Afya Limited
Unaudited interim condensed
consolidated financial statements
March 31, 2024
Afya Limited
Unaudited interim condensed consolidated statements of financial position
As of March 31, 2024 and December 31, 2023
(In thousands of Brazilian reais)
| | Notes | March 31, 2024 | | December 31, 2023 |
| | | (unaudited) | | |
| Assets | | | | |
| Current assets | | | | |
| Cash and cash equivalents | 4 | 611,077 | | 553,030 |
| Trade receivables | 5 | 536,175 | | 546,438 |
| Inventories | | 653 | | 1,382 |
| Recoverable taxes | | 50,665 | | 43,751 |
| Other assets | 7 | 61,715 | | 58,905 |
| Total current assets | | 1,260,285 | | 1,203,506 |
| | | | | |
| Non-current assets | | | | |
| Trade receivables | 5 | 40,918 | | 39,485 |
| Other assets | 7 | 113,807 | | 117,346 |
| Investment in associate | 8 | 52,106 | | 51,834 |
| Property and equipment | 9 | 610,628 | | 608,685 |
| Right-of-use assets | 11.2.2 | 788,657 | | 767,609 |
| Intangible assets | 10 | 4,824,422 | | 4,796,016 |
| Total non-current assets | | 6,430,538 | | 6,380,975 |
| | | | | |
| Total assets | | 7,690,823 | | 7,584,481 |
| | | | | |
| Liabilities | | | | |
| Current liabilities | | | | |
| Trade payables | | 122,694 | | 108,222 |
| Loans and financing | 11.2.1 | 161,675 | | 179,252 |
| Lease liabilities | 11.2.2 | 40,030 | | 36,898 |
| Accounts payable to selling shareholders | 11.2.3 | 244,865 | | 353,998 |
| Advances from customers | | 156,580 | | 153,485 |
| Labor and social obligations | | 215,822 | | 192,294 |
| Taxes payable | | 28,746 | | 27,765 |
| Income taxes payable | | 9,248 | | 3,880 |
| Other liabilities | | 2,258 | | 2,773 |
| Total current liabilities | | 981,918 | | 1,058,567 |
| | | | | |
| Non-current liabilities | | | | |
| Loans and financing | 11.2.1 | 1,621,419 | | 1,621,523 |
| Lease liabilities | 11.2.2 | 862,512 | | 837,671 |
| Accounts payable to selling shareholders | 11.2.3 | 160,545 | | 212,869 |
| Taxes payable | | 86,959 | | 88,198 |
| Provision for legal proceedings | 20 | 102,510 | | 104,361 |
| Other liabilities | | 17,905 | | 18,280 |
| Total non-current liabilities | | 2,851,850 | | 2,882,902 |
| Total liabilities | | 3,833,768 | | 3,941,469 |
| | | | | |
| Equity | 14 | | | |
| Share capital | | 17 | | 17 |
| Additional paid-in capital | | 2,364,361 | | 2,365,200 |
| Treasury shares | | (297,485) | | (299,150) |
| Share-based compensation reserve | | 163,703 | | 155,073 |
| Retained earnings | | 1,583,758 | | 1,380,365 |
| Equity attributable to equity holders of the parent | | 3,814,354 | | 3,601,505 |
| Non-controlling interests | | 42,701 | | 41,507 |
| Total equity | | 3,857,055 | | 3,643,012 |
| | | | | |
| Total liabilities and equity | | 7,690,823 | | 7,584,481 |
The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.
Afya Limited
Unaudited interim condensed consolidated statements of income and comprehensive income
For the three-month periods ended March 31, 2024 and 2023
(In thousands of Brazilian reais, except for earnings per share information)
| | Notes | March 31, 2024 | March 31, 2023 |
| | | (unaudited) | (unaudited) |
| | | | |
| Revenue | 16 | 804,239 | 709,961 |
| Cost of services | 17 | (269,504) | (247,607) |
| Gross profit | | 534,735 | 462,354 |
| | | | |
| Selling, general and administrative expenses | 17 | (241,164) | (233,220) |
| Other income (expenses), net | | (4,213) | 405 |
| | | | |
| Operating income | | 289,358 | 229,539 |
| | | | |
| Finance income | 18 | 25,530 | 27,688 |
| Finance expenses | 18 | (99,896) | (124,240) |
| Net finance result | | (74,366) | (96,552) |
| | | | |
| Share of income of associate | 8 | 4,172 | 3,845 |
| | | | |
| Income before income taxes | | 219,164 | 136,832 |
| | | | |
| Income taxes expenses | 19 | (10,865) | (19,060) |
| | | | |
| Net income | | 208,299 | 117,772 |
| | | | |
| Other comprehensive income | | - | - |
| Total comprehensive income | | 208,299 | 117,772 |
| | | | |
| Income attributable to: | | | |
| Equity holders of the parent | | 203,393 | 112,124 |
| Non-controlling interests | | 4,906 | 5,648 |
| | | 208,299 | 117,772 |
| Basic earnings per share | | | |
| Per common share | 15 | 2.26 | 1.25 |
Diluted earnings per share Per common share | 15 | 2.22 | 1.24 |
The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.
Afya Limited
Unaudited interim condensed consolidated statements of changes in equity
For the three-month periods ended March 31, 2024 and 2023
(In thousands of Brazilian reais)
| | | Equity attributable to equity holders of the parent | |
| | Notes | Share capital | Additional paid-in capital | Treasury shares | Share-based compensation reserve | Retained earnings | Total | Non-controlling interests | Total equity |
| | | | | | | | | | |
| Balances at January 1, 2023 | | 17 | 2,375,344 | (304,947) | 123,538 | 1,004,886 | 3,198,838 | 51,320 | 3,250,158 |
| Net income | | - | - | - | - | 112,124 | 112,124 | 5,648 | 117,772 |
| Total comprehensive income | | - | - | - | - | 112,124 | 112,124 | 5,648 | 117,772 |
| Share-based compensation | 17 | - | - | - | 6,495 | - | 6,495 | - | 6,495 |
| Dividends declared | 14.b | - | - | - | - | - | - | (6,130) | (6,130) |
| Balances at March 31, 2023 (unaudited) | | 17 | 2,375,344 | (304,947) | 130,033 | 1,117,010 | 3,317,457 | 50,838 | 3,368,295 |
| | | | | | | | | | |
| Balances at January 1, 2024 | | 17 | 2,365,200 | (299,150) | 155,073 | 1,380,365 | 3,601,505 | 41,507 | 3,643,012 |
| Net income | | - | - | - | - | 203,393 | 203,393 | 4,906 | 208,299 |
| Total comprehensive income | | - | - | - | - | 203,393 | 203,393 | 4,906 | 208,299 |
| Share-based compensation | 17 | - | - | - | 8,630 | - | 8,630 | - | 8,630 |
| Treasury shares transferred to executives from exercise of stock options | | - | (839) | 1,665 | - | - | 826 | - | 826 |
| Dividends declared | 14.b | - | - | - | - | - | - | (3,712) | (3,712) |
| Balances at March 31, 2024 (unaudited) | | 17 | 2,364,361 | (297,485) | 163,703 | 1,583,758 | 3,814,354 | 42,701 | 3,857,055 |
The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.
Afya Limited
Unaudited interim condensed consolidated statements of cash flows
For the three-month periods ended March 31, 2024 and 2023
(In thousands of Brazilian reais)
| | Notes | March 31, 2024 | March 31, 2023 |
| | | (unaudited) | (unaudited) |
| Operating activities | | | |
| Income before income taxes | | 219,164 | 136,832 |
| Adjustments to reconcile income before income taxes | | | |
| Depreciation and amortization | 17 | 79,269 | 65,971 |
| Write-off of property and equipment | | 19 | 88 |
| Write-off of intangible assets | | - | 246 |
| Allowance for expected credit losses | 5 | 15,264 | 17,694 |
| Share-based compensation | 17 | 8,630 | 6,495 |
| Net foreign exchange differences | | (190) | 161 |
| Accrued interest | 18 | 51,745 | 77,530 |
| Accrued interest on lease liabilities | 11.2.2, 11.5, 18 | 26,744 | 25,524 |
| Share of income of associate | 8 | (4,172) | (3,845) |
| Provision (reversal) for legal proceedings | | (1,851) | 3,154 |
| | | | |
| Changes in assets and liabilities | | | |
| Trade receivables | | (6,434) | (10,232) |
| Inventories | | 729 | 2,404 |
| Recoverable taxes | | (6,914) | (8,460) |
| Other assets | | 729 | 6,005 |
| Trade payables | | 14,472 | (11,507) |
| Taxes payable | | 5,439 | 8,480 |
| Advances from customers | | 3,095 | 147 |
| Labor and social obligations | | 23,528 | 28,158 |
| Other liabilities | | (212) | 4,528 |
| | | 429,054 | 349,373 |
| Income taxes paid | | (11,194) | (17,819) |
| Net cash flows from operating activities | | 417,860 | 331,554 |
| | | | |
| Investing activities | | | |
| Acquisition of property and equipment | 9 | (22,955) | (27,299) |
| Acquisition of intangibles assets | 10 | (69,946) | (19,130) |
| Dividends received | 8 | 3,900 | 3,600 |
| Acquisition of subsidiaries, net of cash acquired | 11.2.3 | (147,262) | (600,270) |
| Payments of interest from acquisition of subsidiaries and intangibles | 11.2.3 | (24,735) | (7,876) |
| Net cash flows used in investing activities | | (260,998) | (650,975) |
| | | | |
| Financing activities | | | |
| Payments of principal of loans and financing | 11.5 | (10,762) | (459) |
| Payments of interest of loans and financing | 11.5 | (48,806) | (15,286) |
| Proceeds from loans and financing | 11.5 | - | 3,663 |
| Payments of principal of lease liabilities | 11.2.2, 11.5 | (9,648) | (7,976) |
| Payments of interest of lease liabilities | 11.2.2, 11.5 | (26,903) | (24,621) |
| Proceeds from exercise of stock options | | 826 | - |
| Dividends paid to non-controlling shareholders | 14.b | (3,712) | (6,130) |
| Net cash flows generated (used) in financing activities | | (99,005) | (50,809) |
| Net foreign exchange differences | | 190 | (161) |
| Net increase (decrease) in cash and cash equivalents | | 58,047 | (370,391) |
| Cash and cash equivalents at the beginning of the period | 4 | 553,030 | 1,093,082 |
| Cash and cash equivalents at the end of the period | 4 | 611,077 | 722,691 |
The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.
| | Afya Limited Notes to the unaudited interim condensed consolidated financial statements Expressed in thousands of Brazilian reais, unless otherwise stated |
| | |
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 completed its initial public offering (IPO) on July 19, 2019, and its shares are listed on the Nasdaq under the symbol “AFYA”. The Company’s ultimate parent company is Bertelsmann SE& Co. KGaA (“Bertelsmann”), as a result of Bertelsmann’s acquisition of control on May 5, 2022.
The Company is formed by a network of higher education and post-graduate institutions focused on medical schools located in 19 Brazilian States forming the largest educational group by the number of medical seats in the country. In non-regulated education, the Company provides services that comprise the development and sale of electronically distributed educational courses on medicine science and soft skills educational content. The Company also offers solutions to empower the physicians in their daily routine including supporting clinic decisions through mobile app subscription, delivering practice management tools through a SaaS (“Software as a Service”) model and supporting the patient-physician relationship.
On January 24, 2024, the Ministry of Education (“MEC”) authorized the increase of 40 medical seats of Faculdades Integradas Padrão (FIP Guanambi) located in the city of Guanambi, State of Bahia, which resulted in an additional payment of R$49,600. With the authorization, the Company reaches 100 medical seats on this campus, and 3,203 total approved seats. The operation of these medical seats started in the first quarter of 2024.
Acquisition
On January 2, 2023, Afya Participações S.A. (“Afya Brazil”), a wholly-owned subsidiary of Afya, acquired Sociedade Educacional e Cultural Sergipe DelRey Ltda. (“DelRey”). DelRey 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, and encompasses the operations of Centro Universitário Tiradentes Alagoas (“UNIMA”) and Faculdade Tiradentes Jaboatão dos Guararapes (“FCM Jaboatão”).
The aggregate purchase price of R$816,236 is comprised by: i) R$809,000 of which R$575,000 was paid in cash on the transaction closing date (of which R$567,196 represents the cash paid net of cash acquired (included in cash flows from investing activities)), and R$234,000 is payable in cash in three annual installments, respectively, of R$134,000 in January 2024, R$50,000 in January 2025 and R$50,000 in January 2026, adjusted by the SELIC rate; and ii) offer of Afya’s digital solutions free of charge until December 31, 2030, for students of medicine of universities owned by the sellers which are not part of the transaction. The fair value of this service was estimated at R$7,236 at the acquisition date. There are 84 additional seats still pending approval which, if approved by MEC, will result in a potential additional payment of up to R$105,000. Given the future event that will trigger the potential payout is not under the Company’s control, the probability of such payout cannot be reliably estimated and accordingly the contingent consideration was not measured at the acquisition date. Should the additional seats be approved, it will result in additional licenses, which will be measured accordingly if and when approved.
| | Afya Limited Notes to the unaudited interim condensed consolidated financial statements Expressed in thousands of Brazilian reais, unless otherwise stated |
| | |
| 2 | Material accounting policies |
2.1 Basis for preparation of the unaudited interim condensed consolidated financial statements
The Company’s unaudited interim condensed consolidated financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting and the basis it will continue to operate as a going concern for the foreseeable future.
The unaudited interim condensed consolidated financial statements have been prepared on a historical cost basis, except for contingent consideration (earn-outs) that have been measured at fair value.
The unaudited interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Company’s annual consolidated financial statements as of December 31, 2023.
Afya is a holding company, as such the primary source of revenue derives from its interest on the operational companies in Brazil. As result, the Brazilian Real has been determined as the Company’s functional currency.
The unaudited interim condensed consolidated financial statements are presented in Brazilian reais (“BRL” or “R$”), which is the Company’s functional and presentation currency. All amounts are rounded to the nearest thousand.
The Company segregated the payments of principal and interest of loans and financing, lease liabilities and accounts payables to selling shareholders in the unaudited interim condensed consolidated statements of cash flows for the three-month period ended March 31, 2024, in accordance with the provisions set forth in IAS 7 – Statement of Cash Flows. As a result, Management revised, retrospectively, the prior period unaudited interim condensed consolidated statements of cash flows for the three-month period ended March 31, 2023, for comparative purposes. The Company assessed the materiality of this matter and, based on an analysis of quantitative and qualitative considerations, determined that the segregation of payments of principal and interest on prior period over such transactions is not material to its unaudited interim condensed consolidated financial statements. However, even if it is not material, the segregation of payments of principal and interest regarding such transactions for the three-month period ended March 31, 2023 are appropriate for the users of the unaudited interim condensed consolidated financial statements, considering the comparability of such information over the periods presented. The payments of interest of loans and financing, lease liabilities, notes payable and accounts payables to selling shareholders are classified within the unaudited interim condensed consolidated statements of cash flows under the same activities of which the payments of principal are classified. As a result, no change occurred in the net cash flows used in investing activities and net cash flows generated (used) in financing activities in the unaudited interim condensed consolidated statements of cash flows for the three-month period ended March 31, 2023.
These unaudited interim condensed consolidated financial statements as of and for the three-month period ended March 31, 2024 were approved by the Board of Directors for issuance on May 9, 2024.
| | Afya Limited Notes to the unaudited interim condensed consolidated financial statements Expressed in thousands of Brazilian reais, unless otherwise stated |
| | |
2.2 Changes in accounting policies and disclosures
New standards, interpretations and amendments issued and 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, 2023. The Company has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective.
Certain amendments apply for the first time in 2024, but do not have significant impacts on the Company’s interim condensed consolidated financial statements.
2.3 Basis consolidation
The table below presents a list of the Company’s subsidiaries and associate:
| | | | | Direct and indirect interest |
| Name | Main activities | Location | Investment type | March 31, 2024 (unaudited) | December 31, 2023 |
| Afya Participações S.A. (“Afya Brazil”) | Holding | Nova Lima - MG | Subsidiary | 100% | 100% |
| Instituto Tocantinense Presidente Antônio Carlos Porto S.A. - (“ITPAC Porto”) | Undergraduate degree programs | Porto Nacional - TO | Subsidiary | 100% | 100% |
| Instituto Tocantinense Presidente Antônio Carlos S.A. - (“ITPAC Araguaína”) | Undergraduate 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 degree programs | São João Del Rei - MG | Subsidiary | 100% | 100% |
| Instituto de Educação Superior do Vale do Parnaíba S.A. (“IESVAP”) | Undergraduate degree programs | Parnaíba - PI | Subsidiary | 80% | 80% |
| Centro de Ciências em Saúde de Itajubá S.A. (“CCSI”) | Medicine undergraduate degree program | Itajubá - MG | Subsidiary | 75% | 75% |
| 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 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 degree programs | Montes Claros - MG | Subsidiary | 100% | 100% |
| Instituto de Pesquisa e Ensino Médico do Estado de Minas Gerais Ltda. (“IPEMED”) | Graduate | Belo Horizonte - MG | Subsidiary | 100% | 100% |
| Instituto Paraense de Educação e Cultura Ltda. (“IPEC”) | Medicine degree programs | Marabá - PA | Subsidiary | 100% | 100% |
| Sociedade Universitária Redentor S.A. (“UniRedentor”) | Undergraduate and graduate degree programs | Itaperuna - RJ | Subsidiary | 100% | 100% |
| Centro de Ensino São Lucas Ltda. (“UniSL”) | Undergraduate degree programs | Porto Velho - RO | Subsidiary | 100% | 100% |
| Peb Med Instituição de Pesquisa Médica e Serviços Ltda. (“PebMed”) | Content and clinical tools and online platform | Rio de Janeiro - RJ | Subsidiary | 100% | 100% |
| Sociedade de Educação, Cultura e Tecnologia da Amazônia S.A. - (“FESAR”) | Undergraduate degree programs | Redenção - PA | Subsidiary | 100% | 100% |
| Centro Superior de Ciências da Saúde S/S Ltda. (“FCMPB”) | Medicine degree programs | João Pessoa - PB | Subsidiary | 100% | 100% |
| iClinic Desenvolvimento de Software Ltda. (“iClinic”) | Electronic Medical Record, Clinical Management System | Ribeirão Preto - SP | Subsidiary | 100% | 100% |
| Medicinae Solutions S.A. (“Medicinae”) | Healthcare payments and financial services | Rio de Janeiro - RJ | Subsidiary | 100% | 100% |
| Medical Harbour Aparelhos Médico Hospitalares e Serviços em Tecnologia Ltda. (“Medical Harbour”) | Educational health and medical imaging | Florianópolis - SC | Subsidiary | 100% | 100% |
| Cliquefarma Drogarias Online Ltda. (“Cliquefarma”) | Online platform | São Paulo - SP | Subsidiary | 100% | 100% |
| Shosp Tecnologia da Informação Ltda. (“Shosp”) | Electronic Medical Record, Clinical Management System | Rio de Janeiro - RJ | Subsidiary | 100% | 100% |
| Sociedade Padrão de Educação Superior Ltda. (“UnifipMoc”) | Undergraduate degree programs | Montes Claros - MG | Subsidiary | 100% | 100% |
| Companhia Nilza Cordeiro Herdy de Educação e Cultura (“Unigranrio”) | Undergraduate and graduate degree programs | Duque de Caxias - RJ | Subsidiary | 100% | 100% |
| Policlínica e Centro de Estética Duque de Caxias Ltda. (“Policlínica”) | Outpatient care | Duque de Caxias - RJ | Subsidiary | 100% | 100% |
| RX PRO Soluções de Tecnologia Ltda. (“RX PRO”) | Marketing for pharmaceutical industry | São Paulo - SP | Subsidiary | 100% | 100% |
| RX PRO LOG Transporte e Logística Ltda. (“RX PRO LOG”) (i) | Marketing for pharmaceutical industry | São Paulo - SP | Subsidiary | - | 100% |
| BMV Atividades Médicas Ltda. (“Além da Medicina”) | Medical education content | São Paulo - SP | Subsidiary | 100% | 100% |
| Cardiopapers Soluções Digitais Ltda. (“CardioPapers”) | Medical education content | Recife - PE | Subsidiary | 100% | 100% |
| Quasar Telemedicina Desenvolvimento de Sistemas Computacionais Ltda. (“Glic”) | Patient physician relationship | Barueri - SP | Subsidiary | 100% | 100% |
| Sociedade Educacional e Cultural Sergipe DelRey Ltda. (“DelRey”) | Undergraduate degree programs | Maceió - AL | Subsidiary | 100% | 100% |
| União Educacional do Planalto Central S.A. (“UEPC”) | Undergraduate degree programs | Brasília - DF | Associate | 30% | 30% |
(i) RX PRO LOG had its operations closed down in January 2024.
| | Afya Limited Notes to the unaudited interim condensed consolidated financial statements Expressed in thousands of Brazilian reais, unless otherwise stated |
| | |
The financial information of the subsidiaries acquired is included in the Company’s unaudited interim condensed consolidated financial statements beginning on the respective acquisition dates.
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 change 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.
The Company has three reportable segments as follows:
• Undergrad, which provides educational services through undergraduate courses related to medical school, undergraduate health science and other ex-health undergraduate programs;
• Continuing education, which provides medical education (including residency preparation programs, specialization test preparation and other medical capabilities), specialization and graduate courses in medicine, delivered through digital and in-person content; and
• Medical practice solutions (formerly referred as Digital services), which provides clinical decision, clinical management and doctor-patient relationships for physicians and provide access, demand and efficiency for the healthcare players.
Segment information is presented consistently with the internal reports provided to the Company's Chief Executive Officer (CEO), which is the Chief Operating Decision Maker (CODM) and is responsible for allocating resources, assessing the performance of the Company's operating segments, and making the Company's strategic decisions.
No operating segments have been aggregated to form the reportable operating segments. There is only one geographic region, and the results are monitored and evaluated as a single business.
| | Afya Limited Notes to the unaudited interim condensed consolidated financial statements Expressed in thousands of Brazilian reais, unless otherwise stated |
| | |
Business units restructuring
In connection with a restructuring project occurred across the Continuing education and Medical practice solutions segments, the Pilar 1 entities (Medcel, Além da Medicina, CardioPapers and Medical Harbour), which offer residency preparation programs, specialization test preparation and other medical capabilities, were moved into the Continuing education segment. This strategic project aims to integrate all continuing education capabilities into one single structure that will be responsible for offerings that address physicians education and continuous update needs from the graduation and throughout their careers, while exploring the potential synergies among those operations.
This restructuring project took place since the first quarter of 2024 and represents how the segments are monitored internally. Due to changes in operating segments, the segment information as of December 31, 2023 and for the three-month period ended March 31, 2023 have been retroactively adjusted for comparison purposes.
The tables below present assets and liabilities information for the Company’s operating segments as of March 31, 2024 and December 31, 2023, respectively:
As of March 31, 2024 (unaudited) | Undergrad | Continuing education | Medical practice solutions | Total reportable segments | Adjustments and eliminations | Total |
| | | | | | | |
| Total assets | 7,186,408 | 359,220 | 147,463 | 7,693,091 | (2,268) | 7,690,823 |
| Current assets | 1,042,390 | 167,590 | 52,573 | 1,262,553 | (2,268) | 1,260,285 |
| Non-current assets | 6,144,018 | 191,630 | 94,890 | 6,430,538 | - | 6,430,538 |
| | | | | | | |
| Total liabilities and equity | 7,186,408 | 359,219 | 147,464 | 7,693,091 | (2,268) | 7,690,823 |
| Current liabilities | 697,010 | 228,084 | 59,092 | 984,186 | (2,268) | 981,918 |
| Non-current liabilities | 2,745,890 | 80,216 | 25,744 | 2,851,850 | - | 2,851,850 |
| Equity | 3,743,508 | 50,919 | 62,628 | 3,857,055 | - | 3,857,055 |
| | | | | | | |
| Other disclosures | | | | | | |
| Investments in associate (i) | 52,106 | - | - | 52,106 | - | 52,106 |
| Capital expenditures (ii) | 78,825 | 8,762 | 5,314 | 92,901 | - | 92,901 |
(i) Investment in UEPC is included in non-current assets in the statement of financial position.
(ii) Capital expenditures consider the acquisitions of property and equipment and intangible assets.
| As of December 31, 2023 | Undergrad | Continuing education | Medical practice solutions | Total reportable segments | Adjustments and eliminations | Total |
| | | | | | | |
| Total assets | 7,104,154 | 336,908 | 154,636 | 7,595,698 | (11,217) | 7,584,481 |
| Current assets | 1,001,156 | 155,511 | 58,056 | 1,214,723 | (11,217) | 1,203,506 |
| Non-current assets | 6,102,998 | 181,397 | 96,580 | 6,380,975 | - | 6,380,975 |
| | | | | | | |
| Total liabilities and equity | 7,104,154 | 336,908 | 154,636 | 7,595,698 | (11,217) | 7,584,481 |
| Current liabilities | 787,658 | 221,002 | 61,124 | 1,069,784 | (11,217) | 1,058,567 |
| Non-current liabilities | 2,783,855 | 73,960 | 25,087 | 2,882,902 | - | 2,882,902 |
| Equity | 3,532,641 | 41,946 | 68,425 | 3,643,012 | - | 3,643,012 |
| | | | | | | |
| Other disclosures | | | | | | |
| Investments in associate (i) | 51,834 | - | - | 51,834 | - | 51,834 |
| Capital expenditures (ii) | 30,375 | 6,947 | 9,107 | 46,429 | - | 46,429 |
(i) Investment in UEPC is included in non-current assets in the statement of financial position.
(ii) Balances for the three-month period ended March 31, 2023 (unaudited). Capital expenditures consider the acquisitions of property and equipment and intangible assets.
| | Afya Limited Notes to the unaudited interim condensed consolidated financial statements Expressed in thousands of Brazilian reais, unless otherwise stated |
| | |
The tables below present the statements of income for the Company’s operating segments for the three-month periods ended March 31, 2024 and 2023:
| March 31, 2024 (unaudited) | Undergrad | Continuing education | Medical practice solutions | Total reportable segments | Elimination (inter-segment transactions) | Total |
| | | | | | | |
| External customer | 704,519 | 63,999 | 35,721 | 804,239 | - | 804,239 |
| Inter-segment | - | 1,416 | 852 | 2,268 | (2,268) | - |
| Revenue | 704,519 | 65,415 | 36,573 | 806,507 | (2,268) | 804,239 |
| Cost of services | (237,653) | (24,771) | (9,348) | (271,772) | 2,268 | (269,504) |
| Gross profit | 466,866 | 40,644 | 27,225 | 534,735 | - | 534,735 |
| Selling, general and administrative expenses | | | | | | (241,164) |
| Other income, net | | | | | | (4,213) |
| Operating income | | | | | | 289,358 |
| Finance income | | | | | | 25,530 |
| Finance expenses | | | | | | (99,896) |
| Share of income of associate | | | | | | 4,172 |
| Income before income taxes | | | | | | 219,164 |
| Income taxes expenses | | | | | | (10,865) |
| Net income | | | | | | 208,299 |
March 31, 2023 (unaudited) | Undergrad | Continuing education | Medical practice solutions | Total reportable segments | Elimination (inter-segment transactions) | Total |
| | | | | | | |
| External customer | 620,976 | 56,004 | 32,981 | 709,961 | - | 709,961 |
| Inter-segment | - | 2,208 | 559 | 2,767 | (2,767) | - |
| Revenue | 620,976 | 58,212 | 33,540 | 712,728 | (2,767) | 709,961 |
| Cost of services | (218,594) | (22,291) | (9,489) | (250,374) | 2,767 | (247,607) |
| Gross profit | 402,382 | 35,921 | 24,051 | 462,354 | - | 462,354 |
| Selling, general and administrative expenses | | | | | | (233,220) |
| Other expenses, net | | | | | | 405 |
| Operating income | | | | | | 229,539 |
| Finance income | | | | | | 27,688 |
| Finance expenses | | | | | | (124,240) |
| Share of income of associate | | | | | | 3,845 |
| Income before income taxes | | | | | | 136,832 |
| Income taxes expenses | | | | | | (19,060) |
| Net income | | | | | | 117,772 |
Seasonality of operations
Undergrad’s tuition revenues are related to the intake process and monthly tuition fees charged to students over the period, and does not have significant fluctuations during the period.
Continuing education revenues are mostly related to: (i) monthly intakes and tuition fees on medical education, which do not have a considerable concentration in any period; (ii) Medcel’s revenue, derived from e-books transferred at a point of time, which are concentrated at in the first and last quarter of the year due to the enrollments; and (iii) Além da Medicina and Cardiopapers revenues, which are sold in the last and first quarter of the year due to the timeline of exams and recognized mainly over time.
Medical practice solutions are comprised mainly of Pebmed and iClinic revenues, which do not have significant fluctuations regarding seasonality.
| | Afya Limited Notes to the unaudited interim condensed consolidated financial statements Expressed in thousands of Brazilian reais, unless otherwise stated |
| | |
| 4 | Cash and cash equivalents |
| | March 31, 2024 | December 31, 2023 |
| | (unaudited) | |
| Cash and bank deposits | 5,573 | 11,746 |
| Cash equivalents | 605,504 | 541,284 |
| | 611,077 | 553,030 |
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, 2024, the average interest on these investments is equivalent to 100.4% of the CDI rate (December 31, 2023: 100.8%). These funds are available for immediate use and have an insignificant risk of changes in value. Cash equivalents denominated in U.S. dollars totaled R$19,327 as of March 31, 2024 (December 31, 2023: R$23,173).
| | March 31, 2024 | December 31, 2023 |
| | (unaudited) | |
| Tuition fees | 452,815 | 461,066 |
| Educational content (i) | 50,491 | 49,135 |
| FIES | 72,107 | 62,971 |
| Educational credits (ii) | 30,074 | 29,391 |
| Mobile app subscription (iii) | 23,508 | 29,091 |
| Other | 17,094 | 15,667 |
| | 646,089 | 647,321 |
| (-) Allowance for expected credit losses | (68,996) | (61,398) |
| | 577,093 | 585,923 |
| Current | 536,175 | 546,438 |
| Non-current | 40,918 | 39,485 |
(i) Related to trade receivables from sales of e-books and medical courses through digital platform from Medcel, Além da Medicina and Cardiopapers.
(ii) Related to the financing programs offered by the Company’s subsidiaries to its students that existed prior to the acquisitions. The Company closed such programs to new enrolments and maintained only the agreements that were outstanding as of the acquisition date.
(iii) Related to trade receivables from mobile applications subscriptions for digital medical content.
As of March 31, 2024 and December 31, 2023, the aging of trade receivables was as follows:
| | March 31, 2024 | December 31, 2023 |
| | (unaudited) | |
| Neither past due nor impaired | 353,322 | 323,614 |
| Past due: | | |
| 1 to 30 days | 95,052 | 73,563 |
| 31 to 90 days | 101,762 | 109,908 |
| 91 to 180 days | 42,226 | 85,193 |
| More than 180 days | 53,727 | 55,043 |
| | 646,089 | 647,321 |
| | Afya Limited Notes to the unaudited interim condensed consolidated financial statements Expressed in thousands of Brazilian reais, unless otherwise stated |
| | |
The changes in the allowance for expected credit losses for the three-month periods ended March 31, 2024 and 2023, was as follows:
| | March 31, 2024 | March 31, 2023 |
| | (unaudited) | (unaudited) |
| Opening balance | (61,398) | (44,046) |
| Additions | (15,264) | (17,694) |
| Write-offs | 7,666 | 12,359 |
| Closing balance | (68,996) | (49,381) |
The tables below summarize the balances and transactions with related parties:
| | March 31, 2024 | December 31, 2023 |
| | (unaudited) | |
| Assets | | |
| Trade receivables (i) | - | 693 |
| Other assets (ii) | 1,022 | 285 |
| | 1,022 | 978 |
| Current | 1,022 | 792 |
| Non-current | - | 186 |
| | March 31, 2024 | March 31, 2023 |
| | (unaudited) | (unaudited) |
| Other income (expenses) | | |
| UEPC (i) | 465 | 127 |
| EMIVE Patrulha 24 Horas Ltda. (iii) | (1) | - |
| | 464 | 127 |
| | | |
| Leases (iv) | | |
| RVL Esteves Gestão Imobiliária S.A. | 6,385 | 5,611 |
| UNIVAÇO Patrimonial Ltda. | 899 | 893 |
| IESVAP Patrimonial Ltda. | 1,298 | 1,289 |
| | 8,582 | 7,793 |
(i) Refers to sales of educational content from Medcel to UEPC.
(ii) Refers to expenses to be reimbursed by Bertelsmann SE& Co. KGaA.
(iii) Refers to amounts of expenses related to security services provided by a company of which one of Afya’s main shareholders has significant influence.
(iv) The carrying amounts of lease liabilities with related parties as of March 31, 2024 totaled R$226,634 (December 31, 2023: R$223,496).
Key management personnel compensation
Key management personnel compensation included in the Company’s unaudited interim condensed consolidated statement of income comprised the following:
| | March 31, 2024 | March 31, 2023 |
| | (unaudited) | (unaudited) |
| Short-term employee benefits | 3,136 | 4,702 |
| Share-based compensation plans | 5,227 | 4,732 |
| | 8,363 | 9,434 |
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 selling, general and administrative expenses during the reporting period related to key management personnel. See further details on the share-based compensation plans in Note 13.
| | Afya Limited Notes to the unaudited interim condensed consolidated financial statements Expressed in thousands of Brazilian reais, unless otherwise stated |
| | |
| | March 31, 2024 | December 31, 2023 |
| | (unaudited) | |
| Indemnification assets | 77,165 | 81,855 |
| Advances | 27,476 | 39,890 |
| Judicial deposits | 14,342 | 14,187 |
| Prepaid expenses | 30,720 | 15,820 |
| Other FIES credits | 8,723 | 8,674 |
| Dividends | 1,668 | 1,668 |
| Deferred tax assets | 2,577 | 3,233 |
| Other assets | 12,851 | 10,924 |
| | 175,522 | 176,251 |
| Current | 61,715 | 58,905 |
| Non-current | 113,807 | 117,346 |
The Company holds 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 Company’s interest in UEPC is accounted for using the equity method. The tables below summarize the financial information of the Company’s investment in UEPC:
| | March 31, 2024 | December 31, 2023 |
| | (unaudited) | |
| Current assets | 24,532 | 29,004 |
| Non-current assets | 120,241 | 120,289 |
| Current liabilities | (24,595) | (28,842) |
| Non-current liabilities | (90,435) | (91,613) |
| Equity | 29,743 | 28,838 |
| Company’s share in equity - 30% | 8,923 | 8,651 |
| Goodwill | 43,183 | 43,183 |
| Carrying amount of the investment | 52,106 | 51,834 |
| | March 31, 2024 | March 31, 2023 |
| | (unaudited) | (unaudited) |
| Revenue | 38,366 | 37,448 |
| Cost of services | (12,183) | (13,020) |
| Selling, general and administrative expenses | (10,845) | (9,875) |
| Net finance result | (989) | (1,098) |
| Income before income taxes | 14,349 | 13,455 |
| Income taxes expenses | (443) | (638) |
| Net income | 13,906 | 12,817 |
| Company’s share of income | 4,172 | 3,845 |
| | March 31, 2024 | March 31, 2023 |
| | (unaudited) | (unaudited) |
| Opening balance | 51,834 | 53,907 |
| Share of income | 4,172 | 3,845 |
| Dividends received | (3,900) | (3,600) |
| Closing balance | 52,106 | 54,152 |
There were no impairment indicatives of goodwill from the investment in associate for the three-month period ended March 31, 2024.
| | Afya Limited Notes to the unaudited interim condensed consolidated financial statements Expressed in thousands of Brazilian reais, unless otherwise stated |
| | |
| | Building | Machinery and equipment | Lands | Vehicles | Furniture and fixtures | IT equipment | Library books | Leasehold improvements | Construction in progress | Total |
| Cost | | | | | | | | | | |
| As of January 1, 2023 | 91,857 | 100,390 | 18,852 | 1,053 | 90,712 | 68,593 | 37,362 | 145,846 | 86,688 | 641,353 |
| Additions | 8 | 6,060 | - | - | 4,862 | 3,942 | 673 | - | 11,754 | 27,299 |
| Business combination | - | 7,729 | - | - | 4,384 | 734 | 1,329 | 11,045 | 63 | 25,284 |
| Write-off * | - | (67) | - | - | (17) | (69) | - | - | (6) | (159) |
| Transfer | (2,942) | (36) | - | - | 23 | 77 | - | 37,331 | (34,453) | - |
| As of March 31, 2023 (unaudited) | 88,923 | 114,076 | 18,852 | 1,053 | 99,964 | 73,277 | 39,364 | 194,222 | 64,046 | 693,777 |
| | | | | | | | | | | |
| As of January 1, 2024 | 93,232 | 119,981 | 18,852 | 1,354 | 110,859 | 82,810 | 31,888 | 264,448 | 33,962 | 757,386 |
| Additions | 35 | 5,521 | - | 130 | 4,012 | 4,601 | 70 | 6 | 8,580 | 22,955 |
| Write-off * | - | (70) | - | - | (87) | (59) | - | (21) | - | (237) |
| Transfer | 661 | - | - | 142 | - | - | - | 26,497 | (27,158) | 142 |
| As of March 31, 2024 (unaudited) | 93,928 | 125,432 | 18,852 | 1,626 | 114,784 | 87,352 | 31,958 | 290,930 | 15,384 | 780,246 |
| | | | | | | | | | | |
| Depreciation | | | | | | | | | | |
| As of January 1, 2023 | (5,751) | (20,630) | - | 288 | (10,349) | (21,837) | (22,888) | (18,099) | - | (99,266) |
| Depreciation | (893) | (3,669) | - | (84) | (3,154) | (3,032) | (883) | (5,175) | - | (16,890) |
| Write-off * | - | 38 | - | - | 3 | 30 | - | - | - | 71 |
| As of March 31, 2023 (unaudited) | (6,644) | (24,261) | - | 204 | (13,500) | (24,839) | (23,771) | (23,274) | - | (116,085) |
| | | | | | | | | | | |
| As of January 1, 2024 | (9,679) | (28,843) | - | 198 | (20,377) | (26,872) | (18,652) | (44,476) | - | (148,701) |
| Depreciation | (1,036) | (4,287) | - | (95) | (3,208) | (3,668) | (770) | (7,929) | - | (20,993) |
| Write-off * | - | 53 | - | - | 87 | 57 | - | 21 | - | 218 |
| Transfer | - | - | - | (142) | - | - | - | - | - | (142) |
| As of March 31, 2024 (unaudited) | (10,715) | (33,077) | - | (39) | (23,498) | (30,483) | (19,422) | (52,384) | - | (169,618) |
| | | | | | | | | | | |
| Net book value | | | | | | | | | | |
| As of March 31, 2024 (unaudited) | 83,213 | 92,355 | 18,852 | 1,587 | 91,286 | 56,869 | 12,536 | 238,546 | 15,384 | 610,628 |
| As of December 31, 2023 | 83,553 | 91,138 | 18,852 | 1,552 | 90,482 | 55,938 | 13,236 | 219,972 | 33,962 | 608,685 |
* Refers to items written-off as result of lack of expectation of future use, in connection with the Company’s physical inventory procedures.
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 impairment indicatives of property and equipment for the three-month period ended March 31, 2024.
| | Afya Limited Notes to the unaudited interim condensed consolidated financial statements Expressed in thousands of Brazilian reais, unless otherwise stated |
| | |
| | Goodwill | Licenses with indefinite useful life | Trademark | Customer relationships | Software | Education content | Developed technology | Educational platform | Software in progress | Other | Total |
| | | | | | | | | | | | |
| Cost | | | | | | | | | | | |
| As of January 1, 2023 | 1,257,045 | 2,189,814 | 182,060 | 435,816 | 43,300 | 69,589 | 90,749 | 55,697 | 14,734 | 1,055 | 4,339,859 |
| Additions | - | - | - | - | 131 | 1,905 | 9,031 | 2,434 | 5,629 | - | 19,130 |
| Write-off * | - | - | - | - | (2,272) | - | - | (893) | - | - | (3,165) |
| Remeasurement (i) | 2,556 | - | - | - | - | - | - | - | - | - | 2,556 |
| Transfer | - | - | - | - | 11,204 | 4,626 | 16 | (2,899) | (12,947) | - | - |
| Business combinations (ii) | 76,676 | 623,701 | - | 106,064 | 63 | - | - | - | - | - | 806,504 |
| As of March 31, 2023 (unaudited) | 1,336,277 | 2,813,515 | 182,060 | 541,880 | 52,426 | 76,120 | 99,796 | 54,339 | 7,416 | 1,055 | 5,164,884 |
| | | | | | | | | | | | |
| As of January 1, 2024 | 1,334,699 | 2,776,077 | 182,060 | 578,267 | 71,150 | 84,201 | 128,477 | 74,892 | 12,134 | 1,055 | 5,243,012 |
| Additions (iii) | - | 49,600 | - | - | 612 | 2,471 | 5,557 | 5,663 | 6,043 | - | 69,946 |
| Write-off * | - | - | - | - | - | - | (35) | - | - | - | (35) |
| Transfer | - | - | - | - | 13,874 | 1,041 | - | (97) | (14,818) | - | - |
| As of March 31, 2024 (unaudited) | 1,334,699 | 2,825,677 | 182,060 | 578,267 | 85,636 | 87,713 | 133,999 | 80,458 | 3,359 | 1,055 | 5,312,923 |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Amortization | | | | | | | | | | | |
| As of January 1, 2023 | - | - | (14,955) | (212,363) | (17,277) | (26,562) | (10,093) | (17,039) | - | (79) | (298,368) |
| Amortization | - | - | (2,040) | (21,834) | (1,853) | (2,764) | (3,918) | (1,125) | - | (26) | (33,560) |
| Write-off * | - | - | - | - | 2,025 | - | - | 894 | - | - | 2,919 |
| As of March 31, 2023 (unaudited) | - | - | (16,995) | (234,197) | (17,105) | (29,326) | (14,011) | (17,270) | - | (105) | (329,009) |
| | | | | | | | | | | | |
| As of January 1, 2024 | - | - | (26,038) | (301,947) | (24,094) | (42,230) | (31,603) | (20,900) | - | (184) | (446,996) |
| Amortization | - | - | (4,972) | (18,542) | (3,293) | (4,710) | (7,029) | (2,968) | - | (26) | (41,540) |
| Write-off * | - | - | - | - | - | - | 35 | - | - | - | 35 |
| As of March 31, 2024 (unaudited) | - | - | (31,010) | (320,489) | (27,387) | (46,940) | (38,597) | (23,868) | - | (210) | (488,501) |
| | | | | | | | | | | | |
| Net book value | | | | | | | | | | | |
| As of March 31, 2024 (unaudited) | 1,334,699 | 2,825,677 | 151,050 | 257,778 | 58,249 | 40,773 | 95,402 | 56,590 | 3,359 | 845 | 4,824,422 |
| As of December 31, 2023 | 1,334,699 | 2,776,077 | 156,022 | 276,320 | 47,056 | 41,971 | 96,874 | 53,992 | 12,134 | 871 | 4,796,016 |
* Refers to intangible assets written-off as result of lack of expectation of future use.
(i) Goodwill: During the measurement period, results of operation such as revenue differed from the foreseen, resulting in a remeasurement of the contingent consideration for the acquisitions of Além da Medicina, CardioPapers and Glic by R$4,773, R$5,082 and (R$7,299), respectively, totaling R$2,556 for the three-month period ended March 31, 2023.
(ii) Business combination: On January 2, 2023, Afya Brazil acquired DelRey, 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.
(iii) On January 24, 2024, MEC authorized the increase of 40 medical seats of Faculdades Integradas Padrão (FIP Guanambi) located in the city of Guanambi, State of Bahia, which resulted in an additional payment of R$49,600.
| | Afya Limited Notes to the unaudited interim condensed consolidated financial statements Expressed in thousands of Brazilian reais, unless otherwise stated |
| | |
Impairment testing of goodwill and intangible assets with indefinite lives
The Company performs 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, 2023. There were no impairment indicatives of goodwill and intangible assets with indefinite lives for the three-month period ended March 31, 2024.
Other intangible assets
For the three-month period ended March 31, 2024 and for the year ended December 31, 2023 there were no indicatives that the Company’s intangible assets with finite useful lives might be impaired.
| 11 | Financial assets and financial liabilities |
| | March 31, 2024 | December 31, 2023 |
| At amortized cost | (unaudited) | |
| Trade receivables | 577,093 | 585,923 |
| Dividends receivable | 1,668 | 1,668 |
| | 578,761 | 587,591 |
| Current | 537,843 | 548,106 |
| Non-current | 40,918 | 39,485 |
| 11.2 | Financial liabilities |
| | March 31, 2024 | December 31, 2023 |
| At amortized cost | (unaudited) | |
| Trade payables | 122,694 | 108,222 |
| Loans and financing | 1,783,094 | 1,800,775 |
| Lease liabilities | 902,542 | 874,569 |
| Accounts payable to selling shareholders | 368,985 | 530,915 |
| | 3,177,315 | 3,314,481 |
| Current | 551,599 | 642,872 |
| Non-current | 2,625,716 | 2,671,609 |
| | March 31, 2024 | December 31, 2023 |
| At fair value | (unaudited) | |
| Accounts payable to selling shareholders (earn-outs) | 36,425 | 35,952 |
| | 36,425 | 35,952 |
| Current | 17,665 | 35,498 |
| Non-current | 18,760 | 454 |
| 11.2.1 | Loans and financing |
| Financial institution | Currency | Interest rate | Maturity | March 31, 2024 | December 31, 2023 |
| | | | | (unaudited) | |
| Itaú Unibanco S.A. | Brazilian real | CDI + 1.75% p.y. | 2024 | 10,302 | 21,405 |
| Itaú Unibanco S.A. | Brazilian real | CDI + 1.90% p.y. | 2025 | 425,738 | 412,880 |
| Softbank | Brazilian real | 6.5% p.y. | 2026 | 826,434 | 825,957 |
| FINEP | Brazilian real | TJLP p.y. | 2027 | 10,444 | 11,193 |
| Debentures | Brazilian real | CDI + 1.80% p.y. | 2028 | 510,176 | 529,340 |
| | | | | 1,783,094 | 1,800,775 |
| Current | | | | 161,675 | 179,252 |
| Non-current | | | | 1,621,419 | 1,621,523 |
| | Afya Limited Notes to the unaudited interim condensed consolidated financial statements Expressed in thousands of Brazilian reais, unless otherwise stated |
| | |
The Company has lease contracts for properties. The lease contracts generally have maturities in the lease terms between five and 30 years. There are no sublease or variable payments in-substance lease agreements in the period.
The carrying amounts of right-of-use assets and lease liabilities as of March 31, 2024 and December 31, 2023 and the movements during the three-month periods ended March 31, 2024 and 2023 are shown below:
| | March 31, 2024 (unaudited) | | March 31, 2023 (unaudited) |
| | Right-of-use assets | Lease liabilities | | Right-of-use assets | Lease liabilities |
| | | | | | |
| Opening balance | 767,609 | 874,569 | | 690,073 | 769,525 |
| Additions | 411 | 411 | | 2,282 | 2,282 |
| Remeasurement | 37,401 | 37,401 | | 34,946 | 34,946 |
| Business combination | - | - | | 65,408 | 65,408 |
| Depreciation expense | (16,736) | - | | (15,521) | - |
| Interest expense | - | 26,744 | | - | 25,524 |
| Payments of principal | - | (9,648) | | - | (7,976) |
| Payments of interest | - | (26,903) | | | (24,621) |
| Write-off (i) | (28) | (32) | | (102) | (105) |
| Closing balance | 788,657 | 902,542 | | 777,086 | 864,983 |
| | | | | | |
| Balances as of | March 31, 2024 (unaudited) | | December 31, 2023 |
| Current | - | 40,030 | | - | 36,898 |
| Non-current | 788,657 | 862,512 | | 767,609 | 837,671 |
(i) Refers to anticipated termination of real estate leasing contracts.
The Company recognized lease expense from short-term leases and low-value assets of R$1,331 for the three-month period ended March 31, 2024 (R$2,628 for the three-month period ended March 31, 2023).
| 11.2.3 | Accounts payable to selling shareholders |
| | March 31, 2024 | December 31, 2023 |
| | (unaudited) | |
| Earn-outs | | |
| Medical Harbour | 3,065 | 3,000 |
| Shosp | 454 | 454 |
| Além da Medicina | 18,535 | 18,325 |
| CardioPapers | 14,371 | 14,173 |
| | | |
| Accounts payable at amortized cost | | |
| IPEMED | - | 12,805 |
| UniRedentor | 27,868 | 27,155 |
| UniSL | - | 15,064 |
| FCMPB | 64,826 | 63,168 |
| Unigranrio | 160,335 | 156,235 |
| DelRey | 115,956 | 256,488 |
| | | |
| | 405,410 | 566,867 |
| Current | 244,865 | 353,998 |
| Non-current | 160,545 | 212,869 |
| | Afya Limited Notes to the unaudited interim condensed consolidated financial statements Expressed in thousands of Brazilian reais, unless otherwise stated |
| | |
| | March 31, 2024 | March 31, 2023 |
| | (unaudited) | (unaudited) |
| Opening balance | 566,867 | 528,678 |
| Additions | - | 250,000 |
| Payments of principal (i) | (147,262) | (29,476) |
| Payment of interest (i) | (24,735) | (6,887) |
| Interest | 9,722 | 24,403 |
| Remeasurement of earn-outs (ii) | 818 | 2,556 |
| Closing balance | 405,410 | 769,274 |
(i) Payments of principal and interest from acquisition of subsidiaries are included in cash flows from investing activities.
(ii) During the measurement period, management’s expectation has been reviewed based on performance for revenue goals and the contingent consideration for the acquisition of Além da Medicina, CardioPapers and Glic have been remeasured by R$4,773, R$5,082 and (R$7,299), respectively, totaling R$2,556 as of March 31, 2023. These are measured by the Company at the present value.
The table below compares 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, 2024 (unaudited) | December 31, 2023 |
| | Carrying amount | Fair value | Carrying amount | Fair value |
| Financial assets: | | | |
| Trade receivables (non-current) | 40,918 | 40,918 | 39,485 | 39,485 |
| | 40,918 | 40,918 | 39,485 | 39,485 |
| | | | | |
| Financial liabilities: | | | | |
| Loans and financing | 1,783,094 | 1,782,007 | 1,800,775 | 1,795,752 |
| Lease liabilities | 902,542 | 902,542 | 874,569 | 874,569 |
| Accounts payable to selling shareholders | 405,410 | 405,410 | 566,867 | 566,867 |
| | 3,091,046 | 3,089,959 | 3,242,211 | 3,237,188 |
The Company assessed that the fair values of current trade receivables and other current assets, trade payables and other current liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments.
The financial instruments for which the fair value are disclosed are based on Level 2 fair value measurement hierarchy. There has been no change in fair value hierarchy from December 31, 2023 to March 31, 2024.
The fair value of interest-bearing loans and financing are determined by using the discounted cash flow (DCF) method using a discount rate that reflects the issuer’s borrowing rate as of the end of the reporting period. As of March 31, 2024, it was assessed that it is probable that the targets that trigger the contingent considerations payments (earn-outs) recognized will be met. The fair value of the contingent consideration determined at March 31, 2024 reflects the development, among other factors and the remeasurements charge have been recognized through profit or loss. The fair value is determined using a DCF method. The own non-performance risk at March 31, 2024 was assessed to be insignificant.
| 11.4 | Financial instruments risk management objectives and policies |
The Company’s main financial liabilities comprise loans and financing, lease liabilities, accounts payable to selling shareholders and trade payables. The main purpose of these financial liabilities is to finance the Company’s operations. The Company’s main financial assets include trade receivables and cash and cash equivalents.
| | Afya Limited Notes to the unaudited interim condensed consolidated financial statements Expressed in thousands of Brazilian reais, unless otherwise stated |
| | |
The Company is exposed to market risk, credit risk and liquidity risk. The Company monitors market, credit and liquidity risks in line with the objectives of capital management and counts on 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 with policies for managing each of these risks, which are summarized below.
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 and foreign currency risk. The sensitivity analysis in the following sections relates to the position as of March 31, 2024.
a) 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, loans and financing and accounts payable to selling shareholders, with floating interest rates.
Sensitivity analysis
The table below demonstrates the sensitivity to a reasonably possible change in interest on cash equivalents, loans and financing and accounts payable to selling shareholders. With all variables held constant, the Company’s income before income taxes is affected through the impact on floating interest rates, as follows:
| | March 31, 2024 | Index | Base rate |
| | (unaudited) | | |
| Cash equivalents | 586,177 | CDI | 62,690 |
| Loans and financing | (946,216) | CDI | (118,224) |
| Loans and financing | (10,444) | TJLP | (697) |
| Accounts payable to selling shareholders | (253,029) | CDI | (26,948) |
| Accounts payable to selling shareholders | (115,956) | SELIC | (12,349) |
| Net exposure | | | (95,528) |
| | Increase in basis points |
| | +75 | +150 |
| Net effect on profit before tax | (5,546) | (11,092) |
b) Foreign currency risk
Foreign currency risk is the risk that the fair value or future cash flows of 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$19,327 as of March 31, 2024 (December 31, 2023: R$23,173).
| | Afya Limited Notes to the unaudited interim condensed consolidated financial statements Expressed in thousands of Brazilian reais, unless otherwise stated |
| | |
Sensitivity analysis
The table below demonstrates the sensitivity in the Company’s income before income taxes of a 10% change in the U.S. dollar exchange rate (R$4.9956 to U.S. dollar 1.00) as of March 31, 2024, with all other variables held constant.
| | Exposure | +10% | -10% |
| | | | |
| Cash equivalents | 19,327 | 1,933 | (1,933) |
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.
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 5 for additional information on the Company’s trade receivables.
Credit risk from balances with banks and financial institutions is managed 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 carrying amounts of its financial assets are the Company’s maximum exposure to credit risk for the components of the statements of financial position on March 31, 2024 and December 31, 2023.
The Company’s Management has responsibility for monitoring 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 and accounts payable to selling shareholders.
The tables below summarize the maturity profile of the Company’s financial liabilities based on contractual undiscounted amounts:
| As of March 31, 2024 (unaudited) | Less than 1 year | 1 to 3 years | 3 to 5 years | More than 5 years | Total |
| Trade payables | 122,694 | - | - | - | 122,694 |
| Loans and financing | 235,264 | 1,369,944 | 563,532 | - | 2,168,740 |
| Lease liabilities | 145,441 | 277,504 | 264,714 | 1,296,176 | 1,983,835 |
| Accounts payable to selling shareholders | 194,933 | 248,197 | - | - | 443,130 |
| | 698,332 | 1,895,645 | 828,246 | 1,296,176 | 4,718,399 |
| | | | | | |
| | Afya Limited Notes to the unaudited interim condensed consolidated financial statements Expressed in thousands of Brazilian reais, unless otherwise stated |
| | |
| As of December 31, 2023 | Less than 1 year | 1 to 3 years | 3 to 5 years | More than 5 years | Total |
| Trade payables | 108,222 | - | - | - | 108,222 |
| Loans and financing | 298,981 | 1,383,255 | 568,326 | - | 2,250,562 |
| Lease liabilities | 137,735 | 268,724 | 255,456 | 1,261,213 | 1,923,128 |
| Accounts payable to selling shareholders | 387,693 | 231,478 | - | - | 619,171 |
| | 932,631 | 1,883,457 | 823,782 | 1,261,213 | 4,901,083 |
| 11.5 | Changes in liabilities arising from financing activities |
| | January 1, 2024 | Payments of principal | Payments of interest | Additions and remeasurements | Interest | Other | March 31, 2024 |
| | | | | | | | (unaudited) |
| Loans and financing (i) | 1,800,775 | (10,762) | (48,806) | - | 41,205 | 682 | 1,783,094 |
| Lease liabilities (i) | 874,569 | (9,648) | (26,903) | 37,812 | 26,744 | (32) | 902,542 |
| Dividends payable | - | (3,712) | - | 3,712 | - | - | - |
| | 2,675,344 | (24,122) | (75,709) | 41,524 | 67,949 | 650 | 2,685,636 |
| | January 1, 2023 | Payments of principal | Payments of interest | Additions and remeasurements | Interest | Business combination | Other | March 31, 2023 |
| | | | | | | | | (unaudited) |
| Loans and financing (i) | 1,882,901 | (459) | (15,286) | 3,663 | 52,006 | - | 912 | 1,923,737 |
| Lease liabilities (i) | 769,525 | (7,976) | (24,621) | 37,228 | 25,524 | 65,408 | (105) | 864,983 |
| Dividends payable | - | (6,130) | - | 6,130 | - | - | - | - |
| | 2,652,426 | (14,565) | (39,907) | 47,021 | 77,530 | 65,408 | 807 | 2,788,720 |
(i) Payment of interest of loan and financing and lease liabilities are included in cash flows from financing activities.
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 shareholder value.
In order to achieve its overall objective, the Company’s capital management, among other things, aims to ensure that it meets financial covenants attached to the debentures and other loans and financing, including net debt ratio to adjusted EBITDA. Breaches in meeting the financial covenants would permit the bank to immediately call loans and financings. There have been no breaches of the financial covenants of any loans and financing in the current period.
No changes were made in the objectives, policies or processes for managing capital during the three-month period ended March 31, 2024.
| 13 | Labor and social obligations |
a) Variable compensation (bonuses)
The bonuses related to variable compensation of employees and management of R$10,292 and R$9,036 are recognized in cost of services and selling, general and administrative expenses in the statements of income for the three-month periods ended March 31, 2024 and 2023, respectively.
b) Afya Limited share-based compensation plans
b.1) Stock options plan
The stock options plan was approved on August 30, 2019 and granted to senior executives and other employees of the Company from that date, with subsequent changes in the strike price, as approved, on July 29, 2020, July 8, 2022 and July 31, 2023. Such changes were assessed as modifications by the Company and were accounted in accordance with IFRS 2.
On July 31, 2023, the People and ESG Committee approved a change in the share-based compensation plan to retain talents and reinforce the compensation plan. All the holders of stock options granted before July 11, 2022, with strike price based on the IPO price in Brazilian Reais or above, were offered the possibility to exchange the stock options for a number of Restricted Stock Units (RSUs), resulting in a weighted average conversion ratio of 0.12 RSUs per stock option, with conversion ratios based on fair value of the original plan, at modification date, so that the total fair value of the modified award remained the same as the original plan.
| | Afya Limited Notes to the unaudited interim condensed consolidated financial statements Expressed in thousands of Brazilian reais, unless otherwise stated |
| | |
As result of those modifications, the expense related to the share-based payment of the Company reflects the cost of the original award at grant date over the vesting period plus the incremental fair values of the repriced options at modification dates over the vesting period of the stock options.
During the three-month period ended March 31, 2024 there were no additional stock options granted by the Company (March 31, 2023: 15,000 additional stock options granted).
The table below presents the number and movements in stock options for the three-month periods ended March 31, 2024 and 2023:
| | Weighted average strike price (in Brazilian Reais) | Number of stock options |
| March 31, 2024 | March 31, 2023 |
| | | (unaudited) | (unaudited) |
| Outstanding at January 1 | 64.33 | 1,696,064 | 3,729,287 |
| Granted | - | - | 15,000 |
| Exercised | 60.74 | (13,745) | - |
| Forfeited | 60.74 | (10,330) | (93,133) |
| Expired | - | - | (78,000) |
| Outstanding at March 31 | 64.79 | 1,671,989 | 3,573,154 |
| Exercisable | 87.55 | 228,490 | 1,040,641 |
The share-based compensation expense recognized in selling, general and administrative expenses in the statements of income for the three-month periods ended March 31, 2024 and 2023 was R$3,916 and R$4,360, respectively.
b.2) Restricted Stock Units (RSU) Program
On July 8, 2022, the Company approved the new Restricted Stock Units (RSU) program for employees. The participant's right to effectively receive ownership of the restricted shares will be conditioned on the participant's continuance as an employee or director in the business group from the grant date until vesting. The executives will be entitled to these shares in a proportion of 10%, 20%, 30%, 40% each year.
The Company accounts for the RSU plan as an equity-settled plan, except for the portion of labor and social securities obligations.
During the three-month period ended March 31, 2024 there were no RSUs granted by the Company (March 31, 2023: 8,000 additional RSUs granted).
Total RSU expenses recognized in selling, general and administrative expenses in the consolidated statement of income for the three-month periods ended March 31, 2024 and 2023 were R$4,714 and R$2,135, respectively. Labor and social obligations were R$1,035 and R$2,167 for the three-month periods ended March 31, 2024 and 2023, respectively.
a) Share capital
As of March 31, 2024 and December 31, 2023, the Company’s share capital was R$17 represented by 93,722,831 shares comprised by 49,920,068 class A common shares and 43,802,763 class B common shares as of March 31, 2024 and 47,920,068 class A common shares and 45,802,763 class B common shares as of December 31, 2023. As of March 31, 2024 and December 31, 2023, the Company’s authorized capital was US$50 thousand.
| | Afya Limited Notes to the unaudited interim condensed consolidated financial statements Expressed in thousands of Brazilian reais, unless otherwise stated |
| | |
b) Dividends
In the three-month period ended March 31, 2024, CCSI and IESVAP approved the payment of dividends of R$15,409, which R$11,697 was distributed to the Company and R$3,712 to non-controlling shareholders (March 31, 2023: R$19,269, which R$13,135 was distributed to the Company and R$6,130 to non-controlling shareholders).
c) Share repurchase program
On March 24, 2023, the Company’s board of directors approved the fourth share repurchase program. Afya may repurchase up to 2,000,000 of its outstanding Class A common shares in the open market, based on prevailing market prices, beginning on March 24, 2023, until the earlier of the completion of the repurchase or December 31, 2024, depending upon market conditions.
During the three-month periods ended March 31, 2024 and 2023, the Company did not repurchase any share.
| 15 | 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 and restricted share unit plans in the category of potentially dilutive shares.
Softbank’s series A perpetual convertible preferred shares are dilutive as of March 31, 2024 and are included on diluted earnings per share (March 31, 2023: antidilutive, and not included on diluted earnings per share).
The table below presents the basic and diluted earnings per share calculations:
| | March 31, 2024 | March 31, 2023 |
| | (unaudited) | (unaudited) |
| Numerator | | |
| Net income attributable to equity holders of the parent | 203,393 | 112,124 |
| Interest on convertible preference shares | 12,415 | - |
| Profit attributable to equity holders adjusted for the effect of the dilution | 215,808 | 112,124 |
| Denominator | | |
| Weighted average number of shares outstanding | 89,969,430 | 89,936,546 |
| Effects of dilution from stock options and restricted share units | 1,401,628 | 661,531 |
| Effects of dilution from convertible shares | 5,917,888 | - |
| Weighted average number of outstanding shares adjusted for the effect of dilution | 97,288,946 | 90,598,077 |
| | | |
| Basic earnings per share (R$) | 2.26 | 1.25 |
| Diluted earnings per share (R$) | 2.22 | 1.24 |
| | Afya Limited Notes to the unaudited interim condensed consolidated financial statements Expressed in thousands of Brazilian reais, unless otherwise stated |
| | |
| | March 31, 2024 | March 31, 2023 |
| | (unaudited) | (unaudited) |
| Tuition fees | 980,975 | 862,390 |
| Other | 72,679 | 64,983 |
| Deductions | | |
| Discount and scholarships | (75,637) | (52,636) |
| Early payment discounts | (48,224) | (54,717) |
| Returns | (8,234) | (7,886) |
| Taxes | (38,697) | (35,722) |
| PROUNI | (78,623) | (66,451) |
| | 804,239 | 709,961 |
| | | |
| Timing of revenue recognition of revenue from contracts with customers | | |
| Tuition, digital content and app subscription fees - Transferred over time | 790,149 | 694,513 |
| Other - Transferred at a point in time | 14,090 | 15,448 |
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 Revenue tax (Contribuição para o Financiamento da Seguridade Social, or COFINS) on the revenue from under graduation degrees under the PROUNI program.
The tables below present the statements of income for the Company’s operating segments for the three-month periods ended March 31, 2024 and 2023:
| | Undergrad | Continuing education | Medical practice solutions | Elimination (inter-segment transactions) | March 31, 2024 |
| | | | | | (unaudited) |
| Types of services or goods | 704,519 | 65,415 | 36,573 | (2,268) | 804,239 |
| Tuition fees | 700,875 | 39,744 | - | - | 740,619 |
| Other | 3,644 | 25,671 | 36,573 | (2,268) | 63,620 |
| | | | | | |
| Timing of revenue recognition | 704,519 | 65,415 | 36,573 | (2,268) | 804,239 |
| Transferred over time | 700,875 | 56,395 | 35,147 | (2,268) | 790,149 |
| Transferred at a point in time | 3,644 | 9,020 | 1,426 | - | 14,090 |
| | Undergrad | Continuing education | Medical practice solutions | Elimination (inter-segment transactions) | March 31, 2023 |
| | | | | | (unaudited) |
| Types of services or goods | 620,976 | 58,212 | 33,540 | (2,767) | 709,961 |
| Tuition fees | 617,536 | 32,860 | - | - | 650,396 |
| Other | 3,440 | 25,352 | 33,540 | (2,767) | 59,565 |
| | | | | | |
| Timing of revenue recognition | 620,976 | 58,212 | 33,540 | (2,767) | 709,961 |
| Transferred over time | 617,536 | 48,725 | 31,019 | (2,767) | 694,513 |
| Transferred at a point in time | 3,440 | 9,487 | 2,521 | - | 15,448 |
| | Afya Limited Notes to the unaudited interim condensed consolidated financial statements Expressed in thousands of Brazilian reais, unless otherwise stated |
| | |
| 17 | Costs and expenses by nature |
| | March 31, 2024 | March 31, 2023 |
| | (unaudited) | (unaudited) |
| Payroll | (260,547) | (249,144) |
| Hospital and medical agreements | (23,919) | (19,215) |
| Depreciation and amortization | (79,269) | (65,971) |
| Lease expenses | (1,331) | (2,628) |
| Utilities | (4,146) | (4,152) |
| Maintenance | (27,842) | (22,521) |
| Share-based compensation | (8,630) | (6,495) |
| Tax expenses | (2,558) | (2,140) |
| Pedagogical services | (16,611) | (12,752) |
| Sales and marketing | (16,278) | (13,587) |
| Allowance for expected credit losses | (15,264) | (17,694) |
| Travel expenses | (2,606) | (3,110) |
| Consulting fees | (10,020) | (18,932) |
| Other | (41,647) | (42,486) |
| | (510,668) | (480,827) |
| Cost of services | (269,504) | (247,607) |
| Selling, general and administrative expenses | (241,164) | (233,220) |
| | (510,668) | (480,827) |
| | March 31, 2024 | March 31, 2023 |
| | (unaudited) | (unaudited) |
| Income from financial investments | 11,827 | 16,654 |
| Interest received | 12,415 | 10,299 |
| Other | 1,288 | 735 |
| Finance income | 25,530 | 27,688 |
| | | |
| Interest expense | (51,745) | (77,530) |
| Interest expense on lease liabilities | (26,744) | (25,524) |
| Financial discounts granted | (7,779) | (7,050) |
| Bank fees | (1,530) | (1,971) |
| Taxes on financial transactions (IOF) | (632) | (1,290) |
| Other | (11,466) | (10,875) |
| Finance expenses | (99,896) | (124,240) |
| | | |
| Net finance result | (74,366) | (96,552) |
| | Afya Limited Notes to the unaudited interim condensed consolidated financial statements Expressed in thousands of Brazilian reais, unless otherwise stated |
| | |
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.
Reconciliation of income taxes expense
The table below presents the reconciliation of income tax expense for the three-month periods ended March 31, 2024 and 2023:
| | March 31, 2024 | March 31, 2023 |
| | (unaudited) | (unaudited) |
| Income before income taxes | 219,164 | 136,832 |
| Statutory income taxes rate | 34% | 34% |
| Income taxes at statutory rate | (74,516) | (46,523) |
| Reconciliation adjustments: | | |
| Tax effect on loss from entities not subject to taxation | (7,961) | (7,760) |
| PROUNI - Fiscal incentive (i) | 104,113 | 90,471 |
| Unrecognized deferred taxes | (32,399) | (49,108) |
| Recognized deferred taxes | (656) | - |
| Presumed profit income tax regime effect (ii) | 25 | (1,498) |
| Permanent adjustments | (1,499) | (4,494) |
| Other | 2,028 | (148) |
| Income taxes expense | (10,865) | (19,060) |
| Effective rate | 5.0% | 13.9% |
(i) The Company adhered to PROUNI, established by Law 11,096 / 2005, which is a federal program that exempts companies of paying income taxes and social contribution upon compliance with certain requirements required by said Law.
(ii) 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 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, 2024, the Company had accumulated unrecognized deferred income tax assets on temporary differences and tax losses in the amount of R$1,299,622 of tax-basis (December 31, 2023: R$1,211,909) 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 over these amounts, except for R$7,579 of tax basis from one subsidiary, where the Company recognize deferred tax assets that is expected to be compensated in next years (December 31, 2023: R$9,508).
| 20 | 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.
| | Afya Limited Notes to the unaudited interim condensed consolidated financial statements Expressed in thousands of Brazilian reais, unless otherwise stated |
| | |
b) Legal proceedings and contingencies
The provisions related to labor, civil and taxes proceedings whose likelihood of loss is assessed as probable are as follows:
| | Labor | Civil | Taxes | Total |
| | | | | |
| Balances as of January 1, 2023 | 22,484 | 24,664 | 148,706 | 195,854 |
| Additions | 869 | 1,631 | 2,210 | 4,710 |
| Reversals | (103) | (337) | (1,116) | (1,556) |
| Business combination | 64 | 88 | - | 152 |
| Balances as of March 31, 2023 (unaudited) | 23,314 | 26,046 | 149,800 | 199,160 |
| | | | | |
| Balances as of January 1, 2024 | 22,721 | 21,300 | 60,340 | 104,361 |
| Additions | 3,324 | 2,253 | 12,474 | 18,051 |
| Reversals | (4,996) | (336) | (14,570) | (19,902) |
| Balances as of March 31, 2024 (unaudited) | 21,049 | 23,217 | 58,244 | 102,510 |
The major labor proceedings to which the Company is a party were filed by former employees or service providers seeking enforcement of labor rights allegedly not provided by us. The judicial proceedings relates to employment bonds (judicial proceedings filed by former service providers), overtime, premiums for hazardous workplace conditions, statutory severance, fines for severance payment delays, and compensation for workplace-related accidents.
The civil claims to which the Company is a party generally relate to consumer claims, including those related to student complaints.
The tax claims to which the Company is party are mostly tax foreclosures filed by Brazilian federal and municipal tax authorities.
There are other civil, labor and taxes proceedings assessed by Management and its legal counsels as possible risk of loss, for which no provisions are recognized, as follows:
| | March 31, 2024 | December 31, 2023 |
| | (unaudited) | |
| Labor | 31,566 | 32,683 |
| Civil | 50,009 | 51,319 |
| Taxes | 5,966 | 5,669 |
| | 87,541 | 89,671 |
The Company has judicial deposits, related to taxes, civil and labor proceedings, recorded in other non-current assets in the amount of R$14,342 as of March 31, 2024 (December 31, 2023: R$14,187).
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.
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$77,165 (December 31, 2023: R$81,855) is presented in non-current other assets.
| | Afya Limited Notes to the unaudited interim condensed consolidated financial statements Expressed in thousands of Brazilian reais, unless otherwise stated |
| | |
During the three-month periods ended March 31, 2024 and 2023, the Company carried out non-cash transactions which are not reflected in the statements of cash flows. The main non-cash transactions are as follows:
| | March 31, 2024 | March 31, 2023 |
| | (unaudited) | (unaudited) |
| Additions and remeasurements of right-of-use assets and lease liabilities | 37,812 | 37,228 |
| Additions (reversals) of provision for legal proceedings with corresponding indemnification asset, net | (4,689) | 1,321 |
Acquisition of Unidom
On May 2, 2024, Afya Brazil entered into a share purchase agreement for the acquisition of 100% of the total share capital of Unidom Participações S.A. (“Unidom”) which encompasses Unidompedro and Faculdade Dom Luiz, both located in the State of Bahia with operations in the cities of Salvador, Luis Eduardo Magalhães, Barreiras and Ribeira do Pombal.
The acquisition will add 300 operational medical school seats to Afya in Salvador, one of Brazil's largest cities. The authorization request for these 300 seats was made to MEC before the Mais Médicos Law was enacted and MEC concluded its analysis and issued Ordinance 630/2020 ("Ordinance") in 2020 to partially authorize the operation considering 125 medical seats. In 2021, as a result of a judicial order, MEC reviewed the Ordinance to authorize the 300 seats initially requested by Unidompedro. Said decision was confirmed by a judgement in 2023. Currently, Unidompedro has 300 seats authorized, of which 125 are final and 175 are subject to a final conclusion of the aforementioned court proceedings.
The aggregate purchase price is R$660,000 before the deduction of Net Debt. It will be paid as follows: R$347,800 in cash at the transaction closing date and R$312,200 in up to ten annual installments of R$31,220, adjusted by the Interbank Certificate of Deposit rate (CDI), and it is conditioned upon the maintenance of the authorization of the 175 seats in each of the prior year. The remaining payment balance is accelerated if a final and non-appealable conclusion of the aforementioned court proceedings, within the 10-year payment period, confirms the authorization for the 175 seats. In turn, if, within the same 10-year payment period, a final conclusion of the aforementioned court proceedings does not confirm the authorization for such 175 seats, the remaining payment balance will no longer be due. Additionally, if Unidompedro or Faculdade Dom Luiz wins the bid processes in the Mais Médicos III Program, an additional payment of R$250 thousand per granted seat will be made.
The transaction's closing is subject to customary and usual conditions including approval from antitrust regulators.
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