Fleury SA
BOVESPA:FLRY3
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Fleury SA
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Good morning, everybody and thank you for holding. Welcome to the Grupo Fleury conference call regarding the results for the first quarter 2018.
We have with us today Mr. Carlos Marinelli, the CEO; Mrs. Viviane Behar de Castro, the IRO; and Fernando Leão, the CFO and the Legal Officer.
We would like to inform you that this event is being recorded. [Operator Instructions] This event is also being broadcast simultaneously through Internet via webcast and can be accessed at the address www.fleury.com.br/ir, where the respective presentation is also available. You yourself will be able to control the slides. The replay of this event will be available soon after the closing.
We would like to remind the participants of the webcast that they can record via website any questions for the Fleury Group.
Before proceeding, we would like to clarify that forward-looking statements made during this conference call referring to the business outlooks of the Fleury Group, projections, operating and financial goals are based on the beliefs and premises of the company management as well as information presently available through the Fleury Group. Future -- forward-looking statements are no guarantee of performance as they involve risks, uncertainties and premises as they refer to future events and therefore depend on circumstances that may or may not occur. Investors and analysts should understand that general conditions, the sector conditions and other operating factors could affect the future results of the Fleury Group and could lead to results that differ materially from those expressed in the forward-looking statements.
I would now like to give the floor to Mr. Carlos Marinelli, who will begin the presentation. You have the floor, Mr. Marinelli.
Good morning, and thank you for the interest and presence of all of you at our earnings conference call for the first quarter '18.
I begin this conference call highlighting the main financial indicators on Slide #3.
The net revenues presented a growth of 11.1%, totaling BRL 653.3 million. Cancellations represented 1.4%, with 89 basis points improvement. EBITDA reached 7.4%, reaching a margin of 28.5%, the second highest margin in the company's history.
Our net income was BRL 96.4 million, a growth of 18.2%. And finally, return on invested capital without goodwill reached 45.3%, a strong evolution compared to 36% reported in 2017.
These indicators once again point to the sustainable growth of our operation, with a continuous evolution of the main line items of our results, despite these strong organic expansion of our operations with 34 new units inaugurated in the last 12 months.
Perhaps, more important is they reflect the consistency of our innovation and growth strategy adopted by the company alongside the permanent discipline in operating efficiency of our business.
As you can observe in Slide #4, we maintain our focus on the execution of the expansion plan so much so that we kicked off 2018 with the inauguration in February of a medium-size unit in Santo André, the fifth largest city in the state of São Paulo. This will enable the Fleury brand to continue to grow in clinical analysis and images, including MRI.
As the full unit in Santo André faces high occupational level, in April we inaugurated the first a+ brand in Guarulhos, a city that is part of the metropolitan region of São Paulo. This unit has a full offer of clinical analysis and imaging, including mammography, ultrasound, MRI and fetal medicine. With this, we obtained 35 new units since the beginning of the expansion plan, totaling 11,900 square meters of service areas. Of this total, 91% is still in the incipient stage of maturity with less than 12 months of operations.
It is important to highlight that strengthening our capillarity foresees further inaugurations this year, especially with the a brand in São Paulo and Felippe Mattoso and Labs a+ in Rio de Janeiro. Most of the inaugurations will concentrate on the second semester.
We go on to Slide #5 to show you our operating highlights. Once again, we have the consolidation of NPS, which is a quality indicator of our service rendering. We reached 76% for the quarter, an increase of 366 basis points. With the goal of enhancing the experience of our clients, we are fully engaged on our journey of digital transformation that is present in different fronts, such as back office, medical relations and service.
We're launchings the pilot phase of the Digital Reception project in the a+ Queiroz Filho unit in São Paulo through the app.
This project will allow the clients to carry out a digital check-in 48 hours before the scheduled exam. Upon reaching the unit, the client will present his or her confirmation online through the QR code and have a more expeditious service at the unit.
After the pilot phase, the project will be rolled out to the other units of a+ in São Paulo and Fleury and subsequently to the other group brands.
We're also investing heavily in the development of products and services in the genomic segment to consolidate our leading position.
In the first months of this year, we launched a complete portfolio in neurogenetics, with 23 genetic tests to diagnose conditions such as autism, epilepsies and other neurological syndromes, added to the broad portfolio in oncology and cardiology and confirming that the Fleury Group is at the forefront of personalized and precision medicine.
We also signed agreements with pharmaceutical companies through a partnership where we carry out genetic test to verify patients will benefit from specific medications, broadening channels for genetic tests in a variety of specialities.
In the capital market, our investor base increased 36.1% since the company was included in the Ibovespa index in January of this year.
In April, we disclosed raising BRL 500 million through the fourth issuance of debentures. This reinforces the company cash further to honor our investments in the expansion of markets and business, maintaining an efficient capital structure with costs and returns that are very adequate to the economic dynamic of the sector.
In April, we held the ASM with the participation of 65% of our shareholders that approved all of the issues proposed. Among these, the meeting ratified the makeup of the board of management from 8 to 10 members, 4 nominated by Integritas, the holding made up of founding physicians, 3 nominated by Bradesco Seguros and 3 independent members representing 30% of the total and reiterating our commitment with the best corporate governance practices.
The shareholders also approved setting up a fiscal counsel with 3 effective members for the 2018 exercise.
Finally, I would like to highlight the awards secured by the company. The Weinmann brand is the Most Remembered and Preferred in the category Clinical Laboratory for the 20th time in the Brands of Who Decide in Río Grande do Sul. The Fleury brand is a leader in the Most Hospitable brands in a award promoted by the Brazilian institute on entrepreneurial hospitality (sic) [ Brazilian Institute of Corporate Hospitality ]. And in the Brazilian institute of relationship of the clients (sic) [ Brazilian Institute of Corporate Hospitality ] that evaluated 150 brands, Fleury was ranked fifth.
We're confident that we will continue delivering sustainable growth in 2018 based on our pillars: technical, medical, service and management excellence. For this, we will continue to devote full discipline in the execution of our expansion plan with the development of innovative solutions in medicines that is precise and personalized and also enhancing the experience of the client when using our services.
In parallel, we will maintain our attention in the search for greater operational efficiency through the digital transformation that is underway in the company.
I would now like to give the floor to Viviane for her to proceed with the presentation of results.
Thank you, Carlos, and a good morning to all of you. We begin the presentation on Slide #6, where I show you the growth revenue.
We presented a growth of 10% in total growth revenue, amounting to BRL 706.3 million. The growth of total growth revenue shows the soundness of our robust brand portfolio. These results took place in a calendar where we have less working days, longer holidays vis-à-vis the same period in the last year, impacting the demand in a onetime way.
Additionally, during the quarter, we also had the impacts of the price negotiation carried out with health care operators at the end of 2017.
We underscore that our annual price adjustments are based on the broader consumer price index that reflects a lower level of inflation, considerably lower compared to the previous year. In this context, our service units grew 10%, with the following makeups: 6.4% for the Fleury brand; 21.7% for regional brands, excluding Rio de Janeiro; 8.5% for the Rio de Janeiro brand.
Our hospital operations showed a growth of 9.9%.
Net income during the quarter had a growth of 11.1%, with an improvement of 89 basis points in the cancellation indicator that reached 1.4% of growth revenue.
On Slide 7, in greater detail we see the growth of our portfolio brands. In the graph, you can observe that a large part of the growth is due to the advance of regional brands, excluding Rio de Janeiro, representing BRL 24.5 million growth, followed by BRL 20.7 million for the Fleury brand.
The brand in Rio de Janeiro contributed with BRL 9 million.
In the graph below, we see the explosive growth of gross revenue on same-store sales.
If we begin with the regional brands, excluding Rio de Janeiro, we have a 21.7% growth in gross revenue, with same-store sales of 9.4%.
We highlight the a+ brand in São Paulo with strong organic growth of 28.9% due to the effect of newly inaugurated units.
Additionally, we have an increase in growth revenue in the Rio Grande do Sul regional with 31.7%, reflecting the consolidation of the Serdil brand acquired in the fourth quarter of 2017.
In the Rio de Janeiro brand, we have an increase of 8.5% in growth revenue, with 61% in the same-store sales. This quarter there is a growth acceleration vis-à-vis the fourth quarter '17. Among these factors, this is due to our accreditation of new operators in the previous quarter.
Even in the situation of the calendar effect that we mentioned previously, that in Rio de Janeiro has a greater impact in the use of services. Of the 6 new units inaugurated in Rio de Janeiro in the fourth quarter '17, 4 inaugurated in December and are, therefore, in incipient stages of maturity.
In the Fleury brand, we verified an increase of 6.4% in gross revenue, with same-store sales vis-à-vis the same period in the previous year. This is entailed by the new units that are still in an initial stage of maturity.
91% of the service square meter inaugurated have less than 12 months of operation. These new units are performing according to plan, advancing in their revenue potential and servicing regions and neighbors where our service needed to be expanded.
The same-store sales of the Fleury brand is impacted by the new units. This effect refers to client distribution, both old and new, among existing units and new units in the same geographic area, which we call clusters. With the opening of the new unit, we carry out an adjustment in the existing units in the cluster through a retrofit or reorganization of the service mix offer impacting the same-store sales.
This semester the MRI and CAT scans came to a standstill for 3 months to replace the equipment at the República do Libano III unit in São Paulo.
We would like to highlight that we recorded impacts due to the calendar effect with less working days and with a lower price readjustment due to the drop in the inflation in business.
In Slide #8, we show you the execution of our expansion plan that added 34 new units until March of 2018. This represents 11,100 square meters or 10% of incremental area.
In the graph, you can see that 92% (sic) [ 91% ] of the total inaugurated area has less than 12 months of operation. The units inaugurated are performing according to what was expected and are already contributing to the growth of our brand portfolio.
In Slide #9, we would like to share with you the growth of the Fleury brand cluster made up of 2 large units of Anália Franco and Morumbi inaugurated in June and July of 2017. These units together represent 51% of the meters inaugurated by this brand until the moment. As you can observe in the bar graph, the 2 clusters presented a relevant growth in gross revenue generation immediately after their inauguration. In the first quarter 2018, the growth was of 37%, confirming the demand that exists in these regions for our services.
We go on to Slide #10, where we highlight cancellations and net income. To the left, you see that cancellations reached 1.4% in the quarter, a reduction of 89 basis points.
Not considering this onetime effect of these negotiation with health care payers, this indicator would be 1.6%, and this result reflects the continuous improvement in our receivable cycle. To the right of the slide, you see the expansion of 11.1%, totaling BRL 653.3 million.
In the next Slide #11, to the left, we highlight our cost. In the quarter, we had an increase of 14.2% and an increase of 180 basis points in net income, impacted by personnel and medical services and the increase in number of associates to support the expansion plan and demand for our operations.
In the graph to the right, an increase of 14.3% in our expenses and growth of 13 basis points in net revenue due to discretionary expenses with consulting and marketing.
We continue with our a stringent discipline in cost and expense management with an evolution of our tire -- of our controls and our tireless quest for efficiency.
This can be observed in Slide #12, where the EBITDA margin reached 28.5%, the second highest margin recorded by the company, showing our continuous effort for operational efficiency gains. This sustainable evolution of EBITDA margin in the first quarter '18 was surpassed in the previous year in 100 basis points due to seasonal effects and the reimplementation of SAP.
The EBITDA reached BRL 185 million during the quarter, an increase of 7.4% vis-à-vis the previous year.
In the same slide, in the graph to the right, we show net income that obtained BRL 96.4 million in the quarter, an increase of 18.2%.
The net margin was at 14.8% compared to 13.9% in the first quarter of 2017.
To gain a better understanding of net income between periods, we show you in gray the effects of linearization of the effective rate in the taxes over shareholders equity, with an effective -- expressive increases in 2018 compared to the same quarter in 2017.
And Slide 13, we show you the operating cash flow that recorded BRL 103.9 million in the quarter, an increase of 21.00% vis-à-vis the previous year. The conversion of operating cash in EBITDA reached 55.9% vis-à-vis 49.6% in the first quarter of 2017.
To the right, we show you the quarter CapEx totaling BRL 32.5 million, a reduction of 42.2% vis-à-vis the first quarter in '17. Of this amount, 51.9% are concentrated on expansion and an enhancement in the service unit. These investments in expansion will be intensified in the coming quarters.
In Slide 14, we show you our return on invested capital without goodwill that reached 45.3% with a strong evolution compared to the first quarter of '17. This growth has proved that investments that are being carried out are on the right path. In the same slide, in the graph to the right, we show you the NPS evolution that reached 76% in this quarter, an improvement of 336 basis points.
NPS is a metric used to measure clients recommending our services. This evolution shows that the continuous evolution of our return on investment capital is done in a sustainable way and based on the principle of medical, technical and service excellence and setting our services aside. And this is acknowledged by clients.
In Slide #15, we show you the average daily trading volume that attained BRL 53 million, an amount that is twofold greater than in the same period of 2017.
In Slide 16, the board of management on April 12 approved the admission of debentures of the company for a total of BRL 500 million, divided into 2 equal series of $250 million.
The first series is a compound rate of CDI plus 0.35%, with maturity in April of 2021.
The second series has a CDI rate of 0.60% (sic) [ CDI plus 0.60% ], with maturity in April of 2023.
With a weighted cost of CDI plus 0.50% for the company, these resources are gear to reinforcing our cash.
In Slide #17, you'll see our market agenda for events that have already been confirmed. We now offer you the floor for questions and answers, and beside Carlos and myself, we will have Fernando Leão with us.
Thank you. We will now go on to the question-and-answer session.
[Operator Instructions] Mr. Marco Calvi from Itaú BBA would like to pose a question.
And I have 2 questions, the first referring to the cost of material. We see a change in the way that you pay your suppliers, with an impact on the line item, cost and materials. And in the leasing line item, I would like to ask you to please remark on the impact of this change. It seems to be quite positive when we look at the gross margin evolution. My second question, there was a slight decrease year-on-year following the decrease that we had in the fourth quarter. I would like to know if this decrease will tend to be recurrent or not?
Marco, this is Carlos Marinelli. Regarding your question on cost and material, this arises from the work that our technical team has carried out throughout the last year. As you may recall, and as we remarked in the last call, we spoke about this technical change in the future. This is complex work that we're carrying out. It has in view the future of the company regarding our growth particularly and we have worked with in a diversity of ways, and this includes cost and the material offered by suppliers.
The difference that you'll see in this line item of cost of materials and equipments shows the change in some of the contracts and has led to this gain. This negotiation on the part of the supplier shows that it is more interesting to work with a reconfiguration. What is ever more important is that we're already capturing gains, and we have future gains going forward with our technical area as well. As you know, we do not offer guidance on these figures. We do not give full disclosure on the impact, but I can say that this is an interesting contract going forward.
In terms of receivables, in the fourth quarter of '17, the delta that you observed refers to some negotiations that were underway. It was of 9 days in the fourth quarter 2017. In the first quarter of 2018, this has been reduced to 3 days. With the health, when you look at the net and the average term for payment, the term of payment has been reduced, allowing us to have a significant evolution in this figure. Between receiving and payment, once again, we have had a reduction.
Mr. Joseph Giordano from JPMorgan would like to pose a question.
My question refers to volume, price and service. You have had a significant growth in volume, although, your average ticket remains practically the same. I would like to hear from you how we should consider this ticket, which is the price component in fact, and which refers to the costs. And when we speak about the expansion, it has been 1.5 years of the guidance, you have already delivered more than half of your expansion plan. When we look at the performance of the new units, which is your opinion of this expansion going forward? If you believe that you can speed it up even further?
Joseph, this is Carlos, and thank you for your questions. When it comes to the volume on price of the average ticket, I think this is part of our earnings; and we have a variation from 2017, where it was 1.4%. If we look at the average of inflation, this does not correspond. The mix of the company in terms of revenues shows a growth in the regional brands that have a lower ticket compared to the Fleury brand. What I can say regarding this is that we have a focus on growing the company portfolio, and this is precisely what we are doing. And the a+ brand has grown beyond the 28%, reaching 30%, most specifically in Sao Paulo.
The message here is that we have prepared to become what we are, and we're going to continue to increase of our portfolio evermore. This is a company that has a differentiated asset, which is the Fleury brand, and the people that we service through the Fleury brand. And logically, this has a cost and a differentiated price, of course. And we continue to grow the Fleury brand, as you were able to observe in this quarter, with the growth of practically 7%. In terms of regional brands, we have more space to go grow and to capture value. And this is what we have been doing. Therefore, the average ticket in our portfolio now which has been the growth of Fleury. And what is happening with the addition of genetics and other factors, for example, we also see that our regional brands have had a very good performance. When we look at the average price, it grows 1.4%. But in truth, this is excellent news. The company volume is also growing, and we have had a growth of 1.1% -- or 11.1%, excuse me, in net revenues. When it comes to the expansion, there is no doubt whatsoever, Joseph, that for 1.5 years we have been undergoing this expansion plan. We have seen more than 50% with the inauguration of 35 units. And this incentivizes us to continue on with the expansion plan. As you know, we do not offer guidance. But in-house, the team is highly enthusiastic to do as much as possible to anticipate the delivery of several units that are undergoing works, that are under construction, are hiring people, which means that will enable us to face up to the demand we have going forward.
Mr. Rodrigo Gardias (sic) [ Rodrigo Gastim ] from BTG Pactual would like to pose a question.
I have 2 questions, the first that refers to the calendar effect. I would like to know how this impacted the quarter and how much more revenue you could have made were it not for this calendar effect and if you believe you will have a better calendar effect dynamic for the second semester? The second question refers to cost. We had a growth of personnel above the growth of revenue. This is no novelty, of course, because of the strong growth that you had last year. The question is if in the second quarter this line item of cost will be evermore diluted?
Now as we highlighted in terms of the calendar effect, there was an impact. Now what is this calendar effect? I recall when this question was made and -- well, this happens the entire year, and the great days are December 25 and January, where we also open our units. I do not generate demand. My demand comes from the physician's need in the office. The physician's need and the patient's need of having a diagnosis. And this will enable the clients to go on with therapy. Now when you don't have a working day, you don't have the medical service at the office as you normally do. We're faced therefor with a holiday that will now extend until Tuesday. And I must mention that for the physicians and users of the Fleury Group that try to set up a medical appointment on Monday will be somewhat difficult because we're dealing with liberal professionals that will take advantage of this long holiday to carry out other activities. And most of the offices will be closed on Tuesday. Now this is the impact that we have on our demand when we speak about these longer holidays and the lack of working days.
We do have some metrics that we use when it comes to counting the number of working days. What I can say is that if we linearized -- well, this is not the solutions perhaps, linearized working days. And secondly, if we pay attention to this, we tend to lose some of the enthusiasm that we have going forward. We prefer therefore not to dwell so much on these figures. When it comes to the personnel costs that you raised, perhaps this is the first time in a long time seeing an advance in this expense line item with an increase that is greater than the company EBITDA or the company revenues. In a scenario, as I just explained to you, where we had 35 inaugurations since the beginning of the expansion plan, you have to have people to work there. You need to hire people, and you have to have a minimum number of people at the units ready for the ramp-up even if the demand already has had this ramp-up. And of course, this has an impact on cost that we need to manage even faced with a scenario of pressure with 35 new units, 91% of these 35 units with less than 12 months of operations. Despite all of this, we have attained the second greatest EBITDA margin in the company's history. This is a task that the team is focusing on, optimizing all of the line items, especially that of personnel. We're in an extreme situation. And we have projects such as redesigning the layout of some new units, not only Fleury but a+, to have more functional layout. And the digital transformation that I mentioned in the presentation is being implemented in Queiroz Filho, which is a São Paulo unit. And this will, of course, have a positive impact. And this also requires personnel. Once again, as I mentioned, we prefer not to give you any guidance on this. We simply reaffirm our commitment of enhancing the units, managing them stringently and ensuring that the capital invested and the return for shareholders will take place as usual.
Mr. Leandro Bastos from Crédit Suisse would like to pose a question.
My question refers to your operations in Rio de Janeiro. There has been slower acceleration in revenue compared to what we were expecting, somewhat below the levels of the first 9 months of 2017. If you could comment on the accreditation of the new health care operators as you did, perhaps you could speak about the monthly performance and see if there has been an evolution. There are new units that will be inaugurated in Rio de Janeiro as part of your expansion pipeline. And we would like to see if there's a trend for positive revenue? This would be very welcomed at this moment.
Thank you for your question. This is Carlos responding to it. It's exactly what you said. This would, of course, encourage what is happening. We had a quarter where we did see some challenges in terms of working days and the general behavior. And in the Rio de Janeiro market, the dynamics tends to be somewhat different, and we manage each market according to its own respective dynamics. There are differences between São Paulo and the northeast. More specifically in Rio de Janeiro, we have a strong expansion in 2018, especially in the Felippe Mattoso units. We have a figure that in the fourth quarter was lower. It began to accelerate in the first quarter of 2018, and the trend of the curve in January, February and March, at the end of March shows a better growth trend, which allows us to be evermore encouraged not only to open these new units in Rio de Janeiro but to also look upon the opportunities that we have and to anticipate the inauguration of the units.
[Operator Instructions] At this moment, we would like to end the question-and-answer session. I will return the floor to Mr. Carlos Marinelli for his closing remarks.
As you were able to observe, our company continues to focus on its management and on the long-term objectives, capturing new clients to our brand portfolio and to our hospital operations by offering innovative solutions in personalized and precision medicine at our service units. Our competitive edge will continue to set us aside through our technical, medical attention that characterizes our services for more than a decade. Thank you very much, and have a good day.
The conference call for the Fleury Group referring to the results of the first quarter 2018 ends here. We would like to thank all of you for your participation. Have a good day.