Rede D'Or São Luiz S.A. (RDOR3) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to the meeting call or the results of the fourth quarter and the year of 2022 from Rede D'Or. Today with us, we have Mr. Paulo Moll, the CEO; Otavio Lazcano, Financial and Investor Relations Vice President; Mr. Mauricio Lopes, Executive Vice President; Rodrigo Gavina, Operational Vice President; Leandro Reis, Medical Vice President; Raquel Reis, CEO for Health and Dentistry at SulAmérica; and Marcelo Melo, CEO for Life Insurance and Investments at SulAmérica. We'd like to inform that this event will take 1 hour and the recording will be available at the RI website of the company. After the presentation, we are going to start the Q&A session when further instructions will be provided. Before we continue, we just would like to clarify that possible statements made during this meeting related to the business perspectives from Rede D'Or forecast, operational and financial targets are beliefs and premises that the Board has as well as information that currently are available. Future statements are not a guarantee of performance and are surrounded by risks and uncertainties because they refer to events and circumstances that may occur or not. Investors should understand that overall economic conditions, conditions of the sector and other operational factors may affect the future performance of the company and may lead to results that are different from the ones that are made in the future statements. Now I'd like to hand the floor to Mr. Paulo Moll, who will start this meeting. Mr. Paulo Moll, the floor is yours.

Thank you, and good morning, everyone. Welcome to the results call. I would like to start with some operational highlights from 2022. We grew the number of operational hospital beds and 523 throughout the year, reaching a number of 9,469. We are also able to deliver a high occupancy rate of 79.3% in line with what we had in 2021. The total number of patients a day in the year was 2.7 million, with an increase of 12.4% compared to 2021 and surgery 460,000 a year, an increase of 29% in comparison to 2021. We had a drop in the share of COVID patients, 70% below what we observed in 2021, but still with a number of 140,000 patients a day in the year of 2022. The accounting EBITDA was BRL 5.3 billion with a 23.1% margin. This margin was affected by the integration of the new assets that in the year of 2021 already had a few full year inside our results and a mix of smaller complexity in comparison to 2021. Let's remember that in 2021, we had periods with a record use of intensive therapy because of the COVID waves. Still, we were able to grow our EBITDA at 8.2% compared to 2021 with an accounting adjusted of the 2021 base with incorporation of GSH, this growth is above 10%. The adjusted EBITDA of BRL 5.9 billion with a 25.7% margin. For SulAmérica, we observed a higher number of claims, typical in the fourth quarter, a result of greater provisioning considering the profile of use that was more pressured in the third quarter and the conservative choices done by the administration. Now in the beginning of 2023, we would like to share with you already considering that we are at the end of the first quarter, some preliminary data from the beginning of the year that are very positive. Based on the information that we have until last Friday, we have a surgical volume with a 9.5% growth in comparison to the same period of 2022, with an average ticket increase in 9.8% in comparison to 2022. We start to see a comparison base for the mix and it will be more adjusted now, and we are not going to see these effects of such major changes in the mix and a more difficult comparison level like we had in 2022 when you compare that to 2021. So these are initial results, but already very exciting. The high occupancy rate that we observe as well is also giving us opportunity to review some commercial aspects of some hospitals, especially when it comes to some plans with a lower ticket, and we are providing these revisions in order to make these hospitals more profitable. I also would like to highlight that in the beginning of May, we are having the opening of the São Luiz Campinas Hospital. The works were conclude in the end of 2022. And now we are in the commissioning moment. We are testing the equipment and training the teams. The community is welcoming this new endeavor. And certainly, this will be a milestone for the city of Campinas and the whole region. And we already have some operators that are going to be accredited, which is quite positive. Regarding the SulAmérica accreditation, we had a closing at the end of December, like you all know. And we started in January, a very strong agenda in terms of synergies and integration process. And I would like to highlight what was achieved in less than 3 months. We are going to discuss synergies that have already been executed. We have BRL 140 million with an annualized reference referring to the past 12 months and demobilization of corporate areas and corporate services and the reduction of SG&A. This has been fully executed. We have BRL 124 million additionally that have been already executed. But since these are possible contracts that still have terms, they have some deadline to be concluded. This additional BRL 124 million have already been executed, but with an impact that will be seen in the coming months. And we also have the balance on the prices of medicine and equipment, and we are talking about a reduction of BRL 70 million, also using the same annualized base and looking at that for the past 12 months. This is the beginning of a very exciting start. I would like to clarify that this is just part of the synergies that we will identify. We are now talking about opportunities, for example, about increasing the relationship between Rede D'Or and SulAmérica, all the shadow regions that exist. We still have a lot of work to do. But we are basically describing an important and very efficient work that was developed mainly in SG&A and in materials and medicines. We still have a lot to achieve synergies that are currently being mapped and that will be announced in the coming months to all of you. We have a major challenge when it comes to the control of the level of claims, but we are very positive that we are on the right track with all the teams making the necessary measurements and already observing a trend of improvement in 2023. Another highlights, our works are advancing quite well in the Memorial Star Hospital in the expansion work. And also in Allianz Star, also a great pace of construction works happening in Alphaville, Guarulhos and in the new Barra D’Or, major projects that we have been developing in the company. The maternity hospital that opened last year called Star very quickly became a benchmark in the city of São Paulo for the whole country. The ramp-up is in line with what was planned, and we are very happy to see the results. And recently, we also concluded in March actually the transfer form perinatal from Laranjeiras inside the structure of Rede D'Or, the Perinatal Maternity Hospital is a reference for the south part of the City of Rio, and now we can offer a much more modern infrastructure inside the Rede D'Or hospitals with all the benefits of having the dilution of fixed cost both for the maternity as well as for the general hospital. And finally, one thing that I would like to highlight or our 2022 results is that we were able to deliver an operational cash flow of BRL 4 billion in 2022. This is more than double what we had in 2021, and we are talking about a conversion of EBITDA adjusted by the rents ex IFRS-16, a conversion of 91.9%, also a very positive data. And we are going to continue, of course, to working strongly on this agenda of cash generation and improvement on our receivable cycle. Now I'm going to hand the floor to Otavio to carry on with the presentation. But in the end, I'm available if you have any questions.

Thank you, Paulo, once again, and good morning, everyone. I'm on Page 6, operational indicators and the evolution of COVID-19. Starting with the chart on your left, as Paulo mentioned before, in the fourth quarter of 2022, we reported an average occupancy rate of 76.9%, absolutely in line with the historical series of the company for the fourth -- and fourth quarter. The company also reported the evolution of the volume 671 patients a day with an increase of 8.9% in comparison to the number that was reported in the fourth quarter of 2021. In the year, we have 2.7 million patients a day with a growth of 12.4%. To you're right, like usual, we see the chart showing the evolution of COVID-19 patients inside the units. Now going to Page 7, talk about the surgeries evolution. Starting with the chart on your left, the company reported 115,000 surgeries in the fourth quarter of 2022 with a growth of 7.1% in comparison to the number reported in the previous year. Over the year, the company performed 469,000 surgeries with a growth of 29% over the 45% growth that was reported in the year of 2021. Regarding surgeries or major surgeries, the company saw a growth of more than 34,000 major procedures with a growth of 23.9% when compared to 2021 based on 54.6% of growth that we observed in 2021. On the chart to your right, no doubt remains, we report the evolution of the total number of surgeries at the same base of assets. Now going to Page 8, talking about the evolution of hospital beds. Once again, starting to the chart on the left, we reported a number of operational beds in the end of 2022 of 9,469 hospital beds. This represents an increase of 500 hospital beds when compared to the fourth quarter of 2021 or an increase of 38.5% if we consider the period starting in the fourth quarter of 2019. On the chart on your right, you see the evolution of the number of total beds with almost 11,500 total hospital beds, a growth in comparison to the previous year. And this hospital beds as related to the development of the new Campinas hospital, the Santa Marina Hospital that brings [ 13 ] other hospital beds, the Santa Isabel brings 108 more beds, the Arthur Ramos, 170 beds, expansion at São Vicente with 34 additional beds, the São Rafael Hospital brings 68 additional beds among other projects that are being developed by the company. Now moving to Slide #9, talking about the gross revenue and average ticket. Once again, the chart on your left describes a total gross revenue in 2022 of BRL 25.8 billion, representing an increase of 13% in comparison to the total gross revenue reported in 2021. In the fourth quarter of 2022, the company reported a gross revenue of BRL 6.5 billion, also representing a growth of 13% in comparison to the fourth quarter of 2021. The chart on your right talks about the total average ticket in a consolidated number. If we look back to 2021, the average ticket moved sideways. But as Paulo has highlighted, we have seen a significant change in the business environment. And of course, when I say this, I'm referring to the level of complexity. . In 2021, we had 33% of the revenue of the company coming from the movement inside ICUs. In 2022, this percentage dropped to 29%. Within ICUs, patients that are under ventilation, we had in 2021, 23% of patients in ICU units. In 2022, we had 11.4% of patients in these conditions. And in the fourth quarter of 2022, this drop went to 9.9%. Giving strong enough evidences in our opinion, to all of you about the change in the business environment and the drop in level of complexity. Of course, that in 2021, the level of complexity was extremely high, way above the historical leverage of the company and obviously, with a direct connection to the pandemic. Now moving to Slide #10, talking about the gross revenue and average ticket for oncology. On your left, you can see the gross revenue for oncology in 2022 of BRL 2.3 billion, with an increase of almost 29% in comparison to the previous year. The number of infusions increased 9%, and the ticket has increased 18.2%. If you look quarter-over-quarter -- actually fourth quarter of 2022 with a gross revenue of oncology of almost BRL 620 million, also an increase of almost 27% in comparison to the same period in 2021. Now covering Slide #11 on costs and expenses. We reported total costs and expenses in 2022 of BRL 17.8 billion, which represents an increase of 14.2% in comparison to the cost and expenses reported in the year of 2021. In the fourth quarter of 2022, total cost expenses of BRL 4.5 billion, absolutely in line with what was reported to the previously quarter and an increase of 11.3% in comparison to the fourth quarter of 2021. For many quarters now, the company has been highlighting the number of initiatives in order to bring this cost and expensive structure of the company to the position that we had before the pandemic. Personnel before the pandemic represented 27.7% of the whole hub of the company. In 2022, this number went down to 25%. Hospital materials and medicine that in 2019 represented 18.7% of the company, represented 22.2% in 2021 in the worst days. And in 2022, this percentage went down to 20.6%, actually 20.6%. Third-party services that before the pandemic represented 13.3% in 2022 represented 16.7%. Obviously, this is related to the significant growth in the number of surgeries inside our units. Finally, talking about SG&A that in 2019 represented -- remember, almost represent 4% of the hub in 2022. And in 2022, this percentage went down to 3.6%. The chart on your left shows that in monetary values, SG&A remained stable in 2022 over 2021 despite the inflation and the growth of our business. Now moving to Slide #12, talking about EBITDA and net income. Once again, the chart on your left shows the adjusted EBITDA of BRL 5.9 billion, with an adjusted EBITDA margin of 25.7%, an accounting EBITDA of BRL 5.3 billion, and an EBITDA margin of 23.1%. The main difference is between the adjusted EBITDA and the accounted EBITDA are related to COVID, BRL 369 million. Only PRS BRL 166 million, expenses with M&A transactions amounting to BRL 25 million. On the chart on your right, we see the evolution of the net income for the company. We reported net income of almost BRL 1.3 billion with a drop of almost 25% in comparison to 2021. Obviously, this is related with the monetary environment that we have in Brazil and the world today with greater financial -- net financial expenses for the company. Now moving on to Slide 13 to the managerial cash flow. Starting on your left, with the managerial operational cash flow reconciliation, meaning EBITDA with the operational cash flow reconciliation starting with an EBITDA of BRL 5.3 billion. We have additional investments in working capital of BRL 271 million and we have other items in the balance sheet, adding up to BRL 40 million, expenses with leasing of BRL 661 million and taxes BRL 367 million, adding to a managerial operational cash flow of almost BRL 4 billion. To your right, we see the average days for receivables, days for inventory outstanding and days of payables outstanding throughout time with an improvement in comparison to the report -- the indicators reported in 2021, but we believe in small sequential improvements throughout the coming quarters as the sector overcomes this transition phase with the higher number of claims. So the company believes that we are going to bring this incremental working capital to be reinvested in the balance sheet. Moving on to Page 14 to talk about debt profile. To your left, we see the total cash of BRL 32.1 billion. Technical reserves -- actually net cash from technical reserves, BRL 17.9 billion, gross debt of BRL 32.6 billion and a net debt of BRL 14.7 billion with a ratio of net debt to EBITDA 2.8x. I would like to remind you all that this company pretty much doesn't have any asset as a guarantee. We have almost BRL 90 billion of total assets. And pretty much all the assets of the company are free of any types of collateral or anything like that. The company didn't have any financial covenants. And while we incorporate SulAmérica SA, we are the successors of debentures that are in the market and contain financial covenants and the accounting suspense until the first risk you anticipated, which is a choice of the investors. Now the cost of capital, CDI+7, this is for the company on December '22, an average deadline of 5.4 years. And on the far right, we have the debt amortization schedule. We have approximately BRL 3.5 billion of amortization in 2023, and a great deal of these commitments was already refinanced by the company. We issued a CRI of BRL 400 million, a small window in December, anticipating part of what we expect, and we issued [indiscernible] of 7 years with our partnered bank, and we are having the translation of sales back with the amount of BRL 600 million. The deadline is 25 years. Now let's go to the last page of the presentation, some operational indicators of SulAmérica. Now let's start our left. SulAmérica stand-alone at revenue, operational revenues of BRL 23.6 billion. This is an increase of over 12%. If you compare it to the FY '21 and you're right and on the top we have the consolidated gross ratio, which you can see in 2022, an increase 3.6 percentage points if you compare it to the loss ratio of '21. And on the right and at the bottom, we have the health and dental beneficiaries. I finish now the corporate presentation and I open the space for Q&A. Thank you.

[Operator Instructions] The first question is from Mr. Joseph Giordano, JPMorgan.

I have two very quick questions. The first one is -- well, about the legacy and the stand-alone, I wanted to explore -- you commented the sequential evolution of ticket 6%. I wanted to understand more, how do you see these negotiations for 2023? We have to capture where should we part, let's just say, at the end of the year? And how are the negotiations so we can unlock that receivable that are cumulative with an improvement in 3 days with this quarter, but I wanted to see how you see that evolution of that capital through our time? And the second one is along with SulAmérica, you showed a very quick evolution from the standpoint of synergies and costs that you can leverage. But I wanted to explore maybe regulatory capital. I understand that the company has a lot of real estate and maybe that can be allocated so that SulAmérica can unlock some of the capital, is there any study in that front? And also in the fiscal tax, we have ISS tax, PIS, COFINS taxes, which are parked, let's just say. And when we look at SulAmérica, it classifies as a financial company, we can transform it as an MCO because of tax. Can you tell us more about that?

Joe, thank you for the question. This is Paulo. All right. About the first part of your questions, about the negotiations. We've managed since last year, we have managed and we have communicated this to the analysis, unless -- even though we haven't seen an increase in the ticket aligned or above the inflation because of a mix, the mix of '21, there is a lot of complexity we were readjusting nonetheless, the operators along with the inflation. It is a bit higher than the IPCA rate. We are going in the same rhythm in '23. And the high occupancy of our hospitals has made us -- have a few opportunities to forgo some volumes of lower tickets. That also helps with the evolution of the average ticket of the company. It's not just the readjustment and a gain of complexity that now based on comparable basis '23 comparing to '22, it's going to be easier to compare because of the profile, the records, the gains of complexity that we have historically in surgery in our structure -- in our infrastructure and therefore, our capacity to grow, the tickets above the inflation is true. The working capital, we have improved quarter-on-quarter. A few health care operators, a lot of them actually facing more issues were loss ratios. Well, we have a few delays. And we have been sensitive to understand the moment of these partners and to work with some special requests. Nothing that is too concerning. We have accurate accounts receivable and we have managed to -- we've worked with the accounts that haven't been issued for 6 months, we have reprovision. So we're very ease with our accounts receivable. A few negotiations because of the economic moment that we're living in the market. We've been since we've heard our partner that's where we don't have a higher reduction with that line. We hope that with the normalization of the loss ratios of the operators, we can get better results and better news with our working capital. Let's talk about the second part of the question about the opportunities within SulAmérica. We have been studying everything that you've mentioned. All of these are excellent opportunities, whether to use real estate assets of the controller to release capital with -- or even the studies, to have a group medicine -- to have more revenue with group medicine, there are analysis, there are studies, there are opportunities that are important, but we are not ready to communicate them because we haven't finalized this work, but this is an area that we will extract our value. That is very positive.

Fred Mendes from Bank of America.

I have two questions as well. First is regarding the strategy, SulAmérica, there is an increase in the loss ratio in this quarter. And looking up ahead, do you see more opportunities through an increase of prices to get it to the records that were used or the cost of work, where you going to focus on cost, therefore, the second one is clear that the healthcare sector is extremely pressured. So can we hope or wait for a change on your investments, on your threshold, is there any change in the pipeline for investments for the next years?

Fred, this is Paulo. In SulAmérica, we obviously are working with both accounts. Well, the entirety of the sector is reviewing their premiums, their prices. They are working with the adjustments that are necessary. We have an agenda for the control of the -- well, you've seen the fraud level that has increased. There is a very strong comment against that. We've had recurring communication with FenaSaúde of awareness of the people, and we've seen the -- well, people -- we've been seeing the market banks. So the improvement on that is going to improve on the accounts of the control of the problems. Now working with our projects. And we have made a lot of investments. So we were looking at claims and now we're looking at greenfields or M&As. We are also looking at returns above 20%. We haven't changed that even with the moment where we have more exuberant markets where we have components where they have worked with returns below the threshold time. We've foregone a lot of M&As. The big M&As is of '21, Rede D'Or didn't take part because we understood that we didn't have the returns that we expected. We are going to have with the 17 M&As that we've done at the end of 2020 and throughout '21, we're going to have returns that are very similar to our records or historical data and also looking at the greenfields and the brownfields are the best returns on investments. These are going to be priorities. So -- we didn't need to raise the threshold because we also -- we've always worked with a high threshold when we're talking about returns on investment.

Next question, Mr. Samuel Alves from BTG Pactual.

Two questions on our side. The first about technical provisions. You mentioned at the opening that there was -- you are more conservative in the management of the technical provisions. The question is more if you can quantify, maybe give us a few more percentage points and the increase of the claims, the claims management, is that because of technical issues and also due to -- well, related to that you mentioned at the beginning that there is a trend for the improvement in the claims throughout '23. However, if you can share the information from the first quarter, you have a trend in the improvement that is already palpable in the first quarter if you compare it to the fourth quarter. That's my question.

Thank you, Samuel. I'm going to give the floor to Raquel. She can answer the question.

Samuel, thank you for the question. Well, the provision is always a derivative like you say, of what we observed in terms of average cost and in frequency. So we were the first year that SulAmérica as the entirety of the sector is living in a post-pandemic world. And the impact it is lower. That adjustment of the provisions is absolutely natural. So if you look at third quarter, that is a bit higher. That adjustment of the provisions that impact more the claims management is expected. Now Paulo has mentioned the increase of frequency looking at ambulatory also impacted by the issue of reimbursement. We end up pulling that provision -- raising the provision higher on the threshold. We have a change in the mix because of an increase on the ambulatory level that is also triggered by the reimbursement. We hear it from the market as a whole. So that's why we think that these actions are so important to fight against a frauds reimbursement with the previous investments, so all other actions. So yes, this impacted the study. In regards to the first quarter of '23, the first point that we have to have it clear that the tone at the top, not only at SulAmérica is the readjustment of prices. In the fourth quarter, we have a stronger growth. And the first quarter of '23, also very strong. That's why we hope for claims that is improving in regards to the fourth quarter of '22 and the first quarter of '23.

Next question is from Mr. Vinicius Figueiredo from Itaú Bank.

I wanted to explore the increase of the average ticket in the first quarter. If you can tell us what would be the complexity component, what would be negotiation with the paying parties. I think that historically SulAmérica had that negotiation right at the beginning. It happened always at the beginning of the year. So how are you going to negotiate things in-house now? And the second point is the mat med cost. I don't recall if it was in the call of the third or the fourth quarter that you've mentioned a soft guidance. So that it goes back to the same threshold with the percentage of the revenue. And it ended up that this component was a bit more difficult. So I wanted to understand what are the main reasons behind this? And 2023 should we be working with a level closer to 2019?

This is Otavio. I'm going to answer this question. Average ticket, if you recall, way back when the company 7 years ago, we had a conscientious decision of measuring with its partner, see benefits, scalability and synergies. Therefore, since then, we have been adjusting average tickets due to the -- along with the inflation official inflation with 1 percentage point of spread maybe, another 1 or 2 percentage points, which is related to the oncology business and an increase of more complex cases. Now since everything that is above the official inflation is related to complexity and the institutional development of our business of oncology. Everything is related to oncology. So the second question, mat-med, and this is in the cost structure of the company, we have a lot of initiatives that have been issued by the company. And we try to use our leverage, our relevance. Second, as the purchaser of mat-med -- medical materials in the country. So this is within the total cost of the company, we want to bring it to the threshold of the pre-pandemic world. The fourth quarter is always complicated to analyze these indicators because we lose a lot of the operational leverage. It's a different quarter. But yes, we believe in small improvements that are sequential, maybe not every quarter, but all throughout the next quarters, we're going to walk along the direction of the position that prevailed before the pandemic.

Next question, Mr. Ricardo Boiati, Safra.

Two quick questions. The first, in regards -- well, do you see a space for improving this as the sector is -- we're going to claims and then we are remarking the claims you have an increase of profitability with the -- I mean, the fines and the losses. So, Raquel, you mentioned the adjustment of price, the sector is undergoing in the composition of the claims, are we still going to try and be rational? Or do we have a higher convergence in recomposition of the price and margin? Can you tell us more about that?

So I'm going to get the first one about insurance, basically. Well, we've seen -- as we evolve in these packages and tables, that should reduce the standard -- the threshold, the levels of disallowances that didn't happen at the speed that we would like it to happen where there is more pressure on the healthcare operators, there are a few cases of these disallowances that we have to do but it is our expectation that as we have a normalization and a recovery of disallowances that we had in the past that we are going to have the opportunity to reduce the provisions for the company. Because we're conservative, we haven't done, so yet we are not doing this, yet we are closing a period with disallowances that are lower. We also had an impact in the corporation of these 17 hospitals. And all of them have higher disallowance levels because of a more difficult process, more mistakes, more registration issues. Everything will be fixed, and we're going to bring these assets that are acquired to a standard that is more in the liking of Rede D'Or. So we hope that all throughout time, we can have better news in terms of these provisions. But being conservative, we are keeping the same threshold so we can have safety and tranquility with our accounts receivable. I'm going to give it to Raquel and the second question.

And looking at the past in 2021, the FY was very depressed in terms of premium because of the pandemic, the claims lowered because of an artificial, of course, drop in these claims. And then the premium was not what it was supposed to be. Fortunately, since the middle of last year, we have a stronger movement in the market in terms of recomposition of premium. I cannot say that 100% is going towards the same direction, but of the big ones, they're relevant ones, we are seeing nonlock-forward sustainability and everybody doing that same movement, whether we're talking about the readjustment of warehouse or new sales. This is healthy for the market as a whole. It's important to highlight that not always we talk about this with the post-sale people, not always the readjustment is the only way out. Many times, a maturation of the participation and the reduction of reimbursement, we can. We can provide to the client a percentage of readjustment that will fit in their pocket, and we'll give more sustainability in the contract. So that's the trend that we observed.

The next question is by Mr. Gustavo Miele from Goldman Sachs.

I have two questions, if I may. The first one, a little bit more strategic. Maybe if you could share with us how do you see a possible acceleration in the expansion of diagnostic medicine. We hear a lot from the industry that perhaps this is one of the way to soften the loss ratio curve, a little bit tighter in the sector, maybe focusing a little bit more of the beneficiaries to primary care, thus reducing the number of avoidable procedures. So what's your take on that perhaps this could be an instrument to converge this loss ratio to SulAmérica to a more standardized level. Maybe if you could comment on that, I would appreciate it. And my second question with more straightforward about the results. Maybe you could talk a little bit about the maintenance CapEx dynamics. When we look quarter-over-quarter, the maintenance CapEx almost doubled. And we also see the net number of operational beds quarter-over-quarter. So maybe if you could comment on what are the elements affecting this line? If it's more of an inflation thing or if there's any other factor that we are not missing?

Well, Miele, starting with your question about diagnostic medicine. We are increasing our base of diagnostic medicine, looking at the opportunities that we have inside the hospital infrastructures. So it's very common to have diagnostic parks in hospitals that were very much focused for patients that come through the emergency room or hospitalized patients. And we have been investing to develop structures with a good return because a structure that's already operating, it already has a good level of volume. So just increase in new equipment and start to offer that and become more attractive for elective patients as well. So we are developing the diagnostic medicine area like that. Of course, there are opportunities to expand this relationship not only with SulAmérica, but with other operators as well, and we have been making advancements in that. When it comes to M&A, again, we need to find something that makes a lot of sense. Speaking of -- since the IPO, we had a public offer at the time when we understand that [ Alior ] was offering an opportunity at the price level that was being negotiated, later that converged to a superior price level and we decided not to follow. So again, we are always going to be very careful when we are assessing our returns. And we understand that for diagnostic medicine today, the best opportunities are for organic growth. Speaking of maintenance CapEx, in the fourth quarter, we had some payments that were concentrated in the period, but we continue to look at the maintenance CapEx for the company of something around 2% of our revenue, and this is how we look at the priorities considering the different demands coming from hospitals, and we are comfortable in continuing with this number in the long term.

Next question comes from Mr. Leandro Bastos from Citibank.

I have also two questions. The first one on the capital structure. Maybe if you could comment on your deleveraging perspectives for the new company? What do you anticipate as the optimal level considering the current scenario? That will be the first question. And my second question, more focused on SulAmérica. Maybe you could share a little bit about the commercial strategy because we see new launches of new products in certain markets. So maybe a little bit about the design of the strategy and how that communicates with the improvement of margins that you anticipate for the future?

Leandro, this is Otavio speaking. I will answer your first question about the capital structure. I understand that the company has a capital structure with a very conservative debt profile. Our cash today allows us to face any obstacle that can come until 2028. We have cash even with no mark to the market and cash that gives us a lot of financial flexibility. Obviously, after so many investments, the company is a little bit more leveraged. The ratio as it was presented of 2.8x the EBITDA in this monetary environment hurts the results, if you look at the last line. And our target, as an informal target inside the company is to aim at capital structures mean to time, net debt and EBITDA. This is what's being used in our long- and medium-term models that the primary capital that was raised in the IPO and the follow-on and the operational cash generation of the company are more than enough to digest all the investments that were conducted and the ones that will happen until the end of 2025 and bring the company to financial leverage level that is even below 2x net debt to EBITDA.

This is Raquel speaking. Thank you for your second question. The commercial strategy for SulAmérica was already quite strong. It has been for quite some years, and we are going to keep the same level of strength. Just to give you an example, we have the direct line. I'm sure you followed it's origin and the curve that we saw in leverage. And today, we have more 100,000 lives in this direct product. Many of these products in partnership with Rede D'Or without considering any shareholding conditions. Now for the first quarter, two other markets were launched, stepping away from the more obvious region, Rio Sao Paulo our major capital cities. The cities of Aracaju and Fortaleza were launched, and we are seeing this with very good eyes. New markets are being developed. So I think there are many new things to be announced in the next call. I also see a warming up when it comes to sales in the first quarter of 2023. Just for business, while it's just pre and post payment. And here, I'm talking about sales, okay? For health, I see more than 185,000 new lives sold, and for dental, around 200,000. So I think the number speaks for themselves and show a very robust strategy for the company.

The next question is by Mr. Mauricio Cepeda from Credit Suisse.

I also have two questions, mostly related to SulAmérica. The first one is about the nature of the claims. I understand that it was impacted by the higher -- bigger number of provisions and it's also being impacted by this market phenomenon of reimbursement. But maybe if you could give us more details if we have some real-world frequencies. A lot of players discuss different therapies putting pressure. So what are the pressures coming from frequency? And how much we can bring them back to a level that is comfortable enough that they become premium? And the second question, considering that the tone of the market is to go back to adjust the average ticket has to balance the sector. But maybe if that could influence the number of beneficiaries in more expensive corporate portfolios. I understand that SulAmérica has this characteristics of having a portfolio with a good ticket or if that could affect those other types of wallets?

Thank you for your question. I'm going to start with your second question, actually. So speaking about price adjustments. Of course, we always focus on the growth of our wallet and not necessarily with a change of mix. When we have any type of recession or specific moments, it's important to have a broad option of products so we can basically -- customers can flow between one product and the other within the same operator. So that idea of keeping all the fishes inside the same tank. So the comment that I made before about not looking only at price adjustments, it's exactly to avoid this type of movement. So even in health insurance plans at the special executive lines, many times, we can work with the corporate participation concept with a concept of a differentiated price adjustments with customized products. So many of the major customers have customized products that only they have. So we have this possibility, and that reflects, of course, the average cost. So our thesis, what we are going to work for is so we don't see an expressive change in the mix. I strongly believe that we still have a lot of elasticity in terms of price adjustments because, of course, there was a gap from the years of 2020 and 2021, especially. And now going back to your first question about the claims. And you're absolutely right, and you've helped me with the answer actually. Therapies is the major villain that we have in the market. Everyone is talking about it, the nonmedical therapies. So a lot of -- there's a lot of fraud involved, and we're doing whatever we can to shed some light on that topic. So the legal system and the regulatory agency and customers can be aware, most of our contracts are corporate contracts. And one beneficiary is frauding the company. They are doing that to their own contractor. And I'll go back to the example that Paulo mentioned from Itau, the bank, which is very emblematic for the sector, more than 80 people being fired for 4 years of their health insurance plan. So if I had to rank within reimbursement, which was the biggest variation that we saw in reimbursement, I think therapies, diagnostic -- diagnosis. So many endocrine specialties collecting tests within the clinics using reimbursement and using extremely leveraged prices that, of course, affected this reimbursement logic that we have in the system. So we are also working on that. And another issue that is really well known is the receipt, which is another focus besides the reimbursement case without payment. So for example, we require a payment slip, whether it's a pick transfer or bank transfer before we do the reimbursement. So this is a movement that the whole industry is following.

And how much -- how much would these factors take before they go back to normal levels?

I cannot tell you exactly when, but of course, that we are working towards achieving this as fast as possible. The actions that started to be put into practice in the end of January, we already start to see the effect in the payments done in March. So we hope that in the next call, we all already see the trends for reimbursement dropping.

Next question is by Mr. Vinicius Ribeiro from UBS.

I actually have one question only this time, and I apologize if it's a very specific question. But we wanted to understand a little bit about the provisions flow especially for SulAmérica. And I'm talking about the Note 14 on the material. Because when we compare the provision for health from the third quarter for SulAmérica, the impression that we have is that the technical provisions suffered a reduction in reality. And then there were some additional provisions associated to the operation of individual plans. I apologize for insisting on the topic, but maybe if you would eliminate these effects, what would be a more common loss ratio? And maybe if you could give us some color on, if I'm not mistaken, almost BRL 5 billion of additional provisions because of the integration.

Vinicius, this is Otavio speaking. The reduction happened because of the elimination of the exposure Rede D'Or to SulAmérica. Talking specifically about the explanation 14 on the liability of insurance, the Rede D'Or company, because it tends to be more cautious and because we are allowed to do that by the regulation, did a separate analysis on the different portfolios, and we chose to do an additional provision of BRL 2.6 billion, more notably to the individual health plans. . Deloitte, which the company that did the PPA suggested an additional provision for all the wallets of BRL 2.1 billion. That's why if you look at Note 14, we get to that amount of BRL 19.4 billion. A final comment, the BRL 2.1 billion of additional provisions that were suggested by Deloitte needs to be understood together with explanation #10, Note #10 in the material. Just a minute, I'm looking for it. On Page 84, when you see the assessment, wallet, clients for SulAmérica, BRL 2.452 billion. So we have to read both information together, BRL 2.1 billion and BRL 2.452 billion.

And I just want to understand exactly -- what would be a common loss ratio? I know we have a lot of moving parts to consider, but maybe, Raquel, with her experience can give us more color. But because the impression that we have is that the additional provisions were not technical. They were more for a reason because of this division of the company once it was integrated. So from the technical perspective, do you see that there is a need to do a technical provision in 2023? Or are you comfortable with the level of provisions that were reported?

Vinicius, the additional provisions, they are not mandatory. They do not demand any additional capital. They reflect how conservative and cautious the company is and the current picture that we have, we are so cautious and so conservative with provisions as we are with the capital structure of the company. That's it.

Since we don't have any more questions, the Q&A session is now closed. We would like now to hand the floor to Mr. Paulo Moll for his final remarks.

I just wanted to say thank you for everyone for coming and say that we are very excited with the beginning of 2023. And with the size of the opportunities that we have for the Rede D'Or company, maturing the investments that we have already made with the new openings that we have coming, and obviously, with the opportunities that we identify with the combination of business with SulAmérica, in our understanding 2023 is going to be a transition period for all health operators, but with better results than what we had in 2022. So maybe in 2024, we can resume our historical levels. On one hand, as a service provider, we are very excited. And on our insurance company side, we have expectations of continuous improvements to take place. So my final message is a message of optimism of everything that we have to do. I think we are uniquely positioned in this industry. in order to continue to generate value to all the investors and shareholders. So once again, thank you for your support. Thank you for your support as shareholders, and I hope to see you soon at our next call meeting.

The Rede D'Or results call is now concluded. Thank you very much for coming, and have a great day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]