Afya Limited
Unaudited interim condensed
consolidated financial statements
March 31, 2021
Afya Limited
Unaudited interim condensed consolidated statements of financial position
As of March 31, 2021 and December 31, 2020
(In thousands of Brazilian reais)
Notes | March 31, 2021 | December 31, 2020 | |||
Assets | (unaudited) | ||||
Current assets | |||||
Cash and cash equivalents | 5 | 959,496 | 1,045,042 | ||
Financial investments | 6,050 | - | |||
Trade receivables | 6 | 322,482 | 302,317 | ||
Inventories | 9,586 | 7,509 | |||
Recoverable taxes | 20,703 | 21,019 | |||
Other assets | 23,743 | 29,614 | |||
Total current assets | 1,342,060 | 1,405,501 | |||
Non-current assets | |||||
Restricted cash | 2,053 | 2,053 | |||
Trade receivables | 6 | 10,874 | 7,627 | ||
Other assets | 84,031 | 74,037 | |||
Investment in associate | 8 | 48,879 | 51,410 | ||
Property and equipment | 9 | 277,999 | 260,381 | ||
Right-of-use assets | 11.2.2 | 433,164 | 419,074 | ||
Intangible assets | 10 | 2,758,245 | 2,573,010 | ||
Total non-current assets | 3,615,245 | 3,387,592 | |||
Total assets | 4,957,305 | 4,793,093 | |||
Liabilities | |||||
Current liabilities | |||||
Trade payables | 43,463 | 35,743 | |||
Loans and financing | 11.2.1 | 115,089 | 107,162 | ||
Lease liabilities | 11.2.2 | 65,999 | 61,976 | ||
Accounts payable to selling shareholders | 11.2.3 | 193,692 | 188,420 | ||
Notes payable | 11.2.4 | 11,406 | 10,503 | ||
Advances from customers | 77,851 | 63,839 | |||
Labor and social obligations | 88,479 | 77,855 | |||
Taxes payable | 28,635 | 32,976 | |||
Income taxes payable | 4,612 | 4,574 | |||
Other liabilities | 4,361 | 6,331 | |||
Total current liabilities | 633,587 | 589,379 | |||
Non-current liabilities | |||||
Loans and financing | 11.2.1 | 505,839 | 510,323 | ||
Lease liabilities | 11.2.2 | 400,205 | 385,727 | ||
Accounts payable to selling shareholders | 11.2.3 | 305,617 | 329,820 | ||
Notes payable | 11.2.4 | 63,923 | 65,678 | ||
Taxes payable | 20,449 | 21,425 | |||
Provision for legal proceedings | 21 | 60,625 | 53,139 | ||
Other liabilities | 3,450 | 3,822 | |||
Total non-current liabilities | 1,360,108 | 1,369,934 | |||
Total liabilities | 1,993,695 | 1,959,313 | |||
Equity | |||||
Share capital | 15 | 17 | 17 | ||
Additional paid-in capital | 2,394,987 | 2,323,488 | |||
Treasury shares | (64,752) | - | |||
Share-based compensation reserve | 64,733 | 50,724 | |||
Retained earnings | 516,082 | 407,991 | |||
Equity attributable to equity holders of the parent | 2,911,067 | 2,782,220 | |||
Non-controlling interests | 52,543 | 51,560 | |||
Total equity | 2,963,610 | 2,833,780 | |||
Total liabilities and equity | 4,957,305 | 4,793,093 |
The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.
F-2 |
Afya Limited
Unaudited interim condensed consolidated statements of income and comprehensive income
For the three-month periods ended March 31, 2021 and 2020
(In thousands of Brazilian reais, except earnings per share)
Notes | March 31, 2021 | March 31, 2020 | |||
(unaudited) | (unaudited) | ||||
Net revenue | 17 | 394,351 | 272,304 | ||
Cost of services | 18 | (126,492) | (89,251) | ||
Gross profit | 267,859 | 183,053 | |||
General and administrative expenses | 18 | (130,404) | (86,723) | ||
Other income (expenses), net | 1,185 | (59) | |||
Operating income | 138,640 | 96,271 | |||
Finance income | 19 | 13,815 | 30,013 | ||
Finance expenses | 19 | (33,672) | (18,859) | ||
Finance result | (19,857) | 11,154 | |||
Share of income of associate | 8 | 3,239 | 2,302 | ||
Income before income taxes | 122,022 | 109,727 | |||
Income taxes expense | 20 | (8,674) | (6,057) | ||
Net income | 113,348 | 103,670 | |||
Other comprehensive income | - | - | |||
Total comprehensive income | 113,348 | 103,670 | |||
Net income attributable to | |||||
Equity holders of the parent | 108,090 | 99,816 | |||
Non-controlling interests | 5,258 | 3,854 | |||
113,348 | 103,670 | ||||
Basic earnings per share | |||||
Per common share | 16 | 1.16 | 1.09 | ||
Diluted earnings per share | |||||
Per common share | 16 | 1.15 | 1.09 |
The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.
F-3 |
Afya Limited
Unaudited interim condensed consolidated statements of changes in equity
For the three-month periods ended March 31, 2021 and 2020
(In thousands of Brazilian reais)
Equity attributable to equity holders of the parent | |||||||||||
Share capital | Additional paid-in capital | Treasury Shares | Share-based compensation reserve | Retained earnings reserve | Retained earnings | Total | Non-controlling interests | Total equity | |||
Balances at December 31, 2019 | 17 | 1,931,047 | - | 18,114 | - | 115,916 | 2,065,094 | 48,632 | 2,113,726 | ||
Net income | - | - | - | - | - | 99,816 | 99,816 | 3,854 | 103,670 | ||
Total comprehensive income | - | - | - | - | - | 99,816 | 99,816 | 3,854 | 103,670 | ||
Issuance of common shares | - | 389,170 | - | - | - | - | 389,170 | - | 389,170 | ||
Shares issuance cost | - | (19,704) | - | - | - | - | (19,704) | - | (19,704) | ||
Share-based compensation | - | - | - | 8,440 | - | - | 8,440 | - | 8,440 | ||
Dividends declared to non-controlling interests | - | - | - | - | - | - | - | (1,600) | (1,600) | ||
Balances at March 31, 2020 (unaudited) | 17 | 2,300,513 | - | 26,554 | - | 215,732 | 2,542,816 | 50,886 | 2,593,702 | ||
Balances at December 31, 2020 | 17 | 2,323,487 | - | 50,724 | - | 407,992 | 2,782,220 | 51,560 | 2,833,780 | ||
Net income | - | - | - | - | - | 108,090 | 108,090 | 5,258 | 113,348 | ||
Total comprehensive income | - | - | - | - | - | 108,090 | 108,090 | 5,258 | 113,348 | ||
Capital increase | - | 71,500 | - | - | - | - | 71,500 | - | 71,500 | ||
Treasury shares from buy-back program | - | - | (64,752) | - | - | - | (64,752) | - | (64,752) | ||
Share-based compensation | - | - | - | 14,009 | - | - | 14,009 | - | 14,009 | ||
Dividends declared to non-controlling interests | - | - | - | - | - | - | - | (4,275) | (4,275) | ||
Balances at March 31, 2021 (unaudited) | 17 | 2,394,987 | (64,752) | 64,733 | - | 516,082 | 2,911,067 | 52,543 | 2,963,610 | ||
The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.
F-4 |
Afya Limited
Unaudited interim condensed consolidated statements of cash flows
For the three-month periods ended March 31, 2021 and 2020
(In thousands of Brazilian reais)
March 31, 2021 | March 31, 2020 | |||||
(unaudited) | (unaudited) | |||||
Operating activities | ||||||
Income before income taxes | 122,022 | 109,727 | ||||
Adjustments to reconcile income before income taxes | ||||||
Depreciation and amortization | 31,651 | 24,947 | ||||
Disposals of property and equipment | 26 | - | ||||
Allowance for doubtful accounts | 11,065 | 6,332 | ||||
Share-based compensation expense | 14,009 | 8,440 | ||||
Net foreign exchange differences | (3,988) | (1,201) | ||||
Net gain on derivatives | - | (14,055) | ||||
Accrued interest | 12,285 | 5,781 | ||||
Accrued lease interest | 13,120 | 9,900 | ||||
Share of income of associate | (3,239) | (2,302) | ||||
Provision for legal proceedings | 2,002 | 816 | ||||
Changes in assets and liabilities | ||||||
Trade receivables | (33,229) | (35,564) | ||||
Inventories | (2,077) | (1,648) | ||||
Recoverable taxes | 779 | (4,615) | ||||
Other assets | 1,550 | (767) | ||||
Trade payables | 7,088 | 4,479 | ||||
Taxes payables | 729 | 3,183 | ||||
Advances from customers | 13,582 | (14,116) | ||||
Labor and social obligations | 9,046 | 7,005 | ||||
Other liabilities | (2,341) | 1,111 | ||||
194,080 | 107,453 | |||||
Income taxes paid | (14,801) | (6,057) | ||||
Net cash flows from operating activities | 179,279 | 101,396 | ||||
Investing activities | ||||||
Acquisition of property and equipment | (23,056) | (17,676) | ||||
Acquisition of intangibles assets | (9,866) | (3,172) | ||||
Dividends received | 5,770 | - | ||||
Restricted cash | - | 651 | ||||
Payments of notes payable | (2,628) | - | ||||
Acquisition of subsidiaries, net of cash acquired | (150,483) | (112,269) | ||||
Net cash flows used in investing activities | (180,263) | (132,466) | ||||
Financing activities | ||||||
Payments of loans and financing | (2,010) | (1,316) | ||||
Issuance of loans and financing | - | 911 | ||||
Payments of lease liabilities | (17,509) | (11,735) | ||||
Purchase of treasury shares | (64,752) | - | ||||
Proceeds from issuance of common shares | - | 389,170 | ||||
Shares issuance cost | - | (19,704) | ||||
Dividends paid to non-controlling interests | (4,275) | (1,600) | ||||
Net cash flows (used in) from financing activities | (88,546) | 355,726 | ||||
Net foreign exchange differences | 3,984 | 15,244 | ||||
Net increase (decrease) in cash and cash equivalents | (85,546) | 339,900 | ||||
Cash and cash equivalents at the beginning of the period | 1,045,042 | 943,209 | ||||
Cash and cash equivalents at the end of the period | 959,496 | 1,283,109 |
The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.
F-5 |
Afya Limited Notes to the unaudited interim condensed consolidated financial statements March 31, 2021 and 2020 Expressed in thousands of Brazilian reais, unless otherwise stated
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1. | Corporate information |
Afya Limited (“Afya”), collectively with its subsidiaries referred to as the “Company”, is a holding company incorporated under the laws of the Cayman Islands on March 22, 2019. Afya Limited became the holding company of Afya Participações S.A. (hereafter referred to as “Afya Brazil”), formerly denominated NRE Participações S.A., through the completion of the corporate reorganization in July 2019. Up to that date, Afya Limited did not have commenced operations and had only nominal assets and liabilities and no material contingent liabilities or commitments. Accordingly, Afya Limited’s consolidated financial information substantially reflect the operations of Afya Brazil after the corporate reorganization.
The Company is formed by a network of higher education and post graduate institutions focused on medicine located in 18 Brazilian states forming the largest educational group by the number of medical seats in the country and by services that comprises the development and sale of electronically distributed educational courses on medicine science, related printed and technological educational content. The Company also offers services to empower the physicians in their daily routine providing supporting clinic decisions thought mobile app subscription and deliver practice management tools through a Saas model.
Issuance of additional common shares
On February 6, 2020, Afya completed its follow-on public offering of 3,019,928 Class A common shares offered by the Company and 9,406,812 Class A common shares offered by the selling shareholders.
The offering price was US$ 27.50 per Class A common shares and gross proceeds of R$ 358,286 (US$ 83,048 thousand). The Company received net proceeds of R$ 339,648 (US$ 78,846 thousand), after deducting R$ 18,638 (US$ 4,202 thousand) in underwriting discounts, commissions and other offering expenses.
On March 10, 2020, the underwriters exercised their option to acquire additional 240,552 Class A common shares at the offering price, resulting in gross proceeds of R$ 30,884 (US$ 6,615 thousand). The net proceeds from the additional shares were R$ 29,819 (US$ 6,387 thousand), after deducting R$ 1,066 (U$ 228 thousand) in underwriting discounts and commissions.
Afya transferred R$ 294,312 (US$ 68,060 thousand) of the net proceeds to bank accounts in Brazil with an increase in the capital of Afya Brazil. These deposits were invested in first-line financial institutions in Brazil and are denominated in Brazilian reais.
Acquisitions in 2021
(i) On January 21, 2021, Afya Brazil acquired iClinic (comprised by iClinic Participações S.A., iClinic Desenvolvimento de Software Ltda. and Black River Brazil Participações S.A.). iClinic is a SaaS model physician focused technology company and the leading medical practice management software in Brazil. See Note 4.
F-6 |
Afya Limited Notes to the unaudited interim condensed consolidated financial statements March 31, 2021 and 2020 Expressed in thousands of Brazilian reais, unless otherwise stated
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(ii) On March 25, 2021, Afya Brazil acquired Medicinae Solutions S.A. (“Medicinae”), through the acquisition of 100% of its shares. Medicinae is a leading Brazilian healthcare technology company that specializes in healthcare payments and financial services. See Note 4.
COVID-19
In December 2019, a novel strain of coronavirus (COVID-19) was reported to have emerged in Wuhan, China. COVID-19 has since spread to most of the countries around the globe, including every state in Brazil. On March 11, 2020, the World Health Organization declared the COVID-19 outbreak a pandemic, and on March 20, 2020 the Brazilian federal government declared a national emergency with respect to COVID-19.
Since March 17, 2020, there has been some interruption of our on-campus activities due to Brazilian government authorities mandatory lockdowns. We managed to rapidly adapt our business to these unusual times, and although there has been an interruption of our on-campus activities, we are offering our non-practical educational activities to our students through our online platform (rather than on-site). Regarding the offering of practical classes, we quickly resumed our in-hospital and health care residency programs for fifth and sixth year students, which represents the largest portion of our practical curriculum.
During 2020, the States of Rio de Janeiro, Pará, Tocantins, Piauí, Rondônia, Bahia and Maranhão had issued state decrees granting discounts to our students because of COVID-19. As of the date of these interim financial statements, these mandatory discounts have been suspended as their constitutionality has been challenged in the superior courts. As long as it has not been declared constitutional, we started to invoice our students without these discounts and, from March 2021, with the discount granted during 2020. Additionally, we are also facing individual and collective legal proceedings all across the country and a public civil proceeding in the state of Paraíba against our subsidiary FCMPB demanding mandatory discounts that are still pending on final legal decisions to be recovered. The total mandatory discounts granted due to COVID-19, net of discounts that have been recovered from previous period, total R$ 8,204 during 2021 being R$ 6,528 related to FCMPB.
As we continue to offer non-practical educational activities to our students through our platform and practical activities for fifth and sixth year students, through the same professors, staff and suppliers, we continue to charge our standard monthly tuitions fees. We are committed to deliver the best quality service, minimize the impacts of the COVID-19 pandemic on our students, employees and our local communities. In addition, as of the date of these interim financial statements, the COVID-19 pandemic has had no significant impact on the payment default rates of our students. We continue to support our students by providing special payment arrangements. Furthermore, there have been no significant impacts on our financial performance and position of assets and there have been no significant changes in our financial condition triggering impairment indicators in these financial statements.
The COVID-19 pandemic is still evolving, and the Brazilian authorities may maintain a lockdown of our on-campus activities for a longer or undefined extended of period of time or impose a more severe lockdown, among other measures, all of which are outside of our control and may materially adversely affect our business and results of operations including the resumption of on-campus practical classes.
F-7 |
Afya Limited Notes to the unaudited interim condensed consolidated financial statements March 31, 2021 and 2020 Expressed in thousands of Brazilian reais, unless otherwise stated
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We may also suffer labor shortages, particularly of our teaching faculty, which is mostly comprised of doctors that continue to have work shifts at hospitals and are consequently more exposed to COVID-19 than non-medical administrative staff. Furthermore, the COVID-19 pandemic is expect to cause a material and adverse effect on the general economic, financial, political, demographic and business conditions in Brazil, which may reduce the disposable income of our students and their families, and consequently (i) result in an adverse impact on the ability of our students (current and/or prospective) to pay our tuition fees and/or (ii) trigger an increase in our attrition rates.
While we are aware of the uncertainties created by the COVID-19 pandemic, we remain confident in our strategy, in the financial robustness of our business and in our contribution of high quality medical professionals who we believe will help our society overcome the COVID-19 pandemic and other future challenges.
2. | Significant accounting policies |
2.1 | Basis for preparation of the unaudited interim condensed consolidated financial statements |
The unaudited interim condensed consolidated financial statements as of March 31, 2021 and for the three-month periods ended March 31, 2021 and 2020 have been prepared in accordance with IAS 34 Interim Financial Reporting.
The unaudited interim condensed consolidated financial statements have been prepared on a historical cost basis, except for derivative financial instruments that were measured at fair value.
The unaudited interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Company’s annual consolidated financial statements as of December 31, 2020.
Afya Limited is a holding company, as such the primary source of revenue derives from its interest on the operational companies in Brazil. As result, the Brazilian Real has been assessed as the Company`s functional currency.
The unaudited interim condensed consolidated financial statements are presented in Brazilian Reais (“BRL” or “R$”), which is the Company’s functional and presentation currency. All amounts are rounded to the nearest thousand.
These unaudited interim condensed consolidated financial statements as of and for the three-month period ended March 31, 2021 were authorized for issuance by the Board of Directors on May 27, 2021.
F-8 |
Afya Limited Notes to the unaudited interim condensed consolidated financial statements March 31, 2021 and 2020 Expressed in thousands of Brazilian reais, unless otherwise stated
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2.2 | Changes in accounting policies and disclosures |
New standards, interpretations and amendments adopted by the Company
The accounting policies adopted in the preparation of the unaudited interim condensed consolidated financial statements are consistent with those followed in the preparation of the Company’s annual consolidated financial statements for the year ended December 31, 2020. The Company has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective.
Several amendments apply for the first time in 2021, but do not have an impact on the interim condensed consolidated financial statements of the Company.
F-9 |
Afya Limited Notes to the unaudited interim condensed consolidated financial statements March 31, 2021 and 2020 Expressed in thousands of Brazilian reais, unless otherwise stated
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2.3 | Basis consolidation |
Direct and indirect interest | |||||
Name | Principal activities | Location | Investment type | March | December 31, 2020 |
31, 2021 | |||||
Afya Participações S.A. (“Afya Brazil”) | Holding | Nova Lima - MG | Subsidiary | 100% | 100% |
Instituto Tocantinense Presidente Antônio Carlos Porto S.A. – (“ITPAC Porto”) | Undergraduate and graduate degree programs | Porto Nacional - TO | Subsidiary | 100% | 100% |
Instituto Tocantinense Presidente Antônio Carlos S.A. – (“ITPAC Araguaina”) | Undergraduate and graduate degree programs | Araguaína - TO | Subsidiary | 100% | 100% |
União Educacional do Vale do Aço S.A. – (“UNIVAÇO”) | Medicine undergraduate degree program | Ipatinga – MG | Subsidiary | 100% | 100% |
IPTAN - Instituto de Ensino Superior Presidente Tancredo de Almeida Neves S.A. (“IPTAN”) | Undergraduate and graduate degree programs | São João Del Rei - MG | Subsidiary | 100% | 100% |
Instituto de Educação Superior do Vale do Parnaíba S.A. (“IESVAP”) | Undergraduate and graduate degree programs | Parnaíba – PI | Subsidiary | 80% | 80% |
Centro de Ciências em Saúde de Itajubá S.A. (“CCSI”) | Medicine undergraduate degree program | Itajubá – MG | Subsidiary | 60% | 60% |
Instituto de Ensino Superior do Piauí S.A. (”IESP”) | Undergraduate and graduate degree programs | Teresina - PI | Subsidiary | 100% | 100% |
FADEP - Faculdade Educacional de Pato Branco Ltda. (“FADEP”) | Undergraduate and graduate degree programs | Pato Branco – PR | Subsidiary | 100% | 100% |
Medcel Editora e Eventos S.A. (“Medcel”) | Medical education content | São Paulo- SP | Subsidiary | 100% | 100% |
Instituto Educacional Santo Agostinho S.A. (“FASA”) | Undergraduate and graduate degree programs | Montes Claros – MG | Subsidiary | 100% | 100% |
ESMC Educação Superior Ltda. (“ESMC”) | Undergraduate and graduate degree programs | Montes Claros – MG | Subsidiary | 100% | 100% |
Instituto de Pesquisa e Ensino Médico do Estado de Minas Gerais Ltda. (“IPEMED”) | Post-graduate | Belo Horizonte – MG | Subsidiary | 100% | 100% |
Instituto Paraense de Educação e Cultura Ltda (“IPEC”) | Undergraduate and graduate degree programs | Marabá - PA | Subsidiary | 100% | 100% |
Sociedade Universitária Redentor S.A. (“UniRedentor”) | Undergraduate and graduate degree programs | Itaperuna – RJ | Subsidiary | 100% | 100% |
Centro Universitário São Lucas Ltda. (“UniSL”) | Undergraduate and graduate degree programs | Porto Velho - RO | Subsidiary | 100% | 100% |
PEBMED Instituição de Pesquisa Médica e Serviços Tecnológicos da Área da Saúde S.A. (“PEBMED”) | Content and clinical tools and online platform | Rio de Janeiro – RJ | Subsidiary | 100% | 100% |
Centro Superior de Ciências da Saúde S/S Ltda. (“FCMPB”) | Undergraduate and graduate degree programs | João Pessoa – PB | Subsidiary | 100% | 100% |
Faculdade de Ensino Superior da Amazônia Reunida – (“FESAR”) | Undergraduate and graduate degree programs | Redenção – PA | Subsidiary | 100% | 100% |
MedPhone Tecnologia em Saúde Ltda. (“MedPhone”) | Content and clinical tools and online platform | Recife – PE | Subsidiary | 100% | 100% |
União Educacional do Planalto Central S.A. (“UEPC”) | Undergraduate and graduate degree programs | Brasília - DF | Associate | 30% | 30% |
Black River Brazil Participações S.A. (“Black River”)* | Holding of iClinic | Ribeirão Preto - SP | Subsidiary | 100% | - |
iClinic Participações S.A. (“iClinic Participações”)* | Holding of iClinic | Ribeirão Preto - SP | Subsidiary | 100% | - |
iClinic Desenvolvimento de Software Ltda. (“iClinic Desenvolvimento”)* | Electronic Medical Record, Clinical Management System, Telemedicine and Physicians Marketplace | Ribeirão Preto - SP | Subsidiary | 100% | - |
Medicinae Solutions S.A. (“Medicinae”)* | Healthcare payments and financial services | Rio de Janeiro – RJ | Subsidiary | 100% | - |
* See Note 4 for further details on the business combinations during 2021.
The financial information of the acquired subsidiaries is included in the Company’s consolidated financial statements beginning on the respective acquisition dates.
F-10 |
Afya Limited Notes to the unaudited interim condensed consolidated financial statements March 31, 2021 and 2020 Expressed in thousands of Brazilian reais, unless otherwise stated
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The Company consolidates the financial information for all entities it controls. Control is achieved when the Company is exposed to, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and it ceases when the Company loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Company gains control until the date the Company ceases to control the subsidiary.
When necessary, adjustments are made to the financial statements of subsidiaries in order to bring their accounting policies in line with the Company’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions are eliminated in full on consolidation.
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Company loses control over a subsidiary, it derecognizes the related assets (including goodwill), liabilities, non-controlling interest and other components of equity, while any resulting gain or loss is recognized in the statement of income.
Non-controlling interests in the results and equity of subsidiaries are shown separately in the consolidated statements of financial position, consolidated statements of income and comprehensive income and consolidated statements of changes in equity.
3. | Segment information |
During the first quarter of 2021, in connection with the recent acquisitions of digital and technology companies, the Company revised its operating segments. As result, the Company has three operating segments as opposed to the previously reported Business Unit 1 (educational services through undergraduate and graduate courses related to medicine, other health sciences and other undergraduate programs) and Business Unit 2 (residency preparatory courses and medical post-graduate specialization programs, delivering printed and digital content, an online medical education platform). The three reportable segments are as follows:
• Undergrad, which provides educational services through undergraduate courses related to medicine, other health sciences and other undergraduate programs;
• Continuing Education, which provides specialization programs and graduate courses; and
• Digital Services, which provides content and technology for medical education, clinical decisions software, practice management tools and electronic medical records, doctor-patient relationship, telemedicine and digital prescription.
As result of the changes in operating segments the segment information as at December 31,2020 and for the three-month period ended March 31, 2020 have been restated.
F-11 |
Afya Limited Notes to the unaudited interim condensed consolidated financial statements March 31, 2021 and 2020 Expressed in thousands of Brazilian reais, unless otherwise stated
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No operating segments have been aggregated to form the above reportable operating segments. There is only one geographic region and the results are monitored and evaluated as a single business.
The following table presents assets and liabilities information for the Company’s operating segments as of March 31, 2021 and December 31, 2020, respectively:
Undergrad | Continuing Education | Digital Services | Total reportable segments | Adjustments and eliminations | Total | |
As of March 31, 2021 | ||||||
Total assets | 4,641,627 | 75,631 | 240,047 | 4,957,305 | - | 4,957,305 |
Current assets | 1,180,255 | 41,481 | 120,324 | 1,342,060 | - | 1,342,060 |
Non-current assets | 3,461,372 | 34,150 | 119,723 | 3,615,245 | - | 3,615,245 |
Total liabilities and equity | 4,641,627 | 75,631 | 240,047 | 4,957,305 | - | 4,957,305 |
Current liabilities | 544,435 | 19,817 | 69,335 | 633,587 | - | 633,587 |
Non-current liabilities | 1,229,744 | 43,238 | 87,126 | 1,360,108 | - | 1,360,108 |
Equity | 2,867,448 | 12,576 | 83,586 | 2,963,610 | - | 2,963,610 |
Undergrad | Continuing Education | Digital Services | Total reportable segments | Adjustments and eliminations | Total | |
As of March 31, 2021 | ||||||
Other disclosures | ||||||
Investments in associate | 48,879 | - | - | 48,879 | - | 48,879 |
Capital expenditures (*) | 22,034 | 1,252 | 9,636 | 32,922 | - | 32,922 |
Undergrad | Continuing Education | Digital Services | Total reportable segments | Adjustments and eliminations | Total | |
As of December 31, 2020 | ||||||
Total assets | 4,541,988 | 68,300 | 182,920 | 4,793,208 | (115) | 4,793,093 |
Current assets | 1,280,342 | 40,119 | 85,155 | 1,405,616 | (115) | 1,405,501 |
Non-current assets | 3,261,646 | 28,181 | 97,765 | 3,387,592 | - | 3,387,592 |
Total liabilities and equity | 4,541,988 | 68,300 | 182,920 | 4,793,208 | (115) | 4,793,093 |
Current liabilities | 522,523 | 14,491 | 52,480 | 589,494 | (115) | 589,379 |
Non-current liabilities | 1,261,894 | 40,763 | 67,277 | 1,369,934 | - | 1,369,934 |
Equity | 2,757,571 | 13,046 | 63,163 | 2,833,780 | - | 2,833,780 |
Undergrad | Continuing Education | Digital Services | Total reportable segments | Adjustments and eliminations | Total | |
As of December 31, 2020 | ||||||
Other disclosures | ||||||
Investments in associate | 51,410 | - | - | 51,410 | - | 51,410 |
Capital expenditures (*) | 83,256 | 12,638 | 13,587 | 109,481 | - | 109,481 |
(*) Capital expenditures consider the acquisitions of property and equipment and intangible assets.
F-12 |
Afya Limited Notes to the unaudited interim condensed consolidated financial statements March 31, 2021 and 2020 Expressed in thousands of Brazilian reais, unless otherwise stated
|
The following tables presents statements of income for the Company's operating segments for the three-month periods ended March 31, 2021 and 2020:
March 31, 2021 | Undergrad | Continuing Education | Digital Services | Total reportable segments | Adjustments and eliminations * | Total |
External costumer | 321,852 | 19,288 | 53,211 | 394,351 | - | 394,351 |
Inter-segment | - | - | 327 | 327 | (327) | - |
Net revenue | 321,852 | 19,288 | 53,538 | 394,678 | (327) | 394,351 |
Cost of services | (105,075) | (9,594) | (12,150) | (126,819) | 327 | (126,492) |
Gross profit | 216,777 | 9,694 | 41,388 | 267,859 | - | 267,859 |
General and administrative expenses | (130,404) | |||||
Other expenses, net | 1,185 | |||||
Operating income | 138,640 | |||||
Finance income | 13,815 | |||||
Finance expenses | (33,672) | |||||
Share of income of associate | 3,239 | |||||
Income before income taxes | 122,022 | |||||
Income taxes expense | (8,674) | |||||
Net income | 113,348 |
March 31, 2020 | Undergrad | Continuing Education | Digital Services | Total reportable segments | Adjustments and eliminations * | Total |
External costumer | 211,784 | 27,567 | 32,953 | 272,304 | - | 272,304 |
Inter-segment | - | - | 977 | 977 | (977) | - |
Net revenue | 211,784 | 27,567 | 33,930 | 273,281 | (977) | 272,304 |
Cost of services | (76,281) | (11,772) | (2,175) | (90,228) | 977 | (89,251) |
Gross profit | 135,503 | 15,795 | 31,755 | 183,053 | - | 183,053 |
General and administrative expenses | (86,723) | |||||
Other expenses, net | (59) | |||||
Operating income | 96,271 | |||||
Finance income | 30,013 | |||||
Finance expenses | (18,859) | |||||
Share of income of associate | 2,302 | |||||
Income before income taxes | 109,727 | |||||
Income taxes expense | (6,057) | |||||
Net income | 103,670 |
(*) These eliminations are related to sale transactions from Medcel to other entities in the Undergrad operating segment.
F-13 |
Afya Limited Notes to the unaudited interim condensed consolidated financial statements March 31, 2021 and 2020 Expressed in thousands of Brazilian reais, unless otherwise stated
|
Seasonality of operations
Undergrad´s and Continuing Education tuition revenues are related to the intake process and monthly tuition fees charged to students over the period thus the Company do not have significant fluctuations. On Digital Services, Medcel’ sales are concentrated in the first and last quarter of the year, as a result of enrollments of Medcel’s clients at the beginning of the year. The majority of Medcel’s revenues is derived from printed books and e-books, which are recognized at the point in time when control is transferred to the customer. All other Digital services do not present any significant seasonality. Consequently, Digital Services generally has higher revenues and results of operations in the first and last quarter of the year compared to the second and third quarters of the year.
F-14 |
Afya Limited Notes to the unaudited interim condensed consolidated financial statements March 31, 2021 and 2020 Expressed in thousands of Brazilian reais, unless otherwise stated
|
4. | Business combinations |
The preliminary fair values of the identifiable assets acquired and liabilities assumed as of each acquisition date were:
iClinic | Medicinae | |
Assets | ||
Cash and cash and equivalents | 1,659 | 213 |
Financial investments | 6,050 | - |
Trade receivables | 1,201 | 47 |
Recoverable taxes | 72 | 391 |
Other assets | 20 | 169 |
Indemnification assets | 1,252 | - |
Right-of-use assets | 88 | - |
Property and equipment | 473 | 214 |
Intangible assets | 84,895 | 6,158 |
95,710 | 7,192 | |
Liabilities | ||
Trade payables | (619) | (13) |
Lease liabilities | (88) | - |
Labor and social obligations | (1,414) | (164) |
Taxes payable | (77) | (43) |
Provision for legal proceedings | (1,252) | - |
Advances from customers | (400) | (29) |
(3,850) | (249) | |
Total identifiable net assets at fair value | 91,860 | 6,943 |
Preliminary goodwill arising on acquisition | 99,260 | 1,808 |
Purchase consideration transferred | 191,120 | 8,751 |
Cash paid | 119,620 | 5,600 |
Contingent consideration | - | 3,151 |
Paid in shares | 71,500 | - |
Analysis of cash flows on acquisition: | ||
Transaction costs (included in cash flows from operating activities) | 856 | 117 |
Cash paid, net of cash acquired with the subsidiary (included in cash flows from investing activities) | 117,961 | 5,387 |
Net of cash flow on acquisition | 118,817 | 5,504 |
(a) Acquisition of iClinic
On January 21, 2021, Afya Brazil acquired 100% of the share capital of iClinic (comprised by iClinic Participações, iClinic Desenvolvimento and Black River). The aggregate purchase price is R$191,120: (i) 62.6% was paid in cash, and (ii) 37.4% was settled with Afya's shares on the transaction closing date.
iClinic is a SaaS model physician focused technology company and the leading medical practice management software in Brazil. iClinic empower doctors to be more independent and have more control over their careers by digitalizing their daily routine, so they can increase their productivity and deliver better healthcare services. With the acquisition of iClinic to our platform, Afya will make another step to become the one stop shop for physicians in Brazil.
The acquisition of iClinic was accounted for under IFRS 3 – Business Combinations.
Transaction costs to date amount to R$856 and were expensed and are included in general and administrative expenses in the consolidated statement of income.
At the acquisition date, the fair value of the trade receivables acquired equals its carrying amount. Afya Brazil measured the acquired lease liabilities using the present value of the remaining lease payments at the date of acquisition. The right-of-use assets were measured at an amount equal to the lease liabilities and adjusted to reflect the unfavorable terms of the lease relative to market terms.
F-15 |
Afya Limited Notes to the unaudited interim condensed consolidated financial statements March 31, 2021 and 2020 Expressed in thousands of Brazilian reais, unless otherwise stated
|
The goodwill recognized includes the value of expected synergies arising from the acquisition, which is not separately recognized. Goodwill is allocated entirely to Digital Services segment. The preliminary goodwill recognized is not expected to be deductible for income taxes purposes.
The Company has not yet finalized the valuation of all identifiable assets acquired and liabilities assumed in the business combination of iClinic and therefore some of these amounts are preliminary. These amounts may be adjusted when the valuations are finalized.
The valuation techniques used for measuring the fair value of separately identified intangible assets acquired were as follows:
Intangible assets acquired | Valuation technique |
Trademark | Relief from royalty This methodology is based on the market remuneration of the use license granted to third parties. The value of the asset is restated by the savings of royalties that the owner would have to own the asset. It is necessary to determine a royalty rate that reflects the appropriate remuneration of the asset. The royalty payments, net of taxes, are discounted to present value. |
Customer relationships | Multi-period excess earnings method The method considers the present value of net cash flows expected to be generated by customer relationships, by excluding any cash flows related to contributory assets. |
Developed technology intangible assets | Replacement cost This methodology is based on the estimated cost of replacing the referred asset with a new one (acquisition or reconstruction), adjusted to reflect the losses in value resulting from the physical deterioration and the functional and economic obsolescence of that asset. |
From the date of acquisition, iClinic has contributed R$ 2,296 of net revenue and R$ 386 of loss before income taxes to the Company. Should the acquisition had taken place at the beginning of the period, net revenue for 2021 would have been increased by R$ 1,158 and income before income taxes for 2021 would have been decreased by R$ 1,320.
(b) Acquisition of Medicinae
On March 25, 2021, Afya Brazil acquired 100% of the total share capital of Medicinae, a leading Brazilian healthcare technology company that specializes in healthcare payments and financial services. The aggregate purchase price is R$ 5,600 of which 100% was paid in cash on the transaction closing date. An earn-out of up of R$ 4,400 is payable in connection with product development goals for 2021 and revenue achievements for 2022.
The acquisition will expand Afya’s digital health services, as it offers a unique financial platform that allows healthcare professionals all over Brazil to manage receivables in an efficient and scalable way using FIDC (Receivables Investment Fund).
F-16 |
Afya Limited Notes to the unaudited interim condensed consolidated financial statements March 31, 2021 and 2020 Expressed in thousands of Brazilian reais, unless otherwise stated
|
Medicinae relieves a number of challenges in the healthcare payments industry, as reduces long payment cycles for professionals and consolidates financial information, improving the consumer financial experience.
The acquisition of Medicinae was accounted for under IFRS 3 – Business Combinations.
Transaction costs to date amount to R$117 and were expensed and are included in general and administrative expenses in the consolidated statement of income.
At the acquisition date, the fair value of the trade receivables acquired equals its carrying amount.
The goodwill recognized includes the value of expected synergies arising from the acquisition, which is not separately recognized. Goodwill is allocated entirely to Digital Services segment. The preliminary goodwill recognized is not expected to be deductible for income taxes purposes.
The Company has not yet finalized the valuation of all identifiable assets acquired and liabilities assumed in the business combination of Medicinae and therefore some of these amounts are preliminary. These amounts may be adjusted when the valuations are finalized.
The valuation techniques used for measuring the fair value of separately identified intangible assets acquired were as follows:
Intangible assets acquired | Valuation technique |
Trademark | Relief from royalty
This methodology is based on the market remuneration of the use license granted to third parties. The value of the asset is restated by the savings of royalties that the owner would have to own the asset. It is necessary to determine a royalty rate that reflects the appropriate remuneration of the asset. The royalty payments, net of taxes, are discounted to present value. |
Developed technology intangible assets | Replacement cost
This methodology is based on the estimated cost of replacing the referred asset with a new one (acquisition or reconstruction), adjusted to reflect the losses in value resulting from the physical deterioration and the functional and economic obsolescence of that asset. |
From the date of acquisition, Medicinae has not contributed with relevant net revenue and income (loss) before income taxes for the three-month period ended March 31, 2021. If the acquisition had taken place at the beginning of the period, net revenue for 2020 would have been increased by R$ 105 and income before income taxes for 2020 would have been decreased by R$ 113.
F-17 |
Afya Limited Notes to the unaudited interim condensed consolidated financial statements March 31, 2021 and 2020 Expressed in thousands of Brazilian reais, unless otherwise stated
|
5. | Cash and cash equivalents |
March 31, 2021 | December 31, 2020 | ||
(unaudited) | |||
Cash and bank deposits | 35,141 | 57,729 | |
Cash equivalents | 924,355 | 987,313 | |
Total | 959,496 | 1,045,042 |
Cash equivalents correspond mainly to financial investments in Bank Certificates of Deposit (“CDB”) with highly rated financial institutions and investment funds managed by highly rated financial institutions. As of March 31, 2021, the average interest on these investments are equivalent to 98.65% of the Interbank Certificates of Deposit (“CDI”) (December 31, 2020: 90.95%). These funds are available for immediate use and have insignificant risk of changes in value. Cash equivalents denominated in U.S. dollars totaled R$2,404 as of March 31, 2021 (December 31, 2020: R$70,523).
6. | Trade receivables |
March 31, 2021 | December 31, 2020 | |||
(unaudited) | ||||
Tuition fees | 191,770 | 195,318 | ||
Educational content (a) | 95,980 | 62,931 | ||
FIES | 54,735 | 49,425 | ||
Educational credits | 12,008 | 11,248 | ||
Mobile app subscription (b) | 7,791 | 13,526 | ||
Others | 12,675 | 10,476 | ||
374,959 | 342,924 | |||
(-) Allowance for doubtful accounts | (41,603) | (32,980) | ||
Total | 333,356 | 309,944 | ||
Current | 322,482 | 302,317 | ||
Non-current | 10,874 | 7,627 |
(a) Related to trade receivables from sales of printed books, e-books and medical courses through digital platform from Medcel.
(b) Related to trade receivables from mobile applications subscriptions for digital medical content.
As of March 31, 2021 and December 31, 2020, the aging of trade receivables was as follows:
March 31, 2021 | December 31, 2020 | ||
(unaudited) | |||
Neither past due nor impaired | 170,619 | 145,076 | |
Past due | |||
1 to 30 days | 56,572 | 44,365 57,198 | |
31 to 90 days | 60,080 | ||
91 to 180 days | 32,419 | 51,521 | |
More than 180 days | 55,269 | 44,764 | |
374,959 | 342,924 |
The changes in the allowance for doubtful accounts for the three-month periods ended March 31, 2021 and 2020, was as follows:
F-18 |
Afya Limited Notes to the unaudited interim condensed consolidated financial statements March 31, 2021 and 2020 Expressed in thousands of Brazilian reais, unless otherwise stated
|
March 31, 2021 | March 31, 2020 | ||
(unaudited) | (unaudited) | ||
Balance at the beginning of the period | (32,980) | (14,763) | |
Additions | (11,065) | (6,332) | |
Write-offs | 2,442 | 2,800 | |
Balance at the end of the period | (41,603) | (18,295) |
7. | Related parties |
The table below summarizes the balances and transactions with related parties:
March 31, 2021 | December 31, 2020 | ||
(unaudited) | |||
Assets | |||
Trade receivables (a) | 383 | 174 | |
Related parties (b) | 421 | 421 | |
804 | 595 | ||
Current | 383 | 174 | |
Non-current | 421 | 421 | |
Net revenue | March 31, 2021 | March 31, 2020 | |
(unaudited) | (unaudited) | ||
UEPC (a) | 321 | 582 | |
321 | 582 | ||
Lease | |||
RVL Esteves Gestão Imobiliária S.A. | 2,913 | 2,744 | |
UNIVAÇO Patrimonial Ltda. | 846 | 726 | |
IESVAP Patrimonial Ltda. | 1,147 | 793 | |
4,906 | 4,263 | ||
(a) | Refers to sales of educational content from Medcel to UEPC recorded in trade receivables. |
(b) | Amounts to be reimbursed by the shareholders to Afya Brazil, mainly related to payments of legal cost and advisory services recorded in other assets. |
Key management personnel compensation
Key management personnel compensation included in the Company’s consolidated statement of income comprised the following:
March 31, 2021 | March 31, 2020 | ||
(unaudited) | (unaudited) | ||
Short-term employee benefits | 1,679 | 1,129 | |
Share-based compensation plans | 6,803 | 6,237 | |
8,482 | 7,366 |
Compensation of the Company’s key management includes short-term employee benefits comprised by salaries, labor and social charges, and other ordinary short-term employee benefits. The amounts disclosed in the table above are the amounts recognized as an expense in general and administrative expenses during the reporting period related to key management personnel.
The executive officers participate in share-based compensation plans described in Note 14 (b).
F-19 |
Afya Limited Notes to the unaudited interim condensed consolidated financial statements March 31, 2021 and 2020 Expressed in thousands of Brazilian reais, unless otherwise stated
|
8. | Investment in associate |
Afya Brazil has a 30% interest in UEPC, a medical school located in the Federal District, that offers higher education and post-graduate courses, both in person and long-distance learning. The investment in UEPC is accounted for using the equity method. The following table illustrates the summarized financial information of UEPC and the Company’s investment:
March 31, 2021 | December 31, 2020 | ||
(unaudited) | |||
Current assets | 35,882 | 55,413 | |
Non-current assets | 83,535 | 82,575 | |
Current liabilities | (25,643) | (34,531) | |
Non-current liabilities | (74,788) | (76,132) | |
Equity | 18,986 | 27,325 | |
Company’s share in equity – 30% | 5,696 | 8,227 | |
Goodwill | 43,183 | 43,183 | |
Carrying amount of the investment | 48,879 | 51,410 |
March 31, 2021 | March 31, 2020 | ||
(unaudited) | (unaudited) | ||
Net revenue | 30,544 | 29,628 | |
Cost of services | (10,813) | (10,612) | |
General and administrative expenses | (7,782) | (9,983) | |
Finance result | (1,049) | (1,202) | |
Income before income taxes | 10,900 | 7,831 | |
Income taxes expenses | (103) | (159) | |
Net income for the period | 10,797 | 7,672 | |
Company’s share of income for the period | 3,239 | 2,302 |
March 31, 2021 | March 31, 2020 | ||
(unaudited) | (unaudited) | ||
Opening balance | 51,410 | 45,634 | |
Dividends | (5,770) | - | |
Share of income | 3,239 | 2,302 | |
Total | 48,879 | 47,936 |
F-20 |
Afya Limited Notes to the unaudited interim condensed consolidated financial statements March 31, 2021 and 2020 Expressed in thousands of Brazilian reais, unless otherwise stated
|
9. | Property and equipment |
Cost | Building | Machinery and equipment | Land | Vehicles | Furniture and fixtures | IT equipment | Library books | Leasehold improvements | Construction in progress | Total |
As of December 31, 2019 | - | 45,378 | 7,005 | 707 | 21,438 | 15,994 | 18,139 | 30,911 | 36,731 | 176,303 |
Additions | - | 1,988 | 673 | - | 447 | 1,405 | 503 | 2,568 | 10,092 | 17,676 |
Business combinations | - | 438 | - | 148 | 566 | 316 | 231 | 2,508 | - | 4,207 |
As of March 31, 2020 (unaudited) | - | 47,804 | 7,678 | 855 | 22,451 | 17,715 | 18,873 | 35,987 | 46,823 | 198,186 |
As of December 31, 2020 | 25,919 | 68,503 | 13,401 | 1,215 | 29,131 | 28,511 | 21,624 | 122,005 | 3,706 | 314,015 |
Additions | - | 2,127 | - | - | 1,722 | 2,636 | 332 | 3,576 | 12,663 | 23,056 |
Business combinations | - | 214 | - | - | 20 | 453 | - | - | - | 687 |
Write-off | - | - | - | (178) | - | - | - | - | - | (178) |
As of March 31, 2021 (unaudited) | 25,919 | 70,844 | 13,401 | 1,037 | 30,873 | 31,600 | 21,956 | 125,581 | 16,369 | 337,580 |
Depreciation | ||||||||||
As of December 31, 2019 | - | (14,179) | - | (59) | (5,890) | (6,537) | (8,663) | (1,655) | - | (36,983) |
Depreciation | - | (1,323) | - | (19) | (550) | (936) | (494) | (584) | - | (3,906) |
As of March 31, 2020 (unaudited) | - | (15,502) | - | (78) | (6,440) | (7,473) | (9,157) | (2,239) | - | (40,889) |
As of December 31, 2020 | - | (19,322) | - | (171) | (8,089) | (10,851) | (10,817) | (4,384) | - | (53,634) |
Depreciation | - | (1,657) | - | (14) | (775) | (1,429) | (671) | (1,553) | - | (6,099) |
Write-off | - | - | - | 152 | - | - | - | - | - | 152 |
As of March 31, 2021 (unaudited) | - | (20,979) | - | (33) | (8,864) | (12,280) | (11,488) | (5,937) | - | (59,581) |
Net book value | ||||||||||
As of December 31, 2020 | 25,919 | 49,181 | 13,401 | 1,044 | 21,042 | 17,660 | 10,807 | 117,621 | 3,706 | 260,381 |
As of March 31, 2021 (unaudited) | 25,919 | 49,865 | 13,401 | 1,004 | 22,009 | 19,320 | 10,468 | 119,644 | 16,369 | 277,999 |
The Company assesses, at each reporting date, whether there is an indication that a property and equipment asset may be impaired. If any indication exists, the Company estimates the asset’s recoverable amount. There were no indications of impairment of property and equipment as of and for the three-month periods ended March 31, 2021 and 2020.
F-21 |
Afya Limited Notes to the unaudited interim condensed consolidated financial statements March 31, 2021 and 2020 Expressed in thousands of Brazilian reais, unless otherwise stated
|
10. | Intangible assets and goodwill |
Goodwill | Licenses with indefinite useful life | Trademarks | Customer relationships | Software | Education content | Developed technology | Educational platform and software in progress | Total | |
Cost | |||||||||
As of December 31, 2019 | 459,409 | 703,772 | 32,111 | 125,413 | 9,389 | 17,305 | - | 14,241 | 1,361,640 |
Additions | - | - | - | - | 288 | - | - | 2,884 | 3,172 |
Business combinations | 90,282 | 112,832 | - | 21,449 | - | - | - | - | 224,563 |
As of March 31, 2020 (unaudited) | 549,691 | 816,604 | 32,111 | 146,862 | 9,677 | 17,305 | - | 17,125 | 1,589,375 |
As of December 31, 2020 | 810,656 | 1,451,270 | 75,014 | 283,539 | 16,221 | 17,305 | 355 | 30,199 | 2,684,559 |
Additions | - | - | - | - | 1,469 | - | - | 8,397 | 9,866 |
Business combinations | 101,068 | - | 45,944 | 28,251 | 1,346 | - | 15,512 | - | 192,121 |
As of March 31, 2021 (unaudited) | 911,724 | 1,451,270 | 120,958 | 311,790 | 19,036 | 17,305 | 15,867 | 38,596 | 2,886,546 |
Amortization | |||||||||
As of December 31, 2019 | - | - | (1,150) | (37,872) | (4,536) | (4,876) | - | (868) | (49,302) |
Amortization | - | - | (405) | (11,496) | (665) | (2,111) | - | (411) | (15,088) |
As of March 31, 2020 (unaudited) | - | - | (1,555) | (49,368) | (5,201) | (6,987) | - | (1,279) | (64,390) |
As of December 31, 2020 | - | - | (3,502) | (85,832) | (6,256) | (7,692) | (32) | (8,235) | (111,549) |
Amortization | - | - | (1,846) | (12,471) | (705) | (1,651) | (15) | (64) | (16,752) |
As of March 31, 2021 (unaudited) | - | - | (5,348) | (98,303) | (6,961) | (9,343) | (47) | (8,299) | (128,301) |
Net book value | |||||||||
As of December 31, 2020 | 810,656 | 1,451,270 | 71,512 | 197,707 | 9,965 | 9,613 | 323 | 21,964 | 2,573,010 |
As of March 31, 2021 (unaudited) | 911,724 | 1,451,270 | 115,610 | 213,487 | 12,075 | 7,962 | 15,820 | 30,297 | 2,758,245 |
Impairment testing of goodwill and intangible assets with indefinite lives
The Company performed its annual impairment test in December and when circumstances indicated that the carrying value may be impaired. The Company’s impairment test for goodwill and intangible assets with indefinite lives is based on value-in-use calculations. The key assumptions used to determine the recoverable amount for the different cash generating units were disclosed in the annual consolidated financial statements for the year ended December 31, 2020.
There were no indications of impairment of goodwill and intangible assets with indefinite lives for the three-month periods ended March 31, 2021 and 2020.
Other intangible assets
For the three-month periods ended March 31, 2021 and 2020, there were no indications that the Company’s intangible assets with finite useful lives might be impaired.
F-22 |
Afya Limited Notes to the unaudited interim condensed consolidated financial statements March 31, 2021 and 2020 Expressed in thousands of Brazilian reais, unless otherwise stated
|
11. | Financial assets and financial liabilities |
11.1 | Financial assets |
Financial assets | March 31, 2021 | December 31, 2020 | ||
(unaudited) | ||||
At amortized cost | ||||
Cash and cash equivalents | 959,496 | 1,045,042 | ||
Financial investments | 6,050 | - | ||
Restricted cash | 2,053 | 2,053 | ||
Trade receivables | 333,356 | 309,944 | ||
Total | 1,300,955 | 1,357,039 | ||
Current | 1,288,028 | 1,347,359 | ||
Non-current | 12,927 | 9,680 | ||
Debt instruments at amortized cost include trade receivables and receivables from related parties. Financial assets at amortized cost also include cash and cash equivalents, financial investments and restricted cash.
11.2 | Financial liabilities |
Financial liabilities | March 31, 2021 | December 31, 2020 | ||
(unaudited) | ||||
At amortized cost | ||||
Trade payables | 43,463 | 35,743 | ||
Loans and financing | 620,928 | 617,485 | ||
Lease liabilities | 466,204 | 447,703 | ||
Accounts payable to selling shareholders | 499,309 | 518,240 | ||
Notes payable | 75,329 | 76,181 | ||
Advances from customers | 77,851 | 63,839 | ||
Total | 1,783,084 | 1,759,191 | ||
Current | 507,500 | 467,643 | ||
Non-current | 1,275,584 | 1,291,548 | ||
F-23 |
Afya Limited Notes to the unaudited interim condensed consolidated financial statements March 31, 2021 and 2020 Expressed in thousands of Brazilian reais, unless otherwise stated
|
11.2.1 | Loans and financing |
Financial institution | Currency | Interest rate | Maturity | March 31, 2021 | December 31, 2020 |
(unaudited) | |||||
Itaú Unibanco S.A. (a) | Brazilian real | CDI + 1.62% p.y. | 2023 | 508,841 | 504,365 |
Banco Votorantim (b) | Brazilian real | CDI + 1.65% p.y. | 2021 | 100,868 | 101,785 |
BNDES (c) | Brazilian real | 10.03% p.y. | 2024 | 355 | 471 |
FINEP (d) | Brazilian real | TJLP p.y. | 2027 | 10,864 | 10,864 |
620,928 | 617,485 | ||||
Current | 115,089 | 107,162 | |||
Non-current | 505,839 | 510,323 |
(a) | On October 1, 2020, Afya Brazil entered into a loan with Banco Itaú Unibanco S.A. in the amount of R$ 500,000 adjusted by the CDI rate plus an interest rate of 1.62% per year and is repayable in three installments in October 2022, April 2023 and October 2023. |
(b) | On July 3, 2020, Afya Brazil entered into a loan agreement with Banco Votorantim S.A. in the amount of R$ 100,000 adjusted by the CDI rate plus an interest rate of 1.65% per year and is repayable at maturity on July 5, 2021. |
(c) | On May 5, 2020, as a result of the acquisition of UniSL, the Company assumed loans agreements with BNDES which has an interest rate of 10.03% per year and maturity in 2024. |
(d) | On July 23, 2019, Medcel entered into a loan of R$ 16,153 with Financiadora de Estudos e Projetos (“FINEP”), a governmental agency focused on financing investments on R&D, which has an interest rate based on TJLP (Long term interest rate), and maturity in 2027. The first and second tranches of R$6,734 and R$4,130, respectively, were drawdown in October 2019 and December 2020, respectively, in order to develop the Medical web series and other digital content. There is no financial covenant related to this agreement. The loan is guaranteed by bank warranty in the amount of R$ 10,864. |
11.2.2 | Leases |
The Company adopted IFRS 16 using the modified retrospective method of adoption with the date of initial application of January 1, 2019. The Company has lease contracts for properties. The lease contracts generally has maturities in the lease terms between 5 and 30 years. There are no sublease and variable payments in-substance lease agreements in the period.
F-24 |
Afya Limited Notes to the unaudited interim condensed consolidated financial statements March 31, 2021 and 2020 Expressed in thousands of Brazilian reais, unless otherwise stated
|
The carrying amounts of right-of-use assets and lease liabilities as of March 31, 2021 and December 31, 2021 and the movements during the three-month periods ended March 31, 2021 and 2020, are described below:
Right-of-use assets | Lease liabilities | ||
As at December 31, 2019 | 274,275 | 284,515 | |
Additions | 43,147 | 43,147 | |
Remeasurement | 12,487 | 12,487 | |
Business combinations | 10,265 | 10,265 | |
Depreciation expense | (5,953) | - | |
Interest expense | - | 9,900 | |
Payments of lease liabilities | - | (11,735) | |
As at March 31, 2020 (unaudited) | 334,221 | 348,579 | |
As at December 31, 2020 | 419,074 | 447,703 | |
Additions | 77 | 77 | |
Remeasurement | 26,931 | 26,931 | |
Business combination | 88 | 88 | |
Depreciation expense | (8,800) | - | |
Interest expense | - | 13,120 | |
Payments of lease liabilities | - | (17,509) | |
Write-off | (4,206) | (4,206) | |
As at March 31, 2021 (unaudited) | 433,164 | 466,204 | |
As at December 31, 2020 | |||
Current | - | 61,976 | |
Non-current | 419,074 | 385,727 | |
As at March 31, 2021 (unaudited) | |||
Current | - | 65,999 | |
Non-current | 433,164 | 400,205 |
The Company recognized lease expense from short-term leases and low-value assets of R$ 853 for the three-month period ended March 31, 2021 (R$ 493 for the three-month period ended March 31, 2020).
F-25 |
Afya Limited Notes to the unaudited interim condensed consolidated financial statements March 31, 2021 and 2020 Expressed in thousands of Brazilian reais, unless otherwise stated
|
11.2.3 | Accounts payable to selling shareholders |
March 31, 2021 | December 31, 2020 | ||
(unaudited) | |||
Acquisition of IESP (a) | 38,955 | 38,771 | |
Acquisition of FASA (b) | 73,359 | 70,356 | |
Acquisition of IPEMED (c) | 29,107 | 38,622 | |
Acquisition of IPEC (d) | 28,443 | 28,307 | |
Acquisition of UniRedentor (e) | 82,301 | 97,773 | |
Acquisition of UniSãoLucas (f) | 53,644 | 53,386 | |
Acquisition of FCMPB (g) | 190,349 | 189,420 | |
Acquisition of Medicinae (h) | 3,151 | - | |
Acquisition of FESAR (i) | - | 1,569 | |
Acquisition of MEDPHONE (j) | - | 36 | |
499,309 | 518,240 | ||
Current | 193,692 | 188,420 | |
Non-current | 305,617 | 329,820 |
March 31, 2021 | March 31, 2020 | ||
(unaudited) | (unaudited) | ||
Opening balance | 518,240 | 300,237 | |
Payments | (27,135) | (9,458) | |
Interest | 5,053 | 5,161 | |
Business combination | 3,151 | 100,000 | |
Closing balance | 499,309 | 395,940 |
(a) | On November 27, 2018, Afya Brazil acquired 80% of IESP and the amounts of (i) R$8,906 was paid in February 2019, and (ii) R$106,200 is payable in three equal installments of R$35,400, each adjusted by the CDI rate through the payment date. The first and second installments were paid in November 2019 and 2020, respectively, and the remaining installment is due by November 2021. |
(b) | On April 3, 2019, Afya Brazil acquired 90% of FASA and R$ 39,695 was paid in April 2020, R$ 29,770 was paid in April 2021, and R$ 29,770 is payable in April 2022; each adjusted by the IPCA rate + 4.1% per year. |
(c) | On May 9, 2019, Afya Brazil acquired 100% of IPEMED and R$ 45,303 is payable in five equal installments of R$ 9,061, adjusted by the CDI rate, and due annually in February 2020, 2021, 2022, 2023 and 2024. |
(d) | On August 13, 2019, Afya Brazil acquired 100% of IPEC and R$54,000 was paid in cash on the transaction closing date, and (ii) R$54,000 is payable in two equal installments, adjusted by the CDI rate, and due annually at the end of the first and the second year from the transaction closing date. |
(e) | On January 31, 2020, Afya Brazil acquired 100% of UniRedentor and R$ 114,607 was paid in cash on the transaction closing date, and the original amount of R$100,000 is payable in five equal installments from January 2021 through July 2024, adjusted by the CDI rate. The purchase consideration was adjusted by R$4,503 and such amount was deducted from the first installment paid in February 2021. |
(f) | On May 5, 2020, Afya Brazil acquired 100% of UniSL. The purchase consideration is R$201,521, of which: R$ 141,065 was paid in cash on the transaction closing date, and R$ 60,456 is payable in three equal installments through May 2023, adjusted by the CDI rate. The purchase consideration was adjusted by R$7,816 and such amount was deducted from the first installment paid on May 5, 2021. |
F-26 |
Afya Limited Notes to the unaudited interim condensed consolidated financial statements March 31, 2021 and 2020 Expressed in thousands of Brazilian reais, unless otherwise stated
|
(g) | On November 9, 2020, Afya Brazil acquired 100% of FCMPB. The net purchase price of R$379,913 was adjusted to R$378,807, of which: R$ 189,913 was paid in cash on the transaction closing date, and R$ 188,894 is payable in four installments through November 2024, adjusted by the CDI rate. |
(h) | On March 25, 2021, Afya Brazil acquired 100% of Medicinae. The aggregate purchase price is R$ 5,600 of which 100% was paid in cash on the transaction closing date. An earn-out of up of R$ 4,400 is payable in connection with product development goals for 2021 and revenue achievements for 2022. The contingent consideration of R$3,151 is based on the present value of the obligation considering the facts and circumstances that exist at the acquisition date. |
(i) | On November 3, 2020, Afya Brazil acquired 100% of FESAR. The aggregate purchase price was R$260,836, including the CDI rate adjustment from the singing and the real state of the operation, estimated at R$ 17,397, of which 100% was paid in cash on the closing of the operation. The purchase consideration was adjusted by R$1,569 and was paid on February 25, 2021. |
(j) | On November 4, 2020, Afya Brazil acquired 100% of MedPhone. The net purchase price was R$6,373 of which 100% was paid in cash on the closing of the operation. The purchase consideration was adjusted by R$36 and was paid on February 2, 2021. |
F-27 |
Afya Limited Notes to the unaudited interim condensed consolidated financial statements March 31, 2021 and 2020 Expressed in thousands of Brazilian reais, unless otherwise stated
|
11.2.4 | Notes payable |
With the acquisition of UniSL, Afya Brazil assumed notes payable regarding the previous acquisition of a portion of the operations of Universidade Luterana do Brasil (ULBRA) by UniSL in auction by the end of 2018. Two of the UniSL campuses, located in the cities of Ji-Paraná and Porto Velho in the State of Rondônia, were acquired in such transaction. As at March 31, 2021, notes payable of R$ 75,329, has a final maturity in 2023 and is adjusted by 100% of IPCA-E.
Set out below are the carrying amount of notes payable and the movements during the period:
Notes payable | ||
As at December 31, 2020 | 76,181 | |
Payments | (2,628) | |
Monetary indexation | 1,776 | |
As at March 31, 2021 | 75,329 | |
Current liabilities | 11,406 | |
Non-current liabilities | 63,923 |
11.3 | Fair values |
The table below is a comparison of the carrying amounts and fair values of the Company’s financial instruments, other than those carrying amounts that are reasonable approximation of fair values:
March 31, 2021 | December 31, 2020 | |||||||
(unaudited) | ||||||||
Carrying amount | Fair value | Carrying amount | Fair value | |||||
Financial assets | ||||||||
Restricted cash | 2,053 | 2,053 | 2,053 | 2,053 | ||||
Trade receivables (non-current) | 10,874 | 10,874 | 7,627 | 7,627 | ||||
Total | 12,927 | 12,927 | 9,680 | 9,680 | ||||
Financial liabilities | ||||||||
Loans and financing | 620,928 | 638,557 | 617,485 | 637,723 | ||||
Lease liabilities | 466,204 | 466,204 | 447,703 | 447,703 | ||||
Accounts payable to selling shareholders | 499,309 | 499,309 | 518,240 | 518,240 | ||||
Notes payable | 75,329 | 75,329 | 76,181 | 76,181 | ||||
Total | 1,661,770 | 1,679,399 | 1,659,609 | 1,679,847 | ||||
The Company assessed that the fair values of cash and cash equivalents, financial investments, current trade receivables and other current assets, trade payables, advances from customers and other current liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments.
The fair value of interest-bearing borrowings and loans are determined by using the DCF method using discount rate that reflects the issuer’s borrowing rate as at the end of the reporting period. The own non-performance risk at March 31, 2021 was assessed to be insignificant.
F-28 |
Afya Limited Notes to the unaudited interim condensed consolidated financial statements March 31, 2021 and 2020 Expressed in thousands of Brazilian reais, unless otherwise stated
|
11.4 | Financial instruments risk management objectives and policies |
The Company’s principal financial liabilities, other than derivatives, comprise loans and financing, lease liabilities, accounts payable to selling shareholders, notes payable, trade payables and advances from customers. The main purpose of these financial liabilities is to finance the Company’s operations. The Company’s principal financial assets include trade receivables, cash and cash equivalents, financial investments and restricted cash, that derive directly from its operations.
The Company is exposed to market risk, credit risk and liquidity risk. The Company monitors market, credit and operational risks in line with the objectives in capital management and counts with the support, monitoring and oversight of the Board of Directors in decisions related to capital management and its alignment with the objectives and risks. The Company’s policy is that no trading of derivatives for speculative purposes may be undertaken. The Board of Directors reviews and agrees policies for managing each of these risks, which are summarized below.
11.4.1 | Market risk |
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. The Company’s exposure to market risk is related to interest rate risk and foreign currency risk.
The sensitivity analysis in the following sections relate to the position as at March 31, 2021.
(i) | Interest rate risk |
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company’s exposure to the risk of changes in market interest rates relates primarily to the Company’s cash equivalents, financial investments, restricted cash, loans and financing, accounts payable to selling shareholders and notes payable with floating interest rates.
F-29 |
Afya Limited Notes to the unaudited interim condensed consolidated financial statements March 31, 2021 and 2020 Expressed in thousands of Brazilian reais, unless otherwise stated
|
Sensitivity analysis
The following table demonstrates the sensitivity to a reasonably possible change in interest rates on cash equivalents, financial investments, restricted cash, loans and financing, accounts payable to selling shareholders and notes payable. With all variables held constant, the Company’s income before income taxes is affected through the impact on floating interest rate, as follows:
Increase / decrease in basis points | |||||||
March 31, 2021 | |||||||
Index – % per year | Base rate | +75 | -75 | +150 | -150 | ||
Cash equivalents | 921,951 | 98.65% of CDI | 30,923 | 6,915 | (6,915) | 13,829 | (13,829) |
Financial investments | 6,050 | 85.06% of CDI | 175 | 45 | (45) | 91 | (91) |
Restricted cash | 2,053 | 85.06% of CDI | 59 | 15 | (15) | 31 | (31) |
Loans and financing | (10,864) | TJLP p.y. | (494) | (81) | 81 | (163) | 163 |
Loans and financing | (100,868) | 1.65%+ CDI | (5,094) | (757) | 757 | (1,513) | 1,513 |
Loans and financing | (508,841) | 1.62%+ CDI | (25,544) | (3,816) | 3,816 | (7,633) | 7,633 |
Accounts payable to selling shareholders | (422,799) | CDI | (14,375) | (3,171) | 3,171 | (6,342) | 6,342 |
Accounts payable to selling shareholders | (73,359) | IPCA+4.1% | (3,018) | (550) | 550 | (1,100) | 1,100 |
Notes payable | (75,329) | IPCA-E | (1,017) | (565) | 565 | (1,130) | 1,130 |
F-30 |
Afya Limited Notes to the unaudited interim condensed consolidated financial statements March 31, 2021 and 2020 Expressed in thousands of Brazilian reais, unless otherwise stated
|
(ii) | Foreign currency risk |
Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign exchange rates. The Company’s exposure to the risk of changes in foreign exchange rates relates to cash and cash equivalents denominated in U.S. dollars in the amount of R$2,404 as of March 31, 2021 (December 31, 2020: R$70,523).
Foreign currency sensitivity
The following table demonstrates the sensitivity in the Company’s income before income taxes of a 10% change in the U.S. dollar exchange rate (R$5.6967 to U.S. dollar 1.00) as of March 31, 2021, with all other variables held constant.
Exposure | +10% | -10% | |||
As of March 31, 2021 | |||||
Cash and cash equivalents | 2,404 | 240 | (240) |
11.4.2 | Credit risk |
Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Company is exposed to credit risk from its operating activities (primarily trade receivables) and from its financing activities, including cash and cash equivalents and restricted cash.
Customer credit risk is managed by the Company based on the established policy, procedures and control relating to customer credit risk management. Outstanding customer receivables are regularly monitored. See Note 6 for additional information on the Company’s trade receivables.
Credit risk from balances with banks and financial institutions is management by the Company’s treasury department in accordance with the Company’s policy. Investments
of surplus funds are made only with approved counterparties and within limits assigned to each counterparty.
The Company’s maximum exposure to credit risk for the components of the statements of financial position at March 31, 2021 and December 31, 2020 is the carrying amounts of its financial assets.
F-31 |
Afya Limited Notes to the unaudited interim condensed consolidated financial statements March 31, 2021 and 2020 Expressed in thousands of Brazilian reais, unless otherwise stated
|
11.4.3 | Liquidity risk |
The Company’s Management has responsibility for monitor liquidity risk. In order to achieve the Company’s objective, Management regularly reviews the risk and maintains appropriate reserves, including bank credit facilities with first tier financial institutions. Management also continuously monitors projected and actual cash flows and the combination of the maturity profiles of the financial assets and liabilities.
The main requirements for financial resources used by the Company arise from the need to make payments for suppliers, operating expenses, labor and social obligations, loans and financing, lease liabilities, accounts payable to selling shareholders and notes payable.
The tables below summarize the maturity profile of the Company’s financial liabilities based on contractual undiscounted amounts:
As of March 31, 2021 (unaudited) | Less than 1 year | 1 to 3 years | 3 to 5 years | More than 5 years | Total |
Trade payables | 43,463 | - | - | - | 43,463 |
Loans and financing | 127,493 | 584,566 | 3,969 | 2,616 | 718,644 |
Lease liabilities | 70,114 | 136,922 | 131,889 | 715,860 | 1,054,785 |
Accounts payable to selling shareholders | 197,037 | 250,734 | 75,286 | - | 523,057 |
Notes payable | 11,786 | 73,077 | - | - | 84,863 |
Advances from customers | 77,851 | - | - | - | 77,851 |
527,744 | 1,045,299 | 211,144 | 718,476 | 2,502,663 |
As of December 31, 2020 | Less than 1 year | 1 to 3 years | 3 to 5 years | More than 5 years | Total |
Trade payables | 35,743 | - | - | - | 35,743 |
Loans and financing | 125,137 | 566,157 | 4,010 | 3,094 | 698,398 |
Lease liabilities | 63,092 | 131,225 | 124,114 | 705,115 | 1,023,546 |
Accounts payable to selling shareholders | 191,145 | 262,340 | 81,153 | - | 534,638 |
Notes payable | 11,083 | 83,803 | - | - | 94,886 |
Advances from customers | 63,839 | - | - | - | 63,839 |
490,039 | 1,043,525 | 209,277 | 708,209 | 2,451,050 |
F-32 |
Afya Limited Notes to the unaudited interim condensed consolidated financial statements March 31, 2021 and 2020 Expressed in thousands of Brazilian reais, unless otherwise stated
|
11.5 | Changes in liabilities arising from financing activities |
December 31, 2020 | Payments | Addition/ Remeasurement | Interest | Business combination | Other | March 31, 2021 | |
Loans and financing | 617,485 | (2,010) | - | 5,457 | - | (4) | 620,928 |
Lease liabilities | 447,703 | (17,509) | 27,008 | 13,120 | 88 | (4,206) | 466,204 |
Dividends payable | - | (5,258) | 5,258 | - | - | - | - |
Total | 1,065,188 | (24,777) | 32,266 | 18,577 | 88 | (4,210) | 1,087,132 |
December 31, 2019 | Payments | Addition/ Remeasurement | Interest | Foreign exchange movement | Business combination | Other | March 31, 2020 | |
Loans and financing | 60,357 | (1,316) | 911 | 619 | 14,044 | 16,187 | - | 90,802 |
Lease liabilities | 284,515 | (11,735) | 43,147 | 9,900 | - | 10,265 | 12,487 | 348,579 |
Total | 344,872 | (13,051) | 44,058 | 10,519 | 14,044 | 26,452 | 12,487 | 439,381 |
F-33 |
Afya Limited Notes to the unaudited interim condensed consolidated financial statements March 31, 2021 and 2020 Expressed in thousands of Brazilian reais, unless otherwise stated
|
12. | Fair value measurement |
The following table provides the fair value measurement hierarchy of the Company’s assets and liabilities as of March 31, 2021 and December 31, 2020.
Fair value measurement | ||||
Total | Quoted prices in active markets (Level 1) | Significant observable inputs (Level 2) | Significant unobservable inputs (Level 3) | |
March 31, 2021 (unaudited) | ||||
Assets measured at fair value: | ||||
Derivative financial assets | ||||
Cross-currency interest rate swaps | - | - | - | - |
Assets for which fair values are disclosed | ||||
Financial investments | 6,050 | - | 6,050 | - |
Restricted cash | 2,053 | - | 2,053 | - |
Trade receivables (non-current) | 10,874 | - | 10,874 | - |
Liabilities for which fair values are disclosed | ||||
Loans and financing | (638,557) | - | (638,557) | - |
Lease liabilities | (466,204) | - | (466,204) | - |
Accounts payable to selling shareholders | (499,309) | - | (499,309) | - |
Notes payable | (75,329) | - | (75,329) | - |
Fair value measurement | ||||
Total | Quoted prices in active markets (Level 1) | Significant observable inputs (Level 2) | Significant unobservable inputs (Level 3) | |
December 31, 2020 | ||||
Assets for which fair values are disclosed | ||||
Restricted cash | 2,053 | - | 2,053 | - |
Trade receivables (non-current) | 7,627 | - | 7,627 | - |
Liabilities for which fair values are disclosed | - | |||
Loans and financing | (637,723) | - | (637,723) | - |
Lease liabilities | (447,703) | - | (447,703) | - |
Accounts payable to selling shareholders | (518,240) | - | (518,240) | - |
Notes payable | (76,181) | - | (76,181) | - |
There were no transfers between Level 1 and Level 2 during the three-month period ended March 31, 2021.
13 | Capital management |
For the purposes of the Company’s capital management, capital considers total equity. The primary objective of the Company’s capital management is to maximize the shareholder value.
The Company manages its capital structure and makes adjustments in light of changes in economic conditions and to maintain and adjust the capital structure, the Company may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. The Company monitors capital using net debt and total equity. The Company includes within net debt, loans and financing, lease liabilities, accounts payable to selling shareholders and notes payable less cash and cash equivalents, financial investments and restricted cash.
F-34 |
Afya Limited Notes to the unaudited interim condensed consolidated financial statements March 31, 2021 and 2020 Expressed in thousands of Brazilian reais, unless otherwise stated
|
March 31, 2021 | December 31, 2020 | ||
(unaudited) | |||
Loans and financing | 620,928 | 617,485 | |
Lease liabilities | 466,204 | 447,703 | |
Accounts payable to selling shareholders | 499,309 | 518,240 | |
Notes payable | 75,329 | 76,181 | |
Less: cash and cash equivalents | (959,496) | (1,045,042) | |
Less: financial investments | (6,050) | - | |
Less: restricted cash | (2,053) | (2,053) | |
Net debt | 694,171 | 612,514 | |
Total equity | 2,963,610 | 2,833,780 | |
Total equity and net debt | 3,657,781 | 3,446,294 |
No changes were made in the objectives, policies or processes for managing capital during the three-month period ended March 31, 2021.
14 | Labor and social obligations |
a) | Variable compensation (bonuses) |
The Company recorded bonuses related to variable compensation of employees and management in cost of services and general and administrative expenses in the amount of R$ 3,733 and R$ 2,678 in the three-month periods ended March 31, 2021 and 2020, respectively.
b) | Afya Limited share-based compensation plan |
On July 29, 2020, the board of directors approved a change in the strike price of the current share-based compensation plan. The strike price is now measured in Brazilian Reais (where the Company’s operations are located and valuated) adjusted by CDI rate instead of U.S. dollar adjusted by T-Bond. Furthermore, the first tranche had its vesting period extended from May 2020 to May 2021, including one year lock-up period after the vesting period. This change was assessed as a modification by the Company and was accounted in accordance with IFRS 2.
The following table illustrates the number and movements in stock options during the period:
Weighted average exercise price (in Reais) | Number of stock options | ||
2021 | 2020 | ||
Outstanding at January 1 | 78.22 | 2,510,983 | 2,364,214 |
Granted | 113.93 | 610,000 | 230,000 |
Forfeited | - | - | - |
Exercised | - | - | - |
Expired | - | - | - |
Outstanding at March 31 | 85.20 | 3,120,983 | 2,594,214 |
F-35 |
Afya Limited Notes to the unaudited interim condensed consolidated financial statements March 31, 2021 and 2020 Expressed in thousands of Brazilian reais, unless otherwise stated
|
On January 25, 2021 and March 25, 2021, the Company granted 545,000 and 65,000 additional stock options, respectively:
January 2021 | March 2021 | |
Strike price at the measurement date | R$115 | R$105 |
Dividend yield (%) | 0.0% | 0.0% |
Expected volatility (%) | 38% - 67% | 42% - 65% |
Risk-free interest rate (%) | 2.1% - 7.1% | 5.2% - 8.5% |
Expected life of stock options (years) | 1 – 5 | 1 – 5 |
Share price at the measurement date | R$ 129 | 108 |
Model used | Binomial | Binomial |
Weighted average fair value at the measurement date | R$ 46.81 | R$ 40.20 |
The share-based compensation expense recognized in general and administrative expenses in the interim statement of income for the three-month period ended March 31, 2021 was R$ 14,009 (March 31, 2020: R$ 8,440).
15 | Equity |
a. Share capital
As of March 31, 2021, the Company’s share capital was R$ 17 (R$ 17 as of December 31, 2020) represented by 93,697,105 shares comprised by 45,662,790 class A common shares and 48,034,315 class B common shares (93,146,731 shares comprised by 45,112,416 class A common shares and 48,034,315 class B common shares as of December 31, 2020).
b. Dividends
In the three-month period ended March 31, 2021, CCSI approved the payment of interim dividends totaling R$ 4,275 distributed to CCSI´s non-controlling shareholders. The dividends were already paid. On March 11, 2020, CCSI approved the payment of interim dividends totaling R$ 4,000 of which R$ 2,400 was distributed to Afya Brazil and R$1,600 to CCSI’s non-controlling shareholders. The dividends were paid in March 2020.
c. Share buy-back program
On December 23, 2020, the Company announced that its Board of Directors has approved a share buy-back program. Under the share buyback program, Afya may repurchase up to 1,015,844 of its outstanding Class A common shares in the open market, based on prevailing market prices, or in privately negotiated transactions, over a period beginning on December 24, 2020 continuing until the earlier of the completion of the repurchase or December 31, 2021, depending upon market conditions.
The share buy-back program will take place in accordance with the conditions established by the Board of Directors. Afya intends to repurchase the shares to execute the Stock Option Program for the executives of the Company. Afya’s Board of Directors will review the share buy-back program periodically and may authorize adjustments to its terms and size or suspend or discontinue the program. Afya expects to utilize its existing funds to fund the repurchase of its shares.
In the three-month period ended March 31, 2021, the Company repurchased 521,117 shares at the weighted average price of R$ 124.15 (in Brazilian Reais) or US$ 22.51, amounting to R$ 64,752.
F-36 |
Afya Limited Notes to the unaudited interim condensed consolidated financial statements March 31, 2021 and 2020 Expressed in thousands of Brazilian reais, unless otherwise stated
|
16 | Earnings per share (EPS) |
Basic EPS is calculated by dividing net income attributable to the equity holders of the Company by the weighted average number of common shares outstanding during the period.
Diluted EPS is calculated by dividing net income attributable to the equity holders of the parent by the weighted average number of common shares outstanding during the period plus the weighted average number of shares that would be issued on conversion of all potential shares with dilutive effects.
Diluted earnings per share are computed including stock options granted to key management using the treasury shares method when the effect is dilutive. The Company has the stock option plan in the category of potentially dilutive shares.
The following table reflects the net income and share data used in the basic and diluted EPS calculations:
March 31, 2021 | March 31, 2020 | ||
(unaudited) | (unaudited) | ||
Numerator | |||
Net income attributable to equity holders of the parent | 108,090 | 99,816 | |
Denominator | |||
Weighted average number of outstanding shares | 93,344,455 | 91,425,902 | |
Effects of dilution from stock options | 883,263 | 492,450 | |
Weighted average number of outstanding shares adjusted for the effect of dilution | 94,227,718 | 91,918,352 | |
Basic earnings per share - R$ | 1.16 | 1.09 | |
Diluted earnings per share - R$ | 1.15 | 1.09 |
F-37 |
Afya Limited Notes to the unaudited interim condensed consolidated financial statements March 31, 2021 and 2020 Expressed in thousands of Brazilian reais, unless otherwise stated
|
17 | Revenue |
March 31, 2021 | March 31, 2020 | ||
(unaudited) | (unaudited) | ||
Tuition fees | 444,129 | 288,782 | |
Other | 57,086 | 34,684 | |
Deductions | |||
Granted discounts | (35,136) | (12,783) | |
Early payment discounts | (11,965) | (4,220) | |
Returns | (5,719) | (3,914) | |
Taxes | (17,483) | (10,671) | |
PROUNI | (36,561) | (19,574) | |
Net revenue from contracts with customers | 394,351 | 272,304 | |
Timing of revenue recognition of net revenue from contracts with customers | |||
Transferred over time | 353,981 | 239,742 | |
Transferred at a point in time | 40,370 | 32,562 |
The Company`s revenue from contracts with customers are all in Brazil. The Company is not subject to the payment of the social integration program tax (Programa de Integração Social, or PIS) and the social contribution on revenues tax (Contribuição para o Financiamento da Seguridade Social, or COFINS) on the sale of under graduation degrees under the PROUNI program.
The following table presents the net revenue by operating segments for the three-month periods ended March 31, 2021 and 2020:
Segments March 31, 2021 | Undergrad | Continuing Education | Digital Services | Elimination (inter-segment transactions) | Total | |||||
Types of services or goods, net of taxes | 321,852 | 19,288 | 53,538 | (327) | 394,351 | |||||
Tuition fees | 319,619 | 19,285 | 1,056 | - | 339,960 | |||||
Other | 2,233 | 3 | 52,482 | (327) | 54,391 | |||||
Timing of revenue recognition | 321,852 | 19,288 | 53,538 | (327) | 394,351 | |||||
Transferred over time | 319,619 | 19,288 | 15,073 | - | 353,980 | |||||
Transferred at a point in time | 2,233 | - | 38,465 | (327) | 40,371 |
Segments March 31, 2020 | Undergrad | Continuing Education | Digital Services | Elimination (inter-segment transactions) | Total | |||||
Types of services or goods, net of taxes | 211,784 | 27,567 | 33,930 | (977) | 272,304 | |||||
Tuition fees | 210,729 | 26,121 | 1,446 | - | 238,296 | |||||
Other | 1,055 | 1,446 | 32,484 | (977) | 34,008 | |||||
Timing of revenue recognition | 211,784 | 27,567 | 33,930 | (977) | 272,304 | |||||
Transferred over time | 210,729 | 27,567 | 1,446 | - | 239,742 | |||||
Transferred at a point in time | 1,055 | - | 32,484 | (977) | 32,562 |
F-38 |
Afya Limited Notes to the unaudited interim condensed consolidated financial statements March 31, 2021 and 2020 Expressed in thousands of Brazilian reais, unless otherwise stated
|
18 | Expenses and cost by nature |
March 31, 2021 | March 31, 2020 | ||
(unaudited) | (unaudited) | ||
Cost of services | (126,492) | (89,251) | |
General and administrative expenses | (130,404) | (86,723) | |
Total | (256,896) | (175,974) | |
Payroll | (130,448) | (92,645) | |
Depreciation and amortization | (31,651) | (24,947) | |
Allowance for doubtful accounts | (11,065) | (6,332) | |
Hospital and medical agreements | (9,140) | (8,703) | |
Share-based compensation | (14,009) | (8,440) | |
Maintenance | (8,715) | (3,249) | |
Sales and marketing | (8,063) | (3,353) | |
Pedagogical services | (7,615) | (1,987) | |
Rent | (853) | (493) | |
Utilities | (1,802) | (1,415) | |
Tax expenses | (2,853) | (830) | |
Travel expenses | (923) | (1,913) | |
Consulting fees | (6,901) | (4,657) | |
Other | (22,858) | (17,010) | |
Total | (256,896) | (175,974) |
19 | Finance result |
March 31, 2021 | March 31, 2020 | ||
(unaudited) | (unaudited) | ||
Income from financial investments | 3,768 | 10,211 | |
Change in fair value of derivative instruments | - | 14,055 | |
Interest received | 5,037 | 3,517 | |
Foreign exchange gain, net | 3,988 | 1,201 | |
Others | 1,022 | 1,029 | |
Finance income | 13,815 | 30,013 | |
Interest expense | (12,285) | (5,781) | |
Interest expense on lease liabilities | (13,120) | (9,900) | |
Financial discounts granted | (3,585) | (806) | |
Bank fees | (1,912) | (976) | |
IOF taxes (taxes on financial transactions) | (95) | (1,295) | |
Other | (2,675) | (101) | |
Finance expenses | (33,672) | (18,859) | |
Finance result | (19,857) | 11,154 |
20 | Income taxes |
Income taxes are comprised of taxation over operations in Brazil, related to Corporate Income Tax ("IRPJ") and Social Contribution on Net Profit ("CSLL"). According to Brazilian tax legislation, income taxes and social contribution are assessed and paid by legal entity and not on a consolidated basis.
F-39 |
Afya Limited Notes to the unaudited interim condensed consolidated financial statements March 31, 2021 and 2020 Expressed in thousands of Brazilian reais, unless otherwise stated
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Reconciliation of income taxes expense
The following is a reconciliation of income tax expense to profit (loss), calculated by applying the combined Brazilian statutory rates at 34% for the three-months periods ended March 31, 2021 and 2020:
March 31, 2021 | March 31, 2020 | |||
(unaudited) | (unaudited) | |||
Income before income taxes | 122,022 | 109,727 | ||
Combined statutory income taxes rate - % | 34% | 34% | ||
Income taxes at statutory rates | (41,487) | (37,307) | ||
Reconciliation adjustments: | ||||
Tax effect on income from entities not subject to taxation | (4,699) | 1,793 | ||
PROUNI - Fiscal Incentive (a) | 48,160 | 31,803 | ||
Unrecognized deferred tax assets | (13,597) | (7,296) | ||
Presumed profit income tax regime effect (b) | 2,057 | 4,617 | ||
Permanent adjustments | (108) | - | ||
Other | 1,000 | 333 | ||
Income taxes expense – current | (8,674) | (6,057) | ||
Effective rate | 7.1% | 5.6% |
(a) The Company adhered to PROUNI, established by Law 11,096 / 2005, which is a federal program that exempt companies of paying income taxes and social contribution.
(b) Brazilian tax law establishes that companies that generate gross revenues of up to R$ 78,000 in the prior fiscal year may calculate income taxes as a percentage of gross revenue, using the presumed profit income tax regime. The effect of the presumed profit of certain subsidiaries represents the difference between the taxation based on this method and the amount that would be due based on the statutory rate applied to the taxable profit of the subsidiaries.
Deferred income taxes
As of March 31, 2021, the Company had unrecognized deferred income tax assets on temporary differences and tax losses in the amount of R$ 254,957 (tax-basis) (R$ 214,387 (tax-basis) as of December 31, 2020) which does not have any tax planning opportunities available that could support the recognition of these temporary differences as deferred tax assets. Accordingly, the Company did not recognize deferred tax assets.
F-40 |
Afya Limited Notes to the unaudited interim condensed consolidated financial statements March 31, 2021 and 2020 Expressed in thousands of Brazilian reais, unless otherwise stated
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21 | Insurance contracts and contingencies |
a) Insurance contracts
The Company and its subsidiaries have a risk management program with the purpose of delimiting the risks, seeking in the market coverage compatible with its size and operations.
b) Legal proceedings and contingencies
The provisions related to labor and civil proceedings whose likelihood of loss is assessed as probable are as follows:
Labor | Civil | Total | |||
Balances as of December 31, 2019 | 2,501 | 2,768 | 5,269 | ||
Business combination | 144 | 566 | 710 | ||
Additions | 858 | 281 | 1,139 | ||
Reversals | (180) | (143) | (323) | ||
Balances as of March 31, 2020 (unaudited) | 3,323 | 3,472 | 6,795 |
Labor | Civil | Taxes | Total | ||||
Balances as of December 31, 2020 | 4,519 | 13,280 | 35,340 | 53,139 | |||
Business combination | - | - | 1,252 | 1,252 | |||
Additions * | 2,759 | 807 | 2,668 | 6,234 | |||
Balances as of March 31, 2021 (unaudited) | 7,278 | 14,087 | 39,260 | 60,625 |
*The total amount of R$ 4,232 are related to legal proceedings attributed to the selling shareholders administration. The same amount was recorded as indemnification assets in the statement of financial position in other assets.
There are other civil, labor, taxes and social security proceedings assessed by Management and its legal counsels as possible risk of loss, for which no provisions are recognized, as follows:
March 31, 2021 | December 31, 2020 | ||
(unaudited) | |||
Labor | 4,034 | 2,318 | |
Civil | 62,497 | 59,969 | |
Taxes and social security | 4,293 | 4,375 | |
Total | 70,824 | 66,662 |
The Company has judicial deposits recorded in other assets (non-current) in the amount of R$ 3,747 as of March 31, 2021 (December 31, 2020: R$ 1,451).
Under the terms of the Share Purchase and Sale Agreements ("Agreements") between the Company and the selling shareholders of the subsidiaries acquired, the Company assesses that the selling shareholders are exclusively responsible for any provisions (including labor, tax and civil), which are or will be the subject of a claim by any third party, arising from the act or fact occurred, by action or omission, prior to or on the closing dates of the acquisitions.
F-41 |
Afya Limited Notes to the unaudited interim condensed consolidated financial statements March 31, 2021 and 2020 Expressed in thousands of Brazilian reais, unless otherwise stated
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Accordingly, and considering that the provisions for legal proceedings recorded by the Company that result from causes arising from events occurring prior to the closing dates of the acquisitions, any liability for the amounts to be disbursed, in case of their effective materialization in loss, belongs exclusively to the selling shareholders. In this context, the Agreements state that the Company and its subsidiaries are indemnified and therefore exempt from any liability related to said contingent liabilities and, therefore, the provision amounts related to such contingencies are presented in the non-current liabilities and the correspondent amount of R$ 58,697 (December 31, 2020: R$ 53,499) is presented in non-current other assets.
22 | Non-cash transactions |
During the three-month periods ended March 31, 2021 and 2020, the Company carried out non-cash transactions which are not reflected in the statement of cash flows. The main non-cash transactions were the issuance of shares for the acquisition of iClinic and addition of provision for legal proceedings with corresponding indemnification assets in 2021, additions and remeasurements of right-of-use assets and lease liabilities in the three-month periods ended March 31, 2021 and 2020, and addition of provision for contingencies followed by it’s correspondent indemnified assets.
23 | Subsequent events |
a) Acquisition of Medical Harbour
On April 8, 2021, Afya Brazil acquired 100% of the share capital of Medical Harbour Aparelhos Médico Hospitalares e Serviços em Tecnologia Ltda., through its wholly-owned subsidiary Afya Brazil.
Medical Harbour offers educational health and medical imaging solutions through an interactive platform for anatomical study, 3D virtual dissection and analysis of medical images, which allow the exploration, and knowledge of human anatomy with digital resources.
The aggregate purchase price is R$ 5,000 of which 100% was paid in cash on the transaction closing date. An earn-out of up to R$ 9,000 is payable in connection with product development goals for 2021 and 2022 and revenue achievements for 2023.
The acquisition date fair value of each major class of consideration, including the allocation of the purchase price has not been completed by the Company as of the issuance date of these financial statements. The impact on revenue and profit or loss of the combined entity for the current reporting period as if the acquisition date had been as of the beginning of the annual reporting period is not available as the Company did not conclude this acquisition by March 31, 2021. Therefore, these interim financial statements do not include this information. The transaction costs to date amounted to R$ 80. Any goodwill generated in the transaction is not expected to be deductible for tax purposes.
b) Acquisition of Cliquefarma
On April 16, 2021, Afya Brazil acquired 100% of the total share capital of Cliquefarma Drogarias Online Ltda., a healthtech company operating a free-to-use website that tracks prescription drugs, cosmetics and personal hygiene product prices in Brazil.
F-42 |
Afya Limited Notes to the unaudited interim condensed consolidated financial statements March 31, 2021 and 2020 Expressed in thousands of Brazilian reais, unless otherwise stated
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Users of Cliquefarma can easily search for medications or healthcare products and compare prices from over 5,000 pharmacies in Brazil. The traffic generated is monetized through a cost-per-click model, where drugstores pay for each click on their advertisements.
The aggregate purchase price is R$ 19,165 of which R$16,165 was paid in cash on the transaction closing date and R$3,000 was paid in Afya’s stocks. An earn-out of up to R$ 3,000 is payable in connection with product developments for 2021.
The acquisition date fair value of each major class of consideration, including the allocation of the purchase price has not been completed by the Company as of the issuance date of these financial statements. The impact on revenue and profit or loss of the combined entity for the current reporting period as if the acquisition date had been as of the beginning of the annual reporting period is not available as the Company did not conclude this acquisition by March 31, 2021. Therefore, these interim financial statements do not include this information. The transaction costs to date amounted to R$ 24 Any goodwill generated in the transaction is not expected to be deductible for tax purposes.
c) Share-based compensation
In April 2021, 139,000 additional stock options were granted, with an exercise price of R$105 (in Brazilian Reais). These stock options will vest in five annual tranches.
d) Investment from the SoftBank Latin America Fund
On April 26, 2021, SoftBank Latin America Fund (“SoftBank”) agreed to purchase approximately R$822,000, equivalent to US$150,000, of Afya’s Series A perpetual convertible preferred shares, subject to customary closing conditions.
The key terms of the perpetual convertible preferred shares are: (i) 6.5% per annum cumulative dividend payable quarterly and in Brazilian reais (payable in U.S. Dollar in Brazilian reais equivalent); (ii) SoftBank shall have the right at any time, to convert its Series A Preference Shares into 5,917,888 common shares, established at US$25.35; (iii) SoftBank shall have the right to redeem any time after the 5th year anniversary at 105% premium; and (iv) Afya will have the right to force conversion after the 3rd year anniversary if forced conversion trigger conditions are satisfied.
SoftBank and its affiliates will beneficially own approximately 8.4% of the total shares of the company (on an as-converted basis for the Series A perpetual convertible preferred shares).
e) Acquisition of Shosp
On May 13, 2021, Afya Brazil acquired 100% of the total share capital of Shosp Tecnologia da Informação Ltda. (“Shosp”), which provides a clinical management software that offers all functionalities needed for clinics all over Brazil to manage their financials, patients appointments, medical records, marketing, and others.
F-43 |
Afya Limited Notes to the unaudited interim condensed consolidated financial statements March 31, 2021 and 2020 Expressed in thousands of Brazilian reais, unless otherwise stated
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Shosp users will be migrated to iClinic’s platform to create a unique offering of clinical management software and Shosp team will join Afya’s digital capabilities to contribute to the improvement of iClinic’s revenue cycle management module.
The aggregate purchase price is R$ 5,980 of which 100% was paid in cash on the transaction closing date. An earn-out of up to R$ 1,793 is payable in connection with migration of Shosp users and implementation of some new functionalities in the iClinic’s platform up to 24 months, starting from the closing date.
The acquisition date fair value of each major class of consideration, including the allocation of the purchase price has not been completed by the Company as of the issuance date of these financial statements. The impact on revenue and profit or loss of the combined entity for the current reporting period as if the acquisition date had been as of the beginning of the annual reporting period is not available as the Company did not conclude this acquisition by March 31, 2021. Therefore, these interim financial statements do not include this information. The transaction costs to date amounted to R$ 128 Any goodwill generated in the transaction is not expected to be deductible for tax purposes.
f) Acquisition of Unigranrio
On May 27, 2021, Afya Brazil acquired 100% of the total share capital of Companhia Nilza Cordeiro Herdy de Educação e Cultura. (“Unigranrio”). Unigranrio is a post-secondary education institution with governmental authorization to offer on-campus, undergraduate degrees and graduate programs in medicine and health, as well as other courses, in the State of Rio de Janeiro.
The aggregate purchase price is R$ 627,603 of which 60% was paid in cash on the transaction closing date, and 40% is payable in cash in four equal installments through 2022, adjusted by the CDI rate. There are 82 additional seats still pending approval which, if approved by MEC, will result in a potential additional payment of up to R$90,200.
The acquisition date fair value of each major class of consideration, including the allocation of the purchase price has not been completed by the Company as of the issuance date of these financial statements. The impact on revenue and profit or loss of the combined entity for the current reporting period as if the acquisition date had been as of the beginning of the annual reporting period is not available as the Company did not conclude this acquisition by March 31, 2021. Therefore, these interim financial statements do not include this information. The transaction costs to date amounted to R$ 2,878. Any goodwill generated in the transaction is not expected to be deductible for tax purposes.
***
F-44 |