Consultant firms see profits soar, but hiring is challenge

Large consultant firms managed to navigate the pandemic with good results. The good moment came from the need for companies to transform their businesses both because of the changes triggered by the pandemic and the demand for digitization and the adoption of an ESG agenda connected with their activities. The big challenge for large consulting firms today, according to executives, is to find workers.

Deloitte, one of the world’s four largest auditing companies – the “Big Four” formed with EY, KPMG and PwC –, doubled bets on the Brazilian market and announced the entry of 80 new partners in Brazil – totaling 250. The company intends to have more 150 members by 2024.

Altair Rossato — Foto:  Silvia Zamboni/Valor

Altair Rossato — Foto: Silvia Zamboni/Valor

“We have 1,000 open jobs. We want to arrive in May of next year with 7,000 professionals” compared with current 6,000, said Altair Rossato, Deloitte’s CEO in Brazil.

The company has seen growth opportunities in Brazil and the revenue forecast for the country in the current fiscal year, which ends in May 2022, is around R$2.5 billion. The company’s global revenues exceed $50 billion.

“At some point during the pandemic, we saw that companies had not stopped transforming, they had not stopped investing. They must be prepared for when the economy recovers. A time of difficulty is a time to clean the house.”

Hiring is challenging, so consultancies and audits have bought companies because of their teams. Recently, Deloitte announced the incorporation of employees from consultancy CbCloud (150), based in Minas Gerais, to expand its team destined to grow the digital transformation arm within the Deloitte Digital brand, which was brought to the country recently.

Mr. Rossato highlighted that the audit, which was previously the company’s main business, now accounts for around 25% of revenues in Brazil. A total of 30% is in the consultancy arm – which encompasses the entire team working in the technology, digital transformation and ESG sectors. There are also activities in the tax, risk and financial advisory fields.

Alvarez& Marsal had 70 % of its revenue in the restructuring arm before the pandemic. Today, the percentage of the segment is less than 50% and has made room for other businesses focused on business management.

“The restructuring is still taking place, but it has not grown because of the help of the government and creditor entities during the crisis, which extended terms and made payments easier,” said Marcelo Gomes, head of Alvarez & Marsal for Brazil.

The Achilles’ heel, as with its competitors, is the search for labor. “The biggest challenge for all of us is that the market is no longer a regional labor market and has turned global. Today we compete with the whole world. And this is difficult with a weakened currency,” he highlighted.

Instead of slowing down EY’s businesses in Brazil, the Covid-19 pandemic led the firm’s management to speed up plans and decision-making. The Brazilian unit even overperformed the other countries in the Americas. In Brazil, the company reported revenues of R$2.1 billion in the fiscal year ended in June 2021, up 16% year over year. In the regional bloc, it grew 2.8%, to R$17.66 billion.

EY Brasil’s CEO Luiz Sérgio Vieira highlighted that Brazil reports in reais and represents almost 70% of the bloc’s countries. In the Brazilian market, EY reported a double-digit growth in all services. In addition, it announced a five-year, R$3 billion investment plan for the country focused on technology, strategy and personnel training, starting in 2022.

To face the crisis, EY Brasil hired more employees in the fiscal year 2021. This represented 40% more hires, or 2,700 people, on the base. The current staff is 6,700 employees.

In the fiscal year 2021, which ended in September, KPMG reported gross revenue of R$1.7 billion in the country, up 17% year over year.

The pandemic collaborated to pressure companies towards innovation and internal improvement. With that, the consulting sector was the one that presented the biggest percentage increase within the segments in which it operates, with growth of 27.6%.

The opportunities in Brazil also set PwC in motion. In mid-August, the group announced a plan to invest R$1.4 billion in Brazil over five years. Half of the funds is directed towards training labor and mentoring. The remainder will go to technology – with room for acquisitions.

The plan is part of a global program by PwC, which foresees investments of $12 billion over the next five years, creating around 100,000 jobs. The company currently employs 4,000 in Brazil.

Source: Valor international

Hospitals and labs return to profit

Vetores Hospital Desenho grátis, 12.000+ imagens nos formatos AI e EPS

The pandemic affected Brazilian health groups in different ways. Operators and insurance companies saw their profits jump to record levels last year due to the cancellation of elective procedures – even leading the sector to register for the first time in its history a medical deflation.

Hospitals, clinics, and diagnostic laboratories, on the other hand, suffered losses or had negligible profits, since the bill for patients affected by Covid-19 is lower when compared to the costs of high-complexity surgeries and exams.

In 2021, things changed. Patients who had not set foot in a doctor’s office for nearly a year went back for medical procedures and, in March, came the second wave of the pandemic, at a much greater intensity.

The impact is clear in the earnings reports for the second quarter of publicly held companies operating in the sector. Hospitals and laboratories reversed negative results while operators and insurers, who pay these medical bills, lost or saw their profits drop up to 92%.

“We had the best quarter last year and now we have the worst in the company’s history,” said CEO of healthcare operator NotreDame Intermédica Irlau Machado. The company posted a loss of R$48 million in the second quarter, compared to a profit of R$223 million a year earlier. The costs of Covid-19 totaled, between April and June, R$358 million, almost R$100 million more compared to the first quarter.

Insurer Porto Seguro Saúde also went from a positive result of R$50 million to a negative one of R$1.3 million. Health plan and hospital operator Hapvida’s net profit fell 62.5% between April and June. At SulAmérica, profit dropped 92.6% and at Bradesco Saúde, the reduction was 56.8%.

Among service providers, practically all companies listed on the stock exchange went from loss to profit this quarter. Rede D’Or, which had suffered a negative result of almost R$300 million, saw the bottom line rise to a profit of R$445.5 million. The same happened with Dasa, which reversed the loss of R$343 million to an adjusted net income of R$451.5 million. Fleury went from a loss of R$73.3 million to close the second quarter with a profit of R$65.5 million, even considering the cyberattack suffered at the end of June.

The expectation is that this scenario of resumption of medical procedures will continue in the coming months. The volume of exams in laboratories has been growing, which could mean future surgeries, and there is still a so-called stock of procedures not performed in the past that could happen. In addition, there is the possibility of complex cases arising from patients who have not had their check-ups in recent months. However, it is worth considering that there may be changes in this scenario if the Delta variant spreads significantly.

“The results reflect the second wave of Covid-19, it is a transitory impact, but it will still bring some small impact in the third quarter,” said a report by analysts from Credit Suisse.

The vertical operators Hapvida and Intermédica tend to benefit the most from the reduction in hospitalizations of patients affected by the new coronavirus. This is because they are reducing the infrastructure for these services. Hapvida, for example, had 1,600 beds for Covid at the height of the pandemic and, currently, it has about 100. There was also an 80% reduction in the number of staff who saw patients with the disease.

Among the paying sources, Bradesco Saúde is the one that had the greatest impact on the costs of Covid-19 in the second quarter. The bill reached R$1.8 billion, which reflected in a loss ratio of 95.1%, an increase of 25.1 percentage points over the same period in 2020.

“The net income in the quarter was impacted by the increase in the loss ratio, which was affected by the frequency of events related to Covid-19, due to the increased need for hospital medical care, diagnoses, consultations, hospitalizations, post-Covid-19 effects, resumption of elective procedures”, informs Bradesco’s results report.

Despite the negative numbers in the profitability of operators, the revenue of all grew due to acquisitions and entry of new users. Even in a scenario of high unemployment, the demand for health insurance has been growing as the population wants access to private healthcare in times of pandemic. In the last 12 months, considering June, the sector recorded 1.5 million new users of health plans, totaling 48.2 million — the highest number since mid-2016.

Source: Valor international

Petrobras profits more than international peers

Petrobras inicia processo de venda de campo onshore na Bacia de Potiguar,  no Rio Grande do Norte | CPG Click Petroleo e Gas

Boosted by higher oil prices, major international oil companies closed the second quarter of 2021 with financial statements in full recovery. A survey by Valor Data shows that all the companies that make up the group of the so-called Big Oil – ExxonMobil, BP, Shell, Chevron, Total and Eni – showed significant improvement in their financial indicators, but that none of them profited more than Petrobras. Close to its debt reduction target, the Brazilian state-run company stands out as one of the best dividend payers among its peers.

Adding the results of all Big Oil companies plus Petrobras, the accumulated profit in the second quarter was $29.1 billion, reversing a combined loss of $26.6 billion. Petrobras alone reported a gain of $8.1 billion.

This recovery has a simple reason: the increase in the price of oil. The average Brent barrel, a global benchmark, more than doubled compared to the second quarter of 2020, peak of the global demand contraction during the pandemic. Between April and June this year, the barrel was traded at an average of $68.8, an increase of 135% compared to the same period last year.

Together, the seven companies analyzed had revenues of $281.3 billion, double the result of the second quarter of 2020, even though most oil companies had drops in production in the period.

The oil companies are also demonstrating other solid financial indicators, such as earnings before interest, taxes, depreciation and amortization (Ebitda) and expanding free cash flows – which have allowed companies, increasingly pressured by investors averse to fossil fuels, seek ways to increase shareholder remuneration.

After reporting strong second-quarter earnings, some companies took the opportunity to announce share buyback programs, such as BP ($1.4 billion), Chevron ($2 billion to $3 billion a year) and Shell ($2 billion), in addition to dividends.

Petrobras is going in the same direction and emerges as a major payer of resources to investors. By announcing last week that it will anticipate R$31.6 billion ($6 billion) to shareholders in the fiscal year of 2021 –almost triple the average in the three previous years – the Brazilian state-owned company will deliver a dividend yield of 9%, according to UBS BB. The number places the company in the first quartile among the 21 oil companies monitored by the bank, with the indicator only lower than the Russian companies Gazprom (13%) and Lukoil (12%).

UBS predicts that Petrobras will distribute another $15 billion next year and that, in 2022 and 2023, the company’s dividend yield could reach 14%, the highest in the sector. The optimism with Petrobras’ dividend yield is shared by Safra, which also sees the state-owned company’s indicator reach double digits in 2022.

The dividend yield is a ratio between the dividends paid by a company in a given period and the individual share price. The indicator measures the company’s performance according to the earnings paid to shareholders. Petrobras’ good positioning among international peers, in this case, is due not only to the expectations of an increase in dividends but also to the fact that the Brazilian company shares are less valued than of the giants in the sector.

The belief that Petrobras will pay more dividends in the coming years is partly anchored in divestments. With a leaner asset portfolio, the oil company currently consumes less cash with investments and operating expenses in lower-yielding assets.

The increase in dividends also reflects the intense work of deleveraging the company in recent years, after a financial crisis in 2014 amid the drop in oil prices and Petrobras’ involvement in the corruption scandal known as Car Wash Operation. The asset sale program and strong cash generation in recent years allowed the company to cut debt.

The state-run company ended the second quarter with a gross debt of $63.7 billion, close to the target of $60 billion, initially set for 2022 but now anticipated for this year. The target works as a trigger for the new shareholder remuneration formula, which provides for the distribution of 60% of the difference between operating cash flow and investments.

Although Petrobras’ numbers are still high, it is undeniable that the Brazilian company has advanced in debt management. Since 2014, when it had one of the largest corporate debts in the world, Petrobras cut its net debt practically in half, to R$54.3 billion.

The state-owned company’s leverage, measured by the ratio between net debt and Ebitda, dropped to 1.49 times, the lowest level in ten years.

Along with the high returns, however, the investment thesis at Petrobras is accompanied by high risks. This is the analysis of Credit Suisse, which, in a recent report highlighted that, close to reaching the goal of reducing gross debt to $60 billion, the company can now distribute all free cash generated in the coming quarters. This means that Petrobras may have, in addition to the $ 6 billion distribution announced last week, another $4 billion more to pay in 2021.

However, according to Credit, there are “significant risks on the horizon,” although they are outweighed by a combination of a heavily discounted valuation and high dividend returns. The Swiss bank cites the 2022 presidential elections and potential government intervention in pricing policy, in addition to the risks associated with an increase in the volume of investments — an element that directly competes with dividends, within a company’s capital allocation strategy. In Credit’s assessment, it may be difficult for the oil company’s management to resist pressure to increase capital expenditures, especially at a time when the state-owned company has high free cash generation and falling debt.

In the bank’s assessment, the increase in investments is not necessarily bad, but the risk is that additional capital could be allocated to projects with lower returns. Credit forecasts an increase in investment in Petrobras’ next business plan, by $2 billion in 2022 and $4 billion starting in 2023, compared to the previous plan.

Last week, commenting on the results for the second quarter, Petrobras’ CFO Rodrigo Araújo said that the company may increase the volume of investments in its next business plan (2022-2026), although “substantial growth” is not expected”. The current business plan foresees investments of $55 billion between 2021 and 2025, of which 84% are directed to oil and gas exploration and production projects with a focus, although not exclusively, on deepwater drilling.

Source: Valor international