Afya : Announces Q4 2019 Financial Statements

Afya Limited

Consolidated financial statements

as of December 31, 2019 and 2018 and for the three years ended December 31, 2019, 2018 and 2017

F-1

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of

Afya Limited

Opinion on the Financial Statements

We have audited the accompanying consolidated statements of financial position of Afya Limited (the Company) as of December 31, 2019 and 2018, the related consolidated statements of income and comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2019, and the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board - IASB.

Adoption of IFRS 16

As discussed in Note 2.4 to the consolidated financial statements, the Company changed its method for recognizing leases in 2019, due to the adoption of IFRS 16 - Leases using the modified retrospective method of adoption.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ ERNST & YOUNG Auditores Independentes S.S.

We have served as the Company's auditor since 2016.

Belo Horizonte, Brazil

March 26, 2020

F-2

Afya Limited

Consolidated statements of financial position

As of December 31, 2019 and 2018

(In thousands of Brazilian reais)

	Notes	2019	2018
Assets
Current assets
Cash and cash equivalents	6	943,209	62,260
Restricted cash	7	14,788	-
Trade receivables	8	125,439	58,445
Inventories		3,932	1,115
Recoverable taxes		6,485	2,265
Derivatives	13.1	-	556
Other assets		17,912	8,859
Total current assets		1,111,765	133,500
Non-current assets
Restricted cash	7	2,053	18,810
Trade receivables	8	9,801	5,235
Related parties	9	-	1,598
Derivatives	13.1	-	663
Other assets		17,267	10,380
Property and equipment	11	139,320	65,763
Investment in associate	10	45,634	-
Right-of-use assets	13.2.2	274,275	-
Intangible assets	12	1,312,338	682,469
Total non-current assets		1,800,688	784,918
Total assets		2,912,453	918,418
Liabilities
Current liabilities
Trade payables		17,628	8,104
Loans and financing	13.2.1	53,607	26,800
Derivatives	13.2	757	-
Lease liabilities	13.2.2	22,693	-
Accounts payable to selling shareholders	13.2.3	131,883	88,868
Advances from customers		36,860	13,737
Labor and social obligations		46,770	31,973
Taxes payable		19,442	6,468
Income taxes payable		3,213	282
Dividends payable		-	4,107
Other liabilities		376	1,993
Total current liabilities		333,229	182,332
Non-current liabilities
Loans and financing	13.2.1	6,750	51,029
Lease liabilities	13.2.2	261,822	-
Accounts payable to selling shareholders	13.2.3	168,354	88,862
Taxes payable		21,304	150
Provision for legal proceedings	23	5,269	3,465
Other liabilities		1,999	2,226
Total non-current liabilities		465,498	145,732
Total liabilities		798,727	328,064
Equity
Share capital	17	17	315,000
Additional paid-in capital		1,931,047	125,014
Share-based compensation reserve		18,114	2,161
Earnings reserves		115,916	59,807
Equity attributable to equity holders of the parent		2,065,094	501,982
Non-controlling interests		48,632	88,372
Total equity		2,113,726	590,354
Total liabilities and equity		2,912,453	918,418

The accompanying notes are an integral part of the consolidated financial statements.

F-3

Afya Limited

Consolidated statements of income and comprehensive income

For the years ended December 31, 2019, 2018 and 2017

(In thousands of Brazilian reais, except earnings per share)

	Notes	2019	2018	2017
Net revenue	19	750,630	333,935	216,008
Cost of services	20	(308,853)	(168,052)	(124,065)
Gross profit		441,777	165,883	91,943
General and administrative expenses	20	(239,120)	(70,034)	(45,355)
Other income, net		2,594	599	2,755
Operating income		205,251	96,448	49,343
Finance income	21	51,689	10,428	5,222
Finance expenses	21	(72,365)	(8,154)	(3,586)
Finance result		(20,676)	2,274	1,636
Share of income of associate	10	2,362	-	-
Income before income taxes		186,937	98,722	50,979
Income taxes expense	22	(14,175)	(3,988)	(2,500)
Net income		172,762	94,734	48,479
Other comprehensive income		-	-	-
Total comprehensive income		172,762	94,734	48,479
Income attributable to
Equity holders of the parent		153,916	86,353	45,393
Non-controlling interests		18,846	8,381	3,086
		172,762	94,734	48,479
Basic earnings per share
Per common share	18	2.03	1.84	1.41
Diluted earnings per share
Per common share	18	2.02	1.81	1.41

The accompanying notes are an integral part of the consolidated financial statements.

F-4

Afya Limited

Consolidated statements of changes in equity

For the years ended December 31, 2019, 2018 and 2017 (In thousands of Brazilian reais)

		Equity attributable to equity holders of the parent
		Additional	Share-based	Earnings reserves			Non-
			Retained
	Share	paid-in	compensation	Legal	earnings	Retained		controlling
	capital	capital	reserve	reserve	reserve	earnings	Total	interests	Total equity
Balances at January 1, 2017	66,485	(63,588)	-	636	7,966	-	11,499	71	11,570
-
Net income	-	-	-	-	45,393	45,393	3,086	48,479
Total comprehensive income	-	-	-	-	-	45,393	45,393	3,086	48,479
Legal reserve	-	-	-	2,269	-	(2,269)	-	-	-
Minimum mandatory dividends	-	-	-	-	-	(10,781)	(10,781)	(2,506)	(13,287)
Earnings retention	-	-	-	-	32,343	(32,343)	-	-	-
Balances at December 31, 2017	66,485	(63,588)	-	2,905	40,309	-	46,111	651	46,762
Net income	-	-	-	-	-	86,353	86,353	8,381	94,734
Total comprehensive income	-	-	-	-	-	86,353	86,353	8,381	94,734
Capital increase with cash	156,304	-	-	-	-	-	156,304	-	156,304
Capital increase with reserves	80,541	-	-	-	(40,312)	(40,229)	-	-	-
Capital increase with contribution of IPTAN and IESVAP	11,670	188,602	-	-	-	-	200,272	-	200,272
Dividends cancelled	-	-	-	-	-	10,781	10,781	-	10,781
Share-based compensation	-	-	2,161	-	-	-	2,161	-	2,161
Legal reserve	-	-	-	4,318	-	(4,318)	-	-	-
Dividends declared to non-controlling interests	-	-	-	-	-	-	-	(5,845)	(5,845)
Non controling interests arising on business combination	-	-	-	-	-	-	-	85,185	85,185
Earnings retention	-	-		-	52,587	(52,587)	-	-	-
Balances at December 31, 2018	315,000	125,014	2,161	7,223	52,584	-	501,982	88,372	590,354
Net income	-	-	-	-	-	153,916	153,916	18,846	172,762
Total comprehensive income	-	-	-	-	-	153,916	153,916	18,846	172,762
Capital increase with cash	150,000	-	-	-	-	-	150,000	-	150,000
Capital increase from shares contribution of shareholders	48,768	36,358	-	-	-	-	85,126	(44,774)	40,352
Capital increase from the corporate reorganization	122,062	137,051	-	-	-	-	259,113	-	259,113
Share-based compensation	1	17,627	18,114	-	-	-	35,742	-	35,742
Allocation to additional paid-in capital	-	33,001	-	-	(33,001)	-	-	-	-
Dividends declared	-	-	-	-	-	(38,000)	(38,000)	(13,812)	(51,812)
Dividends cancelled	-	-	-	-	4,107	-	4,107	-	4,107
Corporate reorganization	(635,830)	668,904	(2,161)	(7,223)	(23,690)	-	-	-	-
Issuance of common shares in initial public offering	16	992,762	-	-	-	-	992,778	-	992,778
Shares issuance cost	-	(79,670)	-	-	-	-	(79,670)	-	(79,670)
Balances at December 31, 2019	17	1,931,047	18,114	-	-	115,916	2,065,094	48,632	2,113,726

The accompanying notes are an integral part of the consolidated financial statements.

F-5