Financial Risk Management

12 Months Ended

Dec. 31, 2021

Financial Risk Management [Line Items]

30.

Financial risk management

(a)

Risk Management Framework

The Group’s activities may expose it to a variety of financial risks: credit risk, market risk (including foreign exchange risk, cash flow or fair value interest rate risk, and equity price risk), liquidity risk and fraud risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Group’s financial performance.

The Board of Directors (the “Board) has overall responsibility for the establishment and oversight of the Group’s risk management objectives and policies.

The Group’s risk management policies are established to identify and analyze the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. The overall objective of the Board is to set policies that seek to reduce

risk as much as possible without unduly affecting the Group’s competitiveness and flexibility. Further details of these policies are set out below:

(b)

Credit Risk

Credit risk is the risk that customer or a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. Credit risk arises from the group’s exposures to third parties, including cash and cash equivalents, financial instruments and from its operating activities, primarily related to trade and other receivables.

The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the end of the year was as follows:


	2021		2020
Cash and Cash Equivalents		336,197		111,733
Financial Assets at Fair Value through Profit or Loss		1,004		8,319
Trade and Other Receivables		190,966		72,785
Other Assets		1,339		2,017
		529,506		194,854

The table below discloses the credit risk rating for Trade and Other Receivables, based on external risk ratings of the geographical regions in which the Trade and Other Receivables are held:


Risk rating	2021		2020
A		20,839		7,544
B		4,041		834
BB		103,322		32,612
BBB		26,960		9,787
CCC		35,804		22,008
		190,966		72,785

Financial Assets at Fair Value through profit or loss and cash and cash equivalents

Credit risk from balances with banks, financial institutions and other is managed by the Group in accordance with the Group’s policy. These financial instruments are debt securities and other financial instruments only conducted with carefully selected financial institutions in order to have an exposure to credit risk within acceptance levels of the Group.

Trade and Other Receivables

The Company operates with high-quality processors which mitigates credit risk. There are no significant concentrations of credit risk, whether through exposure to individual customers, specific industry sectors and/or regions.

The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade and other receivables. To measure the expected credit losses, trade and other receivables have been grouped based on shared credit risk characteristics and the days past due. Finally, historical loss experience is adjusted to reflect information about current conditions and reasonable and bearable forecasts of future economic conditions.

The expected loss rates are based on the payment profiles of sales, country of origin and the corresponding historical credit losses experienced within this period. The historical loss rates are adjusted to reflect current and forward-looking information on macroeconomic factors affecting the ability of the customers to settle the receivables. The Group has identified the credit rating of the countries in which it sells its services to be the most relevant factor, and accordingly adjusts the historical loss rates based on expected changes in credit ratings.

(c)

Market Risk

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. For the Group, market risk may comprise interest rate risk and foreign currency risk and other price risk, such as equity price risk.

The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return.

Interest Rate Risk

This risk arises from the possibility of the Group incurring losses due to fluctuations in interest rates in respect of fair value of future cash flows of a financial instrument. The Group’s cash flows are not exposed to interest rate risk since there are no financial instruments with variable interest rate and debt instruments are measured at fair value through profit and loss.

Foreign Currency Risk

The Group is exposed to currency risk on monetary amounts denominated in a currency other than the functional currency of the respective subsidiaries, mainly the Argentinian Peso, Chilean Peso, Euro and the Brazilian Real.

The following table presents the Group’s exposure to foreign currency risk as well as a sensitivity to a reasonably possible change in U.S. Dollar, with all other variables held constant. The impact on the Group’s profit before tax is due to changes in the fair value of monetary assets and liabilities.


2021				Gain/(loss)
Account	Currency	Amount		% increase		Amount			% decrease		Amount
Net balances	Brazilian reais		39,017	10%			(3,902	)	-10%			3,902
	Chilean pesos		23,195	10%			(2,320	)	-10%			2,320
	Argentine pesos		22,206	10%			(2,221	)	-10%			2,221
	Mexican pesos		15,048	10%			(1,503	)	-10%			1,503
	South African rand		7,515	10%			(752	)	-10%			752
	Indonesian rupiah		4,370	10%			(437	)	-10%			437
	Peruvian Nuevo Sol		4,021	10%			(402	)	-10%			402
	Colombian pesos		4,010	10%			(401	)	-10%			401
	Euros		3,563	10%			(356	)	-10%			356
	Uruguayan pesos		3,323	10%			(332	)	-10%			332
	Nigerian nairas		2,295	10%			(230	)	-10%			230
	Egyptian pounds		562	10%			(56	)	-10%			56
	Paraguayan guaranís		200	10%			(20	)	-10%			20
	Dominican pesos		127	10%			(13	)	-10%			13
	Pakistanee rupees		113	10%			(11	)	-10%			11
	Bangladeshi takas		38	10%			(4	)	-10%			4
	Moroccan dirhams		9	10%			(1	)	-10%			1
	Total		129,612		—		(12,961	)		—		12,961


2020					Gain/(loss)
Account	Currency	Amount			% increase		Amount			% decrease		Amount
Net balances	Argentine pesos		12,538		10%			(1,254	)	-10%			1,254
	Chilean pesos		10,552		10%			(1,055	)	-10%			1,055
	Brazilian reais		6,571		10%			(657	)	-10%			657
	Euros		5,099		10%			(510	)	-10%			510
	Indian rupee		2,806		10%			(281	)	-10%			281
	Mexican pesos		1,725		10%			(173	)	-10%			173
	Uruguayan pesos		1,692		10%			(169	)	-10%			169
	Nigerian nairas		1,134		10%			(113	)	-10%			113
	Peruvian Nuevo Sol		1,011		10%			(101	)	-10%			101
	Colombian pesos		1,008		10%			(101	)	-10%			101
	Turkish lira		699		10%			(70	)	-10%			70
	Indonesian rupiah		228		10%			(23	)	-10%			23
	Chinese yuan renminbi		221		10%			(22	)	-10%			22
	Paraguayan guaraní		191		10%			(19	)	-10%			19
	Egyptian pounds		141		10%			(14	)	-10%			14
	South African rand		55		10%			(5	)	-10%			5
	Moroccan dirhams		13		10%			(1	)	-10%			1
	Bolivian Boliviano		12		10%			(1	)	-10%			1
	Kenyan shilling		3		10%		-			-10%		-
	West African CFA franc		2		10%		-			-10%		-
	Banbladeshi takas		(32	)	10%			3		-10%			(3	)
	Israeli New Shekel		(103	)	10%			10		-10%			(10	)
	Total		45,566			—		(4,556	)		—		4,556

Exposure is presented in thousands of U.S. Dollars and relates to monetary items in foreign currency of each entity of the Group, considering each individual functional currency. As explained in Note 24: Derivative financial instruments, the Company entered into foreign currency exchange forward contracts in order to mitigate this risk and reduce the impact on the financial statements.

Equity price risk

The Group is not exposed to equity price risk since it does not hold investments in equity instruments.

As at December 31st, 2021 and 2020, the Group had an investment in quoted debt securities. As of December 31, 2020 the Group invested in quoted mutual funds. This was a “cumulative” mutual funds that does not pay interest and the holder obtain capital gains. As at December 31st, 2021 and 2020, the exposure to equity price from such investment was considered not material.

(d)

Liquidity Risk

Liquidity risk is the risk that the Group encounters difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.

The Group invests surplus cash in interest-bearing financial investments, choosing instruments with appropriate maturity or enough liquidity to provide adequate margin as determined by the forecasts.

Exposure to Liquidity Risk

The tables below analyze the Group’s financial liabilities into relevant maturity groupings based on their contractual maturities.

The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying balances as the impact of discounting is not significant.


Contractual maturities of financial liabilities 31 December 2021	Less than 6 months		6-12 months		Between 1 and 2 years		More than 2 years		Total contractual cash flows		Carrying amount
Non-derivatives
Trade and other payables		277,160		—		—		—		277,160		277,160
Financial liabilities		5,014		—		—		—		5,014		5,014
Leases liabilities		204		299		462		3,878		4,843		3,928
Total non-derivatives		282,378		299		462		3,878		287,017		286,102
Derivatives
Derivative financial instruments		221		—		—		—		221		221
Total derivatives		221		—		—		—		221		221


Contractual maturities of financial liabilities 31 December 2020	Less than 6 months		6-12 months		Between 1 and 2 years		Total contractual cash flows		Carrying amount
Non-derivatives
Trade and other payables		142,865		—		—		142,865		142,865
Leases liabilities		104		105		17		226		218
Total non-derivatives		142,969		105		17		143,091		143,083
Derivatives
Derivative financial instruments		2,896		—		—		2,896		2,896
Total derivatives		2,896		—		—		2,896		2,896

(e)

Fraud Risk

The Group’s transactions are susceptible to a fraudulent or improper sale and it uses processes to control the fraud risk. The process consists of monitoring transactions through ‘dLocal Defense’ which is a local data-driven prevention program to maximize fraud detection and minimize false positives. This process review transactions at the time of the authorization, legitimate them and use of external tools that are revised on a periodic basis.

The second process detects chargebacks and disputes. This is a supplemental process and increases the Group’s ability to avoid new frauds.

(f)

Capital Management

The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Board’s objectives are to safeguard their ability to continue as a going concern, so that they can continue to provide returns for shareholders and benefits other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The Board of Directors monitors the return on capital as well as the level of dividends to ordinary shareholders.

As part of the requirements for maintaining its financial institution license, dLocal Limited, the Group’s licensee subsidiary is subject to a minimum capital requirement of EUR 400 imposed by the regulator of Malta.

31.

Fair value hierarchy

The following tables show financial instruments recognized at fair value for the years ended December 31, 2021 and 2020, analyzed between those whose fair value is based on:

•

Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities.

•

Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly.

•

Level 3: techniques which use inputs which have a significant. effect on the recorded fair value that are not based upon observable market data.

The table also includes financial instruments measured at amortized cost. The Group understands that the book value of such instruments approximates their fair value.


31 December 2021	FVPL		Amortized cost		Total		Level 1		Level 2		Level 3
Assets
Financial Assets at Fair Value through Profit or Loss		1,004		—		1,004		1,004		—		—
Other Assets		—		1,339		1,339		—		—		—
Trade and Other Receivables		—		190,966		190,966		—		—		—
Cash and Cash Equivalents		—		336,197		336,197		—		—		—
		1,004		528,502		529,506		1,004		—		—


31 December 2020	FVPL		Amortized cost		Total		Level 1		Level 2		Level 3
Assets
Financial Assets at Fair Value through
Profit or Loss		8,319		—		8,319		8,319		—		—
Other Assets		—		2,017		2,017		—		—		—
Trade and Other Receivables		—		72,785		72,785		—		—		—
Cash and Cash Equivalents		—		111,733		111,733		—		—		—
		8,319		186,535		194,854		8,319		—		—


31 December 2021	FVPL			Amortized cost			Total			Level 1		Level 2			Level 3
Liabilities
Trade and Other Payables		—			(277,160	)		(277,160	)		—		—			—
Financial liabilities		—			(5,014	)		(5,014	)		—		—			—
Derivative financial instruments		(221	)		—			(221	)		—		(221	)		—
Contingent consideration liability		(665	)					(665	)		—		—			(665	)
		(886	)		(282,174	)		(283,060	)		—		(221	)		(665	)


31 December 2020	FVPL			Amortized cost			Total			Level 1		Level 2			Level 3
Liabilities
Trade and Other Payables		—			(142,865	)		(142,865	)		—		—			—
Derivative financial instruments		(2,896	)		—			(2,896	)		—		(2,896	)		—
		(2,896	)		(142,865	)		(145,761	)		—		(2,896	)		—

Level 3 Financial Instruments

As of December 31, 2021, the Group has recognized a contingent consideration liability, described in Note 20, amounting to USD 665, classified in Level 3. The amount of the Level 3 contingent consideration was calculated by the finance team of the Group, using a discounted cash flow analysis, considering the expected cash flows based on terms of the contract, the entity’s knowledge of the business and how the current conditions are likely to impact it.

There were no changes in level 3 items for the years ended December 31, 2021 and 2020. Also, there were no transfer of items between level 2 and level 3, acquisitions, disposals nor gains or losses recognized in profit for the period related to level 3 instruments.