hc herald - edition #21__

8/13/2019 HC Herald - Edition #21__

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ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 28Banco BTG Pactual S.A. does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict ofinterest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

Equity Research

JC Santos

Brazil Banco BTG Pactual S.A.

[email protected]

+55 11 3383 2384

Pedro Montenegro

Brazil Banco BTG Pactual S.A.

[email protected]

+55 11 3383 2770

Edition #21: If you dont need to own the sectorthen dont

Still poor sector performance, barely tracking Bovespa; stocks should de-rate

Healthcare stocks continue to go the wrong way (-2% in last 30 days), and have only

managed to track the Bovespas own poor performance thanks to the 19% rally by

Profarma. Sector fundamentals remain weak, weighing on Dasa and Cremer (both ~-

5%), Fleury (-8%) and Qualicorp (-13%), which posted subpar Q4 numbers. We

remain bearish and would steer well clear of long-only positions. Bottom-line,

disappointing results (justifying the recent sell-off) look set to persist, driving a future

sector de-rating. In relative terms, we still prefer Qualicorp and Fleury. But if you dontneed healthcare exposure, then stay away.

Net payroll jobs: 2013 has gotten off to an even weaker-than-expected start

CAGED (tracking payroll job creation) reported 29k jobs created in January, the worst

since 2009 (when 102k jobs were destroyed), while February was only a bit better

with 123k new jobs (+18% y/y; 54% better than our macro team). 750k new jobs LTM

represent a 46% plunge y/y (and 65% below 2010s all-time high). Record low

unemployment (5.6% in February) and soft economic growth should continue to keep

new payroll jobs and, thus, health plans in check, dragging down other sub-sectors.

Health plans -1.5% q/q in Q4: payroll job weakness + higher prices + high MLR

ANS preliminary Q4 data indicate 47.94mn health beneficiaries, down 0.7mn q/q, the

first q/q drop (-1.5%) in the series. Growth of only 0.7% y/y (lowest since 1Q09) also

rams home sector challenges: (i) weak payroll job numbers are capping membership

growth, (ii) strong price hikes are boosting churn, and (iii) payers all-time high MLRs

are triggering unilateral contract cancelations. Payers reported FY12 results reinforce

this scenario, as most of the big boys lost health plans without stemming the bleeding

on the MLR front, signaling the need for further portfolio clean-ups ahead.

Tough Q4 season; we dont expect major improvementsat least not until 2H13

Q4 was weak across the board, with almost everyone posting numbers below our

already weak expectations. On a consolidated basis, healthcare companies EPS fell

30% y/y, while EBITDA slumped 15%. A tough scenario for payers is also dragging

other sub-sectors down. Lab test providers have seen incremental demand fall (as

payers clean-up their portfolios) and tougher negotiations (unprofitable payers have

bargaining power and hurt lab test providers via pricing + receivables). Pure dental

operators are also caught in the crossfire, as integrated health operators cross-

selling means much fiercer competition. Finally, Qualicorp is being hit by rising non-

payments (with soaring premiums due to high medical inflation and utilization).

Tax breaks for payers? CADE vs. Unimed; payers weak Q4 and much more

See more details below, including an analysis of some non-listed players FY12.

Latin America

Health Care

Sector Note

15 April 2013

The Healthcare Herald Adding intelligence to local newsflow


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The Healthcare Herald Addingintelligence to local newsflow15 April 2013 page 2

Periodic data analysis

CAGED: a poor start to 2013coming off an already weak end to 2012

After weak payroll job numbers in 2012 (+1.3mn in adjusted terms, down from 1.9mn

in 2011), Brazils labor market got the ball rolling in 2013 with only 29k new jobs in

January (-76% y/y and -49% y/y LTM), ensuring the worst LTM figure for the month in

the last 9 years. The number was below both our macro teams and the Streets

expectations, which had been working with 50k and 56k, respectively.

In February, job creation totaled a mere 123k (-18% y/y), albeit at least better than

our number and Street consensus (80k and 95k, respectively). Though softer than

Januarys -76% y/y plunge, LTM numbers still showed a significant drop of 46% y/y,

ensuring that this is not the start of a positive trend.

We continue seeing negative fundamentals and limited room for improvement in the

healthcare sector. The tight labor market (record low 5.6% unemployment rate in

February 2013) supports the slowdown in new payroll jobs, although it does at least

negate potential moral hazard effects in the sector.

Chart 1: LTM payroll job creation continued to decrease Chart 2: Slowdown in new formal jobs remains a concern, despite 50bpsdecline in unemployment rate in 2012

Source: CAGED, Bloomberg and BTG Pactual Source: CAGED, Bloomberg and BTG Pactual

Unemployment is at a record low 5.6% and the working age population is structurally

growing slowly (~1% p.a.). At this point, a recovery in new payroll jobs depends on

more people entering the economically active population (EAP) and, more

importantly, on more payroll jobs and fewer non-payroll jobs a phenomenon

referred to in Brazil as greater labor market formalization (i.e. less labor tax

evasion). Unfortunately, while there is still room for improvement, the degree of labor

market formalization already stands at a record high 55% of the countrys

workforce.

The current scenario supports our ongoing bearish view on healthcare payers, whose

membership growth depends mostly on corporate plans and, thus, on new payroll

jobs. Weak health plan expansion mainly stems from SMEs, where penetration is

much lower than at large corporations.

0

500

1,000

1,500

2,000

2,500

3,000

Jan-08 Nov-08 Sep-09 Ju l-10 May-11 Mar-12 Jan-13

0.8 0.61.5 1.3 1.2

1.9 1.71.3

2.51.9

1.3

88% 88% 89%90% 90% 91%

92% 92% 93% 94%

95%

2002 2003 2004 2005 2006 2007 2008* 2009* 2010* 2011*2012**

Formal Job Creation (Mn) Employment (%)

* Revised CAGED Data

Reacceleration depends on increasing the level offormalization of the economy


3/29


Medical inflation: spread over CPI continues to come down

Health inflation was stable in recent months (8.2% in March/February and 8.1% in

January/December). Given the CPI increase in this period, we can see an

improvement in health inflation relative to CPI, down to 124% (compared to a 138%

historical average), the best level since YE2011.

Medical Services (mainly related to medical fees) are more resilient and remain at

high (albeit also declining) levels. But Hospitalization and Surgeries inflation (~60%

of payers costs) has been falling in recent months, bringing some relief to the overall

high medical inflation harming (together with higher utilization) payers MLRs.

Dental cost of services also seems to be heading to a healthier scenario. Dental

inflation was 110% of CPI in March, compared to a 145% historical average and a

200% peak in 2Q12. DLR is more impacted by dentist fees (there are few

hospitalization procedures involved), indicating softer cost inflation (ex-utilization) for

dental payers in 2013.

Despite declining health inflation, we expect steady health plan price hikes over the

next few quarters, which should also support a much needed MLR improvement (or

at least stem the bleeding) throughout 2013 (skewed towards 2H13).

Table 1: After a worrisome scenario in mid-2012, medical inflation has been falling relative to CPI

Source: IBGE and BTG Pactual

Medical Description - IPCA (LTM) Dec-08 Dec-09 Dec-10 Dec-11 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13

Overall IPCA Inflation Index 5.9% 4.3% 5.9% 6.5% 5.2% 5.2% 5.3% 5.5% 5.5% 5.8% 6.2% 6.3% 6.6%

Health Services 6.0% 6.4% 7.4% 8.1% 8.3% 8.2% 8.2% 8.3% 8.3% 8.1% 8.1% 8.2% 8.2%

Medical and Dental Services 6.2% 6.9% 8.5% 8.9% 10.0% 10.2% 10.1% 10.9% 10.6% 10.0% 9.5% 10.0% 9.6%

Medical 6.6% 8.2% 10.8% 8.8% 9.6% 9.9% 9.8% 11.6% 11.5% 11.1% 11.0% 11.4% 11.1%

Dental 5.7% 6.7% 8.0% 9.1% 10.4% 10.1% 10.0% 9.9% 9.4% 8.4% 7.5% 7.8% 7.2%

Lab and Hospital Services 4.6% 5.2% 8.0% 10.3% 9.6% 8.7% 8.2% 6.7% 6.9% 6.6% 7.2% 6.8% 6.8%

Lab Exam 1.1% 2.5% 3.1% 3.0% 5.2% 5.0% 5.0% 5.5% 5.3% 4.6% 4.3% 4.3% 3.9%

Hospitalization and Surgery 5.3% 6.4% 8.8% 11.6% 10.3% 8.8% 7.9% 7.2% 7.5% 7.1% 8.3% 7.4% 7.5%

Imaging Exam -0.7% 9.9% 8.2% 7.8% 6.1% 5.0% 5.4% 5.9% 5.6% 6.8% 6.8% 7.2% 7.8%Health Plan 6.2% 6.4% 6.9% 7.5% 7.7% 7.6% 7.6% 7.7% 7.7% 7.8% 7.8% 7.9% 7.9%

% of IPCA Dec-08 Dec-09 Dec-10 Dec-11 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13

Health Services 102% 149% 125% 125% 160% 157% 155% 151% 149% 139% 132% 130% 124%

Medical and Dental Services 105% 160% 144% 137% 193% 195% 192% 199% 192% 171% 154% 158% 145%

Medical 111% 191% 183% 135% 184% 188% 185% 213% 208% 190% 178% 181% 168%

Dental 97% 156% 136% 139% 200% 193% 190% 183% 169% 143% 122% 123% 110%

Lab and Hospital Services 79% 122% 135% 158% 184% 166% 155% 122% 124% 113% 117% 107% 104%

Lab Exam 18% 58% 52% 46% 100% 95% 94% 101% 96% 79% 70% 68% 59%

Hospitalization and Surgery 89% 148% 149% 179% 198% 168% 149% 132% 136% 122% 134% 118% 114%

Imaging exam -12% 229% 138% 119% 117% 95% 103% 108% 101% 116% 110% 114% 118%

Health Plan 104% 148% 116% 116% 148% 144% 144% 141% 140% 133% 127% 125% 120%

Consistent reduction in Hospitalization andSurgeries and Dental Services inflation pressuresshould help operators to improve MLR and DLR.


4/29


Payers' YE12 results wrap-up

Amil 4Q12: a welcome exception, with decent MLR control + strong plan growth

Amil posted solid 14% y/y top line expansion in 4Q12, driven by strong pricing and an

expanded membership base (+3.9% q/q and +7.7% y/y). The company gained 236k

health members in 4Q12, all the more remarkable considering the sectors 720k net

loss and the fact that most of its competitors were busy cleaning up their portfolios.

In fact, Amil was one of the first health plan operators to stress the need for and to

implement strong price hikes (starting in 2H11), translating in flattish membership

expansion throughout 2012 and overall flattish MLR performance (while the industry

saw strong deterioration). In 4Q12, it not only increased its health plans but also

managed to keep a tight lid on MLR at 71.4%, flattish in y/y terms.

Operating expenses, however, were very high and led EBITDA to shrink 59% y/y;

while a tax credit write-off meant a net loss of R$58mn. For more details, see our

note Amil: Impressive membership evolution in 4Q12 (mainly dental), but we remain

bearish on Healthcare.

Table 3: Amils member, premium and MLR evolution

Source: Amil

SulAmrica Sade 4Q12: Prices continue to riseunfortunately, so is churn

SulAmricas health insurance business again posted strong premium growth in

4Q12, though the 20% y/y increase (collective plans) is below the rates seen in 9M12(from 26% in 1Q12 to 23% in 3Q12) and points to a deceleration. A more aggressive

pricing strategy, implemented by the company in mid-2012 to fight deteriorating

MLRs, resulted in a 14% y/y price hike for corporate plans (+10% for SMEs) and

backfired in terms of membership corporate plans (1.19mn) fell 1.7% q/q and were

flattish y/y, though at least SMEs (0.32mn) grew 2.6% q/q and 17.6% y/y.

For the first time since 1Q11, SulAmricas collective plans posted a y/y MLR

improvement (-250bps y/y in 4Q12), already showing the benefits of the more

conservative commercial strategy focused on profitability recovery, and paving the

way for better numbers in 2013 (albeit, of course, with weaker membership

expansion).

MLR Evolution - R$mn 2010 1Q11 2Q11 3Q11 4Q11 2011 1Q12 2Q12 3Q12 4Q12 2012

Amil

Members (mn) 5.3 5.5 5.6 5.7 5.8 5.8 5.8 5.9 6.0 6.3 6.3

Premiums 7,822 2,153 2,240 2,361 2,521 9,275 2,555 2,622 2,706 2,882 10,765y/y growth 56.0% 15.9% 16.8% 18.7% 22.5% 18.6% 18.7% 17.1% 14.6% 14.3% 16.1%

MLR 72.4% 67.9% 73.4% 72.6% 71.2% 71.3% 69.2% 72.8% 79.1% 71.4% 73.2%

y/y growth 1.0 p.p. -2.9 p.p. -0.9 p.p. -0.3 p.p. -0.3 p.p. -1.0 p.p. 1.3 p.p. -0.6 p.p. 6.5 p.p. 0.2 p.p. 1.9 p.p.

MLR (LTM) 72.4% 71.5% 71.4% 71.4% 71.3% 71.3% 71.5% 71.4% 73.2% 73.2% 73.2%

Sequential growth 1.0 p.p. -0.8 p.p. -0.1 p.p. 0.0 p.p. -0.1 p.p. -1.0 p.p. 0.2 p.p. -0.1 p.p. 1.7 p.p. 0.0 p.p. 1.9 p.p.


5/29


Table 4: SulAmricas member, premium and MLR evolution

Source: SulAmrica

Porto Seguro Sade 4Q12: portfolio clean-up brought revenues down

Porto Seguro posted modest premium growth (health+dental) of 5% y/y (from 12%

y/y in 3Q12), falling 3% q/q especially due to an 8% q/q (or 6% y/y) health plan

reduction (unprofitable contracts were not renewed). Dental plans behaved better and

expanded 19% y/y, despite a slight 5% q/q reduction in 4Q12.

The average dental ticket fell y/y while health tickets rose in Q4 (+7% y/y), though at

a slower pace than in previous quarters (+10% y/y in 3Q12 and +13% in 2Q12).

These price rises werent enough to offset slower membership growth, hampering top

line growth.

Price hikes were unable to avoid MLR deterioration in 4Q12, as claims climbed faster

than premiums, driving health MLR up 190bps y/y. For 2013, Porto Seguro should

focus on (i) greater utilization of its medical centers, (ii) continued price

renegotiations, and (iii) better contracts with providers, all helping to reduce MLR.

Dental loss ratios, however, showed a good trend and fell 5p.p. y/y to 55% in 4Q12,

as utilization rates declined.

Table 5: Porto Seguros member, premium and MLR evolution

Source: Porto Seguro


SulAmrica (group health)

Members (`000) 2,019 2,084 2,293 2,368 2,402 2,402 2,431 2,501 2,481 2,497 2,497

Premiums 3,779 1,064 1,132 1,242 1,292 4,731 1,346 1,392 1,523 1,545 5,805

y/y growth 21.7% 24.8% 23.0% 24.6% 26.7% 25.2% 26.4% 23.0% 22.6% 19.5% 22.7%

MLR 75.7% 78.4% 81.4% 77.9% 72.8% 77.5% 78.4% 85.7% 80.3% 70.3% 78.5%

y/y growth -2.2 p.p. -0.5 p.p. 0.1 p.p. 3.6 p.p. 4.5 p.p. 1.8 p.p. 0.0 p.p. 4.3 p.p. 2.4 p.p. -2.5 p.p. 1.0 p.p.

MLR (LTM) 75.7% 75.5% 75.8% 76.7% 77.5% 77.5% 77.5% 78.8% 79.4% 78.5% 78.5%

Sequential growth -2.2 p.p. 0.0 p.p. 0.3 p.p. 0.9 p.p. 0.7 p.p. 1.8 p.p. 0.0 p.p. 1.3 p.p. 0.6 p.p. -1.0 p.p. 1.0 p.p.


Porto Seguro (health + dental)

Members (`000) 467 465 516 544 567 567 581 586 615 574 574

Premiums 727 197 205 221 229 852 229 243 248 241 968

y/y growth 9.2% 17.6% 15.2% 18.6% 17.6% 17.3% 16.2% 18.4% 12.0% 5.1% 13.6%

MLR 70.5% 70.1% 75.9% 84.9% 79.7% 77.9% 73.4% 77.9% 83.4% 81.3% 78.9%

y/y growth -5.0 p.p. 3.9 p.p. 3.9 p.p. 12.0 p.p. 9.3 p.p. 7.5 p.p. 3.3 p.p. 2.0 p.p. -1.5 p.p. 1.6 p.p. 0.9 p.p.

MLR (LTM) 70.5% 71.3% 72.4% 75.6% 77.9% 77.9% 78.5% 78.9% 78.7% 79.1% 78.9%

Sequential growth -5.0 p.p. 0.8 p.p. 1.0 p.p. 3.3 p.p. 2.3 p.p. 7.5 p.p. 0.6 p.p. 0.4 p.p. -0.2 p.p. 0.4 p.p. 0.9 p.p.


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Tempo Sade 4Q12: price increase not enough to control MLR yet

In a y/y comparison, Tempo Sade boosted its pre-paid health plans by 16% in 4Q12,

driving premiums up 21%. However, the companys more aggressive pricing strategy

(first implemented in 3Q12, and essential to control rising MLRs) is already limiting

membership growth, triggering a 1.8% decrease q/q. As a result, average ticket

climbed a strong 3.7% q/q.

Stronger price hikes normally take one year to be fully implemented in the portfolio.

So far, price increases havent been enough to make Tempo Sade recover its

profitability, as MLR continued rising (+200bps y/y), though at a much softer pace

than in 3Q12 (+850bps y/y).

Table 6: Tempos member, premium and MLR evolution

Source: Tempo

Intermdica 2012: G&A control partly offset rising MLR and fewer beneficiaries

Grupo NotreDame Intermdicas (GNDI 4th

and 3rd

largest health and dental

operator in Brazil) strategy to cancel unprofitable contracts and jack up prices caused

membership to fall 12% y/y, mainly due to Intermdica (-21% y/y). On the positive

side, an 11% average price increase led revenues to grow an average of 8%, mainly

thanks to its pure insurance business, NotreDame (+20% y/y).

Interodonto was a bright spot in terms of profitability (though with a slight decrease in

membership), posting EBITDA margin of 39% and lower DLR (-280bps y/y).

Despite the strong pricing and the cancellation of unprofitable contracts, MLR has

gone up by 390bps (with Intermedica brand's 430bps deterioration the main blemish).

A leaner SG&A structure, however, offset this negative scenario and led the bottom

line to rise 7% in the year.

For more information, please see our note Healthcare: Intermdica results confirm

sector challenges.


Tempo Seguradora Sade

Members (`000) n.a. 763 747 736 725 725 651 670 699 742 742

Premiums 165 59 59 62 64 244 65 69 74 77 285

y/y growth n.a. n.a. 14.6% 13.4% 8.1% 47.7% 10.5% 17.3% 19.4% 21.0% 17.2%

MLR 75.5% 73.0% 82.7% 81.7% 81.4% 79.8% 79.6% 79.0% 90.9% 83.4% 83.4%

y/y growth n.a. n.a. 3.6 p.p. 2.7 p.p. 12.3 p.p. 4.3 p.p. 6.6 p.p. -3.7 p.p. 9.2 p.p. 2.0 p.p. 3.7 p.p.

MLR (LTM) 75.5% 74.8% 75.9% 76.7% 79.8% 79.8% 81.3% 80.4% 82.9% 83.4% 83.4%

Sequential growth n.a. n.a. 1.1 p.p. 0.8 p.p. 3.1 p.p. 4.3 p.p. 1.6 p.p. -0.9 p.p. 2.6 p.p. 0.5 p.p. 3.7 p.p.


7/29


Chart 1: GNDIs member evolution Chart 2: GNDIs MLR evolution Chart 3: GNDIs EBITDA evolution

Source: Intermdica Source: Intermdica Source: Intermdica

Prevent Senior 2012: a weaker year, but outstanding profitability once again

Prevent Senior is a vertically-integrated health plan operator focused on elderly

people. The company closed 2012 with 164k beneficiaries, an impressive 17%

expansion over 2011, generating R$591mn in revenues (+28% y/y) with a R$315

average price per month.

Despite focusing on clients 49 or older, who normally present more risks for medical

claims, Prevent Senior operates with a 66% MLR, a low level even for vertically-

integrated health payers. The company is heavily focused on preventive medicine,

marketing its programs to attract and retain clients.

However, such low MLR was 2p.p. above 2011 levels. On top of that, higher G&A

dragged down EBIT growth to only 5% over 2011. Still, EBIT margin was 7.1% (with

no adjustments related to financial income or technical provisions), an exceptional

level for industry standards.

Net income also grew by roughly 5% and reached R$35mn in 2012, representing an

also very high 5.8% net margin. A capital increase in 2012, however, led reported

EPS to fall by 43% in the period. Still, ROE was 48%...not too bad for a company

already complying with ANS solvency margin requirements.

Chart 4: Prevent Seniors member evolution Chart 5: Prevent Seniors MLR evolution Chart 6: Prevent Seniors EBITDA evolution

Source: Prevent Senior and ANS Source: Prevent Senior and ANS Source: Prevent Senior and ANS

2.22.6

3.2 3.6 3.94.2

3.7

0 .0

1 .0

2 .0

3 .0

4 .0

5 .0

2006 2007 2008 2009 2010 2011 2012

Number of members (mn)

80% 78%77%

75%73%

76%79%

6 7 %

7 2 %

7 7 %

8 2 %

2006 2007 2008 2009 2010 2011 2012

Medical loss ratio

90 111126 139

201171 173

0

1 0 0

2 0 0

3 0 0

2006 2007 2008 2009 2010 2011 2012

Adj EBITDA

92116 120

140164

0

6 0

1 2 0

1 8 0

2008 2009 2010 2011 2012

Members ('000)

76% 79% 72% 66% 68%

0 %

3 0 %

6 0 %

9 0 %

2008 2009 2010 2011 2012

MLR

4%7%

15%13%

9%

0 %

2008 2009 2010 2011 2012

EBITDA Margin


8/29


More key news from last month

Lower taxes for health plan operators? Tough to know whod incorporate them

The government is studying the possibility of a reduction in taxes (PIS/Cofins) for

health plan operators by May, which is being discussed by the Comission of

Consumer Defense. They will also discuss potential tax reductions for hospitals

(involving PIS/Cofins or payroll taxes), which would reduce the costs throughout the

chain. The goal is to ease the currently high medical inflation in place in Brazil, and

the lower taxes would have to be necessarily passed onto consumers via (i) higher

quality of services; and/or (ii) lower prices.

There have been many critics of this proposal, as many politicians think that any

resources allocated in potential tax breaks to the private sector should actually be

directed to the low-quality public system (SUS). Theres nothing defined yet (we dont

know the subsectors to be directly impacted nor the magnitude of the tax breaks). But

if the government implements any fiscal benefit, it would be a positive for most

healthcare players, boosting profitability (or growth prospects) throughout the chain.

Even if the potential tax breaks are fully passed on to consumers, it could ultimately

mean stronger membership growth and lower delinquency rates. While these are

clear benefits for payers and providers (exposed to payers stronger growth), they are

negative for brokers (making fees over smaller premiums) and a mixed bag for

Qualicorp (on one hand, lower prices mean lower revenues with no tax reduction; on

the other, lower prices also mean lower delinquency).

CADE enters into agreement with Unimeds to end physicians exclusivity

Although very fragmented nationally, the Brazilian healthcare industry is partly

controlled by a number of regional medical cooperatives under the Unimed system.

All told, they hold 36% market share in Brazil and an even stronger 43% if we

consider only the interior (i.e. countryside) of states (home to 58% of total plans).

Table 7: Payers market share breakdown

Source: ANS and BTG Pactual

Medical Cooperatives MCOs Insurers

Market share per region Total Capital Interior Total Capital Interior Total Capital Interior

Brazil (Total) 36% 26% 43% 37% 43% 33% 13% 17% 9%

Southeast 32% 19% 40% 42% 50% 37% 14% 21% 10%

So Paulo 27% 12% 37% 46% 54% 41% 17% 27% 11%

Rio de Janeiro 28% 21% 37% 43% 48% 36% 15% 16% 14%

Minas Gerais 50% 46% 51% 26% 32% 24% 6% 7% 5%

Esprito Santo 39% 40% 39% 39% 31% 41% 6% 5% 6%

South 54% 45% 58% 23% 32% 19% 6% 8% 6%

Northeast 30% 29% 32% 43% 45% 41% 13% 12% 14%

Mid-West 46% 39% 56% 22% 23% 21% 9% 11% 6%

North 52% 53% 51% 20% 20% 22% 12% 14% 7%

Lower taxes would have to directly benefit consumers

Surely positive for payers and providers, potentiallynegative for brokers and a mixed bag for Qualicorp


9/29


Almost as a rule, all the Unimeds require exclusivity from their physicians, who are

therefore forbidden by contract to treat beneficiaries from another health plan in that

region (the so-called unimilitncia). This is one of the reasons preventing moreefficient health plan operators from expanding into the countryside of Brazil, and also

preventing high-quality providers from entering these regions (given the concentrated

payers base).

CADE (Brazilian anti-trust authority) has been fighting this practice in Brazil (which

clearly plays against competition) for decades, and has finally reached an agreement

to end these exclusivity agreements. We see this is a clear evolution for the

healthcare sector in Brazil, probably bringing greater efficiency and incentivizing

higher-quality payers/providers to take risks and enter the interior of states to

compete with Unimed.

However, we dont think these changes should be easily implemented in practical

terms. The unimilitncia is already part of the Unimed (and healthcare) culture and

should remain (informally) present in the relationship between physicians and medical

cooperatives (mainly in smaller municipalities) over the coming years. It is

nonetheless a positive first step by CADE.

OdontoPrev launches premium dental benefit for corporate clients

The largest dental plan operator in Brazil has announced the creation of a premium

corporate dental plan. Under this new product, called Prvian, clients will basically be

reimbursed by the dental expenses incurred with their own trusted dentists, which

wont need to be accredited to OdontoPrevs network.

We still dont have too many details on pricing or strategy, but this could be one more

option (on top of the already-established SME and individual plans) for OdontoPrev to

diversify its business and reduce exposure to large corporate contracts, which are

facing strong competition from integrated health operators.

Chart 7: SME plans soared more than 50% in 2012 Chart 8: ...but still represent 10% of total portfolio

Source: Odontoprev Source: Odontoprev

4,869 5,079

387 598277

299

0

1 ,0 0 0

2 ,0 0 0

3 ,0 0 0

4 ,0 0 0

5 ,0 0 0

6 ,0 0 0

7 ,0 0 0

2011 2012

Corporate plans SME plans Individual plans

5,9765,533

+54%

88% 85%

7% 10%5% 5%

0 %

1 0 %

2 0 %

3 0 %

4 0 %

5 0 %

6 0 %

7 0 %

8 0 %

9 0 %

1 0 0 %

2011 2012

Corporate plans SME plans Individual plans


10/29


Rede DOr hires Mr. Herclito Brito as new CEO

The Rede DOr group (one of the two largest hospital chains in Brazil with ~3.4k beds

in 24 hospitals, similar to Amils proprietary network) has announced that Mr.

Herclito Brito will assume the CEO position this week, replacing the founder of the

company, Mr. Jorge Moll, who will stay on as chairman of the Board.

Mr. Brito has an impressive background in the healthcare industry (he oversaw

Qualicorps IPO process as CEO, spent 11 years at Bradesco Sade, and also

worked at Golden Cross and sat on the Boards of Fleury and OdontoPrev) and is a

respectable addition to Rede DOrs management team. He should help improve the

relationship with health payers, potentially bringing a new performance-based

payment model something Brazils Health Regulator is already promoting itself (see

our Healthcare Herald #20).

Currently running at high utilization rates, Rede DOr plans to increase its number of

beds to 5.0k over the following two years (21% CAGR), mostly through organic

investments (4 hospitals currently under construction 3 in Rio and 1 in Sao Paulo)

as the consolidation process through M&A seems to have been explored to its

potential, with very few high-quality targets still available in the market.

Organic investments should total as much as R$500mn in 2013 (67% above 2012

levels), supporting the targeted capacity expansion after a period of already very high

top line growth (from R$1.9bn in 2010 to R$3.5bn in 2012).

Chart 9: Rede DOrs bed evolution Chart 10: Rede DOrs revenues

Source: Rede DOr Source: Rede DOr

Ptrias Alliar plans to double by end-2013, potentially IPO-ing in 2014

The lab test provider Alliar, managed by the private equity firm Ptria (the one leading

Dasa to its IPO), wants to double its annual revenues to R$400mn in 2013 through

both M&A and organic expansion. The company was founded only two years ago

and, after 11 acquisitions (equity is often used to pay for the deals), has already

reached the R$200mn revenue landmark via 40 PSCs focused on imaging exams.

Alliar is mainly present in Minas Gerais state, competing directly with Gveas

Hermes Pardini, which is looking to gain more exposure to the imaging business

8551,144

1,450

2,676 2,683

3,451

0

1 ,0 0 0

2 ,0 0 0

3 ,0 0 0

4 ,0 0 0

2007 2008 2009 2010 2011 2012

# beds

510 648 908

1,9582,246

3,298

0

1 ,0 0 0

2 ,0 0 0

3 ,0 0 0

4 ,0 0 0

2007 2008 2009 2010 2011 2012

Revenues (R$`000)

Alliar to post R$400mn annual revenues in 2013


11/29


12/29


Reference charts

Chart 7: Healthcare coverage performance (last 30 days) Chart 8: Healthcare coverage performance (LTM)

Source: Bloomberg and BTG Pactual Source: Bloomberg and BTG Pactual

Chart 9: Other healthcare shares performance (last 30 days) Chart 10: Other healthcare shares performance (LTM)


Chart 11: The healthcare sector has been beating the Ibovespa since2011

Chart 12: Amil, OdontoPrev, Tempo and SulAmrica performance


-12.8%

-8.3%

-5.6%

-5.0%

-4.4%

-2.1%

0.7%

2.6%

19.3%

QUAL3

FLRY3

IBOVESPA

CREM3

DASA3

HEALTHCARE

AMIL3

ODPV3

PFRM3

-29.6%

-21.5%

-16.7%

-12.8%

0.2%

15.0%

23.3%

67.0%

142.2%

CREM3

FLRY3

DASA3

IBOVESPA

ODPV3

QUAL3

HEALTHCARE

AMIL3

PFRM3

-10.4%

-10.2%

-5.3%

-4.6%-2.2%

-1.4%

-1.4%

2.5%

5.1%

5.6%

BPHA3

HYPE3

RADL3

CRUZBLANCFR

PSSA3

BRIN3

SULA11

LABB

TEMP3

-14.7%

5.0%

20.0%

21.5%22.8%

25.1%

31.5%

35.3%

42.4%

47.8%

TEMP3

CFR

BRIN3

RADL3CRUZBLAN

BPHA3

HYPE3

SULA11

PSSA3

LABB

65

75

85

95

105

115

125

135

Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13

Ibovespa He alth ca re

55

75

95

115

135

155

175


AMIL3 ODPV3 TEMP3 SULA11


13/29


Chart 13: Dasa and Fleury performance Chart 14: Qualicorp and Brasil Insurance performance


Chart 15: Hypermarcas, Genomma, Profarma, CFR and Cremer Chart 16: Raia Drogasil and Brazil Pharma performance


50

60

70

80

90

100

110

Jan-11 Jun-11 Nov-11 Apr-12 Sep-12 Feb-13

DASA3 FLRY3

60

80

100

120

140

160

Jan-11 Jun-11 Nov-11 Apr -12 Sep-12 Feb-13

QUAL3 BRIN3

30

50

70

90

110

130


HYPE3 LABB PFRM3 CREM3 CFR

50

70

90

110

130

150

170

190

Jan-11 Jun-11 Nov-11 Apr -12 Sep-12 Feb-13

RADL3 BPHA3


14/29


Table 3: Local healthcare comps

Source: BTG Pactual and Bloomberg (*)

Price EV/EBITDA P/E Performance

(local) 2012 2013 2014 2012 2013 2014 LTM YTD MTD

Healthcare Team coverage (Brazil)

Dasa 1,870 14.3 Neutral 11.8 14.5 23.8% 10.8x 8.9x 7.4x 30.0x 20.5x 16.4x 0.99 -17% -10% 1%

Fleury 1,491 3.9 Neutral 18.8 25.5 37.3% 9.7x 7.7x 6.2x 19.9x 1 3.6x 10.6x 0.66 -22% -18% -2%

Amil 5,753 8.3 Neutral 31.7 30.8 (2.0% ) 13.4x 11.6x 10.4x 31.5x 25.6x 22.3x 1.85 67% 3% 0%

OdontoPrev 2,565 11.6 Sell 9.5 9.0 (2.4% ) 21.3x 19.3x 15.6x 34.7x 31.9x 26.9x 2.38 0% -10% 4%

Cremer 216 0.5 Neutral 13.0 15.0 16.5% 8.7x 6.2x 6.0x 33.3x 15.5x 12.7x 0.72 -30% 1% 1%

Profarma 370 1.4 Neutral 21.7 21.0 (0.4% ) 8.6x 7.4x 6.3x 16.2x 13.8x 12.3x 0.92 142% 50% -1%

Qualicorp 2,585 20.3 Buy 18.7 25.0 33.7% 15.8x 11.0x 8.8x 25.2x 16.2x 12.7x 0.72 15% -12% -8%

Other Brazilian Healthcare companies

SulAmrica 2,875 8.1 Neutral 17.0 15.0 (11.5% ) - - - 11.7x 11.8x 9.4x 0.92 35% 16% 2%

Porto Seguro 4,352 9.7 Neutral 26.5 22.0 (17.0% ) - - - 12.6x 12.0x 10.2x 1.15 42% 14% -5%

Raia Drogasil 3,691 12.6 Neutral 22.0 23.0 5.1% 22.4x 16.9x 13.8x 47.2x 33.2x 24.6x 1.41 22% -5% 2%

Br Pharma 1,733 6.9 Buy 13.1 18.0 37.8% 21.7x 14.5x 10.9x 41.7x 24.7x 19.5x 1.06 25% -9% -8%

Hy permarcas 5,091 27.3 Neutral 15.6 14.0 (10.0%) 13.0x 11.2x 8.7x 27.6x 20.8x 15.0x 1.06 32% -4% 1%

Tempo* 284 0.1 n.a. 3.6 n.a. n.a. 8.2x 7.0x 6.5x 14.1x 11.0x 9.5x - -15% -1% 3%Br Insurance 1,069 4.2 Buy 22.0 26.0 23.7% 12.4x 10.1x 8.7x 17.3x 13.7x 11.8x 0.99 20% 10% -2%

LatAm Healthcare names

CFR 2,206 1.1 Buy 123.0 145.0 17.9% 18.9x 14.0x 11.0x 28.2x 19.6x 15.0x 0.87 5% 3% 1%

Genomma 2,624 10.8 Sell 30.0 28.0 (6.7% ) 13.1x 11.1x 9.5x 21.4x 18.8x 16.0x 1.29 50% 5% -2%

Cruz Blanca* 786 1.2 n.a. 579.8 n.a. n.a. 11.6x 9.8x 9.0x 18.5x 14.1x 12.1x - 11% -5% -2%

Banmedica* 2,103 0.7 n.a. 1229.0 n.a. n.a. - - - 20.1x 17.8x 16.0x 1.60 50% 5% -2%

PEG

(12-15)Company

Mkt Cap

(USDmn)

ADTV

(USDmn) Rating

Target

(local)

Total

return


15/29


Table 4: Global healthcare comps

Source: BTG Pactual (*) and Bloomberg / ** companies exposed to Medicaid

ADTV Mkt Cap Last Price EV / EBITDA P/E

EPS

growth

PEG

ratioUSDmn USDmn Local 2012e 2013e 2014e 2012e 2013e 2014e 12e-15e 12e-15e

Managed care

AMIL PARTICIPACOES * 5.6 5,863 31.7 13.4 11.6 10.4 31.5 25.6 22.3 17% 1.8

SUL AMERICA * 7.0 2,915 17.0 - - - 11.7 11.8 9.4 17% 1.8

PORTO SEGURO * 9.7 4,326 26.5 - - - 12.6 12.0 10.2 17% 1.8

ODONTOPREV * 10.6 2,550 9.5 21.3 19.3 15.6 34.7 31.9 26.9 17% 1.8

TEMPO PARTICIPACOES 0.1 284 3.6 8.2 7.0 6.5 14.1 11.0 9.5 - -

CRUZ BLANCA SALUD 1.2 786 579.8 11.6 9.8 9.0 18.5 14.1 12.1 - -

BANMEDICA 0.7 2,103 1,229.0 - - - 20.1 17.8 16.0 13% 1.6

ILC 1.6 1,976 9,295.0 - 8.4 7.9 11.9 13.9 12.6 - 5.9

AETNA 150.4 18,624 56.8 6.4 6.1 5.9 11.1 10.3 9.7 9% 1.2

CIGNA 109.5 19,079 66.7 6.6 6.3 5.8 11.3 10.5 9.7 9% 1.2

HUMANA 169.2 12,310 77.6 2.9 2.6 2.3 10.3 9.8 9.1 7% 1.5

UNITEDHEALTH 329.2 64,601 63.0 7.1 6.5 6.1 11.9 11.4 10.5 8% 1.4

WELLPOINT 125.3 21,219 69.8 3.7 3.5 3.4 9.4 9.0 8.5 7% 1.3

AMERIGROUP ** 0.1 - - - - - - - - - -

CENTENE ** 23.3 2,463 47.7 14.6 6.6 4.6 42.5 18.0 13.7 57% 0.7

COVENTRY HEALTH CARE ** 41.0 6,632 49.3 8.3 7.8 7.6 17.8 14.6 13.6 12% 1.5

HEALTH NET ** 19.1 2,301 29.0 5.0 2.3 1.5 27.7 14.0 10.9 51% 0.5

MOLINA ** 17.7 1,511 33.5 10.6 2.8 2.1 - 22.7 15.5 - -

WELLCARE ** 26.0 2,659 47.7 3.9 3.8 3.1 12.4 12.6 10.8 11% 1.2

Average 55.1 8.8 7.0 6.1 18.2 15.0 12.8 18% 1.7

Hospitals

CRUZ BLANCA SALUD 1.2 786 579.8 11.6 9.8 9.0 18.5 14.1 12.1 - -

COMMUNITY HEALTH SYSTEMS 51.2 3,974 43.1 7.0 6.8 6.2 12.1 11.6 9.5 - 1.0

HEALTH MGMT ASSOCIATES 37.8 2,794 10.9 6.5 6.3 5.8 12.3 12.3 10.3 9% 1.3

HEALTHSCOPE - - - - - - - - - - -

LIFEPOINT HOSPITALS 15.1 2,172 46.3 7.3 7.0 6.4 15.3 15.5 13.3 - 1.8

RAMSAY HEALTH CARE 15.4 6,780 31.9 13.0 12.0 10.9 27.1 23.3 20.5 14% 2.0

RHOEN-KLINIKUM 7.3 3,024 16.7 10.5 9.4 8.3 23.4 19.3 14.6 23% 1.0

TENET HEALTHCARE 73.1 4,422 42.4 7.9 6.9 6.4 21.7 15.2 12.4 27% 0.8UNIVERSAL HEALTH SERVICES 50.8 6,117 62.5 8.6 8.1 7.4 15.3 13.9 12.2 - 1.5

Average 31.5 9.1 8.3 7.5 18.2 15.7 13.1 0.2 1.3


16/29



Source: BTG Pactual (*) and Bloomberg


EPS

growth

PEG


Lab test

DIAGNOSTICOS DA AMERICA* 12.9 1,859 11.8 10.8 8.9 7.4 30.0 20.5 16.4 33% 0.7

FLEURY* 3.1 1,483 18.8 9.7 7.7 6.2 19.9 13.6 10.6 33% 0.7

QUEST DIAGNOSTICS 71.2 9,389 59.3 7.6 7.8 7.5 13.4 13.4 12.2 - 2.2

LABCORP 73.1 8,785 94.4 8.4 8.3 8.1 13.7 13.2 12.3 - 1.8

SONIC HEALTHCARE 19.5 5,537 13.3 10.9 10.6 9.8 16.6 15.8 14.5 8% 2.2

Average 35.9 9.5 8.7 7.8 18.7 15.3 13.2 25% 1.5

Pharmaceuticals

HYPERMARCAS * 26.8 5,060 16.0 13.0 11.2 8.7 27.6 20.8 15.0 36% 1.1

GENOMMA LAB 10.0 2,617 30.0 13.1 11.1 9.5 21.4 18.8 16.0 17% 1.3

CFR PHARMACEUTICALS 0.7 2,201 123.2 18.9 14.0 11.0 28.2 19.6 15.0 32% 0.9

PFIZER 844.0 220,384 30.7 7.7 8.2 8.1 14.2 13.5 12.8 5% 3.0

ROCHE 308.2 209,361 225.0 11.6 10.4 9.8 16.5 15.1 14.1 8% 2.1

NOVARTIS 300.2 197,865 73.1 12.3 12.5 11.7 13.9 14.1 12.8 6% 2.3JOHNSON & JOHNSON 713.0 231,427 82.7 10.6 10.0 9.4 16.2 15.3 14.4 6% 2.5

GLAXOSMITHKLINE 100.9 118,984 15.7 9.4 9.6 9.1 14.2 13.6 12.3 14% 1.0

SANOFI 263.6 137,065 79.5 8.5 8.7 8.0 12.8 13.3 11.9 6% 2.1

ABBOTT 325.9 58,319 37.1 5.1 12.0 11.1 7.3 18.2 16.6 -21% neg.

ASTRAZENECA 87.5 64,134 50.9 6.0 6.8 6.9 8.2 9.5 9.8 -5% neg.

BAYER 222.5 86,661 80.6 8.9 8.4 7.8 14.9 13.7 12.4 10% 1.5

ELI LILLY 268.1 64,968 57.5 10.4 9.7 12.8 17.3 14.8 20.5 -2% neg.

BRISTOL-MYERS SQUIBB 331.5 68,049 41.4 13.1 16.6 13.8 21.2 22.5 19.1 3% 8.4

TEVA PHARMACEUTICAL 172.0 33,552 39.3 7.4 7.6 6.9 7.3 7.6 7.0 3% 2.8

MERCK 647.4 142,384 118.3 9.4 8.9 8.5 15.7 14.2 13.2 -19% neg.

TAKEDA 161.3 41,502 5,170.0 9.4 12.9 11.6 16.3 18.2 20.1 -4% neg.

WATSON - - - - - - - - - 19% -

PERRIGO 68.5 11,218 119.9 15.5 13.4 11.7 24.2 21.2 18.0 13% 1.8

RANBAXY 8.2 3,426 441.6 8.4 10.8 8.5 13.0 17.4 13.3 -6% neg.

MYLAN 152.2 11,344 28.7 8.3 8.3 7.9 11.1 10.0 9.0 10% 1.1

ADCOCK INGRAM 4.5 1,219 62.1 10.3 9.4 8.4 14.2 14.5 12.9 6% 2.2

ASPEN PHARMACARE 16.6 9,586 187.8 20.5 17.2 15.3 29.5 24.1 20.7 17% 1.7

NOVO NORDISK 118.6 93,955 954.0 16.3 15.1 13.6 25.0 20.7 18.7 15% 1.7

ASTELLAS 102.5 26,450 5,560.0 11.8 11.8 10.5 29.2 23.7 20.1 17% 1.7

DAIICHI SANKYO 50.8 13,392 1,858.0 8.4 8.6 7.9 70.4 25.7 19.3 56% 1.3

AUROBINDO PHARMA 8.5 934 174.9 12.4 9.0 7.1 15.9 12.4 8.8 33% 0.5

HIKMA 3.2 3,009 15.2 14.5 11.5 10.1 27.0 21.8 17.8 21% 1.3

RICHTER GEDEON 3.7 2,817 34,050.0 7.4 7.3 6.5 12.7 12.8 11.2 10% 1.3

DR. REDDY'S LABORATORIES 11.5 5,928 1,903.8 14.8 13.9 12.4 21.7 20.3 17.9 11% 1.9

LUPIN LTD 8.0 5,415 659.8 21.5 14.9 12.9 30.3 24.8 20.6 19% 1.6

ANDROMACO 0.1 286 240.0 10.5 8.5 7.7 15.9 14.3 12.4 N.A -

STADA ARZNEIMITTEL AG 13.5 2,313 30.0 8.2 7.4 6.8 11.8 10.6 9.0 15% 0.8

CIPLA LTD 12.0 5,972 405.6 20.2 14.4 13.5 29.0 21.1 19.8 19% 1.5

SUN PHARMACEUTICAL INDUS 15.6 16,493 869.8 29.7 18.2 16.5 38.6 27.4 24.2 23% 1.7

Average 158.3 12.2 11.1 10.1 20.4 17.2 15.2 0.1 1.9

DistributorsPROFARMA DISTRIBUIDORA * 1.3 367 21.7 8.6 7.4 6.3 16.2 13.8 12.3 17% 1.8

MCKESSON CORP 144.3 25,236 108.4 9.0 8.6 7.8 17.0 15.0 13.5 12% 1.4

AMERISOURCEBERGEN CORP 103.6 12,471 54.2 9.5 9.4 8.3 19.2 17.6 14.7 15% 1.3

CARDINAL HEALTH INC 143.9 14,749 43.3 7.2 6.6 6.5 13.5 12.4 12.0 7% 1.9

HENRY SCHEIN INC 33.1 8,051 91.9 11.9 11.0 10.3 21.0 18.9 17.1 - 1.9

PSS WORLD MEDICAL INC 9.1 #VALUE! - - - - - - - 8% -

OWENS & MINOR INC 10.8 2,020 31.9 8.6 8.1 7.6 16.7 16.8 15.4 6% 2.9

Average 63.7 9.1 8.5 7.8 17.3 15.7 14.2 11% 1.9


17/29



Source: BTG Pactual (*) and Bloomberg

Chart 17: Health plan members (mn) and coverage ratios Chart 18: Dental plan members (mn) and coverage ratios

Source: ANS and BTG Pactual Source: ANS and BTG Pactual


EPS

growth

PEG


Drug retailers

RAIA DROGASIL * 12.6 3,669 22.0 22.4 16.9 13.8 47.2 33.2 24.6 33% 1.4

BRAZIL PHARMA SA * 6.0 1,697 13.1 21.7 14.5 10.9 41.7 24.7 19.5 39% 1.1

CVS CAREMARK CORP 307.1 70,818 57.5 8.8 8.1 7.7 16.9 14.6 13.1 13% 1.3

SHOPPERS DRUG MART CORP 41.8 8,871 44.1 8.3 8.3 8.0 15.1 14.8 14.0 - 2.5

RITE AID CORP 17.1 2,088 2.3 8.9 7.6 7.2 - - 21.0 -174% -

WALGREEN CO 248.7 46,209 48.8 10.3 9.0 8.1 18.9 14.9 13.2 16% 1.2

CELESIO AG 7.3 3,375 15.3 7.3 6.9 6.5 12.8 11.8 10.4 12% 1.0

CIPLA MEDPRO SOUTH AFRICA LT 1.0 464 9.3 8.9 8.4 7.6 13.1 13.0 11.0 6% 2.0

SHOPPERS DRUG MART CORP 1.8 668 44.1 8.3 8.3 8.0 15.1 14.8 14.0 - neg.

Average 80.2 12.1 10.0 8.7 23.7 18.2 15.8 -8% 1.5

Manufacturers / HPC

HYPERMARCAS * 26.8 5,060 16.0 13.0 11.2 8.7 27.6 20.8 15.0 36% 1.1

CREMER * 0.4 216 13.0 8.7 6.2 6.0 33.3 15.5 12.7 17% 1.8GENOMMA 10.0 2,617 30.0 13.1 11.1 9.5 21.4 18.8 16.0 0.2 1.3

UNILEVER NV-CVA 160.1 125,580 31.9 12.7 11.9 11.1 20.2 18.8 17.3 8% 2.5

PROCTER & GAMBLE CO/THE 664.2 218,751 80.1 13.3 12.8 12.0 21.0 19.7 18.3 8% 2.7

JOHNSON & JOHNSON 713.0 231,427 82.7 10.6 10.0 9.4 16.2 15.3 14.4 6% 2.5

TOP GLOVE CORP BHD 1.5 1,186 5.8 10.8 9.4 8.4 19.0 16.1 14.6 13% 1.5

SUPERMAX CORP BHD 0.9 449 2.0 10.3 8.5 7.4 10.7 9.5 8.4 - 0.9

LATEXX PARTNERS BERHAD 0.0 180 2.3 8.3 6.5 5.4 14.3 10.4 8.8 - -

KOSSAN RUBBER INDUSTRIES 0.3 386 3.7 7.0 6.1 5.5 11.2 9.8 8.6 - 0.8

Average 157.7 10.8 9.4 8.3 19.5 15.5 13.4 15% 1.7

Brokerage / Benefits management

QUALICORP * 19.0 2,498 18.7 15.8 11.0 8.8 25.2 16.2 12.7 17% 1.8

BRASIL INSURANCE * 4.0 1,075 22.0 12.4 10.1 8.7 17.3 13.7 11.8 17% 1.0

AON CORP 127.5 19,511 62.6 10.0 9.1 8.5 14.9 13.3 11.9 13% 1.2

WILLIS GROUP HOLDINGS PLC 28.4 6,830 39.3 13.3 9.9 8.9 15.3 15.0 13.3 10% 1.6

ARTHUR J GALLAGHER & CO 26.9 5,319 42.3 12.9 11.3 9.9 24.3 19.2 16.9 18% 1.4

BROWN & BROWN INC 21.2 4,508 31.3 11.9 10.3 9.2 25.4 21.3 18.5 17% 1.5

CNINSURE INC-ADR 0.4 316 39.0 - - - 13.9 12.5 10.6 - 0.8

Average 32.5 12.7 10.3 9.0 19.5 15.9 13.7 15% 1.3

15%

17%

19%

21%

23%

25%

27%

20

25

30

35

4045

50

55

2005 2006 2007 2008 2009 2010 2011 Sep-12

Healthcare Members Healthcare Coverage

0%

1%

2%

3%

4%

5%

6%7%

8%

9%

10%

0

2

4

6

8

10

1214

16

18

20

2005 2006 2007 2008 2009 2010 2011 Sep-12

Dental Members Dental Coverage


18/29


Chart 19: Health plan revenues and medical claims Chart 20: Medical loss ratio

Source: ANS Source: ANS and Amil

Table 7: MLR evolution of listed health plan operators

Source: Companies and BTG Pactual

20

30

40

50

60

70

8090

2003 2004 2005 2006 2007 2008 2009 2010 2011

Revenues (R$bn) Claims (R$bn)

79.7% 80.6% 80.4%83.0%

81.2%82.4%

71.6%68.3% 69.3%

71.3% 72.4%

71.3%

6 5 .0 %

6 7 .0 %

6 9 .0 %

7 1 .0 %

7 3 .0 %

7 5 .0 %

7 7 .0 %

7 9 .0 %

8 1 .0 %

8 3 .0 %

8 5 .0 %

2006 2007 2008 2009 2010 2011

MLR - sector MLR - Amil

MLR Evolution - R$mn 2010 1Q11 2Q11 3Q11 4Q11 2011 1Q12 2Q12 3Q12 4Q12

SulAmrica (group health)

MLR 75.7% 78.4% 81.4% 77.9% 72.8% 77.5% 78.4% 85.7% 80.3% 70.3%

y/y growth -2.2 p.p. -0.5 p.p. 0.1 p.p. 3.6 p.p. 4.5 p.p. 1.8 p.p. 0.0 p.p. 4.3 p.p. 2.4 p.p. -2.5 p.p.

MLR (LTM) 75.7% 75.5% 75.8% 76.7% 77.5% 77.5% 77.5% 78.8% 79.4% 78.5%

Sequential growth -2.2 p.p. 0.0 p.p. 0.3 p.p. 0.9 p.p. 0.7 p.p. 1.8 p.p. 0.0 p.p. 1.3 p.p. 0.6 p.p. -1.0 p.p.

Porto Seguro

MLR 70.5% 70.1% 75.9% 84.9% 79.7% 77.9% 73.4% 77.9% 83.4% 81.3%

y/y growth -5.0 p.p. 3.9 p.p. 3.9 p.p. 12.0 p.p. 9.3 p.p. 7.5 p.p. 3.3 p.p. 2.0 p.p. -1.5 p.p. 1.6 p.p.

MLR (LTM) 70.5% 71.3% 72.4% 75.6% 77.9% 77.9% 78.5% 78.9% 78.7% 79.1%

Sequential growth -5.0 p.p. 0.8 p.p. 1.0 p.p. 3.3 p.p. 2.3 p.p. 7.5 p.p. 0.6 p.p. 0.4 p.p. -0.2 p.p. 0.4 p.p.

Amil

MLR 72.4% 67.9% 73.4% 72.6% 71.2% 71.3% 69.2% 72.8% 79.1% n.a

y/y growth 1.0 p.p. -2.9 p.p. -0.9 p.p. -0.3 p.p. -0.3 p.p. -1.0 p.p. 1.3 p. p. -0.6 p.p. 6.5 p.p. n.a

MLR (LTM) 72.4% 71.5% 71.4% 71.4% 71.3% 71.3% 71.5% 71.4% 73.2% n.a

Sequential growth 1.0 p.p. -0.8 p.p. -0.1 p.p. 0.0 p.p. -0.1 p.p. -1.0 p.p. 0.2 p. p. -0.1 p.p. 1.7 p.p. n.a

Tempo Seguradora Sade

MLR 75.5% 73.0% 82.7% 81.7% 81.4% 79.8% 79.6% 79.0% 90.9% 83.4%

y/y growth n.a. n.a. 3.6 p.p. 2.7 p.p. 12.3 p.p. 4.3 p.p. 6.6 p.p. -3.7 p.p. 9.2 p.p. 2.0 p.p.

MLR (LTM) 75.5% 74.8% 75.9% 76.7% 79.8% 79.8% 81.3% 80.4% 82.9% 84.3%

Sequential growth n.a. n.a. 1.1 p.p. 0.8 p.p. 3.1 p.p. 4.3 p.p. 1.6 p.p. -0.9 p.p. 2.6 p.p. 1.4 p.p.

Bradesco Sade + Mediservice

MLR n.a. 87.6% 87.7% 87.3% 83.4% 86.5% 86.4% 86.1% 86.9% 85.3%

y/y growth n.a. n.a. 2.8 p.p. 3.1 p.p. -0.6 p.p. n.a. -1.2 p.p. -1.6 p.p. -0.4 p.p. 1.9 p.p.

MLR (LTM) n.a. 85.2% 86.0% 86.7% 86.5% 86.5% 86.2% 85.8% 85.8% 86.2%

Sequential growth n.a. 20.3 p.p. 0.7 p.p. 0.8 p.p. -0.3 p.p. n.a. -0.3 p.p. -0.4 p.p. 0.0 p.p. 0.4 p.p.


19/29


Chart 21: Dental plan revenues and dental claims Chart 22: Dental loss ratio

Source: ANS Source: ANS and OdontoPrev

Chart 23: Health Margin Chart 24: Dental Margin

Source: ANS and BTG Pactual * Dental sector data is volatile, potentially showing inconsistencies in the numbersSource: ANS and BTG Pactual

0

5

10

15

20

25

2003 2004 2005 2006 2007 2008 2009 2010 2011

Revenues (R$bn) Claims (R$bn)

47.2%48.1% 47.7%

48.4%

45.9%

48.6%

46.7%

43.0%

44.4% 44.7%

47.8%

48.2%

2006 2007 2008 2009 2010 2011

DLR - sector DLR - OdontoPrev

4.0%3.9%4.6%4.5%

4.0% 3.7%

3.0%

3.7%3.5% 3.3%3.1%

0 .0 %

1 .0 %

2 .0 %

3 .0 %

4 .0 %

5 .0 %

6 .0 %

7 .0 %

8 .0 %

9 .0 %

1 0 . 0 %

1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12

10.7%10.4%11.6%

15.6%14.8%14.9%

13.1%

7.4%8.1%7.9%8.2%

0 .0 %

2 .0 %

4 .0 %

6 .0 %

8 .0 %

1 0 .0 %

1 2 .0 %

1 4 .0 %

1 6 .0 %

1 8 .0 %

1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12


20/29


Chart 25: Health plans Return on equity Chart 26: Health plans Return on assets

Source: ANS, Amil and BTG Pactual Source: ANS, Amil and BTG Pactual

0%

5%

10%

15%

20%

ROE (LTM) - health sector

0%

1%

2%

3%

4%

5%

6%7%

ROA (LTM) - health sector


21/29

Amil


Amil

Income Statement (R$mn) 12/2007 12/2008 12/2009 12/2010 12/2011 12/2012E 12/2013E 12/2014ERevenue 3,347 4,320 4,884 7,636 9,009 9,978 11,041 12,134Operating expenses (ex depn) (2,935) (3,903) (4,512) (7,025) (8,216) (9,034) (9,966) (10,945)

EBITDA (BTG Pactual) 413 417 372 611 793 945 1,075 1,189Depreciation (39) (69) (41) (112) (128) (141) (149) (161)Operating income (EBIT, BTG Pactual) 374 347 332 499 665 804 926 1,028Other income & associates (206) (138) (268) (237) (324) (224) (233) (260)Net Interest 2 7 58 (41) (56) (153) (185) (188)Abnormal items (pre- ax) 0 0 0 0 0 0 0 0Profit before tax 169 216 122 221 285 426 508 580Tax (30) (41) (15) (84) (106) (157) (173) (197)Profit after tax 140 175 107 137 179 270 335 383Abnormal items (post- ax) 0 0 0 0 0 0 0 0Minorities / pref dividends (1) 57 11 (10) (4) 90 108 125Net Income (local GAAP) 138 232 117 127 175 360 443 508Net Income (BTG Pactual) 233 298 264 167 227 360 443 508Tax rate (%) 18 19 12 38 37 37 34 34Per Share 12/2007 12/2008 12/2009 12/2010 12/2011 12/2012E 12/2013E 12/2014EEPS (local GAAP) 0.38 0.65 0.33 0.35 0.49 1.01 1.24 1.42

EPS (BTG Pactual) 0.65 0.83 0.74 0.47 0.64 1.01 1.24 1.42Net DPS 0.04 0.19 0.08 0.00 0.09 0.28 0.46 0.59BVPS 3.11 3.32 3.53 3.84 4.22 4.96 5.73 6.56Cash Flow (R$mn) 12/2007 12/2008 12/2009 12/2010 12/2011 12/2012E 12/2013E 12/2014ENet Income 233 298 264 167 227 360 443 508Depreciation 39 69 41 112 128 141 149 161Net change in working capital (126) 82 113 339 45 36 74 70Other (operating) 0 0 0 0 0 38 38 38Net cash from operations 52 397 266 588 352 576 706 779Cash from investing activities (330) (273) (1,159) (846) (781) (238) (274) (300)Cash from financing activities 1,114 (56) 284 788 267 (437) (261) (224)Bal sheet chge in cash & equivalents 834 (35) (175) 271 261 (74) 190 276Balance Sheet (R$mn) 12/2007 12/2008 12/2009 12/2010 12/2011 12/2012E 12/2013E 12/2014ECash and equivalents 1,185 1,150 975 1,246 1,507 1,433 1,623 1,899Other current assets 321 362 365 380 432 456 507 560Total current assets 1,506 1,512 1,340 1,625 1,938 1,889 2,130 2,459Net tangible fixed assets 222 394 851 1,152 1,460 1,562 1,687 1,825Net intangible fixed assets 314 345 1,007 1,440 1,785 1,779 1,779 1,779Investments / other assets 129 219 331 351 209 202 202 202Total assets 2,171 2,470 3,529 4,569 5,392 5,432 5,798 6,265Trade payables & other ST liabilities 437 560 676 1,002 1,089 1,144 1,269 1,392Short term debt 337 423 933 751 1,040 841 804 852Total current liabilities 774 983 1,608 1,753 2,128 1,984 2,073 2,244Long term debt 45 50 49 1,079 1,452 1,354 1,354 1,354Other long term liabilities 232 245 406 419 290 308 308 308Total liabilities 1,050 1,278 2,063 3,250 3,871 3,646 3,734 3,905Equity & minority interests 1,120 1,193 1,466 1,376 1,522 1,787 2,064 2,360Total liabilities & equities 2,171 2,470 3,529 4,627 5,392 5,432 5,798 6,265

Company Profile:

Amil is the leading managed care organization in Brazil, holdinga 10% market share in Brazil's highly fragmented privatehealthcare sector, with operations across the most relevantBrazilian states. The company was founded nearly 30 yearsago and holds a high-quality proprietary provider network,strong brand, diversified product offering, and strongmanagement of medical costs.

Financial ratios 12/2010 12/2011 12/2012E 12/2013E 12/2014EEBITDA margin 8.0% 8.8% 9.5 9.7% 9.8%

Operating margin 6.5% 7.4% 8.1 8.4% 8.5%Net margin 2.2% 2.5% 3.6 4.0% 4.2%RoE 12.7% 15.8% 21.9 23.2% 23.1%RoIC 29.9% 30.7% 32.3 36.5% 39.6%EBITDA / net interest 15.0x 14.1x 6.2x 5.8x 6.3xNet debt / EBITDA 1.0x 1.2x 0.8x 0.5x 0.3xTotal debt / EBITDA 3.0x 3.1x 2.3x 2.0x 1.9xNet debt / (net debt + equity) 29.8% 39.3% 29.9 20.6% 11.5%

Source: Company reports and BTG Pactual estimates. Valuations: based on the last share price of that year(E)based on share price as of 12 April 2013


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OdontoPrev


OdontoPrev

Income Statement (R$mn) 12/2008 12/2009 12/2010 12/2011 12/2012 12/2013E 12/2014E 12/2015ERevenue 318 381 684 835 955 1,088 1,261 1,455Operating expenses (ex depn) (242) (301) (531) (627) (728) (839) (958) (1,098)

EBITDA (BTG Pactual) 75 80 154 208 227 249 303 357Depreciation (12) (3) (4) (6) (5) (6) (9) (11)Operating income (EBIT, BTG Pactual) 63 77 149 202 222 243 295 346Other income & associates (5) (7) (26) (23) (15) (4) (8) (9)Net Interest 24 16 25 18 13 9 10 13Abnormal items (pre- ax) 0 0 0 0 0 0 0 0Profit before tax 82 87 149 197 220 247 297 350Tax (24) (26) (29) (51) (67) (81) (100) (120)Profit after tax 58 61 119 146 152 166 197 230Abnormal items (post- ax) 0 0 0 0 0 0 0 0Minorities / pref dividends (3) (2) (7) (1) (7) (8) (10) (11)Net Income (local GAAP) 55 59 112 145 146 158 188 219Net Income (BTG Pactual) 55 59 112 145 146 158 188 219Tax rate (%) 29 30 20 26 31 33 34 34Per Share 12/2008 12/2009 12/2010 12/2011 12/2012 12/2013E 12/2014E 12/2015EEPS (local GAAP) 0.54 0.38 0.21 0.27 0.27 0.30 0.35 0.41

EPS (BTG Pactual) 0.54 0.38 0.21 0.27 0.27 0.30 0.35 0.41Net DPS 0.39 0.96 0.66 0.30 0.30 0.35 0.42 0.48BVPS 2.40 3.74 1.35 1.44 1.32 1.26 1.20 1.13Cash Flow (R$mn) 12/2008 12/2009 12/2010 12/2011 12/2012 12/2013E 12/2014E 12/2015ENet Income 55 59 112 145 146 158 188 219Deprecia ion 12 3 4 6 5 6 9 11Net change in working capital 1 (7) 61 (25) 8 (3) 5 6Other (operating) 0 0 0 0 0 29 29 15Net cash from operations 71 56 184 126 165 198 239 261Cash from investing activities (40) (394) (64) (3) (8) (11) (13) (14)Cash from financing activities (28) 12 49 (13) (2) (187) (222) (257)Bal sheet chge in cash & equivalents (9) 338 (406) 75 10 38 51 44Balance Sheet (R$mn) 12/2008 12/2009 12/2010 12/2011 12/2012 12/2013E 12/2014E 12/2015ECash and equivalents 201 539 133 208 218 256 306 350Other current assets 48 93 61 77 85 104 124 165Total current assets 249 632 194 285 303 360 431 515Net tangible fixed assets 8 8 11 11 10 14 18 22Net intangible fixed assets 64 455 513 517 524 524 524 524Investments / other assets 18 45 195 181 162 134 105 90Total assets 339 1,141 913 993 999 1,031 1,078 1,151Trade payables & other ST liabilities 63 273 144 152 182 210 252 319Short term debt 0 0 0 0 0 0 0 0Total current liabilities 63 273 144 152 182 210 252 319Long term debt 0 0 0 0 0 0 0 0Other long term liabilities 32 87 51 79 117 150 188 232Total liabilities 95 361 195 231 299 360 440 551Equity & minority interests 244 780 718 763 700 672 637 599Total liabilities & equities 339 1,141 913 993 999 1,031 1,078 1,151

Company Profile:

OdontoPrev is Brazil's largest dental benefits company in thefast growing industry of dental plans. OdontoPrev was createdin 1987 by a group of dentists and captured a leading marketposition through a combination of organic growth andacquisitions, implemented by an experienced managementteam.


Operating margin 24.2% 23.2% 22.3 23.4% 23.8%Net margin 17.4% 15.2% 14.6 14.9% 15.1%RoE 19.6% 19.9% 23.1 28.7% 35.4%RoIC 35.4% 42.8% 54.0 79.0% 119.3%EBITDA / net interest -11.8x -17.2x -27.1x -30.1x -26.5xNet debt / EBITDA -1.0x -1.0x -1.0x -1.0x -1.0xTotal debt / EBITDA 0.0x 0.0x 0.0x 0.0x 0.0xNet debt / (net debt + equity) -37.5% -45.2% -61.5 -92.6% -140.5%



23/29


24/29

Fleury


Fleury

Income Statement (R$mn) 12/2007 12/2008 12/2009 12/2010 12/2011 12/2012E 12/2013E 12/2014ERevenue 551 675 770 872 1,126 1,523 1,761 2,010Operating expenses (ex depn) (453) (521) (591) (670) (929) (1,190) (1,351) (1,524)

EBITDA (BTG Pactual) 98 155 179 202 196 333 410 486Depreciation (20) (22) (31) (32) (58) (101) (112) (125)Operating income (EBIT, BTG Pactual) 78 132 148 170 138 232 298 361Other income & associates (12) (29) 0 0 3 0 0 0Net Interest (16) (41) (21) 27 (8) (63) (40) (33)Abnormal items (pre- ax) 0 0 0 0 0 0 0 0Profit before tax 51 63 127 196 133 169 258 328Tax (32) (22) (44) (66) (33) (36) (64) (80)Profit after tax 19 41 84 131 101 132 194 248Abnormal items (post- ax) 0 0 0 0 0 0 0 0Minorities / pref dividends 6 1 0 0 (3) 0 0 0Net Income (local GAAP) 25 42 84 131 97 132 194 248Net Income (BTG Pactual) 25 42 84 131 97 132 194 248Tax rate (%) 62 35 34 33 24 22 25 25Per Share 12/2007 12/2008 12/2009 12/2010 12/2011 12/2012E 12/2013E 12/2014EEPS (local GAAP) 0.40 0.33 0.66 0.99 0.72 0.85 1.24 1.59

EPS (BTG Pactual) 0.40 0.33 0.66 0.99 0.72 0.85 1.24 1.59Net DPS 0.21 0.10 0.07 0.28 0.20 0.41 0.45 0.59BVPS 0.77 1.19 6.71 7.77 12.14 11.33 12.47 13.95Cash Flow (R$mn) 12/2007 12/2008 12/2009 12/2010 12/2011 12/2012E 12/2013E 12/2014ENet Income 25 42 84 131 97 132 194 248Depreciation 20 22 31 32 58 101 112 125Net change in working capital 81 (41) (57) (41) (34) (10) (33) (26)Other (operating) 0 0 0 0 15 27 55 75Net cash from operations 126 23 58 122 137 251 328 422Cash from investing activities (187) (108) (193) (85) (182) (203) (158) (181)Cash from financing activities 93 50 602 3 1,018 (79) (70) (92)Bal sheet chge in cash & equivalents 2 (11) 509 16 (57) (173) 100 150Balance Sheet (R$mn) 12/2007 12/2008 12/2009 12/2010 12/2011 12/2012E 12/2013E 12/2014ECash and equivalents 29 18 528 543 486 313 413 562Other current assets 110 144 192 240 388 453 510 567Total current assets 139 163 720 783 874 766 923 1,129Net tangible fixed assets 113 152 158 180 376 420 466 522Net intangible fixed assets 217 240 318 334 1,474 1,526 1,526 1,526Investments / other assets 37 62 69 41 108 118 118 118Total assets 506 617 1,264 1,338 2,832 2,830 3,033 3,295Trade payables & other ST liabilities 99 120 111 90 148 171 186 206Short term debt 51 74 75 43 232 109 109 109Total current liabilities 149 194 186 133 380 280 295 315Long term debt 124 151 125 78 588 508 508 508Other long term liabilities 131 121 107 108 231 273 282 293Total liabilities 405 465 418 318 1,200 1,061 1,085 1,116Equity & minority interests 101 152 846 1,020 1,632 1,769 1,948 2,180Total liabilities & equities 506 617 1,264 1,338 2,832 2,830 3,033 3,295

Company Profile:

Fleury is one of the main Brazilian providers of diagnosticmedicine services, with a substantial presence in the city of SoPaulo, performing moderate and high-complexity testing forapproximately 3,000 laboratories. The company also offersmore integrated services and solutions through preventive andtherapeutic medicine. It operates under a vast portfolio ofbrands including Fleury, which is highly recognized and hasmore than 95% of patient satisfaction levels.


Operating margin 19.5% 12.2% 15.2 16.9% 18.0%Net margin 15.0% 8.6% 8.7 11.0% 12.3%RoE 14.0% 7.3% 7.8 10.4% 12.0%RoIC 30.4% 10.7% 11.5 14.1% 16.5%EBITDA / net interest -7.6x 25.6x 5.3x 10.2x 14.8xNet debt / EBITDA -2.1x 1.7x 0.9x 0.5x 0.1xTotal debt / EBITDA 0.6x 4.2x 1.9x 1.5x 1.3xNet debt / (net debt + equity) -71.0% 17.0% 14.7 9.5% 2.4%



25/29

Qualicorp


Qualicorp

Income Sta ement (R$mn) 12/2007 12/2008 12/2009 12/2010 12/2011 12/2012E 12/2013E 12/2014ERevenue - 228 309 470 676 910 1,229 1,476Operating expenses (ex depn) - (145) (221) (388) (559) (743) (939) (1,088)

EBITDA (BTG Pactual) - 87 96 174 251 328 452 558Depreciation - 0 0 59 (16) (14) (16) (18)Operating income (EBIT, BTG Pactual) - 87 96 153 121 181 311 414Other income & associates - (40) (45) (46) (110) (34) (26) (32)Net Interest - 6 19 13 (8) 3 7 20Abnormal items (pre- ax) - 0 0 0 0 0 0 0Profit before tax - 52 69 119 3 151 292 402Tax - (26) (31) (55) (33) (57) (70) (99)Profit after tax - 27 38 64 (30) 94 221 302Abnormal items (post- ax) - 0 0 0 0 0 0 0Minorities / pref dividends - 0 0 0 (0) (2) (10) (12)Net Income (local GAAP) - 27 38 64 (30) 92 211 290Net Income (BTG Pactual) - 27 38 126 138 188 294 373Tax rate (%) - 49 45 46 1,050 38 24 25Per Share 12/2007 12/2008 12/2009 12/2010 12/2011 12/2012E 12/2013E 12/2014EEPS (local GAAP) - 0.12 0.17 0.28 (0.12) 0.35 0.80 1.10

EPS (BTG Pactual) - 0.12 0.17 0.54 0.56 0.72 1.12 1.42Net DPS - 0.00 0.00 0.00 0.00 0.06 0.68 0.99BVPS - 0.00 0.58 6.97 7.47 7.75 7.85 7.92Cash Flow (R$mn) 12/2007 12/2008 12/2009 12/2010 12/2011 12/2012E 12/2013E 12/2014ENet Income - 27 38 126 138 188 294 373Depreciation - 0 0 21 130 147 142 144Net change in working capital - 0 0 0 (8) 20 19 25Other (operating) - 0 0 19 66 67 70 70Net cash from operations - 27 38 104 158 326 441 529Cash from investing activities - 0 0 (20) (21) (303) (28) (153)Cash from financing activities - 0 0 0 314 (20) (185) (269)Bal sheet chge in cash & equivalents - - 69 77 236 (118) 199 78Balance Sheet (R$mn) 12/2007 12/2008 12/2009 12/2010 12/2011 12/2012E 12/2013E 12/2014ECash and equivalents - 0 69 146 382 264 463 541Other current assets - 0 23 32 83 123 154 184Total current assets - 0 92 177 465 386 617 725Net tangible fixed assets - 0 9 9 63 72 85 96Net intangible fixed assets - 0 174 2,244 2,049 2,220 2,094 2,092Investments / other assets - 0 13 22 279 263 263 263Total assets - 0 288 2,453 2,855 2,942 3,059 3,177Trade payables & other ST liabilities - 0 88 97 140 200 250 306Short term debt - 0 0 57 145 71 71 71Total current liabilities - 0 88 154 285 272 322 377Long term debt - 0 0 354 296 296 296 296Other long term liabilities - 0 66 334 331 336 377 418Total liabilities - 0 155 841 911 904 995 1,091Equity & minority interests - 0 134 1,612 1,944 2,038 2,064 2,085Total liabilities & equities - 0 288 2,453 2,855 2,942 3,059 3,177

Company Profile:

Qualicorp is a healthcare broker, also providing full-servicehealthcare benefit management to professional associationsand corporations. The company was founded in 1997 and is themarket leader of the healthcare affinity segment, more than 10xlarger than the second largest player.


Operating margin 32.5% 18.0% 19.9 25.3% 28.1%Net margin 26.8% 20.4% 20.7 23.9% 25.3%RoE 14.4% 7.8% 9.5 14.3% 18.0%RoIC 15.1% 6.1% 8.5 14.8% 20.9%EBITDA / net interest -13.6x 30.7x -95.7x -63.2x -28.4xNet debt / EBITDA 1.5x 0.2x 0.3x -0.2x -0.3xTotal debt / EBITDA 2.4x 1.8x 1.1x 0.8x 0.7xNet debt / (net debt + equity) 14.1% 2.9% 4.8 -4.9% -9.1%



26/29

Cremer


Cremer

Income Statement (R$mn) 12/2008 12/2009 12/2010 12/2011 12/2012 12/2013E 12/2014E 12/2015ERevenue 324 380 375 458 531 587 641 700Operating expenses (ex depn) (283) (321) (321) (388) (463) (506) (557) (607)

EBITDA (BTG Pactual) 41 59 54 70 68 81 84 93Depreciation (6) (7) (10) (15) (19) (18) (18) (18)Operating income (EBIT, BTG Pactual) 35 51 44 54 49 63 66 75Other income & associates (38) (9) 2 (9) (88) (5) (3) (3)Net Interest 39 12 (3) (21) (22) (23) (18) (20)Abnormal items (pre- ax) 0 0 0 0 0 0 0 0Profit before tax 36 55 43 25 (60) 35 45 53Tax (7) (13) (10) (6) 50 (10) (13) (15)Profit after tax 28 42 33 19 (10) 24 32 38Abnormal items (post- ax) 0 0 0 0 0 0 0 0Minorities / pref dividends 0 0 0 0 0 0 0 0Net Income (local GAAP) 28 42 33 19 (10) 24 32 38Net Income (BTG Pactual) 39 42 33 22 13 27 34 40Tax rate (%) 21 23 24 26 0 30 29 28Per Share 12/2008 12/2009 12/2010 12/2011 12/2012 12/2013E 12/2014E 12/2015EEPS (local GAAP) 0.87 1.29 1.01 0.57 (0.32) 0.75 0.97 1.16

EPS (BTG Pactual) 1.19 1.29 1.01 0.66 0.39 0.84 1.03 1.21Net DPS 0.84 1.29 0.98 0.20 0.18 0.25 0.32 0.39BVPS 9.51 6.03 8.74 9.20 8.56 9.05 9.70 10.47Cash Flow (R$mn) 12/2008 12/2009 12/2010 12/2011 12/2012 12/2013E 12/2014E 12/2015ENet Income 39 42 33 22 13 27 34 40Depreciation 6 7 10 15 19 18 18 18Net change in working capital (31) 22 (17) (28) (39) 74 (26) (9)Other (operating) 0 0 0 0 0 0 0 0Net cash from operations 4 72 26 5 (31) 116 23 47Cash from investing activities (15) (12) (40) (122) (58) (17) (17) (18)Cash from financing activities (36) 56 (87) 225 (36) (8) (11) (13)Bal sheet chge in cash & equivalents (39) 10 (108) 118 (28) 91 (2) 19Balance Sheet (R$mn) 12/2008 12/2009 12/2010 12/2011 12/2012 12/2013E 12/2014E 12/2015ECash and equivalents 144 154 46 164 136 227 226 245Other current assets 117 110 116 168 267 191 205 220Total current assets 261 264 162 332 403 418 431 465Net tangible fixed assets 46 47 297 310 103 101 101 101Net intangible fixed assets 18 18 26 120 159 154 151 148Investments / other assets 43 43 46 47 105 105 105 105Total assets 368 372 532 809 770 779 788 819Trade payables & other ST liabilities 34 49 38 62 121 119 107 113Short term debt 7 28 46 75 89 89 89 89Total current liabilities 41 78 84 137 211 209 196 203Long term debt 2 79 65 265 215 215 215 215Other long term liabilities 15 18 97 106 65 60 60 60Total liabilities 58 175 246 509 490 483 471 477Equity & minority interests 311 197 286 301 280 296 317 342Total liabilities & equities 368 372 532 809 770 779 788 819

Company Profile:

Cremer is one of the leading healthcare suppliers in Brazil in theareas of first aid, surgery, treatment and hygiene. The Companysells both third party and its own manufactured products,serving approximately 57,000 customers with around 2,000different products. It also manufactures and sells industrialadhesives and plastics for the footwear, textile and electronicsindustries. Cremer has a strongly recognized brand, being oneof the best known in the disposable healthcare textile andadhesive products industry.


Operating margin 11.9% 9.3% 10.7 10.2% 10.8%Net margin 4.7% 2.4% 4.7 5.2% 5.7%RoE 7.4% 4.4% 9.5 10.9% 12.0%RoIC 13.0% 10.5% 15.3 17.1% 19.0%EBITDA / net interest 3.4x 3.1x 3.5x 4.6x 4.7xNet debt / EBITDA 2.5x 2.5x 0.9x 0.9x 0.6xTotal debt / EBITDA 4.9x 4.5x 3.8x 3.6x 3.3xNet debt / (net debt + equity) 37.0% 37.5% 20.6 19.8% 14.7%



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Required Disclosures

This report has been prepared by Banco BTG Pactual S.A.

The figures contained in performance charts refer to the past; past performance is not a reliable indicator of future results.

BTG PactualRating

Definition Coverage *1 IB Services *2

Buy Expected total return 10% above the companys sectoraverage.

46% 50%

Neutral Expected total return between +10% and -10% thecompanys sector average.

49% 49%

Sell Expected total return 10% below the companys sectoraverage.

5% 11%

1: Percentage of companies under coverage globally within the 12-month rating category.

2: Percentage of companies within the 12-month rating category for which investment banking (IB) services were provided within the past 12 months.

Absolute return requirements

Besides the abovementioned relative return requirements, the listed absolute return requirements must be followed:

a) a Buy rated stock must have an expected total return above 15%b) a Neutral rated stock can not have an expected total return below -5%

c) a stock with expected total return above 50% must be rated Buy

Analyst Certification

Each research analyst primarily responsible for the content of this investment research report, in whole or in part, certifies that:

(i) all of the views expressed accurately reflect his or her personal views about those securities or issuers, and such recommendations were elaborated independently, including in relation to BancoBTG Pactual S.A. and/or its affiliates, as the case may be;

(ii) no part of his or her compensation was, is, or will be, directly or indirectly, related to any specific recommendations or views contained herein or linked to the price of any of the securitiesdiscussed herein.

Research analysts contributing to this report who are employed by a non-US Broker dealer are not registered/qualified as research analysts with FINRA and therefore are not subject to therestrictions contained in the FINRA rules on communications with a subject company, public appearances, and trading securities held by a research analyst account.

Part of the analyst compensation comes from the profits of Banco BTG Pactual S.A. as a whole and/or its affiliates and, consequently, revenues arisen from transactions held by Banco BTG PactualS.A. and/or its affiliates.

Where applicable, the analyst responsible for this report and certified pursuant to Brazilian regulations will be identified in bold on the first page of this report and will be the first name on the

signature list.

Statement of Risk

Main risks are 1) government regulation, 2) economic downturn leading to weaker formal job creation, 3) increasing competition in the mid-to-long term

Company Disclosures

Company Name Reuters 12-mo rating Price Price dateAmil 1, 2, 4, 6, 7, 10, 19 AMIL3.SA Neutral R$31.67 12-4-2013Cremer 1, 2, 4, 6, 18, 19, 20 N.A. Neutral R$13.00 12-4-2013DASA 18, 19, 20, 21, 22 N.A. Neutral R$11.81 12-4-2013Fleury 1, 2, 4, 6, 18, 19, 20 N.A. Neutral R$18.80 12-4-2013OdontoPrev 18, 19, 20, 21, 22 N.A. Sell R$9.51 12-4-2013Profarma 18, 19, 20, 21, 22 N.A. Neutral R$21.70 12-4-2013Qualicorp 1, 2, 4, 6, 18, 19, 20 N.A. Buy R$18.74 12-4-2013

1. Within the past 12 months, Banco BTG Pactual S.A., its affiliates or subsidiaries has received compensation for investment banking services from this company/entity.

2. Banco BTG Pactual S.A, its affiliates or subsidiaries expect to receive or intend to seek compensation for investment banking services and/or products and services other than investmentservices from this company/entity within the next three months.

4. This company/entity is, or within the past 12 months has been, a client of Banco BTG Pactual S.A., and investment banking services are being, or have been, provided.

6. Banco BTG Pactual S.A. and/or its affiliates receive compensation for any services rendered or presents any commercial relationships with this company, entity or person, entities or funds whichrepresents the same interest of this company/entity.

7. As of the end of the month immediately preceding the date of publication of this report, Banco BTG Pactual S.A., its affiliates or subsidiaries beneficially owned 1% or more of a class of thiscompany`s common equity securities.

10. Banco BTG Pactual S.A., its affiliates or subsidiaries makes a market in the securities of this company.

18. As of the end of the month immediately preceding the date of publication of this report, neither Banco BTG Pactual S.A. nor its affiliates or subsidiaries beneficially own 1% or more of any classof common equity securities

19. Neither Banco BTG Pactual S.A. nor its affiliates or subsidiaries have managed or co-managed a public offering of securities for the company within the past 12 months.

20. Neither Banco BTG Pactual S.A. nor its affiliates or subsidiaries engaged in market making activities in the subject company's securities at the time this research report was published.

21. Banco BTG Pactual S.A. or its affiliates or subsidiaries have not received compensation for investment banking services from the companies in the past 12 months

22. Banco BTG Pactual S.A. or its affiliates or subsidiaries do not expect to receive or intends to seek compensation for investment banking services from the companies within the next 3 months.

For a complete set of disclosure statements associated with the companies discussed in this report, including information on valuation and risk, please access the BTGPactual research website at www.btgpactual.com/research/Disclaimers/Overview.aspx


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Global Disclaimer

This report has been prepared by Banco BTG Pactual S.A. (BTG Pactual S.A.), a Brazilian regulated bank.

BTG Pactual US Capital LLC (BTG Pactual US,), a broker-dealer registered with the U.S. Securities and Exchange Commission and a member of the Financial Industry Regulatory Authority andthe Securities Investor Protection Corporation is distributing this report in the United States. BTG Pactual US is an affiliate of BTG Pactual S.A.. BTG Pactual US assumes responsibility for thisresearch for purposes of U.S. law. Any U.S. person receiving this report and wishing to effect any transaction in a security discussed in this report should do so with BTG Pactual US at 212-293-4600, 601 Lexington Ave. 57th Floor, New York, NY 10022.

This report is being distributed in the United Kingdom and elsewhere in the European Economic Area (EEA) by BTG Pactual Europe LLP (BTG Pactual UK), which is authorized and regulated bythe Financial Services Authority of the United Kingdom. This report may also be distributed in the United Kingdom in the United Kingdom and elsewhere in the EEA by BTG Pactual S.A. and/or BTGPactual US. BTG Pactual UK has not: (i) produced this report, (ii) substantially altered its contents, (iii) changed the direction of the recommendation , or (iv) disseminated this report prior to its issueby BTG Pactual US. BTG Pactual UK does not distribute summaries of research produced by BTG Pactual US.

Celfin Capital Corredores de Bolsa S.A. (Celfin S.A.) is a Chilean broker dealer registered with Superintendencia Valores Y Seguros (SVS) in Chile and responsible for the distribution of this reportin Chile and Peru. Celfin S.A. acquisition by BTG Pactual S.A. was approved by the Brazilian Central Bank on November 14th, 2012.

Bolsa y Renta S.A. Comisionista de Bolsa (Bolsa y Renta S.A.) is a Colombian broker dealer register with the Superintendencia Financeira de Colombia and is responsible for the distribution ofthis report in Colombia. Bolsa y Renta S.A. acquisition by BTG Pactual S.A. was approved by Brazilian Central Bank on December 21st, 2012.

References herein to BTG Pactual include BTG Pactual S.A., BTG Pactual US Capital LLC, BTG Pactual Europe LLP, Celfin S.A. and Bolsa y Renta S.A. as applicable. This report is for distributiononly under such circumstances as may be permitted by applicable law. This report is not directed at you if BTG Pactual is prohibited or restricted by any legislation or regulation in any jurisdictionfrom making it available to you. You should satisfy yourself before reading it that BTG Pactual is permitted to provide research material concerning investments to you under relevant legislation andregulations. Nothing in this report constitutes a representation that any investment strategy or recommendation contained herein is suitable or appropriate to a recipients individual circumstances orotherwise constitutes a personal recommendation. It is published solely for information purposes, it does not constitute an advertisement and is not to be construed as a solicitation, offer, invitationor inducement to buy or sell any securities or related financial instruments in any jurisdiction. Prices in this report are believed to be reliable as of the date on which this report was issued and arederived from one or more of the following: (i) sources as expressly specified alongside the relevant data; (ii) the quoted price on the main regulated market for the security in question; (iii) other

public sources believed to be reliable; or (iv) BTG Pactual's proprietary data or data available to BTG Pactual. All other information herein is believed to be reliable as of the date on which this reportwas issued and has been obtained from public sources believed to be reliable. No representation or warranty, either express or implied, is provided in relation to the accuracy, completeness orreliability of the information contained herein, except with respect to information concerning Banco BTG Pactual S.A., its subsidiaries and affiliates, nor is it intended to be a complete statement orsummary of the securities, markets or developments referred to in the report. In all cases, investors should conduct their own investigation and analysis of such information before taking or omittingto take any action in relation to securities or markets that are analyzed in this report. BTG Pactual does not undertake that investors will obtain profits, nor will it share with investors any investmentprofits nor accept any liability for any investment losses. Investments involve risks and investors should exercise prudence in making their investment decisions. BTG Pactual accepts no fiduciaryduties to recipients of this report and in communicating this report is not acting in a fiduciary capacity. The report should not be regarded by recipients as a substitute for the exercise of their own

judgment. Opinions, estimates, and projections expressed herein constitute the current judgment of the analyst responsible for the substance of this report as of the date on which the report wasissued and are therefore subject to change without notice and may differ or be contrary to opinions expressed by other business areas or groups of BTG Pactual as a result of using differentassumptions and criteria. Because the personal views of analysts may differ from one another, Banco BTG Pactual S.A., its subsidiaries and affiliates may have issued or may issue reports that areinconsistent with, and/or reach different conclusions from, the information presented herein. Any such opinions, estimates, and projections must not be construed as a representation that the mattersreferred to therein will occur. Prices and availability of financial instruments are indicative only and subject to change without notice. Research will initiate, update and cease coverage solely at thediscretion of BTG Pactual Investment Bank Research Management. The analysis contained herein is based on numerous assumptions. Different assumptions could result in materially differentresults. The analyst(s) responsible for the preparation of this report may interact with trading desk personnel, sales personnel and other constituencies for the purpose of gathering, synthesizing andinterpreting market information. BTG Pactual is under no obligation to update or keep current the information contained herein, except when terminating coverage of the companies discussed in thereport. BTG Pactual relies on information barriers to control the flow of information contained in one or more areas within BTG Pactual, into other areas, units, groups or affiliates of BTG Pactual.The compensation of the analyst who prepared this report is determined by research management and senior management (not including investment banking). Analyst compensation is not basedon investment banking revenues, however, compensation may relate to the revenues of BTG Pactual Investment Bank as a whole, of which investment banking, sales and trading are a part. Thesecurities described herein may not be eligible for sale in all jurisdictions or to certain categories of investors. Options, derivative products and futures are not suitable for all investors, and trading inthese instruments is considered risky. Mortgage and asset-backed securities may involve a high degree of risk and may be highly volatile in response to fluctuations in interest rates and othermarket conditions. Past performance is not necessarily indicative of future results. If a financial instrument is denominated in a currency other than an investors currency, a change in rates ofexchange may adversely affect the value or price of or the income derived from any security or related instrument mentioned in this report, and the reader of this report assumes any currency risk.

This report does not take into account the investment objectives, financial situation or particular needs of any particular investor. Investors should obtain independent financial advice based on theirown particular circumstances before making an investment decision on the basis of the information contained herein. For investment advice, trade execution or other enquiries, clients should contacttheir local sales representative.

Neither BTG Pactual nor any of its affiliates, nor any of their respective directors, employees or agents, accepts any liability for any loss or damage arising out of the use of all or any part of thisreport. Notwithstanding any other statement in this report, BTG Pactual UK does not seek to exclude or restrict any duty or liability that it may have to a client under the regulatory system in theUK (as such term is defined in the rules of the Financial Services Authority). Any prices stated in this report are for information purposes only and do not represent valuations for individual securitiesor other instruments. There is no representation that any transaction can or could have been effected at those prices and any prices do not necessarily reflect BTG Pactual internal books andrecords or theoretical model-based valuations and may be based on certain assumptions. Different assumptions, by BTG Pactual S.A., BTG Pactual US, BTG Pactual UK, Celfin S.A. and Bolsa yRenta S.A. or any other source, may yield substantially different results. This report may not be reproduced or redistributed to any other person, in whole or in part, for any purpose, without the priorwritten consent of BTG Pactual and BTG Pactual accepts no liability whatsoever for the actions of third parties in this respect. Additional information relating to the financial instruments di scussed inthis report is available upon request. BTG Pactual and its affiliates have in place arrangements to manage conflicts of interest that may arise between them and their respective clients and amongtheir different clients. BTG Pactual and its affiliates are involved in a full range of financial and related services including banking, investment banking and the provision of investment services. Assuch, any of BTG Pactual or its affiliates may have a material interest or a conflict of interest in any services provided to clients by BTG Pactual or such affiliate. Business areas within BTG Pactualand among its affiliates operate independently of each other and restrict access by the particular individual(s) responsible for handling client affairs to certain areas of information where this isnecessary in order to manage conflicts of interest or material interests. Any of BTG Pactual and its affiliates may: (a) have disclosed this report to companies that are analyzed herein andsubsequently amended this report prior to publication; (b) give investment advice or provide other services to another person about or concerning any securities that are discussed in this report,which advice may not necessarily be consistent with or similar to the information in this report; (c) trade (or have traded) for its own account (or for or on behalf of clients), have either a long or shortposition in the securities that are discussed in this report (and may buy or sell such securities), with the securities that are discussed in this report; and/or (d) buy and sell units in a collectiveinvestment scheme where it is the trustee or operator (or an adviser) to the scheme, which units may reference securities that are discussed in this report.

United Kingdom and EEA: Where this report is disseminated in the United Kingdom or elsewhere in the EEA by BTG Pactual UK, this report is issued by BTG Pactual UK only to, and is directed

by BTG Pactual UK only at, persons who are professional clients or eligible counterparties, each as defined in the rules of the Financial Services Authority (together, referred to as relevantpersons). Where this report is disseminated in the UK by BTG Pactual, this report is issued only to and directed only at persons who (i) have professional experience in matters relating toinvestments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended, the "Financial Promotion Order"), (ii) are persons falling withinArticle 49(2)(a) to (d) ("high net worth companies, unincorporated associations etc") of the Financial Promotion Order, (iii) are outside the United Kingdom, or (iv

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