Management Report 2016

Transcription

1 Management Report 2016

2 Summary 2016 Management Report Message from Management 03 Macroeconomic and industry scenario 05 About Grupo Fleury 06 Corporate sustainability 07 Grupo Fleury: a knowledge and innovation company 10 Medical relations 11 Customer relations 12 Personnel management 13 Corporate Governance 14 Economic and Financial Performance 17 2

3 Message from Management Grupo Fleury began its trajectory in 1926 under the brand Fleury Medicina e Saúde and celebrated its 90 th anniversary in One of its most important achievements during this time was building a valuable reputation, based on technical, medical and service excellence and the constant pursuit of excellence in management, which has increased our competitiveness and growth potential. Within this context, this year marks a turnaround cycle, which began at the end of 2013, with the restructuring of the Rio de Janeiro operations and the repositioning of regional brands, especially a+ São Paulo. After consolidating initiatives to capture the existing demand for quality services and optimize operating returns, in 2016, we focused on projects designed to improve our clients experience when using our services. During the year, we developed the first part of the Lean project, which redesigned processes within the units in order to optimize service, increase employee productivity and reduce our clients waiting time. As a result, we noticed a substantial increase in the NPS (Net Promoter Score) of the eight units included in the first phase of the project, in addition to employee productivity gains. Grupo Fleury closed 2016 with a NPS of 72.3%, 786 bps higher than in the fourth quarter of 2015, and we expect this indicator to continue improving as we plan to implement the Lean project in a higher number of units in At the end of 2016, we began the Telemetry project, which will give us real-time access to our patient service centers main indicators, such as clients waiting time, scheduled tests and new records filed on the day, among others. As a result, we will manage these operations, especially our regional branches, on real time, improving their efficiency. Another factor that has contributed to increasing management efficiency was the redesign of the organizational architecture at the beginning of the year, when we made changes to the scope of operations of our different areas and reduced hierarchical levels in order to give greater emphasis to priority issues for the Company s strategy. In 2016, we also concluded the Procurement project, through which we renegotiated contracts with our suppliers and restructured processes in the Supply area in order to reduce the Company s main costs and expenses was also marked by positive results related to employee satisfaction. Our organizational climate survey showed a 79% favorability rating, a substantial improvement over the last survey, conducted in This figure places the Company among a select group of organizations with high satisfaction levels regarding various aspects of the company s culture and environment: management and leadership, communication, focus on the client, quality of life and well-being, compensation and benefits, sustainability and inclusion, and innovation, among other issues. Thanks to these initiatives, Grupo Fleury recorded growth in all income statement lines at year-end. Gross revenue moved up 9.7% to R$2.3 billion, while net revenue climbed 10.6%, thanks to a reduction in the level of disallowances to 2.7% in the period. EBITDA grew 34.9% in the period, while the EBITDA margin increased 416 bps to 23.0% in Net income totaled R$228.7 million, 113.1% up, while operating cash generation came to R$513.9 million, 39.4% more than in At the same time, the year was also marked by investments in partnerships that will promote the development of innovative initiatives in the health sector. It is worth mentioning an unprecedented partnership with IBM Watson Saúde in Latin America and the technology transfer licensing agreement with the American company Quest Diagnostics. We are developing a project with IBM to test and validate Watson Genomics in Brazil as a potential information tool for medical decision-making. Our partnership with Quest is expanding our portfolio of exams that use mass spectrometry. We were the first diagnostic medicine company in Latin America to use this method and, thanks to this partnership, we will expand its use to another three clinical analysis tests, one of which is a new addition to our portfolio. It is initiatives such as this that maintain us in the forefront of diagnostic medicine in Brazil. 3

4 We have innovated the way we communicate with our end clients. Together with the Outubro Rosa movement, Fleury Medicina e Saúde launched the Temporada da Mulher (Women s Season) campaign, designed to raise awareness to women s health issues. This campaign included the #saudeepoder (#healthispower) action, which disseminated information on the most important preventive exams for women together with the units of the brand that offer specialized services to these clients, such as the Women s Advanced Diagnostic Center, at the República do Líbano II unit, and the Women s Health Space, in another 15 units. We also launched the Sutiã Rosa (Pink Bra) digital action designed to make young women between 16 and 25 years old aware of health issues from an early age in order to become conscientious adults and, at the same time, influence older generations thanks to their great access to information. The initiative s video had a million views on social media in 13 days. The video is available at Observing the growing demand for our services in several brands and regions, in December 2016, we disclosed our five-year ( ) growth plan, which comprises the opening of between 73 and 90 patient service centers. We had already opened three of these units by December 2016, including: Fleury Moema, in São Paulo (SP), and a+ Batel and a+ Nossa Saúde, in Curitiba (PR). This movement is the beginning of a new growth cycle supported by a Strategic Plan devised together with the Board of Directors and management focused on growth with increased penetration of our patient service centers and partnerships with hospitals. At the same time, we will continue positioning ourselves as an innovative and digital company, seeking new ways to offer our excellent services and medical knowledge to our clients. Marcos Bosi Ferraz Chairman of the Board of Directors Carlos Marinelli Chief Executive Officer of Grupo Fleury Macroeconomic and industry scenario 4

5 Although the Brazilian economic environment is challenging and health sector indicators deteriorated compared with 2015, revenue grew in all our operating segments. According to the National Regulatory Agency for Private Health Insurance and Plans (ANS), the number of healthcare plan beneficiaries fell by 1.4 million in During the year, we continued to observe a decline in the country s main economic indicators. According to the Brazilian Institute of Geography and Statistics (IBGE), there were 12 million unemployed people at the end of 2016, and 1.3 million formal jobs were closed in the year, according to the General Register of Employed and Unemployed Workers (CAGED). However, this figure is 13.9% lower than in The decline in the number of healthcare plan beneficiaries was related to the increase in the unemployment rate, as most plans are corporate, i.e. offered by companies to their employees. The number of healthcare beneficiaries totaled 47.9 million, a 2.8% decline from 2015, according to the ANS. Of this total, 79.9% of the beneficiaries had a group plan, 19.6% had an individual or family plan and 0.5% did not say the type of plan they had. Of group plans, 83.0% were corporate plans and 16.9% were affinity plans. The percentage of the Brazilian population covered by private healthcare plans stood at 23.2%, versus 24.0% in In 2016, the ANS authorized an increase of up to 13.75% in individual or family healthcare plans, related to the period between May 2016 and April On the other hand, the price increase of corporate healthcare plans, which is not regulated by the ANS, came to around 18.0%, according to the Willis Towers Watson consulting firm. Although the economic environment and the private health sector scenario deteriorated in 2016, we continued to record growth in all our brands and business lines. The Group s gross revenue moved up 9.7%, with increases of 9.4% in patient service units and 10.5% in hospital operations. We attribute this performance to the fact that we are exposed to the middle-income and premium segments, which we consider to be the most resilient portions of the private health sector, and to the excellent products and services we offer. 5

6 About Grupo Fleury "Being present in people's day-to-day lives, welcoming them and providing them with integrated medical and health solutions through knowledge and the constant pursuit of excellence." In 2016, Grupo Fleury celebrated its 90 th anniversary, consolidating its position as one of the most traditional medical and health organizations in the country, referred by the medical community, the patients and the public opinion for its medical and care excellence, innovation and sustainable development. The Company has four main business segments: Patient Service Centers: There are 141 units in the states of São Paulo, Rio de Janeiro, Rio Grande do Sul, Pernambuco, Bahia, Paraná and the Federal District, providing private medical diagnostics for premium and upper-middle-income healthcare plans. Diagnostic Operations in Hospitals: Diagnostic services for 22 partner hospitals, more focused on clinical analysis, providing high value-added diagnostic information for the doctors of these institutions. Reference Laboratory: High complexity tests for laboratories, hospitals and clinics throughout Brazil, enabling these customers to expand their offerings with unique diagnostic quality. Grupo Fleury in numbers from 2016: R$2.3 billion revenue and R$228.7 million net income; 60.3 million exams, 187,200 medical advisory consultations and 72,600 integrated reports; 3,500 tests offered in 37 areas; 8,400 employees and 1,700 doctors providing care; 6 brands present in the major metropolitan areas of Brazil and positioned in the premium and uppermiddle-income segments 6

7 Corporate sustainability Grupo Fleury acts as a supportive agent and advisor in the individuals relationship with their health, as well as driving innovation, integration and efficient use of resources and healthcare services in Brazil. For Grupo Fleury, sustainability has a direct link with the Company's mission and is understood as the integrated and balanced management of the elements of the triple bottom line concept: economic activity, environment and society s well-being, together with process quality. The strategic sustainability agenda, established in 2014, aims to leverage the sustainability value through proprietary issues of the health market, selected together with our main stakeholders in order to generate organizational learning, business opportunities, innovation and competitive advantage - concepts that are already present in Grupo Fleury's business strategy. The agenda addresses current challenges of the Brazilian healthcare market, transforming them into motivators to create shared value between system players. Grupo Fleury maps, monitors and clearly knows its responsibilities towards society in the regions where it operates, seeking to strengthen its relationship and minimize any possible impacts of its operations through several social programs. In this context, it highlights the Voluntários do Sertão project, organized by the NGO of the same name, which promotes social welfare, health, nutrition and food safety for communities in the Brazilian backlands. In 2016, this initiative comprised almost 3,000 medical services and distributed around 2.7 tonnes of food. The exams offered included mammograms, ultrasounds, colposcopies, electrocardiograms, clinical analysis and bone density scans, in addition to clinical services in the areas of nutrition and gastroenterology. The Conecta Saúde project, in partnership with Philips in Brazil, aims to raise awareness in public school students and teenagers assisted by third-sector institutions on issues related to teenage pregnancy and STDs (Sexually Transmitted Diseases). The project is operating in São Paulo, Paraná, Bahia, Pernambuco and Rio Grande do Sul. The DOM project is an ongoing initiative based on the dissemination of knowledge and health education, which is in line with the Group s corporate social responsibility efforts. Divided into three fronts - individuals, the third sector and society - the program seeks to improve healthcare services, train qualified professionals and make a broader contribution to improving the health scenario. Environment Grupo Fleury monitors and controls the segregation, disposal, storage and transportation of hazardous and non-hazardous waste from its operations. Waste is disposed of in accordance with its type and based on criteria in line with the procedures of the Environmental Management System and with the current law. Since 2008, the Company prepares and publishes, in the Public Registry of Emissions of the GHG Protocol, the annual inventory of its direct and indirect emissions of greenhouse gases (GHGs). Each year, there are advances in the collection of data and an expansion of the reported scope, which includes emissions from air travel and fuel consumption in the transport of materials, paper consumption in the administrative areas and outsourced transportation. The inventory of 2016 will be published in the first half of In 2015, emissions totaled 10, tco2e (tonnes of carbon dioxide equivalent), versus 10, tco2e in 2014, a reduction of 0.4% 7

8 or tco2e. Scope 3 indirect emissions began including upstream transport and distribution and, as a result, emissions were higher than in However, excluding the addition from this change in scope, there was a 12% reduction. We present below our emission reductions by scope: Scope 1 (direct emissions): tco2 (tonnes of carbon dioxide), related to process redesign, including better control in the acquisition and monitoring of fossil fuels. Scope 2 (electricity acquisition): tco2, due to equipment conversion and upgrade (replacement with alternatives that consume less energy and installation of LED lighting). Scope 3 (indirect emissions): tco2, thanks to process redesign, including changes to the corporate travel policy and increased control over printouts emissions divided by the number of exams and procedures carried out that year (58.1 million) stood at CO2e gram/exam, a 7.6% reduction from CO2e gram/exam in the previous year. We also present below a comparison of energy, water consumption and waste generation indicators. Compared with 2015, there was a 39% decline in total waste generation, thanks to initiatives such as the improvement of the measurement process in the São Paulo and Paraná regional branches and the Desafio Sustentável (Sustainable Challenge) project, a competition between the units that generate the most waste in São Paulo to reduce this indicator. In 2017, this project will be expanded to the Pernambuco and Paraná regional branches. Indicator vs vs Eletricity (KWh)* 43,833,823-4% 45,676,156-5% 47,968,333 Water consumption (m3)** 124,100 4% 118,800-14% 138,723 Waste generation - Total (kg) 1,827,076-39% 2,977,707 15% 2,592,484 Common waste (kg)*** 1,150, % 1,772, % 1,401,616 Infectious waste (kg) 676,291-44% 1,205,510 1% 1,190,868 * Purchased and consumed intermediate energy (indirect) ** Water from municipal utilities or other public sources (m3) *** Waste sent to landfill. Certifications and reports In addition to being a signatory of the UN Global Compact since 2013, Grupo Fleury was included, for the fourth consecutive year, in the portfolio of the Corporate Sustainability Index (ISE) of the BM&FBOVESPA. Also, in 2015, the Company joined the Carbon Disclosure Program (CDP), a program that brings together data and analysis on gas emissions that cause the greenhouse effect and how companies address the climate change issue in their management. Grupo Fleury was a pioneer in the area of diagnostic medicine in the implementation of an Integrated Management System certified by ISO 9001:2000 (Quality Management) and ISO14001 (Environmental Management), which reflects its concern with quality, the environment, the continuous improvement of procedures and sustainability. It is also worth noting that the São Paulo technical area has been accredited by the College of American Pathologists (CAP), the National Glycohemoglobin Standardization Program (NGSP) and the Brazilian Clinical Pathology and Laboratory Medicine Society (SBPC/ML). All of the Group s regional branches are also accredited by the PALC (Clinical Laboratory Accreditation Program) of the Brazilian Clinical Pathology Society. The Fleury Ponte Estaiada, Rochaverá and Alphaville units are certified by LEED - Leadership in Energy & Environmental Design. 8

9 The complete list of certifications and awards received by Grupo Fleury and the full version of the fifth edition of the Annual Sustainability Report can be accessed on the Company's Investor Relations website ( 9

10 Grupo Fleury: a knowledge and inovation company Scientific knowledge and medicine advances are core competencies in Grupo Fleury s strategic positioning. One of Grupo Fleury's operating pillars, the investment in innovation and Research and Development (R&D) is the Company's competitive advantage that enables the acquisition and development of new pioneering skills in the health sector. The incorporation of new tests in Grupo Fleury begins with the mapping of opportunities brought by the medical team in a structured flow of projects with measured results. This process allows the Company to select its initiatives, covering the use of new technologies, market needs and medical knowledge. This structured R&D process also facilitates obtaining financing focused on innovation, such as from the Studies and Project Funding Agency (FINEP), which allocated around R$155 million to Grupo Fleury for these initiatives in In 2016, 80 new products and methodology changes and insourcing of laboratory medicine and diagnostic center tests were implemented, increasing the portfolio of tests on different segments of medical specialties. Thoughout the year, Grupo Fleury established important partnerships with major global players in the healthcare sector. In October, Grupo Fleury became IBM Watson Health s first partner in Latin America. Focused on genomic analysis, the two companies will work together to test and validate Watson Genomics in Brazil as a potential tool, providing information to support personalized medical decision-making. Grupo Fleury is constantly pursuing advances that enable greater precision in personalized medicine. In March, Grupo Fleury entered into a licensing agreement with the American company Quest Diagnostics, the global leader in diagnostic information services, for the transfer of Quest s proprietary mass spectrometry technology to be used in three clinical analysis tests, one of which is a new addition to the Group s portfolio. Thanks to this agreement, Grupo Fleury has been able to insource the development and validation of these tests, which used to be sent to foreign partner laboratories, such as Quest, for processing or performed using another methodology. Grupo Fleury was the first diagnostic medicine company in Brazil to offer tests using mass spectrometry, a technique that ensures very precise detection levels in the measurement of molecules even at low concentration levels. It is an accurate technology to measure certain types of proteins, hormones and vitamins, among other substances. This year, the Group also finished the remodeling of the São Paulo technical area, located at the Company s head office in Jabaquara, and delivered the new Rio de Janeiro technical area, in the Del Castilho district. These changes led to an expansion of our processing capacity and efficiency and quality improvements. 10

11 Medical relations Medical knowledge is the competitive advantage that adds value to health In order to stimulate the generation and sharing of medical knowledge, the Company promotes internal scientific study initiatives, in addition to supporting the participation of physicians in national and international conferences. The main actions of the year were: 25 scientific newsletters 155 update and medical specialty meetings 221 papers gathered in the 26 th Jornada do Conhecimento (Journey of Knowledge) an internal event that disseminates scientific and management knowledge Grupo Fleury disseminates knowledge by producing medical publications. All brands launched scientific newsletters in 2016, totaling 24 issues that reached around 85,000 Brazilian physicians. The Fleury Medicina e Saúde medical journal had five issues, while the Weinmann, Clínica Felippe Mattoso, Diagnoson a+ newsletters had four editions and Labs a+ s had three. All the publications are also available on the brands websites. At the same time, Grupo Fleury participated in 69 events in 2016, including the XXXVII Congress of the São Paulo State Society of Cardiology (SOCESP). During the three days of the event, the brand s stand was visited by 1,940 participants, the largest audience since it began participating in the Congress, in These initiatives allow Grupo Fleury to get closer to medical customers and strengthen the communication channels with them, presenting its competitive advantages, processes and use of internal knowledge that guarantee its historical technical excellence. This technical excellence, based on medical knowledge, is one of the operating pillars of the Company, whose purpose is to deliver conclusive diagnoses for physicians and clients. In order to achieve this, the Group has services such as advisory consultations, in which Grupo Fleury's clinical staff supports the requesting physician in understanding cases with more complex diagnoses. In 2016, it provided 187,200 advisory consultations, an increase of 8.6% over Grupo Fleury closed 2016 with 1,714 medical care providers, a 1.9% reduction compared with the previous year. The Company s clinical staff is characterized by high qualifications: 77% of them are specialists, 10% have a master s degree, 9% have a doctoral degree, and 4% have a post-doctoral degree. In 2016, 72,600 integrated reports were sent to physicians of clients. The reports refer to highcomplexity diagnostic cases that are evaluated with a multidisciplinary approach. 11

12 Customer relations Excellent service level with the best use of resources One of the main factors for the sustainable development of the Company s activities is the improvement of customer satisfaction indicators. In this respect, one of the indicators closely monitored by the Company is the Net Promoter Score (NPS), which measures how likely clients are to recommend the Company s services. The historical data are presented since the second quarter of 2014, when the new survey model was implemented. In Rio de Janeiro, the measurement began in the third quarter of In the fourth quarter of 2016, Grupo Fleury s NPS reached 72.3%, a 768 bps improvement over the fourth quarter of 2015 (64.6%). The initiatives implemented to improve client experience in our units include the Lean project, which was designed to optimize the patient service centers operational efficiency, focusing on: a.) Employee productivity gains in customer service and clinical analysis sample collection processes. b.) Increase in tomography and magnetic resonance equipment capacity utilization, improving preand post-exam processes in order not to affect the medical process. c.) Improvement in perceived service quality through the NPS indicator, thanks to the reduction in waiting times and optimization of service processes. In 2016, the Lean project was implemented in eight Fleury and a+ patient service centers in São Paulo. Some of the processes have already been replicated in other units and the project will be implemented in the other patient service centers in 2017 and At the end of 2016, the Company also began the Telemetry and Workforce Management projects, which will give real-time access to the patient service centers main indicators and allow a more efficient management of employees. As a result, the management of these operations will become more efficient as we will be able to deal with occurrences on real time and maximize resource allocation. 12

13 Personnel management One of Grupo Fleury's culture basis, the Company's employees reflect the characteristics of our values such as excellence, respect and enthusiasm Grupo Fleury believes that the recognition that makes the Company stand out as a benchmark in medical, service and management excellence is due to the qualification of its team of professionals. They are the ones responsible for daily delivering the care that has made the organization a benchmark, even for other segments. In 2016, the Company ended the year with 8,400 employees (-1.6% when compared to 2015), most of whom were concentrated in São Paulo and Rio de Janeiro. The Company s total turnover came to 17.9%, a 413 bps reduction from 22.1% in 2015, while voluntary turnover stood at 5.9%, 321 bps down from 9.1% in Employees by region 60% 61% 3% 4% 26% 23% 6% 7% % 6% São Paulo Rio de Janeiro Rio Grande do Sul Bahia Outros In 2016, we invested R$4.3 million in training and updating professionals. There were 528,500 hours of training conducted by the Corporate University, resulting in an average of 63 training hours per employee (54 training hours per employee in 2015). 13

14 Corporate Governance The highest standards of Corporate Governance. Listed in the Novo Mercado, a special segment of the BM&FBOVESPA that requires the adoption of the highest standards of Corporate Governance, Grupo Fleury has practices and processes aligned with the highest principles of transparency, fairness, accountability and socio-environmental and corporate responsibility. This was a natural process for the Company, given that, even before it listed its shares on the stock exchange, Fleury s management was shared between the executives and the Board of Directors, with the participation of independent board members. It is also worth noting that, in order to improve its transparency, the Company has been constantly enhancing the format of the information it discloses to the market, revising its Notes to the Financial Statements and other documents. As a result of these efforts, Grupo Fleury won the award promoted by the National Association of Finance, Administration and Accounting Executives (ANEFAC), Fipecafi and Serasa Experian in the category for companies with net revenue under R$5 billion. This is an annual survey that recognizes Brazil s most transparent companies based on public information. In order to ensure the integrity of our operations, in 2016, Grupo Fleury revised its Code of Conduct, whose purpose is to further emphasize the values that should govern the conduct of all the Company s employees when performing their professional activities. The code is available on the Group s digital platforms in Portuguese, English and audiobook versions and all employees attended training on the main issues in the Code. The Integrity Plan was also updated and currently comprises all the Company s patient service centers and technical area. The corporate organizational chart established by the Company is in line with best market practices and governance is supported by the structures that make up our Internal Control System: Internal Audit, Compliance, Risk Management and Information Security. Grupo Fleury s Organizational Chart In January 2016, Integritas Participações transferred Grupo Fleury common shares representing 16.3% of the Company s capital stock to its shareholders ( physicians members ). This transfer did 14

15 not represent a change in the Company s shareholding structure, as these shares were already indirectly held by the physicians members through Integritas. Please, see below the Company s updated shareholding structure. Grupo Fleury s shareholding structure 1 Members of the Shareholders Agreement. Reference date: 11/11/2016. Created in 1998, Grupo Fleury's Board of Directors is composed of a minimum of seven and a maximum of 11 sitting members, with up to eight alternate members. The Board of Directors aims to establish the general business guidelines and to elect the Statutory Executive Board, among other powers conferred by law and the Bylaws. The Board of Directors has Internal Regulations governing its operation and its Advisory Committees. The board members have a two-year term of officer and reelection is allowed. Composition of the Board of Directors Membros Cargo Término do mandato Marcos Bosi Ferraz Chairman 2017 ASM Marcio Pinheiro Mendes Vice-Chairman 2017 ASM Marcos Ferraz Rezende Director 2017 ASM Marcio Serôa de Araujo Coriolano Director 2017 ASM Samuel Monteiro dos Santos Junior Director 2017 ASM Juan Pablo Zucchini Director 2017 ASM Brenno Raiko de Souza Director 2017 ASM Flávio Benício Jansen Ferreira Independent Director 2017 ASM José Rogério Luiz Independent Director 2017 ASM Luiz Antonio de Moraes Carvalho Independent Director 2017 ASM Manoel Antonio Peres Alternate director 2017 ASM Randal Luiz Zanetti Alternate director 2017 ASM Currently, the Board of Directors has ten members, three of whom are independent, and four Advisory Committees: Audit and Risk Management, Finance, Projects, and Compensation, Nomination and Organizational Development. The committees are permanent, meet every month and have at least one member of the Board of Directors in their composition. Audit and Risk Management Committee 15

16 This Committee recommends the conditions for the engagement of the independent external auditors and proposes the audit objectives; analyzes and evaluates the internal audit works, ensures and enhances internal controls; recommends procedures to be adopted in case of non-compliance with the best accounting practices; monitors the mapping of risks to which the Company is exposed and the respective preventive and mitigating actions. Finance Committee This Committee monitors budget guidelines and the management of receivables and disallowances. It also analyzes measures to reduce costs and expenses and improve profitability, in addition to studying investment opportunities. Projects Committee It is responsible for discussing the major corporate guidelines; proposing strategic drivers; monitoring the development of strategic plan; and evaluating and recommending specialized consulting firms, whenever necessary. Compensation, Nomination and Organizational Performance Committee This Committee evaluates, appoints and removes executive officers; monitors the organization s evolution in the face of strategic business and management challenges; assesses performance evaluation systems, salary policies and staff development programs; proposes guidelines and criteria for variable compensation programs; and monitors and proposes organizational climate assessment initiatives. Grupo Fleury s Executive Board closed 2016 with seven members, three of whom are statutory. In 2016, the Group created two executive areas in order to have a leadership structure in line with the Company s strategy, namely: Operations Support, which replaced the IT executive area, and Institutional Relations, Sales and Marketing. The statutory executive officers have two-year terms of office that should coincide with those of the Board of Directors, and reelection is allowed. Composition of the Executive Board Statutory Non-Statutory Directors Carlos Alberto Iwata Marinelli Paulo Pedote Adolpho Cyriaco Nunes de Souza Neto Claudio Almeida Prado Fernando L. Alberto Jeane Tsutsui Mariana Tolovi Position CEO Business Executive Director Financial Executive Director and Investor Relations Officer Suport to Operations Executive Director B2B Executive Director Medical, Technical and Service Executive Director Institutional Relations, Sales and Marketing Executive Director Grupo Fleury declares that KPMG Auditores Independentes is responsible for the Company s external audit and did not provide any services other than said audit services in

17 Economic and Financial Performance Net revenue grew 10.6%, EBITDA increased 34.9%, with a 23.0% margin, and net income climbed 113.1% Gross revenue Grupo Fleury s consolidated gross revenue totaled R$2.3 billion, 9.7% up. Patient service centers grew 9.4%, reaching R$1.9 billion in revenue, led by regional branches excluding Rio de Janeiro and the Fleury brand, which moved up 15.2% and 9.6%, respectively. In B2B, Diagnostic Operations in Hospitals increased 10.5% to R$339.5 million. Grupo Fleury closed the year providing services to 22 hospitals. Taxes and cancellations Taxes on gross revenue remained constant compared with the previous year, at 6.2%. Cancellations fell from 3.4% to 2.7%, thanks to improved processes and systems to optimize the receiving cycle and reduce disallowances with operators. Net revenue Thanks to the improved management of this cycle, net revenue grew more than gross revenue, moving up 10.6% over 2015 to R$2.1 billion. Cost of services The cost of services - including expenses with technical professionals, medical services, materials, rental of patient service centers, and facilities and equipment maintenance, among others - totaled R$1.5 billion, representing 71.3% of net revenue (versus 73.5% in 2015). Cost of Services vs Variation R$ MM % Net Revenue R$ MM % Net Revenue R$ MM % Net Revenue Personnel and medical services % % 5.8% -162 bps General services, rentals and utilities % % 5.7% -68 bps Materials and outsourcing % % 11.4% 7 bps General expenses % % 3.3% -44 bps Depreciation and Amortization % % 22.6% 52 bps Cost of Services 1, % 1, % 7.4% -214 bps Thanks to its efforts to curb costs and increase operational efficiency, the Company managed to obtain significant efficiency gains in its main cost lines. Personnel and Medical Services, and General Services, Rental and Utilities were the lines with the best performance, with a 230 bps improvement as a percentage of net revenue. Gross profit 17

18 Gross profit reached R$601.1 million, with a gross margin of 28.7%, a 214 bps increase over Operating income (expenses) General and administrative expenses came to R$262.2 million, including R$33.4 million in depreciation and amortization expenses. EBITDA EBITDA totaled R$483.1 million, with a margin of 23.0%, a 416 bps increase over Financial result The financial result was a net expense of R$44.5 million, versus a net expense of R$63.2 million in the previous year. Income tax and social contribution In 2016, income tax and social contribution totaled R$65.6 million, with an effective rate of 22.3%, versus 37.8% in The effective rate improvement was mainly due to an increase in the distribution of interest on equity compared with 2015 and, to a lesser extent, to the increased use of tax incentives and the reduction of non-deductible items compared with the previous year. Net income and earnings per share The Company s net income grew 113.1% to R$228.7 million, with a margin of 10.9%. Earnings per share came to R$1.46. Capex In 2016, Grupo Fleury s capex totaled R$184.0 million, mainly concentrated in Expansion (45.4%) and Strategic Projects (26.7%). Debt The Company issues three debenture series in the last three years, totaling R$950 million, which will be amortized until February 2020, in accordance with the schedule below: First Issue (First Series): R$150 million; due by 2016; remuneration: CDI % p.a. First Issue (Second Series): R$300 million; due by 2018; remuneration: CDI % p.a. Second Issue: R$500 million; due by 2020; remuneration: CDI % p.a. In the fourth quarter of 2016, the Group amortized the principal of the first and second series of the first issue, corresponding to R$150 million. We also amortized interest related to the first and second series of the first and the second issue totaling R$ 7.2 million, R$ 44.1 million and R$ 72.2 million, respectively. In August 2014, the Company entered into an agreement with the Studies and Project Funding Agency (FINEP) to obtain a loan of R$155 million, R$101.7 million of which was disbursed in October The repayment term is 97 months (24 months of grace period and 73 months of principal amortization) as of the execution of the agreement, at an annual interest rate of 4%. This funding is related to projects, such as: (i) the growth plan; (ii) technologies to increase productivity; (iii) the development of the care process; (iv) staff education and development. Rating 18

19 On February 25, 2016, Moody's rating agency downgraded Fleury SA s corporate rating from Ba1/Aa1 to Ba2/Aa2. The outlook was also changed from stable to negative. The rating action followed the downgrade of Brazil s sovereign rating promoted by Moody s. Capital Market Grupo Fleury's shares are traded under the code FLRY3 on the Novo Mercado segment of BM&FBOVESPA, a level that requires the highest standards of corporate governance. Grupo Fleury's shares ended 2016 at R$35.65, 122.8% higher than in the same period a year before. The average daily financial trading volume of the shares reached R$15.29 million in the full year, 4.2 times higher than in Reflecting this increase in volume, the tradability ratio reached 0.246% in the year. In September, Grupo Fleury s shares were included for the first time in the portfolio of the IBrX100 index, the BM&FBOVESPA s indicator that covers the 100 most actively traded stocks of the Brazilian stock market. The Company s weight in the index is currently at 0.53%, placing it in the 43 rd position of the current portfolio, in effect between September and December In November 2016, the Board of Directors approved the increase in the Company s capital stock to 157,115,125 common shares. This increase is within the authorized capital limit and was carried out due to the exercise, by certain beneficiaries, of their respective stock options related to the Stock Options Plan approved in Dividends and Interest on Equity The Board of Directors approved, in meetings held on March , December and July , the payment of shareholder remuneration totaling R$ million, of which R$ million in dividends and R$ million in interest on equity. These distributions are equivalent to R$1.38 per share or a payout of 100% of 2016 net income, excluding the amount allocated to the mandatory reserve. On December 7, the Company also approved the distribution of R$216.9 million in dividends related to the profit reserve for investment. Finally, on April 2016, the Board of Directors approved the distribution of R$21.4 million in dividends related to the 2015 result. 19