Offer New Services to Affiliated Merchants
We plan on continuing to offer new services to add value to
our affiliated merchants and encourage customer loyalty. In
response to merchant demand, we began offering prepayment of
receivables to certain affiliated merchants on September 1st, 2008.
In addition, we have developed test projects, one of which uses
cell phones and the Internet to electronically capture home
delivery transactions, and another one which comprises a new
technology platform that makes it possible to offer promotions
to cardholders so that merchants can strengthen their
relationships with these clients.
Enhance Operating Efficiency
Our business model focuses on results, combining revenue
growth with operating efficiency. Together with the initiatives
designed to increase the number of transactions and financial
volume, we intend increase our productivity gains by reducing
the average cost per transaction captured, using initiatives based
on increasing our operating efficiency.
Impact of our strategy on results Out targets for results were all met in 2009 and the first quarter
of 2010. During this period, the strategic management of
performance in the short-to-medium-term was directed at
obtaining returns by means of the development and exploration
of the strategic lines chosen by the Company. On the other
hand, our medium-to-long-term outlook was based on preparing
the Company for the changes set to take place in the electronic
payment means market from the second semester of 2010,
and we are confident that we are well prepared to face this
challenge successfully, which even included changing our name
and mission, and even listing the Company in the biggest IPO in
history, thus undergoing some important restructuring in terms
of the Company’s management and commercial areas.
22
Maintain the trust of all those with whom we interact
over time. Implement and maintain the most demanding
security protocols to guarantee the integrity of
transactions. Always persevere in terms of the increased
efficiency and infallibility of the processes used.
Rigorously preserve the confidentiality of information,
but remain transparent and open in our relationships
with public groups and management approach.
Trust is deserved
Annual Report 2009 23
24
Risk Management
Regulatory riskLaws and regulations that may be enacted to regulate the
merchant acquiring and card payment processing industry in
Brazil may have an adverse effect on the Company.
There are several bills currently on their way through National
Congress designed to regulate the card payment sector, the
main initiatives of which concern the following issues:
(i) Limiting the management fees charged by merchants and
payment terms, notably in the texts of the following bills:
(a) 4,818/98, dated November 4, 1998, and which has been
at Committee stage since March 25, 2009 with the
Committee on the Constitution, Justice and Citizenship;
(b) 4,804/01, dated June 5, 2001, which since April 29, 2009
has been at Committee stage with the Committee on
Finance and Taxes; and
(c) 3,499/08, dated June 3, 2008, the request for this text
to be included in Law No. 4,818/98 was granted on
November 4, 2008;
(ii) The sharing of collection and processing infrastructure for
information in the credit and debit card market, notably bill
No. 677/07, dated November 28, 2007, and which has been at
Committee stage since March 5, 2009, is now being analyzed
by the Committee on Science, Technology, Innovation,
Communication and Information Technology;
(iii) The banning of exclusivity clauses between brands and
acquirers in the credit and debit card market, notably Bill
No. 680/07, of November 28, 2007, which has been at
Committee stage since March 5, 2009, is now being analyzed
by the Committee on Science, Technology, Innovation,
Communication and Information Technology; and
(iv) Bringing companies in the card payment sector in line with
the conditions of financial institutions, notably bill No. 678/07,
dated November 28, 2007, which has been at Committee
stage since May 29, 2009, and is now being analyzed by the
Committee on the Constitution, Justice and Citizenship,
which, in the event this is sanctioned into law would mean
the Company would be subject to additional norms and,
potentially, fall under Central Bank supervision.
In March 2009, the Central Bank, the Secretariat of Economic Law
of the Ministry of Justice (SDE) and the Secretariat for Economic
Monitoring (SEAE) associated with the Ministry of Finance,
produced a Report about the Card Payment Industry, that analyzes
the sector of electronic means of payment with cards in Brazil,
highlighted the same concerns that led to the drawing up of the
aforementioned bills, and that is based on key discussions about:
(i) the competitive scenario and entry barriers in the sector; (ii) the
mechanism of charging fees adopted by the acquirers; and (iii)
how this charging mechanism could affect the final consumer of
goods and services, as well as making suggestions for regulatory
measures in the card payment sector. Although this standalone
study has no power to actually implement new sector regulations,
as these regulations depend on the approval of bills by the
Legislative Power, its conclusions could accelerate the passage
Annual Report 2009 25
of the previously mentioned bills, as well as stimulate discussion
about other legislative initiatives aimed at regulating this sector
and the Company’s activities. The final version of this report was
published in May 2010 and, although the content related to the
concerns was not altered, the government study group focused
on five recommendations for the sector, which will be addressed
in the short term, and that are as follows: (i) the opening up
(deregulation) of acquirers’ affiliation activity; (ii) the interoperability
of networks and POS (Point of Sales) terminals (the equipment that
captures transactions); (iii) neutrality in settlement and liquidation
activities; (iv) the strengthening of national debit card systems; and
(v) transparency in terms of defining interchange fees.
If the bill related to limiting the management fees charged by
merchants and payment terms is approved, the Company’s
revenue and, consequently, its operating result, could be adversely
affected. As far as the bill related to the sharing of infrastructure
is concerned, if this is approved, the revenue from the rental of
equipment used to capture card transactions could be negatively
affected, with a potentially adverse impact on the Company’s
results. In turn, the possible approval of the bill prohibiting
exclusivity clauses between brands and acquirers in the credit and
debit card market could provide additional motivation for the entry
of new players into this market, with a potentially adverse impact
on the Company’s market share.
Finally, if the bill is passed that determines that companies in
the electronic card payment sector have to comply with similar
regulations to financial institutions, the Company could be
adversely and significantly affected, depending on the extent
of the restrictions and conditions imposed by the Central Bank,
which would become the entity responsible for regulating the
companies in the electronic card payment sector, including Cielo.
It is important to bear these uncertainties regarding the regulatory
framework faced by the Company in mind, as it is impossible to
predict whether the bills on their way through National Congress
will be approved or not, or even if others of a similar nature will be
proposed, or what the final version of the legislative texts of the
same will be.
As a result, it is impossible to predict whether the activities of
capturing and acquiring card transactions, the affiliation of
merchants and pre-payment of receivables to these merchants
will be regulated or not. If they are, it is impossible to predict in
what form, and even less as to how the Company would not be
adversely and significantly affected by the introduction of new
laws and regulations.
Market risk Although we believe that the Brazilian market for credit and debit
cards should continue to register significant growth, any possible
sector regulation or the simple ending of exclusivity may well lead
to changes, including the possibility of new competitors entering
the market. On the other hand, the new rules are designed to
strengthen the sector and aggregate more brands, issuers, card
holders and merchants, which could contribute to accelerating the
growth in terms of the number of transactions and the financial
transaction volume, which would favor activities by acquirers.
To deal with this kind of risk at the same time as maintaining our
market leadership, Cielo has been preparing itself for some time
now to offer the best in terms of the reliability of its network
systems, easy-to-use services, innovational products, distribution
capacity and differentiated relationships with merchants. At the
same time, to guarantee delivery, it has undergone an internal
restructuring, by developing teams that are both qualified and
capable of consolidating an organizational culture appropriate to
this potential reality.
26
Credit risk*
Cielo has an instrument it uses to mitigate the credit risk of banks
issuing Visa cards, for the purpose of protecting it against any
possible default risk at these institutions. These instruments are
based on the obligation assumed by the Visa brand, as established
in international regulations, to guarantee the transfer to the
merchants affiliated with the Company all the sales made using
Visa cards on their respective payment dates, even in the event of
default by any given issuer.
Technological risk The information technology and telecommunications systems
used by the Company in its business activities could fail due to
factors beyond its control. To mitigate this risk, Cielo has adopted
redundancy systems and uses cutting edge technology, both for
the traffic and storage of information.
Another important question concerns the security of information
systems, as the unauthorized disclosure of data in our systems
could have an extremely adverse effect on the Company and its
image in the market. In this case, Cielo uses the most advanced
encryption devices and IT access barriers to avoid unwanted
intrusion and fraud by hackers.
The Company has the most important industry security certification
in the global card payment market: the Data Security Standard (DSS)
from the Payment Card Industry Council (PCI Council).
The risk of fraud**
Risks associated with the Economic ScenarioThe trends in national GDP, interest and foreign exchange rates
are all duly monitored, although they are much less relevant for
Cielo than certain other companies and sectors.
GDP Growth
As far as GDP is concerned, the sectors in which we operate, due
to the characteristics of the Brazilian market, have registered high
growth rates and shown to be less susceptible to variations in GDP
than the average in other sectors. In the last three years, GDP has
grown at a compounded average rate of 3.6% per year, but our
financial transactions volume has risen by an average of 24.6% per
year. GDP in 2009 fell by 0.2%, but our financial volume rose by
21.9%. The comparison of card usage with the means of payment
in Brazil and other emerging and developed countries shows that
our market still has the potential to continue expanding at rates of
higher than national GDP for many years to come.
Interest Rates
In terms of interest rates, the main influence is on financial
investment, as, in our case, these outweigh financial liabilities.
The resources are invested with top-tier financial institutions and
the Company does not get involved with speculative operations.
It is also worth remembering that two of the largest and most
solid banks in the country are among the Company’s indirect
majority shareholders.
Foreign Exchange Rate
Spending by foreigners in Brazil using Visa cards are credited
to the Company by Visa International on the day following the
transaction, and converted from U.S. dollars at the Central Bank’s
purchase rate (PTAX) on the same day. As protection against any
currency oscillations, Cielo takes out forward contracts for its
dollar receivables, converted at the same exchange rate. Outside
these expenses, there are no other significant operations that
could cause any relevant variations in the Company’s results.
.** Note: See Explanatory Note No. 26 c in the Financial Statements.
Note: For information about other risk factors, please see Explanatory Note No. 26 in the Financial Statements in this report.
* Note: For further information on how this risk is mitigated, please see Explanatory Note No. 26b in the Financial Statements..
Annual Report 2009 27
28
Operating Performance
In this way, the players in the card payment sector in the Brazilian
market can be categorized as shown below:
Brands
The brands establish and administer the general rules used to
organize and operate the card payment system and are the final
guarantors for the financial settlement of the transactions with
the merchants. The brands charge an administration fee for the
provision of services, which is linked to the transactions made at
the affiliated merchants and the acquirers representing its brand.
Characteristics of the activityThe model adopted by the companies operating in the card
payment sector in Brazil is based on association, as the brands,
the acquirers and issuers, each play a specific role, and act in an
integrated manner under the rules established by the brands. In
this model, acquirers, such as Cielo, have a license to use the
brands and are responsible for affiliating merchants, as well as
the capture, transmission, processing and financial settlement of
these card transactions.
BRANDS
BRANDS
CIELO
ACQUIRING BANKS
AFFILIATED MERCHANTS
AFFILIATED MERCHANTS
CARD HOLDERS
CARD HOLDERS
ISSUING BANKS
ISSUING BANKS
IN 1995
FROM 1996
Annual Report 2009 29
Acquirers
The acquirers, such as Cielo, are responsible for affiliating the
merchants for the capture, transmission, processing and financial
settlement of transactions; and guarantee the settlement if the
issuer falls under Central Bank management/intervention. As a
rule, the acquirers charge an administration fee to the affiliated
merchants for providing the services of capturing, transmitting,
processing and settling the transactions made with credit
and debit cards. In most cases, the administration fee, and/or
merchant discount rate for prepaid receivables, is calculated
based on a percentage negotiated with the merchants based
on the total value of transactions it handles.
The acquirers own the equipment, such as fixed line and mobile
POS terminals. In most cases, the acquirers rent the equipment
to the affiliated merchants, charging a fixed rent based on the
technology of each type of equipment, the business activity
and location of the merchants. Some merchants, such as large
retail stores and supermarkets, have their own equipment for
capturing card transactions.
The acquirers also offer the service of prepayment of receivables
to its affiliated merchants. In these operations, the affiliated
merchants request advance receipt of the transaction value
from the acquirer corresponding to the value made with card
payments prior to the period negotiated and contracted with
each. The affiliated merchants that contract this service pay a
discount rate calculated on the prepaid amount.
The acquirers can also offer affiliated merchants additional
services related to the capture of card transactions, such as,
for example, services linked to Private Label cards made in the
merchant card issuer stores. To use these services, the general
rule is that the merchants pay the acquirers stipulated fees
according to the service provided.
Merchants
Affiliated merchants are the suppliers of goods and services
affiliated with the acquirer to accept credit and debit cards as
means of payment.
Card Holders
The holders of cards issued by the issuers, and the users and/or
consumers of products and services.
Issuers
The issuers concede credit to card holders to use their credit
cards in Brazil and/or abroad and charge for the values spent
by the same. The issuers also assume the credit risk of the
card holders with the acquirers and guarantee payment of the
same. As such, the issuers charge acquirers an interchange
fee that consists of a portion of the merchant discount rate
received from the merchants that is paid to the card issuers as
compensation for the approval of the transactions using cards
of their brand. The interchange fee is generally determined by
the brands according to the type of card used in the transaction
and the business segment the merchant operates in which the
transaction was carried out.
The economic scenarioThe situation at the beginning of 2009 was one in which the
world was still immersed in one of the worst financial crises
since the Great Depression in 1929. Given the enormous loss
of both financial and non-financial wealth in the private sector,
particularly in the more developed countries, the efforts made
by monetary authorities around the globe largely to inject
liquidity into the credit markets were insufficient to reduce
the generalized uncertainty about any return to normality.
This negative scenario affected expectations and led to a
deterioration in the labor markets, reduced investment levels and
a drop in consumption in most economies.
Despite the Country’s solid economic fundamentals before the
crisis, Brazil did not escape the effects of the abrupt reduction
in international credit and the swift declines seen in its export
consumer markets. Data released by the Brazilian Institute of
Geography and Statistics (IBGE) show that GDP in 2009 declined
0.2%, compared with 6.6% annual growth seen in the pre-crisis
period (September of 2008).
30
To contain the domestic impact of the global crisis, the
economic authorities in Brazil opted to ease the decline in
consumption by means of increasing consumer and real estate
lending through the state-controlled banks, reducing taxes on
consumer goods and the base interest rate, largely because
inflation was showing signs of falling as a result of the crisis,
which made room for these stimulus packages.
The credit operations in the financial system rose by
approximately 19% in terms of GDP, and the public financial
institutions contributed with more than 60% of this figure,
according to Central Bank data. In absolute terms, personal
credit in the private sector rose by 16.2% in the same period and
credit from the public sector to housing, 27.5%. At the same time,
government-backed credit to the industrial sector practically
stagnated in the period (+ 0.3%, according to the Central Bank)
and investment, which had been rising at an annual rate of 16.9%
in the third quarter of 2008, ended 2009 down 10.2% (annualized
rate), according to the IBGE.
Within the scope of fiscal incentives, the government reduced or
temporarily eliminated the IPI (Tax on Industrialized Products) on
consumer products — in the case of this tax on the basic models
produced by car manufacturers, for example, the rate of 7%
was reduced temporarily to zero –, as was the Tax on Financial
Operations related to personal loans and the table for Individual
Income Tax was altered to favor taxpayers with rebates/offsetting
estimated at R$ 4.9 billion during 2009.
The Selic rate was lowered from 13.66% per year at the end
of 2008 to 8.65% per year at the end of 2009, while inflation,
as measured by the Broad (Extended) Consumer Price Index
(IPC-A), accumulated 3.9% in 2009, compared with 5.9% in 2008,
according to Central Bank and IBGE data.
As the epicenter of the crisis was in the U.S. economy, the
U.S. dollar depreciated against most other currencies in the
world, including the Brazilian real, losing a quarter of its value
(the U.S. dollar was quoted at R$2,333 in December 2008
compared with R$1,743 in December 2009, having shed 25.3%
of its value). For Brazilian exports, already lower as a result
of the recession in global markets (except China and India,
which merely expanded less), this created additional difficulties
and there was a 22% drop in the value exported, according
to Central Bank data. This reduction in foreign sales even
compromised the trade balance in 2009, as, as a result of the
internalization of the crisis, imports fell by 25% in the year, using
the same criteria, and the trade balance remained at the same
level as in the previous year (US$26.5 billion).
However, the fact that Brazil shrugged off the effects of the
global crisis faster than expected, began to concern the
economic authorities, which foreseeing a recovery in imports
before exports gained any real strength, decided to bolster the
drawback regime, with the exemption of import taxes on raw
materials for export products.
For the sectors with direct ties to consumption, even though
exports performed poorly, domestic sales remained strong.
The auto industry, for example, saw foreign sales fall 40.5%, but
registered a record of 3.14 million vehicles sold in the domestic
market in 2009, 11% higher than in 2008, according to the
National Association of Vehicle Manufacturers (Anfavea).
The Indicator of Economic Activity (INA), measured by the
Federation of Industries in the State of São Paulo (FIESP), and
that shows the level of economic activity in the region, indicated
that, despite the depth of the crisis (the monthly index declined
32.4% between October 2008 and February 2009), the recovery
was swift, and by December 2009 the index was only 4.6%
below the figure reported in December 2008. Nevertheless, in
accumulated annual terms, the drop in economic activity was
11.6% compared with 2008. The INA is largely made up of the
utilization of installed capacity, the average number of hours
worked per employee and real sales in the reference months and
on the margin.
A survey carried out at the end of the year by the Getulio Vargas
Foundation (FGV) on investment plans showed that, after a year
of a significant drop in investment in industry, various important
sectors intend to invest heavily in 2010, which could even
stimulate a faster economic recovery.
Annual Report 2009 31
Monthly trend in total card numbers – 2009 (million)
J F M A M J J A S O N D
Nº of monthly card transactions – 2009 (million)
J F M A M J J A S O N D
Monthly card billing – 2009 (million)
Total cards
Credit cards
Total cards
Credit cards
J F M A M J J A S O N D
570
560
550
540
530
520
510
500
700
600
500
400
300
200
100
0
Debit cards
Hybrid (private label) store cards
Debit cards
Hybrid (private label) store cards
Sector scenarioDespite the slightly negative GDP growth, linked more directly to the
drop in industrial production in the export sector, consumption and
retail spending, even with the troubles experienced at the beginning of
the year, ended 2009 expanding sufficiently for the financial credit and
debit card transactions volume to increase by 18% in the period.
According to ABECS, the total number of credit and debit cards
increased by 10% compared with 2008, and the number of card
transactions rose by 15%.
There are various reasons, some structural that justify this
growth. The relatively good performance in the retail sector,
bolstered by the government’s incentive measures for
consumption, is just one example.
Income in the socio-economic classes C and D has been rising
for some time now, which resulted simultaneously in higher
consumption in this category, as well as an increased use of cards as a
means of payment by this segment of the population.
There is also the presence of a secular trend to substitute checks and
cash with credit and debit cards, which is a safer means of payment
and widely accepted throughout the country. This trend is global
in nature, but Brazil still lags behind in terms of electronic payment
methods, and not just the more developed countries, but also the
emerging nations. There is also a more aggressive marketing policy by
participants in the sector that has contributed to increasing the use of
both credit and debit cards.
The charts highlight the monthly growth in the number of card
transactions and financial transaction volume during 2009, and they
show the marked increases seen in the last two months of the year.
In terms of transactions, there was more growth in credit cards
(16%), followed by debit cards (15%) and hybrid and store cards
(14%). In terms of financial transaction volume, the highest
growth was seen in debit cards (20%), followed by credit cards
(19%) and private label cards (12%).
The following table shows the average ticket and spending by
card type, looking at the 2009 average and December alone,
which shows that both variables registered increases in 2009,
and that the growth in these figures was more accentuated at
the end of the year. Only private label cards registered a drop in
average spending per card. In terms of this variable, credit and
debit cards registered significant growth, bearing in mind the
macroeconomic scenario.
50
40
30
20
10
0
Source: ABECS
Source: ABECS
Source: ABECS
32
The brazilian card market – 2009
Sector Data (ABECS)
2009 December 2009
R$ % growth R$ % growth*
Average Ticket:
Total 73 3% 78 5%
Credit 100 3% 112 5%
Debit 53 3% 58 4%
Hybrid and Store 52 0% 53 3%
Average spending per card:
Total 820 6% 92 9%
Credit 1.952 4% 212 12%
Debit 573 12% 69 11%
Private Label 320 -3% 36 -1%
* in relation to December 2008.
+9% Average spending per card in 2009
Cielo’s Operations More than 298,000 merchants were affiliated in 2009, which
represents an increase of 21% over 2008. The number of active
merchants rose by 14%, in both 180 and 60 days. And the
number of POS terminals in use rose by 20%.
The total number of card transactions was 16.1% higher year-
on-year and the financial transaction volume 21.9%. This solid
operating performance is linked to the healthy results in the
card and retail industries, as well as the result of the Company’s
efforts to increase its presence in the market with the launch of
products suited to specific segments.
The following table shows the development of Cielo’s main
operating indicators. Looking at the financial transaction
volume, the highest growth was seen in operations with debit
cards (22.4%) than credit cards (21.5%), although the difference
is small, and debit cards represent 37% of the total volume
compared with 63% for credit cards.
Information Technology To make affiliations and, particularly the operations to capture,
transmit, process and financially settle transactions, the
Company needs to guarantee that its information technology
equipment and systems, networks and datacenters maintain
the continuity of these operations without any interruptions.
Cielo uses cutting edge technology, for booksellers at trade
fairs, shoe shiners and microbusinesses, as well as for the
biggest retail chains. Its operations cover almost 100% of
national territory and, even with the accelerated growth in the
card market during peak shopping times such as Christmas
2009; our network was 100% available, processing almost
2 million transactions in a single hour, an impressive record.
Our POS terminals are increasingly “intelligent service centers”
and are already set up to operate in a multi-brand system.
Annual Report 2009 33
At the beginning of 2010, Cielo was awarded its Data Security
Standard or DSS certificate by the Payment Card Industry
Council (PCI Council), the most important in the global card
industry. This is a security standard defined by the biggest
international brands, the aim of which is to avoid fraud by
raising the levels of security in the electronic payment methods
industry. In practice, being awarded the PCI DSS signifies more
protection for card holders, affiliated merchants and the issuing
banks; which makes the entire industry even more reliable and
less susceptible to data leaks. To obtain this certification, Cielo
2008 2009 Δ 09/08
Total affiliated merchants (AMs) 1,408 1,706 21%
Active AMs in 180 days 1,055 1,207 14%
Active AMs in 60 days 996 1,133 14%
Total number of POS terminals 1,362 1,630 20%
+21% Base of affiliated merchants
had to fulfill a series of requirements, modify seven sites where
our systems are located and update 11,000 internal processes.
This work took a year and a half to complete and involved
investing in equipment, updating its POS machines available to
merchants (now the most modern in the country), in high-tech
systems and the training of more than three thousand people.
Cielo’s certification was the highest awarded in Latin America
by the PCI Council.
2008 2009 Δ 09/08
Credit and debit cards
Financial transaction volume (R$ million) 175,552 213,958 21.9%
Number of transactions (million) 2,952 3,427 16.1%
Merchant discount rate (bps) 124 124 0
Credit cards
Financial transaction volume (R$ million) 110,897 134,792 21.5%
Number of transactions (million) 1,720 2,003 16.5%
Merchant discount rate (bps) 150 149 -1
Debit cards
Financial transaction volume (R$ million) 64,655 79,166 22.4%
Number of transactions (million) 1,232 1,424 15.5%
Merchant discount rate (bps) 80 81 1
+22% Financial transaction volume
Operating indicators – I(‘000)
Operating indicators – II
34
Economic-Financial Performance
Breakdown of RevenueThe combined revenue from credit card transactions and
equipment rental account for 75% of the Company’s total
revenue. There was an increase in the share of revenue from the
prepayment of receivables, which in 2009 accounted for 5% of
total revenue.
Results
Gross revenue and net operating revenue both rose 25%, in line
with the increase in the financial transactions volume. With the
increase in revenue there was a dilution of fixed costs and the
gross margin rose 3.6 percentage points, from 70.6% to 74.2%.
Of particular note in terms of the reduction in general and
administrative expenses and marketing costs, and included
in operating expenses item was the 28% increase in payroll,
resulting in the structural changes made in the Company, to
prepare it to operate in new market conditions. Also of note is
the development of other operating expenses and revenues,
the positive value of which (revenue) turned into an expense,
affecting the Company’s results with a difference of R$316
million between 2008 and 2009.
.
Credit Cards
Debit Cards
POS Rental
Prepayment of Receivables
Others
2009
50%
16%
26%
5%
3%
Credit Cards
Debit Cards
POS Rental
Others
2008
52%
16%
28%
4%
Results (consolidated – values in R$ million)
Selected items from financial statements 2008 2009 � 09/08
Gross Revenue 3,233 4,036 25%
Net Operating Revenue 2,893 3,628 25%
Gross Income 2,042 2,692 +32%
Operating Expenses: (84) (406) 384%
Payroll/Personnel (96) (122) 28%
General and administrative (162) (147) -9%
Compensation paid to management and executives (10) (8) -16%
Marketing (78) (73) -6%
Other operating revenue (expenses) 262 (55) -
Operating income before financial result 1,958 2,286 17%
Financial Result (Interest earned) 94 45 -52%
Pre-Tax Profit (Income Tax and Social Contribution) 2,052 2,331 14%
Net Income 1,342 1,534 14%
+25% Gross Revenue
Annual Report 2009 35
On the other hand, the financial result excluding the prepayment
of receivables fell 52% due to the reduction in financial revenue
from cash investments.
As a result, net income rose 14% in 2009 to R$1.5 billion,
producing a basic net earnings per share of R$1.1242 (R$0.9841
in 2008) and a diluted figure of R$1.1237 (R$ 0.9841 in 2008).
Based on this result, dividends totaling R$1.2 billion were paid or
proposed, representing a pay-out (the ratio between dividends
and net profit) of 80%.
The profit reported in 2009 also represents 178% of final
stockholders’ equity (191% in 2008).
Capital StructureThe debt to equity financial ratio between gross debt and
shareholders’ equity is 20%:80% (41%:59% in 2008), although
when considering the ratio between net debt and shareholders’
equity this figure falls to -55%:155% (-480%:580% in 2008).
Maintaining a capital structure with negative indebtedness
is a result of the accumulation of cash during the year to
pay dividends to shareholders in a proportion that has varied
between 47% and 102% (with an average of 79%) of profit in the
last five years (the minimum statutory dividend is 50% of adjusted
net profit).
Financial positionThe liquidity indices remained practically stable in 2009, and
reflect a situation of liquidity and adequate solvency considering
the Company’s activities and objectives. Almost all the current
liabilities are “spontaneous liabilities”, that is to say, non-onerous
obligations arising from operating the business, such as accounts
payable, salaries and dividends.
Capital Structure (as of 12/31/09, consolidated – values in R$ million)
Financial position (as of 12/31/09, consolidated)
Total capital invested (TC) 2008 2009 � 09/08
Shareholders’ equity (SE) 702 860 23%
Gross debt 491 209 -57%
(-) Cash and cash equivalents 1,072 514 -52%
Net debt (ND) (581) (305) -48%
Total capital invested (TC = SE+ND) 121 555 475%
Financial indices 2008 2009 � 09/08
Current Liquidity Ratio 1.26 1.21 -3%
General Liquidity 1.22 1.24 2%
Fixed Assets (Permanent Assets/Equity) 43% 42% -1 pp
InvestmentsA total of R$256 million was invested in 2009, 45% more than in
2008, largely in POS equipment and updating technology.
36
Cash flow Net income has been the main cash generator for the Company.
The Company has used cash to finance its operating activities
and invest in fixed capital, essential in maintaining business
growth, and also to pay dividends and interest on equity. Even
with the net reduction in cash during the period, the Company
ended the year with a cash balance of R$514 million, higher than
that of most companies of its size.
Items selected from cash flow statement 2008 2009 � 09/08
Income before income tax and social contribution 2,052 2,331 14%
Income tax and social contribution paid (732) (715) -2%
Income after income tax and social contribution 1,321 1,616 22%
Depreciation and amortization 150 160 7%
Provision for contingencies 120 141 18%
Gains from sale of investments (503) - -
Other non-cash expenses (revenue) 52 75 43%
Cash Flow from Operating Activity 1,140 1,993 75%
Investment in working capital (244) (1,020) 317%
Investment in fixed capital (177) (256) 45%
Free cash flow * 718 716 0%
Sale of investments 503 - -
Financing lease transactions (1) (0) -37%
Capital increase through share subscription and capital contribution 225 - -
Acquisition of shares to be held in treasury - (69) -
Dividends paid (1,369) (1,205) -12%
Increase (reduction) of cash in the period 77 (558) -
Opening balance 995 1,072 8%
End balance 1,072 514 -52%
Cash flow (consolidated – values in R$ million)
Economic value added during the financial periodThe economic added value represents the wealth generated
by the production and sale of goods and services. It is the
difference between the Company’s gross revenue and the
value paid for the goods and services acquired from third
parties, discounting retentions (depreciation, amortization and
exhaustion/depletion) and added to the added value eventually
received in transfer, such as financial income.
In this context, the value added generated by the Company
increased 10% in 2009, mainly due to the higher contribution
from financial income, which, in principle, represents added
value received in transfer. This amount increased 66% in 2009,
mainly because this item does not include the net revenue
from prepayment of receivables, an activity that became part
of Cielo’s operations and that, for the purposes of comparison
with other industry players should be included as part of “value
added” from the production and sale of services.
* calculated.
Annual Report 2009 37
2008 2009R$ million % R$ million % � 09/08
Itemization of added value
Revenue sources: 3,221 135% 3,430 131% 6%
Rendering of services, net 2,876 121% 3,445 131% 20%
Loss from the rental of equipment (10) 0% (15) -1% 50%
Other operating revenues 356 15% 399 15% 12%
Inputs purchased from third parties: (872) -37% (942) -36% 8%
Expenditure on services provided (650) -27% (695) -27% 7%
Materials, electric power and outsourced services (202) -8% (198) -8% -2%
Other operating expenses - - 65 2% -
Gains (losses) on realization of assets (21) -1% 15 1% -171%
Gross Value Added 2,349 98% 2,488 95% 6%
Retentions: (135) -6% (151) -6% 12%
Depreciation and amortization (135) -6% (151) -6% 12%
Net added value created 2,214 93% 2,337 89% 6%
Added value received in transfer: 172 7% 285 11% 66%
Financial income (including FX variations) 172 7% 285 11% 66%
Value added to be distributed 2,386 100% 2,622 100% 10%
Distribution of added value
Employees: (153) -6% (193) -7% 26%
Personnel (134) -6% (164) -6% 22%
Profit sharing (19) -1% (29) -1% 53%
Government: (769) -32% (827) -32% 8%
Taxes and contributions (769) -32% (827) -32% 8%
Third parties: (70) -3% (68) -3% -3%
Accrued interest and rent (70) -3% (68) -3% -3%
Shareholders: (1,563) -66% (1,534) -59% -2%
Legal reserve (169) -7% - - -
Dividends paid (851) -36% (662) -25% -22%
Proposed dividends (543) -23% (105) -4% -81%
Retained earnings - - (767) -29% -
Value Added distributed (2,386) -100% (2,622) -100% 10%
Shareholders
Government
Employees
Third Parties
58
32
7
3
Distribution of value added in 2009Value Added = R$2.6 billion (consolidated)
The value added to be distributed totaled R$2.6 billion in 2009, and
shareholders in the Company were the main beneficiaries of this
distribution, in the form of dividends, interest on equity and retained
earnings, totaling 58%, followed by the government (federal, state
and municipal), in the form of taxes collected, with 32%, employees,
in the form of salaries, payroll charges and profit sharing, with 7%,
and third parties, in the form of interest and rent, with 3%.
The importance of the Company for economic activities and
the society as a whole can be evaluated by the relative amount
of wealth generated, of more than three times the value of
stockholder equity and more than 88% of total assets.
.
Value added statement (consolidated)
38
Operate on a large scale in a multiplicity of territories,
meeting the demands of businesses of all sizes, in
any economic sector or location. Having 360-degree
vision to capture movements and identify trends. Fully
live and understand the market diversity and, with this
information, build a singular range of products and
services that back up the delivery of appropriate services
and solutions.
Provide Full Coverage
Annual Report 2009 39
40
The Capital Markets
Initial Public Offering (IPO)On June 29, 2009, Cielo (the then VisaNet) made its initial public
share offering (IPO) in a secondary placement in which the
selling shareholders were the institutions: Columbus Holdings
S.A. (Bradesco), BB Banco de Investimento S.A. (Banco do Brasil),
Banco Santander S.A., Santander Investimentos em Participações
S.A., Visa International Service Association, bankrupt estate of
Banco Santos S.A., HSBC Bank Brasil S.A. – Banco Múltiplo,
Panamericano Administradora de Cartões de Crédito Ltda., Banco
Fininvest S.A., Bemge Administradora de Cartões de Crédito
Ltda., Banestado Administradora de Cartões de Crédito Ltda.,
Banco Itaubank S.A., Unicard Banco Múltiplo S.A., Cartão BRB S.A.,
Financeira Alfa S.A. Crédito, Financiamento e Investimento and
Banco Rural S.A..
Cielo’s shares started trading at R$15.00, on the BM&Fbovespa’s
Novo Mercado, initially under ticker VNET3 and, as from
December 18, 2009, under ticker CIEL3. The Company’s shares
are included in the notional portfolio for the Special Corporate
Governance Stock Index (IGC), the Special Tag Along Stock Index
(ITAG), the Financial Index (IFNC), the Bovespa Index (Ibovespa),
the Brazil Index 50 (IBrx-50) and the Brazil Index (IBrx) (portfolio
valid for the four months between May/10–August/10). Of the total
1,364.8 million shares making up its capital stock, 578.4 million are
in free float, representing approximately 42%.
Share Price PerformanceIn the five months since the first day of trading to December 30,
2009, shares in Cielo were traded in 100% of the floor trading
sessions, and the traded volume in the period between July to
December 2009 reached 1.1 billion CIEL3 shares, in 841,800
trades, with an average daily trading volume of R$ 147.7 million
(1.7% of free float capitalization). Taking a base as the IPO issue
price of R$15.00, shares appreciated 2.3% in the little more
than five months of trading in 2009 (+3.8% including dividend
payments), compared with the Bovespa Index gain of 31.5%.
On December 30, 2009, the Company’s market value was
R$20.9 billion, with a market value of outstanding shares of R$8.8
billion. Other indicators are shown in the following table.
70
80
90
100
110
120
130
140
29
/06
06
/07
13/0
7
20
/07
27/
07
03/
08
10/0
8
17/0
8
27/
08
31/0
8
07/
09
14/0
9
21/
09
28
/09
05
/10
12/1
0
19/1
0
26
/10
02
/11
09
/11
16/1
1
23/
11
30/1
1
07/
12
14/1
2
21/
12
28
/12
CIEL3 x IbovespaIndex: base 100 = 06/29/09
(share prices adjusted for dividend payments)
3,8%
31,5%
CIEL3 The Bovespa Index (Ibovespa)
Annual Report 2009 41
Share Repurchase (Buyback)With the aim of fulfilling the demand for the options exercised
as granted in the Stock Option Plan offered to its managers
and executives, a Share Buyback Program was approved at a
Board meeting on November 23, 2009, of shares issued by
the Company. The Program, lasting 180 days, allowed for the
acquisition of a maximum of six million ordinary shares. The
brokers authorized to act as intermediaries in the share buyback
were Bradesco S.A. CTVM and Votorantim CTVM Ltda.
The Program closed on May 21, 2010 and a total of 4,720,300
ordinary shares were purchased at an average price of R$15.55/share.
Investor Relations Cielo adopts “Policies for Information Disclosure and Trading of
Securities” and follows a “Code of Ethics” that establishes norms of
conduct in relationships with all interested parties, which includes
shareholders and investors.
To form closer relationships with the same, we created an area
of Investor Relations (IR), with the objective of total transparency
and preserving the fairness in disclosure of information to the
capital markets. The IR area has a site on the Internet at:
www.cielo.com.br/ri, with constantly updated information, and
its team can be accessed by means of the electronic email
address: [email protected] to answer questions and provide
information to analysts, investors and all interested parties.
Cielo’s Investor Relations area holds meetings with market analysts
and investors, as well as taking part in national and international
teleconferences releasing results. The IR department periodically
holds public meetings with the Association of Capital Markets
Analysts and Investment Professionals in São Paulo (APIMEC-SP),
the last of which was held in November 2009. Cielo is currently
covered by 19 local and international brokers.
Price on 30/12/2009 (R$) 15.34
Net income in 2009 (R$ million) 1,534
Total number of share capital on 30/12/2009 (million) 1,365
Earnings per share in 2009 (R$) 1.12
Historic Price/Earnings (P/E) on 30/12/2009 13.7
Market Value on 30/12/2009 (R$ million) 20,939
(+) Value of net debt on 30/12/2009 (305)
Net Value of the company on 30/12/2009 20,634
Adjusted EBITDA earned during 2009 (R$ million) 2,451
Historic enterprise value/EBITDA (EV/EBITDA) on 30/12/2009 8.4
Capital Markets
42
Dividends and Interest on Equity (IOE)
Period Type Date of payment. Value per share (R$) Total value (R$ ‘000)
2006 Dividends 04/28/2006 19.5811 263,921
Dividends 08/30/2006 24.3736 328,851
2007 Dividends 04/18/2007 23.9750 323,473
Dividends 08/31/2007 0.5576 376,181
2008 Dividends 05/05/2008 0.7400 508,670
Dividends 05/05/2008 0.4800 331,909
Dividends 08/29/2008 0.7600 528,061
2009 Dividends 02/27/2009 0.3978 542,984
Dividends 06/22/2009 0.2441 333,199
Dividends 08/31/2009 0.2406 328,332
2010 Dividends 03/31/2010 0.5213 709,142
IOE 03/31/2010 0.0072 9,741
Dividend Distribution PolicyThe Company’s Bylaws stipulate a minimum dividend
distribution of 50% of adjusted net income. However, the
Company has historically adopted a policy to distribute
dividends and interest on equity equivalent to 80%-90% of net
income (unadjusted), whenever there is the cash available and
the financial balance is preserved.
From 2010, the dividends and/or interest on equity will be paid
every six months in March and September, based on the results
reported in the second half of the previous year and the first half
of the current year, respectively.
ADR ProgramAt a meeting of the Board of Directors held on December
22, 2009, the launching of a Level I American Depositary
Receipts (ADR) program was approved for trading on the
U.S. Over the Counter (OTC) market, as was the hiring of
Deutsche Bank Trust Company Americas as our depository
bank. Each ADR is equivalent to one ordinary share and is
traded under ticker CIOXY.
The program did not represent an increase in share capital or
the issuance of any new shares and was designed to provide the
potential advantages of increased share liquidity, the increased
external visibility of the Company, with the possibilities associated
with an appreciation in share prices.
At the beginning of 2010, Cielo received approval to trade its
ADRs from Brazil’s Securities and Exchange Commission (CVM)
and the U.S. Securities and Exchange Commission (SEC) and
more than 3.1 million ADRs were issued in the first quarter of
2010 for trading on the OTC market in the U.S.
Annual Report 2009 43
Intangibles
Cielo booked a total for intangible assets of US$41 million (as of
December 2009), most related to the licenses to use software
it owns. However, the truly relevant intangible assets are not
booked, although they should undoubtedly be included in the
Company’s value in any evaluation.
A value that is evident to all is Cielo’s market penetration, which
has guaranteed its position as the leading acquirer in the credit
and debit card sector in Brazil, with a geographical coverage of
97.6% in Brazilian national territory and penetration in almost all
the segments of economic activity that sell products or services.
To earn this market leadership, Cielo has developed vast
knowledge and expertise in its activities as an acquirer, which is
recognized, not just in Brazil, but also internationally, as it was
chosen by Visa International as a model in several projects.
To acquire this knowledge and expertise, it was necessary to train
and qualify professionals and create and stimulate a favorable
culture and organizational environment to development, a culture
that “gives life” to the corporate values and, at the same time
depends on teams, independent of individuals skills and talents.
To maintain its leading market position, Cielo needs to offer
reliability in its network system and availability close to 100%,
which has already been proved in practice, with the record set
in transactions processed at Christmas 2009.
To reach this position, a great deal of creative work and innovation
was required to model the construction of a technological
platform with state-of-the-art systems. Innovation is also the key to
developing products that add value for the Company’s clients and
increase their revenue sources.
To prepare for the future and the biggest IPO on the Brazilian
stock market, Cielo built on its already strong model of corporate
governance and streamlined its ethical values, which provide more
security for shareholders and management. It is now a publicly-held
company, with shares listed and traded on the BM&FBovespa’s
Novo Mercado.
And, finally, when looking ahead to the future, Cielo still sees a
market with huge growth potential, which positively combines
different favorable factors and causes, even when the general
economic outlook is bleak, as was the case at the beginning
of 2009, a year in which national GDP declined 0.2% but the
number of cards in use rose by 10%, the financial transaction
volume in the market went up 18%, and the Company’s figure for
financial transactions increased 22%.
.
44
Social-Environmental Performance
With the creation of its Sustainability Management team,
years ago, we opened the now permanent dialogue with our
diverse public groups, and which has become fundamental in
formulating our business strategy. We believe that it is through
this dialogue that we define the quality of the relationships
established by the Company.
By constantly recognizing the different interests of the public
groups it interacts with was the way in which Cielo has dealt with
the aspects of sustainability related to its business.
This exercise, together with the Company’s strategic positioning,
enables the adequate management of social-environmental
impacts of its operations. As these are complex, we understand
the need to find solutions together with our various stakeholders.
In addition, we recognize the importance that the questions
related to sustainability, which are complex and systemic in nature,
and how they permeate throughout the day-to-day running of
the business, and are integrated in a dynamic and continuously
changing scenario – as new questions are always raised.
This understanding has allowed the Company to commit to a way
of operating that is based on taking advantage of new business
opportunities that can contribute to the generation of wealth and,
at the same time, contribute to key social transformations.
By believing in the diversity and plurality of Brazil, Cielo has a
presence in almost all national territory; and has been increasing
the number of transactions processed and merchants affiliated
to its network every year, thus constantly contributing to the
country’s economic development, with a combination of cutting-
edge technology, credibility and security offered to its clients.
In partnerships with governmental and non-governmental
organizations, the Company invests in social initiatives as it
believes that it is possible to contribute to an effective change in
the country’s social structure through education and culture.
Relationships with Clients and ConsumersAt the end of 2009, Cielo had a portfolio of 1,133,000 active clients,
up 14% over 2008.
We have always sought to act transparently with our clients and
consumers. One of our main concerns is being able to answer
any questions about the products and services we offer, and
for this reason we are continuously improving the channels of
communication with these public groups.
Using surveys to determine the levels of satisfaction, we
identified that the affiliated merchants expect the use of Visa
cards by consumers to contribute to increasing their sales and
revenue volumes, reduce the delinquency level and allow them
to receive their payments quickly and safely. We also identified
that these merchants, by considering the use of cards by end
consumers an attractive proposition in the market, also believe
that it is important that Cielo invests even more in its relationship
and marketing initiatives.
Communication about Products and Services
None of the products or services sold by the Company is banned
in any market. However, there are affiliated merchants that question
the fees charged for the service and that demand POS equipment
that can be capture all the different card brands.
Number of active clients – Cielo
2006
2007
2008
2009
672
824
996
1.133
Annual Report 2009 45
Internally, there is a defined line of communication with the
aim of identifying the characteristics of diversity and coverage
in the business. Externally, the Company communicates with
the media through its press relations office, and releases any
necessary announcements related to commerce or specific
topics, generally in widely read newspapers, but also in media
vehicles directed to specific public groups.
We have been involved in discussions with various different
stakeholders, taking part in debates and meetings through ABECS,
the industry association, at which we are represented by our CEO,
who also holds a position as a director of this entity.
Communication Channels with Clients and Consumers
To best serve the needs and different demands of our clients,
we maintain and monitor three communication channels: the
Authorization Center, the Service Center and the Help Desk Center.
The Authorization Center is responsible for authorizing non-
electronic sales, either in a single payment or in installments. The
Service Center is responsible for answering questions, providing
information, suggestions and dealing with complaints. The Help
Desk deals with requests related to technical maintenance and
questions about operating the terminals.
There is also the Ombudsman service, designed to intermediate
in dialogues with Cielo’s clients and thus guarantee a closer and
more transparent relationship with them. This service has been
of particular use in cases in which the client, for one reason or
another, failed to get an answer or solution to the problem they
were faced with. The channel works with the entire network
of affiliated merchants and is also one of the areas responsible
for making suggestions to improve the Company’s internal
processes, thus contributing to ensuring the excellence of the
products and/or services offered to our clients.
Among the practices related to client satisfaction, we have
carried out an annual survey with affiliated merchants since 1999.
This survey is carried out by those responsible for the affiliated
merchants that operate using products and services offered by the
Company, and selected randomly in a draw. The main objectives
of the survey are:
• Evaluate the services provided by Cielo;
• Evaluate Cielo’s image compared with its main competitors;
• Evaluate the satisfaction of the affiliated merchants related to
Cielo’s services and the competition (benchmarking);
• Measure the correlation between the attributes with
general satisfaction;
• Draw up maps as to how these attributes are perceived;
• Make comparative evaluations;
• Identify the Company’s strong and weak points (formerly
VisaNet and Cielo) as well as those of its competitors; and
• Identify threats and opportunities.
Based on the survey results, the areas involved prepare a plan of
action for the following year.
Relationship with EmployeesWe try to satisfy the needs of our employees by creating internal
opportunities for their professional development, offering
training, continued education, opportunities to advance their
careers based on merit and achievements in a healthy and safe
work environment. The benefits that the Company provides
its employees are in line with the best and most advanced
companies in the market, which has contributed to maintaining
it for nine years in a the ranking of the “150 Best Companies to
Work for”, as published by Exame magazine.
Most of the effort made in 2009, with the aim of preparing the
Company for the new and more competitive scenario after July
1st, 2010, was concentrated in the preparation and strengthening
of our team and elements of our organizational culture.
46
Annual Report 2009 47
The main issues dealt with in the following topics describe the
Company’s ongoing relationship with its employees.
Compensation and Benefits Policy
The compensation policy used at Cielo was drawn up based on
Hay’s methodology. There are defined rules for the minimum
and maximum values for salaries paid for specified jobs, thus
avoiding there being any distinction in terms of color, race,
gender etc.
With the aim of increasing productivity and increasing
efficiency, the Company has a variable compensation policy
that includes a bonus and profit sharing as well as campaigns
offering sales incentives to employees in the Commercial and
Marketing departments.
The Company and its employees signed a profit-sharing
agreement (PLR), based on its target plan. The payment is made
on an annual basis and the amount paid out in the form of
profit sharing in results during 2009 was equivalent to 9.7% of
payroll in 2008.
Benefits
The following benefits are offered to all the Company’s
employees: a health plan, dental plan, meal voucher, private
pension plan, life insurance, and collective transport in a
chartered bus, subsidy for parking and personal loans. Beside
these benefits, there is a range of others offered to each
category according to the job position, such as assistance with
toll fees and fuel or a company car.
Pension Plan
Cielo offers all its employees a defined contribution private
pension plan (PGBL), or the value paid on retirement depends on
the contribution made during the period the individual works for
the Company, which makes the total balance. The employee’s
participation is voluntary and 13 contributions are made every year
(and the contribution in December is doubled).
According to the rules of the plan, the employee’s contribution
is 2% of their salary, limited to 15 UPVs; and a percentage of up
to 7.8% on any additional value, depending on the employee’s
choice. The employee can also contribute to a voluntary account
to a maximum percentage of 12% of their base salary, which
is added to the contributions made to their plan, although this
contribution does not have to be matched by the Company.
The Company’s contribution varies according to the employee’s
age: up to 40 the contribution is equal to the employee’s;
between 41 and 50, one and half times, and twice the value of the
contribution for employees over 50.
Retirement is normally taken at 60, with a minimum of 10 years
working for the Company and five making contributions; early
retirement is at 55, with a minimum of 10 years working for the
Company and five making contributions; and cases of death
and inability to work for most reasons are covered for a year by
the Company.
Furthermore, employees over 40 and with 10 years at the Company
have the option of Vesting, a proportional deferred benefit, which
allows employees that leave the Company after making at least
there years of contributions to the plan, can remain in the plan as
a Linked Participant, until they have the right to retire, with all rights
related to redemption and portability ensured.
The obligations for pension payments related to the retirement
plan are covered by resources in a fund reserved and maintained
separate from any other of the Organization’s resources. The
entities that have assumed the risks for paying benefits are
Bradesco Previdência, RealPrev and BrasilPrev.
Unions, Freedom of Association
and Collective Negotiations
Cielo guarantees its employees the right to freely associate
with the trade unions that represent them, and has adopted all
the pertinent collective labor conventions negotiated between
the Employers’ and Employees’ Unions. In the negotiations
related to the Collective Agreement for Profit Sharing, a group
of employees is indicated to establish the criteria and salary
multiples with Cielo, before final approval by the Union.
48
Due to the fact that the Company’s operations are dispersed
throughout Brazil, its employees are represented by 28 unions,
and all are union members. Cielo believes in a productive and
harmonious relationship with these entities, and this has proven
to be successful as a result of the absence, throughout its
history, of strikes, work stoppages, protests or any other form of
interruption to the work done by its employees.
Stock Option Plan
We have had a stock option plan for management and
employees with exceptional track records since September
2008. The plan is valid for 10 years from the first day it was
granted and can be cancelled at any time in a decision taken by
the Board of Directors at an AGM. The plan is managed by the
Board, which accepts recommendations from the Committee
for Remuneration (Compensation) and Benefits.
The Board of Directors can establish stock option programs for
shares issued by the Company up to a limit of 2% of total share
capital, and 0.3% of the same per year, adding to this calculation
all the options granted under the terms of the Plan, exercised or
not, except those that are now extinct and no longer exercisable.
The options granted are personal and not transferable. It is
up to the Board of Directors to approve the exercise price for
the options, respecting a minimum price equivalent to the
Company’s average share price during a number of floor trading
sessions on the BM&FBOVESPA as established by the Board of
Directors, and ratified at the subsequent AGM. Exceptionally, the
first shares have been granted under this plan at an exercise price
equivalent to 75% of the current share price.
In the case of exercising the option to purchase shares, the
Board of Directors should approve the issue of new stock,
within the limit of authorized nominal capital or authorize the
sale of shares held in treasury. If the share purchase option is
exercised through the issuance of new capital stock, there will
be an increase in the Company’s share capital, and shareholders
will not have any preemptive rights to subscribe to these shares,
as determined in Brazilian Corporate Law and the Company’s
Bylaws, and thus their respective shareholdings will be diluted.
Training and Development
We seek to encourage the professional and personal growth of
our employees, motivating and supporting them to improve their
skills and offering opportunities and mobility that represent real
career development chances.
In the annual forums held for this purpose, we discuss in a
group with our employees, the main development actions to
be taken in this area and career possibilities or relocation in the
short-to-medium term. This process favors career planning and
succession as well as the adequate management of resources
earmarked for training and professional development.
The following table shows the investment made in training and
professional development in 2009 and the projected figures for 2010.
The following training programs offered
in 2009 are of particular note:
• Program for Leadership Development;
• Program for Applied Finance in the Commercial Area;
• Program for Team Building; and
• Program for Formal Education.
A total of R$900,000 was also invested in educational subsidies
involving 220 employees.
Health and Safety
There is an Internal Committee for the Prevention of Accidents
(CIPA), set up to help monitor and advice employees’
occupational health and safety programs. A percentage of 1.61%
of the work force is represented in this Committee, with this
figure referring to the Company’s headquarters.
The Company does not have any other formal committees for
health and safety as jointly represented by management and
employees, but the formal organizational structure includes a
specialist in safety at work, and who manages the occupational
health and safety programs, together with the Company’s
medical services (Doctor and nurse at work).
Annual Report 2009 49
Survey of the work environment – Cielo% of adhesion
84
94
97
88
95
Survey of the work environment – Cielo % favorable
2005
2006
2007
2008
2009
79
81
80
76
78
Type Nº of participants
Graduate courses 31
Languages 43
MBA 23
Post-graduate studies and specialization courses 123
Total 220
R$900,000 Was invested in educational subsidies for 220 employees.
Educational subsidies
Investment in 2009 R$ 3,500,000
Specific technical training R$ 819,000
Corporate training and programs R$ 1,100,000
Continued education R$ 900,000
Infrastructure R$ 714,000
Projected investment in 2010 R$ 5,400,000
Investment in training and professional development R$5,400,000
Projected investment in 2010
The area of Occupational Health and Safety maintains
programs designed to inform, remove and mitigate the risks
of accidents, promoting health, well-being and a better quality
of life for employees. Among these is the Internal Week for
the Prevention of Accidents at Work (SIPAT), the Program for
the Prevention of Environmental Risks (PPRA), the Program
for Medical Control of Occupational Health, the Anti-Smoking
Program, and the Mobile Medical Health Center programs that
provide nutritional, psychological and occupational medical
advice, among others. In addition, Cielo maintains programs
related to education, training, prevention and control related to
the risk of serious diseases. During the year, one-off activities
were also developed linked to health, safety and leisure, such as
events, lectures and campaigns.
The Company also conducts a survey related to the work
environment every year, and which has been well received and
accepted, showing rising percentages in favor, as shown in the
following charts, which also show the increase in both in 2009.
2005
2006
2007
2008
2009
50
Workforce
We ended 2009 with a total of 1,089 employees, 28 fewer than
at the end of 2008. At the end of the first quarter in 2010, this
number was 1,047. The average age of our employees is 36 and
41% of the workforce is female.
Cielo is an executive member of the Permanent Forum of
Companies Working for the Economic Inclusion of Individuals
with Impairments together with Editora Abril, PwC, Vivo, HP,
Serasa and Schering. The technical coordination of this Forum
is carried out by the Paradigma Institute, and the executive
coordination by the Federation of Industries in São Paulo State
(FIESP). The objective of this Forum is to contribute to the
inclusion of persons with any kind of impairment in the labor
market, by means of holding seminars and publishing the best
practices related to this issue.
Relationships with Suppliers and Partners The traditional criteria of cost, quality and delivery terms/
schedules are used to select and evaluate our suppliers. However,
we prioritize the supply of products from national companies
and, moreover, we believe that having a solid basis for building
conditions to face questions related to sustainability associated
with the respective business, and the interests of the Company’s
diverse interest groups, is only possible by building successful
partnerships. As such, we have made every effort to establish
a complete operating agenda together with our suppliers that
expands the potential for these companies to contribute to the
development of a business environment that incorporates the
main principles of sustainability.
Relationship with Society
Human Rights
To guarantee the integration of commercial interests with the
broader interests of society, we first implemented our corporate
Code of Conduct in 2004, which became known as the Code of
Ethics when it was updated in 2009.
The Code of Ethics establishes the Company’s position against
the use of forced and child labor and its commitment to
monitoring and reporting situations that potentially involve:
• Coercion, punishments under any pretext, degrading
disciplinary measures or punishment for exercising any
fundamental right;
• Irregular work by adolescents of younger than 16, except as
apprentices, who can be trained from the age of 14;
• Inadequate work conditions and the training of adolescents
between 16 to 18;
• Any form of discrimination or attempt to threaten or remove
the fundamental rights of children and adolescents; and
• Other issues related to human rights and human relationships
at work.
ETHICS in all relationships
Annual Report 2009 51
Private Social Investment
Although we do not formally evaluate the impacts of the
Company’s operations on the local communities where it has a
presence, we seek to invest in social and cultural projects that
contribute effectively to the social transformation of the country.
These investments are mainly made using the fiscal incentive
laws, such as Lei Rouanet and the Fundo da Infância e do
Adolescente (FIA) in cultural projects of an educational nature,
and the resources through FIA got to councils set up to defend
the rights of children and adolescents in the cities surrounding
the headquarters and to children’s hospitals. The criteria for
selecting projects are based on:
• The benefit obtained versus the investment made;
• Regionalization;
• Social Inclusion; and
• Diversification of race, culture and gender.
The social investment in 2009 was made under the VisaNet
brand, given that the change in the Company’s name was only
officially made in December 2009. Of particular note among
these investments were:
Circulating Libraries on the Metro – The implementation
and maintenance of circulating libraries at subway stops with
significant volumes of passengers; where books can be taken
out by anyone and read for free (www.brasilleitor.org.br).
Projeto Muda Mundo (Change the World Project) –
Comprises publishing a four children‘s books series, directed at
students from the 1st to 4th grades, presenting concepts and
fundamental values in developing critical citizens committed to
the social transformation. An additional book is also published
designed as a work guide for teachers using these four books in
the classroom (www.mudamundo.com.br).
Ateliê de Gravura (Engraving Atelier Project) – Engraving
courses for NGO educators, arts teachers from the public
education network, and introductory courses for training young
engraving technicians, in partnership with Instituto Tomie Ohtake
(Tomie Ohtake Institute) (www.institutotomieohtake.org.br).
Unicirco – Is an investment in the form of jointly sponsored
project designed to qualify a new generation of technicians and
circus artists, discovering new talent, future stars, thus socially
contributing to the professional, educational, artistic and cultural
development in the community surrounding the Hopi Hari
theme park located in the municipality of Vinhedo, in São Paulo
state. Led by the actor, Marcos Frota, the Project encourages
the socio-cultural training of youngsters from low-income
families from the cities in the region. UniCirco provides classes
for children and adolescents to help them develop their skills
through having fun learning about art and education in a way
that shows them their potential and allows them to hone their
skills, giving them a better chance to lead a more productive life
(www.unicirco.com.br).
Dorina Nowill – Investment in the publishing of books for the
blind through the Dorina Nowill Foundation. Books are published
in Braille, as well as in Spoken and Digital form for distribution by
the Dorina Foundation to libraries registered with the Institution.
(www.fundacaodorina.org.br).
Ler é uma Viagem (Reading is a Trip Project) – Consisting
in reading and distribution of children‘s texts written by Hans
Christian Andersen in 10 schools in six cities in São Paulo state
accompanied by musicians who present a soundtrack for every
story. Besides the books distributed to the children, books for
teachers were also distributed, with pedagogical proposals for
the texts application (www.lereumaviagem.com.br).
The International Literary Festival in Paraty (FLIP) — FLIP is
an annual literary festival that is attended by world renowned
authors. Casa Azul, a civil society organization for public interests
(OSCIP) that works in the Paraty region, Rio de Janeiro state, is
responsible for FLIP as well as the Educational Program ‘Cirandas
de Paraty’, that operates throughout the year together with local
schools and pedagogical institutions, encouraging qualification
through teaching by means of setting up reading groups,
qualifying teachers and reading mediators, setting up libraries,
organizing literary and artistic workshops, among other activities.
The work done by children during the year is condensed and
exhibited to the general public during Flipinha, the children’s
program at FLIP (www.flip.org.br).
in all relationships
52
Projeto Arrebol (Afterglow Project) – In partnership with
Colégio Santo Américo (Santo Américo College) São Paulo
(SP) teaching music to young low-income residents in
neighborhoods located around the school, such as Paraisópolis,
Jardim Colombo, and Vila Morse.
The Museum of Football — Cielo is one of the sponsors of the
Museum of Football, located in Pacaembu stadium in São Paulo.
The Museum was originally conceived and designed by the Roberto
Marinho Foundation and the Municipal Council in São Paulo.
Some sponsorship investments were made in the following
projects or events:
• The Rio de Janeiro Book Fair – Bienal do Rio de Janeiro;
• The Ribeirão Preto Book Fair – Feira do Livro de Ribeirão Preto;
• The Children’s Library at the Pequeno Príncipe Hospital in
Curitiba;
• “We all have our problems – Cada um com seus Problemas” –
theater play;
• Grupo Corpo – Breu – presentation by a dance group.
Cielo also invests in Funds for children and Adolescents as established
in the Statute for Children and Adolescents (Law nº 8,069/1990),
which makes funds available for various institutions, including:
• Hospital Pequeno Príncipe (Curitiba – PR);
• Hospital Boldrini (Campinas – SP);
• CMDCA (Municipal Council for the Defense of Children and
Adolescents) (Carapicuíba – SP);
• CMDCA (Barueri – SP);
• CMDCA (Pirapora do Bom Jesus – SP);
• Community Action (São Paulo – SP).
The Ayrton Senna Institute is also supported by Cielo, with cash
donations with no related fiscal benefits.
Environmental Impacts and Mitigating Measures Although the Company does not actually operate directly in
activities that have a significant environmental impact, the
companies in the sector are part of a complex business chain.
A fragmented vision of the activities of each of its components
does not provide an adequate base to understand the economic
activities and their effects on the environment, particularly when
seeking to make this relationship more harmonious.
Our vision of corporate sustainability and responsibility is based
on building shared solutions. As such, we have made every
effort to develop actions, together with other agents in our
business chain, designed to adequately monitor and manage the
environmental impacts arising from our operations.
The Use of Materials and the Generation
and Disposal of Waste
Several measures have been taken over the years related to the
use and reuse of materials, and notably the utilization of almost
100% recycled paper for the printing of documents.
The total volume of waste generated has fallen over the past few
years, according to the monitoring made using cargo manifests
issued by the outsourced service provider in this area (American
Trash), and which is responsible for the collection of the same.
In terms of the destination, between 11% and 18% of total non-
hazardous waste is sent for recycling and the remainder to
sanitary landfills. Included in the hazardous category is medical
waste, although no monitoring of the weight or volume of
disposal made is available for this category.
Annual Report 2009 53
Electricity Consumption
From 2006, when the latest in efficient electricity generators were
used at peak business hours (from 17h25 to 20h35) to reduce
the costs of energy consumption, there has been an increase in
the use of fuel oil. From that time, with the implementation of
measures to reduce the overall consumption of electricity, we
have lowered the per capita consumption of this type of energy
and stabilized the total consumption of fuel oil.
Water Consumption
The consumption of water at the Alphaville unit increased to
2008 as a result of the rising number of employees at Cielo, a
reflex of the Company’s expansion, but this fell in 2009, as, since
then, Cielo has been adopting all possible means to reduce the
consumption of basic inputs such as water, paper and plastics.
Environmental Impacts of
Transporting Products and Materials
The operating activity in the logistics area at Cielo is fully
outsourced. The Company’s logistics partners carry out several
activities that involve the transport of goods, such as: the installation,
exchange and removal of POS terminals, altering and modifying
technology, the delivery of supplies and taking part in trade fairs and
events. Furthermore, the POS terminals are transported from the
Distribution Centers in Barueri and Atibaia to the laboratories, the
forward bases and various other locations in Brazil. Approximately
200,000 service orders are handled every month.
The two biggest impacts seen in these processes are the emission
of greenhouse gases and the impact on traffic due to the additional
volume of vehicles on the streets in the Company’s service.
With the aim of reducing the number of vehicle trips, a call system
was implemented involving making a service call to schedule the
removal of POS equipment from the merchant.
The Environmental Impacts of Transporting Employees
Cielo offers collective transport for its employees on a chartered
coach. This service mainly consumes diesel, and the mileage
involved totals approximately 452,000 kilometers/year to transport
approximately 500 employees/day. Besides the ongoing dialogue
with the coach companies, there are no initiatives in place to
reduce the environmental impact caused by offering this service,
or in relation to reducing the consumption of fossil fuels.
Initiatives to Mitigate Environmental Impacts
Certain initiatives have been taken over the last five years with
the aim of mitigating the environmental impacts provoked by the
Company’s operating processes. One of these initiatives was to
talk to its logistics service providers, in an attempt to minimize
the social-environmental impacts generated by Cielo’s demands.
Among the environmental issues of note discussed were:
• Minimizing the emissions resulting from logistics activities;
• The management of waste produced by the use of materials
and packaging in logistic activities; and
• The management and adequate disposal of waste produced in
the activities of equipment maintenance.
In addition, the acoustic soundproofing in the generator houses
was redone, which lowered the noise levels generated by the
use of this equipment. In relation to other impacts, such as
the use of materials, water, emissions, effluents and waste, no
specific initiatives have been taken.
54
taking on commitments that have a positive impact on
its surroundings and carrying out initiatives that promote
sustainable social development. Contributing to and
celebrating business success. Offering the right amount
of support. Understanding the needs and being ready to
provide doable, aligned and creative responses.
Getting Involved
Cielo56
ASSETS Note 2009 2008 01.01.08
CURRENT ASSETS
Cash and cash equivalents 6 514,280 1,072,157 995,224
Trade accounts receivable 7 1,178,784 162,943 14,703
Receivables from subsidiary – 177 –
Prepaid and recoverable taxes 2,503 1,219 877
Other receivables 18,448 4,941 6,674
Receivables – securitization abroad 8 163,850 207,979 149,119
Prepaid interest – securitization abroad 8 2,914 6,341 6,544
Prepaid expenses 5,896 4,488 1,950
Total current assets 1,886,675 1,460,245 1,175,091
NONCURRENT ASSETS
Long-term assets:
Receivables – securitization abroad 8 42,445 277,000 367,516
Deferred income tax and social contribution 9 222,000 169,398 156,763
Escrow deposits 18 455,292 323,073 221,687
Other receivables 1,597 1,703 249
Property, plant and equipment 10 296,121 213,295 210,483
Intangible assets 12 41,284 69,841 43,813
Goodwill 11 22,198 17,795 41,157
Other investments 214 174 288
Total noncurrent assets 1,081,151 1,072,279 1,041,956
TOTAL ASSETS 2,967,826 2,532,524 2,217,047
The accompanying notes are an integral part of these financial statements.
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2009 AND 2008(In thousands of Brazilian reais – R$)
Financial Statements 2009 57
LIABILITIES AND SHAREHOLDERS’ EQUITY Note 2009 2008 01.01.08
CURRENT LIABILITIES
Financing – lease transactions - 401 1,034
Payables to merchants 14 667,522 487,628 437,487
Trade accounts payable 15 116,443 96,604 85,595
Taxes payable 16 416,945 275,066 227,803
Payables to joint ventures - 20,766 -
Reserve for contingencies - - 2,520
Payables – securitization abroad 19 163,911 207,943 148,941
Interest received in advance – securitization abroad 19 2,914 6,341 6,544
Dividends payable 20 105,365 – –
Other payables 17 80,041 66,526 98,632
Total current liabilities 1,553,141 1,161,275 1,008,556
NONCURRENT LIABILITIES
Payables – securitization abroad 19 42,445 277,000 367,516
Reserve for contingencies 18 511,578 391,463 282,46
Other payables 17 233 740 868
Total noncurrent liabilities 554,256 669,203 650,844
Reserve for contingencies 18 511,578 391,463 282,460
Other payables 17 233 740 868
Total noncurrent liabilities 554,256 669,203 650,844
SHAREHOLDERS' EQUITY
Capital 20 75,379 75,379 74,534
Capital reserve 20 72,305 68,606 3,627
Earnings reserve – legal 20 15,076 15,076 14,907
Retained earnings 766,897 542,985 464,579
Treasury shares 20 (69,228) – –
Total shareholders’ equity 860,429 702,046 557,647
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 2,967,826 2,532,524 2,217,047
The accompanying notes are an integral part of these financial statements.
Cielo58
CONSOLIDATED STATEMENTS OF INCOMEFOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008(In thousands of Brazilian reais – R$, except for earnings per share)
Note 2009 2008
GROSS REVENUE
Revenue from commissions 2,649,860 2,184,840
Rental income 1,067,136 903,061
Other revenues 135,456 127,652
Taxes on services (407,531) (340,087)
NET OPERATING INCOME 3,444,921 2,875,466
COST OF SERVICES (936,312) (851,119)
GROSS PROFIT 2,508,609 2,024,347
OPERATING (EXPENSES) INCOME
Personnel (122,239) (95,613)
General and administrative (147,145) (162,484)
Management and officer compensation (7,970) (9,520)
Marketing (72,960) (77,948)
Other operating (expenses) income, net (55,216) 261,757
OPERATING INCOME BEFORE 2,103,079 1,940,539
FINANCIAL INCOME (EXPENSES)
Financial income 30 99,751 153,405
Financial expenses 30 (56,519) (59,875)
Prepayment of receivables 30 218,150 17,388
Adjustment to present value 30 (35,266) –
Exchange rate variation, net 30 1,903 947
228,019 111,865
INCOME BEFORE INCOME TAX AND SOCIAL CONTRIBUTION 2,331,098 2,052,404
INCOME TAX AND SOCIAL CONTRIBUTION
Current 25 (853,151) (774,180)
Deferred 25 55,847 63,848
NET INCOME 1,533,794 1,342,072
EARNINGS PER SHARE (IN R$) -BASIC 21 1.1242 0.9841
EARNINGS PER SHARE (IN R$) -DILUTED 21 1.1237 0.9841
The accompanying notes are an integral part of these financial statements.
Financial Statements 2009 59
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOMEFOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008(In thousands of Brazilian reais – R$)
Note 2009 2008
NET INCOME 1,533,794 1,342,072
Other comprehensive income (loss):
Available-for-sale financial assets - (344,827)
Reclassification of available-for-sale financial assets to net income - 344,827
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 1,533,794 1,342,072
The accompanying notes are an integral part of these financial statements.
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STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (COMPANY)FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008(In thousands of Brazilian reais – R$)
Note Capital Capital
reserve
Earnings
reserve –
legal
Retained
earnings
Treasury
sharesTotal
BALANCES AS OF DECEMBER 31, 2007 74,534 3,627 14,907 464,579 - 557,647
Dividends from retained earnings
(R$0.75 per share)
- - - (508,671) - (508,671)
Capital increase through share subscription 846 64,979 - - - 65,825
Capital contribution 20 - 592,202 - - - 592,202
Payment of dividends through transfer
of financial assets, net of taxes
20 - - - (487,058) - (487,058)
Transfer of reserves for payment of dividends 20 - (592,202) - 592,202 - -
Capital reduction (1) - - - - (1)
Total comprehensive income for the year - - - 1,342,072 - 1,342,072
Recognition of legal reserve 20 - - 169 (169) - -
Dividends paid (R$1.26 per share) 20 - - - (859,970) - (859,970)
BALANCES AS OF DECEMBER 31, 2008 75,379 68,606 15,076 542,985 - 702,046
Dividends from retained earnings
(R$0.40 per share)
- - - (542,985) - (542,985)
Total comprehensive income for the year - - - 1,533,794 - 1,533,794
Dividends paid (R$0.24 per share) 20 - - - (661,532) - (661,532)
Minimum dividends (R$0.07 per share) 20 - - - (105,365) - (105,365)
Share options granted 34 - 3,699 - - - 3,699
Treasury shares 20 - - - - (69,228) (69,228)
BALANCES AS OF DECEMBER 31, 2009 75,379 72,305 15,076 766,897 (69,228) 860,429
The accompanying notes are an integral part of these financial statements.
Financial Statements 2009 61
CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008(In thousands of Brazilian reais – R$)
Note 2009 2008
CASH FLOW FROM OPERATING ACTIVITIES Income before income tax and social contribution 2,331,098 2,052,404
Adjustments to reconcile income before income tax and social contribution tonet cash provided by operating activities:
Depreciation and amortization 160,271 150,002 Net book value of property, plant and equipment and intangible assets written off or sold 7,274 20,518 Allowance for losses on intangible assets 11,197 35,445 Capital loss in exchange of interest in joint venture 4,431 -Write-off of goodwill in joint venture - 1,956 Reversal of the allowance for losses on property, plant and equipment and intangible assets, net (1,810) (2,455)Share options granted 34 3,699 -Gains on disposal of investments, net - (502,893)Loss from equipment rental 14,753 9,721 Reserve for contingencies 18 141,116 119,521 Adjustment to present value of receivables 30 35,266 -Capital gain in the transfer of investments - (12,848)
(Increase) decrease in operating assets: Trade accounts receivable (1,051,107) (148,240)Receivables from subsidiary 177 (177)Prepaid and recoverable taxes (1,284) (342)Other receivables (current and noncurrent) 268,707 32,138 Escrow deposits (132,219) (101,386)Prepaid expenses (1,408) (2,538)
Increase (decrease) in operating liabilities: –
Payables to merchants 165,141 40,420 Trade accounts payable 19,839 11,009 Taxes payable 2,114 1,927 Other payables (current and noncurrent) (268,959) (64,188)Reserve for contingencies (current and noncurrent) (21,001) (13,038)Cash provided by operations 1,687,295 1,626,956 Interest received 22,208 28,804 Interest paid (22,208) (28,804)Income tax and social contribution paid (714,609) (731,793)Net cash provided by operating activities 972,686 895,163
CASH FLOW FROM INVESTING ACTIVITIES Acquisition of interest in joint venture 1 (20,813) (18,961)Acquisition of subsidiaries by the joint venture, net of acquired cash (4,403) -Funds from the sale of investments - 502,894 Additions to property, plant and equipment and intangible assets (231,201) (158,023)Net cash (used in) provided by investing activities (256,417) 325,910
CASH FLOW FROM FINANCING ACTIVITIES Financing – lease transactions (401) (633)Capital increase through share subscription 20 - 65,825 Capital contribution 20 - 159,310 Capital reduction 20 - (1)Dividends paid 20 (1,204,517) (1,368,641)Treasury shares (69,228) -Net cash used in financing activities (1,274,146) (1,144,140)
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (557,877) 76,933
CASH AND CASH EQUIVALENTS Closing balance 514,280 1,072,157 Opening balance 1,072,157 995,224
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (557,877) 76,933
The accompanying notes are an integral part of these financial statements.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008(Amounts in thousands of Brazilian reais – R$, unless otherwise stated)
1. OPERATIONSCompanhia Brasileira de Meios de Pagamento, whose name was changed to Cielo S.A. (the “Company”), as approved at the
Extraordinary Shareholders’ Meeting held on December 14, 2009, was established on November 23, 1995 in Brazil, and is primarily
engaged in providing services related to credit and debit cards and other payment methods, as well as providing related services,
such as signing up of merchants and service providers, rental, installation and maintenance of Point of Sales – POS equipment, and
data capture and processing of electronic and manual transactions.
On January 23, 2003, the Company opened a branch in Grand Cayman, Cayman Islands, British West Indies (Note 23), for the specific
purpose of conducting abroad a receivables securitization transaction denominated in foreign currency (Notes 8, 19 and 26).
The operations of the direct, indirect and jointly-owned subsidiaries are as follows:
Subsidiaries:
• Servinet Serviços Ltda. (“Servinet”) – engaged in the provision of maintenance and contacts with merchants and
service providers for acceptance of credit and debit cards and other payment methods; installation and maintenance
of POS equipment for data capture and processing of transactions with credit and debit cards and other payment
methods; development of related activities in the service segment that are of interest to Servinet; and holding investments in
other companies.
• Servrede Serviços S.A. (“Servrede”) – engaged in the provision of network technology management services, including data and
information transmission, corporate solutions, private communication systems and electronic payment systems, in addition
to application and data center services, development of other related activities in the service segment that are of interest to
Servrede, and holding investments in other companies. Servrede remains dormant as of December 31, 2009.
• CBGS – Gestão e Processamento de Informações de Saúde Ltda. (“CBGS Ltda.”) – engaged in the provision of electronic
network interconnection services between health operators and medical and hospital service providers and any other health
system agents, based on a single technological platform; services of scanning and automation of processes, issuance of cards,
call center services and other solutions; card reading and nonfinancial transactions routing services; lease or sale of card
readers, other computer-based equipment used for providing its services and technical assistance; and holding investments in
other companies.
In November 2009, CBGS Ltda. was merged by CBGS, its jointly-owned subsidiary at the time, at book value and on the base-
date October 31, 2009.
Financial Statements 2009 63
Indirect subsidiaries:
•CompanhiaBrasileiradeGestãodeServiços(“CBGS”) – was engaged in the provision of electronic network interconnection
services and other related services between health operators and medical and hospital service providers (such as hospitals,
clinics and laboratories), any other private health system agents, pharmaceutical industries, laboratories, distributors,
wholesalers, similar companies, policyholders, corporate members of health plans, drugstores, etc, and insurers based on a
technology platform; and holding investments in other local or foreign companies.
In December 2009, CBGS was merged by Orizon, its wholly-owned subsidiary at the time, at book value and on the base-date
November 30, 2009.
• Orizon Brasil Processamento de Informações de Saúde Ltda. (“Orizon”) currently Companhia Brasileira de Gestão de Serviços
– engaged in the provision of consulting and data processing services to medical companies in general; management of
back office services for health operators in general; electronic network interconnection services between health operators
and medical and hospital service providers (such as hospitals, clinics and laboratories), and other health system agents and
drugstores, based on a single technology platform; scanning and process automation services, cards issuance, call center
services and other solutions; card reading and nonfinancial transactions routing services; lease or sale of card readers, other
computer-based equipment and systems used for providing its services and equipment technical assistance; and holding
investments in local or foreign companies.
• Dativa Conectividade em Saúde Ltda. (“Dativa”) – was engaged in the provision of electronic network interconnection services
for the exchange of information between private health care plans and health, medical and hospital service providers, and
any other private health system agents; software development and licensing, including its distribution; and provision of any
type of research and development services. Dativa was merged at book value by Orizon pursuant to the merger agreement of
May 29, 2008. The purpose of the merger is the administrative, commercial and financial integration of these companies, with
reduction of their operating, administrative and financial costs.
• Prevsaúde Comercial de Produtos e de Benefícios de Farmácia Ltda. (“Prevsaúde”) – engaged in the provision of
pharmaceutical benefit services to corporate clients, healthcare plans, public clients and large laboratories. Prevsaúde manages
the relationship of its clients’ employees with drugstores, doctors and the contracting company itself.
• Precisa Comercialização de Medicamentos Ltda. (“Precisa”) – engaged in the sale of medicines in general, focused on
health prevention and maintenance, with a scheduled delivery system. Precisa is a “drugstore” focused on the distribution of
medicines to Prevsaúde’s clients, especially chronic patients. It is responsible for delivering medicines regularly administered
to Prevsaúde’s clients with chronicle diseases, such as diabetes, cancer and heart and blood pressure conditions. It allows to
monitor the delivery and use of medicines, increasing the treatment’s effectiveness.
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Restructuring of subsidiaries – Health Project
On August 28, 2006, the Company established CBGS Ltda. to operate in the health segment.
On November 8, 2006, the Company, through its subsidiary CBGS Ltda., Bradesco Saúde S.A. (“Bradesco Saúde”) and Caixa de
Assistência dos Funcionários do Banco do Brasil (“Cassi”), entered into an agreement to operate together in the electronic network
interconnection services and other segments between health operators and health service providers. Under this agreement,
Bradesco Saúde and Cassi established CBGS and granted this company access to their customer master file to provide these
services on an exclusivity basis. The subsidiary CBGS Ltda. committed to acquire a 40.95% interest in CBGS for R$139,045, through
new capital contributions with the assignment of assets.
On November 23, 2006 and July 26, 2007, the subsidiary CBGS Ltda. acquired all the shares of Polimed and Dativa.
On December 28, 2006, Bradesco Saúde (70.87%) and Cassi (29.13%) established CBGS, with capital of R$1,000, fully subscribed
and paid up in cash. The capital of CBGS is represented by 1,000,000 registered common shares without par value.
On January 2, 2008, CBGS subscribed, in favor of subsidiary CBGS Ltda., 693,480 new common shares, without par value,
for R$139,045.
Said amount was paid in through the transfer of ownership interest and in cash and entitles subsidiary CBGS Ltda. to a 40.95%
interest in that company. Accordingly, as the formation of a joint venture is specifically excluded from the scope of IFRS 3 –
Business Combination, the transfer of ownership interest to CBGS (joint venture) was accounted for at the same carrying amounts
recognized at CBGS Ltda. (venturer) and the capital gain was accounted for in the Company’s consolidated under IAS 31 – Interests
in Joint Ventures and SIC 13 Jointly-controlled Entities – Nonmonetary Contributions by the Venturer. These standards require,
therefore, the recognition of a gain or a loss reflecting the substance of the transaction, i.e., when the assets are retained by a
joint venture and the venturer has transferred significantly all the risk and rewards incidental to ownership to the joint venture, the
venturer recognizes the portion of gain or loss attributed to the interest of the other venturers.
Said amount was paid in by CBGS Ltda. as follows:
• R$60,773 through the immediate delivery of 46,661,888 Polimed shares, currently Orizon, the net book value of which was
R$39,339 as of December 31, 2007, with a capital gain in the amount of R$21,434. This capital gain was eliminated from the
consolidated financial statements proportionally to CBGS Ltda.’s interest in subsidiary CBGS.
• R$10,918 through the immediate delivery of 1,709,999 Dativa shares, the net book value of which was R$11,005 as of
December 31, 2007, with a capital loss of R$87.
• R$67,354 to be paid up within two years, through the delivery of assets that can be valued in cash and/or in local currency,
which will be adjusted based on the fluctuation of the extended consumer price index (IPCA) plus 11.85% per year, on a “pro
rata” basis, from the delivery date to the date when it is paid up, and recorded by CBGS Ltda. under “Payables to joint venture”
and “Accounts receivable” of CBGS. As of December 31, 2009, this balance is fully paid in.
Financial Statements 2009 65
After the share subscription, the shareholding structure of the joint venture CBGS is as follows:
%
CBGS Ltda. 40.95
Bradesco Saúde 41.85
Cassi 17.20
Pursuant to the Shareholders’ Agreement, corporate resolutions and new investments require the approval of the majority
of the shareholders; accordingly, CBGS was classified as a jointly-controlled entity (joint venture) and its financial statements
were accounted for by the Company under the proportionate consolidation method, as recommended by IAS 31 -Interests
in Joint Ventures.
On March 16, 2009, jointly-controlled entity CBGS acquired all the shares of Prevsaúde and Precisa, as shown below:
Prevsaúde Precisa
Net assets acquired 1,628 (2,381)
Total acquisition price considered 9,000 1,000
Goodwill 7,372 3,381
Prevsaúde provides pharmaceutical benefit services to corporate clients, healthcare plans, public clients and large laboratories.
Prevsaúde manages the relationship of its clients’ employees with drugstores, doctors and the contracting company itself.
Precisa is a “drugstore” focused on the distribution of medicines to Prevsaúde’s clients, especially chronic patients. It is responsible
for delivering medicines regularly administered to Prevsaúde’s clients with chronicle diseases, such as diabetes, cancer and heart
and blood pressure conditions. It allows monitoring the delivery and use of medicines, increasing the treatment’s effectiveness.
These acquisitions are in line with the Company’s strategy of expanding its business in the health segment.
In November 2009, direct subsidiary CBGS Ltda. was merged by indirect subsidiary CBGS and on December 1st, 2009 CBGS was
merged by Orizon. As a result of the mergers, all the operations of the merged companies were transferred to the acquirers, which
will succeed the merged companies in all their assets, rights and obligations, for all legal purposes and with no interruptions, with
the consequent termination of the merged companies.
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2. SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES
2.1. Presentation of financial statements
The Company’s consolidated financial statements have been prepared in conformity with the International Financial
Reporting Standards – IFRS, issued by the International Accounting Standards Board – IASB, and the interpretation of the
International Financial Reporting Interpretations Committee – IFRIC.
The consolidated financial statements for the years ended December 31, 2009 and 2008 are the first IFRS financial
statements and January 1st, 2008 is the first-time adoption date (opening balance sheet), and in conformity with IFRS 1 –
First-time Adoption of IFRS.
The Company’s consolidated financial statements are prepared and presented in conformity with Brazilian accounting
practices (“BR GAAP”), based on the provisions set out in Brazilian Corporate Law and standards issued by the Brazilian
Securities and Exchange Commission (CVM) until December 31, 2009; which differ in some aspects from the IFRS. When
preparing the consolidated financial statements for 2009, the Company adjusted certain accounting, valuation and
presentation methods under BR GAAP in order to conform with IFRS. The 2008 comparative data were restated to reflect
such adjustments, except for those described in the release from optional and mandatory accounting practices in Notes
3.1.2. and 3.1.3. These consolidated financial statements have been prepared in conformity with IFRS, pursuant to CVM
Instruction 457, of July 13, 2007.
The reconciliation and description of the effects of transition from Brazilian accounting practices to IFRS, relating to
shareholders’ equity, net income and cash flows, are stated in Note 3.
2.2. Functional and reporting currency
The Company’s consolidated financial statements are presented in Brazilian reais (R$), which is the functional and
reporting currency.
2.3. Cash and cash equivalents
Include cash, bank accounts and highly-liquid short-term investments with low risk of variation in the fair value stated at
cost plus interest earned.
2.4. Receivables from card-issuing banks and payables to merchants
Refer to transactions carried out by the holders of credit cards issued by financial institutions licensed by Visa International
Service Association, consisting of receivables from card-issuing banks less interchange fees and payables to merchants less
processing fees (discount rate), both with maturities of less than one year (see Note 14).
Financial Statements 2009 67
2.5. Property, plant and equipment
Stated at historical cost, less depreciation. Depreciation is calculated under the straight-line method, based upon the
estimated useful lives of the assets.
Subsequent costs are added to the residual value of property, plant and equipment or recognized as a specific item, as
appropriate, only if the economic benefits associated to these items are probable and the amounts can be reliably
measured. The residual balance of the replaced item is written off. Other repairs and maintenance are recognized directly in
income for the year when incurred.
The residual value and useful lives of the assets are reviewed and adjusted, if necessary, at year end.
The residual value of property, plant and equipment is written off immediately at their recoverable value when the residual
balance exceeds the recoverable value.
2.6. Intangible assets
Stated at acquisition cost, less amortization calculated under the straight-line method at the rates mentioned in Note
12. Intangible assets are amortized taking into consideration their effective use or a method that reflects their expected
economic benefits, considering that they have finite useful lives, or on a monthly basis. The residual value of intangible
assets is written off immediately at their recoverable value when the residual balance exceeds the recoverable value.
2.7. Allowance for impairment of long-lived assets
Management reviews the carrying amount of long-lived assets, especially property, plant and equipment and intangible
assets, to be held and used in the Company’s operations, to determine and assess possible impairment on a periodic basis or
whenever events or changes in circumstances indicate that the book value of an asset or group of assets might not
be recovered.
Analyses are performed in order to identify circumstances that could require testing long-lived assets for impairment and
measure potential impairment losses. Assets are grouped and tested for impairment based on expected future discounted
cash flows over the estimated remaining useful lives of the assets. In this case, an impairment loss would be recognized
based on the amount by which the carrying amount exceeds the probable recoverable value of a long-lived asset. The
probable recoverable value of an asset is determined as the higher of: (a) fair value of assets less estimated costs to sell,
and (b) its value in use, which is equal to the present value of discounted cash flows derived from the asset or cash
generating unit.
2.8. Investments in joint ventures (jointly-controlled entities)
Joint ventures are those jointly controls by the Company and with one or more partners. Investments in joint ventures are
recognized under the proportionate consolidation method, since the date the jointly control is acquired. Under this method,
the components of the joint ventures’ assets and liabilities, and income and expenses are added to the consolidated
accounting positions proportionally to the venturer’s interest in its capital.
Cielo68
2.9. Current and deferred income tax and social contribution
Income tax was calculated at the rate of 15%, plus a 10% surtax on annual taxable income exceeding R$240. Social
contribution was calculated at the rate of 9% on adjusted net income.
Deferred income tax and social contribution are recognized according to IAS 12 on the differences between assets and
liabilities recognized for tax purposes and related amounts recognized in the consolidated financial statements. However,
deferred income tax and social contribution are not recognized if generated in the initial record of assets and liabilities in
operations that do not affect the tax bases, except in business combination operations. Deferred income tax and social
contribution are determined based on the tax rates (and laws) in effect at the date of the financial statements and applicable
when the respective income tax and social contribution are paid.
Deferred income tax and social contribution assets are recognized only to the extent that it is probable that there will be a
positive tax base for which temporary differences can be used and tax losses can be offset.
2.10. Employee benefits
The Company and its subsidiaries are co-sponsors of a defined contribution pension plan. Contributions are made based on
a percentage of the employees’ compensation. This benefit is accounted for pursuant to IAS 19.
2.11. Financial assets and liabilities
a) Financial assets
Financial assets are classified in the following categories: at fair value through profit or loss, held to maturity, available for
sale and loans and receivables. Classification is made according to the nature and purpose of the financial assets and is
determined upon initial recognition.
Financial assets at fair value through profit or loss
Financial assets are classified at fair value through profit or loss when assets are held for trading or designated at fair value
through profit or loss when acquired. A financial asset is classified as held for trading if it is:
• Purchased principally for the purpose of selling it in the near term.
• Part of a portfolio of identified financial instruments that are jointly managed and for which there is evidence of a recent
actual pattern of short-term profit-taking.
• A derivative that is not a designated and effective hedging instrument in hedge accounting.
A financial asset that is not held for trading can be designated at fair value through profit or loss upon initial recognition when:
• This designation eliminates or significantly reduces an inconsistency that might arise upon measurement or recognition.
• The financial asset is part of a managed group of financial assets or liabilities, or both, and its performance is evaluated
based on fair value according to the risk management or investment strategy documented by the Company, and when
information on the Company is internally provided on the same basis.
Financial Statements 2009 69
• It is part of a contract containing one or more embedded derivatives, and IAS 39 – Financial Instruments: Recognition and
Measurement permits that the combined contract as a whole (assets or liabilities) is designated at fair value through profit
or loss.
Financial assets at fair value through profit or loss are measured at fair value, together with gains and losses recognized in
income for the year. Net gains or losses recognized in income include dividends or interest income by the financial asset.
Held-to-maturity securities
Financial assets with fixed or determinable payments and fixed maturities, for which the Company has the intent and
ability to hold to maturity, are classified as held to maturity. Held-to-maturity financial assets are measured at amortized
cost using the effective interest method, less the allowance for impairment losses. Revenue is recognized using the effective
interest method.
Loans and receivables
Loans and receivables are financial assets and financial liabilities with fixed or determinable payments, not quoted in
an active market. Loans and receivables are measured at amortized cost using the effective interest method, less the
allowance for impairment losses. Interest income is recognized by applying the effective rate method, except for short-term
receivables, when the recognition of interest would be immaterial.
Available-for-sale securities
Available-for-sale financial assets are nonderivative financial assets designated as available for sale and not classified in any
of the categories above.
Available-for-sale financial assets are measured at fair value. Interest, inflation adjustment and foreign exchange variation,
when applicable, are recognized in income or loss when incurred. Changes arising from measurement at fair value are
recognized in a specific line item of shareholders’ equity when incurred, and are charged to income when realized or
considered unrecoverable.
Effective interest method
The effective interest method is a method for calculating the amortized cost of a financial asset or a financial liability and
allocating interest income or interest expenses over the relevant period. The effective interest rate is the rate that exactly
discounts estimated future cash payments or receipts (including all fees paid or received that are an integral part of the
effective interest rate, transaction costs, and other premiums or discounts) through the expected financial asset life, or,
when appropriate, for a shorter period.
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b) Financial liabilities
Financial liabilities are classified at fair value through profit or loss or as other financial liabilities.
Financial liabilities at fair value through profit or loss
Financial liabilities are classified at fair value through profit or loss when liabilities are held for trading or designated at fair
value through profit or loss.
A financial liability is classified as held for trading if it is:
• Incurred principally for the purpose of repurchasing it in the near term.
• Part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent
actual pattern of short-term profit-taking.
• A derivative that is not designated as an effective hedging instrument.
Financial liabilities that are not held for trading can be designated at fair value through profit or loss upon initial
recognition when:
• This designation eliminates or significantly reduces an inconsistency that might arise upon measurement or recognition.
• The financial liability is part of a managed group of financial assets or financial liabilities, or both, whose performance is
valued based on its fair value, in accordance with the Company’s documented risk management or investment strategy,
and whose related information is provided internally on the same basis.
• It is part of a contract containing one or more embedded derivatives, and IAS 39 – Financial Instruments: Recognition and
Measurement permits that the combined contract as a whole (assets or liabilities) is designated at fair value through profit
or loss.
Financial liabilities at fair value through profit or loss are measured at fair value, together with gains and losses recognized in
profit or loss. Net gains or losses recognized in profit or loss comprise any interest paid on financial liabilities.
Other financial liabilities
Other financial liabilities are initially measured at fair value, net of transaction costs. Other financial liabilities are
subsequently measured at amortized cost using the effective interest method, with interest expense recognized on an
effective yield basis. The effective interest method is a method for calculating the amortized cost of a financial liability and
allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated
future cash payments through the expected life of the financial liability or, when appropriate, a shorter period.
Financial Statements 2009 71
2.12. Revenue and expense recognition
Revenues and expenses are recognized on the accrual basis. Revenues from credit and debit card transactions are
recognized when transactions are processed. Revenues from services to associates and merchants are recognized when the
service is provided.
2.13. Provisions
Recognized when there is a present obligation, legal or constructive, as a result of a past event, with probable outflow of
resources, and the amount of the obligation can be reliably estimated.
The amount recognized as a provision is the best estimate of the settlement amount at the end of the reporting period,
considering the risks and uncertainties related to the obligation. When the economic benefit required to settle a provision is
expected to be received from third parties, this amount receivable is recorded as an asset, when reimbursement is virtually
certain and the amount can be reliably estimated.
Provisions recognized by the Company refer substantially to lawsuits arising in the normal course of business, filed by third
parties or former employees. These contingencies are assessed by the Company’s and its subsidiaries’ Management and its
legal counsel, using criteria that allow their proper measurement, despite the uncertainty concerning their period and amount.
Reserves for tax lawsuits are recorded based on the total taxes under legal dispute, plus inflation adjustment and late
payment interest incurred through the balance sheet dates.
2.14. Foreign currency
Monetary assets and monetary liabilities denominated in foreign currencies were translated into Brazilian reais at the
exchange rate in effect at the balance sheet dates, and currency translation differences were recorded in the statement
of income.
2.15. Use of estimates
The preparation of financial statements requires the Management of the Company and its subsidiaries to make estimates
and assumptions that affect the reported amounts of certain assets and liabilities, disclosure of contingent assets and
liabilities at the reporting dates, and the reported amounts of revenues and expenses during the reporting periods.
Significant assets and liabilities subject to these estimates and assumptions include the net book value of property, plant and
equipment and intangible assets, allowance for doubtful accounts (lease of POS equipment), deferred income tax and social
contribution assets, and reserve for contingencies. Since Management’s judgment involves making estimates concerning
the likelihood of future events, actual amounts could differ from those estimates. The Company and its subsidiaries review
estimates and assumptions annually.
2.16. Share-based compensation
The Company offers a stock option plan to its officers and executives, and to the officers and executives of its subsidiary
Servinet. Options are priced at fair value on the grant date of the plans and are recognized on a straight-line basis as a
contra entry to shareholders’ equity. At the balance sheet dates, the Company reviews its estimates of the number of
vested options based on the plan’s terms and conditions and recognizes the impact of the revision of initial estimates, if any,
in the statement of income, as a contra entry to shareholders’ equity, according to the criteria set out in IFRS 2 –
Share-based Payment.
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2.17. New IFRSs and IFRIC Interpretations
The following new and revised standards and interpretations went into effect and were adopted in 2009 and/or 2008, and
impacted the amounts disclosed in these financial statements:
• IAS 1 (revised) – Presentation of Financial Statements: introduces certain changes in the presentation of financial
statements, including changes in the titles of each financial statement. The statement of changes in shareholders’ equity
shall only include the changes in shareholders’ equity arising from transactions with shareholders acting as such. As for
changes arising from transactions with non-shareholders (for example, transactions with third parties or income and
expenses recognized directly in shareholders’ equity), entities no longer can separately present other comprehensive
income items in the statements of changes in shareholders’ equity. These changes with non-shareholders must be
presented in a statement of comprehensive income and its total carried to the statement of changes in shareholders’
equity. All income and expense items (including those not recognized in profit or loss) must be presented in a single
statement of comprehensive income with subtotals, or in two separate statements (a statement of income and a
statement of comprehensive income). IAS 1 also introduces new statement requirements when an entity
retrospectively adopts a change in accounting policies, including remaking a statement or reclassifying items of previously
issued statements.
• IFRS 8 – Operating Segments: this standard replaces IAS 14 and requires that the amount stated for each segment
corresponds to internally used measure and reported to the chief operating decision maker for purposes of allocation of
funds to a segment and the assessment of its performance.
• IFRS 2 (amended) – Share-based Payment: the objective of the amendment is basically to clarify the definition of the
purchase terms and the accounting treatment of cancelation by the counterpart in a share-based arrangement. The
following new and revised standards and interpretations went into effect in 2009 and/or 2008. Their adoption should
not have a significant impact in these financial statements, but can impact the accounting of future transactions
and agreements:
• IAS 16 (amended) – Property, Plant and Equipment.
• IAS 19 (amended) – Employee Benefits.
• IAS 32 (amended) – Financial Instruments: Presentation.
• IAS 38 (amended) – Intangible Assets.
• IAS 39 (amended) – Financial Instruments: Recognition and Measurement.
• IFRS 1 (amended) -First-time Adoption of International Financial Reporting Standards.
• IAS 23 (amended) – Borrowing Costs.
• IFRS 5 – Noncurrent Assets Held for Sale and Discontinued Operations.
• IFRS 7 – Financial Instruments: Disclosure.
Financial Statements 2009 73
The following new pronouncements, amendments and interpretations were issued but are not effective for the year ended
December 31, 2009 and have not been early adopted by the Company:
• IFRS 1 (amended) – First-time Adoption: effective for annual reporting periods starting on January 1st, 2011.
• IFRS 2 (amended) – Share-based Payments: effective for annual reporting periods starting on or after July 1st, 2009 and
January 1st, 2010.
• IFRS 7 (amended) – Financial Instruments: Disclosure: effective for annual reporting periods starting on January 1st, 2011.
• IAS 1 (amended) – Presentation of Financial Statements: effective for annual reporting periods starting on January 1st, 2010
and 2011.
• IAS 7 (amended) – Statement of Cash Flows: effective for annual reporting periods starting on January 1st, 2010.
• IAS 17 (amended) – Leases: effective for annual reporting periods starting on January 1st, 2010.
• IAS 36 (amended) – Impairment of Assets: effective for annual reporting periods starting on January 1st, 2010.
• IAS 34 (amended) – Interim Financial Reporting: effective for annual reporting periods starting on January 1st, 2011.
• IAS 39 (amended) – Financial Instruments: Recognition and Measurement: effective for annual reporting periods starting
on January 1st, 2010.
• IAS 40 (amended) – Investment Property: effective for annual reporting periods starting on January 1st, 2011.
• IFRS 3 (amended) – Business Combinations and consequent amendments to IAS 27 – Consolidated and Separate
Financial Statements, IAS 28 – Investments in Associates and IAS 31 – Interest in Joint Ventures, effective for business
combinations whose acquisition date occurred on or after the beginning of the first annual reporting period starting
on or after July 1st, 2009, July 1st, 2010 and January 1st, 2011. The Company’s Management is analyzing the impact of these
new requirements.
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3. TRANSITION TO IFRS
3.1. IFRS transition basis
3.1.1. Application of IFRS 1
The consolidated financial statements for the year ended December 31, 2009 are the first to be presented in conformity with
IFRS, as described in Note 2.1.
The Company prepared its opening balance sheet assuming a transition date of January 1st, 2008, pursuant to IFRS 1; the
Company, therefore, applied the mandatory exemptions and certain optional exemptions to the full retrospective application
of IFRS.
3.1.2. Exemptions to the full retrospective application elected by the Company
The Company adopted the utilization of the following optional exemptions to the full retrospective application of IFRS:
a) Exemption for business combination: the Company elected not to remeasure business acquisitions carried out prior
to the transition date to IFRS, in conformity with IFRS 3; therefore, goodwill arising on acquisitions prior to this date was
maintained at the balances net of amortization, determined on the IFRS transition date, in conformity with Brazilian
accounting practices (BR GAAP).
b) Exemption for presenting the fair value of fixed assets as cost of purchase: the Company opted not to remeasure its
property, plant and equipment on the transition date at fair value and elected to maintain the cost of purchase adopted
under BR GAAP as amount of property, plant and equipment.
c) Exemption related to compound financial instruments measurement: the Company does not have compound financial
instruments on the IFRS transition date.
d) Exemption related to the recognition of interests in subsidiaries, joint ventures (jointly-controlled entities) and associates:
the Company’s subsidiaries, jointly-controlled subsidiaries and associates did not present IFRS financial statements as of the
transition date; accordingly, the Company elected to adopt the same IFRS transition date for all its subsidiaries, joint ventures
and associates.
e) Exemption related to the classification of financial instruments: the Company elected to designate financial assets and
financial liabilities on the IFRS transition date.
3.1.3. Mandatory full retrospective application exemptions followed by the Company
No impacts were identified on the Company’s consolidated financial statements arising on the application of mandatory
exemptions set out in IFRS 1.
Financial Statements 2009 75
3.2. Reconciliation between IFRS and BR GAAP
Description of the main differences between IFRS and BR GAAP that affect the Company’s financial statements:
a) Intangible assets: under the IFRS, preoperating costs do not fall into the definition of intangible assets and should be
recorded as expenses. Usually costs incurred on an internally generated intangible asset are not capitalized.
Under BR GAAP, up to 2008, preoperating costs and expenses on projects were recorded in assets at cost. Amortization was
calculated under the straight-line method on cost, at rates determined based on the projection of the implemented projects
in relation to their installed capacities. In 2008, BR GAAP was amended by CPC 04 – Intangible Assets to converge with the
IFRS accounting treatment adopted, which was prospectively adopted and accounted for by the Company in 2008.
b) Formation of joint ventures: under the IFRS, nonmonetary assets contributed to form a joint venture in exchange for an
interest are accounted for by the joint venture at fair value or book value plus the venturer’s premium. CBGS (joint venture)
accounted for the funds contributed by CBGS Ltda. (venturer) at the same carrying amounts recorded at CBGS Ltda.
(venturer) as interests, plus premium. Additionally, CBGS accounted for as capital contribution, at fair value, the intangible
assets contributed by the other venturers, Bradesco and Cassi, and the related subsequent amortization of such intangible
assets over the useful lives defined by the joint venture’s Management.
Under BR GAAP, the intangible assets contributed by the other venturers, Bradesco and Cassi, were not accounted for
as assets forming the capital of the joint venture. Accordingly, all the monetary and nonmonetary assets contributed by
CBGS Ltda. to the joint venture are considered as increases in investment prorated by 40.95%, and the remaining interest
as goodwill arising on capital payments, as the other venturers did not contribute any accountable asset to hold a
59.05% interest.
c) Capital contribution of Visa Inc. shares: under IFRS, the capital contribution of Visa Inc. shares was accounted for at fair
value on the date the shares were received, recorded in line items “Investments – available-for-sale financial assets” and
“Capital reserves”, less deferred tax. Additionally, the changes in fair value of the shares since receiving date to the sale date,
and afterward to the date of the transfer to shareholders, as explained in Note 20, were accounted for in the statement of
comprehensive income and then reversed to income for the year, in line item “Other operating (expenses) income, net.”
Under the BR GAAP, the receipt of these Visa Inc. shares was accounted for as a donation at cost of R$2, directly in income
for the year. Subsequently, on the date of the sale of part of the shares, the Company accounted for a capital gain of
R$502,893, recorded in income for the year.
d) Deferred income tax and social contribution: accounted for on differences between BR GAAP and IFRS, when applicable.
Cielo76
e) Segment reporting: under IFRS, publicly-traded companies are required to present information per business segment.
IFRS 8 requires identification of operating segments on the basis of internal reports that are regularly reviewed by the
Company’s chief operating decision maker in order to allocate resources to the segment and assess its performance.
A business or geographical segment is required to be disclosed if most of the revenue recorded arises from sales to external
customers and represents 10% or more of total internal and external sales of all segments, or 10% or more of the combined
revenue of all segments, or 10% or more of total assets of all segments. Information shall be provided on additional
segments if the total external revenues attributable to the segments on which information has been provided account for
less than 75% of total consolidated or company’s revenues. The Company’s internal reporting is regularly reviewed by the
acquirer segment, which represents basically the consolidated operations, and the Health Project segment, which results
from the CBGS joint venture, and represents less than 10% of the amounts above. The Health Project is accounted for
under the proportionate consolidation method and disclosed on a condensed basis in Note 4.2. Accordingly, in terms of
materiality, the Company understands that segment reporting will not add any information to these financial statements.
The main service revenues are disclosed as presented in the statements of income for the years ended December 31, 2009
and 2008 and are fully earned in Brazil.
Under BR GAAP, specific standards regulating segment reporting were issued in 2009 and are applicable to annual reporting
periods ended on or after December 2010.
f) Earnings per share: under IFRS, publicly-traded entities shall disclose basic and diluted earnings per share (see Note 21).
Basic earnings per share shall be calculated by dividing the net income for the period attributable to shareholders by the
weighted average of outstanding shares during the period, including the issue of rights and subscription warrants.
An entity shall calculate diluted earnings per share taking into account the net income attributable to shareholders and the
weighted average of outstanding shares, plus effects of all potential shares. All instruments and contracts that can result in
the issue of shares are considered to be potential shares.
Comparative figures shall be adjusted to reflect capitalizations, issue of subscription warrants or stock splits. If these
alterations occur after the balance sheet date but before the authorization for the issuance of financial statements, then the
calculation per share of these or any financial statements for prior periods shall be based on the new number of shares.
Under the BR GAAP, earnings per share are calculated by dividing the net income for the year by the number of outstanding
shares at yearend. The concept of diluted earnings per share does not exist. The prior periods’ figures must not be adjusted
for stock splits or reverse stock splits or similar transactions.
Financial Statements 2009 77
g) Reclassification under IFRS: the main reclassifications made in the financial statements consolidated under IFRS are
as follows:
•UnderIFRS,escrowdepositsarepresentedingrossamountsinnoncurrentassets.UnderBRGAAP,escrowdepositswere
presented net of contingent amounts in noncurrent liabilities.
•UnderIFRS,deferredincometaxandsocialcontributionhavebeenfullyreclassifiedtononcurrent.UnderBRGAAP,
deferred income tax and social contribution balances have been presented in current and noncurrent, according to their
estimate of realization.
•UnderIFRS,thebalanceofretainedearningsabovemandatoryminimumdividendremainsinshareholders’equity.Under
BR GAAP, the balance of retained earnings has been fully accrued in current liabilities as dividends payable.
h) Accrual for dividends payable: under the Company’s bylaws, shareholders are entitled to a minimum dividend of
50% of adjusted net income for each year. For IFRS purposes, dividends are recognized as liabilities when approved at
a shareholders’ meeting. Therefore, at year end, the Company recognizes as liabilities the amount corresponding to
minimum dividends not paid during the year up to the limit of the mandatory minimum dividend described above. Dividends
exceeding the amount set forth in the bylaws that do not qualify for recording under IFRS are reversed and credited
to shareholders’ equity, less retained earnings only when approved by the shareholders’ meeting. Under BR GAAP, the
Company records dividends proposed by Management as liabilities, which after yearend are submitted to the approval
of shareholders.
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3.2.1. Reconciliation of the Company’s consolidated balance sheet on the IFRS
transition date – January 1st, 2008
BALANCE SHEETEffects of
transition Note
ASSETS BR GAAP to IFRS 3.2. IFRS
CURRENT ASSETS
Cash and cash equivalents 995,224 - 995,224
Trade accounts receivable 14,703 - 14,703
Prepaid and recoverable taxes 877 - 877
Deferred income tax and social contribution 35,118 (35,118) g -
Other receivables 6,674 - 6,674
Receivables – securitization abroad 149,119 - 149,119
Interest receivable – securitization abroad 6,544 - 6,544
Prepaid expenses 1,950 - 1,950
Total current assets 1,210,209 (35,118) 1,175,091
NONCURRENT ASSETS
Long-term assets:
Receivables – securitization abroad 367,516 367,516
Deferred income tax and social contribution 94,150 62,613 a, g 156,763
Escrow deposits - 221,687 g 221,687
Other receivables 249 - 249
Investments:
Other investments 288 - 288
Property, plant and equipment 210,483 - 210,483
Intangible assets:
Goodwill on acquisition of investments 41,157 - 41,157
Other intangible assets 124,681 (80,868) a 43,813
Total noncurrent assets 838,524 203,432 1,041,956
TOTAL ASSETS 2,048,733 168,314 2,217,047
Financial Statements 2009 79
BALANCE SHEETEffects of
transition Note
LIABILITIES AND SHAREHOLDERS’ EQUITY BR GAAP to IFRS 3.2. IFRS
CURRENT LIABILITIES
Financing – lease transactions 1,034 - 1,034
Payables to merchants 437,487 - 437,487
Trade accounts payable 85,595 - 85,595
Taxes payable 227,803 - 227,803
Reserve for contingencies 2,520 - 2,520
Payables – securitization abroad 148,941 - 148,941
Interest payable – securitization abroad 6,544 - 6,544
Dividends payable - - -
Other payables 98,632 - 98,632
Total current liabilities 1,008,556 - 1,008,556
NONCURRENT LIABILITIES
Payables – securitization abroad 367,516 367,516
Reserve for contingencies 60,773 221,687 g 282,460
Other payables 868 - 868
Total noncurrent liabilities 429,157 221,687 650,844
SHAREHOLDERS’ EQUITY -
Capital 74,534 74,534
Capital reserve 3,627 3,627
Earnings reserve – legal 14,907 14,907
Retained earnings 517,952 (53,373) a, d 464,579
Treasury shares - - -
Total shareholders’ equity 611,020 (53,373) 557,647
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 2,048,733 168,314 2,217,047
Reconciliation of shareholders’ equity – BR GAAP versus IFRS on the IFRS transition date – January 1st, 2008.
Note
3.2.
BR GAAP shareholders’ equity 611,020
IFRS adjustments:
Reversal of effects of write-off of IFRS deferrals on 2008 net income a (80,868)
Deferred income tax and social contribution d 27,495
IFRS shareholders’ equity 557,647
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3.2.2. Reconciliation of the BR GAAP consolidated financial statements for
the last year presented – december 31, 2008
BALANCE SHEET
Effects of
transition Note
ASSETS BR GAAP to IFRS 3.2. IFRS
CURRENT ASSETS
Cash and cash equivalents 1,072,157 - 1,072,157
Trade accounts receivable 162,943 - 162,943
Receivables from subsidiary 177 - 177
Prepaid and recoverable taxes 1,219 - 1,219
Deferred income tax and social contribution 37,054 (37,054) g -
Other receivables 4,941 - 4,941
Receivables – securitization abroad 207,979 - 207,979
Interest receivable – securitization abroad 6,341 - 6,341
Prepaid expenses 4,488 - 4,488
Total current assets 1,497,299 (37,054) 1,460,245
NONCURRENT ASSETS
Long-term assets:
Receivables – securitization abroad 277,000 - 277,000
Deferred income tax and social contribution 132,344 37,054 g 169,398
Escrow deposits - 323,073 g 323,073
Other receivables 1,703 - 1,703
Investments:
Other investments 174 - 174
Property, plant and equipment 213,295 - 213,295
Intangible assets:
Goodwill on acquisition of investments 17,795 - 17,795
Other intangible assets 49,075 20,766 b 69,841
Total noncurrent assets 691,386 380,893 1,072,279
TOTAL ASSETS 2,188,685 343,839 2,532,524
Financial Statements 2009 81
BALANCE SHEET
Effects of
transition Note
LIABILITIES AND SHAREHOLDERS’ EQUITY BR GAAP to IFRS 3.2. IFRS
CURRENT LIABILITIES
Financing – lease transactions 401 - 401
Payables to merchants 487,628 - 487,628
Trade accounts payable 96,604 - 96,604
Taxes payable 275,066 - 275,066
Dividends payable 542,985 (542,985) h -
Payables to joint venture - 20,766 b 20,766
Payables – securitization abroad 207,943 - 207,943
Interest payable – securitization abroad 6,341 - 6,341
Other payables 66,526 - 66,526
Total current liabilities 1,683,494 (522,219) - 1,161,275
NONCURRENT LIABILITIES
Payables – securitization abroad 277,000 - 277,000
Reserve for contingencies 68,390 323,073 g 391,463
Other payables 740 - 740
Total noncurrent liabilities 346,130 323,073 669,203
SHAREHOLDERS’ EQUITY
Capital 75,379 - 75,379
Capital reserve 68,606 - 68,606
Earnings reserve – legal 15,076 - 15,076
Retained earnings - 542,985 h 542,985
Total shareholders’ equity 159,061 542,985 h 702,046
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 2,188,685 343,839 2,532,524
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STATEMENT OF INCOME
2008
BR GAAP
Effects of
transition
to IFRS
Note
3.2. IFRS
GROSS REVENUE
Revenue from commissions 2,184,840 2,184,840
Rental income 903,061 903,061
Revenue from services 127,652 - 127,652
Revenue from commissions, rentals and services 3,215,553 - 3,215,553
Taxes on services (340,087) - (340,087)
NET OPERATING INCOME 2,875,466 - 2,875,466
COST OF SERVICES (851,119) - (851,119)
GROSS PROFIT 2,024,347 - 2,024,347
OPERATING (EXPENSES) INCOME
Personnel (95,613) - (95,613)
General and administrative (147,386) (15,098) a, b (162,484)
Management and officer compensation (9,520) - (9,520)
Marketing (77,948) - (77,948)
Other operating income, net 325,101 (63,344) a, b, c 261,757
OPERATING INCOME BEFORE FINANCIAL INCOME (EXPENSES) 2,018,981 (78,442) 1,940,539
FINANCIAL INCOME (EXPENSES)
Financial income 153,405 - 153,405
Financial expenses (59,875) - (59,875)
Prepayment of receivables 17,388 - 17,388
Exchange rate variation, net 947 - 947
111,865 - 111,865
INCOME BEFORE INCOME TAX AND SOCIAL CONTRIBUTION 2,130,846 (78,442) 2,052,404
INCOME TAX AND SOCIAL CONTRIBUTION
Current (774,180) - (774,180)
Deferred 37,177 26,671 a, d 63,848
NET INCOME 1,393,843 (51,771) 1,342,072
Reconciliation of shareholders’ equity – BR GAAP versus IFRS as of December 31, 2008.
Financial Statements 2009 83
Note
3.2.
BR GAAP shareholders’ equity 159,061
IFRS adjustments:
Reclassification of dividends above mandatory minimum
dividends to shareholders’ equityh 542,985
IFRS shareholders’ equity 702,046
CASH FLOWS
Year ended December 31, 2008
BR GAAP
Effects of
transition
to IFRS
Note
3.2. IFRS
Net cash provided by operating activities 1,067,557 (172,394) c 895,163
Net cash provided by investing activities 312,826 13,084 325,910
Net cash used in financing activities (1,303,450) 159,310 c (1,144,140)
INCREASE IN CASH AND CASH EQUIVALENTS 76,933 - 76,933
CASH AND CASH EQUIVALENTS
Closing balance 1,072,157 - 1,072,157
Opening balance 995,224 - 995,224
INCREASE IN CASH AND CASH EQUIVALENTS 76,933 - 76,933
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4. CONSOLIDATED FINANCIAL STATEMENTSThe consolidated financial statements include the account balances of the Company (parent company), its subsidiaries Servinet,
Servrede and CBGS Ltda. (until October 31, 2009) and joint ventures CBGS (until November 30, 2009), Orizon, former Polimed,
Dativa (until May 29, 2008), Prevsaúde and Precisa (starting February 28, 2009). In the preparation of these consolidated financial
statements, intercompany balances and transactions have been eliminated.
The assets, liabilities, income and expenses of joint ventures CBGS (merged on November 30, 2009) Orizon, Dativa (merged on May
29, 2008), Prevsaúde and Precisa have been included proportionally to the Company’s interest in their capital.
The translation into Brazilian reais of the financial statements of the Grand Cayman branch, originally prepared in U.S. dollars, was
based on the exchange rates prevailing at the balance sheet dates.
4.1. Direct subsidiaries (individual control)
The interests held in the consolidated subsidiaries are as follows:
Ownership interest – %
Total capital Voting capital
2009 2008 2009 2008
Direct subsidiaries:
Servinet 99.99 99.99 99.99 99.99
Servrede 99.99 99.99 99.99 99.99
CBGS Ltda. - 99.99 - 99.99
4.2. Joint ventures (jointly-controlled entities)
Interests in joint ventures include the interests in CBGS, Orizon, formerly Polimed, Dativa (up to May 29, 2008), Prevsaúde and
Precisa (starting February 28, 2009), as follows:
Ownership interest – %
Total capital Voting capital
2009 2008 2009 2008
Joint ventures:
CBGS 40.95 40.95 40.95 40.95
Orizon 40.95 40.95 40.95 40.95
Prevsaúde 40.95 40.95 40.95 40.95
Precisa 40.95 40.95 40.95 40.95
Financial Statements 2009 85
The condensed financial information of the joint ventures was consolidated under the proportionate consolidation method. All the
balances of these subsidiaries’ assets and liabilities are as follows:
CBGS
2009 2008
Assets:
Current assets 39,795 20,667
Noncurrent assets 51,395 73,794
Total assets 91,190 94,461
Liabilities:
Current liabilities 12,221 6,404
Noncurrent liabilities 3,585 5,414
Shareholders’ equity 75,384 82,643
Total liabilities and shareholders’ equity 91,190 94,461
Gross revenue 65,841 30,955
Gross profit 12,098 2,179
Operating expenses (32,474) (20,468)
Loss before taxes (32,474) (20,468)
Loss (34,403) (22,157)
5. TRANSACTIONS NOT AFFECTING CASHIn the year ended December 31, 2008, the Company made the following investments with no effects on cash, which are not
reflected in the statements of cash flows:
• As described in Note 1, the subsidiary CBGS Ltda. acquired a 40.95% interest in CBGS, and as of December 31, 2008
the balance of principal, totaling R$35,166, recognized in consolidated accounts payable after the elimination against
receivables proportionally to the Company’s interest, had not been paid in; in the year ended December 31, 2009,
R$35,166 was paid in.
• As described in Note 20.(a), the Company received 11,990,744 Visa Inc. shares as capital contribution at current fair
value, totaling R$897,276, recorded in line items “Investments” and “Capital reserves”, less deferred income tax and
social contribution.
Additionally, as described in Note 20.(a) and (b), the Company transferred 5,253,684 Visa Inc. shares to the Company’s
shareholders as payment of dividends with transfer of financial assets, totaling R$487,058.
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6. CASH AND CASH EQUIVALENTS
2009 2008 01.01.2008
Cash and banks:
Local currency 1,945 8,184 22,811
Foreign currency 12,456 6,513 6,196
Short-term investments:
Debentures subject to repurchase agreements (a) 58,085 616,653 416,843
Bank certificates of deposit (CDBs) (a) 439,479 436,381 544,017
Money Market Deposit Account – MMDA (b) 2,315 4,426 5,357
Total 514,280 1,072,157 995,224
Cash and banks consist of an imprest cash fund and cash available in bank accounts in Brazil and abroad, derived primarily from
deposits made by card-issuing banks. Such amounts are used to settle transactions with merchants.
Short-term investments have the following characteristics:
(a) The yield of debentures and CDBs for the years ended December 31, 2009 and 2008 was, on average, 102.4% and 103.1% of
the interbank deposit rate (CDI), respectively.
(b) The funds invested abroad (New York – USA) in MMDA earn yield at a fixed rate of 0.1% per year.
These short-term investments are highly liquid and their fair values do not differ materially from their carrying amounts.
7. TRADE ACCOUNTS RECEIVABLE
2009 2008 01.01.2008
Prepayment of receivables (a) 1,164,376 146,643 -
Bank account blocking (b) 2,333 6,051 2,275
Provision of electronic network interconnection services between health operators (c) 4,534 3,943 4,883
Companhia Brasileira de Soluções e Serviços – CBSS (d) 3,351 3,353 4,994
Other receivables 4,190 2,953 2,551
Total 1,178,784 162,943 14,703
(a) On September 1st, 2008 and January 5, 2009, the Company started to provide prepayment services of receivables in cash and in installments, respectively, to
affiliated merchants. As of December 31, 2009, the balance corresponds to prepayment of receivables transactions receivable from the card-issuing banks
within up to 360 days after the date receivables are prepaid to merchants. As of December 31, 2009, this amount is net of the discount to present value of
related charges in the amount of R$35,266, charged to financial income (expenses) (see Note 30).
The ten largest merchants that prepaid receivables accounted for 27.5% of the total revenue of prepayment receivables for the year ended December 31, 2009.
(b) The Company offers card-issuing banks, bank account blocking services, upon prior approval from merchants to block any transfer of receivables from
such merchants to another bank. For these services, the Company receives a commission, which is paid in the month subsequent to the request of the bank
account blocking by the card-issuing banks.
(c) Receivables from the jointly-owned subsidiary Orizon arising from the provision of electronic network interconnection services, based on a single
technology platform, for exchange of information between health operators and medical and hospital service providers, and any other health system agents
and drugstores.
(d) Receivables from CBSS (jointly-controlled entity) arising on the provision of transportation and meal tickets card capture and processing services.
Financial Statements 2009 87
The aging of “Trade accounts receivable” is as follows:
2009 2008 01.01.2008
Current 1,175,302 160,997 12,641
Past-due up to 45 days 3,482 1,946 2,062
1,178,784 162,943 14,703
The balance recorded in “Trade accounts receivable” is net of the allowance for doubtful accounts, which totals R$1,457 as of
December 31, 2009 (R$2,164 as of December 31, 2008).
8. RECEIVABLES – SECURITIZATION ABROAD Refer to receivables from Banco Bradesco S.A. and Banco do Brasil S.A., contracted in July 2003, in the amount of US$500 million,
divided into US$100 million and US$400 million, respectively, with interest rates of 4.777% and 5.911% per year, for quarterly
payments over a period of eight years and a grace period of two years.
As of December 31, 2009, the principal receivable from Banco Bradesco S.A. and Banco do Brasil S.A. is R$206,295 (R$484,979 as of
December 31, 2008).
The balances receivable were segregated into current and noncurrent according to the flow of receipts, i.e., R$163,850 (R$207,979
as of December 31, 2008) and R$42,445 (R$277,000 as of December 31, 2008), respectively.
Interest is received and paid in advance, on a quarterly basis, and recorded under “Interest receivable – securitization abroad” and
“Interest payable – securitization abroad”, in the amount of R$2,914 (R$6,341 as of December 31, 2008).
These receivables were contracted at the same rates and terms as the Company’s obligation to Brazilian Merchant Voucher
Receivables Limited, a special purpose entity established in Grand Cayman (Note 19).
The long-term portion, as of December 31, 2009, will be fully settled in 2011.
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9. DEFERRED INCOME TAX AND SOCIAL CONTRIBUTIONDeferred income tax and social contribution arise from temporary differences mainly due to temporarily nondeductible provisions,
and are recorded in current and noncurrent assets according to their expected realization.
Deferred income tax and social contribution reflect the tax effects attributable to temporary differences between the tax base of
assets and liabilities and their reported amounts in the financial statements. Reported amounts are monthly reviewed.
Deferred income tax and social contribution as of December 31, 2009 and 2008, are as follows:
Income tax Social contribution
2009 2008 01.01.2008 2009 2008 01.01.2008
Temporary differences:
Reserve for contingencies 124,338 97,311 69,228 44,762 35,032 24,922
Accrual for sundry expenses 27,949 24,445 19,010 10,065 8,800 6,843
Write-off of deferred charges - - 20,217 - - 7,278
Adjustment to present value of
prepayment of receivables8,816 - - 3,174 - -
Accrual for maintenance of POS equipment - - 1,296 - - 466
Allowance for losses on POS equipment 713 1,133 772 257 408 278
Allowance for losses on deferred expenses 1,416 1,668 4,744 510 601 1,709
Total 163,232 124,557 115,267 58,768 44,841 41,496
Management believes that the deferred assets arising from temporary differences will be realized in proportion to the final resolution of
lawsuits and related events. The expected realization of deferred income tax and social contribution is as follows:
2010 58,299
2014 163,701
Total 222,000
Financial Statements 2009 89
10. PROPERTY, PLANT AND EQUIPMENT
Consolidated
2009
Annual depreciation
rate – % Cost
Accumulated
Depreciation Net
POS equipment (*) 33 693,860 (422,466) 271,394
Data processing equipment 20 27,214 (18,043) 9,171
Machinery and equipment 10 68,612 (64,814) 3,798
Facilities 10 17,080 (9,893) 7,187
Furniture and fixtures 10 6,584 (2,999) 3,585
Vehicles 20 1,198 (212) 986
Total 814,548 (518,427) 296,121
(*) As of December 31, 2009 and 2008, obsolescence reserve for POS equipment was recorded in the amounts of R$2,851 and R$520, respectively, as a
reduction of the account.
Consolidated
2008
Annual depreciation
rate – % Cost
Accumulated
Depreciation Net
POS equipment 33 550,237 (363,592) 186,645
Data processing equipment 20 23,824 (15,742) 8,082
Machinery and equipment 10 70,168 (62,991) 7,177
Facilities 10 16,244 (8,920) 7,324
Furniture and fixtures 10 6,233 (2,595) 3,638
Vehicles 20 478 (49) 429
Total 667,184 (453,889) 213,295
Changes in property, plant and equipment for the year ended December 31, 2009, are as follows:
2008Additions/
transfers
Write-offs/
reversalsDepreciation 2009
POS equipment 186,645 215,722 (6,162) (124,811) 271,394
Data processing equipment 8,082 4,739 (100) (3,550) 9,171
Machinery and equipment 7,177 2,861 (47) (6,193) 3,798
Facilities 7,324 1,531 (454) (1,214) 7,187
Furniture and fixtures 3,638 898 (287) (664) 3,585
Vehicles 429 915 (147) (211) 986
Total 213,295 226,666 (7,197) (136,643) 296,121
As of December 31, 2009 and 2008, property, plant and equipment arising from finance lease transactions are represented
only by assets classified as data processing equipment in the net amounts of R$2,215 and R$6,203, respectively. Average term
of depreciation for this equipment is approximately three years. The depreciation of IT equipment purchased through lease
transactions for the years ended December 31, 2009 and 2008, recorded under “General and administrative expenses”, amounts to
R$3,988 and R$4,112, respectively. As of December 31, 2009 and 2008, the Company does not have finance leases payable.
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11. GOODWILLAs mentioned in Note 1, on January 2, 2008, CBGS Ltda. subscribed 693,480 new common shares without par value of
jointly-controlled entity CBGS, for R$139,045, which represented its fair value as of that date.
As part of payment, CBGS Ltda. delivered all the shares of Orizon and Dativa, totaling R$71,691, consisting of total net assets
of R$9,188, transferring goodwill arising on the acquisition of these subsidiaries from third parties, and generating payables of
R$67,266 to be paid in within up to two years, as detailed in Note 1.
The balance of goodwill in consolidated is net of the reversal of the unrealized gain in consolidated from the transfer of the shares
of Orizon and Dativa totaling R$5,880, also less of the allowance for impairment of goodwill recognized in 2008, which totals
R$1,956, consolidated.
At the end of 2008, the Company tested the goodwill for impairment and determined that the balance of goodwill related to its
contribution to the joint venture was impaired by R$1,956. The recoverable amount was calculated based on its value in use. The
main factor for the impairment of goodwill was Management’s reassessment of the profitability prospects of the Health Project.
The impaired goodwill amount was recognized in “Other operating (expenses) income, net”, in the 2008 statement of income.
The breakdown of goodwill as of December 31, 2009, is as follows:
Goodwill Ownership interest – % Net
CBGS 25,631 100.00 25,631
Prevsaúde 7,372 40.95 3,019
Precisa 3,381 40.95 1,384
Unrealized income (5,880)
Allowance for losses (1,956) (1,956)
Total 22,198
As described in Note 1, on March 16, 2009, indirect subsidiary CBGS acquired all the shares of Prevsaúde and Precisa. The
investment recorded by CBGS includes a share premium in the amount of R$10,753, recorded as goodwill. This goodwill is
based on expected future earnings of those Companies, based on the increase in operations expected for the coming years.
Changes in goodwill for the year ended December 31, 2009, are as follows:
2008Additions/
transfers
Write-offs/
reversals2009
CBGS 25,631 - - 25,631
Prevsaúde - 3,019 - 3,019
Precisa - 1,384 - 1,384
Allowance for losses (1,956) - - (1,956)
Unrealized income (5,880) - - (5,880)
Total 17,795 4,403 - 22,198
Financial Statements 2009 91
12. INTANGIBLE ASSETS2009 2008 01.01.2008
Annual
amortization
rate – %
CostAccumulated
amortization Net Net Net
Software (a) 20 83,124 (55,319) 27,805 35,928 43,685
Project development (b) 20 28,543 (15,064) 13,479 19,820 19,109
Allowance for losses on projects (c) - - - - (6,673) (18,981)
Customer relationship (d) 32 35,464 (35,464) - 20,766 -
147,131 (105,847) 41,284 69,841 43,813
(a) Refers to items purchased from third parties and used to provide data and business transactions processing services to customers. There is no individually
material software as of December 31, 2009.
(b) Refers to costs on development of new products and services for purposes of increasing sales and revenue of the Company and its subsidiaries.
(c) Refers to the provision for losses related to costs on development of projects and software of jointly-owned subsidiary Orizon.
(d) Refers to the proportionate consolidation of 40.95% of intangible assets contributed to the joint venture CBGS by the other venturers, Bradesco and Cassi,
and the related subsequent amortization of these intangibles over their finite useful lives of 38 months. Additionally, the Company’s Management recognized
for consolidation purposes an allowance for losses on these intangibles, totaling R$46,641, consolidated, as of December 31, 2009, (R$35,444 as of
December 31, 2008), and cost presented in the table above is net of this allowance.
For consolidation purposes, at the end of 2008, the Company tested these intangibles in the joint venture for impairment and
determined that they were impaired by R$35,444, and recognized an allowance for losses in the same amount. The Company
tested again these intangibles for impairment at the end of 2009 and increased the allowance for losses by R$46,641.
The recoverable amount was calculated based on its value in use. The main factor for the impairment of goodwill was
Management’s reassessment of the profitability prospects of the Health Project.
The contra entry to the allowance for losses is line account “Other operating (expenses) income, net” in the statement of income,
which as of December 31, 2009, totals R$11,197 (R$35,444 as of December 31, 2008).
Amortization expenses of intangible assets were included in “General and administrative expenses” in the statement of income.
Changes in intangible assets for the year ended December 31, 2009, are as follows:
2008Additions/
transfers
Write-offs/
reversalsAmortization 2009
Software 35,928 4,457 (74) (12,506) 27,805
Project development 19,820 1,888 (6,676) (1,553) 13,479
Allowance for losses on projects (6,673) - 6,673 - -
Customer relationship 20,766 - (11,197) (9,569) -
Total 69,841 6,345 (11,274) (23,628) 41,284
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13. TRANSACTIONS PENDING TRANSFERThe amounts due by credit cardholders through the card-issuing banks and the amounts to be transferred to merchants are
recorded in memorandum accounts. As of December 31, 2009, the balances are R$25,963,741 (R$20,767,459 as of December 31,
2008) and R$26,631,263 (R$21,255,087 as of December 31, 2008), respectively.
In addition to the provision of services consisting of the transfer of credit card transaction amounts between the card-issuing banks
and the merchants, the Company also guarantees accredited merchants that they will receive the amounts paid with credit cards.
The Company has an instrument to mitigate the credit risk of banks that issue VISA cards, used as a hedge against the risk of default
by such banks and that requires the provision of guarantees (collaterals or bank guarantees) considering the credit risk of the card-
issuing bank, sales volume with VISA cards, and residual risk of default by cardholders. The provision of guarantees is mandatory for
all card-issuing banks with credit risk and amounts are reviewed periodically by the VISA logo and the Company. If the card-issuing
bank does not provide the requested guarantees, it is not accepted as a system member or is disqualified as such. The objective of
the business guarantee system is to ensure merchants that they will receive the amounts of the transactions carried out with VISA
cards. The card-issuing banks provide the Company with guarantees against possible default by cardholders and the Company
provides guarantees to merchants against possible default by the card-issuing banks in the event of an intervention by the Central
Bank of Brazil (BACEN). Visa International manages the system of guarantees required from card-issuing banks and is the final
guarantor of the system, including of the Company.
Based on the immaterial historical amount of Company losses due to default from card-issuing banks and the current credit risks
of these financial institutions, the Company estimates that the fair value of the guarantees provided to merchants is immaterial and,
therefore, is not recognized as a liability.
14. PAYABLES TO MERCHANTSThe balance of R$667,522 as of December 31, 2009, (R$487,628 as of December 31, 2008) corresponds to the difference between
the amounts received from VISA cardholders through the card-issuing banks and the amounts to be transferred to merchants. In
general, the period of collection from card-issuing banks is 27 days and the average period for payment to merchants is 30 days
from the date of transaction. Therefore, the balance payable as of December 31, 2009, refers to a float of approximately three days.
15. TRADE ACCOUNTS PAYABLE
2009 2008 01.01.2008
Trade accounts payable 66,156 22,877 63,065
Accrued payments to suppliers 50,287 73,727 22,530
Total 116,443 96,604 85,595
Financial Statements 2009 93
16. TAXES PAYABLE
2009 2008 01.01.2008
Income tax and social contribution, net of prepayments 388,289 248,525 203,189
Service tax (ISS) 6,098 5,477 4,466
Withholding income tax (IRRF) 5,016 5,661 4,487
Tax on revenue (COFINS) 13,928 12,430 11,163
Tax on revenue (PIS) 3,051 2,798 2,110
Other taxes payable 563 175 2,388
Total 416,945 275,066 227,803
17. OTHER PAYABLES
2009 2008 01.01.2008
Current liabilities:
Accrual for sundry expenses 21,861 19,864 25,492
Accrued vacation and 13th salary and related taxes 19,503 17,374 13,532
Employee and officer profit sharing 36,619 20,743 17,409
Other payables 2,058 8,545 42,199
Total 80,041 66,526 98,632
Noncurrent liabilities:
Amounts payable 233 740 868
18. RESERVE FOR CONTINGENCIES AND ESCROW DEPOSITS
a) Reserve for contingencies
The Management of the Company and its subsidiaries, based on the opinions of their legal counsel, recognized a reserve for
contingencies to cover losses on ongoing tax, labor and civil lawsuits, whose likelihood of an unfavorable outcome was assessed
as probable.
The changes in the reserve for contingencies in the year ended December 31, 2009, were as follows:
2008 Additions (a) Write-offs/
reversals (b)
Inflation
adjustment Payments (c) 2009
Tax 369,430 154,047 (21,400) 2,870 (20,501) 484,446
Civil 11,196 2,771 (2,102) - (497) 11,368
Labor 10,837 7,376 (2,446) - (3) 15,764
Total 391,463 164,194 (25,948) 2,870 (21,001) 511,578
(a) Correspond basically to the increase in the reserve for contingencies in the year ended December 31, 2009, related to suspended taxes, recorded as a
contra entry to “General and administrative expenses” and “Other operating (expenses) income” in the statement of income.
(b) Basically represented by a reserve for tax contingencies, in which the Company withdrew the lawsuits and included them in the federal tax
installment program.
(c) Correspond basically to the full settlement at sight of the lawsuits included in the federal tax installment program.
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Labor and social security contingencies – consider the current stage of lawsuits in case of probable losses.
Civil contingencies – refer to frauds in credit card operating processes.
Tax contingencies – refer to differences in interpretation by tax authorities, especially regarding:
• PIS – increase in tax rate – since January 2003, the Company and its subsidiary Servinet are challenging in court the increase
in PIS rate to 1.65%. As a result, the difference in the PIS rate under the cumulative and noncumulative calculation method is
being recorded as reserve for contingencies since then. Escrow deposits are made for unpaid PIS amounts. As of December
31, 2009, the accrued balance is R$87,458 and the balance of escrow deposits is R$92,244. The lawsuit was filed by the
Company with the 2nd Federal Court of São Bernardo do Campo. A final and unappealable decision was issued and the
Company awaits the sentence execution. The lawsuit was filed by the subsidiary with the 7th Federal Court of São Paulo and is
awaiting judgment of the appeal filed.
•COFINS – noncumulativeness – in February 2004, the Company and its subsidiary Servinet filed an injunction to avoid
payment of COFINS according to Law No. 10833/03 that requires the noncumulative calculation at the rate of 7.60%, and
began to make escrow deposits for amounts determined monthly. As a result, the difference in the COFINS rate under the
cumulative and noncumulative calculation method is being recorded as reserve for contingencies since then. Escrow deposits
are made for unpaid COFINS amounts. As of December 31, 2009, the accrued balance is R$361,833 and the balance of
escrow deposits is R$362,474. The lawsuit is awaiting judgment of the Federal Supreme Court.
•State VAT (ICMS) on imports – in 2003, through an injunction and defense against tax notifications regarding the customs
clearance of POS equipment purchased abroad for its property, plant and equipment, the Company is seeking nonpayment of
ICMS. As of December 31, 2009, the accrued balance is R$5,881 and the balance of escrow deposits is R$3,040. The lawsuits
filed by the Company with the 1st, 3rd, 6th , 7th, 10th, 13th and 14th São Paulo State Finance Courts and the court records are
awaiting judgment.
•Amazon Investment Fund (FINAM) – in 2007, the Company received a tax notification for calendar year 2002, fiscal year 2003.
The Federal Revenue Service alleges that the Request for Review of Tax Incentive Issue Order (PERC) was not filed within
the required deadline and, therefore, they do not recognize the portion of business income tax (IRPJ) related to FINAM. The
Company awaits the distribution of the Voluntary Appeal to the Panel of the Board of Tax Appeals. As of December 31, 2009,
the accrued balance is R$11,080.
•IRRF – incentive cards – in 2008, the Company received a tax notification related to calendar year 2005. The Federal Revenue
Service is claiming the credits arising from incentive marketing campaigns. The lawsuit is at the stage of administrative
defense. As of December 31, 2009, the accrued balance is R$390.
• Tax deficiency notices on unidentified credits – on December 23, 2009, the Company received tax deficiency notices related
to calendar years 2004 through 2007 regarding IRRF, PIS, COFINS and CSLL tax payments. The Federal Revenue Service is
claiming credits that were not identified in accessory obligations. This lawsuit is at the administrative defense stage, but, based
on the legal counsel’s opinion, the Company recognized a reserve for contingencies of R$16,953.
Financial Statements 2009 95
The Company and its subsidiaries are challenging other interpretations of the law by tax authorities and, therefore, as of
December 31, 2009, recognized a reserve for contingencies in the amount of R$851.
The Management of the Company and its subsidiaries, based on the opinion of their legal counsel, believes that the actual
disbursement of the reserves for contingencies will not occur before 2014.
Additionally, as of December 31, 2009, the Company and its subsidiaries are parties to tax, civil and labor lawsuits assessed by
their legal counsel as possible losses, for which no reserve was recorded, as follows:
Tax 117,816
Civil 124,041
Labor 16,269
Total 258,126
Civil contingencies refer basically to collection of transactions made through the Company’s system that were not transferred to
merchants in view of noncompliance with clauses of the affiliation contract, and compensation for losses caused by transactions
not transferred at that time.
Labor lawsuits, when started, are considered possible loss. Only after the court decision is issued, the lawsuits are reclassified
to probable or remote loss, depending on the decision and based on the history of losses on similar labor lawsuits. In general,
considering the history of losses, labor lawsuits are related to salary equalization, overtime, annual bonus, rights guaranteed
by agreements between the employer and the labor union, recognition of employment relationship, tenure after occupational
disease, and pain and suffering.
b) Escrow deposits – noncurrent assets
The Company has escrow deposits linked to the reserve for tax, labor and civil contingent liabilities, broken down as follows:
2009
Tax 452,273
Civil 1,325
Labor 1,694
Total 455,292
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19. Payables – Securitization AbroadRefer to the securitization transaction described in Notes 1 and 8, representing the Company’s obligation to deliver receivables
denominated in foreign currency that were generated or will be generated by the Company against Visa International Service
Association, arising mainly from purchases of goods/services with VISA credit and debit cards at Brazilian merchant outlets by
individuals residing and domiciled abroad, which were the subject matter of an agreement for assignment of future flow of
receivables to Brazilian Merchant Voucher Receivables Limited, a special purpose company established in Grand Cayman, which
issued securities in the international market, backed by receivables assigned by the Company.
Pursuant to the indenture, Brazilian Merchant Voucher Receivables Limited will pay total obligations in connection with the
securitization transaction with the flow of receivables in foreign currency from Visa International Service Association.
The banks participating in this transaction (Banco Bradesco S.A. and Banco do Brasil S.A.) entered into a cross guarantee agreement
whereby, in the event of default by one of the parties, the other party guarantees the transaction and has the right to exercise the
stock option for all or a part of the interest held by the default bank in the Company.
The amortization period of the amount recorded in noncurrent liabilities as of December 31, 2009, is until 2011 and the payment
schedule of the long-term portion is the same as shown in Note 8.
20. shareholders’ equity
a) Capital and capital reserve
Capital as of December 31, 2009, is represented by 1,364,783,800 common shares, fully subscribed and paid in. As mentioned
in item (d) below, with the repurchase of 4,532,300 shares in 2009, the number of shares totaled 1,360,251,500 as of December
31, 2009.
On January 31, 2008, Caixa Econômica Federal exercised its share subscription right, by subscribing 7,690,493 shares for R$65,825,
of which R$846 was recorded as capital increase and R$64,979 was recorded as capital reserve – share subscription premium.
On May 18, 2008, Visa Inc. concluded its corporate restructuring process. The result of this restructuring, intended to adjust the
ownership interest of the member companies according to the financial results generated for each of the five operational regions
of Visa Inc., was the assignment of the shares held to the member companies of the Visa System.
As a result of this process, on that date the Company received 11,990,744 shares with US$0.0001 of book value. It was accounted
as capital contribution at current fair value, totaling R$897,276, recorded in line items “Investments” and “Capital reserves”, less
deferred income tax and social contribution.
On March 28, 2008, 6,737,060 Visa Inc. shares were sold at the market price on the date of Visa Inc.’s IPO, totaling R$502,893, less
the corresponding commissions.
The Extraordinary Shareholders’ Meeting held on June 2, 2008, approved the reduction of the Company’s capital by R$1. In
exchange for this capital reduction, the 5,253,684 class “C” (Series I) common shares of Visa Inc. held by the Company were
transferred. The shares of Visa Inc. were delivered to shareholders proportionally to their interests in the Company’s capital.
The change in the fair value of these shares since the date they were received to this date, accounted for in the statement of
comprehensive income, was transferred to net income for the year.
Financial Statements 2009 97
On June 25, 2008, the Company’s Board of Directors’ meeting approved the issuance of 96,757 Class “B” common shares,
through the use of part of the authorized capital, which were subscribed by Caixa Econômica Federal, without any additional capital
contribution.
The Extraordinary Shareholders’ Meeting held on August 25, 2008, approved the conversion of all the 332,391,900 class “B”
common shares into class “A” common shares, in the same proportion; accordingly, the Company’s capital started to be
represented by a single class of common shares without par value.
The Extraordinary Shareholders’ Meeting held on September 22, 2008, approved a 2-for-1 stock split of the Company’s common
shares. As a result, the Company’s capital started to be represented by 1,364,783,800 registered common shares without par value.
b) Dividends
Recognized as liabilities when dividends are approved by the Company’s shareholders. Shareholders are entitled to a minimum
dividend of 50% of income after the recognition of the legal reserve of 5% of the net income for the year until the reserve equals
20% of the capital. The allocation of any remaining balance of net income will be resolved at the Shareholders’ Meeting. At
yearend, the Company accrues the minimum dividends not paid during the year up to the limit of the previously mentioned
mandatory minimum dividend. As of December 31, 2009, the amount was R$105,365, less the payment of interim and
intermediary dividends made, totaling R$661,532.
The Board of Directors’ Meeting held on January 28, 2009, approved the distribution of the balance of retained earnings, based
on the balance sheet as of December 31, 2008, in the amount of R$542,985. This amount was paid to shareholders as dividends
on February 27, 2009.
According to the minutes of the Board of Directors’ meeting held on April 22, 2009, the distribution of profits earned in the
quarter ended March 31, in the form of interim advanced amounting to R$333,199, was approved.
According to the minutes of the Board of Directors’ meeting held on August 4, 2009, the distribution of profits earned in the
quarter ended June 30, 2009, amounting to R$328,333, was approved.
On June 2, 2008, the 5,253,684 class “C” (Series I) shares of Visa Inc. held by the Company were transferred to the shareholders
proportionally to their interests in the Company’s capital as payment of dividends with the transfer of financial assets.
c) Earnings reserve – legal
Recognized with amounts corresponding to 5% of annual net income, pursuant to article 193 of Law No. 6404/76, up to the limit
of 20% of capital. The balance as of December 31, 2009, is R$15,076.
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d) Treasury shares
On November 23, 2009, the Company’s Board of Directors, in compliance with article 17 of its bylaws, approved the buyback of
up to 6,000,000 common shares without par value, to be canceled, sold or held in treasury and, primarily, to meet the exercise
of the options granted under the Company’s Stock Option Plan, with no capital reduction, within 180 days of that date, expiring,
therefore, on May 21, 2010.
The Company’s Management should define the number of shares that will be bought back, within the authorized limits, and the
buyback timing.
During the year ended December 31, 2009, share buybacks were as follows:
MONTH Number Amount
Average
cost – R$
per share(*)
November 513,100 8,212 16.00
December 4,019,200 61,016 15.18
Total 4,532,300 69,228
(*) The highest and the lowest price paid in these buybacks were R$16.46 and R$13.83, respectively.
21. EARNINGS PER SHARE
a) Change in the number of common shares:
SHARES ISSUED Common
Shares as of December 31, 2007 1,349,209,300(*)
New shares issued on January 23, 2008 15,380,986(*)
New shares issued on June 25, 2008 193,514(*)
Shares as of December 31, 2008 1,364,783,800
Buyback shares to be held in treasury – November 26 and 27, 2009 (513,100)
Buyback shares to be held in treasury – December 1st and 15, 2009 (4,013,200)
Shares as of December 31, 2009 1,360,257,500
(*) Considering the 2-for-1 stock split undertaken on September 22, 2008.
Financial Statements 2009 99
b) Earnings per share
In compliance with IAS 33 – Earnings per Share, the following tables reconcile the net earnings and weighted average of
outstanding shares with the amounts used to calculate the basic and diluted earnings per share.
BASIC 2009 2008
Net income available to common shares 1,533,794 1,342,072
Weighted average of outstanding shares (in thousands) 1,364,364 1,363,763
Earnings per share (in R$) – basic 1.1242 0.9841
DILUTED 2009 2008
Net income available to common shares 1,533,794 1,342,072
Diluted denominator:
Weighted average of outstanding shares (in thousands) 1,364,364 1,363,763
Potential increase in common shares as a result of the stock option plan 576 -
Total (in thousands) 1,364,940 1,363,763
Earnings per share (in R$) – diluted 1.1237 0.9841
22. EXPENSES BY NATUREThe Company elected to report the consolidated income and expenses by nature. As required by IFRS, the consolidated statement
of income detailed by nature is presented as follows:
2009 2008
Personnel expenses (221,722) (180,197)
Depreciation and amortization (160,271) (148,635)
Professional services (652,697) (654,630)
Capital gain on sale of ownership interest - 12,848
Capital gain on sale of shares - 343,583
Other expenses (307,152) (307,896)
Total (1,341,842) (934,927)
Classified as:
Cost of services (936,312) (851,119)
Personnel expenses (123,380) (95,613)
General and administrative expenses (147,145) (162,484)
Management and officer compensation (6,829) (9,520)
Marketing (72,960) (77,948)
Other operating expenses (55,216) 261,757
Total (1,341,842) (934,927)
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23. FOREIGN BRANCHThe Company conducts operations (Note 1) through its branch in Grand Cayman, Cayman Islands. As of December 31, 2009, the
balance sheet and the statement of income accounts of this branch, consolidated with the Company’s accounts (parent company),
after eliminations, are as follows: current and noncurrent assets of R$215,800 (R$499,213 as of December 31, 2008), current and
noncurrent liabilities of R$209,270 (R$491,453 as of December 31, 2008) and shareholders’ equity of R$7,760 (R$6,529
as of December 31, 2008). The net income for the year ended December 31, 2009 was R$1,230 (R$2,248 for the year ended
December 31, 2008).
In the year ended December 31, 2009, the effect of changes in exchange rates on the translation of the financial statements
of the Grand Cayman branch, totaling R$1,824 (R$1,587 in the year ended December 31, 2008), was recorded under “Financial
income (expenses).”
24. RELATED – PARTY TRANSACTIONS In the normal course of activities the Company conducts transactions with related parties at arm’s length, such as receivables
from card-issuing banks, which are the financial groups in which the controlling shareholders hold interests, and expenses on and
income from services provided by Servinet and Orizon.
When conducting its business and engaging services, the Company makes market quotations and surveys intended to find the best
technical and pricing terms, and the decision on whether or not a transaction should be conducted is made by the chief decision
maker of the function purchasing the product or service, regardless of whether such transaction is conducted with related or
unrelated parties.
Also, the type of business conducted by the Company requires it to enter into agreements with several card-issuing entities that are
its direct or indirect shareholders. The Company believes that all the agreements entered into with related parties are carried out on
an arms-length basis.
The tables below include the amount of transactions with the Company’s related parties, broken down by type of agreement,
shareholder and subsidiaries, for the years ended December 31, 2009 and 2008:
2009 2008
Shareholders Subsidiaries
Banco
Bradesco S.A.
Banco do
Brasil S.A.
Banco
Santander S.A.Other Servinet Orizon Total Total
Assets (liabilities):
Short-term investments (a) 58,885 281,694 111,238 47,812 - - 499,629 1,030,395
Trade accounts receivable:
Fraud prevention services 144 154 137 54 - - 489 1,007
Bank account blocking services 592 90 330 458 - - 1,470 6,051
Receivables – securitization abroad (b) 115,863 93,346 - - - - 209,209 491,320
Receivables from subsidiary - - - - 5 2,554 2,559 206
Payables to subsidiary - - - - (6,324) - (6,324) (10,398)
Other payables – affiliation commission
and other payables(393) (396) (136) (190) - - (1,115) (2,165)
Financial Statements 2009 101
2009 2008
Shareholders Subsidiaries
Banco
Bradesco S.A.
Banco do
Brasil S.A.
Banco
Santander S.A.Other Servinet Orizon Total Total
Income:
Income from short-term investments (a) 15,323 14,468 18,117 2,287 - - 50,195 116,127
Revenue from fraud prevention services 1,752 2,108 1,322 2,889 - - 8,071 6,684
Revenue from bank account
blocking services5,137 902 4,548 16,503 - - 27,090 37,887
Income from services and lease of
POS equipment- - - - - 4,029 4,029 1,569
Expenses:
Other operating expenses – affiliation
commission(5,957) (6,137) (2,035) (2,822) - - (16,951) (19,274)
Service agreement with Servinet (c) - - - - (83,991) - (83,991) (82,349)
Investment agreement with CBGS - - - - - - - (32,245)
Agreement for the payment of incentive
funds (d) (2,470) - (2,018) (5,180) - - (9,668) (18,386)
Collective corporate dental care and
healthcare plan(9,453) - - - - - (9,453) (8,340)
Private pension contract (e) (1,209) (1,309) (953) - - - (3,471) (5,069)
Collective corporate life insurance contract - - (817) (817) (659)
(a) The terms, charges and interest rates of short-term investments were agreed under conditions similar to those applicable to unrelated parties.
(b) See Note 8.
(c) The Company engaged Servinet to provide POS equipment installation and maintenance services to merchants. The payment for the services provided is
determined based on the costs incurred by Servinet when the service is provided, plus taxes and contributions and a payment margin.
(d) Payment of incentive to issuers according to the targets agreed related to the issue of Visa cards.
(e) See Note 35.
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25. INCOME TAX AND SOCIAL CONTRIBUTION The actual income tax and social contribution rate for the years ended December 31, 2009 and 2008, is as follows:
2009 2008
Income before income tax and social contribution 2,331,098 2,052,404
Income tax and social contribution at the rate of 34% (792,573) (697,817)
Permanent differences, net (*) (4,731) (12,515)
Income tax and social contribution (797,304) (710,332)
Current (853,151) (774,180)
Deferred 55,847 63,848
(*) Represented substantially by reserves for contingencies permanently nondeductible from the calculation of taxable income tax and social contribution basis.
26. FINANCIAL INSTRUMENTS The estimated fair values of financial instruments have been determined using available market information and appropriate
valuation methodologies. However, considerable judgment was required to interpret market data and then develop the most
appropriate fair value estimates. Accordingly, estimates presented herein are not necessarily indicative of the amounts that could be
realized in the market. The use of different market methodologies may have a material effect on the estimated fair values.
These instruments are managed through operating strategies, aimed at liquidity, profitability and security. The control policy
consists of permanent monitoring of contracted rates compared to market rates. The Company does not have transactions for
speculative purposes, derivatives or any other risk assets.
(a) Financial assets and financial liabilities
The Company’s financial assets and financial liabilities refer to cash and cash equivalents, trade accounts receivable, receivables
and payables from securitization abroad, payables to merchants and trade accounts payable. The estimated fair values of
financial instruments as of December 31, 2009, are as follows
2009
Carrying Amount Fair value
Cash and cash equivalents 514,280 514,280
Trade accounts receivable 1,178,784 1,178,784
Receivables – securitization abroad 209,209 215,110
Payables – securitization abroad 209,270 215,110
Trade accounts payable 116,443 116,443
Payables to merchants 667,522 667,522
The fair value of financial assets and short- and long-term financing was determined, when applicable, by using current interest
rates available for transactions conducted under similar conditions and with similar maturity dates.
Financial Statements 2009 103
b) Credit risk
The Company has a tool to mitigate the credit risk of VISA card-issuing banks, in order to hedge against the risk of default by
such banks.
This hedging tool consists in the commitment assumed by the VISA logo, pursuant to the international regulation, to guarantee
the transfer to the Company’s merchants of all sales made with VISA cards on the respective due dates in the event of default by
an issuer.
The guarantee model implemented by the VISA logo, jointly with the Company, contemplates the provision of guarantees
(collateral or bank guarantees) considering the credit risk of the issuer, sales volume with VISA cards and residual risk of default
by cardholders. The provision of guarantees is mandatory for all issuers with credit risk and amounts are reviewed periodically by
the VISA logo and the Company. If the issuer does not provide the requested guarantees, it is not accepted as a system member
or is disqualified as such.
The Company leases POS equipment to all affiliated merchants that do not have their own systems to capture transactions. The
rent is deducted, on the due date, from the amount of transactions paid to merchants. However, the rent may not be received
on the due date whenever there are no amounts payable to merchants. In these cases, the Company collects the rent through
debit to future sales, bank account or outside collection agencies, and material losses on rent may be incurred.
Also, VISA cardholders can contest transactions made with credit cards within certain timeframes from the date of the
transaction. For this purpose, the Company enters into an affiliate agreement with authorized merchants establishing all rules
for acceptance of VISA cards at the point of sale. If transactions are contested by cardholders and the business establishment
is no longer a VISA-affiliated merchant at the date of the contestation or has no amounts receivable from the Company, then
collection will be made through debit to bank account or outside collection agencies and there may be losses to the Company.
c) Risk of fraud
The Company uses a sophisticated antifraud system to monitor transactions with credit and debit cards, which detects and
identifies suspected fraud at the time of the authorization and sends an alert message to the card-issuing bank for it to contact
the cardholder.
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d) Foreign exchange rate risk
Expenses incurred by foreigners in Brazil with VISA card are credited by Visa International Service Association to the Company on
the next day, converted into U.S. dollars at the “buy PTAX” (average exchange rate for the U.S. dollar calculated at the end of each
day) established by the Central Bank of Brazil (BACEN) on the date expenses were incurred.
The Company enters into forward exchange transactions for U.S. dollars to hedge against fluctuations in exchange rates, which
reduce significantly eventual risks of exposure to fluctuation in exchange rates.
There are no other material transactions in foreign currency that might cause a significant impact on the income or loss of the
Company because of the effects of the volatility of the exchange rate on other assets and liabilities denominated in foreign
currencies, principally the U.S. dollar.
As of December 31, 2009, the net exposure to foreign exchange rate risk, in thousands of U.S. dollars, is as follows:
ASSETS:
Cash and banks 7,148
Short-term investments 1,330
Receivables – securitization abroad 118,568
127,046
LIABILITIES:
Payables to merchants (4,470)
Payables – securitization abroad (118,568)
(123,038)
Long position in U.S. dollars 4,008
e) Interest rate risk
The Company’s results of operations are subject to significant fluctuations resulting from short-term investments with floating
interest rates.
Pursuant to its financial policies, the Company has maintained its short-term investments at prime banks and has not entered
into transactions with financial instruments for speculative purposes.
f) Interest rate sensitivity analysis – short-term investments
The funds from the Company’s short-term investments are impacted by changes in interest rates, such as the interbank deposit
rate (CDI). As of December 31, 2009, assuming an increase or reduction of 25% and 50% in the interest rates, there would be
an increase or decrease of approximately R$12,245 and R$24,490 in financial income, respectively. This amount was calculated
considering the impact of hypothetical increases or decreases in interest rates on the average balance of short-term investments
in 2009.
Financial Statements 2009 105
g) Derivatives
As of December 31, 2009, the Company had no derivative transactions.
h) Financial instruments per category
December 31, 2009
ASSETS:Loans and
receivables
Cash and cash equivalents 514,280
Trade accounts receivable 1,178,784
Receivables – securitization abroad 209,209
Total 1,902,273
LIABILITIES:Other financial
liabilities
Payables to merchants 667,522
Trade accounts payable 116,443
Payables – securitization abroad 209,270
Total 993,235
December 31, 2008
ASSETS:Loans and
receivables
Cash and cash equivalents 1,072,157
Trade accounts receivable 162,943
Receivables – securitization abroad 491,320
Total 1,726,420
LIABILITIES:
Other financial
liabilities
Payables to merchants 487,628
Trade accounts payable 96,604
Payables – securitization abroad 491,284
Total 1,075,516
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27. COMMITMENTSThe Company is engaged in the capture, transmission, processing and settlement of transactions with VISA credit and debit cards.
To conduct said activities, the Company entered into the following agreement:
a) Lease agreements
As of December 31, 2009, future annual payments under lease agreements in effect are estimated as follows:
YEAR
2010 6,239
2011 6,551
Total 12,790
Most contracts specify a termination fine equivalent to a three-month rent, and a partial return can be negotiated for each case.
b) Telecommunications, technology (transactions processing) and logistics services
As of December 31, 2009, future payments under telecommunications, technology and logistics service agreements in effect are
estimated as follows:
YEAR
2010 391,472
2011 407,475
Total 798,947
Transactions capture and processing agreements stipulate termination fines in the amount of R$100,000. Telecommunications
service agreements vary according to the operating demand and it is not possible to determine an average term, and are subject
to an average termination fine of R$9,300. Logistics service agreements are in effect since June 2007, with a minimum period of
12 months and a termination fine of R$9,068.
c) Bank guarantees
As of December 31, 2009, based on agreements in effect, bank guarantees are composed of:
TYPE
Guarantee for card transactions 35
Guarantees for lease agreements (*) 504
Total 539
(*) Guarantee provided by financial institutions to secure the payment of property lease agreements.
Financial Statements 2009 107
d) Other commitments
As discussed in Note 1, the Company and its subsidiary CBGS Ltda. entered into an agreement for future capital increase,
whereby the Company commits to contribute funds by January 2, 2010, in the amount of R$67,354. As of December 31, 2009,
the balance was fully paid in and the adjustment of R$4,363 made in the year was recorded under “Financial expenses.”
28. EMPLOYEE AND MANAGEMENT PROFIT SHARINGThe Company and its subsidiaries pay profit sharing to their employees and officers, subject to the achievement of operational
goals and specific objectives, established and approved at the beginning of each year.
Employees and management profit sharing amounts for the years ended December 31, 2009 and 2008, were recorded under
“Personnel expenses” in the statement of income, as follows:2009 2008
Employees 30,369 19,168
Management members 6,251 1,574
Total 36,620 20,742
29. MANAGEMENT AND OFFICER COMPENSATION The Company’s Extraordinary Shareholders’ Meeting of April 13, 2009, set Management’s annual overall compensation at R$14,515.
2009
Compensation Vested stock options
Fixed Variable TotalStock options
balance(a)
Exercise
price (b)
Officers 4,114 3,338 7,452 1,611,700 12,80
Board of Directors 518 - 518 - -
Total 4,632 3,338 7,970 1,611,700 12,80
(a) Refers to the number of vested options not exercised by December 31, 2009.
(b) Refers to the weighted average exercise price of the options at the time they were granted.
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30. FINANCIAL INCOME (EXPENSES)
2009 2008
Financial income:
Income from short-term investments 50,218 116,127
Interest on postponed receivables 3,742 7,663
Interest – securitization abroad 22,208 28,804
Reversal of contingencies’ fine and interest 4,490 -
Reversal of fine and interest on the federal tax installment program (a) 17,712 -
Other financial income 1,381 811
99,751 153,405
Financial expenses:
Interest – securitization abroad (22,208) (28,804)
Late payment interest and fines (12,206) (8,129)
Contingencies’ fine and interest (2,830) -
Fine and interest on the federal tax installment program (a) (11,103) -
Interest payable (2,995) (21,105)
Other financial expenses (5,177) (1,837)
(56,519) (59,875)
Income from prepayment of receivables:
Prepayment of receivables 218,150 17,388
Adjustment to present value expenses:
Adjustment to present value of receivables (b) (35,266) -
Exchange rate variation, net (c) 1,903 947
Total 228,019 111,865
(a) See Note 32.
(b) As described in Note 7.(a), the adjustment to present value recorded in the financial statements was calculated on receivables prepayments. The assumptions
adopted for the calculation are as follows:
•Interestratesusedarethosecontractedforthetransactionsofupto4.2%permonth.
•Calculationswerecarriedoutseparately,discountingcashflowsforeachrecordedreceivable.
The Company’s Management recognized the adjustment to present value of accounts receivable balance in view of the materiality of values adjusted, of interest
rates and transaction terms.
Management reviews the assumptions mentioned on a monthly basis and changes are recorded in the statement of income.
(c) Arises basically from the receivables securitization abroad transaction and gains and losses originally denominated in foreign currency, represented by
income in the amount of R$126,625 (R$391,812 as of December 31, 2008) and expenses in the amount of R$124,722 (R$390,865 as of December 31, 2008).
Financial Statements 2009 109
31. OTHER OPERATING INCOME (EXPENSES), NET Represented by:
2009 2008
Gain on fair value of Visa Inc. shares (a) - 343,583
Capital gain on sale of ownership interest (b) - 12,848
Fine on termination of agreement with service provider (c) (30,992) -
Write-off of uncollectible credits (15,461) (12,967)
Write-off due to impairment of intangibles (11,197) (35,445)
Reserve for contingencies (15,496) (6,217)
Federal tax installment program (2,088) -
Loss on merger of CBGS Ltda. (4,431) -
Allowance for losses on inactive POS equipment (2,331) (520)
Other operating income (expenses) (d) 26,780 (39,525)
Total (55,216) 261,757
(a) Corresponds to the gain on the change in fair value of Visa Inc. shares accounted for as available-for-sale financial assets, as described in Note 20.
(b) Refers to the capital gain earned by the subsidiary CBGS Ltda. on the sale of all its ownership interest in Orizon, as described in Note 1.
(c) Refers to the fine imposed on the termination of agreement with a service provider.
(d) As of December 31, 2009, refer basically to the refund to shareholder banks of expenses incurred on the Company’s IPO.
32. FEDERAL TAX INSTALLMENT PROGRAMLaw No. 11941, enacted on May 28, 2009, after the conversion of Provisional Act No. 449/08, created, among other provisions, a
new federal tax installment program.
Based on this Law, on November 25, 2009, the Company’s Management decided to pay certain tax debts at sight, as follows:
PROCEEDINGS Carrying amount PaymentEarnings
Company Consolidated
PIS Repique (levied on income tax paid) 17,939 (10,026) 7,913 7,913
IRRF – incentive cards 4,073 (629) 3,444 3,444
COFINS – offset against IPI 3,731 (2,556) 1,175 1,175
1999 IRPJ, CSLL, PIS and COFINS - (9,610) (9,610) (9,610)
PIS – cumulativeness (*) 7,952 (6,657) - 1,295
COFINS – tax rate increase (*) 310 (6) - 304
Total 34,005 (29,484) 2,922 4,521
(*) Refers to the effects of tax installments in the subsidiary Servinet.
The earnings from discounts in interest and fines, recorded in Company and consolidated, totaling R$5,038 and R$6,609, respectively, are recorded under “Financial income (expenses).” These earnings were partially settled by additional provisions, totaling R$2,116 and R$2,088, Company and consolidated, respectively, recorded under “Other operating revenue (expenses), net”, on the date of the tax installment program.
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33. INSURANCEAs of December 31, 2009, insurance is as follows:
TYPE Insured amount
Civil liability and D&O 103,785
Fire 20,000
Windstorm and smoke 1,500
Electrical damages 1,500
Electronic equipment 1,500
Theft 500
Flood 1,500
Loss of profits 8,500
Vehicles 1,096
Other 1,400
34. STOCK OPTION PLANThe Extraordinary Shareholders’ Meeting held on September 22, 2008, approved the Company’s common stock option plan. This
plan was confirmed by the Extraordinary Shareholders’ Meeting held on June 1st, 2009, and is effective for ten years from the date
the first benefits were granted.
Stock options may be granted provided that capital dilution does not exceed, at any time during the effectiveness of the plan, 0.3%
per year. Options granted to beneficiaries will be subject to a five-year vesting period from the grant date approved by the Board
of Directors. The Board of Directors will define the beneficiaries eligible for the stock option plan annually or at the frequency
considered appropriate.
At meetings held on July 1st and September 23, 2009, the Board of Directors approved the first and second grants of options for the
purchase of common shares, respectively, as shown in the chart below, without any option for the settlement of options in cash.
Under the Stock Option Plan, the first portion of the stock options granted, equivalent to 1/3 of the total, will vest after one year.
Exercise
price R$
Vesting
period
Fair value of
options – R$
per shareGrant date
Number
Granted Cancelled Balance
07/01/09 2,848,700 (242,900) 2,605,800 11.25 (a) 5 years 3.86
09/23/09 551,200 - 551,200 16.84 (b) 5 years 4.55
Total 3,399,900 (242,900) 3,157,000
(a) Equivalent to 75% of the share price for the Company’s IPO.
(b) Equivalent to the weighted average of trading sessions between August 7 and September 18, 2009.
Financial Statements 2009 111
The fair value of options was measured using the Black & Scholes pricing model, based on the following economic assumptions:
July
2009 grant
September
2009 grant
Dividend yield 6.66% 6.66%
Share price volatility 36.67% 36.67%
Vesting period 4 years 4 years
The fair value is allocated to net income with a contra entry in the capital reserve on a straight-line basis over a term of up
to 36 months. An expense of R$3,699 was recognized for the year ended December 31, 2009, in “Other operating (expenses)
revenue, net.”
35. OTHER INFORMATIONa) The Company contributes monthly to a defined contribution pension plan (“PGBL”) for its employees, and contributions made
during the year ended December 31, 2009, amounted to R$3,471 (R$1,151 as of December 31, 2008), which were recorded under
“Cost of services” and “Personnel expenses.”
b) Tax on financial transactions (IOF) expenses for the year ended December 31, 2009, in the amount of R$368 (R$4,091 as of
December 31, 2008) were recorded under “General and administrative expenses.”
36. REGULATORY ISSUES
On October 1st, 2009, the Central Bank of Brazil (BACEN) concluded an analysis of the payment card industry in Brazil, and the
technical teams of BACEN, the Department of Economic Rights (SDE) of the Ministry of Justice and the Economic Monitoring
Department (SEAE) of the Ministry of Finance will submit to the three Ministers a set of measures to be adopted to meet the
recommendations of the study on the following points:
•Openingofaccreditationactivities.
•NetworksandPOS(transactioncaptureterminal)interoperability.
•Neutralityofclearingandsettlementactivities.
•Strengtheningofdomesticcreditcardsystems.
•Transparencyindefiningtheexchangefee.
These measures’ implementation schedule will be defined by authorities. Concurrently, regulators are discussing other measures
that, after being submitted to the Ministers, will be sent to different agencies, depending on their scope.
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37. APPROVAL OF THE FINANCIAL STATEMENTSThe financial statements were approved by the Board of Directors of the Company and authorized for issuance on
January 27, 2010.
38.SUPPLEMENTARY INFORMATION – RECONCILIATION OF SHAREHOLDERS’ EQUITY AND NET INCOME OF THE PARENT COMPANY (NOT REQUIRED BY IFRS)Under CVM Instruction No. 457, of July 13, 2007, we present below the reconciliation of BR GAAP and IFRS shareholders’ equity and
net income attributed to the parent company for the periods below:
Note 3.2.2. 2009 2008
BR GAAP shareholders’ equity attributed to the parent company 860,429 159,061
IFRS adjustments, net of taxes:
Reclassification of dividends above mandatory
minimum dividends to shareholders’ equityh - 542,985
- -
IFRS shareholders’ equity attributed to the parent company 860,429 702,046
BR GAAP net income attributed to the parent company 1,533,794 1,393,843
IFRS adjustments, net of taxes: - -
Gain on fair value of Visa Inc. shares c - (105,145)
Reversal of effects of write-off of IFRS deferrals on 2008 net income a - 53,373
IFRS net income attributed to the parent company 1,533,794 1,342,071
Financial Statements 2009 113
TO THE SHAREHOLDERS OF CIELO S.A. Barueri – SP
1. We have audited the accompanying consolidated balance sheets of Cielo S.A. (formerly Companhia Brasileira de Meios de
Pagamento) (the “Company”) and subsidiaries as of December 31, 2009 and 2008 and January 1st, 2008, and the related
consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for the years ended
December 31, 2009 and 2008, prepared under the responsibility of the Company’s Management in conformity with international
accounting standards issued by the International Accounting Standards Board – IASB. Our responsibility is to express an opinion
on these consolidated financial statements.
2. Our audits were conducted in accordance with auditing standards in Brazil and comprised: (a) planning of the work, taking into
consideration the significance of the balances, volume of transactions, and the accounting and internal control systems of the
Company and its subsidiaries; (b) checking, on a test basis, the evidence and records that support the amounts and accounting
information disclosed; and (c) evaluating the significant accounting practices and estimates adopted by the Management of the
Company and its subsidiaries, as well as the presentation of the consolidated financial statements taken as a whole.
3. In our opinion, the consolidated financial statements referred to in paragraph 1 present fairly, in all material respects, the
consolidated financial positions of Cielo S.A. and subsidiaries as of December 31, 2009 and 2008 and January 1, 2008, and the
consolidated results of their operations, their comprehensive income, the changes in shareholders’ equity and their consolidated
cash flows for the years ended December 31, 2009 and 2008, in conformity with international accounting standards issued by
the International Accounting Standards Board – IASB.
4. Brazilian accounting practices differ, in certain material respects, from international accounting standards issued by the
International Accounting Standards Board – IASB. Information related to the nature and effect to these differences is presented in
note 3 to the consolidated financial statements.
5. The accompanying financial statements have been translated into English for the convenience of readers outside Brazil.
São Paulo, January 27, 2010.
DELOITTE TOUCHE TOHMATSU Walter Dalsasso
Auditores Independentes Engagement Partner
CRC nº 2 SP 011609/O-8 CRC nº 1 SP 077516/O-9
(Convenience Translation into English from the Original Previously Issued in Portuguese)
114
GLOSSARY
ABECS: Brazilian Association of Credit Card and Services
Companies.
Acquirer: Companies responsible for capturing, processing,
transmitting and settling transactions, affiliating merchants and
implementing and managing an acceptance network.
Active Merchants: Merchants that have conducted at least one
credit or debit card transaction within the preceding 180 days.
Arbitration Panel: Market Arbitration Panel, introduced by
BM&FBOVESPA.
BMVRL: Brazilian Merchant Voucher Receivables Limited,
a special purpose company established for issuing in the
international market securities backed by receivables. Cielo
does not have direct or indirect ownership interest in BMVRL.
Brand: Company which owns the property rights and franchises
its brands and logos for acquiring companies and card issuers.
BRGAAP: Generally accepted accounting principles adopted
in Brazil, according to the Brazilian Corporate Law and its
amendments, rules and regulations by the CVM and by the
Brazilian Institute of Independent Auditors (IBRACON) and
resolutions by the Federal Accounting Council.
CAGR: Compound annual growth rate.
Card: Means of identification and payments, issued and
granted by issuers, for personal and non-transferable use of
cardholders, with or without multiple functions, of debit, credit
and installment credit for consumers (CDC), among others.
Co-Branded Private Label Card: Credit card issued by a large
retailer that carries the retailer’s brand and is associated with a
card brand, with the aim of increasing customer loyalty.
Electronic Capture Equipment: POS and PIN pads.
Free Float: Shares issued by the Company and readily available
in the market, except for those held by the controlling
shareholders, by their related persons, by Company’s
management and treasury shares.
IFRS: International Financial Reporting Standards.
Interchange Fee: Fee paid by the acquirer to the card issuer.
Lock-in Bank Domicile Services: Service provides to card
issuers, upon previous authorization of the merchant, of
depositing all funds from the merchant’s receivables that are
transferred through credit or debit card transactions into the
bank that is the merchant’s domicile bank. Merchants that
are subject to a lock-in bank domicile cannot transfer their
receivables without the consent of the card issuer.
Merchant Discount Rate: The fee acquirers charge merchants
for the services of capturing, processing, transmitting and
settling transactions.
Net Merchant Discount Rate: The merchant discount rate net
of the interchange fee. It is the revenue from commissions
obtained by the acquirer.
Novo Mercado Listing Rules: Rules that apply to publicly-held
companies for the trading of their securities on Novo Mercado
that establish differentiated corporate governance practices.
PDV: The point of sale equipment owned by the merchant.
POS: Electronic point of sale capture equipment.
115
Private Label Card: Credit card issued by a large retailer that
carries only the retailer’s brand, with the aim of increasing
customer loyalty.
Transaction: All and any acquisition of goods and services
using branded credit or debit cards. When a payment is
made in installments, each installment is considered as a new
transaction.
Transaction Volume: Financial volume of transactions captured,
processed, transmitted, and settled by acquirers or any other
entity responsible for the settlement of transactions.
Troco Fácil: Cash back. This product allows Visa Electron
cardholders to withdraw cash at the time of purchase at
affiliated merchants that are licensed by the Company to accept
this product.
USGAAP: Generally accepted accounting principles in the
United States.
Visa Brand: The Visa International brand.
Visa do Brasil: Visa do Brasil Empreendimentos Ltda.
Visa International: Visa International Service Association.
Visa Vale: A Visa-branded benefit card for meals and groceries.
Cielo116
This material was printed with soybean-based ink.
The CompanyCielo S.A.
CNPJ: 01.027.058/0001-91
Código CVM: 02173-3
NIRI: 35.300.144.112
Headquarters
Alameda Grajaú, 219 – Alphaville
Barueri/SP – CEP: 06454-050
Telefone: (11) 2184-7600
Office in São Paulo
R. Cardoso de Mello, 1184, 7º andar
São Paulo/SP – CEP: 06454-050
Investor Relations (IR)Director of IR
Marcos Grodetzky
IR Team
Roberta Noronha
Daniela Ueda
André Cazotto
e-mail: [email protected]
IR website: www.cielo.com.br/ri
Newspapers used to publish material facts inValor Econômico
Diário Oficial
Corporate Information
Information about ADRsDeutsche Bank Trust Company Americas
c/o American Stock Transfer & Trust Company
Peck Slip Station
P.O. Box 2050
New York, NY 10272-2050
e-mail: [email protected]
Service for Shareholder Assistance
Telefone: (866) 249-2593 (toll free)
Telefone: (718) 921-8137 (internacional)
Ticker: CIOXY
Cusip Code: 171778103
ISIN Code: US171778103
Independent AuditorsDeloitte Touche Tomatsu
Valter Dalsasso
Calendar of events in 2010 – IR
• J.P. Morgan Brazil Opportunities Conference
(Sofitel Jequitimar Hotel in Guarujá) – 14.04
• Cielo Day (Alphaville) – 05.05
• Bradesco Open Day (Cidade de Deus) 06.05
• Conferência Goldman Sachs BRIC’s (Hotel Landmark –
Londres) – 12/13.05
• Santander Latin American Real Estate, Infrastructure and
Financials Conference (Londres) – 17.05
• 38th Annual J.P. Morgan Global Technology, Media and
telecom Conference (Westin Boston Waterfront hotel in
Boston, Massachusetts) – 17/18/19.05
• 12º Encontro Nacional de RI (Sheraton WTC Hotel – SP) –
14/15.06
• Deutsche Bank Global Emerging Markets One on One
• Conference (The Waldorf Astoria) – 15/16/17.09
• Conferência Barclays – Fiel Trip (SP) – 16.11
• Conferência UBS LAT/EMEA One on One Conference
2010 (NY) – 30.11, 01/02.12
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