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Edited Transcript of FLRY3.SA earnings conference call or presentation 28-Apr-17 2:00pm GMT

Thomson Reuters StreetEvents

Q1 2017 Fleury SA Earnings Call

Sao Paulo May 2, 2017 (Thomson StreetEvents) -- Edited Transcript of Fleury SA earnings conference call or presentation Friday, April 28, 2017 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Carlos Alberto Iwata Marinelli

Fleury S.A. - CEO and Member of Board of Executive Directors

* Viviane Behar de Castro

Fleury S.A. - IR Officer and Member of Board of Executive Directors

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Conference Call Participants

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* Bruno Giardino Roschel de Araujo

Santander, Equity Research - Head of Education and Healthcare

* Joseph Giordano

JP Morgan Chase & Co, Research Division - Senior LatAm Healthcare Analyst

* Luciano T. Campos

Bradesco S.A. Corretora de Títulos e Valores Mobiliários, Research Division - Research Analyst

* Marco Calvi

Itaú Corretora de Valores S.A., Research Division - Research Analyst

* Rodrigo Gastim

Banco BTG Pactual S.A., Research Division - Research Analyst

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Presentation

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Operator [1]

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Good morning, and thank you for waiting. Welcome to the teleconference of the Grupo Fleury concerning the earnings of Q1 2017. We have with us today, Mr. Carlos Alberto Marinelli, Chairman; Mrs. Viviane Behar de Castro, Director of Investor Relations; and Mr. Fernando Augusto Rodrigues Leão Filho, CFO and Head of Legal Department.

We inform that this event is being recorded. (Operator Instructions) This event is also being transmitted simultaneously through the Internet via webcast. It can be accessed at the address www.fleury.com.br/ri where the presentation is available. The slides will be controlled by you. The replay of this event will be available right after the end of the conference. We remind that participants of the webcast may ask questions through the website to the Grupo Fleury.

Before continuing, we'd like to clarify that any declarations that may be done during this teleconference concerning business perspectives of Grupo Fleury, projections, operational goals, financial goals are beliefs and assumptions of the management of the company and also based on the information currently available to Grupo Fleury. Future considerations are not guarantees of performance and are subject to uncertainties and depend on the events that may or may not occur. Investors and analysts must understand that general market conditions, sector conditions and other operational factors may affect the future results of Grupo Fleury and may lead to results that may differ materially from those expressed in future considerations.

I would like to pass the floor to Mr. Carlos Alberto Marinelli, who will begin the presentation.

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Carlos Alberto Iwata Marinelli, Fleury S.A. - CEO and Member of Board of Executive Directors [2]

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Good morning to all. I'd like to thank you for the interest and presence of all of you in our teleconference for the earnings for Q1 2017. First of all, I'd like to welcome Vivian Behar, our new Director for Investor Relations; and Fernando Leão, the new CFO and Head of Legal Department. The two are with us today during this teleconference, and they joined the company on April 10 as already informed to the market.

And let's see the results. The Q1 2017 showed that clients, patients and medical continue to value and really to search for quality services in diagnostic medicine supplied by -- in this context, we continue with the goal of improving our knowledge in medicine and health, our brands and our operational capacity to deliver value. We continued producing knowledge improving our NPS and optimizing the use of our assets as wells as working strongly on our expansion plan.

And in this direction, I'd like to highlight a few indicators that are listed on Slide #3. Our gross revenue grew 15%, reaching BRL 642 million with highlight to our business units. We registered double-digit growth in all our regional units. The brands in Rio de Janeiro had an expansion of growth of 21.5%. The regional brand excluding Rio de Janeiro had an increase of 20.3% and Fleury brand grew 12.8%. The indicator of same-store sales, the units grew 15.1% and with the highlight, especially to a regional business. We registered a growth of 21.6% in any of the brands in Rio de Janeiro and 19% in any of the regional brands, excluding Rio de Janeiro. As a consequence of the improvement of our processes and the expansion of our offers in order and also better use of existing equipment, our cancellation index had a 2.3% -- registered 2.3%, a reduction of 63 basis points in comparison with Q1 2016, confirming the improvements -- continuous improvement of our processes and collection cycle.

Also, the expansion of gross revenue had an improvement in the cancellation results in an expansion of net revenue of 15.7%. Our EBITDA also reached to 29.5%, an increase of 551 basis points. As important as this increase also, the continuous management of cost and expense also contribute for the evolution of this indicator. Our continuous investments in the efficiency of processes and the usage of resources through projects, such as Lean telemetry and review our purchasing process, gave us good results.

Net profit reached 82.6% increase reaching BRL 82 million. The operational cash flow registered BRL 86 million with the conversion of operational cash EBITDA 49.6%. ROIC without premium reached 36% in comparison with 23.8% in Q1 '16.

And very important to highlight, our NPS, once again, improved reaching 72.7%, a significant increase of 657 basis points in comparison between the quarters. This shows the satisfaction of our clients during their experience in our units and in the sustainability of our business that client likes, comes, likes, refers to friends and family and comes back.

Our relationship of expansion showed during the Investor Day in December 2016 continues. We're now implementing this expansion plan we inaugurated. We inaugurated the -- here, 5 new units to the Fleury brand in São Paulo, 3 in a+ in Parana.

Here, we shared accumulative year-to-date inaugurations since December 2016, totaling the addition of 937 extra square meters during this year. These inaugurations are part of the expansion plan, which should add between 73 and 90 units until 2021.

Going on to the next slide, slightly highlights that our regional brands, Diagnoson, Felippe Mattoso, Labs a+ and Weinmann, began to -- inaugurated their own -- launched their own web pages in -- on Facebook in April. This digital reinforcement has a good effect on the positioning of our brands with regional information for -- with information for patients and potential patients. It is our effort to really give in quality -- informational quality, services being in contact with our clients, doctors and patients on a regional level and thus being close to their needs.

Apart from this, we launched, in March, an app of the a+ brand with different versions for doctors and clients. This allows them to see the results directly on their cell phone, including access to the expert report. We'd like to remind you that we already have an app for the services of the Fleury brand. These actions confirm our positioning as a digital company, always aiming at improving the customers' experience with the use of our services, facilitating the access to result in a convenient way for patients and for doctors.

During the quarter, Grupo Fleury signs the empowerment principles for women. And this joint effort with UN Women and the Global Pact in order to promote equal conditions for gender for woman. This is very important because our workforce is made up -- with the majority being woman. And this helps us. We want to use this as an engine for growth, the equality among the genders.

I would like to stress that we're very proud to give the news that the Weinmann brand were -- have the best recall with the category Clinical Lab in the survey brands that they signed in Rio Grande do Sul promoted by Jornal do Comércio newspaper and

Qualidata.

Now I'd like to pass the floor to Viviane for the presentation of the results. I will be back at the end.

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Viviane Behar de Castro, Fleury S.A. - IR Officer and Member of Board of Executive Directors [3]

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Thank you, Carlos. Good morning to all. It is with great pleasure that I joined the team of Grupo Fleury and participate in this teleconference for the earnings of Q1 2017. So as already mentioned by Carlos, gross revenue grew 15%, reaching BRL 642.1 million in Q1 2017.

On Slide 6, we tailored the composition of gross revenue per business line. On the graph on the left, we see that the Fleury brand in Q1 represented 50.2% of revenue with an increase of the significance in the composition of regional brands, including Rio de Janeiro, which went from 68.8% in Q1 '16 to 17.6% in this quarter and the brands in Rio de Janeiro from 15.5% to 16.4% in this quarter.

On the graph on the right, we see the evolution of the revenue per business line. The growth of 15% in gross revenue was the result, especially of the performance of the units that had an expansion of 15.9%. We registered a growth -- double-digit growth in all our regional brands. Fleury brand 12.8%, and we see also growth of 20.3% of the regional brands, excluding Rio de Janeiro, which are a+ São Paulo, a+ Paraná, a+ Pernambuco, a+ [Paraíso], Weinmann and Diagnoson a+. Our 21.5% of the brands in Rio de Janeiro made up of Labs a+ and Felippe Mattoso. The hospital operations had an increase of 9.4%.

On the next slide, we showed the indicators of revenue for the units. On the -- in the first graph, on the upper-left corner, we see the unit's average price that have an increase of 3.4% in comparison with Q1 '16. On the graph on the left, we see a growth of 15.9% in gross revenue in the units. And this has a strong influence of the expansion in same-store sales, which recorded an increase of 15.1%.

On the lower part of the slide, we highlight the increase of efficiency of our operations, a growth of 16.2% in the indicator of gross revenue per square meter and 11.1% in gross revenue for the units.

Now let's go on to Slide #8, where we detailed indicators of gross revenue per brand for the units. So please look at the second line, same-store sales, where we had an expand -- double-digit expansion in all the brands. In spite of the drop in the number of labs registered by MS in this quarter, showing that our model and especially the regional brands and Rio de Janeiro have been capturing a growing demand for our services. The Fleury brand presented a growth of 11.9%. The regional brands, excluding Rio, had a growth of 19%. And the brands in Rio de Janeiro grew 21.6%. These indicators of growth in same-store sales reinforce our strategic positioning concerning the leadership in offering quality services in diagnostic medicine, development of differentiated services and the commitment with innovation to create new portfolios with terms and protocols that are state-of-the-art. This strategy guarantees the preference of doctors and patients for our services, and thus showing an expansion in demand observed in the existing units and also our NPS indicator. Having said this, gross revenue also had an impact of the increase of workdays in the quarter in comparison with workdays in the same period in 2016. This effect will be the opposite into next quarter.

The next slide, #9, shows the performance of B2B. Gross revenue of hospital operations grew 9.4%, and this -- due to the result of new -- of 3 hospitals in Beneficência Portuguesa beginning operations. Same hospital sales grew 2.5% due to the -- had an increase in comparison with Q1 2016, due to the demand, due to respiratory and infectious diseases, including zika and H1N1 that we had last year. Gross revenue of record labs to 9.3% and preventive medicine had a revenue of BRL 1.6 million.

Now Slide #10, where we show that the indicator of discounts dropped -- reached 2.3%, a reduction of 63 basis points. This is the result of our continuous work on the part of the company to improve internal processes and efficiency and collections. This reduction, together with the strong expansion of gross revenue, resulted in an increase of net revenue of 15.7% as can be seen on the graph on the right.

On Slide #11, cost of services rendered. On the graph on the left, we see the cost of services rendered growing to 8.5% in Q1 '17 in comparison with the growth of 10.2% in Q1 '16, representing a reduction year after year of 16.9%.

On the graph on the side, we see the number of employees, which totaled 8,760 employees rounded up to 8,800 in the graph, and we see an increase of 5.3% in this quarter in relation to 2016. On the second graph, we see that this number of square meters or floor space remained stable between the quarters, although we increased the number of units by 6, totaling 145.

Now let's go on to Slide #12, where we see the composition of costs. We see a growth of 9.6% in personnel and medical services. Our main line in cost is 6% in rental services. Occupation and utilities was transferred in this quarter as announced last year. We began a new grouping of costs and expenses in the earnings release and explanatory notes with the objective of improving the understanding of our costs and expenses.

On Slide #13, we have a detailed analysis of each one of the cost lines. And when we look at the last line with the total, we see that the cost is representing BRL 385.2 million in Q1 '17, an increase of 8.5% in relation to the previous years, as we have already shown, with a strong dilution of 435 basis points in relation to net revenue.

The main gains in efficiency are in these lines. Personnel and medical services represented 33.1% of net revenue, a dilution of 150 basis points in spite of the increase in headcount, which reinforces the increase of productivity of our employees. In rental services and occupation, utilities, 18.4%. They represented 18.4% of net revenue, a dilution of 162 basis points, which shows our continuous effort in controlling fixed costs. And in depreciation and amortization lines, these represented 4% of net revenue, a reduction of 135 basis points due to the review of the life cycle of our equipments, medical equipment, which we had in Q1 '16.

Now Slide #14, a detailed analysis of each one of the expense lines. And when we look at the total, we see that expenses reached BRL 62.4 million in Q1 '17, a reduction of 5.7% in relation to the previous year, representing 10% -- 10.6% of net revenue, a dilution of 240 basis points. The main gains in efficiency are in the following lines: The first, general and administrative expenses, which represented 8.2% of net revenue, a reduction of 63 basis points. This gain in efficiency can be attributed to 3 main reasons: First, the reduction in expenses related to consultancy services; second, rental, corporate rental due to renegotiation of the contract; and third, expenses with electricity, a drop in expenses with electricity due to a new -- a lower brackets. And now here, other expenses represented 0.8% of net revenue, a drop of 95 basis points. The reduction in this line is related to a drop in BRL 4.6 million in taxes to be recovered that we had in Q1 '16.

Now we can go on to Slide #15, and we arrived at EBITDA, which reached BRL 173.2 million, a growth of 42.3% in relation to Q1 '16. Expanding our margin to 29.5% as a result of growth of net revenue together with the continuous efforts to have efficiency gains.

We'd like to remind you that the margin in Q1 '16 was the second-best margin of that year, which shows the margin during the year, which can be affected by seasonality of demand as well as the calendar of events that affect our cost and expenses.

Now we would like to go to Slide #16, where we see the gross that -- which dropped by 16.9% in comparison with Q1 '16, totaling BRL 817.2 million, especially due to the amortization of the principle of BRL 150 million of the first and second series of the first emission of debentures. The cash closed the quarter with BRL 337.2 million, a drop of 48.7% due to the amortization of the debt mentioned and the distribution of dividends and CDI interest on capital that were paid in 2016. Thus, the net debt of BRL 480 million in Q1 '17 and the leverage measured by net debt over EBITDA in the last 12 months was up 0.9x versus 0.8x in Q1 '16.

Now below, we see the profile of our debt made up of BRL 700 million in debentures, BRL 102.7 million in FINEP loans and BRL 2.8 million in FINAME loans, with average weight cost of the debts in the quarter was 99.5% of the CDI.

On the next slide, we see financial results. We had an an expense of BRL 16.9 million with the variation of 19.1%. Apart from the reduction in gross debt, we had a decrease in the average cash balance due to the distribution of profit concerning 2016.

On Slide 18, we have the LEIR of BRL 123.2, 69.7% higher than the previous year. And as a consequence, income tax and social contribution tax had an increase of 49.1%, totaling BRL 41.7 million. We had an improvement of 468 basis points in the effective rate, which was 33.8%.

Now Slide #19, we show an increase of 82.6% in our net profit, which reached BRL 81.6 million in comparison with BRL 44.7 million in Q1 '16. The net margin expanded or increased by 508 basis points reaching 13.9% as a result of the operational performance of the company.

On Slide 20, we see quickly the profile of our receivables, which had a continuous improvement during this period and also the total of the aging and with the balances of 84.4% of total receivables and 121 days, equivalent to 9.5% in comparison with 13.6% in Q1 of the previous years. We show here a reduction of 4 days in the collection time, which reached 69 days in Q1 '17 as a consequence of the continuous effort to improve our cycle of receivables.

Now Slide #21, we see the operating cash of the company, which recorded BRL 85.9 million, a growth of 10%. The investment activities were impacted especially by the increase in equity and intangibles as a result of investments in our expansion plan. Financing activities were impacted by the payment of dividends, resulting in a payout of 95% of the net profit of 2016.

On Slide 22, we see the investments that were made during the quarter, first quarter, BRL 56.3 million in the period, concentrated especially in expansion and improvement of our units and technical areas representing 64.8% of the total.

Finally, on Slide 23, we show the performance of our shares, which closed the quarter at BRL 42.30 per share with the highlights of evaluation or appraisal of then 16.3% in comparison with Q1 of the previous year and a variation of 18.7% during Q1 '17. We also reinforced the continuous evolution of the daily average volume, which reached BRL 25.4 million in the quarter showing the interest of the markets in -- due to our results in this quarter.

Now we will begin the Q&A session. Apart from Carlos and I, we will have Fernando Leão also available to answer questions. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Mr.Rodrigo from BTG Pactual Bank would like to ask a question.

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Rodrigo Gastim, Banco BTG Pactual S.A., Research Division - Research Analyst [2]

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Two questions here. The first concerning the growth of same-store sales, which is the highlight of the quarter in comparison with last year. Could you explain more the strategic reasons and if we can expect this from now on? And the second question, the thing that caught my attention is the aging of receivables. It's improving and more than 82%, very reasonable for receivables in excess of 120 days and -- is there any space for improvements with this dynamics? Can we -- imagining, could you have less accruals, less provisions for receivables? Could you lower receivables, the accruals?

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Unidentified Company Representative, [3]

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Thank you. Thank you for the question. Concerning the growth of same-store sales, it was impressive in Q1 '17 and we have more workdays in the year, and I can see that the revenue is the one that we mentioned in previous calls, in previous quarters. We're working a lot on clinical tests. Rio de Janeiro, you can see an important growth and this has a lot of focus. It is based on clinical tests. From now on, we believe we will have -- continue to have a challenging year, and we see this. And we continue with the same strategy, differentiated services, excellent services and recurring a lot of NPS, which is very important to NPS for Q1 as it was in the previous year. And we have clients coming, liking, recommending and coming back. So I believe we have good opportunities. Although in terms of calendar, this Q2 will be more challenging. We will be more holidays, and we can say that we're -- we have 145 units opened today, 22 hospitals. So we have a challenging Q2, which we are making our -- all our efforts to continue. Now I'd like to pass the other question to [Leandro].

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Unidentified Company Representative, [4]

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Thank you for the question. As you saw during the presentation, this coverage is in receivables, the improvement in receivables is the result of the improvements we made for those in excess of 120 days. We have tried to implement new processes. We're always doing new reconciliations, and this had a positive effect on the composition of our portfolio and with the better collection effort. I believe that in terms of provisions and accruals, we will continue using the policy we have, observing the composition of the portfolio, as I said. Thank you. Carlos?

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Rodrigo Gastim, Banco BTG Pactual S.A., Research Division - Research Analyst [5]

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Do you see an important effect due to the mix of services in each clinical tests, do you see differences in the units, which helped same-store sales and could continue to help same-store sales?

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Carlos Alberto Iwata Marinelli, Fleury S.A. - CEO and Member of Board of Executive Directors [6]

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This is something we look at all the time. We do this all the time, and we always give incentives to our business managers to optimize the portfolio -- service portfolio. We're looking in detail, the data that -- we look at the data that is generated, the statistics that are generated to see what else we can do with what we have. We look at each units day by day, service by service, and we change our offers, our mix in order to optimize the capture of demand. One important thing is the issue of doctor's relationship in all the regions where we are present. We have differentiated services. Not only in the service given to clients, but also -- and especially giving excellent services to doctors. And we have a relationship, we clarify points that doctors have, patients and doctors have, and we try to have a good partnership with them. So there is no magic bullet. It involves a lot of work and a lot of analysis and also better execution that we improve all the time. Thank you.

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Operator [7]

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Mr. Bruno Giardino from Santander would like to ask a question.

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Bruno Giardino Roschel de Araujo, Santander, Equity Research - Head of Education and Healthcare [8]

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Congratulations for the results, and we wish a lot of success to Fernando. For example, the -- how many units are working with the Lean process? Well, I would also like to congratulate Viviane. Second question, CapEx, we see that there was an acceleration in Q1. How will this behave in the next quarter's CapEx?

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Carlos Alberto Iwata Marinelli, Fleury S.A. - CEO and Member of Board of Executive Directors [9]

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Thank you for the questions. First of all, the Lean project, we have had excellent results. We had good surprises, surprises because it's not as simple project. It's a complex technology that involves concepts, practices. When we implement them, sometimes we don't know how the effect will be, but we saw that employees liked and implemented very well the Lean process. In terms of how many units we implemented, officially, it's a small number of units where we implemented. But since we stimulates the exchange between operations, managers on a daily basis and weekly basis, it's natural that practices that are good, that our new are -- exchanged these methods, are passed on by managers to other managers. And when you implement, some concepts have already been already there. There is -- we still have opportunities to -- in order to implement Lean and by specialty within the units that some have not received this yet. Now we are working on this, and we have had good results in terms of the usage of assets. Now concerning CapEx, we are in this project, implementing the expansion plan that we mentioned in the last Investor Day. As you can see, we have an important number of units and we added an extra thousand meters of floor space recently. So we have studies -- customer profile studies and offer specifically work, there is demand. And this makes us see that we are doing well in expansion. We're on the right track, and expansion continues. If in Q2 -- if at the end of Q2 and beginning of Q3, we have important investments to do in terms of CapEx, we will have complete units with MRI to be implemented and this tends to increase the level of CapEx from now until the end of the year.

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Operator [10]

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Mr. Luciano Campos from Bradesco would like to ask a question.

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Luciano T. Campos, Bradesco S.A. Corretora de Títulos e Valores Mobiliários, Research Division - Research Analyst [11]

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Carlos, my first question involves same-store sales. You explained the calendar of events, maybe very good in Q1, may be more negative in Q2. Excluding the calendar of events, do you see any risks for same-store sales as you had in Q1, maybe the comeback of a competitor or people with health care plans, more health care plans or maybe even more acceleration due to the calendar for the rest of the year. That's my first question.

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Carlos Alberto Iwata Marinelli, Fleury S.A. - CEO and Member of Board of Executive Directors [12]

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Thank you. Concerning same-store sales, what I see is that we have a very good execution. We have our employees that are heavily committed, engaged with customer service. For example, today, we -- it's a day with a general strike, but all the units are open, employees are committed. This is very important. Well, the clients are coming, liking, recommending, coming back as we see. Now in terms of competition, we're doing our work. If we have competitors with a comeback, we are monitoring this all the time, but the growth we're having -- especially if you consider the number of square meters by square meter. So it's not the result of luck, no. I believe there are many elements that are responsible for this. The growth in same-store sales and the main one has been the customer experience. Viviane, you can also comment on this.

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Viviane Behar de Castro, Fleury S.A. - IR Officer and Member of Board of Executive Directors [13]

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Just a comment to supplement what Carlos said. I believe that it's very clear that outside São Paulo where we take our convenience model, the comfort for clients in clinical tests or image has its -- this has been important, and this has increased also the number of tests in these regions. I don't know if I answered your question, Luciano?

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Luciano T. Campos, Bradesco S.A. Corretora de Títulos e Valores Mobiliários, Research Division - Research Analyst [14]

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Yes. I see that you don't see a risk of a drop. Do you see opportunities to increase same-store sales?

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Unidentified Company Representative, [15]

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We had a drop in demand. We monitor these things on a daily basis, and we want to understand the effect of the levers we introduce and also levers that we test, focusing on this point that Viviane mentioned very well in her first response. We look at Rio de Janeiro and the growth that we had in Q1, and we see that the model is being very popular with clients. And we identified that our model in São Paulo would be a success in Rio de Janeiro for clinical tests. We have a quarter that had many workdays, and we will continue our efforts to have good results also in the next quarters.

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Luciano T. Campos, Bradesco S.A. Corretora de Títulos e Valores Mobiliários, Research Division - Research Analyst [16]

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Just a question on costs and expenses? Could you remind us of the expenses with consultancy services in 2016? And also projects, electricity, the change to the spot market, have you already done this? Can this help in controlling electricity costs?

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Unidentified Company Representative, [17]

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Well, consultancy expenses in 2016, I don't have the total here for last year. What I can tell you is that we used a lot of consultancy services in 2016, and we had gains due to this and we will use consultancy services when we do -- when we look at the valuation and if we see that we will have results in the same calendar year. So we have an amount allocated for consultancy services. And we'll look at the valuation, we see if we will have a return on investment in the same year or in the next year and then we do the investment. Right now, we're looking at some opportunities for consultancy services, but we don't have the details yet. In terms of electricity, we have some opportunities to buy Electricity, led a different way, including models for generation in our network. We have them this region. With 145 units, then units don't have this capacity to generate. In others, I have a critical math that I can use in this line. In terms of this highlight, we are now on a different price bracket. So the costs in our budget, it is very well controlled, but there are effects, if there -- it's -- the cost of electricity should grow in Q2.

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Operator [18]

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Mr. Joseph Giordano from JPMorgan would like to ask a question.

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Joseph Giordano, JP Morgan Chase & Co, Research Division - Senior LatAm Healthcare Analyst [19]

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Good morning. In terms of efficiency could you give us an update? In relation to last year, you made important efforts showing this in the regions with the implementation of standards in the regions. You said that the level of efficiency, the best levels of the efficiency were in São Paulo in the South. So what were the results? How did this progress? Is there more space? Do you have gains in the regions? And also in terms of result, I'd like to understand if we're seeing gains in margin. You said the margin was stable. Were there any gains in the efficiencies?

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Unidentified Company Representative, [20]

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Thank you for the question. Concerning efficiency, we have a model that improves as we have a growth in revenue with fixed costs. São Paulo has a very good model, this is for clinical tests. So with the variation in revenue, I have also the variable costs and we have the costs involving rental, personnel, labor costs where it's easier to monitor and control. Now, how this is going in the other regions, we see clearly that there is -- there are opportunities. Rio de Janeiro is a large city. There are many opportunities there to implement the Lean project. We have gains -- made gains in efficiency. And for example, we have opportunities in [booking the cash years]. And we continue. Small details, applications, telemetry, and we are implementing and having gains in efficiencies. Also, we have other processes to work on. So once again, as I said previously, we haven't implemented Lean in all the units. There are opportunities in this area. Now concerning what you said in terms of having a more stable margin -- what was your question?

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Joseph Giordano, JP Morgan Chase & Co, Research Division - Senior LatAm Healthcare Analyst [21]

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So in Fleury brand and the regional brands.

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Unidentified Company Representative, [22]

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Yes, we have this effect. We have a decrease in fixed cost in the Fleury brand, and thus, we had gains in margin. And the margin was always good, it continues to be good. We have had gains with improvement in the margin in the Fleury brand, but we have worked very strongly on the 120 units in all of Brazil. So we have a Fleury brand that's continuously strong and regional brands that we're working on to improve margin.

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Joseph Giordano, JP Morgan Chase & Co, Research Division - Senior LatAm Healthcare Analyst [23]

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One more question concerning the campaigns at the end of last year with doctors to activate more specialties. Can you measure if you have more referrals? And the health care plans, are they using the Fleury brand to improve their sales.

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Unidentified Company Representative, [24]

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Yes. The a+ brand, especially in São Paulo is a very respected brand by the medical community, doctor's community. So it is an endorsement to use our Labs by health care plans, and we see doctors trusting and recommending the a+ brand. This is due to the work we have been doing continuously in education and informing doctors, conveying knowledge to doctors. We have shown what the a+ brand has done, the differentiation and showing how a quality diagnosis can help the doctor in his office, can help the doctor to confirm his diagnosis and helps also the doctor to be more successful in the therapy. So a+ does this, is doing this very well and it is recognized by the local doctor's community.

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Operator [25]

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Mr. Marco Calvi from Itaú BBA would like to ask a question.

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Marco Calvi, Itaú Corretora de Valores S.A., Research Division - Research Analyst [26]

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My question has to do with Rio de Janeiro. We --- in my opinion, we see a strong acceleration in Rio and consequently, expansion and consolidated operational margin. My question, should we understand that most of this expansion, the main contribution in the increase in margin was -- came from the acceleration in Rio de Janeiro and decrease in cost in Rio de Janeiro? Second, during the last 12 months, you have been talking about offering new tests in the Rio brand. Can we expect this level of growth in top line continuing? Should we expect more growth during the year in Rio de Janeiro?

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Unidentified Company Representative, [27]

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Thank you for your question, I will answer. Concerning the capacity of contribution in Rio, it is a city where our model has been very well accepted by the population and including doctors when you have integration of the results. This facilitates the doctors lives in their office. You facilitate the clients' lives too with the consolidation. So we have manufacturers. For example, if it's better and easier for the doctor, they recommend. If the client likes, they also recommend and come back. And so that is the reason for our expansion in offers. AC, close to 20% in Q1, and we believe and we continue to believe in AC. So we have had a positive experience, as I've said, and we continue believing in growth with this model in Rio de Janeiro. We have evolved a lot. Rio de Janeiro is the second largest city with units for us and decreasing fixed cost in Rio de Janeiro. And with this growth, we have a better margin. Now the issue that you said, the growth of top line in Rio. The same thing we do in São Paulo. The monitoring of demand, understanding days of the week and different tests, we are doing this in Rio de Janeiro and we're having success, this monitoring. And Felippe Mattoso brand, for example, which is -- which has a limited presence in the and south zone of Rio de Janeiro. We have seen a brand that the new doctors knew only for image services. Clients are saying, "Can I do everything together? Can I take all the results? "This helps, it's convenient." So it's good for patients, doctors, and this has given us growth. And thus, we have had this offering, we will continue adding more offers.

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Operator [28]

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(Operator Instructions) We'd like to conclude the Q&A session. Now I'd like to pass the floor to Mr. Carlos Alberto Marinelli and Mrs. Viviane Behar de Castro for their final comments.

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Carlos Alberto Iwata Marinelli, Fleury S.A. - CEO and Member of Board of Executive Directors [29]

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I'd like to thank, once again, to all the participants for their interest. And as I said, we continue to work with focus of the execution of our expansion plan to expand our offer of diagnostic medicine and with excellence. And this contributes in a significant way for the sustainability of the health care sector -- supplementary health care sector. Thank you.

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Operator [30]

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The teleconference is concluded. Thank you for your participation.