4q09 and 2009 earnings release - fleury | relações...

4Q09 and 2009 Earnings Release

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Fleury ON(Bovespa FLRY3)

Total Shares (Mar 30, 2010)131,298,550 shares

Free float (Mar 30, 2010)39,389,570 shares(30,0%)

Share price on Mar 30, 2010R$ 19.41/share

Market Cap (Mar 30, 2010)R$ 2,548.50 million

Cash and Cash Equivalents (Dec 31, 2009)R$ 528 million

Investor Relations

Fábio MarchioriCFO and Head of IR

João PatahInvestor Relations ManagerPhone +55 11 [email protected]/ir

Conference CallMar 31, 2010

Portuguese10:00 AM (9:00 AM EST)English12:00 PM (11:00 AM EST)

Phone numbers:Participants in Brazil: +55 11 4688-6361Participants in the U.S.: (+1) 888-700-0802Participants in other countries: (+1) 786-924-6977

Password: FleuryWebcast: www.fleury.com.br/ir

GRUPO FLEURY COMPLETES 2009’S MOST SUCCESSFUL IPO, RAISING R$630 MILLION.

From the operational and financial perspective, we highlight the 18% revenue increase in 4Q09 when compared to 4Q08, an EBITDA margin of 23.3% in 2009, and a 99.4% net profit increase over the year.

São Paulo, March 30, 2010 - Among the main events that marked the path of solid growth in 2009 for Grupo Fleury, going public was one of the most prominent events. Grupo Fleury’s shares debuted on the BM&FBOVESPA Novo Mercado on December 17, 2009, accomplishing a 14.1% price rise on the first day of trading compared to a 2.3% decrease of the IBovespa index. This was considered Brazil’s best IPO performance in 2009. We should point out that the price remained steady throughout the following days: on Dec 30, 2009 – the very last trade day of the year -, Grupo Fleury’s share price was 14.9% higher than IPO value.

Grupo Fleury’s 83-year history of robustness and consistent results, plus the high growth potential of the sector and the company in particular, catch the attention of national and international investors .As a result,,the IPO raised R$630 million, including the Greenshoe carried out on January 4, amounting 39,389,570 shares sold at R$16.00 each, right in the middle of the proposed price range. The resulting free float was 30%.

Financial highlights

14.0% annual gross revenue increase to R$820 million in 2009. We underline the 4Q with a YoY advance of 18.0%. being highlighted:

Diagnostic Operations in Hospitals, with a 50.9% annual growth in •revenuePreventive/Therapeutic Medicine, with a 27.5% revenue increase•

37.3% gross margin in 4Q, a 50 basis-point advance in a YoY comparison. The positive result was due to Grupo Fleury’s excellence in services and balanced mix of clinical analyses and medical imaging, in addition to a well-structured program to remodel and adapt the Patient Service Centers. The year’s gross margin was 41.3%.

43.2% growth in Operating Profit, to R$148 million. This includes the effects of no longer applying accounting procedures of goodwill amortization for acquired companies and reversal of contingencies provisions.

EBITDA (with no adjustments) of R$179 million in 2009, i.e., a margin-to-net-revenue of 23.3%, an increase of 40 basis points over the previous year.

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Operational highlights

Strengthening of the service portfolio in Rio de Janeiro• with the acquisition of Centro de Mastologia do Rio de Janeiro leveraging the availability of imaging services in the State.Geographic expansion• through the acquisition of Laboratório Weinmann – the leading diagnostics lab in Rio Grande do Sul – in October 2009. extending the presence of Grupo Fleury in one of the most important economic centers in the country.Continued and consolidated operational and administrative integration• of acquired businesses in the past fiscal years. Unification of front-end IT platform• and of sample processing facilities in São Paulo. The latter was completed in 1Q10.Incorporation of all companies in the Group• except Laboratório Weinmann (which was incorporated in March 2010) and Fleury CPMA. This, will reduce administrative expenses and bring economic benefits over the coming fiscal years. Implementation and completion of the Investment Plan• , expanding the scope of services offered and optimizing the patient service center (psc) network by extending, relocating and opening new PSCs.Change in scope of activities at Fleury Hospital Dia• , now called Fleury CPMA – Fleury Advanced Medical Procedures Center. Fleury CPMA’s corporate purpose is to provide diagnostic/therapeutic supplementation services, as well as material sanitization/sterilization.Service scope expansion• , with introduction of the Chronic Disease Management service.

Financial indicators

R$ million 4Q09 4Q08 Var (%) 2009 2008 Var (%)

Gross Revenue 215.7 182.8 18.0% 820.4 719.7 14.0%

Net Revenue 202.5 171.2 18.3% 770.1 675.3 14.0%

Gross Profit 75.5 62.9 20.0% 318.4 282.8 12.6%

% NR 37.3% 36.8% 0.5 p.p. 41.3% 41.9% -0.5 p.p.

EBITDA 41.0 36.0 13.8% 179.3 154.6 16.0%

% NR 20.2% 21.0% -0.8 p.p. 23.3% 22.9% 0.4 p.p.

Net Earnings 20.1 3.7 439.0% 83.7 42.0 99.4%

% NR 9.9% 2.2% 7.7 p.p. 10.9% 6.2% 4.7 p.p.

Net cash (debt) 327.8 (206.1)

ROIC* 22.4% 22.7%

* NOPAT / average invested capital

Assignment of IPO proceeds

Our successful IPO raised R$630 million (not excluding issuing expenses), to be applied over the coming years in Grupo Fleury’s many growth fronts.

Continuous growth of high added value tests, with special focus on medical imaging and other specialties;•Expansion of diagnostic operations in hospitals and for laboratories;•Expansion of the preventive/therapeutic service scope, such as Chronic Disease Management;•Strategic acquisitions for greater geographical coverage and an expanded solution offerings portfolio;•Expansion and redistribution of the PSC network, aiming for increase in efficiency (revenue/m2) and effectiveness •(expansion of access and availability coupled with improvements in service).

Concluding, Grupo Fleury believes it will be able to gain market share, expand revenues and margins, and maintain its well-acknowledged technical excellence and service standards.

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Economic Scenario and Sector

Around 995,000 (net) formal jobs were created in 2009, following the economic recovery that started in the year’s second quarter.

The most recent data released by the Brazilian Health Agency (ANS) reveals that the health insurance sector reached a total of 41.9 million associates in September 2009, a 2.4% year-over-year increase and 25.9% growth compared to 2004.

With people being included into the formal job market and consequently expanding the number of HMO beneficiaries, there are currently many opportunities for growth in this sector.

Gross Revenue

Grupo Fleury has repeated its good performance of the past years, continuing on a clear path of geographic expansion and maintaining its national and international reputation for excellence. The company significantly increased its Service Revenue, which amounted to R$216 million in 4Q 2009, a 18.0% YoY advance. Gross revenue in FY09 reached R$820 million. In terms of performance since 2004, the CAGR is 17.5%. This performance is the result of a well-defined strategy of organic growth, selective acquisitions, and business diversification.

Gross Revenue (R$ Million)

The Medical Diagnostics Business Unit (Patient Service Centers, Diagnostic Operations in Hospitals and Lab-to-Lab) sped up its growth rate through 2009, reaching 18.3% in 4Q. The annual growth rate was 13.7%. The following factors contributed strongly to this performance:

new centers opened, expanded and realocated to more attractive sites so as to acquire new customers;•expansion of diagnostic services, with a positive impact on the average revenue per service;•growth in diagnostics for hospitals, accounting for more than 7% of the revenue;•acquisition of Centro de Mastologia in Rio de Janeiro, and Laboratório Weinmann in Porto Alegre, reaffirming the •company’s service portfolio supplementation strategy and extending its geographical coverage.

With Grupo Fleury’s strategic approach of constantly distinguishing itself by offering high added-value services and seeking innovative solutions for its customers, the company rationalized its offering of tests and procedures in 2009. Consequently, some portfolios were readapted, and revenue from less complex tests was reduced in some specific operations, such as the Lab-to-Lab.

Despite the intentional decline in some operations, organic growth is still the main growth factor. Disregarding acquisitions made in 2009, the gross revenue’s organic growth was about 10%.

Similarly to the acquisitions made in previous years, the recently acquired companies already show great potential of leveraging Grupo Fleury’s results over the coming years. Centro de Mastologia do Rio de Janeiro made it possible to offer imaging services in Rio de Janeiro, while Weimann Laboratory introduced Fleury into the Rio Grande do Sul market.

The Preventive and Therapeutic Medicine unit achieved a revenue of R$20.4 million (R$5.7 million in 4Q), a 27.5% YoY increase. In 2009, the Group’s new business – the Chronic Disease Management service (GDC) – was further disseminated

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and expanded its offerings. The result was more contracts with HMOs in 2H09 and an increase in the number of lives monitored by the Group. This scenario creates a positive outlook for increasing the number of lives under contract in 1H 2010, with more significant revenues and results expected for 2011.

Business Units Performance

Medical Diagnostics

In 4Q, service revenue from the Medical Diagnostics Business Unit rose by 18.3% year over year, to a total of R$210 million. FY revenue grew by 13.7%, reaching R$800 million in 2009.

The main drivers for this growth were:

Organic growth of the patient service centers through network optimization, along with the increase of the PSCs average I. size and a broader mix of tests per center;Increased offering of imaging services and high-complexity tests;II. Expansion of operations in hospitals;III. Acquisitions.IV.

Revenue from clinical analysis tests in 4Q was R$141.9 million, a 19.7% YoY increase. The figure already reflects the revenue from the acquisition of Laboratório Weinmann. FY09 revenue amounted to R$528.5 million in 2009, 12.9% more than in 2008, despite the Lab-to-Lab revenue decline.

Imaging tests and other diagnostic specialties totaled R$68.1 million in the quarter, 15.5% more than the same period in 2008. FY09 revenue reached R$271.5 million, a 15.3% YoY advance.

Medical Diagnostics Gross RevenuesBreakdown by Type fo Exam/Test (%)

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Patient Service Centers

In 4Q 2009, patient service centers had a revenue increase of 18.3% compared to the same period in 2008, totaling R$182 million. The FY revenue grew by 13.4%, reaching R$694 million in 2009.

Breaking down these figures into Fleury Brand and Regional Brands, the revenue has the following composition:

Despite the rationalization of Regional Brand portfolios, which led to network optimization and a decrease in volume of •tests, gross revenue grew nearly 13% in 2009. The revenue of these brands in 4Q 2009 accounted for 34% of the total revenue from patient service centers, a higher participation compared to 31% in 4Q 2008.Meanwhile, the Fleury brand continues to show its ongoing growth potential and solidify its position as the preferred •service provider among executive healthcare plans, with FY and 4Q year-over-year increases of 13.7% and 15.1% in 2009, respectively.

The number of patients at the Patient Service Centers increased 19.3% in 4Q 2009 in relation to 4Q 2008. The figure already reflects the addition of patients by the Weinmann brand. Compared to FY 2008, the increase was 6%.

The average revenue per PSC grew 9.0% in 2009 compared to 2008, and 15.6% in 4Q 2009 over the same period in 2008. This resulted from an optimization of the centers network and a strong organic growth in higher added-value tests, such as imaging and esoteric tests.

This movement is shown in the chart, showing the gross revenue per Patient Service Center.

Gross Revenue per Average PatientService Center (R$ Million)

Under the “same store sales” concept, which considers centers that were open during the comparison period, 4Q 2009 growth was more than 10% compared to 4Q 2008.

In late 2008, a new three-year plan was initiated to optimize and expand the Patient Service Center Network across all brands, with changes that include closing non-profitable centers, expanding to add services, realocating centers to more suitable places, and opening new centers. Eight realocations, 5 new units, and over 30 service-inclusion refurbishments were performed during 2009. In this process, 32 units were closed.

Diagnostic Operations in Hospitals

Grupo Fleury keeps on with its plan of extending services provided to hospitals, following the current trend of diagnostic service outsourcing (clinical tests and imaging). Grupo Fleury already has a significant coverage, through its multiple brands, at important medical institutions across three States.

The operating revenues of these operations in hospitals amounted to R$16.7 million in 4Q 2009, a 23.6% increase over 4Q08’s R$13.5 million. In FY09, there was a 50.9% advance to R$62.2 million. The following factors contributed strongly to this rise:

Expansion of services offered by hospitals operated by the Group – Hospital Sírio-Libanês and Hospital Samaritano I. (Fleury brand, São Paulo), Hospital Alemão Oswaldo Cruz (Biesp brand, São Paulo), Hospital Santa Joana, Unicordis (Paulo Loureiro brand, Pernambuco).

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Entry into effect of the contract with Hospital Santa Catarina (Fleury brand, São Paulo);II. Acquisition of Weinmann Laboratory, which operates with Hospitals Moinhos de Vento and Ernesto Dorneles, in the City III. of Porto Alegre.

We should emphasize that this expansion of the Group’s activities in hospitals occurred in spite of the closing of Grupo Fleury’s operations at Hospitals Nove de Julho and Nossa Senhora de Lourdes, both of them with minor impact on revenue and results.

Lab-to-Lab

In 2009, Grupo Fleury established differentiation of offerings to client laboratories. This reduced the amount of low-complexity, low-profit tests received from these clients. Qualifying the portfolio brought an increase of the average revenue per service, amounting to R$31.1 in 4Q 2009, and improved profitability of this operation. Meanwhile, Clinical Trial services began to be discontinued as of year end, maintaining only those studies already under way. Within this context, the amount of services volume in this business line decreased by 26%, whereas revenue retreated only 13%. This contributed to the aforementioned profitability improvement.

A minor decline occurred in 4Q 2009 (5% YoY), showing that the curve started to revert as a result of the growth retake intended for the second semester of 2010. Revenues in 4Q09 and FY09 were R$11.2 million and R$44.3 million, respectively.

Preventive and Therapeutic Medicine

The 27.5% revenue increase from services in the Preventive and Therapeutic Medicine Business Unit in 2009 was due to three important aspects:

First year of the Chronic Disease Management service revenues, brought to Brazil by Grupo Fleury in 2008 in association I. with Healthways, the largest provider of this solution in the United States. With focus in services to healthcare plans, it aims to provide specialized treatment to people who have chronic diseases, mainly diabetes and heart and lung diseases. This solution enables reducing the number of commitments and other aggravations, benefiting the beneficiaries’ health and reducing claims among healthcare companies. With the gradual maturation of this new service, negotiations of new contracts increased from the 2nd half of 2009, raising the prospect for lives under contract in the first half of 2010. It should be noted that revenues from this business – and the benefit to healthcare companies and patients – are recurring and cumulative, as this is a continuous provision of service. In 2009, contracts amounted to 8,360 lives under contract. Despite the economic crisis, commissioning of Health Assessment and Health Promotion services suffered a minor II. impact. This enabled Grupo Fleury to perform 4,734 executive heath assessments in 2009, 32% of them in 4Q. The Group also attended 21,918 people through in-company Health Promotion programs, 5,850 of them in 4Q. Decision to suspend operations at Fleury Hospital-Dia in 4Q09, due to legislation prohibiting foreign ownership in III. companies that conduct operations in hospitals. Despite the suspension of activities, revenue from this business grew 44% compared to 2008. The outlook regarding Fleury Hospital-Dia was to reach operating break-even in 2011 and extend its operations.

Excluding Fleury Hospital-Dia’s operation, this business unit had a 18.8% increase in 2009.

Volume Indicators and Revenue Breakdown

The total volume of tests carried out by the Group surpassed the 28-million score in 2009. In 4Q, more than 8 million tests were performed, a 22.4% increase over 4Q 2008.

Grupo Fleury’s significant share of payments made directly by individuals (15%) is a relevant indicator for comparison with the major players that operate in the sector. Grupo Fleury understands that this is an indication of acknowledgement and prestige regarding services provided by its brands. Moreover, we should mention the increased proportion of revenue from services provided to hospitals, namely more than 7% of total revenue.

Regarding compensation for services provided to HMOs, which account for 72% of our revenue, the Group has a widespread, solid, highly-qualified base that contributes to the low risk of concentration and default.

Taxes and cancellations

The taxes applicable to the provided services amounted to 5.8% of 4Q 2009 gross revenue, a small decrease in relation to the 5.9% of 4Q 2008, reflecting the incorporations carried out in August and September, which enabled the company to reduce double taxation. Cancellations represented 0.2% of the gross revenue.

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Net Revenue

Consolidated net revenue amounted to R$203 million in 4Q 2009, an increase of 18.3% over the same period in 2008. Accrued net revenue amounted to R$770 million, a 14.0% increase compared to 2008.

Cost of Provided Services

The cost of provided services is related mainly to clinical tests, diagnostic imaging procedures and other specialties, as well as customer service – in the Patient Service Centers, Call Center and client laboratories.

Costs related to tests and procedures are mainly comprised of materials, reagents, personnel costs, medical services, equipment maintenance and general/public services.

The main fixed costs of customer services are comprised of personnel costs, rent, property maintenance and general/public services, while the main variable costs of customer service are comprised of costs with materials and services related to test collection.In 2009, the cost of services provided was impacted primarily by:

Increase in services of various business lines in which Grupo Fleury operates, with an increase in the volume of services I. and tests in the PSCs and diagnostic operations in hospitals;First complete year of the Chronic Disease Management service, which records higher costs than the revenues during II. the pre-maturation stage of activities;Integration of all technical areas and unification of plants in São Paulo, which will be concluded in 1Q10, with positive III. effects on negotiations and on test processing personnel’s productivity. On the other hand, there were additional costs during the process, essentially related to the centralization of the technical areas in São Paulo;Expenditures related to the closing of Patient Service Centers and operation optimization, which derived from expenses IV. with rent fines and employee dismissals. In addition, there were costs with restructuring during the portfolio rationalization in regional brands and in the Lab-to-Lab, as well as expenses due to the end of operations at Fleury Hospital-Dia and termination of operations at the Nove de Julho and Nossa Senhora de Lourdes Hospitals;Unification of the front-end and sample processing facilities IT platform, and unification of São Paulo sample processing V. facilities;Costs related to the integration and incorporation of acquired companies.VI.

In 4Q09, the cost of provided services totaled R$127 million, representing 62.7% of net revenues. In FY09, the cost of provided services totaled R$452 million, equivalent to 58.7% of net revenues and representing an increase of 15.1% over 2008.

The following is a description of the significance of cost lines to the group’s net revenues:

Personnel and Medical Services continue to be our main cost, reflecting the high qualification of our professionals and •the significant participation of high added-value services. In 2009, this cost was equivalent to 28.0% of net revenues, an increase of 100 basis points over 2008 due to employee dismissals;Materials and Outsourcing represented 12.8% of net revenues in 2009, a YoY decrease of 160 basis points;•General Services, Rents and Utilities accounted for costs equivalent to 13.5% of the net revenues in 2009, an YoY •increase of 180 basis points;Finally, General Expenses represented 4.3% of net revenues in 2009, a YoY increase of 60 basis points.•

R$ million % net revenue

2009 2008 2009 2008

Cost of services 451.7 392.5 58.7% 58.1% 53 bp

Personnel and medical services 215.9 182.7 28.0% 27.0% 98 bp

Materials and outsourcing 98.4 97.3 12.8% 14.4% -164 bp

General services, rent and utilities 104.2 79.4 13.5% 11.8% 178 bp

General expenses 33.2 33.2 4.3% 4.9% -60 bp

R$ million % net revenue

4Q09 4Q08 4Q09 4Q08

Cost of services 127.0 108.3 62.7% 63.2% -54 bp

Personnel and medical services 60.7 52.1 30.0% 30.4% -48 bp

Materials and outsourcing 27.7 30.0 13.7% 17.5% -389 bp

General services, rent and utilities 29.3 24.1 14.5% 14.1% 42 bp

General expenses 9.3 2.1 4.6% 1.2% 341 bp

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Gross Profit

Gross profit increased 20.0% in 4Q09 when compared to 4Q08, reaching R$75.5 million. Over the fiscal year, gross profit increased 12.6%, totaling R$318 million, representing a gross margin to net revenue ratio of 41.3%.

Operating Expenses

General and Administrative Expenses - General and administrative expenses were R$182 million in 2009. Excluding depreciation and amortization, the total amount for 2009 was R$151 million, a 12.1% increase versus 2008. The increase mainly derived from restructuring expenses that will enable the use of synergies with acquired companies, including expenses related to Laboratório Weinmann. The Profit Sharing Plan (PSP) totaled R$11 million in 2009, close to the amount paid in 2008.

Depreciations increased by R$8.5 million, mainly resulting from investments in equipment and PSCs in 2008 and from incorporation of the fixed assets from acquisitions performed in mid-2008 and mid-2009.

Goodwill amortization - Grupo Fleury did not record goodwill amortization in its FY09 results, in order to adjust to the new accounting standards. This reduced its expenses by R$27.5 million year over year.

Other operating revenues (expenses), net - Other net operating revenues (expenses) ranged from a revenue of R$6.3 million in 2008 to an expense of R$2.6 million in 2009, a variation that includes nearly R$10 million in losses from disallowances and bad debt provisions, which were partially offset by gains of R$7.8 million in tax discounts due to our subscription to the REFIS IV program (a refinancing program created by the federal government).

Contingency provision - The contingency provision went from an expense of R$0.6 million in 2008 to a revenue of R$14.6 million in 2009. This variation was caused mainly by contingencies established in prior periods, reversed in 2009 due to tax credit.

EBITDA

EBITDA reached R$179.3 million in 2009, 16.0% more than 2008, representing a margin-to-net-revenue of 23.3%, 40 basis points higher than in the previous year.

We should point out that the amounts related to expenses incurred in 2009 from integrations, systems unification and unit closing in deficit totaled R$5.9 million, an amount which was not used in any way to adjust the EBITDA calculation presented above. Therefore, R$3.4 million from employee dismissals, R$1.4 million from other expenses related to the closing of PSCs and R$1.1 million from expenses with systems were fully maintained in the informed EBITDA.

This calculation also fully reflects, with no adjustment of the reported EBITDA:

A R$5.3 million negative result in the Chronic Disease Management service, due to the beginning of operations. The I. increase in lives under contract will lead to result improvements throughout the year and positive results as of 2011.A R$5.2 million negative result from Fleury Hospital-Dia, a non-recurring event due to the suspension of the hospital’s II. operations in 4Q09.

In 4Q09, EBITDA totaled R$41 million, a 13.8% YoY increase.

EBITDA(R$ Million)

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Financial Results

There was a R$21.2 million negative result in 2009, a 47.8% decrease compared to the negative result of R$40.7 million recorded in 2008, enabled mainly by a reduction in loans and financing, and in virtue of the increase in revenues from financial investments.

R$ million 4Q09 4Q08 2009 2008

Financial Income (expenses), net (5.8) (18.6) (21.2) (40.7)

Interest and inflation adjustment (7.0) (15.3) (28.6) (35.9)

Exchange rate change and hedge 0.1 (0.8) 2.4 (3.8)

Interest received 2.3 0.2 8.6 1.2

Bank fees and other expenses (1.2) (2.6) (3.7) (2.3)

Financial income 2.9 5.2 14.0 15.4

Financial expenses (8.7) (23.8) (35.2) (56.1)

Income Tax and Social Contribution

Income tax and social contribution were adjusted to the new accounting standards, accounted for as deferred income tax and social contribution based on temporary differences due to the effect of goodwill amortization in the calculation of income tax and social contribution expenses. Thus, the amount accounted for totaled R$43.5 million, of which only R$21.1 million affects the year’s effective cash-flow. Goodwill to be amortized in the next five years (2010 to 2014) amounts to R$258.8 million, as shown below.

Net Income

Net income reached R$83.7 million in 2009, 99.4% more than in 2008, representing a profit margin of 10.9% of the net revenues. In 4Q09, net profit reached R$20.1 million, a significant increase when compared to the R$3.7 million recorded in 4Q08.

Net Income(R$ Million)

Investments and Return

The beginning of 2009 was characterized by a decrease in investments, as the company was waiting for signs of a reversal of the negative economic scenario that presented itself at that time. The scenario was reverted and investments resumed as of the end of the second quarter. Thus, R$108.6 million were invested in 2009, mostly concentrated in the second quarter. The most significant investments were the acquisitions of Centro de Mastologia do Rio de Janeiro and Laboratório Weinmann in Rio Grande do Sul; in addition to the purchase of imaging equipment; service expansion works; and integration of service systems and technicians.

Amortization of goodwill

Year R$ million

2010 60.8

2011 58.0

2012 57.8

2013 51.9

2014 30.3

2015 1.8

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Investments 2009 - (R$ Million)Total: $ 108.6 million

As for return on investment, Grupo Fleury continues to present high levels of return on invested capital, with a ROIC* of 22.4% in 2009. Higher investment levels in 2010 and 2011, when operations will mature, should result in a temporary reduction of returns on investments, but should remain higher than the return of peers operating in the same sector.

* Nopat / Average Invested Capital. Nopat (Net Operational Profit After Taxes) was calculated as EBIT (earnings before interest and taxes) less a tax corresponding to 34%. Invested capital was calculated as the sum of shareholders’ equity and net debt, using the average between the current and the previous year.

Debt

The net debt of Grupo Fleury, corresponding to total loans and financing plus accounts payable for acquisitions and tax installment programs, deducted from cash and cash equivalents, was 1.9 times the EBITDA of the last 12 months in 2008 and 1.1 times the EBITDA of the last twelve months in September 2009. After the company’s IPO, Grupo Fleury ended the year with R$245.5 million net cash. Excluding tax installments, net cash was R$327.8 million.

Capital Market

Grupo Fleury’s IPO, which took place on December 17, 2009 and listed its shares on the Novo Mercado tier of the BM&FBovespa, was considered 2009’s best IPO in Brazil, with a 14.1% price rise in the first day of trading – as opposed to the Ibovespa’s 2.3% decline on that same day.

The company raised R$630 million, including the Greenshoe, fully exercised on January 4, 2010. A total of 39,389,570 shares were sold at R$16.00 per share during that offering, right in the middle of the proposed price range. The resulting free float was 30%.

The shares ended the year worth R$18.39 each, positioning Grupo Fleury at a R$2,415 million market value.

Excellence in Qualification and Innovation

Investments in professional qualification and innovation continued to generate significant returns for Grupo Fleury’s offering of products and services across its 15 brands. An extensive education program was implemented in 2009, seeking to develop Grupo Fleury’s personnel, totaling 58 hours of training per employee per year.

In 2009, the company launched 103 new products, a record amount in a single year (in 2008, 80 products were launched), including molecular tests to detect the Influenza A H1N1 virus. We should point out that Grupo Fleury was the first private company in the country to develop molecular tests, helping hospitals in the São Paulo´s state government network to treat patients with symptoms of the influenza.

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Outlook

Grupo Fleury is endeavoring to implement plans to enable the continuity of its organic growth, in line with the performance presented in recent years. These plans include the extension of the patient service center optimization program, as well as expanding and opening new Patient Service Centers associated with new investments to increase the offering of imaging services and other high added-value services. In addition, the company will continue to analyze acquisition opportunities that can add value for our shareholders by increasing its presence in new places and/or offering a broader service portfolio.

The acceleration of Chronic Disease Management service agreements, the advancement of the preventive medicine business and the constant innovations implemented by Grupo Fleury in new products and solutions for diagnostic, preventive and therapeutic medicine will continue to contribute to the growth of its revenues and to bring solutions with return on investments to the Brazilian health sector.

We believe that the initiatives undertaken in recent years will enable us to improve the company’s return on invested capital in the coming years – through synergies, the maturity curve of new centers and businesses, and cost savings from the unification and integration of areas and systems.

The group will maintain its high standards of corporate governance, meritocracy and commitment to ethics, sustainability, the advancement of medicine and social welfare.

Investor Relations Department

Phone: + 55 11 5014-7413 | E-mail: [email protected] | Website: www.fleury.com.br/riAddress: Avenida General Valdomiro de Lima, 508 - 04344-903 - São Paulo, SP - Brasil

FLEURY S.A. AND SUBSIDIARIES

BALANCE SHEETS AS OF DECEMBER 31, 2009 AND 2008(In thousans of Brazilian - R$)

ASSETS Note 12/31/2009 12/31/2008 12/31/2009 12/31/2008

CURRENT ASSETSCash and cash equivalents 4 526.735 12.282 527.828 18.401 Trade accounts receivable 5 135.142 64.611 152.596 107.254 Inventories 6 9.116 6.976 12.450 11.850 Recoverable taxes 7 15.693 6.479 16.307 12.346 Prepaid expenses 1.617 510 1.837 342 Deferred income tax and social contribution 26 11.217 4.457 11.217 4.248 Derivative financial instruments 17 - 850 - 1.530 Other 8.035 3.282 8.650 6.918 Total current assets 707.555 99.447 730.885 162.889

NONCURRENT ASSETSLong-term assets:

Related parties 21 6.131 41.378 - - Trade accounts receivable 5 63 - 63 50 Recoverable taxes 7 15.109 366 15.109 15.461 Judicial deposits 14 3.657 9.924 3.657 10.928 Deferred income tax and social contribution 26 34.940 20.115 36.551 31.315 Securities - - - 534 Other 1.893 16 1.893 3.488

Total long-term assets 61.793 71.799 57.273 61.776 Investments 8 10.323 26.288 246 - Property and equipment 9 148.816 117.553 158.246 152.457 Intangible assets 10 316.796 66.256 317.819 239.638 Total noncurrent assets 537.728 281.896 533.584 453.871

TOTAL ASSETS 1.245.283 381.343 1.264.469 616.760

The accompanying notes are an integral part of these financial statements.

Company Consolidated

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LIABILITIES AND SHAREHOLDERS' EQUITY Note 12/31/2009 12/31/2008 12/31/2009 12/31/2008

CURRENT LIABILITIESLoans and financing 11 37.975 19.162 39.424 52.611 Derivative financial instruments 17 13 - 13 - Trade accounts payable 12 39.692 25.279 44.239 46.773 Payroll and related taxes 13 37.648 26.321 40.858 35.481 Provision for income tax and social contribution 970 7.722 970 10.796 Deferred income tax and social contribution 26 590 610 590 1.318 Taxes payable 15 19.322 4.399 19.682 25.341 Accounts payable - business acquisitions 16 35.187 8.030 35.187 21.112 Other payables 702 46 5.672 117 Total current liabilities 172.099 91.569 186.635 193.549

NONCURRENT LIABILITIESLoans and financing 11 92.608 66.689 92.834 124.949 Deferred income tax and social contribution 26 12.651 2.106 12.651 601 Reserve for contingencies 14 15.587 41.382 17.183 57.896 Taxes payable 15 72.228 12.068 74.996 61.800 Accounts payable - business acquisitions 16 32.607 16.856 32.607 25.780 Other 1.164 - 1.224 346 Total noncurrent liabilities 226.845 139.101 231.495 271.372

NON-CONTROLLING INTERESTS - - - 1.166

SHAREHOLDERS' EQUITYCapital 20 750.420 94.439 750.420 94.439 Capital reserve 1 1 1 1 Revaluation reserve 4.107 5.272 4.107 5.272 Earnings reserves 91.811 50.961 91.811 50.961 Total shareholders' equity 846.339 150.673 846.339 150.673

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 1.245.283 381.343 1.264.469 616.760


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STATEMENTS OF INCOMEFOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008(In thousans of Brazilian reais - R$, except earnings per share)

Note 12/31/2009 12/31/2008 12/31/2009 12/31/2008(*)

SERVICE REVENUE 22 651.503 512.631 820.439 719.723

TAXES (37.386) (29.047) (48.668) (43.150)

CANCELLATIONS (883) (1.119) (1.662) (1.293)

NET REVENUE 613.234 482.465 770.109 675.280

COST OF SERVICES 23 (327.444) (240.273) (451.685) (392.519)

GROSS PROFIT 285.790 242.192 318.424 282.761

OPERATING EXPENSES (INCOME) General and administrative expenses 24 (153.586) (114.925) (182.038) (157.252) Amortization of goodwill 10 - (8.820) - (27.546) Other operating income (expenses), net 3.863 (374) (2.580) 6.327 Reversal (reserve) for contingencies 19.045 (600) 14.642 (600) Equity in subsidiaries 8 (17.471) (28.626) - -

INCOME FROM OPERATIONS BEFORE FINANCIAL

EXPENSES 137.641 88.847 148.448 103.690

FINANCIAL INCOME (EXPENSES) 25 (12.225) (17.086) (21.244) (40.695)

INCOME BEFORE INCOME TAX ANDSOCIAL CONTRIBUTION 125.416 71.761 127.204 62.995

INCOME TAX AND SOCIAL CONTRIBUTIONCurrent 26 (32.803) (35.429) (35.545) (39.424) Deferred 26 (8.928) 5.630 (7.974) 17.418

INCOME BEFORE NON-CONTROLLING

INTERESTS 83.685 41.962 83.685 40.989

NON-CONTROLLING INTERESTS - - - 973

NET INCOME 83.685 41.962 83.685 41.962

Number of shares outstanding at year end (**) 126.160.780 2.412.765

EARNINGS PER SHARE - R$ 0,66 17,39

(*) Restated balances.



(**) The increase in number of shares from 2008 to 2009 was due to the issuance of new shares and the split of existingshares, as described in note 20.

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FLEURY S.A.

STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (COMPANY)FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008(In thousands of Brazilian reais - R$, except dividends and interest on capital per share proposed and paid)

Shares Capital Revaluation Legal Profit RetainedNote Capital issuance costs reserve reserve reserve reserve earnings Total

BALANCES AS OF DECEMBER 31, 2007 70.439 - 1 6.549 7.360 - 12.336 96.685

Capital increase 20 24.000 - - - - - - 24.000 Realization of revalution reserve - - - (1.277) - - 1.277 - Net income (R$17.39 per share) - - - - - - #REF! #REF!Allocation of income:

Recognition of legal reserve 20 - - - - 2.098 - (2.098) - Dividends paid (R$2.98 per share) 20 - - - - - - (7.196) (7.196) Interest on capital (1.98 per share) 20 - - - - - - (4.778) (4.778) Allocation to earnings reserve - - - - - 41.503 (41.503) -

BALANCES AS OF DECEMBER 31, 2008 94.439 - 1 5.272 9.458 41.503 - 150.673

Capital increase 20 678.199 - - - - - - 678.199 Share issue costs - (22.218) - - - - - (22.218) Realization of revaluation reserve - - - (1.165) - 1.165 - Net income (R$0.66 per share) - - - - - - 83.685 83.685 Allocation of income:

Dividends paid, ESM* of August 12, 2009 (R$1.96 per share) 20 - - - - - - (9.000) (9.000) Dividends paid, ESM* of October 19, 2009 (R$7.62 per share) 20 - - - - - - (35.000) (35.000) Recognition of legal reserve 20 - - - - 4.185 - (4.185) - Allocation to earnings reserve - - - - - 36.665 (36.665) -

BALANCES AT DECEMBER 31, 2009 772.638 (22.218) 1 4.107 13.643 78.168 - 846.339 * ESM - Extraordinary Shareholders' Meeting


Earnings reservesCapital

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STATEMENTS OF CASH FLOWSFOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008(In thousands of Brazilian reais - R$)

Company Consolidated12/31/200912/31/2008 12/31/200912/31/2008

(*)

CASH FLOW FROM OPERATING ACTIVITIESNet income 83.685 41.962 83.685 41.962 Items not affecting net cash provided by operating activities:

Depreciation and amortization 24.859 16.751 30.874 22.351 Discounts on joining tax installment payment program (8.814) - (8.814) - Amortization of goodwill on investment acquisition - 8.820 - 27.546 Net book value of property and equipment disposed of 1.304 604 1.721 604 Non-controlling interests - - - (973) Equity in subsidiaries 17.471 28.626 - - Interest and inflation adjustment 19.166 12.660 23.876 15.750 Deferred taxes 8.928 (5.630) 7.974 (17.418) Recognition (reversal) of reserve for contingencies (19.045) 600 (14.642) 600 Allowance for doubtful accounts 3.828 934 9.613 5.017

(Increase) decrease in assets:Trade accounts receivable (13.361) (17.747) (37.691) (30.913) Inventories (91) (1.748) 1.814 (2.502) Other current assets (14.123) (3.657) (16.224) 2.973 Noncurrent assets (1.836) (1.548) 1.278 (9.736)

Increase (decrease) in liabilities: Trade accounts payable (12.267) 7.532 (6.343) 16.413 Accounts payable and provisions 4.451 6.021 889 9.816 Income tax and social contribution (8.196) 513 (5.811) 2.565 Other noncurrent liabilities (17.673) 1.560 (32.712) (3.710)

Other-Interest paid (11.325) (4.031) (15.456) (7.947)

Net cash provided by operating activities 56.961 92.222 24.031 72.398

CASH FLOW FROM INVESTING ACTIVITIESAdditions to property and equipment (20.395) (43.338) (27.123) (59.271) Additions to intangible assets (7.237) (9.214) (9.335) (21.287) Additions to investments and goodwill on business acquisitions (130.484) (47.445) (41.473) (34.364) Net cash of acquired companies - - (1.772) - Merged net cash 62.853 588 - - Net cash used in investing activities (95.263) (99.409) (79.703) (114.922)

CASH FLOW FROM FINANCING ACTIVITIESCapital increase 678.199 24.000 678.199 24.000 Share issue costs (22.218) - (22.218) - Borrowings 5.501 36.312 5.501 54.697 Loans and financing repaid (27.049) (14.006) (52.383) (34.016) Interest on capital and dividends (44.000) (12.717) (44.000) (12.717) Related parties (37.678) (38.309) - (512) Net cash provided by (used in) financing activities 552.755 (4.720) 565.099 31.452

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 514.453 (11.907) 509.427 (11.072)

CASH AND CASH EQUIVALENTSAt beginning of year 12.282 24.189 18.401 29.473 At end of year 526.735 12.282 527.828 18.401

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 514.453 (11.907) 509.427 (11.072)


The accompanying notes are an integral part of these financial statements..

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STATEMENTS OF VALUE ADDEDFOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008(In thousands of Brazilian - R$)

12/31/2009 12/31/2008 12/31/2009 12/31/2008(*)

(=) 1. Revenues 647.675 511.697 810.826 714.706 1.1. Sales of goods, products and services 651.503 512.631 820.439 719.723 1.2. Allowance for doubtul accounts (3.828) (934) (9.613) (5.017)

(=) 2. Inputs purchased from third parties (252.320) (177.335) (342.809) (303.517) 2.1. Raw materials consumed (66.637) (44.210) (96.714) (90.228) 2.2. Cost of sales and services (124.864) (87.939) (170.164) (143.137) 2.3. Materials, electric power, third-party services and other (59.865) (44.940) (74.125) (68.931) 2.4. Impairment/recovery of assets (954) (246) (1.806) (1.221)

3. = (1-2) Gross value added 395.355 334.362 468.017 411.189

4. Depreciation, amortization and depletion (24.859) (25.571) (30.874) (49.897)

5. = (3-4) Wealth created 370.496 308.791 437.143 361.292

(=) 6. Wealth received in transfer (6.679) (19.368) 13.970 16.395 6.1. Equity in subsidiaries (17.471) (28.626) - - 6.2. Financial income 10.792 9.258 13.970 15.422 6.3. Non-controlling interests - - 973

7. = (5+6) Total wealth 363.817 289.423 451.113 377.687

(=) 8. Wealth distributed (363.817) (289.423) (451.113) (377.687) 8.1. Personnel and related taxes (170.161) (134.557) (202.185) (188.584) 8.2. Taxes (82.314) (60.775) (96.856) (69.199) 8.3. Interest, rentals and other operating expenses (27.657) (52.129) (68.387) (77.942) 8.4. Interest on capital and dividends (44.000) (11.974) (44.000) (11.974) 8.5. Retained earnings (39.685) (29.988) (39.685) (29.988)



ConsolidatedCompany

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