Hypera Pharma grows 12.6% in 2Q18, with Gross Margin expansion and 12.1% EBITDA and 22.3% Net Income from Continuing Operations growth

Transcription

1 Hypera Pharma grows 12.6% in 2Q18, with Gross Margin expansion and 12.1% EBITDA and 22.3% Net Income from Continuing Operations growth São Paulo, July 27, 2018 Hypera S.A. ( Hypera Pharma or Company ; BM&FBovespa: HYPE3; Reuters: HYPE3.SA; Bloomberg: HYPE3 BZ; ISIN: BRHYPEACNOR0; ADR: HYPMY) announces its financial results for the second quarter of Financial data disclosed here are taken from the Consolidated Quarterly Financial Statements of Hypera S.A., prepared in accordance with the Brazilian Accounting Pronouncement Committee (CPC) and International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB). Highlights Net Revenue of R$920.1 million in the quarter, up 12.6% year over year Gross Profit of R$668.5 million in 2Q18, with 0.5 percentage point of gross margin expansion over 2Q17 EBITDA from Continuing Operations of R$339.5 million in the quarter, with 36.9% EBITDA margin Net Income from Continuing Operations of R$278.8 million, a 22.3% increase over 2Q17 Operating Cash Flow of R$344.9 million, up 12.5% over 2Q17 Table 1 (R$ million) 2Q17 % NR 2Q18 % NR % 1H17 % NR 1H18 % NR % Net Revenue % % 12.6% 1, % 1, % 13.2% Gross Profit % % 13.2% 1, % 1, % 14.0% S,G&A (ex-marketing) (155.8) -19.1% (163.9) -17.8% 5.2% (307.6) -18.8% (330.7) -17.9% 7.5% Marketing (168.1) -20.6% (206.5) -22.4% 22.8% (343.6) -21.0% (387.7) -21.0% 12.8% EBITDA from Continuing Operations % % 12.1% % % 18.3% Net Income from Continuing Operations % % 22.3% % % 31.6% Earnings per Share from Continuing Operations % % Cash Flow from Operations % % 12.5% % % 8.8% 1

2 Operating Scenario Hypera Pharma grew 12.6% in the second quarter compared to 2Q17, reaching Net Revenue of R$920.1 million. In the quarter, sales growth occurred in all of the Company's business units, with emphasis on the Branded Prescription and Generics & Similars. In the case of Hypera Pharma, the truck drivers' strike in 2Q18 did not have a material impact on the production process and on the delivery of goods to customers due to adequate levels of raw material and finished products in inventories. Similarly, despite the strike, the pharmaceutical market grew 11.5% in the quarter, according to IQVIA data. In Branded Prescription, products for chronic and dermocosmetic treatments were sales highlights in the quarter, in addition to the brands Predsim, Alivium and Mioflex-A. In Generics & Similars, sales growth was fostered by the leading brands Torsilax, Neosoro, Doralgina, Flavonid and Histamin. This performance has been benefited by the internal initiatives to increase the production capacity in Anápolis and by the Company's strategy to focus on molecules with lower competition, in addition to maintaining a healthy discount policy for the business. In the quarter, EBITDA from Continuing Operations grew 12.1% and totaled R$339.5 million. This growth was mainly due to the combination of the dilution of Sales, General and Administrative Expenses with Gross Profit growth, which was not materially affected by the depreciation of Real against the Dollar in 2Q18, since the greater part of the raw material consumed in the period was formed prior to this. In 2Q18, in line with the Company's strategy to return capital to shareholders, the distribution of Interest on Capital in the amount of R$129.8 million was approved, which contributed to the reduction of the effective tax rate in the period and to the 22.3% growth of Net Income from Continuing Operations. Free Cash Flow increased 31.3%, which contributed to the Company s 2Q18 Net Cash positon of R$732.8 million, or 0.6x LTM EBITDA from Continuing Operations. The Company has been consistently improving its return on equity (ROE). In 2Q18, ROE was 15.8%, or 4.8 percentage points higher than 2Q17. Finally, the Board of Directors approved the appointment of the members of the Independent Committee constituted to coordinate the internal investigation of the facts related to the Material Fact of April 10, 2018 and to the Notice to the Market of April 20, 2018, published by the Company. The Independent Committee has already begun the investigation process and, at the end of its activities, will present its conclusions to the Board of Directors. 2

3 Investments in R&D 4.4% 4.1% 4.2% 3.9% 1.6% 1.6% 1.2% 1.6% 4.6% 1.7% Innovation & Launches The innovation index of the last 12 months, corresponding to the percentage of Net Revenue from products launched in the last five years, was 29% in 2Q18. Total investments in innovation and R&D, including the amount capitalized as intangible assets, reached 4.6% of Net Revenue in the quarter, compared to 4.1% in 2Q17, in line with the Company's strategy of increasing these investments to accelerate the pace of new product launches. 2.6% 2.7% 2.7% 2.6% 2.9% 2T17 3T17 4T17 1T18 2T18 % Expensed % Capitalized Note: Excludes the effect of Lei do Bem benefits and does not include R&D amortization Hypera Pharma launched 14 new products in 2Q18, of which 12 are branded, in the Branded Prescription and Consumer Health business units. The Company's traditional brands, such as Maracugina PI, Zero Cal Sabores and Adocyl Sucralose, are worthy of mention, as well as Gestamax and Ofolato 90, products for the Gynecology therapeutic class, which has become increasingly relevant in the Company's portfolio of medicines. In this quarter, the Company also completed the repositioning of the analgesic and muscle relaxant Miorrelax. The almost 50-year-old brand started being promoted in the media directly to the final consumer, becoming part of Consumer Health's portfolio. In generics, the highlight was the launching of the antiparasitic Nitazoxanide, soon after the patent fall of this molecule, whose total market surpasses R$200 million. Products Launched in 2Q18 Product Business Unit Product description Colflex Bio Branded Prescription Type ll Collagen for joint health Bifilac 2BI Branded Prescription Probiotic for balance of intestinal flora Gestamax Branded Prescription Supplementation for pregnant women Ofolato 90 Branded Prescription Supplementation for pregnant women Colflex Vit Branded Prescription Collagen with vitamins for joint health Rinosoro Kit Aspirador Branded Prescription Nasal decongestant Glycare Loção Branded Prescription Facial sanitizer Episol Color FPS 30 e 70 Branded Prescription Sunscreen Maracugina PI Consumer Health Phytotherapic for anxiety and insomnia treatment Miorrelax Consumer Health Analgesic and muscle relaxant Adocyl Sucralose Consumer Health Sweetener Zero Cal Sabores Consumer Health Sweetener Nitazoxanida - Generic Generics Antiparasitic Ezetimiba - Generic Generics Cholesterol and blood lipid levels regulator 3

4 Earnings Discussion Income Statement The following table is a summary of Hypera Pharma s Income Statement: Table 2 (R$ million) 2Q17 % NR 2Q18 % NR % 1H17 % NR 1H18 % NR % Net Revenue % % 12.6% 1, % 1, % 13.2% Gross Profit % % 13.2% 1, % 1, % 14.0% Marketing Expenses (168.1) -20.6% (206.5) -22.4% 22.8% (343.6) -21.0% (387.7) -21.0% 12.8% Selling Expenses (109.0) -13.3% (117.1) -12.7% 7.4% (216.0) -13.2% (237.4) -12.8% 9.9% General and Administrative Expenses (46.8) -5.7% (46.9) -5.1% 0.2% (91.6) -5.6% (93.3) -5.1% 1.8% Other Operational Net Expenses % % -6.8% % % 2.8% Equity in Subsidiaries % % 883.0% % % 554.6% EBIT from Continuing Operations % % 11.7% % % 18.4% Net Financial Expenses % (1.8) -0.2% % (0.7) 0.0% - Income Tax and CSLL (82.5) -10.1% (37.1) -4.0% -55.0% (156.7) -9.6% (79.0) -4.3% -49.6% Net Income (Loss) from Continuing Operations % % 22.3% % % 31.6% Net Income from Discontinued Operations (43.6) -5.3% (1.0) -0.1% -97.7% (87.7) -5.4% (3.4) -0.2% -96.1% Net Income (Loss) % % 50.7% % % 63.2% EBITDA from Continuing Operations % % 12.1% % % 18.3% 4

5 Net Revenue Graph 1 Graph 2 Net Revenue (R$ mm) Net Revenue (R$ mm) Δ 2Q18 vs 2Q % Δ 1S18 vs 1S % , , Q17 2Q18 1H17 1H18 Table 3 (R$ million) 2Q17 2Q18 % 1H17 1H17 % Net Revenue % 1, , % Net Revenue grew 12.6% compared to 2Q17, especially on the Branded Prescription and Generics & Similars business units. This growth is mainly due to volume expansion, combined with price increase. In the Branded Prescription business unit, products for chronic treatments and dermocosmetics were highlights of the quarter, in addition to Predsim, Alivium and Mioflex-A. In Generics & Similars, growth was boosted by the performance of Similars, especially the leading brands Torsilax, Neosoro, Doralgina, Flavonid and Histamin. In Consumer Health, the performance was driven by the launches of traditional brands, such as Tamarine Zero Geleia and Biotônico Fontoura Sabores, in addition to Gelol, Estomazil and Epocler. 5

6 Gross Profit Graph 3 Graph 4 Gross Profit (R$ mm) Δ 2Q18 vs 2Q % Gross Margin (%) Δ 2Q18 vs 2Q p.p % 72.7% 2Q17 2Q18 2Q17 2Q18 Graph 5 Graph 6 1,191.7 Gross Profit (R$ mm) Δ 1S18 vs 1S % 1,358.1 Gross Margin (%) Δ 1S18 vs 1S p.p. 73.0% 73.5% 1H17 1H18 1H17 1H18 Table 4 (R$ million) 2Q17 % NR 2Q18 % NR % p.p. 1H17 % NR 1H18 % NR % p.p. Gross Profit % % 13.2% 0.5 p.p. 1, % 1, % 14.0% 0.5 p.p. Gross Profit growth was 0.6 percentage points higher than Net Revenue growth, which resulted in a Gross Margin expansion, reaching 72.7% in 2Q18, against 72.2% in 2Q17. This expansion was mainly due to the price increase in this period, which was higher than the increase in costs. 6

7 Marketing Expenses Table 5 (R$ million) 2Q17 % NR 2Q18 % NR % 1H17 % NR 1H18 % NR % Marketing Expenses (168.1) -20.6% (206.5) -22.4% 22.8% (343.6) -21.0% (387.7) -21.0% 12.8% Advertisement and Consumer Promotion (72.1) -8.8% (94.6) -10.3% 31.2% (147.4) -9.0% (159.2) -8.6% 8.0% Trade Deals (13.3) -1.6% (18.3) -2.0% 37.3% (24.6) -1.5% (32.9) -1.8% 33.7% Medical Visits, Promotions and Samples (82.7) -10.1% (93.6) -10.2% 13.2% (171.6) -10.5% (195.6) -10.6% 14.0% Marketing Expenses accounted for 22.4% of Net Revenue in 2Q18, or 1.8 percentage point above 2Q17. This variation is a result of the increase in Advertising and Consumer Promotion expenses, mainly due to the greater concentration of advertisements related to TV Globo's soccer package, combined with the greater number of Trade Deals made at the points of sale. In 1H18, Marketing Expenses accounted for 21.0% of Net Revenue, same level recorded in 1H17. Selling Expenses Table 6 (R$ million) 2Q17 % NR 2Q18 % NR % 1H17 % NR 1H18 % NR % Selling Expenses (109.0) -13.3% (117.1) -12.7% 7.4% (216.0) -13.2% (237.4) -12.8% 9.9% Commercial Expenses (68.0) -8.3% (76.7) -8.3% 12.7% (135.1) -8.3% (153.6) -8.3% 13.7% Freight and Logistics Expenses (20.0) -2.5% (22.5) -2.4% 12.4% (38.3) -2.3% (42.1) -2.3% 9.8% Research & Development (21.0) -2.6% (17.9) -1.9% -14.7% (42.6) -2.6% (41.7) -2.3% -2.0% Selling Expenses decreased by 0.6 percentage points compared to 2Q17, as a percentage of Net Revenue. This decrease was mainly due to the lower Research and Development Expenses due to the usage of R$8.5 million benefit from Lei do Bem, Federal Law that gives tax incentives for companies carrying out innovation. Excluding the effect of this benefit, these expenses accounted for 2.9% of Net Revenue in 2Q18, 0.3 percentage points higher than in 2Q17. In the quarter, total investments in innovation and R&D, including the amount capitalized as intangible assets, reached 4.6% of net revenue, compared to 4.1% in 2Q17, in line with the Company's strategy to increase investments in innovation to accelerate the pace of new product launches. General and Administrative Expenses & Other Operating Revenues / Expenses, Net Table 7 (R$ million) 2Q17 % NR 2Q18 % NR % 1H17 % NR 1H18 % NR % General & Administrative Expenses (46.8) -5.7% (46.9) -5.1% 0.2% (91.6) -5.6% (93.3) -5.1% 1.8% Other Operating Revenues (Expenses) % % -6.8% % % 2.8% General and Administrative Expenses reduced by 0.5 as a percentage of Net Revenue compared to 2Q17, as a result of the combination of Net Revenue growth and the stability of these expenses. In 2Q18, Other Operating Revenues (Expenses) was mainly affected by the non-recurring return of Eletrobrás compulsory loan. 7

8 EBITDA from Continuing Operations Graph 7 Graph 8 EBITDA (R$ mm) Δ 2Q18 vs 2Q % EBITDA Margin (%) Δ 2Q18 vs 2Q p.p % 36.9% 2Q17 2Q18 2Q17 2Q18 Graph 9 Graph 10 EBITDA (R$ mm) EBITDA Margin (%) Δ 1S18 vs 1S % Δ 1S18 vs 1S p.p % 38.0% H17 1H18 1H17 1H18 Table 8 EBITDA from Continuing Operations Reconciliation (R$ million) 2Q17 % NR 2Q18 % NR % 1H17 % NR 1H18 % NR % Net Income % % 50.7% % % 63.2% (-) Net Income from Discontinued Operations % % -97.7% % % -96.1% (+) Income Tax and CSLL % % -55.0% % % -49.6% (+) Net Interest Expenses (26.0) -3.2% % - (40.0) -2.5% % - EBIT from Continuing Operations % % 11.7% % % 18.4% (+) Depreciations / Amortizations % % 17.9% % % 17.6% EBITDA from Continuing Operations % % 12.1% % % 18.3% EBITDA from Continuing Operations reached R$339.5 million in 2Q18, with a margin of 36.9%, slightly lower than 2Q17. This margin variation was a result of Gross Margin gain and General and Administrative and Other Expenses dilution, offset mainly by the increase in Marketing investments, which were higher than the growth of Net Revenue in the period. In the first half, EBITDA from Continuing Operations increased by 18.3% to R$702.2 million, or 52% of the guidance set for the year, of around R$1,350.0 million. This growth, which was higher than the Net Revenue growth, came mainly from Gross Margin expansion and General and Administrative Expenses dilution. 8

9 Net Financial Expenses Table 9 (R$ million) 2Q17 % NR 2Q18 % NR R$ 1H17 % NR 1H18 % NR R$ Net Financial Expenses % (1.8) -0.2% (27.9) % (0.7) 0.0% (40.7) Net Interest Expenses % % (29.2) % % (49.3) Cost of Hedge and FX Gains (Losses) (2.3) -0.3% (1.5) -0.2% 0.9 (8.3) -0.5% (3.7) -0.2% 4.6 Other (8.7) -1.1% (8.2) -0.9% 0.4 (19.3) -1.2% (15.4) -0.8% 4.0 The Financial Result for 2Q18 was R$1.8 million negative, compared to a positive result of R$26.0 million in 2Q17. This reduction is mainly due to lower financial income, consequence of the lower level of Brazilian interest rates and the reduction of the Company's net cash position in the last 12 months. This lower net cash position was due to: (i) the Company's capital reduction in July 2017, in the amount of R$821.9 million; and (ii) the payment of Interest on Capital on January 9, 2018, in the amount of R$581.3 million, related to the fiscal year of Net Income Table 10 (R$ million) 2Q17 2Q18 % 1H17 1H18 % EBIT from Continuing Operations % % (-) Net Financial Expenses 26.0 (1.8) (0.7) - (-) Income Tax and Social Contribution (82.5) (37.1) -55.0% (156.7) (79.0) -49.6% Net Income from Continuing Operations % % (+) Net Income from Discontinued Operations (43.6) (1.0) -97.7% (87.7) (3.4) -96.1% Net Income % % EPS % % EPS from Continuing Operations % % Net Income from Continuing Operations was R$278.8 million in the quarter, an increase of 22.3% over 2Q17. This growth is related to the combination of the increase in operating income and the reduction of the effective income tax rate because of the approval of Interest on Capital distribution in the amount of R$129.8 million. 9

10 Cash Flow (Continuing and Discontinued Operations) Graph 11 Graph 12 Cash Flow from Operations (R$ mm) Cash Flow from Operations (R$ mm) Δ 2Q18 vs 2Q Δ 1S18 vs 1S Q17 2Q18 1H17 1H18 Graph 13 Graph 14 Free Cash Flow (R$ mm) Δ 2Q18 vs 2Q Free Cash Flow (R$ mm) Δ 1S18 vs 1S Q17 2Q18 1H17 1H18 Table 11 (R$ million) 2Q17 2Q18 1H17 1H18 Cash Flow from Operations Purchase of Property, Plant and Equipment (35.9) (28.6) (97.2) (65.1) Purchase of Intangible Assets (14.1) (18.8) (19.6) (34.5) Sale of Property, Plant and Equipment (33.5) (4.5) (15.2) (=) Free Cash Flow , Operating Cash Flow was R$344.9 million in 2Q18, 12.5% higher than 2Q17 and 0.4 percentage point higher than EBITDA growth in the period. Free Cash Flow increased by 31.3% and was impacted by the greater investments in fixed assets for the Company's new innovation center (Hynova) in 2Q17. 10

11 Net Debt Table 12 (R$ million) 2Q18 Loans and Financing (428.3) Notes Payable (18.2) Gross Debt (446.5) Cash and Cash Equivalents 1,179.3 Net Cash / (Debt) The Net Cash position ended the quarter at R$732.8 million, mainly a result of the R$293.0 million free cash generation in the quarter. At the end of the period, Net Cash represented 0.6x EBITDA from Continuing Operations in the last 12 months. 11

12 Investor Relations Agenda Earnings Conference Call Portuguese English Date: July 30, 2018 July 30, 2018 Time: 11:00 (Brasília) 11:00 (Brasília) 10:00 (New York) 10:00 (New York) Phone: +55 (11) (646) Code: Hypera Hypera Webcast: Click here Click here Replay: +55 (11) (11) Replay Code: Hypera Hypera Contact Information Phone: +55 (11) Website: Table 13 Upcoming events Date Event City sept Morgan Stanley GEM Conference London 12-sept BofA Merrill Lynch Global Healthcare Conference London nov Bradesco CEO Forum New York 12

13 Disclaimer This release contains forward-looking statements that are exclusively related to the prospects of the business, its operating and financial results, and prospects for growth. These data are merely projections and, as such, based exclusively on our management's expectations for the future of the business and its continued access to capital to fund its business plan. These forward-looking statements substantially depend on changing market conditions, government regulations, competitive pressures, the performance of the Brazilian economy and the industry, among other factors, as well as the risks shown in our filed disclosure documents, and are therefore subject to change without prior notice. Unaudited information herein reflects management's interpretation of information taken from its quarterly information and their respective adjustments, which were prepared in accordance with market practices and for the sole purpose of a more detailed and specific analysis of our results. Therefore, these additional points and data must also be analyzed and interpreted independently by shareholders and market agents, who should carry out their own analysis and draw their own conclusions from the results reported herein. No data or interpretative analysis provided by our management should be treated as a guarantee of future performance or results and are merely illustrative of our directors' vision of our results. Our management is not responsible for compliance or accuracy of the management financial data discussed in this report, which must be considered as for informational purposes only, and should not override the analysis of our audited consolidated financial statements or our reviewed quarterly information for purposes of a decision to invest in our stock, or for any other purpose. 13

14 Consolidated Income Statement (R$ thousand) Table 14 2Q17 2Q18 1H17 1H18 Net Revenue 817, ,058 1,632,297 1,847,914 Cost of Goods Sold (227,140) (251,602) (440,646) (489,774) Gross Profit 590, ,456 1,191,651 1,358,140 Selling and Marketing Expenses (277,136) (323,587) (559,591) (625,055) General and Administrative Expenses (46,763) (46,873) (91,645) (93,320) Other Operating Income (Expenses) 17,795 16,589 17,234 17,715 Equity in Subsidiaries 323 3, ,175 Operating Income Before Equity Income and Financial Result 284, , , ,655 Net Financial Expenses 26,046 (1,846) 40,000 (733) Financial Expenses (28,214) (18,990) (67,550) (40,244) Financial Income 54,260 17, ,550 39,511 Profit Before Income Tax and Social Contribution 310, , , ,922 Income Tax and Social Contribution (82,520) (37,114) (156,673) (78,952) Net Income from Contining Operations 227, , , ,970 Net Income from Discontinued Operations (43,635) (1,003) (87,650) (3,415) Income for the Period 184, , , ,555 Earnings per Share R$

15 Consolidated Balance Sheet (R$ thousand) Table 15 Assets 31/12/ /06/2018 Liabilities and Shareholders' Equity 31/12/ /06/2018 Current Assets 3,927,541 3,695,280 Current Liabilities 1,710,737 1,087,166 Cash and Cash Equivalents 1,522,135 1,179,265 Suppliers 178, ,384 Accounts Receivables 1,224,227 1,280,547 Suppliers' Assignment of Receivables 124, ,233 Inventories 454, ,096 Loans, Financing and Debentures 337, ,329 Recoverable Taxes 355, ,506 Salaries Payable 161, ,931 Financial Derivatives 10,132 22,731 Income Tax and Social Contribution 2,944 4,637 Other Assets 358, ,895 Taxes Payable 53,919 36,474 Assets Held for Sale 2,941 1,240 Accounts Payable 200, ,658 Related Parties 0 0 Dividends Payable 581, ,923 Notes Payable 19,669 18,171 Financial Derivatives Liabilities Held for Sale 49,208 11,142 Non-Current Assets 6,202,896 6,188,020 Non-Current Liabilites 681, ,638 Long Term Assets 330, ,134 Suppliers 2,348 4,470 Deferred Income Tax and Social Contribution 30,331 34,649 Loans, Financing and Debentures 318, ,987 Recoverable Taxes 147,184 57,529 Deferred Income Tax and Social Contribution 184, ,420 Other Assets 152, ,956 Taxes Payable 6,773 6,517 Accounts Payable 11,855 6,568 Provisions for Contingencies 158, ,676 Investments 5,872,560 5,926,886 Shareholders' Equity 7,737,759 8,062,496 Investments 6,186 9,361 Capital 4,448,817 4,448,817 Investment Properties 156, ,960 Capital Reserve 1,276,978 1,284,104 Other Investments Equity Valuation Adjustments (254,975) (254,895) Property, Plants and Equipments 906, ,030 Profit Reserves 2,279,920 2,279,920 Intangible Assets 4,802,314 4,824,166 Treasury Stock (12,981) (6,459) Income for the Period 0 311,009 Total Assets 10,130,437 9,883,300 Total Liabilities and Shareholders' Equity 10,130,437 9,883,300 15

16 Consolidated Cash Flow Statement (R$ thousand) Table 16 2Q17 2Q18 1H17 1H18 Cash Flows from Operating Activities Income (Loss) Before Income Taxes including Discontinued Operations 249, , , ,115 Depreciation and Amortization 17,268 21,742 39,728 41,507 Asset Impairment 6,134 1,672 5,492 1,666 Gain on Permanent Asset Disposals 53,678 3, ,378 4,964 Equity Method (407) (5,851) (1,328) (6,576) Foreign Exchange (Gains) Losses 2,432 1,470 9,904 3,668 Interest and Related Expense (24,330) 423 (44,280) (2,873) Expenses Related to Share Based Remuneration 169 3, ,229 Provisions (Delinquency, Inventories and Contingencies) 23,778 (6,176) 22,059 (9,157) Adjusted Results 327, , , ,543 Decrease (Increase) in Assets 70,536 83, ,510 (362) Trade Accounts Receivable 27,567 8, ,825 (52,256) Inventories (5,693) (37,244) 59,545 (85,368) Recoverable Taxes 15,802 37,426 14, ,461 Judicial Deposits and Others (6,175) (713) (10,537) (2,936) Other Accounts Receivable 39,035 75,095 (36,055) 27,737 Increase (Decrease) in Liabilities (91,793) (72,101) (292,450) (97,828) Suppliers (22,861) (38,102) (35,802) (12,072) Suppliers' Assignment of Receivables (9,677) 49,305 (98,329) 48,228 Financial Derivatives (3,624) 2,307 (29,096) 1,539 Income Tax and Social Contribution Paid (1,701) (5,422) (10,536) (13,288) Taxes Payable 2,510 (17,687) 12,972 (17,175) Salaries and Payroll Charges 4,917 11,921 (4,913) (23,916) Accounts Payable (19,013) (76,764) (99,950) (104,988) Operations Interest Paid 200 (1,617) 9,886 4,103 Other Accounts Payable (42,544) 3,958 (36,682) 19,741 Net Cash Provided by Operating Activities 306, , , ,353 Cash flows from Investing Activities Acquisitions of Property, Plant and Equipment (35,880) (28,554) (97,207) (65,094) Intangible Assets (14,065) (18,847) (19,566) (34,473) Proceeds from the Sale of Assets with Permanent Nature (33,461) (4,465) 803,283 (15,202) Interest and Others 40,158 10,064 73,942 20,722 Net Cash Used in Investing Activities (43,248) (41,802) 760,452 (94,047) Cash Flows from Financing Activities Borrowings Treasury Stock Purchase / Sale (31,648) (4,282) (115,565) 7,419 Repayment of Loans - Principal (217,285) (59,464) (256,869) (234,507) Repayment of Loans - Interest (19,386) (8,985) (90,878) (25,108) Dividends Paid (31,796) (17,926) (409,831) (599,217) Loan Derivatives (19,970) (5,378) 330,191 4,237 Net Cash Used in Financing Activities (319,978) (96,035) (542,952) (847,176) Net Increase (Decrease) in Cash and Cash Equivalents (56,624) 207, ,295 (342,870) Statement of Increase in Cash and Cash Equivalents, Net Cash and Cash Equivalents at the Beginning of the Period 2,171, ,189 1,348,008 1,522,135 Cash and Cash Equivalents at the End of the Period 2,115,303 1,179,265 2,115,303 1,179,265 Change in Cash and Cash Equivalent (56,624) 207, ,295 (342,870) 16

17 Other Information Cash Conversion Cycle Continuing Operations Table 17 (Days) 2Q17 3Q17 4Q17 1Q18 2Q18 Receivables (1) Inventories (2) Payables (2) (3) (103) (104) (104) (125) (130) Cash Conversion Cycle (R$ million) 2Q17 3Q17 4Q17 1Q18 2Q18 Receivables 1,005 1,101 1,224 1,285 1,281 Inventories Payables (3) (260) (258) (305) (330) (364) Working Capital 1,145 1,272 1,374 1,456 1,446 % of Annualized Net Revenue (4) 35% 38% 37% 38% 39% (1) Calculated based on Continuing Operations Gross Revenue, Net of Discounts. (2) Calculated based on Continuing Operations COGS (3) Includes Suppliers Assignment of Receivables (4) Annualized Net Revenue for the last 6 months Goodwill Amortization for Fiscal Purposes / Tax Credits The Company holds R$368.9 million in goodwill to be amortized for fiscal purposes over the coming years, generating a cash effect of R$125.4 million, according to the following table: Table 18 Period R$ million Total Tax Rate 34% Cash Effect Source: Hypera In addition, the Company holds the following tax credits: i) Federal Recoverable Taxes: R$236.2 million (please refer to Explanatory Note 13 of the Financial Statements); ii) Cash effect of Income Tax and Social Contribution Losses Carryforward: R$1,138.9 million (please refer to Explanatory Note 23(a) of the Financial Statements). 17