Rede D'Or Sao Luiz SA
BOVESPA:RDOR3
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Rede D'Or Sao Luiz SA
Earnings Call Analysis
Q2-2024 Analysis
Rede D'Or Sao Luiz SA
The earnings call for Rede D'Or's second quarter of 2024 was filled with positive news. The company reported several historical records, with 750,000 patient dates marking a 4.5% growth year-on-year and an occupancy rate of 84.4%. The operational beds grew over 200%, reaching 1,891. The consolidated gross revenue topped BRL 13 billion, while the consolidated EBITDA saw a 28.5% increase year-on-year, reaching BRL 2.1 billion.
Rede D'Or reported a net income of BRL 1 billion for the quarter, more than double from last year. This impressive growth came alongside a reduction in net debt to EBITDA ratio, down by 0.5x year-on-year, bringing it to 1.1x. The company's cash flow, strong with technical provisions over BRL 17 billion, is sufficient to cover debts due in the next five years, reflecting a robust financial health .
Rede D'Or has several important projects lined up. The second quarter saw the entry of Memorial Star and the beginning of operations at the new tower of Vila Nova Star. Upcoming in October, the São Luiz Guarulhos and São Luiz Alphaville hospitals will be launched, followed by Hospital Macaé in November. Together with joint ventures like Atlântica D'Or, these expansions are expected to add 1,900 beds by the end of 2024 and throughout 2025, significantly bolstering the company's capacity .
Operational efficiency remained a focus for Rede D'Or. General administrative expenses for the first half of the year were BRL 551 million, aligned with inflation at 4.3% growth year-on-year. The hospital services segment continued to perform well, reporting an EBITDA of BRL 1,837 million for the second quarter—a growth of nearly 11% compared to the previous quarter—and a year-on-year increase of 13.3%, resulting in an EBITDA margin of 26.3% .
SulAmérica, part of Rede D'Or's portfolio, reported a net revenue of BRL 7.3 billion for the quarter, an 11% year-on-year growth. The consolidated loss ratio for SulAmérica improved by 2.7 percentage points year-on-year to 83.6%. The segment also saw a growth in the number of health and dental beneficiaries, totaling 5.08 million. The adjusted EBITDA for the second quarter was BRL 486 million. SulAmérica’s financial strength includes technical reserves of BRL 17.5 billion, sufficient for debt amortization over the next five to seven years .
Rede D'Or expressed optimism for the future, focusing on the successful ramp-up of new projects and maintaining a strong financial position. The company expects ongoing growth and sees opportunities in both organic expansion and selected acquisitions. While the current high occupancy rate of 84.4% is considered challenging to sustain consistently, the strategic project launches and increased patient capacity are expected to drive further growth into 2025 .
The earnings call highlighted Rede D'Or’s robust financial health, strategic expansions, and operational efficiency. With a solid cash flow, reduced debt ratios, and several key projects set to launch soon, the company is positioned for continued growth. Investors should note the company's ongoing investments in expanding capacity and improving services, as well as its efforts to maintain strong financial controls and achieve sustainable growth .
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Good morning, and welcome to the earnings call of the second quarter of 2024 of Rede D'Or. We have here with us today, Mr. Paulo Moll, President; Rodrigo Gavina, CEO of Hospitals; Raquel Reis, CEO of Health and Odontology and Dental; and Otavio Lazcano, VP of Investor Relations and Finance. The event should take about an hour, and the recording will be available at the website of the company. After the initial talk, we will start the Q&A session.
Before we continue, we would like to clarify that any statements that might be done during this earnings call regarding the business perspectives of Rede D'Or projections and operation and financial goals are based on beliefs and premises of the Board of Directors based on information that is currently available. Forward-looking statements are not assurances of performance. They involve risks and uncertainties, and they refer to events that might take place or not.
Investors should understand that general economic conditions, industry conditions, and other operational factors might affect the future performance of the company and might lead to results that differ materially from those stated here today.
So I'd like to give the floor to Mr. Paulo Moll. He will start the earnings call. The floor is yours.
Thank you. It's a pleasure to be with all of you today. Let me start by highlighting that we had a lot of record -- historical records in the second quarter. Let's discuss a few and then Otavio can get into the details. 750,000 patient dates, about 4.5% growth year-on-year, occupancy of 84.4% rate, average bed occupancy rate, growth of 1.5% year-on-year. We had the operational beds getting to 1,891, a growth of over 200% of operational beds.
We had good news at SulAmérica, we had a reduction year-on-year of 2.7 points, getting to a loss ratio of -- dropping a consolidated gross revenue above BRL 13 billion and EBITDA consolidated BRL 2.1 billion, a growth year-on-year of 28.5%. We are discussing net income for the quarter, which is BRL 1 billion, over double what it was the second quarter of last year. Reduction of indebtment even taking into consideration that we are in a strong cycle of investments and considering the payment of interest of our capital and still with an impact of the repurchasing of shares program, we, year-on-year, have a drop of 0.5x in regards to the EBITDA net debt getting to 1.1x.
We have a cash flow of the technical provisions in June, over BRL 17 billion. This is more than necessary to pay for all the debts that are due over the next 5 years. This is a solid and robust condition. And looking up ahead, we are very thrilled with the launching of very important projects for the company. We had recently, in the second quarter, the entry of Memorial Star. We had the delivery of the works in August and the beginning of the operations of the new tower of Vila Nova Star. We have predicted the delivery in October of São Luiz Guarulhos and São Luiz Alphaville and Hospital Macaé in November. And this is in the context of the joint venture, and we have Atlantica D'Or, Bradesco Seguros, and we're going to talk about that joint venture very shortly.
Now the launches. We have the expansion of Hospital Alianca for November, and we have Barra D'Or on the other side of the street with the transference of the operations, 250 beds, the big hospital and Barra Hospital is just a pediatric hospital from now on. In the first 6 months of next year, we have another -- well, a few more launches that are very important, such as the expansion of Hospital Assunção in São Bernardo. We have the works advanced and the other brownfields that are very relevant all throughout the year of 25 such as [indiscernible] and Hospital São Lucas.
Just on these projects that I mentioned, we are talking about 1,900 beds and we should get by the end of the year '24 and throughout the year '25, we have the ramp-up. We are very thrilled with the perspectives that these investments will bring to us. These are results that I wanted to seize this moment to congratulate our teams from Rede D'Or and SulAmerica that worked diligently still in tumotuous time for the sector to deliver this good level of results. We know that the day-to-day is not easy to overcome these challenges. And I believe that the position of the company, our scalability and our brands, and once again, the strength of the team, this is a great differential.
So I would like to thank all of them for that. This stems for many, many years and the training of the talents. A great deal of the leadership were trained in-house or they've been in-house for a long time. And this is the way that we try to identify the talents and try to train them and give them opportunities. This is a company that provides more and more opportunities, and we can attract more and more people that are good people and they can grow with us. Obviously, we are at a good moment of delivery of results, but we cannot relax. There's still many, many things that we should do in terms of efficiency gains. We should continue this work. This work of growth, we also see in the hospitals we acquired in 2021.
The agreements are growing. Some are overcoming the margins of the company, but there are many, many things that have to be done, both at the positioning of the hospitals, the investments, and the infrastructure, the better establishment of processes and improvement of systems in some cases. We are very happy with the work that we've been delivering and the technical quality and the perceived quality and the sustainability of our operations.
In the perceived quality, over the last 2 months, we've been delivering the consolidated of the company, and we incorporated the 17 hospitals that came obviously with the NPS well below the average of Rede D'Or. And we are delivering an NPS above 60. And NPS consolidated were the weight of the patients that are serviced at the emergency is higher than the patients that are serviced at admittance -- regular admittance. We have more difficulty in delivering high NPS at the emergency ward because of the volumes of patients. And once again, we are above 60 points of NPS consolidated for the company. Very happy with the results. Again, we still have homework to do. We are delivering with high levels and we hope to keep this up ahead.
Now talking about Atlântica D'Or. We are very thrilled with the announcement that we've done. We are moving towards closing of this operation and very happy because this is a joint venture with Bradesco Seguros, and this is our biggest commercial partner. And this is another avenue of growth for the company. And we can take a better medicine and we can take this to more places in the country. And we can take better medicine for the Brazilian people. And of course, the country still needs hospitals that are more modern with scalability.
This is key for the health care sector in the country. We have -- we are very thrilled with the launches and with the ramp-up. We understand that it's going to be a better ramp-up than the records that we are working. We are very motivated and the team really likes this execution and here to discuss beyond the results of the quarter itself. And we can talk about consistency and stability in the results of the company.
And we have the 2 operations of insurance and providing of services, oncology. It brings a higher stability than the seasonality. Usually, the seasonality is the opposite. So for the company, we have a lot of solidity and stability. The focus has been very strong in the cash generation. And besides providing great service, we see a lot of services with -- a lot of hospitals with problems. So the internal mantra is to not just look at EBITDA, we have to look at cash generation. We pay bonuses to the directors that measure the cash flow, and we make a lot of the decisions based on the cash flow.
And the results are appearing as stemming from our focus, and we are bringing at a level of deleveraging -- big deleveraging of the company, and it has more responsibility so we can better use the capital. A few decisions have been made, and we're going to have the cash reinforced in the third quarter because we have the resources of D'Or consultancy, we have the prediction of the entry of the Atlântica D'Or plus the operational cash generation. We have a deleveraging level that will -- a decision that was made was the approval of the repurchasing program. A lot of it was disbursed.
We understand that this is an optimization of our resources from our standpoint and the growth of the company. And we are with a lot of care and discipline, looking at new investments and new opportunities. So before we get to the questions, I would like to highlight that this occupancy that we had in the second quarter of 84.4% was still very high even though historically, this is a quarter that is a higher occupancy than the others.
What we've seen at the beginning of the quarter, pressure for demand that is very important for the clinical admittance for emergency because of, of course, dengue fever and other respiratory diseases. So besides, I would say that this is an occupancy that is difficult to repeat for the next quarters. We have somewhat of an opportunity to grow in surgery. This wasn't a brilliant quarter in terms of surgery, also affected by the big demand that we had and the emergencies that stem from elective surgeries. So this is going to be the focus.
And we will continue to deliver growth with the result having a lot of opportunities for us. We are very optimistic, and we are starting to see the projections and budgeting for 2025. Once again, very optimistic with what we believe that we can deliver with the ramp-up and the hospitals and that we chose very carefully with the regions, we have a great expectation for the launch of these structures, and we are very excited with that.
I'm going to give the floor to Raquel, and I'm going to be available for Q&A. Thank you.
Thank you, Paulo. Well, Paulo already gave you the highlights. The health care and dental in the second quarter of 2024 is an increase -- there is an increase in the -- this is usual for the second quarter. When we see the second quarter, there is an improvement of 2.9% in the loss ratio in the percentage. So we have a recovery in the margin since last year.
I would always like to remind you that the seasonality between the 3 is very relevant. Little by little, we're leaving the crisis. We're improving the operational results, and we have better controlled prices. We favor the retention of the clients in our portfolio and we can bring more clients. So we grow the number of beneficiaries with 65,000 net additions at health care and 81,000 at dental.
So we continue with the subscription, that is enrollment, which is very responsible. We discussed this pricing that is responsible, and management of the losses also brings a constant improvement for the service for the beneficiary and innovation which permeates all the areas of the company. So with the development of the products that bring more sustainability and a great deal, they have the participation modular reimbursement. If you remember, we had the products launched at the beginning of last year, the modular reimbursement. And these have over 400,000 beneficiaries, which is very positive for the system as a whole. These are the main points that we would like to discuss. And now I'll give the floor to Gavina.
Well, I wanted to thank everyone's presence here, Raquel. Paulo already mentioned the big effects that we've had in regards to volume, et cetera. And well, I'm going to reinforce everything that we've said about our team, including SulAmérica. We are a united company, and I would like to thank everyone that has worked diligently in this very challenging scenario end market. It's very important that our team continues to be motivated, working to deliver the best for our clients.
I would like to thank the physicians that work with us and the patients and their family members that trust us, that seek safety in our hospitals and they are -- we are demonstrating that there is reciprocity. So once again, thank you. It's -- of course, this is a quarter that we are very occupied and we had a lot of issues related to the specific goals. But as Paulo has said, we brought the NPS with a value that is very reasonable, and we are always fighting to improve it. We are bringing a reasonable value.
So I'm going to give you a few details and points such as occupancy above 84%, which is a high occupancy. The patient -- the mindset, well, the -- it's improving in surgeries. We are keeping aligned with last year, but we see a growth in regards to the first quarter of this year, which is very important in terms of seasonality.
Within -- well, if you can go on the slides in the operational beds, we are growing the operational beds over the last 2 quarters, which is very positive. So we have an occupancy that is higher with the growth in beds. So these are scenarios that are challenging, as Paulo has said, but we've managed to bring this forward besides the deliverables of the hospitals already mentioned, the deliverables within the dates and the ramp-ups within what's predicted and that has brought to us a lot of satisfaction.
Therefore, and to reinforce that we will not rest on our laurels, we think to innovate always and bring quality to our patients. And this is the mantra within the company and quality of work for the physicians. We wake up and sleep every day with this mantra. Paulo reinforcing. We are very excited regardless of all the challenges. Our team is very excited to what the future holds. Otavio?
Well, okay. I'm on Page #7, gross revenue and average ticket, the Hospital Services. So the company reported the gross revenue for the segment of BRL 7,895 million in the second quarter of '24, a growth of 6.4% in the quarterly analysis. This is a result of a ticket that is in drop of 8.1% and an increase of 1.8% and an increase of patient days. So this is a growth in 9.8% in the year-on-year analysis. This is a result of the 5.1% of average ticket year-on-year.
In the center of the page, the company reports in the Hospital segment, BRL 15.3 billion for the first 6 months, a growth of 9.1% year-on-year in total gross revenue. There is an increase of 4.3% in the average ticket and an increase of the patient days of 4.6%.
Page 8. The gross revenue average ticket now on Oncology. As always, we start with the information on your left. The company reported here in this segment, BRL 746 million, a growth of 7.1% in the comparison quarterly result of an increase of average ticket of 3.4% and an increase of the number of infusions of 13%. In the year-on-year comparison, growth of 20%, a result of the average ticket of 13% and the number of infusions growing 6.2%.
At the center of the page, the accumulated gross revenue in the first 6 months of '24, BRL 1.5 billion, a growth of almost 70% in the same period of the previous FY, an increase in the average ticket and an increase of infusions.
Next page. Cost and expenses, once again, Hospital Services. The company reported the total cost with this segment of BRL 5,215 million for the second quarter of '24, a growth of 3.9%. Once the growth of cost is given at a speed that is lower than the growth of the revenue, we have the expansion of the gross margin in 1.6 percentage points for 25.5%. And in comparison year-on-year, the growth of costs of 6.8%. Once again, a growth that is inferior to the speed of the revenues in the annual comparison.
At the center of the page, the company reported total cost of BRL 235 million accumulated in the first 6 months of this year, a growth of 6.6% facing the same period of the previous FY, an expansion of the gross margin of 1.3 percentage points to 24.7% or BRL 3.8 billion in monetary values. On your right, the company reported general and administrative expenses in the Hospital Services segment of BRL 299 million for the second quarter of '24.
The comparison -- direct comparison with the same information of the previous quarters has a problem because of a sequence of nonrecurring events. For example, the reversal of the provision for the payment of the PIS, COFINS over the revenues and guarantors of BRL 309 million in the third quarter of '23 and the example of the impact of BRL 20 million in this line, which is our decision -- administrative decision of deceleration, the depreciation rates in the fourth quarter of '23 and the reversal of the provision for the payment of a fine regarding SulAmérica of BRL 65 million in the first quarter of '24.
The fact is that when we observe the behavior of general administrative expenses as a percentage of the ROE of the company, it's stable in 3.7%, 3.8%. And on the right, we have general administrative expenses in the 6 months of this year, BRL 551 million, a growth of 4.3% once you do the comparison year-on-year aligned with the inflation rate.
Next page, EBITDA and net income, Hospital Services. Company reported an accounting EBITDA of BRL 1,837 million in the second quarter of '24 and growth of almost 11% comparison -- quarterly comparison, a growth of 13.3% in the comparison year-on-year and a margin EBITDA accounting of 26.3%. Center of the page, the company reported an EBITDA for the segment accumulated in 6 months of almost BRL 3.5 billion, a margin EBITDA of 25.7%.
On your right, the company reported a net income and the adjusted net income of BRL 1 billion and BRL 1,053 million, respectively, for the second quarter of '24. In the same way, the company reported the net revenue and the adjusted net revenue for the period of 6 months of '24 of BRL 1,841 million and BRL 1,946 million, respectively.
Next page. Let's start with the graph on your left. SulAmérica reports a net revenue of BRL 7.3 billion in the second quarter of '24 with a growth of 11% in the comparison year-on-year. And the clockwise, on the sense, one to the right, SulAmérica reported the consolidated loss ratio of 83.6%, a drop of 2.7% comparison year-on-year. Still on your right below, the number of beneficiaries of health and dental, BRL 5,080,000, a growth trend. And at the bottom left, the adjusted EBITDA in the second quarter of '24 of BRL 486 million.
In consolidated terms, the company reported an EBITDA adjusted of BRL 2,360 million for the second quarter or BRL 4,541 million accumulated in the first 6 months of the year, almost finishing. Now debt profile, the company reported in June 30 a cash position of BRL 35,489 million. Technical reserves BRL 17,568 million with the net over EBITDA 2.1x, the indebtedness average term, 5.4 years, the cost of CDI capital plus 1.1.
On the right, the cash position readily available for the company, for amortization, BRL 17.5 billion. As Paulo has said, the cash is more than enough to finance the cash flow. The company continues to do the investments that are planned, pay the shareholders and face the deadlines of debt for the next 5, 7 years.
Next, last page. Managerial cash flow, the reconciliation of the EBITDA with the variation of the cash flow of the company throughout the next 6 months with an accounting EBITDA that is reported for the 6 months of BRL 3,989 million. We have a positive cash flow, once again, variation of almost BRL 680 million.
We have other items in the balance sheet of BRL 64 million. And here, there is a lot of things, contingencies, judicial deposits, IPTU taxes, so on and so forth. Thereafter, we have the payment of the cash flow of around BRL 358 million. In the same way, the payment of cash of taxes of BRL 598 million. Thereafter, the cash flow of the financial activities that is negative in BRL 313 million, and here, we are capturing amortization expenses and so on.
And finally, the cash flow of the investment of BRL 1,404 million, including BRL 410 million; in greenfield investments, BRL 286 million; brownfield, we have maintenance investments and we have BRL 157 million in IT investments, and BRL 157 million investments in smaller expansions, and BRL 206 million in repurchasing of shares until the first quarter. So regards to the variation of cash of BRL 2,055 million, this is in the time frame of the 6 months. I finish here my presentation and I open for Q&A. Thank you.
[Operator Instructions] The first question comes from Vinicius Figueiredo, Itaú BBA.
We had a result that was very strong, substantially better than the trends that we've observed for the rest of the -- for the other sector and above our expectations. Another point that I wanted to explore in this income which was beyond the operational result. The financial result imposed also contributed to this strong revenue. And I wanted to understand, there were a few lines. If we look at DTR, there is an impact of swaps and other financial revenues and the taxes. I would like to understand if there was something more pinpoint with the benefit being captured more efficiently by the company.
And the second theme would be in regards to the intercompany lines, which it comes at a moment that you're improving a lot the SulAmérica centricity and also having an improvement -- relevant improvement in hospitals. These 2 factors somehow, they end up having the contribution for the intercompany. That would be the optimization of SulAmérica. Would it be another incentive that is for this? Could you tell us more?
Vinicius, Otavio speaking. We don't have anything extraordinary in the company in terms of -- well, it's difficult to look -- well, the expenses banking of the company that has other revenues and other financial expenses, there is over [indiscernible], there is financial expenses of IFRS 16 and 17. It's difficult to see the financial expense purely banking of the company. But there is nothing that is nonrecurring event and what we expect from the financial results.
SulAmérica in taxes had a judicial victory involving the incentive for the companies that offers the benefit for food stuff for the employees. This is a positive impact of BRL 61 million. This is in the deferred. This is the #17 you're going to see in deferred IR and before you get to the reconciliation of the effective aliquot of the company.
So Vinicius, this is Paulo. The second one about the intercompany. Well, we have the impact of newer units, Memorial Star was launched. It has a volume that is very important of SulAmérica there. And SulAmérica, some other lines, we did a few volume concentrations to call the market for these bids, to take part in these bids, and Rede D'Or has been very competitive in these bids.
It doesn't mean that you have exclusivity. It just means they have quality a bit more restricted for a few more procedures. So there are beneficiaries in Rede D'Or in the volume, giving competitive what we control the consolidated loss ratio SulAmérica and this is translated in the numbers that we've published.
Your next question comes from Samuel Alves from BTG Pactual.
A few questions on our side. The first one is about the ambition of -- well, of the consolidated loss ratio of SulAmérica. You had a normalization of 12, 15 months. Can you think that there is still a normalization of 9 to 12 months? And that would be close to the threshold of the pandemic? This is the first question.
And the second question, seizing the comment of Paulo in regards to the more financial flexibility of the company, the resources of D'Or Consulting and Atlântica D'Or, how do you see the temperature of M&A for any inorganic movements? They are a bit warmer or do they continue with the same status?
Samuel, Paulo here. I'm going to talk about the second one, and then I'm going to go over Raquel. We had not stopped taking a look at M&A prospecting, negotiating in this period, and we didn't feel pressured for deleveraging and good opportunities. We are always seeking good acquisition with good returns. What happens is that in fact, as I commented many times, our pipeline today that is more restricted, not that you don't have hospitals for sale, but you have that profile of hospitals that sometimes are intermediary, the profiles of the ones that we acquired in 2021, many of these are in tough conditions.
Hospitals that, in the past, needed retrofit and investments, but now besides that, they stand from an operational situation that is difficult. In a commercial positioning, that is more laborious for you to revert the attractivity when they're not in big debt. So it's lower attractivity not because of the lack of sales, but in most cases, we've seen the options of growth, organic growth with better returns or with a more advantageous strategic positioning.
We are open. Of course, we're going to continue to be open, and we're going to evaluate maybe some interesting assets that might come up. We're going to be ready to do this. I'm going to give the floor to Raquel to continue.
Samuel, thank you for your question. Well, the improvement of consolidated loss ratio is always a goal. But remember, we are at a position that is very comfortable to always look at growth. And this might lead to an investment that has higher consolidated loss ratio depends on where you're looking at the industry as a whole.
When you look at the PME readjustment, which is unique for [indiscernible] Brazil and then you compare the numbers of 2023 and the numbers of 2024, there is a reduction of 5 points in the readjustment, which is great for us. It's great for the market because it allows you to do a retention of more lives. So as we improve the consolidated loss ratio, you can also pass that on to the consumer. That is not translated when I look at the small and medium-sized company. Maybe you don't see that clearly, but we have growth. In fact, we are positive over the last few months, which shows that the strategy is in the correct path.
Next question from Leandro Bastos, Citibank.
Two questions. I wanted to talk about Oncology. There is a ticket, there is a volume. So I wanted you to tell me about the levers that you can see the growth after the hiccups that we went in 2023? And the second one, well, in the comment of Raquel, this was a better quarter, but what do you see in terms of competitiveness and the growth of life in SulAmérica?
Leandro, Paulo here. I'm going to take the first one. In Oncology, we have a strategy which differentiates ourselves, which is the integration of services. We have the capacity to have not only chemotherapy, radiotherapy, ambulatory, but also the hospital services, diagnose service, intervention, well, our anatomy for pathology, very differentiated and surgery. So having this value proposition here for the clients where we can service the patient with all of their needs is what we understand that will bring a differential for the treatment, and it will benefit us in the organic growth.
There has been the growth in Oncology, so I would like to say that this is the biggest lever that we have, and we still have an opportunity when we still look at a few specialities of strengthening. Of course, we have a big set of patients that already sees our services. And as we invest more and more the flow of these patients, we have the opportunity to organize this capturing and offer this differential, which is servicing the patient in all their needs for the oncology patients.
Leandro, thank you for the question. Well, competitive environment is relatively normal to have something more aggressive at some point. But we changed the posture of trying to find fit the readjustments and the prices necessary so we can have a result that is sustainable. For some time, you've heard about the expectation of restarting the growth in 2024 with responsibility. So in 2023, we ended up doing a bigger adjustment at the base. There was a bit of contracts that were more onerous. It's very difficult to get a contract that you need 50%, 60% of readjustment. Sometimes it's easier to renegotiate a way out.
So in 2023, we did a cleanup, did the adjustment considering the consolidated loss ratio of that year, that scenario. Now we're working with lower readjustments. This is important for the clients, increasing the retention. And at some point, we're changing the readjustment for something that is more valuable for us. So fitting the clients in products that are more sustainable, the ones that I mentioned with higher co-participation, with modular reimbursement that has -- well, all of that for us to work with the lower readjustment as possible. The prognosis is very positive. We believe that it's possible to grow. So our pipeline -- financial pipeline is very heated up. But this is a dynamic that depends on the level of the employment. But in general, it's good.
Well, next one, Ricardo Boiati, Safra.
So the first question in regards to ticket. When we look at complexity, lower complexity in the quarter, as it was commented, but still with a growth that is robust of the average ticket in the quarter. Does it make sense to think about the normalization of the complexity looking up ahead? If you can comment in a qualitative way, how do you see the evolution in the third quarter that would be interesting?
And out of this, what it makes for the average ticket would be an acceleration that is higher for the second quarter doesn't make sense to look at this in this way for the division of hospitals in regards to ticket?
And second question, in the division of Hospitals in the funds. When you look at your portfolio and you look at the financial commercial relationships, do you still see any pinpoint need for adjustments that can be important in regards to the registering for Rede D'Or? We see the operators evolving in higher or less degree, but the recovery here of the consolidated loss ratio has been a consistent movement for the sector, but still we see a few pinpoint movement for adjustment. So when you look at the operation, the situation, is it completely normalized? Or do you still have any region or specific contract that might require a review or even an adjustment here? That's my question.
Boiati, this is Paulo. I'm going to start with the second one. The answer is nothing material yet, but this is an analysis that we have to do on the day to day. So we don't intend on doing any adjustments that is material for the company, very pinpoint situations or a hospital or a local operator that might happen. But once again, this is an overview of today. And we are -- this is always going to be the follow-up here according to our negotiations, to the relationship with the different operators, the capacity for the readjustment and keeping the payments in an adequate threshold. Otavio?
Now Boiati, on tickets. Since the IPO, we recommend to everyone a lot of care when we do the analysis over the evolution quarter-on-quarter of the operational indicators because there is a change of mix in the hospitals, there's a change of complexity. We're going to do more M&As and not all the acquired hospitals have the average ticket of the -- so when we compare the average ticket in the second quarter of '23 -- in the second quarter of '22 or the third quarter of '23 against the third quarter of '22, we see a growth of 7.3% for both cases.
When we compare the ticket of the fourth quarter of '23 against the fourth quarter of '22, the increase of the average ticket is about 8%. So when we compare the average ticket of the first quarter of '24 against the first quarter of '23, it was about 5%. And again, 5.1%. So it seems to us that our methodology for readjustment and the prices and the services provided due to the official inflation maybe 1 or 2 percentage points depending on our capacity to bring the cases of higher complexity for our hospital services and other factors.
Next question, Gustavo Miele, Goldman Sachs.
I wanted to explore 2 points. First, I wanted to hear about the operational beds opening, 162 beds. I wanted you to help us reconcile that with the opening of the installed beds, the entry of the operation of Vila Nova Star. And I wanted to understand if that delta of the installed is also for the operational ones or is there any opening in the legacy hospitals? I wanted to understand it.
And also, was there any impact in the new beds in the consolidated occupancy of the company? Maybe 84.4% of occupancy that you report, would it be higher had we not had that opening of beds? That would be the first question. The second one, a bit more specific about SulAmérica. I wanted to understand that increase that we had in the provisions for contingencies, it's close to BRL 139 million. If you can understand the nature of that effect. Maybe there was that integration in the business of the assets that you commented in the release. I wanted to understand if that's recurrent or not?
Over operational net income operation quarter-on-quarter, we have 47 beds in Memorial Star, 3 in [indiscernible] so we're going through the usual ramp-up. Total beds, also in the analysis quarter-on-quarter, we had the addition of 140 beds, total beds of Vila Nova Star, 16 beds total of Hospital Santa Isabel, and 9 beds in a Hospital Brazil.
Your second question about contingency and provisioning, but we are more conservative here in time. We don't have any reason why we should push short-term results. And we always provision in a conservative way, sustainability for the results of the company and the medium to long term. Nothing extraordinary except the usual value of the company as you've seen quarter-on-quarter.
Next question, Mauricio Cepeda from Morgan Stanley.
My first question is regarding the nature of the losses in health care. What has pressured the consolidated loss ratio? I mean, it was great regardless of the seasonality, but because there was a change in the profile even on the hospital side, there was less complexity this quarter. So what is the nature of the consolidated loss ratio that is pressuring? And does it have a specific effect of fighting frauds or even the redesign of network, the reimbursement, as Raquel has said?
And the second part is to explore going over the SulAmérica competitive dynamic. What do you think that the -- now that the market is more rational, the beneficiaries are stable regardless that the increase -- the raises have been higher. So what is the avenue of growth? It's more direct, more premium, PME is the path, it has grown in the market as a whole, big corporate. Is there any specific geography? Can you explore that commercial part and competitive part, please?
Cepeda, this is Raquel. Thank you for the question. When we discuss the management of consolidated loss ratio, everything that we've been doing since the beginning of last year and before you've seen all of the efforts that we've placed on this, the new products that were launched, they really helped in the better management and more awareness when we have the mandatory corporate solution for some portfolios to people.
Just use it where they need it but they're not going to do the exemption. They are not paying attention to or they're not going to -- that they are not going to use for treatment. This is not fraud but this is an abuse and this increases the prices as a whole. So co-participation removes this type of situation, and it ends up generating utilization frequency that is lower. Fraud, it might be the main war that we've been fighting since last year with a very robust reduction in the percentage of reimbursement, the percentage of reimbursement in this and the base plant.
Of course, the plants at the top of the pyramid were, in fact, there was always a utilization of reimbursement in a more consistent way that continues, and that's part of the contract. But for base plants that has grown in wrongly and there was a very consistent decrease over the last 18 months.
Another line that brings a pressure for the loss ratio and the sector as a whole is the tech incorporation. So it's very positive. On the one side, so we can have more longevity and more quality of life, but this brings a cost that is very big. I always insist that the pharmaceutical industry has to more and more go to the table. They have to take part in this debate because today, we have medications that cost BRL 4 million, BRL 8 million. There is a medication with the government that had to subsidize a medication of BRL 16 million.
That impacts without -- in the pricing and that impacts in the pressure caused by these losses. So we brought to the conversation with the stakeholders and the client because we understand that the pharmaceutical industry has to have their part of risk. So if it improves the survival of the person, then the payment has to be done according to the scientific evidence and the results have to take place. This is not news. This happens in many countries of the world. This happens in the public health care system. And the pharmaceutical companies have to take part in these claims.
On the part of growth, Cepeda, once you grow in other lines, all the plants, we remodel the few products so they have a contribution margin that is better. But when we look at these plants of the middle to the top of the pyramid, they bring a margin of contribution that is better and we can do the cross-subsidies so we can have a growth at the base. So we are living since the last year in the obvious 3 regions growing in Rio and São Paulo but also growing in regions where we didn't have an expressive participation.
So commercially speaking, I'm very satisfied with the movement that is happening and with the expansion of cities that we are seeing that SulAmérica is gaining share. Well, the issue of tech incorporation in the sector has done a quantification of the ramp-up for the release of incorporation of technology, yes. This is one of the issues that is ever more evident in the talks and the entities of the sector.
We have -- we don't have a number here to give you, but they're very expressive. I can give you the number later, and we've done a big effort to bring the pharmaceutical companies through the discussion table. This has to happen for the claims or the loss ratio.
Next question, JPMorgan.
I think that these are pinpoint questions. The first one, looking at the side of the hospital. I wanted to explore with you how have you seen the average ticket and the complexity of these new beds for the greenfield? And second point here, leveraging SulAmérica, very expressive. I wanted to -- well, this affects the sector, so I wanted to explore on how we should think about a reduction and the level of receivables of the company? You've reduced quarter-on-quarter but still at a level that is higher than the past.
And for Raquel, on the side of SulAmérica, we see co-participation helping a lot in the drop of the losses. I wanted to explore what is the drop of the products that have -- what is the breakdown of products that have participation in co-participation? And is there any more synergies in expenses that we should take a look in the context of SulAmérica?
So you asked a lot of questions, and we are seeing which one we are going to answer. Greenfields, I understand that your question is at the greenfield, how is the ticket of the expected brownfield? In the brownfields, mainly to understand what is the dynamic. Well, the answer is going to be similar for brownfield and greenfield. If you look at the greenfields, we're doing hospitals, São Luiz, Rede D'Or, in this case of the brownfields we are doing Star brand and a better positioned brands.
Where we're getting new beds, if you compare it to the average ticket of the company, we tend to have, because of the profile of hospitals, an average ticket that is higher. If we're going to try a model, we have less expansion than in the peripheral hospitals or in regions with a lower ticket. So about the receivables, there has been a great job. I don't think that we're going to have a sector of 105 days of DRO. So some delays are not going to come back. But we've worked quarter-on-quarter to control and, if possible, to reduce a few days. We still think that this is possible for us to do our work better.
And we have a lot of processes that we can also organize better and we can have the speed. And then part of this is part of the negotiations with the operators on the side. Now it's normalized, but these are improvements that are gradual and small. And we are -- well, the next one I'm going to give the floor to Raquel.
About co-participation, right? Joseph, so you asked about the -- question about the corporate submission. Well, I've said that in the company, health care is a constant. If you take away a few specific segments, this has happened in almost all the contracts. Now doing the cuts of everything that is not the small and medium-sized companies, all the contracts that are not over 30 lives, everything that got in, 83% with co-participation, 70% basically no co-participation.
In the small and medium-sized companies, this is more positive because if you asked the same question 3 years ago, my question would be 0. And the totality with our co-participation today, 32% of the new sales come with co-participation in small companies. So we have a big effort in the commercial dynamics with the incentives and, of course, incentives in the final pricing of the final client. And adherence 100% of the contracts sold this year with co-participation. So as we do the integration of this in stock, the co-participation also at the stock has a participation that is higher. So that helps the cycle of readjustment that we've just mentioned.
About the synergies, D&A, Joseph, we've done the core of what we needed. But of course, we still see big opportunities specifically because the companies are growing. And I'm not just mentioning while doing big movements of integrating areas, the areas that we needed to integrate, we did so. But we see that the top line of these companies that has to grow more than the growth of G&A. So we're going to continue to see this. This is the profile of Rede D'Or.
And now with the opportunities and levers, we have the scales that are bigger with SulAmérica. So we can ensure that every year, we're going to have a dilution of this line. As with Rede D'Or, we grow the size of the hospitals, we have a dilution of administrative costs within the hospital. And of course, in the D&A, it's outside of the hospital. It's been our profile, and we're going to continue to work with this.
The Q&A session is closed. We would like to give the floor to Mr. Paulo Moll so he can close the event.
Thank you very much for your presence. I think that we had a very productive call. We've discussed a lot about the results and the strategy. We are once again very motivated to continue to improve the work for 2025. I hope to see you in the next call. Thank you.
The earnings call of Rede D'Or is closed. Thank you for your participation. Have a nice day.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]