Qualicorp S.A. BOVESPA:QUAL3 Shares Outstanding (12/31/2016) 278.794.088 shares Free Float (12/31/2016) 222.827.401 shares (79.9%) Cash and Cash Equivalents (12/31/2016) R$450,9 million Investor Relations Grace Tourinho IRO Natalia Lacava IR Phone: +55 (11) 3191-3829 ri@qualicorp.com.br www.qualicorp.com.br Conference Calls March, 21 st 2017 (Tuesday) Portuguese Time: 11:00 am EST Brasilia Phone: +55 11 2188 0155 Code: Qualicorp English Time: 11:00 am Brasilia 8:00 EST Simultaneous Translation Phone: +1 646 843 6054 Code: Qualicorp São Paulo, March 20 st, 2017. QUALICORP S.A (BM&FBOVESPA: QUAL3), one of the leading full-service healthcare benefits trader, administrator and health management services provider in Brazil, announces its consolidated 4Q16 and fiscal year 2016 results. The operating and financial data are presented on a consolidated basis in Reais ( BRL or R$ ), in accordance with Corporate Law and regulations of Comissão de Valores Mobiliários CVM (the Brazilian SEC). Consolidated Income Statement - (R$ MM) FINANCIAL AND OPERATING HIGHLIGHTS Our total portfolio of beneficiaries reached 4.6 million lives, out of which 1.8 million in the Affinity Medical Care portfolio and 2.8 million in Corporate and Others. In Affinity Medical Care, which represents 91% of our revenue, we observed a stable lives number y/y even with the challenging macroeconomic scenario. Our consolidated Net Revenue reached R$515.5 million, 10.8% higher than the previous year. In the annual comparison, there was 13.5% increase to R$ 1.964.4 million despite the Potencial sale demanded by CADE and the Unimed Paulistana cancellation in 2015, which reflects the resilience and strength of our business model. Our consolidated Adjusted EBITDA grew 27.5% y/y reaching R$200.6 million, which represents 38.9% margin. In 2016, the 16.7% growth was reflected by our operational efforts to contain expenses, mainly the commercial performance, which more than offset Bad Debt increase. We closed 4Q16 with R$185.6 million operating cash flow, driven by a strong operating result combined with positive working capital variation. After CAPEX, the cash flow generation reached R$128.8 million, 25% higher than 4Q15. For the whole year, cash flow after CAPEX reached R$410.1 million, 7.7% higher than 2015. MAIN INDICATORS (R$MM) 4Q16 4Q15 4Q16/ Net Revenues 515.5 465.3 10.8% 521.6-1.2% 1,964.4 1,730.1 13.5% Total Expenses (Ex-Depreciation and amortization) (337.1) (319.2) 5.6% (337.2) 0.0% (1,254.5) (1,222.3) 2.6% Adjustments to EBITDA 22.2 11.2 98.5% 23.6-6.2% 79.3 32.4 144.9% Adjusted EBITDA 200.6 157.3 27.5% 208.0-3.6% 789.1 676.2 16.7% Adjusted EBITDA Margin 38.9% 33.8% 511bps 39.9% -97bps 40.2% 39.1% 109bps Net Income (Loss) 78.4 61.4 27.6% 74.2 5.6% 420.6 240.9 74.6% Balance Sheet Equity 2,067.8 1,993.9 3.7% Net Debt¹ 439.0 416.7 5.3% Other Net Debt / Equity 0.21x 0.21x 1.6% Net Debt / Adjusted EBITDA LTM 0.56x 0.62x -9.7% (¹) Includes acquisition payables recognized as other payables. It does not include the investment retained as a guaranteed asset in the direct subsidiary Qualicorp Administradora de Benefícios S.A., and in the indirect subsidiaries Aliança Administradora de Benefícios de Saúde S.A and CRC/Gama, according to the 33rd normative instruction by the ANS, from October 5, 2009. 1
BENEFICIARIES (MM) NET REVENUES (R$MM) CAGR: -0.1% 5.212 5.133 5.240 5.233 5.185 5.085 4.857 + 13.5% 4.577 4.622 4.562 4.670 4.628 4.568 1,730.1 1,964.4 2.697 2.711 2.695 3.321 3.242 3.235 3.375 3.354 3.294 3.083 2.854 2.833 2.777 + 10.8% - 1.2% 1.880 1.911 1.867 1.890 1.891 2.005 1.858 1.831 1.791 1.774 1.815 1.795 1.791 465.3 515.5 521.6 515.5 4Q15 4Q16 4Q16 2015 2016 Affinity Corporate and Others ADJUSTED EBITDA (R$MM) NET (LOSS) INCOME (R$MM) + 16,7% 789.1 420.6 676.2 + 74.6% 240.9 + 27,5% - 3,6% + 27.6% + 5.6% 157.3 200.6 208.0 200.6 61.4 78.4 74.2 78.4 4Q15 4Q16 4Q16 2015 2016 4Q15 4Q16 4Q16 2015 2016 2
1 Beneficiaries BENEFICIARIES (MM) BENEFICIARIES PORTFOLIO QUARTER BREAKDOWN 39.2% 60.8% Affinity Corporate and Others Total Portfolio The total number of beneficiaries reached 4.6 million lives in the end of the quarter, which represents a 10.2% y/y drop (-1.3% q/q). Regarding the annual drop, the corporate contract reduction stands out once again (- 56.7% y/y). Out of the 4.6 million beneficiaries, 1.8 million are in the Affinity segment and 2.8 million in the Corporate and Others segment. It is worth mentioning once more that this performance includes two extemporaneous events: the bankruptcy of Unimed Paulistana and the sale of Potencial, required by CADE (anti-trust organism). Affinity Portfolio Medical Care Our Affinity Medical Care portfolio ended 4Q16 with 1.4 million lives, and remain flat q/q taking a portfolio acquisition of 26,7k lives. This performance reflects our proven resilient business model, considering the prices readjustments above inflation, concentrated in, and a more challenging scenario. In the annual comparison, this portfolio increased 0.3%. Other products The Other products portfolio, in the Affinity segment, closed 4Q16 with 421.3k lives, a result virtually flat when compared to 4Q15 (-0.9%) and also in (-0.5%). 3
Corporate and Others Total Portfolio Our total portfolio of beneficiaries in the Corporate and Others segment decreased 15.7% y/y in 4Q16 (-2.0% q/q), achieving 2.8 million lives, mainly due to corporate contracts reduction. Corporate The Corporate segment decreased 56.7% y/y in 4Q16, reaching 489.2k lives, mainly due to the non-renewal of large contracts along 2016. However, some of these contracts had a very low or even negative margin contribution, reflecting low EBITDA performance impact. In the sequential comparison, the 2.9% drop is also led by those expired contracts. SME The SME segment shows 25.9% y/y decrease (-9.0k lives) when compared to 4Q15, mainly due to the exit of Unimed Paulistana s lives and some contracts cancellations. In the sequential comparison, the portfolio expanded 1.5%, registering a 386 lives growth. TPA The Self-management portfolio, which consolidates Qualicorp TPA and CRC/Gama lives has reached 2.3 million lives by the end of 4Q16, +6.4% y/y and -1.8% q/q. The important increase (+135k lives y/y) is mainly explained by the implementation of a new phase at CRC/GAMA projects carried out over the year. Health Management In Health Management portfolio, which closed the quarter with 4.3k lives, there was 34.7% y/y reduction due to a specific client exit. 4
1.1 Portfolio of lives evolution Portfolio 4Q16 4Q15 4Q16/ Affinity Health Lives Total Portfolio (BOP) 1,371,555 1,406,275-2.5% 1,392,330-1.5% 1,365,460 1,467,190-6.9% (+) Gross Adds 93,536 114,418-18.3% 130,965-28.6% 446,580 414,384 7.8% (-) Churn (122,157) (155,233) -21.3% (151,740) -19.5% (469,106) (516,114) -9.1% (+) Aquisição de carteira 26,742 - * N.A. - N.A. 26,742 - N.A. New Lives Added (net) (1,879) (40,815) -95.4% (20,775) -91.0% 4,216 (101,730) -104.1% Total Portfolio (EOP) 1,369,676 1,365,460 0.3% 1,371,555-0.1% 1,369,676 1,365,460 0.3% Affinity Other Products Lives Total Portfolio (BOP) 423,328 425,059-0.4% 423,032 0.1% 425,312 423,476 0.4% New Lives Added (net) (2,007) 253-893.3% 296-778.0% (3,991) 1,836 N.A. Total Portfolio (EOP) 421,321 425,312-0.9% 423,328-0.5% 421,321 425,312-0.9% Affinity Portfolio 1,790,997 1,790,772 0.0% 1,794,883-0.2% 1,790,997 1,790,772 0.0% Corporate 489,237 1,130,277-56.7% 503,723-2.9% 489,237 1,130,277-56.7% TPA 2,257,561 2,122,279 6.4% 2,298,545-1.8% 2,257,561 2,122,279 6.4% Small/Medium Enterprises 25,714 34,713-25.9% 25,328 1.5% 25,714 34,713-25.9% Health Management 4,322 6,616-34.7% 5,219-17.2% 4,322 6,616-34.7% Corporate and Others Portfolio 2,776,834 3,293,885-15.7% 2,832,815-2.0% 2,776,834 3,293,885-15.7% Total Portfolio 4,567,831 5,084,657-10.2% 4,627,698-1.3% 4,567,831 5,084,657-10.2% * The gross adds total considers 26.7k lives migrated to a partner entity in regarding an association that we became the policy s owner. In the Affinity segment, which represents 90.9% of our revenues in 4Q16 (90.7% in 2016), we reached 93.5k gross additions, beside the 26.7k lives acquired from ASBEN portfolio (more detailed in Capex section). The decrease in gross adds in the quarterly y/y comparison, is due to the positive effect regarding additional sales to former Unimed Paulistana s individual clients, combined with the readjusments above inflation and the macroeconomic environment, which makes difficult to maintain the sales volume. Even with these challenges, there was a 7.8% growth in gross additions to 446.6k in 2016. Regarding churn level, we had 122.2k cancellations in 4Q16, which represents a 21.3% decrease y/y. It is worth to remember that 4Q15 was negatively impacted by Unimed Paulistana s cancellations. In the sequential comparison, there was a 19.5% drop reflecting the business seasonality effects. In 2016, 469.1k lives were canceled, representing 9.1% decrease y/y, even though with 22.1% price readjustment, which was not enough to surpass the impacts of Unimed Paulistana in 2015. As a result of all the factors mentioned above, our portfolio in Medical Care Affinity segment had 1,369,676 lives in the end of 4Q16 (+0.3% y/y). 5
2 Operating Net Revenues Net Revenues (R$ MM) 4Q16 4Q15 4Q16/ Affinity 468.5 425.1 10.2% 472.7-0.9% 1,782.4 1,576.8 13.0% % on Total Net Revenues 90.9% 91.4% -48bps 90.6% 27bps 90.7% 91.1% -40bps Corporate and Other 46.9 40.2 16.9% 48.9-4.0% 182.0 153.3 18.7% % on Total Net Revenues 9.1% 8.6% 48bps 9.4% -27bps 9.3% 8.9% 40bps Total Consolidated 515.5 465.3 10.8% 521.6-1.2% 1,964.4 1,730.1 13.5% Our total Net Revenues grew 10.8% in 4Q16 y/y, reaching R$515.5 million. In 2016 we reached R$ 1,964.4 million which represents 13.5% growth y/y. The Affinity segment contributed with R$468.5 million in 4Q16 (+10.2% y/y and -0.9% q/q). In 2016, the growth was 13.0% to R$ 1,782.4 million. The annual comparison growth was due to: (i) 22.1% price readjustment for the portfolio; (ii) product mix (affected by the retention strategy through alternative products); (iii) service tax reduction, due to three companies that were transferred to the city of Barueri in February 2016 and (iv) PIS- COFINS rate increase over gross revenue from brokerage which started in June 2016. It is also important to mention (i) the partial loss of Unimed Paulistana s portfolio impacted the revenues only in 2016 and (ii) the Potencial sale by CADE (anti-trust organism) held in June 2015. Even with all these challenges, we were able to report once again a double digit revenue growth, which proves the Company s efforts to find business strategies able to compensate those effects. The Net Revenue from the Corporate and Others Segment reached R$46.9 million in 4Q16 (+16.9% y/y). In 2016 there was 18.7% y/y increase to R$182.0 million. The growth comes essentially from higher CRC/Gama s revenues considering new projects expansion. In the sequential analysis the 4.0% drop was driven by corporate customers cancellations. The Group gross revenue tax rate (ISS, PIS and COFINS) reached 7.7% in 2016 (versus 8.9% y/y) due to fiscal events widely discussed in previous quarters, as the three companies that were transferred to the city of the Barueri and the increase in the PIS-COFINS tax rate on the gross revenue of the brokerage firm. 6
3 Operating Expenses Cost summary (R$ MM) 4Q16 4Q15 4Q16/ Cost of Services (134.0) (122.8) 9.1% (130.7) 2.6% (502.6) (455.8) 10.3% Total Costs of Services (134.0) (122.8) 9.1% (130.7) 2.6% (502.6) (455.8) 10.3% Total Adm. Expenses (129.0) (122.8) 5.1% (134.2) -3.8% (499.7) (472.2) 5.8% Total Selling Expenses (79.6) (107.4) -25.9% (84.4) -5.7% (332.3) (332.3) 0.0% Bad Debt (Uncollectible Receivables) (45.2) (31.1) 45.2% (39.7) 14.0% (139.6) (99.4) 40.5% Other Operating Income (Expenses) (1.7) 7.8-121.8% (1.0) 76.8% 3.6 51.5-93.0% Total Operating Expenses (255.6) (253.5) 0.8% (259.2) -1.4% (968.1) (852.4) 13.6% Total Consolidated (389.6) (376.4) 3.5% (389.9) -0.1% (1,470.7) (1,308.2) 12.4% (-) One-time Revenues (a) - (0.5) N.A. N.A. - (45.7) N.A. (+) One Time Expenses (b) 7.4 5.7 30.3% 8.0-7.3% 22.4 35.4-36.8% Total Consolidated Recurring (382.2) (371.2) 3.0% (381.9) 0.1% (1,448.3) (1,318.5) 9.8% a) Refers to Potencial sale. b) Refers to stock option plan expenses and impairment. Our consolidated recurring Operating Expenses increased 2.3% y/y in 4Q16 (+0.1% q/q), showing once again the Company s ability to leverage its administrative and commercial expenses during a challenging period which requires additional efforts related not only for sales but also for customer retention and new projects implementation considering bad debts losses. In 2016, the 9.8% increase to R$1.4 billion is in line with net revenues growth even with the 40.5% bad debts increase, once again reflecting the other lines efficiency. It is important to highlight once more the commercial expenses performance, with 25.9% y/y reduction (-5.7% q/q), which enabled stability y/y when comparing the whole exercises of 2016 and 2015. The 45.2% y/y (14.0% q/q) increase in bad debts, is related to higher churn observed during the period, reflecting the challenging macroeconomic environment and the 22.1% price readjustment applied. 7
3.1. Cost of Services Cost of Services (R$ MM) 4Q16 4Q15 4Q16/ Personnel expenses (44.5) (42.3) 5.2% (43.2) 3.0% (166.9) (152.5) 9.5% Third Party Services (25.5) (23.1) 10.4% (24.6) 3.8% (96.1) (84.1) 14.2% Occupancy expenses (2.7) (4.2) -37.0% (3.6) -25.1% (13.2) (17.0) -22.0% Royalties (a) (52.0) (42.3) 22.9% (49.3) 5.5% (186.9) (158.7) 17.7% Others (b) (9.3) (10.9) -14.5% (10.0) -6.8% (39.5) (43.5) -9.1% Total Consolidated (134.0) (122.8) 9.1% (130.7) 2.6% (502.6) (455.8) 10.3% Gross Margin 74.0% 73.6% 41bps 75.0% -95bps 74.4% 73.7% 76bps a) Refers to expenses related to financial pass through incurred in agreements signed with professional associations for the contracting and selling of affinity plans (called royalties). b) Refers mainly to lawsuits, mailing expenses and annual membership fees paid by the Company to associations, unions and councils on behalf of the beneficiaries / members of the professional associations, paid by the Company for associations, unions and councils to which the beneficiaries are affiliated. The consolidated Cost of Services reached R$134.0 million in 4Q16 (+9.1% y/y and +2.6% q/q). Thus, we achieved 74.0% gross margin, slightly higher than last year. In 2016, the costs reached R$ 502.6 million (+10.3% y/y), to 74.4% gross margin, leveraging +76bps y/y. In Personnel expenses, the 9.5% y/y increase is mainly explained by new hires due to the expansion of CRC/Gama projects which naturally requires additional training and a maturation period. On the sequential comparison, it remained partially flat (+3.0% q/q). If we where to exclude CRC/Gama effect, this line would have decreased 12.3% y/y in 2016 and 25% q/q in the quarter, due to the Unimed Paulistana s exit and the consequent structural readjustment combined with the strong efforts regarding operational improvement. Regarding third Party services expenses, the growth observed in 4Q16 (+10.4% y/y and +3.8% q/q) is a result of higher expenses with IT due to license renewals and equipment's guarantees purchased in the past. In 2016, there was 14.2% y/y increase. It is worth remembering that, during part of the 4Q16, the Company still incurred additional costs of tele-service in order to prepare for eventual contingencies. Once again, the decrease observed in the Occupancy expenses line reflects the transference of 3 companies to Barueri, which has lower rental costs. The royalties increase in 4Q16 (+22.9% y/y and 5.5% q/q) was due to higher payments to associations regarding the annual readjustment held in July. Finally, the decrease in other s line (-14.5% y/y and -6.8% q/q) is explained by lower legal agreements volume. 8
3.2. Administrative Expenses Administrative expenses (R$ MM) 4Q16 4Q15 4Q16/ Personnel expenses (37.6) (27.2) 38.1% (36.1) 4.2% (131.3) (121.6) 8.0% Third Party services (22.5) (19.8) 13.7% (23.3) -3.5% (80.6) (70.1) 14.9% Occupancy expenses (4.1) (4.2) -2.4% (5.2) -21.5% (18.3) (14.9) 23.3% Depreciation and amortization (52.6) (57.2) -8.1% (52.7) -0.2% (216.3) (221.9) -2.5% Others (12.3) (14.4) -14.7% (16.9) -27.3% (53.2) (43.8) 21.7% Total Consolidated (129.0) (122.8) 5.1% (134.2) -3.8% (499.7) (472.2) 5.8% (+) Stock Options Expenses 7.4 (0.5) -1478.6% 8.0-7.3% 22.4 27.7-19.2% Total Recurring Adm. Expenses (121.6) (123.4) -1.4% (126.1) -3.6% (477.3) (444.5) 7.4% Recurring Adm. Expenses/ Net Revenue % 23.6% 26.5% -292bps 24.2% -59bps 24.3% 25.7% -139bps Our recurring Administrative expenses decreased -1.4% y/y (+3.6% q/q), reaching R$121.6 million in 4Q16. In the annual comparison increased +7.4% y/y to R$ 477.3 million which is under the net revenues growth. In the Personnel line, the increase in the 4Q16, if we were to exclude the Stock Option expenses amortization effect, of 8.7% y/y (7.5% q/q) is related to labor agreement (mandatory annual wage increase between 7.4% and 8.5%) and increase in transportation expenses offered to employees, due to the change of 3 companies to Barueri. It should be noted that the Company has pursued to adjust the administrative staff in order to achieve operational efficiency regarding this challenging moment. In Third Party expenses we observed a 13.7% y/y increase. We highlight the increase of R$3.1 million in expenses related to support systems for CRC/Gama new projects expansion which also impacted the annual comparison in +14.9%, considering 135k lives additions in the period. The 23.3% increase in Occupancy is related to new expenses apportionment after the transference of 3 companies to Barueri and the consequent rental costs increase of our Administrative and Commercial areas. It is important to analyze this line considering every areas which shows 15% y/y decrease due to rental contract renegotiation, in which we returned 7 floors from the building occupied in São Paulo. Lastly, the 14.7% y/y 4Q16 s increase in Others line is due to: (i) Unimed Paulistana s impact in 4Q15 (R$0.7 million); and (ii) the change regarding debit extract which used to be posted and now is sent by email. 9
3.3. Selling Expenses Selling Expenses (R$ MM) 4Q16 4Q15 Our consolidated Selling Expenses decreased 25.9% y/y in 4Q16 (-5.7% q/q) reaching R$79.6 million. Consequently, we observed a significant dilution of selling expenses as percentage of net revenues, improving our results in 7.6bps y/y and 73bps q/q. This great performance reinforces our commitment to pursuit better returns of our resources, aiming costs reduction without jeopardizing the quality of our services and new customers capture. Therefore we managed to maintain expenses flat and growth in net revenues. It is worth noting the personnel expenses behavior in 4Q16, which decreased 44.5% y/y, mainly due to lower sales reflected by Unimed Paulistana effect in 4Q15 which raised remarkably the sales ticket in thes quarter and a personal downsizing throughout the year. In the sequential comparison, the 15.4% q/q drop is explained by a retracted sales performance, in addition to lower internal channel share in sales. In the third-party services line, the 38.2% y/y drop is related to one time consulting expenses reduction which impacted quarterly analysis. In 2016, this line rose 17.1% y/y due to higher telesales calls expenses. Regarding sales campaigns, the 52.3% y/y reduction, which is in line with the cost containment policy adopted in the previous quarter combined with a favorable competitive environment, which enabled bringing customers with lower usage of commercial incentives. This policy also held expenses in marketing, sponsorships and others lines. It is worth remembering that since the beginning of 2016, the Company has drastically reduced advertising and expenses and directed more efforts in attracting leads through online media, which has led to a large reduction of expenses and showed a winning strategy 4Q16/ Personnel expenses (12.7) (22.9) -44.5% (15.0) -15.4% (62.8) (72.7) -13.6% Third Party services (2.5) (4.0) -38.2% (5.3) -52.6% (14.9) (12.7) 17.1% Occupancy expenses (1.9) (1.8) 7.6% (2.4) -20.0% (8.7) (7.3) 18.1% Other selling expenses (2.8) (3.8) -25.0% (0.8) 260.0% (6.2) (12.3) -49.2% Sales campaign (11.3) (23.8) -52.3% (13.9) -18.3% (56.7) (53.2) 6.4% Sponsorships (2.3) (3.7) -36.8% (3.3) -29.0% (9.5) (11.2) -15.3% Third-party commission (35.7) (35.9) -0.5% (35.0) 2.1% (139.8) (118.1) 18.3% Publicity and advertising (8.0) (7.1) 12.5% (6.7) 20.1% (25.6) (33.3) -23.2% Others (a) (2.2) (4.3) -48.8% (2.1) 8.0% (8.2) (11.4) -28.0% Total Consolidated (79.6) (107.4) -25.9% (84.4) -5.7% (332.3) (332.3) 0.0% Selling/Net Revenue % 15.4% 23.1% -763bps 16.2% -73bps 16.9% 19.2% -229bps 10
3.4. Bad Debt (Uncollectible Receivables) Bad Debt (R$ MM) 4Q16 4Q15 4Q16/ Bad Debt/Uncollectible Receivabl (45.2) (31.1) 45.2% (39.7) 14.0% (139.6) (99.4) 40.5% % Net Revenue Consolidated 8.8% 6.7% 208bps 7.6% 117bps 7.1% 5.7% 135bps Our consolidated Bad Debt expenses, reached R$45.2 million in 4Q16, representing 8.8% of our net revenue, which can be compared with 6.7% y/y and 7.6% q/q. The current Bad Debt expense level is related to higher churn level and consequence of the price readjustment applied on the second half of 2016 and also to the challenging macroeconomic scenario. Bad Debt Breakdown 4Q15 1Q16 2Q16 4Q16 4Q16/ Bad Debt (36.4) (33.8) (28.6) (43.4) (49.2) 13.4% Recovering 5.3 3.7 4.0 3.7 4.0 7.5% Total Consolidated (31.2) (30.1) (24.6) (39.7) (45.2) 14.0% The past due credit recovery contributed positively with R$4.0 million during 4Q16, which can be compared with R$5.3 million in 4Q15 and R$3.7 million in. It is important to mention that the positive result in recoveries has remained material due to the continuous strategies to recover credits, although it is worth noticing that the economic environment hampers recovery to grow in the same proportion as delinquency. This benefit had a counterpart in the administrative expenses, due to fees for the collection agencies and Serasa expenses. 3.5. Other Operating Income / (Expense) Other Operating Income/Expenses (R$ 4Q16 4Q15 MM) 4Q16/ Expenses related to contingencies 3.4 (2.0) -270.7% 3.0 15.0% 5.7 (6.8) -184.7% Impairment (1.4) (3.4) -59.2% (2.1) -34.3% 2.6 (7.7) -134.0% Operational Losses (7.6) 7.0-209.5% (2.9) 162.4% (7.4) 7.6-196.2% Potencial Sale - - N.A. - N.A. - 45.7 N.A. PIS COFINS on other revenues - - 0.0% - N.A. - - N.A. Other income (expenses) 3.89 6.2-37.7% 1.1 261.0% 2.6 12.7-79.7% Total Consolidated (1.7) 7.8-121.8% (1.0) 76.8% 3.6 51.5-93.0% In 4Q16, our Other Operating Income/Expenses reached -R$1.7 million vs. +R$7.8 million in 4Q15 and -R$1.0 million in. Even tough the overall expense was close to breakeven, it is important to detail the breakdown of this line, which includes (i) contingencies of +R$3.4 million due to end of application of processes related to labor, civil and regulatory suits and (ii) the invoice reconciliation which had a positive effect in 4Q15 and a negative one on the last quarter and (iii) other revenues with lawsuits gain related to the unconstitutionality of the collection of certain taxes. 11
4 Financial Income (expenses) Financial Income (Expenses) (R$MM) 4Q16 4Q15 4Q16/ Financial income Income from short-term investments 20.0 17.5 14.6% 19.5 3.0% 73.2 81.5-10.2% Interest and fine on late payment of health plans 14.7 13.4 10.3% 15.6-5.6% 56.9 47.6 19.4% Other income 6.6 0.2 3004.7% 3.4 93.0% 15.3 9.0 69.3% Total 41.4 31.1 33.3% 38.5 7.6% 145.3 138.2 5.2% Financial expenses Debentures Interest (21.2) (21.6) -1.9% (23.0) -8.1% (83.8) (76.3) 9.8% Monetary adjustment from acquisition payables (8.2) (7.4) 11.6% (8.3) -0.7% (31.9) (29.7) 7.4% Other financial expenses (19.1) (22.7) -16.0% (15.0) 26.8% (62.9) (53.4) 17.7% Total (48.5) (51.7) -6.1% (46.4) 4.6% (178.5) (159.4) 12.0% Total Consolidated (7.1) (20.6) -65.7% (7.9) -10.2% (33.2) (21.2) 56.8% The Company s Financial Income results comes from two main sources: interest on financial investments and interest and penalties on late premiums payments from beneficiaries. In financial expenses, the largest contribution once again came from the cost of our debentures, whereas the monetary adjustment from payable acquisitions of R$8.2 million in 4Q16 mainly reflects the adjustment over 25% which we still have as a call option for Aliança. Other financial expenses, which includes financial operations IOF tax, bank expenses, discounts, among others decreased 16% y/y, mainly due to lower discounts granted to customers. In 2016, the main reason for the 17.7% y/y increase is related to financial operations IOF tax. 12
5 Generation of Operating Cash (EBITDA and Adjusted EBITDA) 1,2 EBITDA and Adjusted EBITDA (R$ MM) 4Q16 4Q15 4Q16/ Net Income 78.4 61.4 27.6% 74.2 5.6% 420.6 240.9 74.6% (+) Taxes 40.4 6.8 489.4% 49.6-18.6% 39.9 159.9-75.1% (+) Depreciation and Amortization 52.6 57.2-8.1% 52.7-0.2% 216.3 221.9-2.5% (+) Financial Expense 48.5 51.7-6.1% 46.4 4.6% 178.5 159.4 12.0% (-) Financial Income (41.4) (31.1) 33.3% (38.5) 7.6% (145.3) (138.2) 5.2% EBITDA 178.4 146.1 22.1% 184.4-3.2% 709.9 643.8 10.3% EBITDA Margin 34.6% 31.4% 321bps 35.3% -74bps 36.1% 37.2% -107bps Non-cash Stock Option Plan Expense 7.4 (0.5) -1478.6% 8.0-7.3% 22.4 27.7-19.2% Interest and fine on late payment of health plans 14.7 11.7 26.0% 15.6-5.6% 56.9 46.0 23.7% Adjusted EBITDA 200.6 157.3 27.5% 208.0-3.6% 789.1 676.2 16.7% Adjusted EBITDA Margin 38.9% 33.8% 511bps 39.9% -97bps 40.2% 39.1% 109bps Our consolidated Adjusted EBITDA grew 27.5% y/y reaching R$200.6 million in 4Q16 (-3.6% q/q). This performance results from our operational efforts, mainly related to costs and commercial expenses good control and also due to the ISS tax reduction after the transfer of three subsidiaries to Barueri, which more than offsets Bad Debts losses on the period. Our consolidated Adjusted EBITDA margin reached 38.9% in 4Q16 which represents a 511bps increase when compared with 4Q15 (-97bps q/q). In 2016 EBITDA reached R$789.1 million and 40.2% margin, reflects the efficiency gains in volume and margin, explained by reasons already exposed above. Adjusted EBITDA (R$MM) 1,2 + 16.7% 676.2 789.1 + 27.5% - 3.6% 157.3 200.6 208.0 200.6 4Q15 4Q16 4Q16 2015 2016 (1) EBITDA and Adjusted EBITDA are presented because management believes that they are significant indicators of financial performance. According to the IFRS, EBITDA and Adjusted EBITDA are not indicators of financial performance and shall not be considered as an alternative to net profit, operational performance, operating cash flow, or as a liquidity indicator. (2) EBITDA and Adjusted EBITDA consist of net income before income tax and social contribution, financial income, financial expense, and depreciation and amortization. Other adjustments include items such as spending on acquisitions and associations; costs of corporate restructuring and operational provisions for stock option plan; interest and penalties on late fees; and other non-cash adjustments. 13
6 Net Income (Loss) Net Income (Loss) (R$ MM) 4Q16 4Q15 4Q16/ Net Income 78.4 61.4 27.6% 74.2 5.6% 420.6 240.9 74.6% Our consolidated net income reached R$78.4 million in 4Q16, which implies a 27.6% y/y increase (+5.6% q/q). In 2016 there was a 74.6% increase to R$420.6 million due to fiscal effects widely discussed in 1Q16. CONSOLIDATED NET (LOSS) INCOME (R$MM) 420.6 + 74.6% 240.9 + 27.6% + 5.6% 61.4 78.4 74.2 78.4 4Q15 4Q16 4Q16 2015 2016 7 Amortization Amortization 4Q16 4Q15 4Q16/ Amortization Clients Relationship 26.5 26.2 1.4% 26.5 0.0% 106.2 105.2 0.9% Goodwill Amortization 57.4 52.5 9.2% 57.4 0.0% 230.6 210.1 9.8% Portfolio Amortization 13.7 17.5-21.5% 13.5 1.2% 59.4 76.1-21.9% Amortization Summary Income Fiscal Amount Adjustments to Tax Statement benefit net income Amortization Clients Relationship Yes No 26.5 9.0 17.5 Goodwill amortization No Yes 57.4 19.5 19.5 Portfolio Amortization Yes Yes 13.7 4.7 9.0 Amortization Schedule 2016 2017 2018 2019 2020 2021 2022 2023 2024 Clients Relationship 106.2 104.4 95.8 90.6 53.1 0.8 0.8 0.8 0.5 Goodwill 230.6 229.0 105.6 5.8 1.0 0.8 0.3 - - Portfolio Acquisition 59.4 52.0 44.7 27.0 21.8 15.2 2.4 0.9-14
8 Capital Expenditures Capex (R$ MM) 4Q16 4Q15 4Q16/ Capex in IT 8.6 28.7-70.2% 14.8-42.2% 58.5 97.0-39.7% Other Capex 0.9 4.9-81.7% 1.7-45.9% 15.2 14.5 4.8% Right Assignment Agreeement / Exclusivity 51.2 - N.A. - N.A. 56.2 20.5 174.3% TOTAL 60.7 33.7 80.2% 16.5 267.5% 129.9 132.0-1.6% Our total IT Capex reached R$8.6 million in 4Q16, mainly due to investments in the new IT platform and operational systems improvements. The fixed assets Capex reached R$0.9 million and reflects the equipment maintenance of our facilities. On December 16, 2016, a commercial reciprocity agreement was signed between Qualicorp and Unimed FESP. We acquired commercial exclusivity of its products, in the amount of R$35 million for five years. This agreement is related to maintenance of the financial and operational parameters of ANS, ensuring the Company's right to self-rescue in the event of non-compliance. In addition, we also acquired ASBEN portfolio for R$16.2 million, which includes 26.7k lives migration and R$1.45 million monthly revenues. 9 Capital Structure Capital Structure (R$ MM) 4Q16 2015 Var. 4Q16/2015 Current Debt 276.1 50.9 442.6% Long Term Debt (1) 613.7 732.2-16.2% TOTAL 889.8 783.1 13.6% Cash and cash equivalents (2) 450.9 366.4 23.1% TOTAL NET DEBT 439.0 416.7 5.3% (1) Includes acquisition payables (2) It does not include the investment retained as a guaranteed asset in the direct subsidiary Qualicorp Administradora de Benefícios S.A., and in the indirect subsidiaries Aliança Administradora de Benefícios de Saúde S.A and CRC/Gama, according to the 33rd normative instruction by the ANS, from October 5, 2009 Our Net Debt increased 5.3% when compared to the end of 2015 mainly due to the Aliança call option price adjustment. Regarding debts, the company managed to roll over debentures in November 2016 with due date to 2019. The current debt reflects the 25% Aliança call option. 15
10 Return on Investments We closed 4Q16 with 42.8% ROIC, showing an increase over the quarters, which demonstrate continuous quarterly evolution and reflects the investments carried thought out the years. Return on Investment 4Q16 2Q16 1Q16 4Q15 Invested Capital Fixed Asset 2,435,776 2,428,951 2,464,460 2,498,851 2,523,079 Working Capital (87,620) (43,604) (53,857) (116,240) (143,986) TOTAL 2,348,156 2,385,347 2,410,603 2,382,611 2,379,093 (-) Intangible - Goodwill (LBO) 924,767 924,767 924,767 924,767 924,767 (-) Intangible - Client Relationship (LBO) 287,835 307,459 327,085 346,710 366,335 Adjusted Invested Capital 1,135,554 1,153,121 1,158,751 1,111,134 1,087,991 NOPAT Adjusted EBITDA 200,565 207,994 192,223 188,334 157,266 EBIT 148,004 155,342 137,274 132,239 100,044 (+) Ammortization (40,252) (40,088) (42,045) (43,235) (43,881) EBIT adjusted 188,256 195,430 179,319 175,474 143,924 (-) taxes (34%) (64,007) (66,446) (60,969) (59,661) (48,934) NOPAT 124,249 128,984 118,351 115,813 94,990 ROIC (12m) 42.8% 40.6% 39.6% 38.3% 37.1% We closed 4Q16 with a R$185.6 million operating cash flow, influenced by a strong operational result combined with working capital fluctuations and semiannual interests payment. After Capex, the cash generation reached R$128.8 million. The financial cash flow was directly impacted by interim dividend payment, confirming the Company's strategy of continuous remuneration of its shareholders. It is important to mention the debentures renewal carried out in 2016 with lower spread than the previous one (1.3% vs. 1.6% and 1.35% previously) and the change in the interest payment schedule that will be held every six months in 4Q and 2Q, instead of 1Q and 3Q as before. The Company remains confident of and expansion of its operating cash flow supported by its organic growth combined with operating improvements. Cash Flow 2016 4Q16 2Q16 1Q16 2015 4Q15 Income adjusted by non-cash effects 815,530 206,925 220,183 192,542 195,880 730,413 160,644 Working Capital (39,485) 35,636 (32,057) (9,835) (33,229) 39,027 21,305 Interest paid (96,113) (11,968) (40,909) - (43,236) (70,409) - Dividends received/paid (15,617) (4,822) (4,178) (6,617) - (12,026) (3,234) Income tax and social contribution paid (118,644) (40,201) (30,027) (24,577) (23,839) (111,770) (38,749) Cash Flow from Operating Activities 545,671 185,570 113,012 151,513 95,576 575,235 139,966 Capex (TI) (74,927) (20,376) (13,848) (18,095) (22,608) (103,654) (31,795) PP&E (15,990) (999) (1,461) (4,001) (9,529) (14,720) (4,444) Intangible (M&A + Portfolio + Deals) (44,678) (35,374) (8,216) (1,088) - (76,200) (376) Cash Flow from Investment Activities (135,595) (56,749) (23,525) (23,184) (32,137) (194,574) (36,615) Cash Flow from Operating Activities (-) C 410,076 128,821 89,487 128,329 63,439 380,661 103,351 Cash Flow from Financing Activities (320,616) (165,593) 67,723 (215,767) (6,979) (548,362) (403,850) Other Investments (249,889) 520 (132,195) (118,973) 759 (85,056) 7,470 Total Cash Flow (160,429) (36,252) 25,015 (206,411) 57,219 (252,757) (293,029) 16
Forward-looking statements This release may contain forward-looking statements concerning the business outlook. These statements are based exclusively on the expectations of the management of Qualicorp S.A. regarding the prospects of the business and its continued ability to access capital markets to finance its business plan. These forward-looking statements are highly sensitive to changes in the capital markets, government regulations, competitive pressures, the performance of the industry and the Brazilian economy and other factors, as well as to the risk factors highlighted in documents previously filed by Qualicorp S.A., and therefore are subject to change without prior notice 17
Appendix I Income Statement INCOME STATEMENT (R$ MM) 4Q16 4Q15 4Q16/ Net Operating Revenue 515.5 465.3 10.8% 521.6-1.2% 1,964.4 1,730.1 13.5% Cost of Services (134.0) (122.8) 9.1% (130.7) 2.6% (502.6) (455.8) 10.3% Gross Profit 381.5 342.4 11.4% 390.9-2.4% 1,461.8 1,274.3 14.7% Operating Income (expenses) (255.6) (253.5) 0.8% (259.2) -1.4% (968.1) (852.4) 13.6% Administrative expenses (129.0) (122.8) 5.1% (134.2) -3.8% (499.7) (472.2) 5.8% Selling expenses (79.6) (107.4) -25.9% (84.4) -5.7% (332.3) (332.3) 0.0% Losses on uncollectible receivables (45.2) (31.1) 45.2% (39.7) 14.0% (139.6) (99.4) 40.5% Other operating income (expenses), net (1.7) 7.8-121.8% (1.0) 76.8% 3.6 51.5-93.0% Income From Operations Before Financial Income (Expenses) 125.8 88.9 41.6% 131.7-4.5% 493.7 421.9 17.0% Financial income 41.4 31.1 33.3% 38.5 7.6% 145.3 138.2 5.2% Financial expenses (48.5) (51.7) -6.1% (46.4) 4.6% (178.5) (159.4) 12.0% Income Before Income Tax Social Contribution 118.8 68.3 73.9% 123.8-4.1% 460.5 400.8 14.9% INCOME TAX AND SOCIAL CONTRIBUTION (40.4) (6.8) 489.3% (49.6) -18.6% (39.9) (159.9) -75.1% Current (39.7) (7.5) 549.4% (48.7) -18.4% (145.4) (126.1) 15.3% Deferred (0.6) 0.6-239.0% (0.9) -29.6% 105.5 (33.8) N.A. NET (LOSS) INCOME FOR PERIOD 78.4 61.4 27.6% 74.2 5.6% 420.6 240.8 74.7% Attributable to Controlling interest 74.0 57.7 28.2% 70.5 4.9% 404.7 227.1 78.2% Noncontrolling interest 4.4 3.7 17.6% 3.7 18.5% 15.9 13.7 15.4% Controlling interest 78.4 61.4 27.6% 74.2 5.6% 420.6 240.9 74.6% 18
Appendix II Balance Sheet ASSETS (R$ MM) CURRENT ASSETS Cash and cash equivalents 125.4 285.8-56.1% Short-term investments 370.9 121.0 206.5% Trade receivables 230.9 148.3 55.7% Other assets 165.7 155.9 6.3% Other financial assets 150.7 139.9 7.7% Other non-financial assets 15.0 16.0-6.3% Total current assets 892.8 710.9 25.6% NONCURRENT ASSETS Long-term assets Income tax and social contribution 217.1 136.8 58.8% Related Parties 2.5 3.8-35.6% Other assets 41.6 59.8-30.4% Other financial assets 35.2 44.7-21.2% Other non financial assets 6.4 15.1-57.7% Total long-term assets 261.2 200.4 30.3% Investments 0.3 0.3 0.0% Property, plant and equipment 73.2 70.3 4.1% Intangible assets Goodwill 1,624.2 1,624.2 0.0% Others intangible assets 738.1 828.3-10.9% Total noncurrent assets 2,697.0 2,723.5-1.0% TOTAL ASSETS 3,589.8 3,434.4 4.5% LIABILITIES & SHAREHOLDERS EQUITY (R$ MM) CURRENT LIABILITIES Debentures 11.1 22.9-51.3% Loans and Financing 0.0 5.8 N.A. Taxes payable 40.7 34.1 19.5% Technical Reserves 14.9 4.9 205.5% Premiums to be transferred 132.3 110.0 20.3% Financial transfers payable 15.5 13.4 15.4% Payroll and related taxes 63.0 62.6 0.7% Transferable prepayments 54.8 72.9-24.8% Related parties 1.6 54.0 N.A. Other payables 161.4 96.3 67.5% Granted options on no controlling interest 233.4 0.0 0.0% Total current liabilities 728.7 476.8 52.8% NONCURRENT LIABILITIES Debentures 606.4 519.0 16.8% Income tax and social contribution 6.6 7.0-5.7% Deferred income tax and social contribution 129.6 162.6-20.3% Provision for risks 43.5 61.9-29.8% Granted options on no controlling interest 0.0 203.4-17.7% Other payables 7.3 9.8-17.7% Total noncurrent liabilities 793.4 963.7-17.7% EQUITY Capital 1,592.8 1,537.2 3.6% Capital reserves 147.0 124.6 18.0% Earnings reserves 178.7 182.9-2.3% Asset vaaccumulated losses - 0.0 N.A. Asset valuation adjustment 145.0 145.0 0.0% Total equity majority shareholder 2,063.5 1,989.9 3.7% Noncontrolling interest in subsidiaries 4.3 4.0 5.8% Total equity 2,067.8 1,993.9 3.7% TOTAL LIABILITIES AND EQUITY 3,589.8 3,434.4 4.5% 19
Appendix III Cash Flow Statement STATEMENTS OF CASH FLOWS (R$ MM) CASH FLO W FRO M O PERATING ACTIVITIES Profit (losses) before income tax and social contribution %Change 460.4 400.8 14.9% Adjustments 355.1 375.2-5.4% Depreciation and Amortization 216.3 221.9-2.5% Impairment (2.6) 7.7 N.A. Result from fixed Assets and Intangibles 0.3 0.9 N.A. Stock Option Program 22.4 27.7-19.3% Financial Expenses 122.9 110.3 11.4% Taxes to compensate - PIS/COFINS - 45.6 N.A. Potencial Sale - (45.7) N.A. Provision for Risks (4.1) 6.8-160.2% Adjusted profit (loss) 815.5 776.0 5.1% O rigin Cash provided by operating activities 36.1 (11.6) -412.0% Cash provided by operating activities 851.7 764.4 11.4% Interest paid on debentures (96.1) (70.4) 36.5% Dividends paid to non controlling shareholders (15.6) (12.0) 29.9% Income tax and social contribution paid (118.6) (111.8) 6.2% Net cash provided by operating activities 621.3 570.2 9.0% CASH FLO W FRO M INVESTING ACTIVITIES Investments in intangible assets (113.1) (118.3) -4.4% Purchase of property, plant and equipment (16.0) (14.7) 8.6% Financial Investments (325.5) (80.0) N.A. Non-compete agreement (6.5) (6.5) 0.0% Amount paid in acquisition (CRC-Gama) - (7.5) N.A. Subscription Bonus payment - CRC/Gama - (47.5) N.A. Net cash used in investing activities (461.1) (274.6) 67.9% CASH FLO W FRO M FINANCING ACTIVITIES Amount paid in loans and financing (5.8) (7.3) -20.4% Buyback - Treasury (12.2) (47.2) -74.2% Dividends paid to Qualicorp S.A. shareholders (462.9) (116.3) 298.0% Amounts paid upon issuance of debentures (831.0) - N.A. Amounts received upon issuance of debentures 922.0 - N.A. Capital Decrease - (400.0) N.A. Capital Increase 69.3 22.5 N.A. Cash provided by (used in) financing activities (320.6) (548.4) -41.5% INCREASE IN CASH AND CASH EQUIVALENTS, NET (160.4) (252.8) -36.5% Cash and cash equivalents at beginning of period 285.8 538.5-46.9% Cash and cash equivalents at end of period 125.4 285.8-56.1% 20