UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 6-K

 

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934

 

For the month of May, 2021

 

 Commission File Number: 001-38992

 

Afya Limited

(Exact name of registrant as specified in its charter)

 

Alameda Oscar Niemeyer, No. 119, Salas 502, 504, 1,501 and 1,503

Vila da Serra, Nova Lima, Minas Gerais

Brazil

+55 (31) 3515 7550

(Address of principal executive office)

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

 

Form 20-F

X

  Form 40-F  

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

 

Yes     No

X

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

 

Yes     No

X

 

 

 

 

 

TABLE OF CONTENTS

 

EXHIBIT  
99.1 Unaudited interim condensed consolidated financial statements March 31, 2021
99.2 Afya Limited Announces First-Quarter 2021 Financial Results

 

 

 

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

    Afya Limited
     
     
      By: /s/ Virgilio Deloy Capobianco Gibbon
        Name: Virgilio Deloy Capobianco Gibbon
        Title: Chief Executive Officer

Date: May 26, 2021

 

 

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

 

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

 

(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

 

 

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

 

2.1Basis 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

 

 

2.2Changes 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

 

 

2.3Basis 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

 

 

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

 

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

 

11.1Financial 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.

 

11.2Financial 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

 

11.2.1Loans 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.

 

 

11.2.2Leases

 

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

 

11.2.3Accounts 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

 

 

11.2.4Notes 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

 

 

11.3Fair 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

 

 

11.4Financial 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.

 

11.4.1Market 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
(unaudited)

           
       

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)

 

 

11.4.2Credit 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

 

11.4.3Liquidity 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

 

 

 

11.5Changes 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.

 

 

13Capital 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.

 

 

14Labor 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).

 

 

15Equity

 

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

 

 

16Earnings 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

 

 

17Revenue
  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

 

 

18Expenses 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)

 

 

19Finance 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

 

20Income 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

 

 

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

 

 

21Insurance 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

 

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.

 

22Non-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.

 

23Subsequent 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

 

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

 

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

 

Afya Limited Announces First-Quarter 2021 Financial Results

 

1Q21 Strong results and high-growth track record

Reaffirming 1H21 guidance

 

Nova Lima, Brazil, May 27, 2021 – Afya Limited (Nasdaq: AFYA) (“Afya” or the “Company”), the leading medical education group and digital health service provider in Brazil, reported today financial and operating results for the three-month period ended March 31, 2021 (first quarter 2021). Financial results are expressed in Brazilian Reais and are presented in accordance with International Financial Reporting Standards (IFRS).

 

First Quarter 2021 Highlights

§1Q21 Adjusted Net Revenue increased 47.8% YoY to R$402.5 million. Adjusted Net Revenue excluding acquisitions grew 10.7%, reaching R$301.4 million.
§1Q21 Adjusted EBITDA increased 47.6% YoY reaching R$207.7 million, with an Adjusted EBITDA Margin of 51.6%. Adjusted EBITDA excluding acquisitions grew 11.8%, reaching R$157.2 million, with an Adjusted EBITDA Margin of 52.1%.
§1Q21 Adjusted Net Income of R$159.9 million, 21.7% higher than 1Q20.
§Cash conversion of 102.5%, with a solid cash position of R$ 965.5 million.
§2,143 medical seats, 14.8% increase YoY, and 12,852 medical students, which was up 61.5%.

 

Table 1: Financial Highlights          
  For the three months period ended March 31,
(in thousand of R$) 2021 2021 Ex Acquisitions* 2020 % Chg  % Chg Ex Acquisitions
(a) Net Revenue 394,351 294,880 272,304 44.8% 8.3%
(b) Adjusted Net Revenue (1) 402,555 301,429 272,304 47.8% 10.7%
(c) Adjusted EBITDA (2) 207,652 157,194 140,644 47.6% 11.8%
(d) = (c)/(b)  Adjusted EBITDA Margin 51.6% 52.1% 51.6% 0 bps 50 bps
(e) Adjusted Net Income 159,989 129,163 131,480 21.7% -1.8%
           
* Acquisitions include UniRedentor (January, 2021), UniSl, PEBMED, FCMPB, MedPhone, FESAR, iClinic and Medicinae.
1. Includes mandatory discounts in tuition fees granted by state decrees and individual/collective legal proceedings and public civil proceedings due COVID 19 on site classes restriction and excludes recognized revenue  that relates to discounts that were granted in 2H2020, but were invoiced in 1Q21, based on the Supreme Court decision that was released in December 28, 2020.  
2. See more information on "Non-GAAP Financial Measures" (Item 10).

 

1.Message from Management

Virgilio Gibbon, Afya’s CEO, stated:

 

First-quarter results reaffirmed our resilience, predictable business growth boosted by medical student maturation, and started to show accelerated growth in the digital business. As a result, our adjusted net revenue jumped 47.8% over last year’s posting, once again, another great start for the year ahead.

 

In terms of BU-2, we will begin to segregate in two categories starting this quarter; Continuing Education, comprised of specialization and other courses, and Digital Services, comprised of the 6 digital pillars that our strategy is based on: Content & Technology for Medical Education, Clinical Decision Software, Practice Management Tools & Electronic Medical Records, Physician-Patient Relationship, Telemedicine, and Digital Prescription. 

 

1 
 

Digital Services is showing an accelerated growth year-over-year, with revenue increasing 43%, mainly due to the integration of acquired companies and expansion of the monthly active subscribers. The digital business is a fast-growing market, and we are just scratching the surface of a total addressable market of R$21.4 billion. Our strategy to outgrow this market is to increase the distribution of our products through our unique ecosystem, with more than 220,000 physicians and medical students, focusing on the B2B strategy, and continuing to pursue companies that fit our pillars.

 

M&A remains a key growth strategy for us and we continue to evaluate opportunities to deploy capital into strategic acquisitions in the Undergrad, Continuing Education and the Digital Services Business.

 

We are excited and honored to announce UNIGRANRIO acquisition while entering definitely in Rio de Janeiro with the highest academic quality among all for profit universities in the state. Considering this acquisition, we have over delivered our guidance and reached 1,159 seats acquired since the IPO. But we will not stop there. As promised in our first Afya Investors and ESG Day, we are committed to acquire at least 200 seats per year, with that, combined with all organic expansion alternatives, we will achieve up to 15% market share in terms of private medical seats in Brazil by 2026.

 

This strategy is only possible due to our peer-leading capital structure that combined a strong free cash flow generation of more than 80% with our last announced financial operation with SoftBank, which will not only consolidate our cash position but will create a partnership to pursue this M&A strategy and Digital Services development.

 

Lastly, I would like to invite all of you that could not participate in Afya’s Investors and ESG Day to visit our Investor Relations website to check the video of the event and our 2021 Sustainability Report, which can give you more information about our execution and strategy.

 

 

2.Key Events in the Quarter:

 

§Closing the iClinic acquisition in January, 2021 – a leading practice management software for physicians in Brazil, expanding Afya’s end-to-end digital health services.
§Medicinae acquisition in March, 2021 – a unique financial platform that allows healthcare professionals throughout Brazil to manage receivables in an efficient and scalable way using FIDC (Receivables Investment Fund). Medicinae alleviates a number of challenges in the healthcare payments industry, as it reduces long payment cycles for professionals and consolidates financial information, improving the consumer financial experience.

 

3.Subsequent Events in the Quarter

 

§Medical Harbour acquisition in April, 2021 – 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 allows the exploration, and understanding of human anatomy with digital resources.
§Cliquefarma acquisition in April, 2021 – Cliquefarma is a healthtech company operating a free-to-use website that tracks the prices of prescription drugs, cosmetics and personal hygiene products in Brazil.
§Closing of the SoftBank transaction in May, 2021 - its purchase of US$150 million of Afya’s Series A perpetual convertible preferred shares set forth in the Certificate of Designations. In addition, Crescera Educacional II Fundo de Investimento em Participações Multiestratégia and the Esteves Family also closed the sale of 2,270,208 Class A common shares to SoftBank. In connection with such sale, Paulo Passoni from Softbank will be appointed as a board member of Afya until June 3, 2021.
§Shosp acquisition in May, 2021 – a complete clinical management software that offers all functionalities needed for clinics all over Brazil to manage their financials, patient appointments, payments, marketing, and others.
§UNIGRANRIO acquisition in May, 2021 – a post-secondary education institution with government authorization to offer 308 undergraduate medical seats in the state of Rio de Janeiro. With this acquisition Afya reaches 2,611 authorized medical seats. The aggregate purchase price (enterprise value) is R$700.0 million, including the assumption of estimated Net Debt of R$72.4 million which will be adjusted at the closing date. The equity value will be paid: 60% in cash on the transaction closing date and 40% in four equal annual instalments, adjusted by the CDI rate. We expected an EV/EBITDA of 4.1x at maturity and post synergies.
2 
 
4.First Half 2021 Guidance Reaffirmed

 

The Company is reaffirming its previously issued guidance for 1H20 including the successfully concluded admissions of new students for the first semester of 2021, consolidation of the Digital Services companies and successful integration of FCM-PB.

 

The guidance for 1H21 is defined in the following table:

 

Guidance for 1H21 Important considerations
Net Revenue is expected to be between R$740 million – R$780 million §     Includes Mais Médicos schools in Santa Inês and Cruzeiro do Sul starting on January   1, 2021.
§     Includes iClinic starting on January 21, 2021.
§     Excludes any acquisition that may be concluded after the issuance of the guidance. For example, it does not include UNIFIPMOC, which 2020 estimated Net Revenue was R$109 million. 
Adjusted EBITDA Margin is expected to be between 46.0%-48.0% §     Includes Mais Médicos schools in Santa Inês and Cruzeiro do Sul starting on January       1, 2021.
§     Includes iClinic starting on January 21, 2021.
§     Excludes any acquisition that may be concluded after the issuance of the guidance. For instance does not include UNIFIPMOC.
§     Includes the impact of the adoption of IFRS 16.

 

 

5.1Q21 Overview

 

Operational Review

Afya is the only company offering technological solutions to support physicians across every stage of the medical career, from undergraduate students in its medical school years through medical residency preparatory courses, medical specialization programs and continuing medical education. With the acquisition of PEBMED, Afya entered into digital health services, providing content and clinical decision applications.

The Company, starting on this release, will report results for three distinct business units. The first, Undergrad – medical schools, other healthcare programs and ex-health degrees. Revenue is generated from the monthly tuition fees the Company charges students enrolled in the undergraduate programs. The second, Continuing Education – specialization programs and graduate courses. Revenue is also generated from the monthly tuition fees the Company charges students enrolled in the specialization and graduate courses. The third is Digital Services – digital services offered by the Company at every stage of the medical career. This business unit is divided in 6 pillars: Content & Technology for Medical Education, Clinical Decision Software, Practice Management Tools & Electronic Medical Records, Physician - Patient Relationship, Telemedicine, and Digital Prescription and revenue is generated from printed books and e-books, which is recognized at the point in time when control is transferred to the customer and subscription fees (SaaS model).

 

3 
 

Key Revenue Drivers – Undergraduate Courses

Table 2: Key Revenue Drivers Three months period ended March 31,
  2021 2020 % Chg
Undergrad Programs      
MEDICAL SCHOOL      
Approved Seats (1) 2,143 1,866 14.8%
Operating Seats  1,893 1,516 24.9%
Total Students  12,852 7,956 61.5%
Total Students (ex- Acquisitions)* 8,921 7,339 21.6%
Tuition Fees (ex- Acquisitions - R$MM)  233,203  181,308 28.6%
Tuition Fees (Total - R$MM)  333,319  193,922 71.9%
Medical School Avg. Ticket (ex- Acquisitions* - R$/month) 8,714 8,235 5.8%
UNDERGRADUATE HEALTH SCIENCE      
Total Students 9,552 7,596 25.8%
Total Students (ex- Acquisitions)* 5,750 6,544 -12.1%