Earnings Release - 4Q18 - Amazon S3€¦ · We acquired both the portfolio of about 25 thousand...
Transcript of Earnings Release - 4Q18 - Amazon S3€¦ · We acquired both the portfolio of about 25 thousand...
Earnings Release - 4Q18
Fortaleza (CE), March 13th 2019 – Hapvida Participações e Investimentos S.A. (B3:HAPV3), one of the largest
health and dental plan operator in Brazil, and absolute leader in the country's North and Northeast regions in
number of beneficiaries, announces today its results from the fourth quarter of 2018 (4Q18). The operating
and financial information contained in this report is presented in IFRS and in Reais (R$), except where
otherwise indicated.
Hapvida Participações e Investimentos S.A. B3:HAPV3 - “New Market”
Stock price: R$ 33.00
Shares outstanding: 671,958,573
Market cap: R$ 22.2 billion
(closing: 12/03/2019)
4Q18 Conference Call March 14th, 2019
In Portuguese and English:
(Simultaneous translation)
11:00am (Brasília time)
10h00 (US EDT)
Phone: +55 (11) 3193-1001 ou +1 (646) 828-8246
Password: Hapvida
Webcast: http://ri.hapvida.com.br/
Contacts Bruno Cals
Chief Financial Officer and IR
Ivan Bonfanti
Investor Relations Director
Caique Santos
Investor Relations Coordinator
Destaques
Members (health): 2,356,009 +5,9% when compared to 4T17
Members (dental): 1,679,770 +18.6% em relação ao 4Q17
Medical Loss Ratio: 60.6% no 4Q18 e 59.7% em
2018 +2.7p.p. when compared to 4Q17
+1.3p.p. when compared to 2017
Adj. Medical Loss Ratio¹: 57.4% no 4Q18 e 57.5%
em 2018 0.0p.p. when compared to 4Q17
-0.3p.p. lower than 2017
Net revenues: R$ 1.211,3 milhões no 4Q18 e R$
4,575.9 milhões em 2018 +16.1% when compared to 4Q17
+18.9% when compared to 2017
Adj. EBITDA: R$ 270.0 milhões e 22.3% de
margem no 4Q18 e R$ 990.2 milhões e 21.6% de
margem em 2018 +2.9% e -2.8p.p. when compared to 4T17
+11.1% e -1.5p.p. when compared to 2017
Net income: R$ 234.1 milhões e 19.3% de
margem no 4Q18 e R$ 788.3 milhões e 17.2% de
margem em 2018 +35.1% e +2.7p.p. when compared to 4Q17
+21.2% e +0.3p.p. when compared to 2017
Cash flow generation: R$ 444.2 milhões no 2018
e R$ 456,1 milhões em 2017 -2.6% lower than 2017
¹ Detailed in this document.
Página 2 de 18
Message from the CEO
During the year of 2018, the Company remained committed to its purpose of treat with quality, care and cost
efficiency. Among the five largest companies in the country, we maintained the lowest rate of complaints
published by the National Health Agency (ANS), reaching 2.37 complaints per ten thousand beneficiaries,
while the average of the five largest companies was 4,16 complaints (in the industry, the average is 2.82).
Also during 2018 we achieved the highest profitability in the history of the country’s supplementary health
sector with a 17.2% net margin, R$ 788 million net income, a 21.2% growth over 2017. Our Adjusted EBITDA
totaled R$ 990 million, an increase of 11.1% compared to 2017. These results are the outcomes of continuous
cost control (decrease of 0.3p.p. in the adjusted loss ratio in the year) and demonstrate how solid our organic
growth is, along with the competitiveness of our product and how strong are our business model pillars.
At the beginning of 2018, we communicated the Company's organic growth strategy, in line with historical
growth, and pointed out the strategy of acquiring companies acting in the North and Northeast regions in
2018, and in other regions from the following year on. Even in an adverse market scenario, we achieved a 5.9%
growth in the number of beneficiaries of health plans, four time bigger than the industry’s top five players
ex-Hapvida, and a 18.6% growth in dental plans. We acquired both the portfolio of about 25 thousand clients
of Uniplam, headquartered in Teresina/PI, and the portfolio of Free Life, with also approximately 25 thousand
clients, based in the Ceará state. With this we reached a market share of medical plans of 29.2% in the
Northeast region and 24.0% in the North region, a growth of 1.5p.p. and 1.7 p.p., respectively. In dental plans
we grew 2.7p.p. in 2018, reaching a 25.5% market share in the North and Northeast regions combined.
The year 2018 was also marked by the implementation of several strategic projects, among which we can
highlight the preventive medicine programs for follow-up of diabetics, people with chronic kidney disease and
pregnant women, the systematization of protocols for emergency care, the process of standardization of
surgical kits, and adjustment of processes for a reduction of 7.2% in hospital stay.
By 2019, the systematization of protocols for ambulatory care and the import of new technologies for
monitoring vital signs of fetuses, pregnant women and adults which will also do the risk assessment when
arrive at our units, among other projects, are already under development. In addition, in 2019, we will begin
the operation of our first hospital in Joinville/SC, one of the most industrialized regions in the country. This
highly complex hospital, located in one of the city’s main avenues, will be our first project to sell health plans
outside Brazil’s North and Northeast regions.
Finally, it is important to mention the Company's focus on innovation. In 2018, the Innovation Committee was
created along with a new directorship to deal specifically with innovation projects. We are preparing for a
more digital reality in medicine and reviewing the entire journey of our customers through the mobile
platform. We believe that technology will bring disruptive changes to our industry and we are preparing to
keep on being the pioneers in the use and improvement of these new technologies. We will continue to pursue
our goal of ensuring access to quality health care, with quality and cost efficiency. This is our mission!
Thank you for the support of our shareholders and the commitment of the directors and the more than 20
thousand employees.
Jorge Pinheiro
Página 3 de 18
Operating performance
The number of members presented a growth of 5.9%, leading to a market share increase of 1.7p.p. and 1.5p.p.
in the North and Northeast regions respectively when compared to 4Q17. With emphasis for growth in the
states of Bahia, Ceará, Pernambuco and Amazonas.
The average ticket for the health segment showed a 12.2% growth when compared to 2017. It is worth noting
that the sales mix influences the average ticket, since prices are different in each city that the company
operates. In corporate plans, the average ticket can also be influenced by different negotiations and
contractual conditions.
Members (health) Average ticket (health)
The number of members in dental plans presented an annual growth of 18.6% in the last quarter both in North
and Northeast regions. The market share reached 25.5% an increase of 2.7p.p. when compared to 4Q17. It is
worth mentioning that the company seeks to offer dental plans to all corporate clients that already have
contracted health plans, which favors the sale of this product in the North and Northeast regions and explains
the greater market share gain in this region.
Members (dental) Average ticket (dental)
1.374 1.463 1.621 1.709
562 587 605 647 1.936
2.050 2.226 2.356
22,6%24,7%
26,8% 28,1%
2015 2016 2017 2018
Corporate Individual Market share (health)
497 434 483 702
619 719 729
770 1.117 1.153 1.213
1.47221,6% 22,0% 21,5%
25,6%
2015 2016 2017 2018
Corporate Individual Market share (dental)
8,57 9,45
12,43 12,22
2015 2016 2017 2018
Average ticket (dental)
109,58 127,46
148,41 166,46
2015 2016 2017 2018
Average ticket (health)
Página 4 de 18
Own service network
The company keep focusing on the continuous expansion of its own service network, through acquisitions of
new units, expansion and reform of existing ones and investments in information technology, guaranteeing
the accomplishment of a service focused on the efficiency of customer service and satisfaction of members, as
well as cost efficiency, to maintain the low loss ratio.
Throughout 2018, came into operation two new hospitals (Teresina/PI and Manaus/AM) and four walk-in
emergency units, two units in the state of Pernambuco and two units in the state of Bahia. In this period, three
units were closed or replaced by others with greater capacity, as was the case of Garcia Dávila walk-in
emergency unit, which was closed due to the Rio Poty hospital in Teresina/PI opening. It is worth mentioning
that the own service network capacity expansion also occur due to the opening of beds in units that are already
in operation as happened in Vasco Lucena Hospital in Recife/PE over 2018.
In addition, the company usually maintains an idle capacity in hospitals of major cities to allow growth and
maintain the service quality to health plan members, without increasing the cost.
25 25 25 26 26 18 19 19 19 19
74 74 75 75 75
80 83 83 84 84
197 201 202 204 204
1.485 1.671 1.698
1.789 1.836
4Q17 1Q18 2Q18 3Q18 4Q18
Hospitals Emergency Units Clinics Image diagnosis and labs Beds
Página 5 de 18
Medical loss ratio
Item 4Q18 4Q17 4Q18 x 4Q17
3Q18 4Q18 x 3Q18
2018 2017 2018 x 2017
(=) Total cost (744,2) (609,8) 22,0% (728,5) 2,2% (2.754,7) (2.261,9) 21,8%
(-) Change in IBNR (10,1) (6,0) 69,5% (6,9) 46,2% (22,6) (14,1) 59,6%
(=) Cost incurred (a) (734,1) (603,9) 21,6% (721,6) 1,7% (2.732,1) (2.247,8) 21,5%
(=) Net revenues (b) 1.211,3 1.043,8 16,1% 1.163,7 4,1% 4.575,9 3.848,0 18,9%
Medical loss ratio (c) = (a)/(b) 60,6% 57,9% 2,7p.p. 62,0% -1,4p.p. 59,7% 58,4% 1,3p.p.
As expected and widely disclosed by the company in the interactions with the market, the medical loss ratio in
4Q18 (60.6%) showed a reduction of 1.4p.p. when compared to 3Q18, mainly due to the end of the seasonal
viruses period, resulting in the demobilization of the temporary workforce and the consequent reduction of
exams and the use of hospital supplies and medications.
The loss ratio of 2018 reached 59.7%, a 1.3 p.p. growth in relation to 2017, as a result of (i) higher SUS
reimbursement and IBNR, both explained on the next page, (ii) rent with related parties, (iii) cost of new units
and (iv) a higher than estimated cost related to virus period, as previously reported. Additionally, it is important
to highlight the drop of 0.3pp. in the adjusted medical loss ratio of 2018 versus 2017.
Change in IBNR: the provision balance of events occurred but not reported in 2018 presented a reduction of
0.2p.p. in relation to 2017 to 5.5% of the costs of the last 12 months, even with the increase in the costs with
accredited network - due to the expansion strategy to the countryside of some states in the North and
Northeast regions where the company does not operate with its own service network, due to a smaller scale.
1.303,6
1.842,0
2.248
2.732,1
61,1% 60,7%58,4% 59,7%
15%
25%
35%
45%
55%
65%
,0
500 ,0
100 0,0
150 0,0
200 0,0
250 0,0
300 0,0
350 0,0
2015 2016 2017 2018
Cost incurred Medical loss ratio
603,9 601,1 675,2 721,6 734,1
57,9%55,2%
60,8% 62,0% 60,6%
15%
25%
35%
45%
55%
65%
300 ,0
800 ,0
130 0,0
180 0,0
230 0,0
280 0,0
330 0,0
4Q17 1Q18 2Q18 3Q18 4Q18Cost incurred Medical loss ratio
Página 6 de 18
Adjusted Medical loss ratio
Item 4T18 4T17 4T18 x 4T17
3T18 4T18 x 3T18
2018 2017 2018 x 2017
(=) Cost incurred (a) (734,1) (603,9) 21,6% (721,6) 1,7% (2.732,1) (2.247,8) 21,5%
(-) Change in SUS reimbursement (13,3) 1,1 -1281,8% (5,1) 161,9% (27,0) (11,3) 138,9%
(-) Dif. of rent with related parties (7,5) - N/A (7,0) 6,1% (19,5) - N/A
(-) Cost of new units, inaugurated in the last 12 months
(17,6) (6,2) 184,1% (16,6) 5,9% (54,3) (13,3) 309,8%
(=) Adj. Cost incurred (b) (695,7) (598,8) 16,2% (692,8) 0,4% (2.631,3) (2.223,3) 18,4%
(=) Net revenues (c) 1.211,3 1.043,8 16,1% 1.163,7 4,1% 4.575,9 3.848,0 18,9%
Adj. Medical loss ratio (d) = (b)/(c) 57,4% 57,4% 0,0p.p. 59,5% -2,1p.p. 57,5% 57,8% -0,3p.p.
* Not adjusted by the cost of the new units of the period.
Change in SUS reimbursement provision: this item does not depend directly from company’s management
and the amount disclosed by ANS is fully provisioned in the result. The SUS reimbursement process followed
by ANS does not have a defined schedule, and occurs in dependence on the internal analysis flow of the agency.
This behavior affected the entire market, with operators generally receiving more significant charges from the
ANS, impacting the need to increase the provision of compensation to SUS. The average term of the expenses
sent by the ANS to the company is approximately 20 months after the procedure by the beneficiary.
Differential of rent with related parties: as disclosed since the IPO, the rental agreements with related parties
were adjusted to reflect the market value calculated by specialized consultants, which is why this item showed
a total increase of R$ 19.5 million in 2018.
Cost of new units, inaugurated in the last 12 months: the opening of the own service network new units
increases the medical loss ratio momentarily, since the initial fixed costs are not entirely diluted in the same
period of the operation start. The company has strategically accelerated the expansion of its service network,
wherein the amount spent in 2018 were four times higher than in 2017, influencing the costs in the short term.
1.303,6
1.842,0 2.223,3
2.631,3
61,1% 60,7%57,8% 57,5%
15%
20%
25%
30%
35%
40%
45%
50%
55%
60%
,0
500 ,0
100 0,0
150 0,0
200 0,0
250 0,0
300 0,0
350 0,0
2015* 2016* 2017 2018
Adjusted cost incurred Adj. Medical loss ratio
598,8 592,5 650,9 692,8 695,7
57,4%54,4%
58,6% 59,5%57,4%
15%
25%
35%
45%
55%
65%
300
800
1.3 00
1.8 00
2.3 00
2.8 00
3.3 00
4Q17 1Q18 2Q18 3Q18 4Q18
Adjusted cost incurred Adj. Medical loss ratio
Página 7 de 18
Procedures performed
It is demonstrated below the numberr of procedures performed:
The number of procedures per capita increased by 8.8% in 2018 compared to 2017, mainly due to the higher
intensity of the virus period in 2018, as already announced in the previous disclosures. It is important to
mention that preventive medicine programs initially result in an increase in the number of consultations,
exams and treatments, which later on tend to reduce costly procedures.
28.129
33.268
3.163 4.042
11.468
12.239
43.081
49.887
1,71,8
2017 2018
7.143 7.657 8.325 9.108 8.178
850 813 993
1.114 1.122 2.827 2.951
3.110 3.217
2.961 10.906 11.497
12.510 13.529
12.351
1,6 1,71,8 2,0
1,7
4Q17 1Q18 2Q18 3Q18 4Q18
Treatments Medical appointment
Hospitalization Monthly per capita procedures
Página 8 de 18
Financial performance
Net revenues
Net revenues grew by 18.9% in 2018 when compared to 2017, mainly influenced by (i) an increase of 5.9% in
the number of members of health plans with a 12.2% increase in the average ticket and by (ii) an increase of
18.6% in the number of members of dental plans with a reduction of 1.8% in the average ticket.
Selling expenses
Composed of expenses related to marketing and advertisement, commissions and provision for doubtful
accounts, this item remained at the same level of 2017 when evaluated under the representativeness of net
revenues. As of 4Q18, health plan commissions were adjusted in line with the average terms of their contracts.
The commissions from the individual health plans are now deferred in 32 months instead of 26 months. And
the corporate health plans now have their commissions deferred in the result in 56 months instead of 43
months. The company periodically evaluates the contracts average term, in accordance with the accounting
rules in place.
2.459,0
3.036,5
3.848,04.575,9
39,0% 38,6% 41,2% 39,8%
-30,0%
-20,0%
-10,0%
0,0 %
10, 0%
20, 0%
30, 0%
40, 0%
300 ,0
1.3 00,0
2.3 00,0
3.3 00,0
4.3 00,0
5.3 00,0
2015 2016 2017 2018
Net revenues Gross margin
266,9 334,4
378,2 443,4
10,9% 11,0%9,8% 9,7%
-1%
1%
3%
5%
7%
9%
11%
13%
15%
,0
100 ,0
200 ,0
300 ,0
400 ,0
500 ,0
600 ,0
700 ,0
800 ,0
900 ,0
2015 2016 2017 2018
Selling expenses Selling expenses (%NOR)
1.043,8 1.089,9 1.111,0 1.163,7 1.211,3
41,6% 44,6%39,0% 37,4% 38,6%
-30,0%
-20,0%
-10,0%
0,0 %
10, 0%
20, 0%
30, 0%
40, 0%
300 ,0
1.30 0,0
2.30 0,0
3.30 0,0
4.30 0,0
5.30 0,0
4Q17 1Q18 2Q18 3Q18 4Q18
Net revenues Gross margin
86,1 121,9 111,4 116,6 93,5
8,3%
11,2%10,0% 10,0%
7,7%
-1%
1%
3%
5%
7%
9%
11%
13%
15%
-80,0
20, 0
120 ,0
220 ,0
320 ,0
420 ,0
520 ,0
620 ,0
720 ,0
820 ,0
920 ,0
4Q17 1Q18 2Q18 3Q18 4Q18
Selling expenses Selling expenses (%NOR)
Página 9 de 18
Financial performance (cont.)
Administrative expenses
Together with selling expenses, the administrative expenses in 2018 remained stable in relation to net
revenues when compared to the previous year.
It is important to mention that this occurred even with (i) the addition of R$ 15 million in personnel expenses
related to the compensation of controlling shareholders who play an executive role in the company, a matter
informed since the IPO, (ii) the increase in the workforce especially in key areas, such as the area responsible
for integrating new units, management of the own service network and M&A, and (iii) with R$ 5.4 million in
cancellations of certain Uniplam clients, representing the natural churn of individual plans and the cancellation
of corporate clients who provided services to Uniplam and who decided not to be suppliers anymore due to
the internalization of Hapvida services, thus opting to cancel their contracts. This situation was already
expected and was fully priced at the time of acquisition.
The other components of this item - third party services, location and operation, taxes and provision for risks
- remained constant in relation to 2017.
347,0 347,8 424,4
507,3
14,1%11,5% 11,0% 11,1%
-10%
-5%
0%
5%
10%
15%
0,0 00
100 ,000
200 ,000
300 ,000
400 ,000
500 ,000
600 ,000
700 ,000
800 ,000
2015 2016 2017 2018Administrative expenses Administrative expenses (%NOR)
127,590,5
122,8 139,5 154,5
12,2%
8,3%
11,9% 12,0% 12,8%
-7%
-2%
3%
8%
13%
,0
100 ,0
200 ,0
300 ,0
400 ,0
500 ,0
600 ,0
700 ,0
800 ,0
4Q17 1Q18 2Q18 3Q18 4Q18
Administrative expenses Administrative expenses (%NOR)
Página 10 de 18
Financial performance (cont.)
Financial result
The financial result was mainly influenced by the net inflow of approximately R$ 2.53 billion in proceeds from
the public offering occurred in 2Q18. With a significant increase in investment positions, the financial result in
2018 was higher than in 2017, partially offset by (i) the reduction in the Selic rate, from 7.4% at the end of
4Q17 to 6.4% at the end of 4Q18 and (ii) the monetary adjustment of tax debts totaling R$ 7.7 million, which
impacted 2Q18 results.
Net income
Net income reached R$ 788.3 million in 2018, an increase of 21.2% over the result recorded in the same period
of the previous year, with a net margin of 17.2%, a slight increase in the same comparison. In 4Q18, net income
grew by 35.1% compared to 4Q17, with an increase of 2.7p.p. in the net margin
IRPJ e CSLL: the effective rate of IR and CSLL recorded in 2018 was 24.4%, 2.9p.p. lower than the rate calculated
in 2017, mainly due to the distribution of R$ 123.9 million as IOC, implying a reduction of R$ 42.1 million in
4Q18.
50,7
115,5 111,5
171,8
2015 2016 2017 2018
Financial result
311,3
456,5
650,6
788,312,7%
15,0% 16,9% 17,2%
-10,0%
-5,0%
0,0 %
5,0 %
10, 0%
15, 0%
20, 0%
0,0
200 ,0
400 ,0
600 ,0
800 ,0
100 0,0
2015 2016 2017 2018
Net income Net margin
23,8 21,837,3
59,1 53,7
4Q17 1Q18 2Q18 3Q18 4Q18
Financial result
173,2214,1
150,0190,2
234,1
16,6%19,6%
13,5%16,3%
19,3%
-10,0%
-5,0%
0,0 %
5,0 %
10, 0%
15, 0%
20, 0%
100 ,0
200 ,0
300 ,0
400 ,0
500 ,0
600 ,0
700 ,0
800 ,0
900 ,0
1.00 0,0
1.10 0,0
4Q17 1Q18 2Q18 3Q18 4Q18
Net income Net margin
Página 11 de 18
EBITDA and Adjusted EBITDA EBITDA
EBITDA: the EBITDA reached R$ 913.0 million in 2018, up 10.7% when compared to 2017, with margin of 20.0%,
a 1.5p.p. decrease in relation to the same period, due to the factors previously explained in this document.
Adjusted EBITDA
EBITDA Ajustado: the company understands that the financial income from investments related to the
collateral assets (restricted cash), as well as the income from overdue receivables and possible discounts
granted to customers are an integral part of the operation and should therefore be considered in the Adjusted
EBITDA calculation. In addition to these adjustments there were non-recurring events in 2018 related to (i) the
higher rate of reimbursement to SUS, totaling R$ 12.0 million above the historical average (ii) the provision for
extraordinary variable compensation of employees, fully paid in December 2018, totaling R$ 22.7 million, of
which R$ 18.6 million were allocated to personnel expenses and R$ 4.1 million in cost, (iii) to the cancellation
of Uniplam clients, totaling R$ 5.4 million and (iv) to the write-off of property, plant and equipment, totaling
R$ 3.4 million, partially offset by the reversal of provision of doubtful accounts of R$ 8.6 million referring to a
single corporate client. As a result, Adjusted EBITDA grew by 2.9% in 4Q18 and totaled R$ 270.0 million with a
margin of 22.3%. In 2018, Adjusted EBITDA reached R$ 990.2 million, an annual growth of 11.1% with a margin
of 21.6%.
348,3
490,6
824,4913,0
14,2%16,2%
21,4% 20,0%
-13,0%
-8,0%
-3,0%
2,0 %
7,0 %
12, 0%
17, 0%
22, 0%
27, 0%
0,0
200 ,0
400 ,0
600 ,0
800 ,0
100 0,0
120 0,0
140 0,0
2015 2016 2017 2018
EBITDA EBITDA margin
370,3
535,8
891,3990,215,1%
17,6%
23,2%21,6%
-13,0%
-8,0%
-3,0%
2,0 %
7,0 %
12, 0%
17, 0%
22, 0%
27, 0%
0,0
200 ,0
400 ,0
600 ,0
800 ,0
100 0,0
120 0,0
140 0,0
2015 2016 2017 2018
Adjusted EBITDA Adjusted EBITDA margin
262,4 312,4208,1 199,6 270,0
25,1%28,7%
18,7%17,2%
22,3%
0,0 %
5,0 %
10, 0%
15, 0%
20, 0%
25, 0%
-
200 ,0
400 ,0
600 ,0
800 ,0
1.00 0,0
1.20 0,0
1.40 0,0
4Q17 1Q18 2Q18 3Q18 4Q18Adjusted EBITDA Adjusted EBITDA margin
240,1 282,9209,0 190,2 230,8
23,0%
26,0%
18,8%16,3%
19,1%
0,0 %
5,0 %
10, 0%
15, 0%
20, 0%
25, 0%
30, 0%
-
200 ,0
400 ,0
600 ,0
800 ,0
1.00 0,0
1.20 0,0
1.40 0,0
4Q17 1Q18 2Q18 3Q18 4Q18EBITDA EBITDA margin
Página 12 de 18
ROE
Item Unit 2017 2018
Net income LTM (a) R$ million 650,6 788,3
Equity R$ million 1.308,3 3.605,9
Average equity (b)¹ R$ million 1.045,8 2.730,9
ROE (Últimos Doze Meses) (c) = (a)/(b) R$ million 62,2% 28,9%
Adjusted equity (BRL 2,53 bn from 2Q18 on) R$ million 1.308,3 1.075,9
Adjusted Average equity (BRL 2,53 bn from 2Q18 on) (d) R$ million 1.045,8 1.212,9
ROE (Últimos Doze Meses) Ajustado (e) = (a)/(d) R$ million 62,2% 65,0%
¹2017 and 2018 = Average equity of the previous 5 quarters.
Adjusting the equity by the inflow of R$ 2.53 billion from the IPO, the company presented an evolution of
2.8pp. in ROE to 65.0% in 2018, and remain as one of the most profitable companies in the country.
62,2%
28,9%
65,0%
2015 2016
ROE LTM Adjusted ROE LTM
Página 13 de 18
Cash generation and Capex
Free cash flow: the free cash flow reached R$ 500.7 million in 2018, in line with 2017.
Values in R$ million
Item 2018 2017 2018 x 2017
EBIT 870,5 783,5 11,1%
Effective tax rate 24,3% 27,3% -3,0 p.p.
NOPAT 658,4 569,5 15,6 %
(+) Depreciation and amortization 42,5 41,0 3,7%
(+/-) Change in working capital4 (50,0) (1,1) -4.082%
(-) Cash CAPEX (206,5) (153,3) 34,7%
Free cash flow 444,2 456,1 -2,6%
4 Includes changes in: (i) current assets: accounts receivable, inventories, other credits and advances to suppliers and (ii) current
liabilities: loans, suppliers, technical provisions for health care operations net of PPCNG, health care net of prepayments, other accounts
payable and social obligations.
Capex: the investments resulting from additions to property, plant and equipment and intangible assets net
of depreciation and amortization totaled R$ 225.8 million in 2018 mainly due to the expansion of the structure
of operation and administration of its own service network, with the opening of four walk-in emergency and
two new hospital, in addition to the investments made in the implementation of the new integrated
management system (ERP) beginning in 2019.
Página 14 de 18
Income Statement
Values in R$ million
Item 4Q18 4Q17 4Q18 x 4Q17
3Q18 4Q18 x 3Q18
2018 2017 2018 x 2017
Revenues from gross payments 1.247,9 1.084,3 15,1% 1.213,6 2,8% 4.758,2 3.999,8 19,0%
Revenue from other activities 17,0 7,1 139,7% 2,0 744,8% 25,6 20,0 28,0%
Deductions (53,6) (47,6) 12,7% (51,9) 3,3% (207,8) (171,8) 21,0%
Net revenues 1.211,3 1.043,8 16,1% 1.163,7 4,1% 4.575,9 3.848,0 18,9%
Medical cost and others (720,7) (605,0) 19,1% (716,5) 0,6% (2.705,1) (2.236,5) 21,0%
Own service network (486,1) (392,2) 23,9% (460,4) -100,1% (1.771,7) (1.449,8) 22,2%
Rent with related parties (13,2) (5,8) 128,9% (13,2) -109,7% (41,9) (22,4) 86,8%
Accredited network (234,6) (212,8) 10,2% (256,1) -100,0% (933,5) (786,7) 18,7%
Change in IBNR (10,1) (6,0) 69,5% (6,9) 46,2% (22,6) (14,1) 59,6%
Change in SUS reimbursement provision (13,3) 1,1 -1281,8% (5,1) 161,9% (27,0) (11,3) 138,9%
Total cost (744,2) (609,8) 22,0% (728,5) 2,2% (2.754,7) (2.261,9) 21,8%
Gross profit 467,2 433,9 7,7% 435,2 7,3% 1.821,2 1.586,0 14,8%
Gross margin 38,6% 41,6% -3,0p.p. 37,4% 1,2p.p. 39,8% 41,2% -1,4p.p.
Selling expenses (93,5) (86,1) 8,5% (116,6) -19,9% (443,4) (378,2) 17,3%
Administrative expenses (145,0) (127,9) 13,3% (139,1) 4,3% (507,2) (426,6) 18,9%
Personnel (56,6) (56,5) 0,2% (53,7) 5,4% (195,3) (162,1) 20,5%
Third party services (32,7) (21,9) 49,1% (23,0) 42,4% (98,9) (77,4) 27,8%
Location and operation (27,0) (25,8) 4,7% (27,8) -2,9% (103,2) (98,1) 5,1%
Taxes (3,0) (13,0) -77,1% (7,5) -60,4% (38,1) (35,6) 6,9%
Provisions risks (22,4) (2,7) 739,0% (23,5) -4,7% (62,4) (31,6) 97,4%
Miscellaneous expenses (3,4) (8,1) -58,2% (3,7) -8,0% (9,2) (21,7) -57,5%
Other expenses/operational revenues (9,5) 0,4 -2315,7% (0,4) 2139,5% (0,1) 2,2 -105,9%
Total expenses (248,0) (213,6) 16,1% (256,1) -3,2% (950,7) (802,6) 18,5%
Operational income 219,2 220,3 -0,5% 179,1 22,4% 870,5 783,5 11,1%
Financial revenues 63,4 31,0 104,8% 65,1 -2,6% 213,1 139,3 53,0%
Financial expenses (9,7) (7,2) 34,7% (6,0) 61,0% (41,3) (27,8) 48,6%
Financial result 53,7 23,8 125,9% 59,1 -9,0% 171,8 111,5 54,0%
EBIT 272,9 244,1 11,8% 238,2 14,6% 1.042,3 895,0 16,5%
IR and CSLL current (82,2) (69,9) 17,6% (66,5) 23,6% (315,1) (242,1) 30,2%
IR and CSLL deferred 43,3 (1,0) -4630,0% 18,6 134% 61,1 (2,3) -2721,1%
IR and CSLL (38,9) (70,9) -45,1% (48,0) -19,0% (254,0) (244,4) 3,9%
Net income 234,1 173,2 35,1% 190,2 23,1% 788,3 650,6 21,2%
Net margin 19,3% 16,6% 2,7p.p. 16,3% 3,0p.p. 17,2% 16,9% 0,3p.p.
Página 15 de 18
Balance Sheet Values in R$ million
Item 4Q18 4Q17 4Q18 x 4Q17
3Q18 4Q18 x 3Q18
Ativo 4.876,7 2.336,1 108,7% 4.925,2 -1,0%
Ativo circulante 1.276,0 1.239,0 3,0% 1.385,7 -7,9%
Cash and cash equivalents 185,5 104,2 78,0% 89,2 108,0%
Short-term investments 702,4 802,8 -12,5% 620,0 13,3%
Trade receivables 152,7 143,0 6,8% 443,1 -65,5%
Other assets 131,6 83,6 57,5% 109,9 19,8%
Deferred commission 103,8 105,3 -1,5% 123,6 -16,1%
Ativo não circulante 3.600,7 1.097,2 228,2% 3.539,5 1,7%
Long-term investments 2.685,6 539,3 398,0% 2.784,8 -3,6%
Deferred taxes 126,0 64,9 94,1% 82,7 52,4%
Judicial deposits 96,9 58,5 65,6% 87,9 10,2%
Deferred commission 121,6 88,5 37,4% 87,8 38,5%
Other assets 40,9 9,3 338,8% 5,1 697,2%
Property. plant and equipment 414,5 290,6 42,6% 395,7 4,8%
Intangible assets 115,1 46,0 150,4% 95,5 20,5%
Item 4Q18 4Q17 4Q18 x 4Q17
3Q18 4Q18 x 3Q18
Passivo e patrimônio líquido 4.876,7 2.336,1 108,7% 4.925,2 -1,0%
Passivo circulante 987,5 1.540,0 -35,9% 1.050,1 -6,0%
Trade payables 61,4 56,1 9,3% 58,3 5,2%
Technical provisions for health care operations 408,1 359,5 13,5% 689,3 -40,8%
Health care payables 65,2 55,2 18,2% 60,3 8,1%
Payroll obligations 112,9 96,2 17,4% 118,1 -4,3%
Taxes and contributions payable 55,9 59,2 -5,7% 58,2 -4,0%
Dividends and interest on shareholders’ equity payable 184,5 836,3 -77,9% 14,6 1167,0%
Other accounts payable 99,5 77,4 28,4% 51,3 93,8%
Passivo não circulante 283,3 324,1 -12,6% 319,3 2,1%
Taxes and contributions payable 12,0 21,7 -44,7% 11,9 0,3%
Provision for tax. civil and labor risks 263,4 248,8 5,9% 256,2 2,8%
Related party payables - 48,0 -100,0% 42,6 0,1%
Other accounts payable 7,9 5,7 39,0% 8,5 -7,1%
Patrimônio líquido 3.605,9 472,0 663,9% 3.555,9 2,9%
Capital 2.810,2 280,0 903,6% 2.810,2 0,0%
Reserves 792,3 136,3 481,2% 745,2 13,6%
Equity attributable to controlling shareholders 0,3 0,1 150,0% 0,5 -35,4%
Página 16 de 18
Cash Flow Statement Values in R$ million
Item 4Q18 4Q17 4Q18 x 4Q17
3Q18 4Q18 x 3Q18
2018 2017
Net income 234,1 173,2 35,1% 190,2 23,1% 788,3 650,6
Adjustments to reconcile net income with cash 95,2 126,4 -24,7% 5,3 22,8 392,3 367,2
Depreciation and amortization 11,7 19,8 -40,6% 11,1 77,2% 42,5 41,0
Technical provisions for health care operations
23,4 17,3 35,5% 12,0 43,6% 49,5 25,4
Provision for losses on receivables 23,7 14,6 62,2% 35,9 -59,3% 148,7 104,8
Write-off of property. plant and equipment
- - - 0,3 - - -
Write-off of intangible assets 3,1 3,0 2,4% 0,0 938,4% 3,5 5,3
Provision for tax. civil and labor risks 5,4 0,0 270350,0% - 100,0% 5,4 0,1
Income from financial investments 16,4 17,8 -7,8% 15,6 14,3% 36,1 31,6
Tax income and social contribution (27,5) (17,0) 62,0% (117,6) -85,6% (147,4) (85,4)
Deferred taxes 82,3 69,9 17,7% 66,5 5,1% 315,1 242,1
Depreciation and amortization (43,4) 1,0 -4630,2% (18,6) -105,2% (61,1) 2,3
(Increase) decrease in asset accounts (59,4) (53,6) 10,9% (100,0) -46,5% (292,0) (267,3)
Accounts receivable (12,2) (20,5) -40,5% (71,6) -71,4% (156,7) (184,7)
Inventory (6,7) 0,4 -1632,3% 2,5 -82,6% (4,6) (0,3)
Taxes recoverable (29,4) (6,1) 380,7% (12,6) -51,6% (38,8) (9,5)
Financial investments 42,3 4,6 820,4% (0,7) -793,5% 40,4 2,2
Judicial deposits (18,2) (27,8) -34,7% (18,3) 52,3% (59,8) (34,2)
Other assets (38,3) (3,5) 990,3% 1,4 -348,1% (56,5) (7,1)
Advance payments 17,0 3,9 336,4% 2,1 89,6% 15,5 (4,9)
Deferred taxes - - - - - - -
Deferred Sales Expense (14,0) (4,6) 205,6% (2,9) 59,7% (31,5) (28,9)
Increase (decrease) in liability accounts: (130,1) (65,2) 99,4% (32,9) 295,4% (371,9) (131,9)
Technical provisions for health care operations
(25,8) (31,4) -18,0% 28,4 -190,7% (0,9) 20,2
Debts of health care operations 4,9 0,9 459,9% (2,0) -340,6% 10,0 8,3
Social obligations (5,2) (3,5) 50,8% 12,7 -141,2% 14,8 35,5
Suppliers 3,1 5,3 -41,0% (5,2) -159,9% 2,9 12,8
Taxes and contributions payable (19,4) 5,1 -478,4% 7,5 -357,6% (32,9) 18,0
Other accounts payable (4,4) 22,0 -120,1% 1,0 -550,9% (29,8) 8,3
Income tax and social contribution paid (83,2) (63,6) 30,9% (75,3) 10,5% (336,1) (235,0)
Página 17 de 18
Cash Flow Statement (Cont.) Values in R$ million
Item 4Q18 4Q17 4Q18 x 4Q17
3Q18 4Q18 x 3Q18
2018 2017
Net cash provided by operating activities 108,7 180,8 -39,9% 62,6 0,7 485,6 618,5
Cash flow from investing activities (8,8) (133,1) 2,0 268,2 -103,3% (2.098,6) (409,0)
Payments to related parties - (5,8) -99,9% 0,1 -106,4% 5,8 (6,5)
Acquisition of property. plant and equipment
(31,2) (29,3) 6,4% (44,1) -29,3% (160,8) (117,2)
Acquisition of intangibles (27,4) 13,4 -305,5% (11,7) 134,1% (53,5) (12,5)
Acquisition/sale of investments - (13,5) -100,0% - - - (13,5)
Dividends received - - - - - - -
Financial investments (1.193,7) (329,5) 262,3% (614,3) 94,3% (6.941,4) (491,1)
Redemption of financial investments 1.243,6 231,7 436,7% 938,2 32,5% 5.051,3 231,7
Cash flow from financing activities (0,4) (6,0) -93,0% (354,6) -99,9% 1.697,3 (162,2)
Receipt of related parties - (1,7) -102,7% - -
24114,5% (5,4) (0,8)
Payment/Acquisition of loans and financing
(3,6) - - (2,0) - (6,1) -
Payment of dividends and interest on own capital
- (5,4) -99,9% (352,5) -100,0% (823,8) (161,4)
Expenses with share issuance - - - 0,2 - (100,8) -
Capital contribution - - - - - 2.631,0 -
Non-controlling shareholding stake 3,2 1,1 182,6% (0,2) -1662,9% 2,3 -
Change in cash and cash equivalents 96,3 41,7 130,9% (23,8) -504,0% 81,3 47,4
Cash and cash equivalents at the beginning of the period 89,2 62,5 42,7% 113,0 -21,1% 654,1 247,0
Cash and cash equivalents at the end of the period 185,5 104,2 78,0% 89,2 108,0% 735,4 294,3
Página 18 de 18
Glossary
Adjusted Medical loss ratio: similar to Medical loss ratio, but adjusting the calculation by (i) provision for
compensation to the SUS, (ii) rent differential with related parties and (iii) cost of new units inaugurated in the
last 12 months.
ANS: National Supplementary Health Agency. It is the regulatory agency linked to the Ministry of Health
responsible for the health sector in Brazil.
IGR: general complaints index. Its purpose is to present a behavior thermometer of the sector’s operators in
attending to the problems pointed out by the members. It includes the average number of complaints from
members received in the previous three months and classified up to the data’s date of extraction. The index is
based presented per 10,000 members.
IBNR: provision of events occurred but not reported. Provision for payment of events that have already
occurred and were not informed to the company before the end of the period, which was constituted based
on actuarial methodology.
MAE: minimum adjusted equity. In order to operate in the healthcare market regulated by the ANS, the health
plan operator must keep the adjusted shareholders' equity for economic purposes as established by the ANS.
Minimum adjusted equity is calculated as equity less non-current intangible assets, tax credits arising from
fiscal losses, deferred sales expenses and prepaid expenses.
Medical loss ratio: index that shows the relationship between healthcare expenses and total revenues from
healthcare operations (effective payments).
OCR: outstanding claims reserve. Provision for the collateral of events that have already occurred, recorded in
the accounts and not yet paid. The accounting record is made at the full amount informed by the supplier or
member when the charge is presented to the entity, and is subsequently adjusted for glosses and discounts
after company’s evaluation (medical auditors).
SM: solvency margin. At a pre-established price, it corresponds to the adjusted shareholders' equity sufficiency
to cover the greater of the following amounts: (i) 20% of the revenues from the gross payments or (ii) 33% of
the last 36 months events annual average.
UPR: unearned premiums reserve. It is characterized by the accounting record of the charged by the
operators to hedge contractual risk proportional to the days not yet elapsed within the monthly coverage
period, to be appropriated as revenue only in the subsequent period when the term is actually incurred.